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All Business Activities Driven by People
At a ceremony welcoming new employees held on April 1, 2024, which marked the 20th anniversary of Sojitz’s founding and my first day as president, I told our new colleagues how I wanted them to become attentive business professionals capable of anticipating the needs of others.
As a trading company, our people are our most important business asset. The recent advancements in AI technology are truly astounding. No matter how far these technologies advance, however, it will not change the fact that the final decision will always be made by people, and it will be people who put these decisions into action. As such, people are the starting point and drivers of all of our business activities. This is, of course, something that could also be said of other industries. What makes general trading companies different, however, is how we are not dependent on any specific business, which means we must always be looking to create new businesses. We must continuously exercise foresight to predict social trends and needs while preparing multiple options for how we can take preemptive action to get ahead of trends. Moreover, creating new value requires us to constantly surpass expectations. I would like everyone at Sojitz to be able to demonstrate a self-driven and proactive mindset. The words I offered at the welcoming ceremony encapsulate my hope for such proactive engagement.
Foresight and preemptive action are important drivers behind the creation of value at Sojitz. It was my experience as COO of the Chemicals Division that made me recognize this fact. When I returned from an overseas assignment at a U.S. operating company to work in the Chemicals Division at our head office in Japan, the division was not conducting any business investments, despite Sojitz’s policy of promoting business investment on a Companywide basis. Rather, the Chemicals Division was still primarily focused on conventional trading businesses. One reason for this was the sheer number of chemical products in the industry, which created highly fragmented sales channels. Consequently, as long as we had a network of sellers and buyers, we could generate a certain level of earnings just by taking a passive approach of delivering products as requested by customers. However, this complacency not only threatened to narrow the functions we provided but also increase the risk of our being unable to adapt if demand were to evaporate or the supply of products were to be halted. Recognizing the danger this situation presented, I called on everyone within the Chemicals Division to think seriously about how we could go beyond simply supplying the products customers request to providing additional value to customers. I, too, made a point of frequently sitting down with members of business teams to discuss how we could provide such value. This process proved to require steadfast effort, but we gradually began seeing results. For example, there were cases in which we were able to gain information from investment plans or other sources, predict the types and quantities of products customers might need, and then swiftly and reliably supply products to customers based on this foresight.
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When trying to develop people who can deliver value using such foresight and preemptive action, I have always focused on encouraging self-directed and proactive thought, or, in other words, promoting the habit of proactive thinking. By getting ahead of trends and preparing multiple options for different scenarios, one can recognize the functions they can provide to the customer. Mastering this type of thinking is not something that can be done in a day; it takes active training by visiting businesses on-site. It also requires bottom-up action from all levels, whether that be more senior employees, section and department managers, members of middle management, or business division COOs. Going back to the Chemicals Division, at that time, we were faced with restrictions on domestic and international travel due to the COVID-19 pandemic. These restrictions, however, had the benefit of letting us dedicate more time to internal communication, and I was thus able to arrange regular, one-on-one meetings with all division members. Section managers would hold one-on-one meetings with members of their teams, and department managers would confirm the findings of such meetings through weekly one-on-one meetings with these section managers. As COO, I would then meet with section and department managers once every two weeks to hear about their one-on-one meetings. The purpose of these meetings was to develop critical thinking skills. Managers were discouraged from offering answers and employed multiple techniques to help their teams to think critically. Over a period of two years, we continued these meetings while providing middle managers with feedback on how to improve their approach, such as waiting five seconds before speaking or having the other person repeat points to help organize their thoughts. In addition to encouraging people to think and make discoveries for themselves, middle managers were expected to approach such opportunities for communication with their teams by framing their statements in ways that encouraged proactive thinking and facilitated understanding. By arranging such opportunities to engage with all team members and reshape their thinking, we were able to shift away from our prior passive approach toward sales to anticipating customer needs and making proactive proposals. As a result, we were able to generate returns commensurate with the value of these proposals. This shift in approach effectively boosted the earnings power of the Chemicals Division. Looking ahead, I hope to use my current position as president to lead the development of a workplace environment that inspires self-directed and proactive thinking in all employees. I am confident that this approach will help us heighten the capabilities of our people, who, once again, are the drivers of all of our business activities.
