2023 年 40 巻 p. 44-63
This paper asserts that the next challenge for business history research is to clarify, with specific examples, the functions of trading companies in generating export transactions. I address this issue here by clarifying the functions of trading companies employed by American oil companies as they developed their businesses in the emerging high-risk market of Japan and expanded their global business activities during the interwar period. In particular, I examine the trading company functions that Mitsubishi Trading Company (Mitsubishi Shōji Kaisha, MSK) provided to the Associated Oil Company. The paper then focuses on the trade of crude and fuel oil, an often overlooked area of trade in existing studies. Moreover, I explore why Associated Oil and MSK were able to maintain a substantial share of the Japanese market for crude and fuel oil by examining their shift in trading methods from commission to proprietary trading. The paper concludes that one of the reasons for MSK’s success was that it took over the costs and risks that Associated Oil should have borne under their original contract while at the same time delegating to itself, with its greater knowledge of local conditions and information, the discretionary power to enter these transactions.
Earlier studies of business history, such as Wilkins, have clarified the global expansion of companies through case studies of direct foreign investment.2 When one recalls that the remarkable growth of the world economy in the 20th century was supported by direct foreign investments by multinational corporations, including those based in the United States, the research by Wilkins is an extremely important achievement in understanding the origins of the global economy that exists today.
A direct examination of corporate global strategies, on the other hand, needs to consider the other corporate option: that of trade. In this regard, in the field of international trade theory, for example, the Melitz model,3 which causally links the productivity of companies with the possibilities for entering export transactions and concludes that only a small number of companies with high productivity can enter into export transactions, is becoming a foundational theory. Akerman, for example, has used this model to emphasize the role of trading companies.4 Specifically, (1) companies with moderate productivity that cannot bear the massive fixed costs of export transactions can enter into export transactions by using the global distribution networks of the trading companies that will bear the costs; and therefore, (2) the higher the fixed costs of export transactions, the greater the role played by the trading companies.5 Trading companies and their intermediary functions, contributing to the expansion of world trade by enabling the participation of companies that would otherwise find it difficult to enter into export transactions, have been the subject of much attention in recent years in international trade theory.6
What, then, are the functions of a trading company? Jones defines one of the functions as the ability to reduce transaction costs, which tend to increase with global trade, through specialized knowledge of markets and businesses.7 Jones also considers direct foreign investment in resource development and processing industries to be an important element of the trading company’s function.8 Having summarized the trends in research on the development of world trade and the roles of trading companies, we claim in this paper that the next challenge for business history research is to employ specific examples to clarify the functions of the trading companies that companies of moderate productivity use to enter into export transactions. In this paper, we address this issue by observing the functions of the trading companies used by medium-sized oil companies9 in U.S. as they developed their business in the emerging high-risk market of Japan and expanded their global business activities during the interwar period. Specifically, we will look at Mitsubishi Trading Company (Mitsubishi Shōji Kaisha, MSK) and the trading company functions it provided to Associated Oil Company, an American corporation that sought to develop a market in Japan during this period.
The total assets of U.S. oil companies at the end of 1919 amounted to $5.683 billion, about 80% being held by the top 39 companies. Associated Oil ranked 17th (with total assets of $88 million), placing it roughly in the middle.10 The total assets of U.S. oil companies at the end of 1929 were $9.147 billion, with the top 28 companies accounting for about 95% of the total. At that time, the Tidewater Associated Oil Company had total assets of $251 million, moving it up to 11th place in the rankings.11 Nevertheless, the gap between Associated Oil and the largest companies, such as Standard Oil of New Jersey and Standard Oil of New York (Socony), was obvious, and the company can still be considered to have been of intermediate size. For this reason, we chose the Associated Oil Company as the subject for this paper. It should be noted, however, that the paper does not focus on the activities of Associated Oil itself but rather examines them from the perspective of MSK, which provided trading company functions for Associated Oil.12 In other words, it is an attempt to shed light on the global activities of U.S. companies through an analysis of MSK’s trading company functions.13
Before starting discussion of the above, I would like to review the situation of oil trade and the oil market in Japan during the interwar period, based on the findings of existing studies.
Global average annual crude-oil production increased from 363.5 million barrels in 1910–14, before World War I, to 490.4 million barrels in 1915–19, during the war, and to 868.8 million barrels in 1920–24, after the war—about 1.8 times the previous period. This was due to the sharp increase in production in the U.S., the world’s largest oil producer. The annual average U.S. crude-oil production, which was 233.4 million barrels (64.2% of the global market share) in 1910–14, more than doubled to 583.8 million barrels (67.2%) in 1920–24 and reached 868.9 million barrels (69.6%) in 1925–29.14 Scholars attribute this partly to the competitive development of oil fields by U.S. oil companies, driven by fears that the oil fields would run dry, but this development led to the overproduction of crude oil and an over-supply of petroleum products, resulting in plummeting prices.15
Export transactions were expected to alleviate the oversupply of crude oil and petroleum products in the U.S. Here, I would like to examine the value of U.S. oil exports by country and region for the years 1920, 1926, and 1935 using the Foreign Commerce and Navigation of the United States. In 1920, the largest volume of exports was to the U.K. ($129.3 million, accounting for 23.5% of total petroleum exports), followed by France ($83.3 million, 15.2%) and Canada ($47.8 million, 8.7%).16 These three countries alone accounted for roughly 50% of U.S. petroleum exports that year. This composition remained unchanged into the early 1930s.
The focus of this paper is on the rapid increase in the value of exports to Japan, an emerging oil market. U.S. oil exports to Japan, which ranked 10th ($12.9 million, 2.3%) in 1920, jumped to 5th place ($25.8 million, 4.6%) in 1926 and surpassed France to become 3rd ($25.7 million, 10.2%) in 1935.17 In the immediate aftermath of World War I, Japan was just one of several emerging markets for the U.S. oil industry and oil companies—but in just 15 years or so, it grew into a major market.
I first confirmed Japan’s oil imports from the yearly data in the Dainippon gaikoku bōeki nenpyō compiled by the Japanese Ministry of Finance (Ōkura shō). I found that the U.S. share of Japan’s oil imports had already exceeded 50% in the 1920–22 period, and with the exception of 1926–28, the share increased consistently.18 Additionally, in 1935–36, oil imports from the U.S. amounted to 106.9 million yen, accounting for 63.7% of the petroleum imported into Japan.19 When one considers that 66.9% of the petroleum products supplied to Japan in 1931 depended on imports and 20.5% were made from imported crude oil,20 it is safe to surmise that Japan’s development in heavy and chemical industries and its economic growth in the interwar period relied on the smooth import of oil from the U.S.
Who were the economic entities supplying oil to the Japanese market during the high-growth interwar period? In general, the first companies to come to mind are Standard-Vacuum Oil Company of New York (Socony),21 which entered the Japanese market directly to sell its oil, and the Rising Sun Petroleum Company of the Royal Dutch Shell conglomerate.22
Kikkawa Takeo illustrates the shipping volume of foreign petroleum companies to Japan in the period 1935–39. Kikkawa’s paper reveals two facts. One is that while Associated Oil’s share of gasoline and kerosene sales was remarkably low, it had a substantial share of crude- and fuel-oil sales. The other is that given this market share, Associated Oil, along with Standard Oil of California (Socal), was in the second-largest group behind Asiatic Petroleum, a Royal Dutch Shell company.23 Of course, if one were to include the domestic oil companies that do not appear in Kikkawa’s paper, Associated Oil’s market share would be much lower.24 Still, if one considers that Associated Oil was a medium-sized company in the U.S., it is safe to say that the company had achieved a certain level of success in its oil sales to the Japanese market.
As the above shows, the emerging Japanese market rapidly became an important export destination for U.S. oil companies in the interwar period. Associated Oil, a medium-sized company in the U.S., took advantage of the trading functions provided by MSK to achieve a certain level of success, especially in the sale of crude oil and fuel oil. In the next chapter, I will quantitatively confirm Associated Oil’s transactions based on MSK data.
