The President's New Year Message for 2011

Jan. 04, 2011
Susumu Kato
President and CEO, Sumitomo Corporation

The President's New Year Message for 2011

"Growing Together"

Happy New Year! I extend New Year's greetings from headquarters here in Tokyo to all the members of the Sumitomo Corporation Group around the world.

How did you spend your holidays? I enjoyed a leisurely break, spending some time at hot springs not far from my home and taking some walks. And so now I feel refreshed in body and spirit as we start the new year.

The environment for our company

Looking back over world economy in 2010, we see that the first half of the year brought a recovery powered by stimulus measures adopted to counter the global financial crisis and by steady growth in the emerging economies. But in the second half, the effects of the stimulus measures wore off, and inflation advanced in the emerging countries, while sovereign risk emerged again as a concern in some of the developed countries. More than two years have already passed since the start of the financial crisis, but the overall trend worldwide continues to be toward repairing balance sheets and reducing leverage, and the instability resulting from the financial crisis has remained over the year-end.

Meanwhile, the international scene has witnessed the further rise of China's presence with the holding of the Beijing Olympics and of Expo 2010 in Shanghai; that country has grown to become the world's second-largest economy. In developed countries, meanwhile, we have seen parties in power lose popular support and control of legislatures become split. Also, international tension has increased, and it seems fair to say that 2010 was a year of lessened political stability.

Sumitomo Shoji Research Institute has forecast that 2011 will be "a year when the economy will stop marking time and pick up speed again." The outlook is for last year's instability to linger on into the first half of the year but for the second half to bring a full-fledged recovery in the developed countries; China, meanwhile, is expected to maintain its strong economic growth as it heads toward the change of leadership scheduled for 2012. In my New Year's greeting last year I spoke of the paradigm shift occurring in today's world, including the shift in the global power structure and the shift in industrial structures. In the context of this ongoing set of changes, we can say that this will be a year in which the global economy will get back its recovery power.

The Aritai Project

We at Sumitomo Corporation, along with those in Japan's other sogo shosha, or integrated trading companies, have continued to reexamine our proper function and role in the context of the history of economic and industrial development up to now, and we have advanced along with global society, developing our functions along with the changing times while responding to the needs of each period.

Today, in the context of the paradigm shift that is bringing great changes in the economic structure, the expectations directed at sogo shosha by global society are growing as never before. As a company that is deeply involved in various industries and that has built a global business foundation, we have boundless opportunities for business activities.

Strongly aware of this change in our environment, last year we launched the Aritai Project to examine what we "want to be" (the meaning of aritai in Japanese) as a company. One of the objectives of this project was to have people in each organizational unit pause and review points like these: Can we further support the advance of global society? By doing so, can we further come up with the energy for our own company's growth over the medium to long term? And what aspects of our company should we improve or change for this purpose? It was my hope to have people in our company relate the paradigm shift of our times and the ongoing global transformation to our own business activities and think in concrete terms about what we should be doing now.

Another hope that I had in implementing this project was to have individual employees on the front lines break out of their everyday shells and talk to each other about issues from a loftier, broader perspective, looking at a decade-long time frame, and to share their "growth stories" with each other--a process to be followed by enthusiastic action aimed at making these visions come true. I hoped that this would generate momentum for everybody to work with even greater autonomous initiative and proactive spirit. I am confident that those who participated have transmitted their energetic enthusiasm to the people around them, thereby fulfilling the project's purpose.

I am also happy to see that, following the October Presentation Meeting, the concept has been taken up in the respective organizational units and has led to joint undertakings and mutual human resources development across organizational dividing lines. This meeting wrapped up the company-wide undertaking, but I intend to hold on cherishingly to the concept of this project--namely, that creating a medium- to long-term vision will lead us to better clarification and sharing of our current issues and strategies.

Completion of FOCUS'10 and launch of new medium-term management plan

This year will bring the completion of FOCUS'10, our current medium-term management plan, and the start of a new medium-term management plan. Under FOCUS'10, aiming for the achievement of medium- to long-term growth, we have been working at steady implementation of a value-creating cycle involving (1) construction of foundations, (2) enhancement of added value, and (3) earnings growth while striving to strengthen our soundness and efficiency and taking advantage of diversity.

Thanks to the efforts all of you have been making on an everyday basis, our results for the first half (April-September) of the current fiscal year were good, and as a result we raised our outlook for consolidated net income for fiscal 2010 to ¥200 billion. This is the plateau we had reached in and before fiscal 2008. I feel great pride in the hard work by all of you, thanks to which we have been able to overcome the effects of the global financial crisis and recover to this level of earning power. I think this is a result of the steady implementation of FOCUS'10.

In April this year we will launch our new medium-term management plan. While carrying on the basic thinking of FOCUS'10, which was formulated with a view to the coming 10 years, the new plan will aim for additional great development for our company with emphasis on the further acceleration and enhancement of our value creation cycle.

