Chairman of the Board of Directors, Sumitomo Corporation
Sumitomo Corporation and Its Business Strategy for the Future 兵頭 誠之（住友商事）
Sumitomo Corporation and Its Business Strategy for the Future
Wednesday, November 9, 2022 | 6:15 PM – 7:15 PM
Room 820, Kravis Hall, Columbia Business School
Featuring: Masayuki Hyodo, Representative Director, President, and Chief Executive Officer, Sumitomo Corporation
Moderator: David E. Weinstein, Director, Center on Japanese Economy and Business, Columbia Business School; Carl S. Shoup Professor of the Japanese Economy, Columbia University
Note: This in-person event was only for individuals with an active Columbia University ID.
コロンビア大学ビジネススクール 日本経済経営研究所 主催
講演者
兵頭 誠之（住友商事）
Transcript (35 segments)
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David Weinstein0:12
I'm the director of the center on Japanese economy and business, also known as CJEB at Columbia University, and the Carl Shalp Professor of the Japanese Economy at Columbia. We're delighted you've come to hear about Sumitomo Corporation and its business strategy for the future. Before I introduce our esteemed speaker, just a few words about the center. CJEB was established in 1986 by Professor Hugh Patrick, and I became director in 2019. Our mission is to promote knowledge of the Japanese economy and its business systems in an international context. We do this through conferences, symposia, lectures, webinars, and workshops year-round. CJEB is the only research center focusing on the Japanese economy in North America, so that makes all of you very special. I invite you to check out our website and follow us on Twitter or LinkedIn. I'm honored to introduce someone I've known for many years, Mr. Masayuki Hyodo, Representative Director, President, and CEO of Sumitomo Corporation. Mr. Hyodo was appointed president and CEO in April 2018 and has over 30 years of experience in the global power infrastructure industry, including assignments in Jordan, Hong Kong, and Indonesia. He also chairs the Japan-Vietnam Economic Committee of Keidanren and is a member of the International Business Council at the World Economic Forum. Sumitomo Corporation is one of the world's leading investment and trading companies with global activities including sales, import and export, trilateral trade, and investment. Sumitomo is also CJEB's leading and founding sponsor, providing seed money that helped Hugh establish the center over 35 years ago. We look forward to continuing our strong relationship. As some of you may know, while Japan has businesses stretching back over a thousand years, Sumitomo is relatively new with a 430-year history. I'm excited to hear Mr. Hyodo's insights on how the company will continue to evolve in the face of challenges in the trading and investment business, including sustainability management and globalization. We'll start with a short video, then a conversation between us, then open for questions.
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Narrator5:10
We are Sumitomo Corporation, an integrated trading and business investment company. We possess locations and networks that span the globe and a firm business foundation. We are engaged in global and diversified trading and business investments with personnel from a wide variety of backgrounds. Sumitomo Corporation is a member of the Sumitomo Group, whose business origins stem from a 430-year-old copper business. The group's business philosophy, nurtured throughout its history, is carried on in our corporate mission statement. To achieve sustainable growth together with society, we have identified six material issues and are working to address them through our business activities. We are further enhancing our sustainability management by clearly defining the role our group plays. We are strongly committed to bringing about a sustainable society. Our group conducts a wide range of businesses globally with six business units, one initiative, and regional organizations working closely together. We are involved in metal products, transportation and construction systems, infrastructure (including renewable energy and water projects), media and digital business, living-related and real estate, and mineral resources, energy, chemicals, and electronics. We also focus on creating next-generation businesses, such as the Energy Innovation Initiative aiming to build carbon-free, recycling-oriented energy systems. The Sumitomo Corporation group will continue to enrich the world, society, and people's lives through sound business activities. Enriching lives and the world. We are Sumitomo Corporation.
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David Weinstein10:10
Great, thank you very much for sharing that video. One thing that's probably striking to many Americans is the 430-year history and corporate philosophy of Sumitomo. I was wondering if you could start by telling us a little about the origins of Sumitomo and how it grew.