After World War I, coal-fueled steam engines, which had been the primary means of propelling transport ships, were rapidly converted to oil-fueled diesel engines. For example, the dieselization rate of Japanese merchant ships increased from less than 5% in 1929 to 13.7% in 1933.25 Likewise, the Imperial Japanese Navy had switched to fuel oil as early as 1906 for its naval vessels and had begun full-scale overseas procurement of oil in 1919.26 MSK is believed to have started its oil trade to make the most of the business opportunities to be found in the changeover from the use of coal as the main marine fuel.27
Neither MSK nor the Mitsubishi zaibatsu owned oil fields or refineries, so in order to supply oil to consumers in the Japanese market, they needed to procure oil from other companies.28 MSK chose for its partner the aforementioned Associated Oil, based in San Francisco. After securing exclusive distribution rights to the fuel oil produced by Associated Oil in December 1923, MSK began its oil transactions in April 1924. That same month, it also acquired exclusive distribution rights to clean (refined) oil, and in April 1925, the contract duration between the two companies was extended to ten years. In April 1927, MSK secured exclusive distribution rights from Tidewater, a company with close ties to Associated Oil.29 In November of the same year, MSK entered into a contract with Associated Oil to jointly establish an oil refinery company. Based on this agreement, MSK also acquired exclusive distribution rights for the new company, named Mitsubishi Oil Company (MOC, capitalized at 5 million yen, started operations in December 1931). The company was established in February 193130 and, until 1939, sold the refinery’s products for a 6% commission.31
Based on the above overview, I will now quantitatively examine MSK’s oil trade during the period 1924-37 (Table 1). The major product handled by MSK in fiscal 1924–25, just after the company began oil trading, was gasoline. However, after 1926–28, the ratio of gasoline to other products declined due to the rapid increase in the volume of crude oil and fuel oil handled by the company. The next turning point came in fiscal 1932. MSK’s crude-oil trade shrank as MOC, now in full-scale operation, began purchasing crude oil directly from Associated Oil.32 The start of production by MOC and enforcement of the Petroleum Industry Act33 caused the competitive structure of gasoline sales to change. MSK’s gasoline sales once again started to rise, but fuel oil remained its major product, continuing to hold the largest share of sales in terms of volume by product until fiscal 1935–37.34
A look at the rate of contribution for each product category casts these points in clearer light. For fiscal 1926–28, the rates of contribution to transaction volume were 170.6% for fuel oil (contribution rate of 50.7%) and 111.8% for crude oil (33.2%), indicating the degree to which fuel and crude oil were the mainstay of MSK’s oil trade in the latter half of the 1920s. In contrast, the expansion of MSK’s oil trade in fiscal 1932–34 was driven by the sales of fuel oil and gasoline. While existing studies have focused on the rapid expansion of gasoline sales, this paper focuses on the larger contribution of fuel oil (32.3% in 1932–34 and 38.9% in 1935–37) as compared to gasoline (29.1% in 1932–34 and 31.4% in 1935–37). What this implies is that one cannot understand the trading company functions MSK provided by examining only the gasoline trade, which expanded with the establishment of MOC; also vital is an examination of the fuel-oil trade, where Associated Oil continued to hold a certain share of the Japanese market. In the next chapter, I will focus on MSK’s fuel-oil transactions, which existing studies have largely ignored, and examine the significance of the trading company functions that Associated Oil used.
Table 1: Averages in oil trading by MSK (1926–37)
| Fiscal year | Own account | Transaction with commission |
Total | Contribution | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Trading volume |
Risk ‐benefit |
Trading volume |
Commission | Trading volume |
Risk‐benefit and commission* |
||||||||||||
| Petroleum, crude | |||||||||||||||||
| 1924-25 | 806,304 | (26.0) | 24,104 | (12.0) | － | － | 806,304 | (26.0) | 24,707 | (12.3) | - | ||||||
| 1926-28 | 4,274,665 | (31.6) | 221,038 | (30.6) | － | － | 4,274,665 | (31.6) | 220,513 | (30.5) | 111.8 | ||||||
| 1929-31 | 2,657,193 | (22.3) | 124,583 | (24.9) | － | － | 2,657,193 | (22.3) | 128,071 | (25.6) | △ 11.9 | ||||||
| 1932-34 | 1,090,330 | (4.7) | 31,566 | (2.8) | － | － | 1,090,330 | (4.7) | 33,778 | (3.0) | △ 13.1 | ||||||
| 1935-37 | 6,420,148 | (13.6) | 99,393 | (4.7) | － | － | 6,420,148 | (13.6) | 69,338 | (3.3) | 23.1 | ||||||
| Residual fuel oil | |||||||||||||||||
| 1924-25 | 901,493 | (29.1) | 19,643 | (9.8) | － | － | 901,493 | (29.1) | 19,643 | (9.8) | - | ||||||
| 1926-28 | 5,984,404 | (44.2) | 204,529 | (28.3) | 209,561 | (1.5) | 12,574 | (1.7) | 6,193,965 | (45.7) | 227,720 | (31.5) | 170.6 | ||||
| 1929-31 | 4,771,948 | (40.0) | 244,800 | (49.0) | 287,763 | (2.4) | 16,199 | (3.2) | 5,059,710 | (42.5) | 275,257 | (55.1) | △ 8.4 | ||||
| 1932-34 | 7,926,929 | (34.3) | 383,237 | (34.0) | 983,362 | (4.3) | 46,377 | (4.1) | 8,910,291 | (38.6) | 355,931 | (31.6) | 32.3 | ||||
| 1935-37 | 14,685,306 | (31.1) | 750,330 | (35.6) | 3,209,423 | (6.8) | 105,469 | (5.0) | 17,894,729 | (37.9) | 882,522 | (41.8) | 38.9 | ||||
| Gasoline | |||||||||||||||||
| 1924-25 | 996,017 | (32.1) | 114,002 | (56.9) | 5,470 | (0.2) | 85 | (0.0) | 1,001,486 | (32.3) | 118,556 | (59.1) | - | ||||
| 1926-28 | 1,687,194 | (12.5) | 105,051 | (14.5) | 932 | (0.0) | 53 | (0.0) | 1,688,126 | (12.5) | 86,816 | (12.0) | 22.1 | ||||
| 1929-31 | 1,763,196 | (14.8) | △ 127,589 | 199,072 | (1.7) | 11,768 | (2.4) | 1,962,268 | (16.5) | △ 165,561 | 2.0 | ||||||
| 1932-34 | 11,511 | (0.0) | 297 | (0.0) | 5,424,465 | (23.5) | 233,902 | (20.8) | 5,435,976 | (23.5) | 225,333 | (20.0) | 29.1 | ||||
| 1935-37 | 539,006 | (1.1) | 7,657 | (0.4) | 12,154,563 | (25.7) | 358,333 | (17.0) | 12,693,569 | (26.9) | 352,063 | (16.7) | 31.4 | ||||
| Others | |||||||||||||||||
| 1924-25 | 392,110 | (12.6) | 37,368 | (6.8) | － | － | 392,110 | (12.6) | 37,540 | (18.7) | - | ||||||
| 1926-28 | 1,389,889 | (10.3) | 181,816 | (25.1) | 922 | (0.0) | 36 | (0.0) | 1,390,811 | (10.3) | 188,103 | (26.0) | 32.2 | ||||
| 1929-31 | 2,230,640 | (18.7) | 247,704 | (49.5) | 7,939 | (0.1) | 434 | (0.1) | 2,238,579 | (18.8) | 262,205 | (52.4) | △ 1.2 | ||||
| 1932-34 | 3,021,077 | (13.1) | 379,615 | (33.7) | 4,646,685 | (20.1) | 131,967 | (11.7) | 7,667,762 | (33.2) | 511,702 | (45.4) | 45.6 | ||||
| 1935-37 | 4,266,444 | (9.0) | 662,581 | (31.4) | 5,960,248 | (12.6) | 139,193 | (6.6) | 10,226,692 | (21.7) | 806,196 | (38.2) | 11.1 | ||||
| Total | |||||||||||||||||
| 1924-25 | 3,095,924 | (99.8) | 195,117 | (97.3) | 5,470 | (2.7) | 85 | (0.0) | 3,101,393 | (100.0) | 200,446 | (100.0) | - | ||||
| 1926-28 | 13,336,152 | (98.4) | 712,434 | (98.5) | 211,416 | (1.6) | 12,662 | (1.8) | 13,547,568 | (100.0) | 723,151 | (100.0) | 336.8 | ||||
| 1929-31 | 11,422,976 | (95.8) | 489,498 | (97.9) | 494,774 | (4.2) | 28,402 | (5.7) | 11,917,750 | (100.0) | 499,973 | (100.0) | △ 12.0 | ||||
| 1932-34 | 12,049,847 | (52.2) | 794,715 | (70.5) | 11,054,512 | (47.8) | 412,246 | (36.6) | 23,104,359 | (100.0) | 1,126,743 | (100.0) | 93.9 | ||||
| 1935-37 | 25,910,905 | (54.9) | 1,519,961 | (72.0) | 21,324,235 | (45.1) | 602,995 | (28.6) | 47,235,139 | (100.0) | 2,110,119 | (100.0) | 104.4 | ||||
Source: MSK, Sōgō kessanhyō [Comprehensive financial statements from 13th fiscal period to 40th fiscal period] (from April 1924 to March 1938), Mitsubishi Archives (MA): MC1049-MC1060, MC1062-MC1069, MC1071-MC1075, MC1078, MC1081, MC1084.
