The Establishment of Oligopoly in the Japanese Cotton-

Spinning Industry and the Business Strategies of Latecom

ers:The Case of Naigaiwata&Co.,Ltd.

By Tetsuya Kuwahara

Kyoto Sangyo University

Naigaiwata Kaisha(Naigaiwata&Co.,Ltd.)was the first Japanese cotton-spinning firm to operate manufacturing facilities overseas.Originally a trading company specializing in raw cotton and cotton

goods,Naigaiwata entered the spinning business in earnest in March1905,transforming itself into a cotton-spinning concern.Then,between the latter half of1909and the latter half of1911,it built a spinning mill in Shanghai and thereby attained its position as a Japanese spinning enterprise in China.1)

At that time Japanese cotton spinners shared the view that the expansion of their industry hinged on the vast China market.Imports

accounted for some70percent of the Chinese market for machine

made cotton yarn,ith Indian yarn in particular accounting for about

half.Therefore,Japanese spinners faced their stiffest competition in

China not from native producers but from Indian exporters.In

response,the Japanese spinning industry concentrated on strengthen

ing its export competitiveness and strove to penetrate the China mar

ket.Naigaiwata,then,sought to break into that market,which

Japanese spinners had thus designated as their export target,by pro

ducing on the spot.The aim of this article is to analyze Naigaiwata's business strategy in

relation to its position in the Japanese cotton-spinning industry and to the larger structure of the domestic market for cotton yarn.Specifically,the article seeks to clarify the process by which Naigaiwata as a latecomer achieved its business goals under restricted market conditions resulting from the existing structure of the industry by examining the marketing strategy developed by the company's management.

1.From Trading Company to Spinning Enterprise2)

(1)The Founding of Naigaiwata&Co.,Ltd.,and the Development of the Cotton Business.

On August29,1887,four leading cotton dealers of Osaka,Shinzab-

103

uro Akiuma,Shozaburo Shibuya,Seijuro Shibuya,and Tauemon Nakano,merged their respective businesses to form Naigaiwata&Co.,Ltd.,with a total capital of\500,000.At the time,the Japanese spinning industry was in a boom period,and domestic production of raw cotton fell short of the suddenly increased demand for that commodity,to the extent that in1889consumption of imported cotton exceeded that of native cotton.Most of the foreign cotton came from China,and Naigaiwata aimed at handling its importation.In March1889the company set up a Shanghai branch office and in September1890obtained exclusive rights to Japanese imports of cotton ginned at the Wah Sheng Cotton-Spinning Mill of Shanghai.Through these means it created a mechanism for direct importation of Chinese cotton.As a result,by1892Naigaiwata had come to account for38.9percent of all Japanese imports of Chinese cotton.Moreover,in February1891the firm contracted with Tata&Co.to become sole agent for the sale of Bombay cotton in Japan and thereby expanded its trade in Indian cotton.In1892it was responsible for64percent of total Japanese imports of Indian cotton.In this way Naigaiwata laid its business foundations while playing a major role in the boom period of the Japanese spinning industry as an importer of foreign cotton.

In September1893an agreement concerning the importation of Indian cotton was concluded among spinners,shippers,and cotton importers.Thereafter,the import of Indian cotton steadily increased,and in1896it surpassed Chinese cotton to become the main supplier of the Japanese spinning industry.As demand for Indian cotton grew,leading cotton traders like Mitsui Bussan(Mitsui&Co.)and newcomer Nihon Menka Kaisha(Japan Cotton Trading Co.)began direct import in earnest,setting up offices in Bombay to make purchases on the spot.3)

In contrast,Naigaiwata simply continued as usual to import Indian

cotton through Tata of Bombay and its Kobe branch office.Under

these circumstances,the firm lost its advantage as a firstcomer to the

cotton trade,and in the recession of1897-1898following the Sino-

Japanese War it fell into a business slump.In response to this crisis,Naigaiwata strengthened its managerial staff by welcoming Rihei

Kawamura as director in February1898and increased its financial

power by calling in shares and building up internal reserves.Based on this reinforcement of management and managerial resources,the com

pany sought to recover its Indian cotton business while concentrating anew on importing American cotton and exporting cotton goods.The

firm's renewed activity could be seen in its acquisition of the Shanghai

104

branch office of Osaka Boseki Kaisha(Osaka Cotton-Spinning Co.)in April1898,its founding of an agency in Tienching in August of that

year,and its creation in1900of a partnership,Tata&Naigai,to purchase raw cotton in New York.Through measures of this kind,Naigaiwata managed to improve its business performance.

