JAPANESE GENERAL TRADING COMPANIES: AN ANALYTICAL PERSPECTIVE

Japanese soqo-shosha, the general trading companies, constitute a unique institution in the decentralized economies. Various case studies on soqo-shosha indicate that its raison d'etre are manifold; historical, institutional, and economic. From the economist's point of view, however, their existence presents an interesting opportunity to analyze the division of labor between the manufacturer, the trading intermediary and the final output users. In a competitive situation with full information, selling and buying hardly requires any effort for a manufacturing firm. Some kind of market imperfection may account for the emergence of trading companies similar to Japanese soqo-shosha.;In my second model the scale and scope economies involved in the sales activities of manufactured goods are examined. Marketing costs are both general and specific. The soqo-shosha is seen to possess scale economies in "general" market information and sales effort. Yet, the manufacturing firm can reduce its "specific" marketing cost over time through learning-by-doing. Depending upon the trade-off between these two advantages, the manufacturing firm will decide its choice of marketing channels.;More extensive economic interpretations are given to the models, especially in the context of Japan's unique environment. Policy implications for other countries are also examined.;In my first model, a monopolistic general trading company appears as a risk-mitigating trading intermediary between the competitive upstream and downstream industries. Uncertainty and risk are introduced by making the level of output stochastic. The risk-aversion of the small-scale firms is assumed to represent imperfections in capital borrowing and lending. With better access to capital, a large monopolistic trading firm can offer a contractual arrangement that will promise a fixed sum of payment to the upstream firms regardless of their actual output levels--ex post factor, and thus enter the market to earn profits.