Note: In this table, “Risk-benefit and commission” in the “Total” column includes freight commission, agreed-upon margins, conversion margins, and miscellaneous income. Therefore, the sum of each item does not equal the “Total” in the table.
The trading company function that previous studies have emphasized in relation to MSK’s oil trade is the so-called “organizer function” by which it coordinated the interests of multiple companies to promote joint projects. In 1926, revisions to Japan’s tariffs made it more advantageous to import crude oil and refine it in Japan than to import petroleum products such as gasoline/petrol.35 Anticipating these changes in the business environment, MSK began negotiations with Associated Oil in March 1928 to establish a joint venture oil refining company. That led to the establishment of MOC in February 1931 (MSK ed. 1958, 52–54). As a result, MSK and MOC/Associated Oil succeeded in obtaining the same treatment as domestic oil refiners even after the implementation of the Petroleum Industry Act, which was highly restrictive (see footnote 33), and were able to capture a certain share of the Japanese market.36
Needless to say, the sale of MOC-refined gasoline was an important part of MSK’s business from fiscal 1932 onward. For example, of the oil trade for fiscal 1936–37 (5.5 million yen per fiscal year), transactions with MOC accounted for roughly one-third, or 1.9 million yen, per fiscal year. Most of this was for gasoline (1.4 million yen per fiscal year, a 24.7% share of the oil trade for fiscal 1936–37; Table 2). Since all of the crude oil required by MOC to produce gasoline was provided by Associated Oil, MSK’s expanded sales of gasoline meant an increase in crude-oil sales for Associated Oil. One could assert that Associated Oil’s share of crude oil as measured by shipment volume to Japan had a direct link to the establishment of MOC.37
Table 2: Averages in oil trading by MSK (1936–37)
| Product | Associated Oil (A) | Tidewater Oil (B) | A+B | MOC | Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Petroleum, crude | 8,925,805 | (16.2) | － | 8,925,805 | (16.2) | － | 8,925,805 | (16.2) | ||||||||
| Residual fuel oil | 17,589,825 | (31.9) | 328,821 | (0.6) | 17,918,646 | (32.5) | 2,399,092 | (4.4) | 20,630,991 | (37.4) | ||||||
| Gasoline | 373,851 | (0.7) | － | 373,851 | (0.7) | 13,619,298 | (24.7) | 14,011,105 | (25.4) | |||||||
| Lubricating oil | 825,228 | (1.5) | 1,946,479 | (3.5) | 2,771,707 | (5.0) | 972,426 | (1.8) | 3,813,558 | (6.9) | ||||||
| Paraffin wax | － | － | － | － | 4,443,374 | (8.1) | ||||||||||
| Others | 432,519 | (0.8) | 116,992 | (0.2) | 549,511 | (1.0) | 1,680,104 | (3.0) | 3,305,391 | (6.0) | ||||||
| Total | 28,147,228 | (51.1) | 2,392,292 | (4.3) | 30,539,519 | (55.4) | 18,670,920 | (33.9) | 55,130,223 | (100.0) | ||||||
Source: MSK, Kakubu son’eki meisaihyō [Statement of profits and losses from the 37th term to the 40th term] (from April 1936 to March 1938), MA: MC1077, MC1080, MC1083, MC1086.
Note: In this table, “Total” includes others.
As I have already noted, however, the establishment of MOC alone is not enough to explain the expansion of sales at Associated Oil and MSK during the interwar period. This is because Associated Oil’s transactions that were unrelated to MOC, i.e., its direct transactions with MSK, were greater than existing studies have surmised. For example, the 55.4% of the oil trade carried out by MSK in fiscal 1936–37 consisted of direct transactions with Associated Oil and Tidewater, mostly in crude and fuel oil (Table 2). Much of the fuel oil (37.4%) and even a good portion of the crude oil (16.2%), often assumed to have been sold mostly to MOC, was actually sold in substantial quantities to the Japanese market through MSK.38 In the next section, I will examine this point by looking at actual transactions.
2. From Commission Trading to Proprietary TradingAs Table 1 shows, the volume of gasoline that Associated Oil and MSK handled by in fiscal 1924–25 accounted for the greater part of their oil transactions. This is because during this period, MSK was “prioritizing the expansion of its gasoline markets because there was not yet a facility within Japan that could process and supply fuel oil.”39 In order to be able to offer a stable supply of fuel oil, MSK began building oil-storage tanks in various locations, starting with Takao, Taiwan (present-day Kaohsiung), during 1926.40 This series of infrastructure investment was the foundation for accelerating MSK’s fuel-oil transactions from fiscal 1926-28 onward.
MSK explains the company’s relationship with Associated Oil based on the June 1926 agreement between the two companies as follows.
The new contract covered all products such as crude oil, fuel oil (C fuel oil and diesel fuel oil), light oil, kerosene (Cup and Clock brands), gasoline (Cup Motor Spirit and Clock brands), machine oil (Cycol brand mid-grade automobile oil, Avon brand general industrial and automobile oil), and grease, etc. The area covered included Japan, Manchuria, and South Sakhalin. While there was no provision for quantity or volume quotas, transactions were to be made on a commission basis for crude and fuel oil (6%) and on a buy-up system for the other products, which required a certain amount of stock to be always on hand.41
The contract between Associated Oil and MSK stipulated that crude and fuel oil were to be traded on a 6% commission basis while other petroleum products were to be traded on a proprietary basis.42 This was also the case for Mitsui Trading Company (Mitsui Bussan Kaisha, MBK), whose oil sales in the Japanese market took the form of commissions from its U.S. oil refiner partner, General Oil.43 While MBK bore the cost of infrastructure investment for sales, General Oil, in principle, bore the risks of pricing and fluctuating exchange rates.44 This allowed MBK to keep transaction risks to a minimum. Because General Oil set high prices, however, MBK was not able to compete in the Japanese market and struggled to expand its share of crude- and fuel-oil sales—an example, one might argue, of the principal in the principal-agent relationship basing its decisions on insufficient information.
MSK confronted the same problem as MBK, as is evident in the example of the problems that MSK’s first branch faced for fuel oil in Takao.