Then,in the boom accompanying the Russo-Japanese War,many spinning enterprises enjoyed high profits and markedly increased their financial strength.As a result,they were able to free themselves from dependence on trading companies for financing the procurement of raw cotton.Because of this,the cotton traders began to lose the profitable sales opportunities they had previously enjoyed based on their ability to provide financing.This made the reduction of raw cotton

procurement costs all the more important in the competition among cotton-trading companies.Responding to demands of this kind,firms like Mitsui&Co.and Japan Cotton Trading Co.took their usual purchasing methods in India and the United States one step forward and moved towards direct buying in the producing areas.Furthermore,newcomers like Gosho Kaisha(Gosho&Co.),founded in1905,emerged as powerful competitors.4)

While the structure of the cotton market was thus changing and rival

enterprises were devising aggressive countermeasures,Naigaiwata

concentrated on developing new business centered in cotton-spinning rather than trading.Consequently,its share of Indian cotton imports

began to fall in1905,and by1909the firm dropped to sixth place nationwide in terms of cotton imports of all kinds at Yokohama and

Kobe ports combined.

(2)Entry into the Spinning Industry.In January1902Naigaiwata added cotton-spinning,and in July

weaving,to the business objectives listed in its articles of incorporation,thus making clear its intention of entering the cotton textile industry.In the midst of these developments,Rihei Kawamura looked into purchasing Kibi Boseki Kaisha(Kibi Cotton-Spinning Co.)of Okayama.On July3,1902,Naigaiwata concluded a provisional contract to buy out Osaka Nenshi Kaisha(Osaka Doubling Yarn Co.),and in February of the following year it purchased the firm for

\260,000,thereby acquiring the Denpo mill in the Nishinari district of Osaka prefecture(spinning machinery:5,376spindles;doubling yarn machinery:1,732spindles).Naigaiwata and its president,Hikotaro Abe,formed a profit-and loss-sharing partnership to operate the mill.In July1904the partnership had a capital of \250,000,of which

105

Naigaiwata provided\150,000and Abe,\100,000.5)It was wellknown that spinning was a risky business,and Naigaiwata adopted the

partnership form in order to divide up the risks.This indicated that the company still regarded spinning as an experimental field.

Naigaiwata advanced into that field in earnest in February1905when it made a successful bid for the Nishinomiya mill(14,264spindles;266looms)of the Nihon Boshoku Kaisha(Japan Cotton-Spinning and Weaving Co.),which had folded in December of the previous

year and was in the process of liquidation.The purchase price was\550,000.6)As a result,the equipment of Naigaiwata's spinning and

weaving divisions,including that of the Denpo mill,came to comprise19,000regular spindles,1,800doubling yarn spindles ,and405looms.At the time,the Russo-Japanese War boom was in full swing,and under those conditions,as indicated in Table1 ,Naigaiwata actively pushed the expansion of its textile manufacturing divisions.By the first half of1907the firm had increased the number of regular spindles in its spinning division to29,000.The company also enlarged its weaving division,beginning with the installation of100narrow-width looms in the Denpo mill in the latter half of1904,so that by the end of the first half of1906the firm had a total of837narrow- and double-width looms,making it the third largest weaving enterprise in Japan .

Table1Equipment of the Spinning and Weaving Divisions of Naigaiwata&Co.,Ltd.

Number of Spindles Number of Looms

SpinningDoublingYarn NarrowDouble Year SemesterTotal Machinery Machinery Width Width

1 5,376 1,584 0 0 0 19032 5,376 1,584 0 0 0 1 5,376 1,584 0 0 0 19042 5,376 1,584 100 0 100

1 19,328 1,782 175 230 405 19052 24,640 2,936 270 266 536

1 26,112 3,318 281 556 837 19062 25,312 3,318 271 566 837

1 29,182 3,318 291 555 846 19072 29,182 3,318 320 555 875

1 29,182 3,318 343 555 898 19082 29,182 3,318 343 555 898

1 29,182 3,318 343 555 898 19092 29,182 3,318 343 577 920

1 29,152 3,318 343 577 920 19102 29,152 3,318 343 577 920

19111 29,152 3,318 343 578 921 2 49,890 3,318 343 578 921

Source:Naigaiwata&Co.,Ltd.,Naigaiwata Kabushiki Kaisha50Nenshi(Fifty Years of Naigaiwata&Co.,Ltd.),1937,p.3at end of volume.

