When Takashi Masuda founded the former Mitsui & Co. in 1876 his ambitions for the firm were-literally-world-changing. After emerging from centuries of seclusion, Japan, though determined to modernise, found itself hampered both by technological backwardness and western merchants’ dominance of trade on unfavourable terms.
“Masuda’s first mission was to win fairer trading terms and help Japan develop into an industrial nation,” explains Masami Iijima, Mitsui & Co. president and CEO. Whether importing the technology necessary to develop Japan’s light industries in the prewar years or securing natural resources to propel rapid postwar economic growth, Mitsui stayed focused on future opportunities with long-term value, responding to changing needs in a process of “dynamic evolution.”
These days Mitsui operates in four business areas: Mineral Resources & Energy; Global Marketing Networks; Lifestyle Business; and Infrastructure. In the financial year ending March 31, 2012, the company expects to post a profit of ¥430 billion (US$5.2 billion), ranking it among Japan’s five most profitable firms.
What ongoing megatrends is Mitsui addressing to drive this elevated level of performance? Crucially, the company has made an aggressive push into the emerging countries—which Iijima characterises as “the engines of global economic growth”—with its biggest investments in the BRIC nations, Indonesia and Mexico.
In developing and developed nations alike, robust partnerships with leading local businesses are key to Mitsui’s success. Iijima cites the relationship with mining giant Vale as an example. The two companies first got together in 2001 to jointly run Caemi, another large iron ore producer in Vale’s native Brazil, but the partnership has evolved to encompass a nickel project in New Caledonia (2006) and a phosphate mining project in Peru (2010).
These partnerships are often “hybrid relationships.” With Vale, for example, in addition to providing functional expertise in project finance, logistics and marketing, Mitsui has a management role via its stake in Valepar, Vale’s controlling shareholder. “Both sides contribute their know-how to boost the overall value of the business,” Iijima explains. “Mitsui’s specialty is combining different functions to create and optimise value chains across a range of fields.”
Balancing the Portfolio
Mitsui currently derives over 80% of its profits from resource-related businesses. That means superior profitability when resource prices are high but also unwelcome volatility at times of market turmoil.
“The resource boom isn’t going to last for ever,” Iijima cautions. “Our challenge is to use some of our resource profits to strengthen our non-resource businesses and build a portfolio that minimises volatility impacts, covers the entire value chain and addresses the world’s needs.”
Iijima’s business plan for fiscal 2012 earmarks up to two-thirds of the total ¥700 billion (US$8.5 billion) investment budget for the non-resource area. The inflection point Mitsui has chosen to address? Burgeoning emerging-market demand for basic services.
The firm already generates steady returns from infrastructure projects like water treatment and power generation, and last year it took a 30% stake in Integrated Healthcare Holdings SB, Asia’s largest hospital conglomerate. But perhaps it is Mitsui’s agricultural ventures that best exemplify its non-resource investment drive. With world population projected to grow by about one-third by 2050, food supplies are coming under pressure. In response to this bottleneck, Mitsui made Multigrain, a grain farming and trading company, into a 100% subsidiary in May 2011. The company owns about 120,000 hectares of land in Brazil (an area roughly 1.5 times the size of Singapore) where it grows mainly soybeans.
“Vast and fertile Brazil is the best place to pursue the significant growth we expect to see in agriculture,” says Iijima. Multigrain exports agricultural products, including from its own farms, to China and the rest of Asia, where population—and demand—is rocketing.
The Multigrain venture is a vintage Mitsui response to a macroeconomic trend. It’s also an effort to play a useful role by making a preemptive strike against food shortages. Indeed, Mitsui applies the same challenging yardstick to all its projects: Are they worthwhile? “We want to do what we call Yoi-Shigoto,” Iijima explains. “That means ‘good-quality work’—work we can believe in and feel committed to.”
Take Sakhalin II, a megaproject to extract oil and gas from the island of Sakhalin in the Russian Far East. The company faced many environmental and political hurdles over the two decades before gas finally flowed in 2009, but Iijima is confident it was worth it. “Sakhalin II reduced Japan’s over-reliance on Middle Eastern energy sources,” he declares.
A similarly serious spirit is at work in Mozambique where Mitsui, together with Anadarko Petroleum, recently discovered a colossal offshore gas field. Iijima is determined that Mozambique, with annual per capita GDP of just US$428, should share in the benefits. In addition to the core business of developing the field and exporting the gas, he also wants to help develop domestic gas distribution to boost local industries. The firm is already working with an international organisation to supply solar-powered irrigation pumps systems to rural communities as part of the Millennium Village Project.
Generating most of its profits in foreign, and sometimes far-flung, countries, Mitsui needs a cadre of global managers able to perform well in any cultural context. That’s why the firm launched a proprietary executive training course with Harvard Business School last year. Instructors include leading business thinkers like Professor Michael Porter.
For Iijima, investing in people is the very best investment he can make. “Provided we have good people, Mitsui can continue to innovate,” he concludes. “And our focus on meaningful projects means serving a useful social purpose while generating high-quality profits.”