In the end, we had to contract with the Navy at 33.80 yen per ton based on the Navy’s calculation criteria. As a result, we had no choice but to sell to the Navy at a 10% discount of the agreed price of 38.00 yen between Associated Oil and Takao and were compelled to make up the difference between Associated Oil’s price and the selling price to the Navy from the 6% commission received from Associated Oil.45
MSK’s 1928 fuel oil-sales contract with the Japanese Imperial Navy in Takao set a price of 33.80 yen per ton. The price offered by Associated Oil, the shipper, however, was 10% less than the 38.00 yen per ton originally agreed upon with MSK: 34.20 yen per ton. As a result, MSK had to make up the difference of 0.40 yen per ton from the 2.052-yen commission paid based on the lesser rate. This meant that MSK earned only 1.652 yen per ton, less than the per-ton commission of 2.028 yen that it should have earned based on the contracted price with the Navy of 33.80 yen per ton. Deeming this a “bad precedent,” MSK sought to have “Company A [Associated Oil] accept the 33.80 yen per ton price and pay the 6% commission [based on that amount].”46 A 1936 MSK Fuel Division document mentions the “difference of opinion between the two companies regarding the selling price for EX tank,” referring to it as one of the “extremely troublesome problems” in the fuel-oil trade between Associated Oil and the Takao branch,47 so it is likely that the issue of the discrepancy between the originally agreed price and the selling price continued even after that.
Another problem for MSK was the large amount of non-contractual expenses it had to bear. In outsourcing the sales of its fuel oil to MSK, Associated Oil agreed to bear the cost of 3.30 yen per ton (“agreed costs”) in addition to the contracted commission.48 MSK, in turn, was required to cover the “CIF for shipping to EX tank,”49 that is, the “expenses corresponding to the agreed costs.” As it turned out, however, the “corresponding expenses” always exceeded the agreed costs. The difference of 31,786 yen accumulated in the fuel-oil transactions occurring between October 1927 and September 1935 was borne by MSK, and in order to cover this loss, MSK sought to “add an appropriate amount to the price invoiced to Associated Oil that would make up for the shortfall.”50 Still, the cumulative difference between accounts payable and accounts receivable during the period in question was minus 19,263 yen.
Despite all of this, by the mid-1930s, Associated Oil and MSK had succeeded in “laying the groundwork to establish a monopoly for supplying all naval and general maritime needs”51 in Takao. However, this gain in market share assumed that MSK would make up the difference in discounted fees and bear other costs. For this reason, the Takao fuel-oil deal was perceived as a “painful experience” within MSK.52 The principal, Associated Oil, also failed to provide sufficient incentives for the agent, MSK, to facilitate the transactions.
Learning from this “painful experience,” MSK opted to “continue acting as an agent . . . given that Takao was the source of its fuel-oil sales,”53 but “later decided, with Associated Oil’s agreement, to do away with the commission and change to a buy-up system for all tanks throughout the Japan mainland.”54 This is supported by Table 1 above, which shows that most of the crude oil and fuel oil was traded on own account. In other words, the explanation quoted above from MSK, ed., Ritsugyō bōeki roku describes only the contract between Associated Oil and MSK and does not reflect the state of actual transactions. If one recalls that General Oil (Socony) and MBK retained the system of commission trading, it is evident that Associated Oil and MSK were selling crude fuel oil to the Japanese market in a fundamentally different way.
Table 3: Advantages and disadvantages of MSK trading heavy oil on its own account
| Advantages | Disadvantages | ||||
|---|---|---|---|---|---|
| A | MSK will be able to freely adjust its domestic sales prices and respond flexibly to changes in the market. | Associated Oil is not responsible for the selling price, so in the case of long-term contracts, any increase in cost will hurt profits. | |||
| B | MSK can expect to make a lot of profit because it can buy crude oil by checking the price at the place of origin. | If MSK misjudges the situation in the country of origin, it may incur unexpected losses. | |||
| C | MSK is able to conduct its own operations in areas such as ship allocation and tanker chartering. | Same as above | |||
| D | This eliminates the need to prepare reports, which is necessary for consignment transactions, and saves on labor costs. | MSK is unable to pass on the costs of the transaction to Associated. | |||
| E | MSK will be able to earn foreign exchange gains. | MSK is unable to avoid the risk of foreign exchange losses. | |||
Source: Memo to Suzuki Shirō, general manager, MSK fuel Division, from Makiyama Takematsu, branch manager, MSK Takao Branch, regarding Jūyu hambai hōshin ni kakaru ken [Fuel oil sales guidelines] (July 31, 1936), NARA: RG131/E035/C076.
Given that “the usual way of thinking is that it is safe and advantageous to have commission-based transactions,”55 why did MSK chose to go with proprietary transactions? Naturally, both companies must have felt that the merits of proprietary transactions overrode those of commission-based transactions, but what, exactly, did MSK perceive the advantages to be? The MSK Fuel Division laid them out as shown in Table 3.
A and B indicate issues of discretion within a transaction. As noted earlier, the problem with the commission system in Takao was that Associated Oil, which was not sufficiently informed of local market conditions, had a great deal of discretion, including the authority to determine prices—and, as a result, greater trading discretion, including the authority to determine prices.
There is no data available showing the concrete effects of expanded sales resulting from lowered selling prices. I have therefore chosen to indirectly confirm the effect of sales expansion based on remarks made by Watanabe Shirō, general manager of the Coal Division, at a meeting of MBK branch managers in the summer of 1931.
After MSK partnered with Associated Oil, Associated Oil suddenly increased its oil output and sold crude oil and other products at low prices without restriction. This gave MSK a considerable advantage over us. Later, when the amount of oil produced decreased, Associated Oil was compelled to sell at a discount.56 (Italics mine)
This comment shows that MBK believed that prices accounted for the competitiveness of MSK and Associated Oil. Watanabe seems to imply that Associated Oil was intentionally selling at “low prices without restriction.” As noted earlier, though, this was only happening with Takao; elsewhere, it was MSK that was setting the prices. It is safe to conclude, therefore, that the price competitiveness referred to here was due to MSK’s shift from commission-based trading to proprietary trading.
3. Internalized Freight OperationsThe transition to proprietary trading meant an increase in costs and risks for MSK, but a look at C and D in Table 3 reveals that an effort was made to manage the costs.
The MSK Fuel Division performed several cost-related simulations based on actual examples of commission transactions in Takao. One shows that “market conditions are improving. . . . Freight rates will be cheaper due to a decrease in the number of landings as well as the enhancement of tanks in various areas . . . optimistic figures.”57 The provisional price in the simulation is set at 42.00 yen per ton. In addition to the 6% commission (2.52 yen per ton) paid to MSK, Associated Oil pays the tariff charge (set at 2.00 yen per ton) and 12.00 yen per ton in transportation costs. In this simulation of a commission-based transaction, Associated Oil secures a profit of 60.7% of the sales price, or 25.48 yen per ton—needless to say, this is not Associated Oil’s net profit as the costs of drilling and refining need to be deducted—while MSK secures 6%, or 2.52 yen per ton.
After shifting to proprietary trading, MSK’s goal was to increase its market share by setting prices that were compatible with market conditions while at the same time securing at least the same amount of trading margin as the 6% of the sales price that it had been earning through commission trading. In order to achieve this, the MSK Fuel Division sought to reduce overhead costs by simplifying administrative procedures (D in Table 3) and also tried to control transportation costs, which accounted for just under 30% of the total sale costs, in order to lower the sale price. The element that was supposed to make this possible was internalized freight operations (C in Table 3).
As of July 1, 1934, there were 1,420 tankers in service around the world. Of these, 332 were owned by Standard, 144 by Royal Dutch Shell, and 87 by Anglo-Persian. These global oil refiners, all typical industrial carriers, operated huge fleets of tankers to control the volatility of freight rates.58
In that same year, Japan had 21 tankers (132,755 gross tons/185,044 DWT).59 Most of these were owned by oil refinery companies (Nippon Oil, Asahi Oil, and Ogura Oil) and tanker operators (Nippon Tanker and Iino Shōji). MSK owned three 10,000-DWT class tankers. Two of these ships, the San Diego Maru and the San Luis Maru, were used for Nippon Oil (Nisseki)’s liner service.60 MBK, an MSK rival, observed that “Nisseki’s crude-oil tender has been the winner in this respect due to its chartering of tankers.”61 This appears to prove that MSK’s tanker ownership was effective in acquiring and maintaining commercial rights related to oil trading.