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Reflection on Sojitz’s Mission at 20th Anniversary of Founding
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Sojitz’s mission as a general trading company is delivering goods and services where necessary. This mission has always been at the heart of what we do, a tradition passed down over the more than century-long history forged by our forebears. Our success in fulfilling this mission is dependent on our ability to constantly think about how we can identify or create functions for generating value and to continuously exercise these functions. Fulfilling this mission in areas where Sojitz can exercise its functions is a process that enables us to create two types of value—value for Sojitz and value for society. Sojitz provides no value to the equation if we just act as an intermediary between buyers and sellers.
In today’s era of rapid change, the value-generating functions we obtain and the competitive edge we forge in specific business fields will not continue to be viable over the long term. This is why Sojitz looks to organically link businesses to broaden and build upon these businesses and spread our operations across the value chain to create integrated value. This is our approach toward continuously transforming and reinforcing our growth foundations. In the past, trading was the core of our business. However, the value of the functions offered by intermediary businesses like trading has been declining in various value chains as a result of the advancement of information technologies and the trend toward globalization. Accordingly, it is crucial for Sojitz to capitalize on its insights into wide-ranging industries and markets in order to expand into the upstream and downstream areas of the value chain. We are therefore committed to actively advance into high value-added areas of the value chain as we continue to transform our business portfolio to create value.
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Doubling of Performance by 2030
Medium-Term Management Plan 2023, which concluded in March 2024, was positioned as the first step on our journey toward realizing our vision for 2030 of becoming a general trading company that constantly cultivates new businesses and human capital. Guided by this plan, we steadily implemented measures with a strong commitment toward ongoing value creation. This commitment translated to strong performance, with profit for the year surpassing ¥100.0 billion for two consecutive years and all of the plan’s quantitative targets being met. Moreover, we have been able to stabilize Sojitz’s profitability by replacing assets associated with businesses where we could not exercise our functions and investing in non-resource businesses. I believe that our ability to build foundations for consistently generating profit for the year in excess of ¥100.0 billion has also given us the added benefit of making it easier to plan for the future. Another important accomplishment warranting mention is the fact that we were able to achieve the target of a price-to-book (PBR) ratio of 1.0 times or above put forth at the start of Medium-Term Management Plan 2023. However, it is not enough to merely get this ratio above 1.0 times once. This is why we will be aiming to achieve a PBR that stays above 1.0 times while seeking to reduce cost of capital through strong governance and more transparent management. At the same time, we will balance growth investments with shareholder returns to generate high anticipation for Sojitz’s future growth in order to further heighten this ratio.
Under Medium-Term Management Plan 2026, Sojitz will begin making full-fledged strides toward its next stage of growth. Our goal is to double performance. Accordingly, we have defined this next stage as profit for the year of ¥200.0 billion, return on equity (ROE) of 15%, and market capitalization of ¥2.0 trillion. While we did not disclose specific long-term performance targets under Medium-Term Management Plan 2023, we were still able to build foundations capable of supporting future growth. We are now poised to set our sights on doubling corporate value. Medium-Term Management Plan 2026 is positioned as a preparatory period for achieving this goal. We have therefore set the targets of investments of more than ¥600.0 billion, a three-year average ROE of 12% or above, and profit for the year of more than ¥120.0 billion to move us within reach of the goal of doubled performance. We will look to accomplish these targets by creating the Sojitz growth story, as described in the plan.
At the same time, we remain committed to realizing our vision for 2030 of becoming a general trading company that constantly cultivates new businesses and human capital. I, too, have dedicated my career to creating new businesses and fostering employees. The period of Medium-Term Management Plan 2026 will thus also be used as a time to strengthen the businesses that constitute our growth foundation as well as the people engaged in these businesses, who are our greatest asset. In terms of strengthening our growth foundation, we will further refine existing businesses in order to heighten their earnings power. We will also endeavor to organically link the wide-ranging businesses we develop as a general trading company to create revenue-generating clusters of businesses, which we call “Katamari,” that are capable of generating integrated value.