106

According to Naigaiwata's business reports,its textile manufactur

ing divisions recorded good results in every semester from the first half

of1905to the first half of1907.For example,the report for the second

half of1906noted that•gduring this period the manufacturing divisions

performed extremely well,with both the spinning and weaving divi

sions obtaining good results.•h Moreover,the capital used to acquire

the Nishinomiya mill was recovered by the first half of1906,just a little

over a year after the purchase.7)

On the other hand,despite these boom conditions,as noted earlier

the raw cotton trade fell into a slump.From the latter half of1905,

Naigaiwata's business reports frequently contain information on this

decline.For instance,the report for the first half of1906says:•gAs for

the state of the raw cotton business during this period,although there

has been great fluctuation in the producer markets,the transaction

price in Japan has been extremely low compared to the market price in

the producing areas,and with trade being so difficult we have not had

good results.•hUnder these circumstances,the company closed its

Kobe and Shanghai branch offices in January1908and its New York

office in July of that year.Further,during the boom following the

Russo-Japanese War,Naigaiwata tried to develop the general mer

chandise trade it took over from the Nichi-In Boeki Kaisha(Japan

India Trading Co.)when it acquired the latter in April1904,as well as

the new trade it began with Manchuria and Korea,but the firm failed

to obtain the results it had hoped for.The agencies set up in the first

half of1905at Sia-shih in the Yangtze River basin and Ying-kou were

shut down in the latter half of1906,and those opened at Tie-ling and

Antung that semester were closed in the latter half of 1907.

In the midst of all this,Naigaiwata continued to shift the center of its operations from trading to textile manufacturing.Capital that had been invested in the trading division was withdrawn,and in the first half of1907the combined accounts of the manufacturing divisions exceeded those of trading.By the latter half of1908the ratio of fixed to total assets(excluding capital not yet paid up)had risen to41percent,and the company had come to resemble a typical cotton-spinning enterprise.In the first half of1908Naigaiwata announced its policy of curtailing the operations of the trading division,8)and in the second

following the conservative

policy in effect since last semester[with regard to trading],this company is avoiding active behavior,is hoping not to incur losses rather than to make large profits,and is seeking to stabilize itself by refusing

107

high-risk transactions.In the meantime,it is mainly devoting itself to

factory management and is striving to perfect its products by improv

ing the equipment as well as to extend the market for them.•h9)

2.Formation of the System of Oligopoly in the Japanese Spinning

Industry and Naigaiwata's Marketing Strategy

(1)Establishment of the Oligopoly in the Domestic Cotton Yarn Market.

The Japanese spinning industry,which began to grow rapidly in the latter half of the1880s,continued to expand during the Sino-Japanese War and its immediate aftermath;between1894and1899fifty-four spinning companies were founded(see Table2).After this establishment boom ended in1899,however,the number of firms that lost their independence through merger or acquisition came to exceed that of new enterprises.As a result,the total number of spinning companies began to decline,falling from seventy-three in1898to thirty-six in1908.In contrast to this latter concentration phase,the period up to1899,which witnessed a relatively large number of new entries into the field,can be seen as an era of free competition,and the companies that were established during that period can be called firstcomers.On the other hand,companies that were founded from1900on,or,more precisely,after the Boxer Rebellion,can be designated latecomers.10)

After the turn of the century the spinning industry became increas

ingly concentrated in the hands of leading firstcomers.Table3shows

the process of concentration measured in terms of the number of top

firms that accounted for50percent and75percent of all spindles in

Japan.At the end of1898 thirteen companies had50percent of the

operating spindleage nationwide,and twenty-eight had75percent;

however,by the end of1907the number of enterprises in each category

had fallen to five and ten,respectively,and thereafter the figures

remained at those levels until World War I.Inasmuch as a state of

equilibrium was thus reached in1907,that year marked the establish

ment of the oligopolistic system.At that time six companies had over

100,000spindles each:Kanegafuchi Boseki Kaisha(Kanegafuchi Cot

ton-Spinning Co.;216,527spindles),Mie Boseki Kaisha(Mie Cotton-

Spinning Co.;216,204),Fuji Gasu Boseki Kaisha(Fuji Gas Cotton-

Spinning Co.;136,960spindles),Settsu Boseki Kaisha(Settsu Cotton-

Spinning Co.;122,400spindles),Osaka Cotton-Spinning Co .(118,056

spindles),and Osaka Godo Boseki Kaisha(Osaka Union Cotton-

Spinning Co.;101,792 spindles).These so-called•gBig Six•hspinning

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Table2Company Starts and Dissolutions in the Japanese Spinning Industry