Another ship, the San Pedro Maru, was deployed to transport crude and fuel oil for MSK, the Imperial Navy, Nippon Oil, and MOC.62 Of course, a single ship, the San Pedro Maru, could not carry all the crude and fuel oil, and considering the fluctuations in supply and demand, it would have been rational for MSK to leave room for adjustments to deal with that variability by chartering ships. In fact, 14.8% of the crude and fuel oil transported by the MSK Shipping Division in 1930 was transported by chartered foreign tankers. After 1932, when MSK’s oil trading business began to expand again, the ratio of chartered vessels increased significantly, and the company ordered one new tanker each in 1934 and 1936 to make up for the lack of transport capacity of its own vessels.63
As all of this indicates, owning tankers played an essential role in expanding MSK’s oil trading.64 The focus of this paper, however, is not so much MSK’s competitiveness as a tanker operator but rather the relationship between its own tanker fleet and its trading methods. In other words, MSK’s “oil [transactions] showed coordination between sales and transportation,”65 but this “coordination” only made sense when MSK chose to trade on its own account, bearing the costs and risks of marine transport, as Table 3 shows.66 It is particularly important to emphasize here that having its own fleet of tankers reflected MSK’s strength in oil trading and is inextricably linked to its shift in trading methods.
This paper examined the process by which a medium-sized company that had difficulty in entering export transactions developed its business globally through the use of trading company functions, using case studies of interwar period transactions between the U.S. oil refining company Associated Oil and the Japanese trading company MSK. Associated Oil succeeded in securing a certain share of the emerging Japanese market by utilizing the trading company functions MSK provided, and this paper identified the following two trading company functions that contributed to this success.
One is the “organizer” function. The business model based on the import of petroleum products such as kerosene and gasoline, established by the multinational companies that entered the Japanese market earlier, gradually became obsolete after the late 1920s. This was because the Japanese government’s oil policy favored the business model of importing crude oil to Japan and refining it domestically. MSK was quick to sense this change in the business environment and proposed to its partner Associated Oil the idea of establishing a petroleum-refining company in Japan. The resulting joint venture, MOC, was finally established after many twists and turns and became an important crude-oil client for Associated Oil.67
Breaking down the MSK-brokered oil transactions by product and measuring the contributions thereof, however, one finds that the existing studies’ arguments do not fully explain the significance of the trading company function that MSK supplied. This is because the direct trade of crude and fuel oil by Associated Oil and MSK, without MOC, made a greater contribution to sales than existing studies have acknowledged.
Working from this premise, this paper focused on the trade of crude and fuel oil, which past research has tended to overlook as a subject of analysis. I explored why Associated Oil and MSK were able to maintain a certain share of the Japanese market for crude and fuel oil by examining the shift in trading method from commission to proprietary trading. MSK’s competitiveness as a tanker operator with its own fleet enabled it to adjust to increasing costs as trading methods changed and to act as a regulator to ensure profits and low prices at the same time. Based on the above discussion, this paper concludes that one of the reasons for MSK’s success was that it took over the costs and risks that Associated Oil should have borne under their original contract while at the same time delegating to itself, with its greater knowledge of local conditions and information, the discretionary power to enter transactions. In other words, the second “core function” of a general trading company (sōgō shōsha) that I identified as contributing to Associated Oil’s success was the “trading” function, which the company applied flexibly (see Footnote 7)68 and was the most important function enabling its global activities.
For companies without the necessary management resources for export business, it was difficult to expand into emerging markets with substantial information asymmetry and high country risk. However, these types of companies for example were able to expand their business globally by using trading company functions. As the case study in this paper suggests, the trading company functions supplied by Japan’s trading companies were also available to foreign companies. Trading companies functioned in the interwar period in many ways for the international public good in an environment of progressive economic globalization.
1 This research was supported by JSPS KAKENHI Grants, Nos. JP21H00734, JP18K01732, and JP25301031. In writing this paper, valuable advice was received from Simon James Bytheway (Nihon University), Kikkawa Yō (Mitsui Bunko), Nakamura Naofumi (The University of Tokyo), Naitō Takao (Tokyo Keizai University), Okabe Keishi (Rikkyo University), Ōshima Hisayuki (Takachiho University), and Alexandre Roy (INALCO-IFRAE).
2 Mira Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (Cambridge: Harvard University Press, 1974).
3 Marc J. Melitz, “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,” Econometrica 71, no. 6 (2003).
4 Tanaka Ayumu, Shinshin bōeki riron to wa nanika: Kigyō no ishitsusei to 21 seiki no kokusai keizai [New new trade theory] (Kyoto: Minerva Shobō, 2015), 4–5, 145–147.
5 Anders Akerman, “A Theory on the Role of Wholesalers in International Trade based on Economies of Scope,” Research Papers in Economics, no. 1 (2010), 21–22.
6 Tanaka, Shinshin bōeki riron to wa nanika, 147–149.
7 In Japan, since the mid-1970s, numerous studies have explored the functions of trading companies. One example is the study compiled by the Shōsha Kinō Kenkyūkai, ed., Gendai sōgō shōsha ron [Contemporary general trading company theory] (Tokyo: Tōyō Keizai Shinpōsha, 1975). Hashimoto Jurō claims that the “central function of a sōgō shōsha [general trading company] is the trading function.” He positions the general trading company’s financial and information functions as the “core functions” complementing this “trading function” while defining its organizing and resource development functions as “extensional” functions (Hashimoto Jurō, “Sōgō shōsha no rekishi to genjō” [History and current status of general trading companies], in Sōgō shōsha: Sofuto keizaika e no taiō [General trading companies: Responding to the soft economy], ed. Heiwa Keizai Keikaku Kaigi Dokusen Hakusho Iinkai (Tokyo: Ochanomizu Shobō, 1984), 68). There are thus diverse interpretations of trading company functions. In this paper, our views are based, in principle, on the definitions provided by Jones, but we also refer to the interpretations provided by Shōsha Kinō Kenkyūkai, ed., Gendai sōgō shōsha ron and Hashimoto, “Sōgō shōsha no rekishi to genjō” in our analyses.
8 Geoffrey Jones, Merchants to Multinationals: British Trading Companies in the Nineteenth and Twentieth Centuries (New York: Oxford University Press, 2000), 6, 346. In addition, Jones seems to have included insurance, shipping, and other export-related services provided to client companies in his definition of trading company functions. About this point, the series of historical studies made by Ōshima Hisayuki on the shipping operations of prewar general trading companies constitute the definitive prior research on the subject. In particular, his “Senzenki ni okeru Mitsubishi Shōji no kaiun gyōmu” [Marine shipping business of Mitsubishi Trading Company, Limited in the prewar period], Mitsubishi Archives Review, no. 19 (March 2018) on the shipping business of MSK is the most important prior study for this paper. In this paper, while gleaning from Ōshima’s findings, I will also touch on the “relationship between MSK’s oil business and tanker operations” (Ōshima, “Senzenki ni okeru Mitsubishi Shōji no kaiun gyōmu,” 154), a subject that Ōshima has yet to tackle.
9 If the “firm heterogeneity model” of Melitz and Ackermann is to be used for analysis, the criterion should be corporate productivity. As this paper does not have data that would allow me to extract the productivity of U.S. oil companies during the interwar period, however, I have used corporate asset size as a proxy indicator.
10 In 1920, the top 30 companies accounted for 71.6% of the refining capacity in the U.S. Associated Oil ranked 12th with a 2.8% share (John G. McLean and Robert William Haigh, The Growth of Integrated Oil Companies (Boston: Harvard University Graduate School of Business Administration, 1954), 528), making it a mid-sized company in terms of refining capacity.