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Masayuki Hyodo10:44
Thank you very much, David, and thank you for this opportunity. It's hard to touch upon the origin of Sumitomo in short terms, but Sumitomo is a family name. We have a 17th generation Mr. Sumitomo today, and we have a very strong commitment with the family of business spread. Sumitomo started the business back before the Edo or Samurai period, starting with copper mining, and it continues for more than 430 years. After the major restoration, Japan started modernization of the country, and copper mining played a very important role. We introduced high technology from overseas to modernize copper mining and expanded the business not only in mining but also smelting, chemicals, and financial sectors, which is now operated by Sumitomo Mitsui Banking Corporation. The group diversified. Sumitomo Corporation was born in 1919, and it only has a 100-year history — actually the youngest company within the Sumitomo group. After World War II, Japan was occupied by the U.S. government, and we were told to unbundle the group companies because the zaibatsu had played a financial role to support the Japanese government. We were unbundled and banned from using the Sumitomo name. But in 1952, we were allowed to use the name again, so we went back to the 15th generation Mr. Sumitomo to ask for permission. He initially said no because the family business was under his control before the war, and he had to give up his personal assets. Our company name became Nippon Engineering during that time. We were just a special purpose company for port development, very small with only a few hundred people. After the war, our management decided to start a trading business, even though before the war Sumitomo banned trading because it was considered 'easy money' — you should use your own strength to create value. But after the war, many expatriates came back and we needed to provide job opportunities, so we started trading. Over the last 70 years, we expanded to our current size. You can find more details on our homepage by scanning the QR code.
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David Weinstein16:17
That's fascinating. One thing you touched on is how much Japan has changed. Japan in the 19th century had large mining operations like copper and coal mines, but today it's seen as resource-poor. Over the last 400 years, what was the secret for how Sumitomo has been able to navigate all these changes?
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Masayuki Hyodo17:01
Very good question, David. In short, it's my belief and it is set within the Sumitomo group. The business principles set by Mr. Sumitomo 430 years ago are a treasure for our group to survive changing times: stay with the business with your honesty and integrity, and give the highest priority to trust. That's a clear message from Mr. Sumitomo for how any business should be conducted. That is the secret.
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David Weinstein17:48
One of the things I wanted to get more sense of is how did Sumitomo Corporation grow out of the overall Sumitomo group?
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Masayuki Hyodo18:17
I have worked at Sumitomo for about 40 years, and our company's history is only 100 years, so I know 40 of those years. I think we just stayed with the business principle of Sumitomo and continued our efforts for any new challenges. For example, 40 years ago, the Sumitomo group didn't have any power industry, so we had to collaborate with others. At that time, a senior officer told us: if you wish to do business, you have to go to the number one in the world. So we came to GE under Jack Welch, asked for collaboration in power development in Asia, and through discussing the history of Sumitomo and what we wanted to do, we got agreement. That was the beginning of the expansion of Sumitomo's power business. We continued by repeating business with GE, and other power industry players started collaborating with us. Over 40 years, we created a business unit with about $5–7 billion in assets. This expansion was based on the business principle in reality.
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David Weinstein20:49
When I first went to Japan, if asked about Sumitomo Corporation, I would have said it was a trading company. But now I think it's mostly an investing company that manages subsidiaries. How did that transition happen and why?
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Masayuki Hyodo21:07
It's my personal interpretation, but I can say it's true. Japan has no natural resources at all — no energy, nothing except coal mining which is now gone. Because of this, we imported goods, manufactured in Japan, and exported. After World War II, the country and its industries needed the trading function. Not only Sumitomo but also Mitsubishi, Mitsui, and other trading companies played an important role to support Japan's industrial development and rebuilding. But after the Plaza Accord, the world economy changed and globalization started. The whole industry shifted from an export business model to going overseas. We had to change our role and functions, so we started investing overseas and domestically to pave our own way for the future. During my career, all trading companies shifted from trading to investment. Nowadays, many other Japanese industries are doing the same thing. Before the Plaza Accord, almost all management resources were kept in Japan, but after, Japanese industries went outside Japan and made overseas investments. That was the history of how trading firms became investment firms.
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David Weinstein23:40
As a sogo shosha or general trading company, what do you see as the strengths of being a conglomerate and having your structure?
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Masayuki Hyodo24:01
Actually, Sumitomo is not the only trading or investment company — there are Mitsui, Mitsubishi, and others. Many people talk about similarities, but from my perception, Sumitomo's business practice is quite different because we have the Sumitomo business principle. For example, we have a large operation of special steel tubular products supply all over the world. We have a 40% share in the United States today, dealing with almost all major oil and gas sectors. We are not manufacturers; we provide just-in-time services to support exploration activities of major oil and gas developers. This was created through the business principle set by Mr. Sumitomo, and that is the core competence of our company. That's my firm belief, and it's true.
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David Weinstein25:30
I see the strengths. But could you give us more detail about the interesting or difficult aspects of the trading company business?
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Masayuki Hyodo25:47
As Hugh Patrick used to ask, 'What makes you worry at night?' The world business environment is changing rapidly — yesterday is different from today, today from tomorrow. Every day the situation changes. The most critical thing is to always keep up with the changing times. We cannot stay with the current business model; otherwise, we will be kicked out by the market. So we keep up by changing ourselves. That is the most difficult part.