Specifically, we will move with a sense of urgency and even more actively than last year to replace existing assets with ones offering greater earnings and growth potential by thoroughly reexamining the business models and assets that we have cultivated so far. In order to achieve sustained growth, we must constantly stay a step ahead in dealing with changes in the times, and we shall shift to new business models. Contact with new businesses creates opportunities for vigorously tackling the challenge of creating new value, and this makes it possible for people to achieve great growth. I believe that this sort of personal growth leads to growth for our company. For the sake of the sustained growth of the SC Group, I intend to pursue the shift to new business models even more energetically under the next medium-term management plan.

Turning growth opportunities into reality

We are at a historical turning point that some people say is the greatest since the Industrial Revolution, and our company finds itself with a broad range of fields in which we can play an active role. We must take these as opportunities for growth and do our best to turn as many of them as possible into reality. In this connection, I believe that it is important for us to achieve growth of the following three sorts:

First is "growth in global human resources" so as to realize the business opportunities that are expanding as a result of the shift in the global power structure--in other words, cross-regional growth.

Sogo shosha and indeed companies of every sort are now engaged in fierce global competition, which extends from the developed countries to the emerging countries. This makes it all the more important to have personnel who are well versed in the needs and business processes of each particular country and who can operate from a global standpoint. Having opportunities for growth lying in front of us is not the same as being able to turn them into reality. Needless to say, business depends on the people who undertake it. In order to avoid missing opportunities, I intend to support the growth of our global human resources with a sense of urgency. And for this purpose I will increase the opportunities for all of you to be active in your respective regions.

Second is "growth across generations" so as to achieve sustained growth over time--in other words, cross-temporal growth.

In order for the company to grow, we must enhance our abilities at the individual level, but at the same time I want everybody to have a higher level of awareness: Do not focus just on your own growth, but also help your colleagues and subordinates grow. Let us achieve growth by inspiring each other through heartfelt communication. In other words, I hope to see efforts for "cross-generational teamwork" along with personal enhancement, and I expect this will further enhance the pace and level of our individual growth.

Supporting the growth of the human resources of the next generation is a basic posture in keeping with the "utmost respect for the individual" that is part of our Management Principles, and it is an idea that we have inherited from Sumitomo's business philosophy. The Sumitomo Group has a history of 400 years and our own company a history of 90 years, made possible by the unbroken line of people who have served as the organizations' assets over the years. We are here, I believe, thanks to the efforts of our predecessors. To make our company one that can continue to grow for another 100 years and 200 years, it is important for us to look with humility at ourselves and constantly give the next generation the opportunities and motivation to tackle new challenges.

Third is "deepening of our integrated corporate strength" so as to realize business opportunities by transcending the existing role of the sogo shosha--in other words, cross-functional growth.

As I have already noted, the shifts in the global power structure and industrial structure are enlarging the functions and roles that our company is expected to fulfill. One example is the expectations directed toward our company's ability to take on social infrastructure construction projects on an integrated basis. In specific terms, these projects involve a wide range of businesses, including the construction of power plants and steel mills, the procurement of resources, logistical arrangements, finance, and environment-related measures. It may not be possible for a single division or business unit to meet such expectations in full by itself. It is essential for us to leverage our integrated corporate strength even more fully by pooling the strengths achieved through growth within each organizational unit.

In some cases we may need to respond by working in partnership with the public sector, and in other cases we may need to take the initiative in pulling together partners on a global basis. What is expected of us in such cases is our ability to integrate the strength and functions of our many partners.

What is desired of us is the leveraging of our integrated corporate strength transcending organizational frameworks and also the leveraging of integrated strength transcending corporate frameworks. We need to extend not only our "internal" integrated strength, but also our "external" integrated strength. The key in this connection is the human ability to bring together the strengths of partners both inside and outside the company. In order to enhance this integrated corporate strength, we must grow into a grouping of human resources capable of shaping frameworks for the new era.

Growing together

Everything we hope to do is premised on human resources growth and individual growth. The company grows as a result of individual growth which is achieved through the work that each of them does. For the sake of your further growth as individuals, I want you not only to tackle your own work at hand with confidence, but also to come up with your own aritai vision, namely, what you want to be in the future, and consider what you should be doing now based on that vision. The future is not made tomorrow; it is made today. And opportunities for growth are not something to sit and wait for somebody to hand you; you should seek them out for yourself. I hope that in the new year, you will take autonomous action for self-improvement in pursuit of your personal aritai vision.

Taking the paradigm shift as offering opportunities for cross-regional, cross-temporal, and cross-functional growth, let us grow together with global society and our business partners. May each of you grow with your colleagues and juniors within the SC Group. May each of you grow with the company. In this spirit, I offer "growing together" as my watchword for 2011. I want to convey growth as the "torch of dreams," spreading the flame globally, passing it on to the next generation, and extending it to all our partners. And for this purpose, I want to support the growth of each of you standing on the front lines. This is my ambition for the new year.

In conclusion, I pray that this will be a year of good health and successful activities for all of you in the SC Group around the world and for your families.