Our people will also be of utmost importance to strengthening our growth foundation. Through proactive investment in the people who drive our growth, we aim to bolster our value creation and improvement capabilities. Reaching our next stage will require the collective efforts not only of the 2,500 employees at our head office, but also the roughly 23,000 Group employees and associates working in other locations around the world. I therefore plan to continue to focus on talent development while actively promoting capable individuals to positions involved in management decision-making. In this manner, I hope to provide everyone with opportunities to excel.
Boosting of Business Division Earnings Power beyond Medium-Term Management Plan 2023
Sojitz currently faces the pressing task of boosting the earnings power of its seven business divisions. Changes to the operating environment are driving up costs of capital. This means that we need to generate earnings surpassing these rising costs of capital. Boosting the earnings power of low-profitability business divisions in order to heighten the Company’s overall profitability is thus an important task that remains outstanding in the wake of Medium-Term Management Plan 2023.
Our underlying approach to boosting earnings power will be to broaden and build upon businesses in order to grow revenue-generating clusters of businesses (Katamari). Up until the end of Medium-Term Management Plan 2023, we were in the phase of planting the seeds for this undertaking by investing in businesses in a wide range of areas. Some of these seeds have already begun showing growth, and it will therefore be important to nurture these businesses to ensure their continued development. However, it is not enough to simply grow businesses on a standalone basis. Rather, we must organically link businesses to generate integrated value while creating revenue-generating clusters of businesses(Katamari). Through this ongoing process of creating multiple such Katamari, we expect to see Sojitz’s growth accelerate.
Focus on the Value of Data for New Value Creation
Digital technologies will be an important tool for raising Sojitz’s overall earnings power. For this reason, we included digital transformation among the strategic focus areas of Medium-Term Management Plan 2026. In the plan, we also introduce our “Digital-in-All” concept, which calls for us to embrace digital technologies in all of our businesses. Based on these provisions, we will adopt a Companywide perspective for thinking about how we can utilize digital technologies to improve corporate value. However, we also realize that creating value with digital technologies is no easy task. At this point, I would like to bring up the Hassojitz Project, which is an in-house contest for new business proposals that we started in 2019. A couple of years ago, we saw a number of proposals that incorporated platform business models, which were gaining attention at the time. Unfortunately, most of the proposed platforms did not have elements that differentiated them from preexisting platforms and thus did not present a clear path to success were Sojitz to enter into said businesses. In this manner, ideas based on an established framework, like the concept of a platform business, do not often lead to the creation of businesses in which Sojitz can exercise its functions. Rather, I think it is important for us to base ideas on the concept of data-driven value creation. As a general trading company, Sojitz accumulates massive amounts of diverse data from its various investments and businesses. Our vision for Sojitz’s digital transformation is that of a company that can identify the value offered by such data assets and create businesses that take advantage of this value. The Sojitz Group is home to a number of organizations with the power to lead digital transformation. These include ICT solutions provider Sojitz Tech-Innovation Co., Ltd.,* and cloud computing service provider SAKURA internet Inc. By ramping up our use of such Group functions, as well as co-creation with external partners, we will continue to move forward on our quest to create new businesses by combining digital assets.
- Previously named Nissho Electronics Corporation, renamed on July 1, 2024
Creation of New Value Chains in New Energy and Decarbonization Fields
Green transformation has been defined as a strategic focus field of Medium-Term Management Plan 2026 alongside digital transformation. Sojitz has been actively advancing initiatives to achieve a decarbonized society in accordance with its Sustainability Challenge, the Company’s long-term vision for 2050. These initiatives have not been limited to lowering CO2 emissions from our existing businesses. Quite the contrary, we have been working to create solutions that correspond to the changing times in order to help achieve a decarbonized society while also growing our earnings. Some targets of these initiatives have been the new energy and decarbonization fields. This is not a field that we can accommodate through our existing business division framework as it requires insight and resources from various business fields. It is for this reason that we are approaching this field through a Companywide effort. New energy is a field where we essentially must create new businesses from scratch given the need to effectively identify what functions Sojitz can exercise and what type of businesses will be viable. We are going about this task while practicing foresight and taking action based on our outlook for the future.