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David Weinstein26:36
I know you have a lot of projects in Indonesia and the Middle East. Could you tell us a little about your experiences in those countries?
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Masayuki Hyodo26:51
Let me share a personal experience. Do you remember the Asian currency crisis in 1997? It started in Bangkok and spread rapidly. Indonesia was not an exception. Back in 1994, I was directly in charge of a power station project in Indonesia. We started construction in 1995, but progress at the site was only 20% while manufacturing overseas was at 80%. Then the currency crisis happened. The project was developed by a Hong Kong company that had to stop because banks ran away. We lost payment security. Our management told me to pull out, but I asked to try to restart the project. We spent five years negotiating. The Indonesian government changed presidents five times during that period. By chance, we met a gentleman who knew Sumitomo from his career — he was a key secretary to the president. He had once worked for a Sumitomo group company that went bankrupt, but he knew the name. When he heard it was Sumitomo, he said 'must be good' and agreed to consider our proposal. Without that past relationship, we would have been dead. Luckily, because of the trust created, we were able to restart the project. That's a true story.
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David Weinstein30:34
That touches on the fact that Sumitomo tends to be a very long-term investor. Private equity firms buy and sell companies quickly, but my sense is that Sumitomo buys companies likely to be profitable and holds them for a long time. Why that strategy compared to traditional private equity?
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Masayuki Hyodo31:22
Private equity has its own function in delivering value to society, and so do we. But when we acquire a company, we first recognize our responsibility toward the entire company's assets, including human resources. Employees have families, so we are responsible for all of them. We must extend our best effort to support the growth of the company. Having said that, reality is not easy. In our current mid-term plan, 'Shift 2023', we had to divest some companies we had been operating. But in any divestment we've conducted in the last year and a half, we found a successor who can succeed our role. Unless we are convinced that our successor will definitely support the continuation and expansion of the company instead of us, we will not reach an agreement. This way of thinking, by honoring the business principle set by Mr. Sumitomo, is very important.
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David Weinstein33:21
That's a good segue into my next set of questions about Sumitomo's sustainability objectives and social strategy. Could you talk a little about Sumitomo's sustainability management strategies?
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Masayuki Hyodo33:57
That's a very important point. These days, ESG is talked about everywhere, but from our viewpoint, the Sumitomo group's basic approach has been there since Sumitomo was born. We have a saying from our ancestors: respecting the Sumitomo business principle, the profit from Sumitomo must be at the same level as the value you deliver to society. You should treat both profit for yourself and for society as one; otherwise, you should not conduct business. This way of thinking is very similar to modern ESG. We ask our many employees overseas — ambassadors from every corner of our global operations — to gather at our headquarters, learn about the business principle, and find English terms to describe the mission. They spent two years developing our corporate message: 'Enriching lives and the world.' That message is very important for us as sustainability.
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David Weinstein35:45
Let me drill into that. One big issue facing the world is climate change. You mentioned your history in the energy business. How do you see Sumitomo's contributions towards dealing with the climate issue?
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Masayuki Hyodo36:20
This is a very good but difficult topic for me to explain. The power business I have been deeply involved in includes coal-fired power plants, which are controversial as fossil fuels. But let me talk about the history. Going back to the 1990s, there was an initiative by the World Bank looking at the future of Asia: government budgets were not large enough, so Asian countries had to utilize the private power sector. We introduced the independent power producer model funded by private money. Indonesia and Vietnam were rich in coal resources, which were competitive and immediately available. There was no climate issue at the time. We spent years developing those power plants, and they supported economic development over the last 20 years. But due to climate change, we believe Sumitomo must contribute differently — by developing CO2-less emission energy and investing resources in additional generating power. Many people criticize us for still holding interests in coal-fired power and ask why we don't divest. But it is our belief that power generation is required in developing countries like Indonesia and Vietnam. Instead of divesting, we keep our commitment to deliver electricity. We recapitalize the asset into cash and reinvest in carbon-free power stations, aiming to eventually shut down coal plants. This approach is based on our business principle.
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David Weinstein40:46
This is part of your plan to achieve net zero? Can you talk more about that?
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Masayuki Hyodo41:00
Two years ago, we announced that Sumitomo Corporation as a whole will achieve carbon neutrality by 2050. By divesting coal-fired power plants, we could achieve almost 80% reduction, but as I said, we will continue to hold and accomplish our commitment. On the other hand, we further develop carbon-free power stations. We apply this concept to all our group operations. For example, we operate large-scale plantations — the largest was in Russia, but due to the current situation we had to stop further investment. We do operate plantations in New Zealand that absorb CO2 emissions every year. We believe plantations are very important assets, so we spend our resources to keep them.