11 Doi Osamu, Beikoku sekiyu sangyō saihensei to taigai shinshutsu (1899-1932) [Reorganization of the U.S. petroleum industry and overseas expansion 1899-1932] (Tokyo: Ochanomizu Shobo, 2000), 337, Ōishi Naoki, “Mitsubishi sekiyu no setsuritsu kōshō to ishikettei prosesu” [Negotiation and decision on the foundation of Mitsubishi Oil Co., Ltd.], Mitsubishi Archives Review, no. 18 (March 2017), 109. See Ōishi, “Mitsubishi sekiyu no setsuritsu kōshō to ishikettei prosesu” for a history of how Associated Oil and Tidewater came to merge.
12 Kawabe Nobuo, Sōgō shōsha no kenkyū: Senzen Mitsubishi Shōji no zaibei katsudō [A study of general trading companies: MSK’s trading activities in the U.S. before World War II] (Tokyo: Jikkyo Shuppan, 1982) and Ōishi, “Mitsubishi sekiyu no setsuritsu kōshō to ishikettei prosesu”, using the Japanese Corporate Records (JCR) held by the U.S. National Archives and Records Administration (NARA), touch on MSK’s oil transactions in the prewar period. While they detail the negotiation process between MSK and Associated Oil regarding the establishment of Mitsubishi Oil, they do not fully analyze the oil transactions themselves. This paper aims to recreate the oil transactions of Associated Oil and MSK, lacking in existing studies, so as to identify the trading company functions that were involved.
13 This analysis is based on Japanese Company Records (JCR) held by the U.S. National Archives and Records Administration (NARA) and the deposited records of MSK in the collection of the Mitsubishi Archives (MA). Normally, ExxonMobil materials, including those of Standard and Socony Vacuum, which had a large share of the Japanese market during the interwar period, should also be referenced (Miwa Munehiro, “Tekisasu Daigaku Ōstin kō, Burisukō Sentā (Dolph Briscoe Center for American History) no riyō gaido: Exxon Mobil shiryō o chūshin ni” [How to use the Dolph Briscoe Center for American History, the University of Texas at Austin: A guide for researching the Standard Oil Company and Exxon Mobil collection], Kyushu University Library, Research and Development Division Annual Report, 2015/2016, (August 2016)), but due to travel restrictions stemming from the COVID-19 pandemic, this was not possible. I hope to have the opportunity to do so in the future.
14 Iguchi Tōsuke, Gendai Nihon sangyō hattatsushi II: Sekiyu [Industrial development history of modern Japan II: Petroleum] (Tokyo: Gendai Nihon Sangyō Hattatsushi Kenkyūkai, 1963), Statistical table, 14–17.
15 Itō Takashi, Nyū Jājī Sutandādo Sekiyu Kaisha no shiteki kenkyū: 1920 nendai shotō kara 60 nendai matsu made [Historical study of New Jersey Standard Oil Company: Early 1920s to late 1960s]. (Sapporo: Hokkaido Daigaku Tosho Kankōkai 2004), 45, 48, Itō Takeo, “Dai ichiji taisengo no yunyū gen’yu seisei: Kabushikikaisha Sekiyu Kyōdō Hanbaisho no jirei” [The refinement of imported crude oil in Japan after World War I: A case study of Sekiyu Kyōdō Hanbaisho Co.], Ritsumeikan sangyō shakai ronshū 45, no. 2 (September 2009), 18.
16 Department of Commerce Bureau of Foreign and Domestic Commerce (DOC), Foreign Commerce and Navigation of the United States (FCN) for the Calendar Year 1920 (Washington, D.C.: United States Government Printing Office, 1921), 355–356.
17 DOC, FCN 1927, 91, DOC, FCN 1936, 440–441.
18 Ministry of Finance, Japan, ed., Taishō 9 nen Dainippon gaikoku bōeki nenpyō pāto I [1920 Annual return of the foreign trade of the Empire of Japan] (Tokyo: Ministry of Finance, Japan, 1921), 383–384, Ministry of Finance, Japan, ed., Taishō 14 nen Dainippon gaikoku bōeki nenpyō pāto I (Tokyo: Ministry of Finance, Japan, 1927), 329–330, Ministry of Finance, Japan, ed., Shōwa 3 nen Dainippon gaikoku bōeki nenpyō pāto I (Tokyo: Ministry of Finance, Japan, 1930), 442–444.
19 Ministry of Finance, Japan, ed., Shōwa 11 nen Nippon gaikoku bōeki nenpyō pāto I (Tokyo: Ministry of Finance, Japan, 1938), 841–844.
20 Iguchi, Gendai Nihon sangyō hattatsushi II, 212.
21 The Japanese branches of Vacuum Oil Co. and Socony, which entered the Japanese market one after another around 1892–93, were integrated into the Japanese branch of Socony-Vacuum Co. after the merger of the two companies in 1931. In addition, in 1933, Standard-Vacuum Oil Co. (Stanvac) was established based on the assets that the company and Standard Oil Co. of New Jersey had in Asia, Oceania, and other regions, and the Socony-Vacuum Japan Branch was absorbed into the Stanvac Japan Branch (Kikkawa Takeo, Nihon sekiyu sangyō no kyōsōryoku kōchiku [Formation of competitiveness by the Japanese oil industry] (Nagoya: The University of Nagoya Press, 2012), 36, Itō Takashi, 144). As described above, the business entities of the Standard companies in the Japanese market changed rapidly. In this paper, in order to avoid complications, I refer to them collectively as Socony before 1933 and Stanvac thereafter.
22 Consequently, there is a large body of research on the activities of both companies in the Japanese market. For example, Kikkawa, Nihon sekiyu sangyō no kyōsōryoku kōchiku details the activities of Standard Oil and its affiliates. Miwa Munehiro, Taiheiyō sensō to sekiyu: Senryaku busshi no gunji to keizai [The Pacific War and oil: The military and economy of a strategic material] (Tokyo: Nihon Keizai Hyouronsha, 2004) and Ueyama Kazuo, Hokubei ni okeru sōgō shōsha no katsudō: 1896–1941 nen no Mitsui Bussan [Trading activities of general trading companies in North America: MBK from 1896 to 1941] (Tokyo: Nihon Keizai Hyouronsha, 2005) examine the oil trading activities of MBK, which partnered with General Oil and a Standard affiliate. Kikkawa Takeo, “1934 nen no Sekiyugyōhō no seitei katei to Roiyaru Dacchi Sheru: Gaikoku kigyō no Nihon shijō sannyū to sono hatten ni kansuru kenkyū” [The Royal Dutch Shell during the process of the enactment of the 1934 Petroleum industry law], Aoyama keiei ronshū 28, no. 1 (September 1993) discusses the activities of Rising Sun in relation to the Petroleum Industry Act, which will be discussed later, and Yamauchi Masato, “Eikoku Samyueru Shōkai no gurōbaru tenkai to Nihon” [The Global strategy of Samuel & Co. in Japan], Hiroshima Keizai Daigaku kenkyū ronshū 29, no. 4 (March 2007) focuses on the trading activities of Samuel & Co., which laid the foundation for Rising Sun and its oil trading.
23 Kikkawa Takeo, “1934 nen no Nihon no Sekiyugyōhō to Sutandādo Bakyūmu Oiru Kanpanī (2)” [Japan’s Petroleum industry law of 1934 and the Standards-Vacuum Oil Company (2)], Aoyama keiei ronshū 24, no. 2 (September 1989), 70–71.
24 According to Kikkawa’s paper, Stanvac and Rising Sun sold 3.1 and 5.9 million barrels of petroleum products (not including crude oil), respectively, in the Japanese market in 1933 for respective market shares of 15% and 28%. In contrast, “domestic oil companies” accounted for 10.9 million barrels, a share of 51% (Kikkawa, “1934 nen no Nihon no Sekiyugyōhō to Sutandādo Bakyūmu Oiru Kanpanī (2),” 64–65).
