Japan's trading firms

New Style of Competition

All trading firms have learned how to conduct overseas production. There are trading firms having factories with their funds invested so that they can exhibit high control power, and others without such factories. Because all trading firms have come to have overseas producing functions, they cannot exhibit any difference from other firms only by that function in the present age. N.I. Teijin Shoji Co., Ltd. has been favorably promoting production of apparel marketed at department stores through special children's apparel firms.

N.I. Teijin Shoji is simulating a secondhand look and attaching whisker-shaped friction marks on denim in the factory backed by a Hong Kong firm in Vietnam. N.I. Teijin Shoji has been successful in conducting integrated production to exhibit differences from other firms. In addition, N.I. Teijin Shoji has introduced Japanese embroidery technology into the factory in Vietnam. Its control of the factory is also at a high level. As a result, orders received for fall/winter 2003-04 products are estimated to increase by 15% compared to the previous year.

Shinko Sangyo Co., Ltd. has continuously been successful by receiving orders for production of major brand jeans marketed all over Japan. Shinko Sangyo established a washing-processing firm, a joint venture of three firms, with a Japanese washing processor and a Chinese apparel manufacturing firm, and has been successful by using this firm. Sales of products for spring 2003 are estimated to have increased by 30% compared to the previous year. Using the Japanese wash-processing technology and methods, combined with the cheap labor force and land rental in China, the value of the overseas production has increased. Simply being cheap is no longer competitive in the Japanese market, and only cheap products made by sophisticated technology can beat the competition. Because Shinko Sangyo has invested in this firm, it can use the firm exclusively and this contributes to giving Shinko Sangyo an edge in specialization. Because its business performance has been so favorable, Shinko Sangyo has increased the equipment in the factory.

Making Only Products Fashion Maniacs Demand

Yagi Co., Ltd. is producing the most "maniac" products among those sold in the Harajuku apparel business circles. Orders received for fall/winter 2003 are expanding to double compared to one year before. Because consumers having very strict eyes on fashion purchase such goods, products with high fashion sell well even if prices are high. Retail prices are 10,000 yen/piece for T-shirts and 12,000 yen/piece for sweat-shirts.

Yagi does not use any factories in China for the production. Yagi produces all products in Japan. Since the Japanese textile industry is scaling down its production base, the critical point for Yagi to beat the competition is whether it can steadily secure knitting, dyeing and apparel manufacturing space. Yagi has been successful in doing so. To do business with retailers that can sell products at prices of this level, there is no need to switch production to China.

All trading firms are having difficulties with production of men's suits for office workers. The volume of orders which N.I. Teijin Shoji received for men's suits, decreased by 20% compared to the previous year. Trading firms are also having difficulties with women's casual wear sold at mass-merchandisers. Yagi has to sell women's casual wear by reducing unit prices.

Summarizing stories about apparel departments of trading firms, the conclusion is that they have to spend only time and labor for apparel-sourcing business and it is not profitable at all. Fashionable denim for which high prices are accepted, and products such as a few brands in Harajuku are doing well. However, general apparel sourcing is not profitable at all. Particularly in the case of business with specialty stores called specialty stores for private label apparel (SPAs), bad conditions are piled up for trading firms such as the small order volume, demand for higher-quality, demand for short time delivery, and cancellations in case of delays in delivery.

As this kind of business brings very little profit even if sales volume increases, trading firms are moving to withdraw from a part of this business.

Effects of Learning Exhibited by Approaching Retailers

Itochu Corporation has various departments. In contrast to business presenting unknown brands, Itochu fosters brands under its initiative.

Efforts to foster famous brands include importing European and U.S. brand products, and production under its control by obtaining brand licenses. Itochu has achieved results by approching the retail industry. Itochu gains royalty income by handling famous brands. In other words, it controls famous European and U.S. brands. Apart from this, Itochu has producing and distributing functions. Having these functions, Itochu is equipped with both software and hardware and is extending general business on the basis of brands.

Reforming Recognition of Staff

Itochu likes to move nearer to the retail industry because it wants to change the recognition of its staff by doing so. It is said that the staff of trading firms like Itochu are obvious to ideas coming from the standpoint of consumers. Many staff members of trading firms try to gain large profits by large and systematic businesses rather than thinking of details from the view-point of consumers.

It has become necessary for the staff of trading firms to learn the way of thinking the retail industry has developed over the past 20 years. This is because the consumption and production structure in advanced countries has greatly changed. Itochu has succeeded in the famous brand business in Japan, and it now has plans to start brand business in Asian countries such as Taiwan and Korea where the economic level has improved, as well as China where the economic level is also going up following those countries.

Thinking From the Viewpoint of Customers

Nichimen Corporation signed a tie-up contract with Li & Fung (Trading) Ltd. in Hong Kong in 2001. In order to increase the tie-up effects, both the work force and the management of Nichimen are working at a high pace. Nichimen considers consumers as customers, and has come to place importance on the viewpoint of customers.

In apparel business, Nichimen used to be strong at casual wear. In addition, Nichimen is now working to establish a system that will enable it to supply apparel such as women's fashion wear and men's suits that require complicated apparel manufacturing processes.

Nichimen and Li & Fung are planning to gain full-scale profits from their investments from fiscal year 2004 by balancing the investment and profits in fiscal 2003. If the factory in China that Li & Fung used to use for customers in Europe and the U.S. should be actually used for Japanese customers, the strict Japanese quality standards will be acknowledge and their use will be difficult. For this reason, only the limited number of factories among the many in China can be actually used for Japan. Tasks of Nichimen are to securely foster those selected factories.

Because Li & Fung already has its own trade rights in Europe and the U.S., it is not likely that Nichimen will expand sales to Europe and the U.S. through this tie-up. Regarding the respective firms, Li & Fung positions itself as a "Supply Chain Integrator" and Nichimen as a "Global Business Organizer". Li & Fung has a corporate management system in which the organization finely divides operations and carries out divided operations by having specific purposes. Nichimen has a system in which the business of the whole firm expands as each salesperson expands business with his or her own free will.

Strengthening Activities in Shanghai Area

Tomen Corporation positions China as an important base in apparel production business. For this reason, Tomen is increasing its personnel particularly in Shanghai. The branch manager at the Shanghai branch is from the textiles department, and Tomen has six Japanese staff members including the branch manager in Shanghai. Tomen will focus on business targeting apparel firms in Tokyo. Previously, only five people were located there, but responding to the increasing production of bedclothes in China, Tomen additionally assigned one special staff for bedclothes in Shanghai. Tomen will strengthen three points in future: fabric sales in China, apparel exports to Japan and exports from China to countries other than Japan. For fabric sales, Tomen has increased the power to create and appeal the textile brand "Tokyo Bay Fashion". As for acetate lining, Tomen has a factory which has participated in investments and is recently increasing equipment there.