Japanese Trading Firms Buy Small by Investing in entrepreneurialUS Companies, Huge Sogo Shosha Seek to Tap US Creativity

Article excerpt

SMALL and medium-sized United States exporting companies may be getting help from an unlikely source: the titan-sized sogo shosha, or trading companies, whose global commerce commands nearly half of Japan's gross national product.

In years past, sogo shosha retained relationships with firms that were their equals, generally large commodity groups or manufacturing conglomerates. But in the last few years, the trading companies have shifted toward investment in smaller entrepreneurial firms. This investment was under $50 million in 1984, reached $325 million by 1989, and by last year probably topped $400 million, the US Department of Commerce estimates. Licensing deals, brokering venture capital, and participation in technology-based industries constitute most of the new activity. Many trading companies, including Mitsui, begin with licensing agreements.

Mitsui USA has spearheaded the shift toward investing in smaller companies. It ranks as No. 2 among all sogo shoshas - and actually rates as the fifth largest US exporter, tallying over $5 billion in trade (of which $2 billion are exports to Japan).

The shift satisfies several long-term objectives of the trading firms. One is diversification, since they were forced to recast product lines in the last decade. Second, they keep a watchful eye on US innovation in "sunrise" industries. A third goal - especially favored by Mitsubishi, another trading company - is fostering long-range ties with start-ups in niche fields.

A Tokyo official of a third trading company, C. Itoh, says Silicon Valley's legend had much to do with the trend. Trading companies see such "Valleys" as spawning grounds for cutting-edge telecommunications, biotech, and other fields, and admire the capacity of small business to innovate. Opening export doors

Sogo shosha are part of Japan's keiretsu system, giving them integrated capabilities in finance, marketing, distribution, and transport systems. This can be useful to US-based medium-sized and small companies. Sogo shosha are "able to take care of the paperwork, the logistics, the documentation," says Mark van Fleet, director of Asia-Pacific affairs at the US Chamber of Commerce. They open export doors to Japan, as well as to non-Asian destinations.

Trading companies are regarded as business catalysts. …