25 Tatsuki Mariko, “Kaiun fukyō to teikisen no gōrika: Osaka Shōsen no kēsu” [Streamlining of O.S.K. under depressive economic conditions in the 1920’s and 1930’s], Shakai keizaishigaku 52, no. 3 (August 1986), 4. In addition to Tatsuki’s paper, see my discussion of the dieselization of ships by Japanese shipping companies in the interwar period and its significance and limitations in Yagashiro Hideyoshi, “Osaka Shōsen no sekkyoku keiei to Nanbei kōro” [Aggressive management by Osaka Shōsen Kaisha and the South American route], in Jitsugyōka to Burajiru ijū [Japanese businesspeople and emigration to Brazil], ed. Shibusawa Eiichi Kinen Zaidan Kenkyūbu (Tokyo: Fuji-shuppan, 2012).
26 Iwama Satoshi, Asia Taiheiyō sensō to sekiyu: Senbi, senryaku, taigai seisaku [The Asia-Pacific War and oil: Armaments, strategy, and foreign policy] (Tokyo: Yoshikawa Kōbunkan, 2018), 90, 92.
27 Kawabe, Sōgō shōsha no kenkyū, 54–55.
28 Mitsubishi Shōji Kaisha, ed., Ritsugyō bōeki roku [Corporate records of foreign trade enterprises] (Tokyo: MSK, 1958), 50–51.
29 Ibid., 51–55. The main purpose of MSK’s alliance with Tidewater was to procure high-grade lubricating oil. As shown in Table 1 below, this transaction played a significant role in the composition of MSK’s profits, but I have chosen not to take it up in this paper in order to maintain a focus on my main objectives.
30 Simon James Bytheway, Investing Japan: Foreign Capital, Monetary Standards, and Economic Development, 1859-2011 (Cambridge: Harvard University Asia Centre, 2014), 163–164.
31 “All sales will be handled by MSK. In the case of consignment sales, the commission will be 6%. This rate is to be revised every 6 months but never to exceed 6%. MSK is responsible for collection of payment. If, two and a half years after the start of production by the new company, the vice president finds that it is disadvantageous to the new company to consign sales to MSK, the contract may be terminated at any time with six months’ notice (sales areas include Manchuria and Western Siberia in addition to the Empire of Japan).” “MSK may continue to sell Associated Oil and Tidewater products as per the current contract, but in the case of crude oil and other products for the new company, MSK will decline any handling fees or sales profits” (Mitsubishi Shōji Kaisha, ed., Ritsugyō bōeki roku, 54).
32 Mitsubishi Sekiyu Kabushikikaisha Shashi Hensan Iinkai, ed., Mitsubishi Sekiyu 50 nenshi [50 years of MOC history] (Tokyo: Mitsubishi Sekiyu, 1981), 22.
33 The Petroleum Industry Act, which came into effect in July 1934, required licensing for (1) the refining and importing of petroleum and government approval of (2) the business plans of petroleum companies while at the same time also imposing on petroleum companies (3) an obligation to maintain petroleum inventory. Of these requirements, Stanvac and Rising Sun were particularly vehement in their opposition to (3), which meant an increase in inventory. In addition, the Ministry of Commerce and Industry, which sought to foster domestic refiners, allocated the natural increase in product sales quotas to Nippon Oil, Ogura Petroleum, and MOC, which gradually reduced the sales shares of Stanvac and Rising Sun (Naitō Takao, “Senkanki no sekiyu sangyō no henka to dokusen no seiritsu” [The transformation of the Japanese oil industry and the formation of monopolies in the interwar period], in Nihon keizai no kōzō to hensen [Structure and transition of the Japanese economy], ed. Takeda Haruhito, Ishii Susumu, and Ikemoto Yūichi (Nihon Keizai Hyouronsha, 2018), 206–207.
34 Although tariffs on petroleum products were frequently raised, a significant portion of imported fuel oil was exempted from taxation under the special exemption system for fuel-oil import taxes established in 1920. In 1936, around 90% of imported fuel oil was duty free (Takeda Haruhito, “Nenryōkyoku sekiyu gyōsei zenshi” [Pre-history of petroleum administration by the Bureau of Fuel], in Tainichi baishō no suii: Nenryōkyoku sekiyu gyōsei zenshi [Transition of compensation policy toward Japan and pre-history of petroleum administration by the Bureau of fuel], ed. Sangyō Seisakushi Kenkyūjo (Tokyo: Sangyō Seisakushi Kenkyūjo, 1979), 185, 217–218.
35 Kikkawa, Nihon sekiyu sangyō no kyōsōryoku kōchiku, 56.
36 Ibid., 58. For example, in 1931, MSK’s share of gasoline sales in the Japanese market was just under 3%, but according to the volume quota decided by the Japanese government in August 1934, the company’s share was 9.04% (Ibid., 73, MOC, 42–43).
37 Kikkawa, “1934 nen no Nihon no Sekiyugyōhō to Sutandādo Bakyūmu Oiru Kanpanī (2),” 70–71.
38 Mitsubishi Oil processed 266,124 kiloliters of crude oil in fiscal 1937, which, if converted at the rate of 1 kiloliter = 6.28981 barrels, amounts to 1,673,869 barrels (Mitsubishi Shōji Kaisha, ed., Ritsugyō bōeki roku, 55). In contrast, MSK handled 1,381,245 barrels of crude oil in the same fiscal year (Mitsubishi Shōji, Dai 39 ki kakubu son’eki meisaihyō: Kankeitenbetsu no mono [Statement of profits and losses for the 39th term] (September 1937), MA: MC-1083, Dai 40 ki kakubu son’eki meisaihyō: Kankeitenbetsu no mono (March 1938), MA: MC-1086), which was equivalent to more than 80% of the crude oil processed by Mitsubishi Oil. A significant amount of the crude oil exported to Japan by Associated Oil was sold through Mitsubishi.
39 MBK Headquarters, Business Division, Taishō 15 nendo kamihanki gyōmu sōshi [Taisho 15, first half-year business journal] (July 1926), 107, Mitsui Bunko Collection (MRI): Bussan 2673/5. Gasoline, kerosene, and machine oil were imported in drums, so they could be stored in hazardous materials warehouses. In addition, since crude oil was delivered to the seller in tanks, there was no need for oil-storage facilities (Mitsubishi Shōji Kaisha, ed., Ritsugyō bōeki roku, 62).
40 Mitsubishi Shōji Kaisha, ed. Ritsugyō bōeki roku, 62.
41 Ibid., 51.
42 The conceptual specification of “commission trading” and “proprietary trading” relies on the following interpretation put forward by Meng Zimin. “The term ‘own account businesses’ refers to a transaction in which a party to the purchase and sale of a commodity purchases a commodity from a manufacturer and sells it to a customer under its name, based on its calculations and at its own risk, and earns income from the difference between the purchase and sale prices. On the other hand, a commission transaction, or ‘business on commission,’ is when a customer entrusts an agent with a transaction and pays the agent a specific fee. Usually, the former is considered a transaction conducted primarily by commercial capital, while the latter is merely a consignment sale subordinate to industrial capital.” (Meng Zimin, “Sōgō shōsha ni okeru koa kinō no kōzō henka ni yoru bijinesu moderu no saikōsatsu” [Restructuring business models through structural changes in core functions in general trading companies], Innovation Management 5 (March 2008), 128.
43 Ueyama, Hokubei ni okeru sōgō shōsha no katsudō, 456–465.
44 Later, General Oil became a subsidiary of Socony, but transactions were still conducted on a commission basis (MBK Document section, Dai 10 kai (Shōwa 6 nen) shitenchō kaigi gijiroku [Minutes of the tenth branch managers’ meeting] (1931), 291).
