Management policy questions
Mitsubishi Corporation is said to be creating a new business model as a sogo shosha (general trading company). How is the company changing?
In the past, Mitsubishi Corporation's earnings came mainly from businesses centered on providing intermediary services, acting as a selling-buying agent, and extending credit to customers (shosha finance), irrespective of whether those businesses were of a natural resource or non-resource nature. Investing was at best complementary to these activities in the sense that it was designed to support expansion in trading.
Essentially, it was a business model centered on low-risk, low-return businesses. However, the company changed things around at the beginning of the 1990s facing a tougher business environment. The company purposely reformed its business models, prompted by customer requests to provide more sophisticated services going beyond trade facilitation as an intermediary.
Nowadays the company makes effective use of its information, experience, insight and other advantages acquired over many years across entire businesses, from upstream to downstream areas, to provide functions and services where they are needed. For instance, in addition to acting as an intermediary, the company offers supply chain management, including support for helping customers develop more efficient distribution and information systems. Mitsubishi Corporation now also offers more sophisticated financial services, not simply trade credit. This includes cooperation in the establishment of joint ventures and in corporate acquisitions as well as assistance with the sale and securitization of real estate. The company has also stepped up investing activities as a strategic investor with the aim of increasing dividends and equity in earnings. Mitsubishi Corporation also seeks to increase the corporate value of business investees by sending management personnel it has developed itself into key positions in these companies.
In short, Mitsubishi Corporation's business model today is to build value chains - chains of added value - to increase earnings. The company continues to evolve from a low-risk, low-return intermediary into a global business enterprise that aims to generate higher returns while managing risk.
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What are the main businesses supporting Mitsubishi Corporation's earnings?
Mitsubishi Corporation consists of seven Business Groups (Business Service Group, Global Environment & Infrastructure Business Group, Industrial Finance, Logistics & Development Group; Energy Business Group; Metals Group; Machinery Group; Chemicals Group; and Living Essentials Group). Major components of the big groups (Energy, Metals, Machinery, Living Essentials) are LNG, coking coal, automobiles, and food business, respectively. In the LNG market, imports by Japan's electric and gas utility companies account for about 40% of global imports. Mitsubishi Corporation is involved with approximately 40% of Japan's LNG imports. Currently, the company has investments in LNG projects in Brunei, Australia, Malaysia, Oman and elsewhere. Furthermore, the company has begun new LNG projects, such as in Indonesia and on the Russian island of Sakhalin. Coking coal ranks alongside iron ore as a vital raw material for making steel. Mitsubishi Corporation is working with BHP Billiton Limited, a major natural resources firm, to produce high-grade coking coal in Australia that is used to produce high-quality steel. This coking coal is sold to steelmakers around the world. In the automobile market, the company has a diverse global business portfolio, with activities including the assembly of vehicles and engines, automobile sales, sales financing and a variety of peripheral activities such as systems development. Regarding food, activities extend from the import of ingredients to food processing, distribution and retailing. For decades, Mitsubishi Corporation has efficiently supplied food products that meet customer needs, particularly in the Japanese consumer market.
Please describe Mitsubishi Corporation's management systems.
Mitsubishi Corporation's businesses are spread far and wide both in terms of industry and geography. The company is therefore exposed to various risks, which include changes in the global economy, and market fluctuations in exchange rates and commodity prices. However, the company analyzes and manages risk and return according to risk category for each individual business and project. At the same time, it regularly assesses risk for the company as a whole as it allocates management resources to execute business strategy aimed at achieving sustained growth.
When making business investments, Mitsubishi Corporation runs simulations of future cash flows, which also take into account risk-related change, and uses that as the basis for determining the investment return required of each project. Moreover, to prevent or mitigate losses as well as to maximize earnings by existing investments either through sale of its interests or liquidation at the right time, it has established quantitative exit rules. Ultimately, it looks closely at whether to stay in an investment or exit it based on these rules as well as qualitative factors.
Mitsubishi Corporation has classified business units (BU) as the smallest unit for organizational control and earnings management and uses Mitsubishi Corporation Value Added (MCVA), a proprietary performance indicator, to measure and manage whether consolidated net income is covering the cost of capital associated with a given level of risk in each BU. This portfolio management approach was established in fiscal year 2002. It enables the company to quickly identify businesses that could impair shareholder value, and promotes the ongoing allocation of business resources to growth businessesby means of selection and concentration. This approach has delivered clear results for the company.
Please explain actions concerning Mitsubishi Motors Corporation (MMC).
Following requests from Mitsubishi Motors Corporation (MMC), Mitsubishi Corporation injected equity totaling 140.0 billion yen in MMC from June 2004 through January 2006 by subscribing to ordinary and preferred MMC shares. The company has written down 28.3 billion yen (16.7 billion yen (after tax)) of our MMC preferred shares (66.7 billion yen) in the fiscal year ended March 31, 2010. Its risk exposure to MMC proper was approximately 165.0 billion yen as of December 31, 2014.
Mitsubishi Corporation cooperates with MMC developing business at sales companies mainly outside of Japan and across the related value chain. Its risk exposure in connection with these dealings, such as investments in businesses, finance, trade receivables and other related business was approximately 210.0 billion yen as of the nine months ended December 2014.
The company's total MMC-related risk exposure, including both the aforementioned risk exposure to MMC proper and its risk exposure to related business, was thus around 375.0 billion yen as of December 31, 2014. For the nine months ended December 2014, MMC posted operating transactions of 1,588.6 billion yen, operating income of 100.8 billion yen and a net profit of 98.6 billion yen.
Mitsubishi Corporation plans to continue to cooperate with MMC in the areas of human resources and sales activities outside of Japan.
What action has Mitsubishi Corporation taken in regard to compliance?
Please learn more about the company's Compliance Framework here.
How is Mitsubishi Corporation active with respect to the environment and corporate citizenship?
Please learn more about the company's Sustainability here.