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Michihisa Shinagawa Discusses Sumitomo Corporation's Strategy in the Americas with Columbia MBAs
By Vivien Ng, MBA '09
The Center on Japanese Economy and Business (CJEB) continued its Zandankai Series of lunchtime, informal discussions as it welcomed Mr. Michihisa Shinagawa, president and CEO of Sumitomo Corporation of America, to the Business School on November 13. Faculty and students filled the room to listen to Mr. Shinagawa’s discussion titled "Approaches to Change – Conquering the ‘Crisis of a Century.'" The event was cosponsored by the Japan Business Association of Columbia Business School.
Japan’s deflation, profit margins became squeezed, investments deteriorated and credit ratings worsened. These conditions led Sumitomo in 1999 to look towards the concept of risk-adjusted return, an approach which was uncommon to Japanese sogo shosha. The company divested underperforming assets and focused their capital on areas of greatest returns. This has since become their investment philosophy toward new investment opportunities and has allowed them to raise the risk-adjusted return target from 7.5 then to 15 today across more than 800 subsidiaries and associated companies.
Sumitomo is developing three strategic goals to take advantage of these structural changes: achieve “critical mass” in their markets; make the most of these current economic cycles; and be a “lean and mean” organization. Establishing a position as market leader is key to weathering economic storms; two examples of Sumitomo doing so are its large market shares in the tubular market and tire business. Sumitomo is strengthening its balance sheet in specific ways, such as monitoring inventory levels and focusing on its core businesses while off-loading the non-core. Sumitomo also continues to build the strength of their staff through recruiting and training.
The top three focus areas for Mr. Shinagawa in the Americas have been energy, food and agriculture, and communications – as these are all basic human needs in today’s world. Other sectors to pursue will depend on the priorities that President Obama sets.
Currently, there are three structural shifts that are transforming the Americas, which could provide opportunities for Sumitomo, said Mr. Shinagawa. Firstly, there is a need to use natural resources more efficiently, such as fuel-efficient transportation and energy-efficient buildings, and to develop alternative energy sources. Secondly, the United States is becoming more of a consumer nation. Despite the current downturn, as income levels of immigrants rise and the region grows, the US consumer market is expected create greater business opportunities. Lastly, Canada and Central and South America will be growing in importance for Europe and Asia as producer regions and supply sources, given that labor costs in China and freight charges will increase.
Mr. Shinagawa closed on an optimistic note, and emphasized it was the “Sumitomo Business Spirit” which will navigate the company through these difficult times.