””araš••Oig“q‘\tNƒ¿•BfS—¯—¯al‡h8—Ùe˜Ciss•Bluti•Bns•Ù•”r•É•W18670101186800011869100118701102187120021872221318733003187430031875300319763003187730031878311318793003188032051881521618826601218831220141884144018188518•A412118862122211887211121188821312318892373271890275-032189132–£313418923441371893371038189438101471895474051189651935718975770•E6418986414672189972101270190070276519016521661902662105819035841250190450105119055145501906504747190747210391908391436190936213719103711371911371335

enterprises accounted for61perent of all spindles in Japan.They had secured the top six positions in the industry in1906.The next four biggest firms were Nihon Boseki Kaisha(Japan Cotton-Spinning Co.;81,955spindles),Kenshi Boseki Kaisha(Japan Silk-Spinning Co.;51,786spindles),Kishiwada Boseki Kaisha(Kishiwada Cotton-Spinning Co.;50,382spindles),and Amagasaki Boseki Kaisha(Amagasaki

Cotton-Spinning Co.;44,808spindles),and the top ten spinning com-

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Table3Oligopolization of the Japanese Spinning Industry

No. of Top Firms No. of Top Firms Total No. of Accounting for Accounting for Total No. of Operating Spindles Year

50% of All Operating 75% of All Operating Spinning Firms (Ring and Mule Spindles in Japan Spindles in Japan Combined)

1884 5 11 18 46 ,868 1889 5 10 27 210,158

1890 5 11 32 266,447 1891 5 11 34 294 ,746 1892 7 14 37 447,376 1893 7 12 38 328 ,977 1894 9 18 47

553,936 1895 9 19 51 582 ,945 1896 11 20

57 679,630 1897 11 23 64 857 ,598 1898 13 28

72 1,008,638 1899 12 28 70 1,172,414 1900 11 25 65 1,038,235 1901 11 26 66 1,153,244 1902 7 19 58 1,253,495 1903 7 16 50 1,260,074 1904 7 16 51 1,299,924 1905 6 16 50 1,376,921 1906 6 13 47 1,435,266 1907 5 10 39 1,487,923 1908 5 10 36 1,358,043 1909 5 10 37 1,707,531 1910 6 11 37 1,747,059 1911 5 10 35 1,813,487

Note:The number of spindles refers to the spindleage at the end of December of each year except for1892when the figure is for the end of November.

Sources:Same as for Table2.

panies together accounted for76percent of the spindleage nationwide.As indicated earlier,Naigaiwata entered the spinning industry in

earnest in1905,which was just before the oligopolistic system was established.The lifespan of enterprises founded from the late 1890s on

grew shorter,as illustrated in Table4.For instance,of the fifty-two companies organized between1897and1907,only ten were still in existence ten years after their founding.This kind of competitive situation meant that,as a latecomer,Naigaiwata faced an uphill battle just to survive.

What sort of market environment did the oligopolistic structure of the Japanese spinning industry create for companies like Naigaiwata?In the latter half of1907the industry had a total output worth\64million,of which the domestic market took72percent.11)The largest product area in that market(including only sales of yarn and excluding consumption by the producing firms)was single yarn(excluding gassed

yarn),which accounted for79percent of total domestic sales.Doubling yarn and gassed yarn shared equally the remainder.Exports took

110

Table 4Lifespan of New Spinning Enterprises

YearNo. of Firms that No. of Those Firms Surviving: Began Operation 5 Years 10 Years 15 Years 20 Years

Later Later Later Later

1867 1 1 1 1 1 1868 0 0 0 0 0 1869 0 0 0 0 0 1870 1 0 0 0 0 1871 0 0 0 0 0 1872 2 1 0 0 0 1873 0 0 0 0 0 1874 0 0 0 0 0 1875 0 0 0 0 0 1976 0 0 0 0 0 1877 0 0 0 0 0 1878 1 0 0 0 0 1879 0 0 0 0 0 1880 2 1 0 0 0 1881 2 1 0 0 0 1882 6 6 4 3 2 1883 2 2 2 2 1 1884 4 4 3 3 2 1885 4 4 3 2 1 1886 2 1 0 0 0 1887 1 1 1 0 0 1888 3 3 3 1 1 1889 7 6 5 4 4 1890 5 5 5 3 2 1891 3 3 2 1 1 1892 4 4 2 1 1 1893 1 0 0 0 0 1894 10 8 5 4 4 1895 4 3 1 1 1 1896 9 5 3 1 0 1897 7 5 1 1 0 1898 14 6 2 1 0 1899 10 4 1 1 1 1900 2 1 1 1 1 1901 2 1 1 1 1 1902 2 2 1 1 0 1903 4 2 2 2 2 1904 1 0 0 0 0 1905 4 1 0 0 0 1906 4 2 0 0 0 1907 2 1 1 0 0 1908 1 1 0 0 0 1909 2 2 2 2 2 1910 1 1 1 1 0 1911 1 1 1 0 0

