Role of the Japanese trading company in setting world coal prices

Introduction There has been much said recently about the sophistication of Japanese management in turning out reliable, inexpensive products, such as cars and steel. Techniques include consensus management and quality control circles. These have been touted as prime reasons for inexpensive Japanese products. An often neglected, but major factor in the equation of cheap export goods is the role played by Japanese trading companies. These venerable institutions are a vital factor in Japan's overall strategy of keeping the price of raw materials at the absolute lowest levels. This is critical to the country's economy since the nation must import more than 85% of all its coal. A country that is so desperate for imported raw materials would appear, at first glance, to be at the mercy of its suppliers. In Japan's case, however, the opposite is true. With the exception of brief' windows in 1974-75 and 1980-81, Japan has been in the driver's seat in negotiating contract terms. Due to its dominant role in world coal trade, Japan's situation can be described as a de facto monopsony. By definition, a monopsony is a market situation where the product, in this case coal, is offered by many sellers, but is sought by one buyer. This has been due to the role of Japanese trading companies in dealing with suppliers. Table I depicts trading companies by size in 1982. Mitsubishi and Mitsui are overshadowing in terms of size. The others, though less significant, play a vital role in orchestrating the marketplace. Three critical building blocks on which the strategy of the trading companies are based include intelligence networks, exceptional training of company traders, and shrewd contract negotiation practices. Intelligence Networks All success is derived from these three key components. Of the three blocks, intelligence gathering is the most important. With all the sophistication of the Central Intelligence Agency, the Federal Bureau of Investigation, Interpol, and the Surete', the Japanese trading company's method is every bit as competent and far more gentlemanly. Friendly competition is the key to survival. Although one Japanese trading company appears to be in ardent competition with its rival Japanese trading companies, when studied closely, a totally different picture emerges. The end user nominates certain trading companies as market channels and informally guarantees they will receive compensation regardless of which company wins a specific order. With this concept in mind, the pressure is off. The trading company can aim at getting the best price for the end user. Therefore, bargain, beat, and share information. Do whatever is necessary, but get the lowest price for the end user. Even with the game so gentlemanly, no victory could be assured without an adequate intelligence network. Proper intelligence is only as good as the sources drawn from. But how is one assured of getting the right information? The answer is verification. Verification is comprised of numerous independent sources each cross checked at a central processing unit in Tokyo. Each major Japanese trading company receives input, not only from its own trader, but from other trading companies as well. In addition to their own compilation, trading companies rely on the The Coal Manual, published annually in Tokyo by TEX. This manual covers every major coal producing country. Mines are located and seams identified, mining recovery, equipment lists, washing yield, railway distances