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David Weinstein43:05
Sumitomo is involved in many diverse businesses. You must have a difficult job handling many balls in the air. How do you handle conflicts and different objectives among all these very different businesses?
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Masayuki Hyodo43:37
In a sense, it's impossible to find the best solution for every case, but we can find the best compromise. Any conflict of interest can be solved through a compromised approach. For example, a subsidiary's interests and Sumitomo's shareholder interests do not always match, but we try, through communication with the management of the company and ourselves, to find the optimized approach to solve problems. This way of finding compromise is very important.
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David Weinstein44:46
Before we open it up for questions, I want to give you one last opportunity to tell us about your dreams for Sumitomo and any final message.
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Masayuki Hyodo45:11
In substance, any corporate activities are run by people. All of you here today are a treasure of the world, your country, and your society. I would like to quote a very short message from a 12-year-old girl. When I visited Hiroshima this year, there was a display of many messages. One from this Japanese girl said: 'I will do what I can do. I think it is my promise. I will learn a lot during my education period before I work for society. I have to gain knowledge so as to understand others. This is the best I can do. That's why I continue my learning.' It was a very good message. She knew there was a war, but she was not there and this disaster could have been avoided if there had been better communication between the United States and Japan. So I think you are part of it. You are learning now, gaining knowledge of the world. As I said, you have to go through compromising negotiations. It will be a tough journey, but I believe it will be fun. Please have encouragement. Please continue your challenge. Thank you very much.
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David Weinstein47:44
Great. Let me now open it up for questions from the floor. If anyone has a question, please identify your affiliation and ask. I see a hand over here.
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Natsuki48:00
Hello, I'm Natsuki, CBS first-year student. Thank you very much for coming. I have two questions. First, Warren Buffett invested in five Japanese trading companies in 2020 — I believe Berkshire is one of the biggest shareholders in your company. How did you feel when they invested? Did you take it positively or negatively? How did your board perceive it? Second, about industry consolidation: Japanese companies often seem not open to M&A, creating inefficiency. There are five big trading companies doing similar business. Rumors of consolidation existed in the 1990s but not anymore. What are your thoughts on consolidation going forward?
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Masayuki Hyodo49:31
Thank you for the questions. First, the acquisition by Berkshire: it was a surprise to receive a letter from him overnight before he announced, with a PDF message directly to me. Actually, I was surprised, but it was proof that he saw value in the company, so it was an honor. We periodically have conversations with fund managers. I think he sees the future of Japanese industries having these conglomerates in his portfolio. He is a serious investor and sees the value of Japanese growth — that's my perception. The fact that his fund still owns shares in the five major trading firms suggests he sees a future based on a long-term view. Second, consolidation is one way to restructure for future growth, but it's not the only solution. We have to combine various ways to make the Japanese industry or its global operations more efficient. Some new companies find their way to growth; some have to exit the market unless they change. Sumitomo itself is also making efforts and trying to find its own way. If you have interest, please invest in our company. Thank you very much.
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David Weinstein52:17
Thank you. Are there other questions? Over here, go ahead.
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Yogava52:25
Thank you very much for your talk. I'm Yogava from Columbia Business School, first-year student. I actually worked at Sumitomo Corporation before coming to CBS — in the Chubra Department in Norway and London. My question is: how have you done differently to become CEO? What special skill or talent helped you? How do you identify yourself?
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Masayuki Hyodo53:09
I haven't done anything to become CEO. I was appointed by the Board of Directors. I never tried to be CEO; I just did my own job. That's all. If anyone is trying to be CEO, it will not be a good way to accomplish your task. I think in any career, not just within Sumitomo, business opportunities are broadly in front of you. You can challenge anything. Your challenge to become CEO will not gain anything. You have to create relationships with people and expand your capability through your own business experience. That's my belief. Thank you.
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David Weinstein54:37
That's fascinating. It brings back memories. My first job after college was at Sony in Japan, and I noticed that the US is very much about leadership, while Japan is about team building and being part of an organization. Your comments really made that clear. But any team needs a good leader — that's also true. We're out of time. Thanks to everyone for joining. I want to thank our speaker for this great opportunity to hear about the changes and functions of Sumitomo Corporation. I also thank our sponsors for their support. Please join me in thanking Mr. Hyodo for making the trip and giving a great talk.