45 Nomura Shunkichi shi Beikoku shucchō ni tsuki uchiawase jikō [Discussion on Mr. Nomura Shunkichi’s business trip to the U.S., March 24, 1928], MSK Documents, Rikkyo University: C386. MSK Documents are a compilation of selected materials related to MSK that were copied by Ueyama Kazuo from NARA’s JCR collection and brought back to Japan. The compilation is scheduled to be donated to the MRI but is being stored at Rikkyo University for the time being. Unfortunately, the copies in the compilation do not have the NARA request number that should be attached to each document. Since it is difficult to crosscheck the data retrospectively, this paper uses the reference numbers given by Rikkyo University.
46 Ibid.
47 Memo to Takeuchi Shun’ichi, general manager, San Francisco branch, MSK, from Suzuki Shirō, general manager, MSK Fuel Division, regarding A-sha jūyu hanbai seisaku ni kakaru ken [Company A’s fuel-oil sales policy] (June 24, 1936), NARA: RG131/E035/C075.
48 Memo to Takeuchi Shun’ichi, branch manager, MSK San Francisco branch from Suzuki Shirō, general manager, MSK Fuel Division, regarding A-sha itaku jūyu shokakari shihyo no ken [Cost sheet for fuel-oil consignment transactions with company A] (February 21, 1936), NAA: RG131/E035/C076.
49 Memo to Takeuchi Shun’ichi, general manager, San Francisco branch, MSK, from Suzuki Shirō, general manager, MSK Fuel Division, regarding Takao itaku jūyu kyōteishogakari no ken [Takao consignment fuel-oil agreement, miscellaneous matters] (September 7, 1935), NARA: RG131/E035/C076.
50 Ibid.
51 Memo to Suzuki Shirō, general manager, MSK Fuel Division, from Makiyama Takematsu, branch manager, MSK Takao branch, regarding Jūyu hanbai hōshin ni kakaru ken [Fuel-oil sales guidelines] (July 31, 1936), NARA: RG131/E035/C076.
52 Memo to Takeuchi from Suzuki Shirō, A-sha jūyu hanbai seisaku ni kakaru ken.
53 MSK Fuel Division, Buchō jimu hikitsugisho [Notes for transfer of position of general manager] (July 1934), MA: MC-647.
54 Memo to Takeuchi from Suzuki Shirō, A-sha jūyu hanbai seisaku ni kakaru ken. According to this document, the switch to proprietary trading was “against the basic contract with Company A, and Company A later proposed to revise the contract, but …… this was merely a matter of exchanging a memorandum of understanding with Company A.” In other words, the contract entered into by the two companies was never revised, and the change was instead handled as an operational matter.
55 Memo to Takeuchi from Suzuki Shirō, A-sha jūyu hanbai seisaku ni kakaru ken.
56 MBK Document section, Dai 10 kai (Shōwa 6 nen) shitenchō kaigi gijiroku, 293.
57 Memo to Takeuchi from Suzuki Shirō, A-sha jūyu hanbai seisaku ni kakaru ken.
58 Wakimura Yoshitarō, Yusōsen no kenkyū [Research on oil tankers] (Privately printed book, 1982), 42, 62. Major oil companies continued to maintain large tanker fleets after the war, developing a vertically integrated business including everything from crude oil extraction to product sales. Chida Tomohei cites the following advantages of this approach: (1) stable supply and control of oil inventory, (2) flexible adaptation to various port facilities in different regions, (3) lower transportation costs, and (4) improved bargaining power in chartering transactions based on experience and knowledge of tanker operations (Chida Tomohei, Kaiun sangyō ron [Shipping industry research] (Tokyo: Chikura Publishing, 1978), 66–78). On the other hand, it has been pointed out that in the late nineteenth century, Samuel & Co. attempted to improve the efficiency of tanker distribution through syndicates based on joint accounts rather than the vertical integration strategy chosen by the major oil companies (Yamauchi, “Eikoku Samyueru Shōkai no gurōbaru tenkai to Nihon”: 122–123).
59 Takano Susumu, ed., Shōwa 9–10 nendo Nihon senpaku meibo [List of Japanese vessels in the 1934–1935 fiscal year] (Kobe: Nihon Kaiun Shūkaijo Shuppanbu, 1934), 20, 27, 36, 38, 66, 68, 70, 72–76, 131–132, 830, 889, 970, 972, 1026, 1037–1038.
60 MSK Shipping Division, Senpaku-bu jimu hikitsugisho [Notes for transfer of Shipping Division matters] (May 1932), MA: MC-713.
61 MBK Business Division, Shōwa 3 nen shimohanki gyōmu sōshi [1928 second half-year business journal] unknown date, MRI: Bussan 2673/7.
62 From Senpaku-bu jimu hikitsugisho. See above.
63 Mitsubishi Shōji Kaisha, ed., Ritsugyō bōeki roku, 887, Ōshima, “Senzenki ni okeru Mitsubishi Shōji no kaiun gyōmu,” 153.
64 In a 1935 report, MSK Fuel Division’s Mitani Yūichirō wrote, “Unlike other companies, our company has four 10,000-ton class tankers and plans to increase this number. It would be unwise to be half-hearted in drafting our fuel-oil sales plans,” Jūyu hoyū-yō tanku zōsetsu no hitsuyō to kongo jūyu hanbai keikaku no kakuritsu ni tsukite [Regarding the need to increase fuel-oil tankers and drafting future fuel-oil sales plans], Mitani Yūichirō, MSK Fuel Division, May 1935. NARA: RG131/E035/C075. Owning tankers was understood, at least by those in charge of crude and fuel-oil trading, as a factor that would enhance MSK’s competitiveness.
65 Ōshima, “Senzenki ni okeru Mitsubishi Shōji no kaiun gyōmu,” 154.
66 In a commission-based transaction where Associated Oil bore transport costs, MSK was positioned as one of the tanker operators. Although MSK was able to earn fare revenue from Associated Oil in this way, it was at the same time under constant pressure to lower its fares. If MSK refused, Associated Oil could either use its own tankers (Associated Oil owned 24 tankers in the group; Watanabe Shirō, “Sekai sekiyukai ni okeru dai sekiyukaisha no ryōiki narabini sono kikō” [The domain and structure of the major oil companies in the world oil industry], Kaiun, nos. 153 and 155 (February and April 1935), 44–45) or charter tankers with lower freight rates than MSK. In short, if MSK continued with commission trading, the freight rates paid by Associated Oil would be dictated by the charter market, thereby destabilizing MSK’s ability to earn freight revenue and secure cargoes. Therefore, if MSK continued to trade only on a commission basis, there would be no incentive to invest a large amount of capital to purchase its own tankers. In this connection, MBK, which had a tanker fleet much larger than that of MSK, did not own its own tankers until 1936 (Mitsui Senpaku, ed., Sōgyō 80 nenshi [80-year history of Mitsui Lines, Ltd.] (Tokyo: Mitsui Senpaku. 1958, 192–193). One of the reasons for this, according to Wakimura Yoshitarō, was that MBK had “a commission contract for fuel oil with General Oil, one of the five major oil companies in California. However, this contract stipulated that tankers owned by General Oil would be used for transportation and that MBK would only provide sales facilities for the oil depots in Japan” (Wakimura, Yusōsen no kenkyū, 262–263). In other words, MBK did not own tankers because it was conducting commission-based business with General Oil (see footnote 44).
67 Chapter 2 of Kikkawa, Nihon sekiyu sangyō no kyōsōryoku kōchiku describes in detail how Socony and Rising Sun, which were the first to directly enter the Japanese market, failed to adapt to the changing environment and did not develop their refining businesses in Japan.
68 The flexibility of the “trading function” in this paper is based on Kikkawa Takeo’s view that “a sōgō shōsha can flexibly change its position and function at any point within the entire supply chain, and……it is competitive market conditions that dictate such changes” (Kikkawa Takeo, “Shohyō, Oikawa Yoshinobu, Sunaga Noritake, Yagashiro Hideyoshi, Rikkyō Daigaku Keizaigakubu, eds., Shokuminchi Taiwan no keizai to shakai” [Book review : Economy and society in colonial Taiwan], Rikkyō Keizaigaku Kenkyū 65, no. 4 (March 2012), 157.