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Hydrogen energy is one example of an area where we are developing operations in the field of new energy. There are many challenges to developing such operations, including finding production methods that can turn a profit, creating supply chains capable of reliable transportation, and ensuring users are equipped with the necessary machinery and equipment. Even if we succeed in building a supply chain encompassing everything from production to transportation, it will be meaningless if the hydrogen fuel we provide cannot be used as energy. This is why green transformation requires us to look at the value chain in its entirety, as opposed to simply thinking of businesses purely in terms of production or transportation. Starting from this big picture view of business, we must then go on to determine the resources we can use, allocate and assemble human resources that can function in this area, and then earnestly respond to the issues faced by the customers who are our partners. Only through this process can we make proposals that surpass our expectations. It will not be productive to just wait for someone to take the first step and then mimic their approach.
In this manner, the new energy and decarbonization fields require us to develop novel business models. Sojitz cannot do this alone; it needs the help of various partners. This will not be an easy undertaking, but this challenge is also an opportunity to demonstrate Sojitz’s capabilities as a general trading company. By capitalizing on our speed, a major strength of the Company, we will endeavor to swiftly develop new business models for the new energy and decarbonization fields and to generate results through these models.
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Creation of the Sojitz Growth Story
At the briefing where we announced Medium-Term Management Plan 2026, one of the attendees questioned how we define Sojitz’s unique identity and characteristics. This is not something that can be explained easily. If I were to try to illustrate it through our efforts to create the Sojitz growth story, I suspect that a good place to start might be the retail businesses we are creating in Vietnam, a market where Sojitz boasts a number of strengths. In the growing market of Vietnam, we are concentrating investment in areas where we have expertise. This has enabled us to broaden and build upon our operations, and we have thus been seeing the creation of revenue-generating clusters of businesses, or Katamari. Unfortunately, though, we are not yet at the point where we can present the numerical results to back up this success. This reality makes it difficult for us to convince shareholders and other investors that we are indeed making progress toward creating the Sojitz growth story. For this reason, it will be important for us to quickly generate tangible results under Medium-Term Management Plan 2026 in order to build anticipation for Sojitz’s future growth among stakeholders and the stock market. As a symbol of this dedication, we defined our intent to increase the price-earnings ratio in pursuit of ongoing improvements to corporate value as one of the goals of Medium-Term Management Plan 2026.
Sojitz celebrated the 20th anniversary of its founding on April 1, 2024. When we look back at the past two decades, we see the story of Sojitz planting the seeds of growth while continually adapting to various changes in the operating environment. Over the years, Sojitz has continued to practice disciplined financial management and sought to improve its resilience toward fluctuations in the operating environment and market conditions. This diligence has enabled the Company to greatly increase the strength of its operating foundation as it grows to the point that it can generate profit for the year in excess of ¥100.0 billion. Taking up the mantle of president at this important milestone, I am tasked with the mission of combining the business DNA passed down from our predecessors with our established customer partnerships and the operating foundation we have built throughout the years, in order to spur us forward to the next stage that we target on our quest for rapid growth.
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Since becoming president, my public speaking engagements have increased greatly. I still tend to get nervous when speaking to large crowds. I have always expressed my thoughts to the organizations that I led. Now, however, I am in a position to communicate with all Sojitz Group employees, and I do not take the responsibilities of this role lightly.
Words do not carry meaning in and of themselves. This is why it is so important to think about to whom you are speaking, whether they are a customer, employee, or some other stakeholder, and to choose the most clear and concise language to get your point across in an easy-to-understand manner. This approach, I believe, will help strengthen our business foundation and our human resources.
I view my role as president as being one that helps create the Sojitz growth story and that leads Sojitz toward its next stage. As part of this undertaking, I hope to have many opportunities to speak with shareholders, investors, and all of our other stakeholders to inspire a sense of anticipation when it comes to creating the Sojitz growth story and forging a new path for value creation. I hope we can look forward to our stakeholders’ ongoing understanding and support as we move forward on this journey.
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July 2024
Kosuke Uemura
Representative Director, President & COO
*Organization affiliations and titles are current as of July 2024.
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