18percent of total output, and consumption by the spinners them

selves,10percent.12)

In each of the product areas of the domestic market for cotton yarn,

the top ten spinners held a dominant share.13) As Table5indicates,

they controlled76percent of the domestic market for single yarn,74

percent of that for doubling yarn,and96percent of that for gassed

111

Table5Market Shares of the Top Ten Spinning Companies,Latter Half of1907(Based on Number of Bales)(unit:%)

Firstcomers,Firstcomers,Late-PhaseOne(1883•B1890)PhaseŽÛvo(1891-1900)Comers•EsakaMieK‰T'Settsu˜_A—üaˆê”ÀJapanƒÃ–Ù“«—¯tllJŒªnˆªtal•u—¯n188318881889189•E189118941896189919•E•E19•E7•ˆ–ÈtŒen•Òe•B7.214•E514•E68•E244•E53•E•E3•E45•E59•E27•E•E28•E13•E576•E4DomesticMarketSingleYarn7162210552403918376DoublingYarn340072900102867074Gassed•uYarnOOOOOOO4353096096ExportMarketSingleYarnb10292656040004868ConsumptionbytheRrmSingleYarn29352066000808680

a Based on number of spindles in operationblncludes a small amount of doubling yarn

Sources:For spindleage in operation,see Table3.Market shares were calculated from•gList of•@Cotton-Spinning Companies Nationwide,

Number of Bales of Yarn Produced,•happendix to Monthly Report of the Japan Cotton Spinners' Association,July1907•\January

1908,and Japan Cotton Spinners'Association,Menshi Boseki Jijo Sankosho(Reference Book for Cotton-Spinning),latter half

of1907.

112

yarn.The four initial firstcomers,those that had entered the field by1890,held55percent of the domestic market for single yarn.These enterprises,namely,the Osaka,Mie,Kanegafuchi,and Settsu spinning companies,laid their business foundations by seizing opportunities for import substitution involving low-count yarn and penetrating the domestic market;moreover,using this as a basis they diversified into weaving and exports,thus securing their oligopolistic position.Further,secondary firstcomers Amagasaki,Japan,Fuji Gas,and Osaka Union held overwhelmingly large shares in the areas of doubling and gassed yarn.When these firms entered the field,opportunities for import substitution involving the latter types of yarn opened up,and the second-phase firstcomers expanded their businesses by taking advantage of these opportunities and breaking into the domestic market.By contrast,among the top ten spinners,two firms,Kishiwada and Japan Silk,had relatively small market shares.Japan Silk entered the cotton industry in February1907when it amalgamated the Okayama,Bizen,and Nankai spinning companies.14)Both it and Kishiwada centered production on low-count yarn,and as a second

phase firstcomer Kishiwada had a relatively high degree of dependence on the export market while latecomer Japan Silk relied heavily on exports and its own consumption.

Within the oligopolistic market structure,the leading firstcomers included firms that had established a position in the final market by forming distribution channels extending to users in weaving districts by way of local cotton-yarn dealers.Needless to say,such enterprises had the advantage when fierce competition broke out among companies seeking to expand their share of the market.15)On the other hand,latecomers had very little opportunity to establish market shares.

(2)The Marketing Strategy of Naigaiwata's Cotton Manufacturing Divisions.

The oligopolistic market environment created by the Japanese spinning industry could not help but place major constraints on the formation of Naigaiwata's marketing strategy.As much as possible the com

pany avoided dependence on the domestic market for cotton yarn,in which the firstcomers had already established dominant positions.Instead,while creating a stable market within the enterprise by expanding its weaving division,the firm exported the majority of the

yarn it put up for sales(see Table6).16)The main cotton yarn produced by Naigaiwata's spinning division

was the left twenty count made at the No.2Spinning Mill(the

113

Table6 Naigaiwata's Cotton-Yarn Markets (unit:bales)

Year Semester Consumed SoldExportedTotal by the Firm DomesticallyProduced

1903 2 0 1,347 (100)a 0 1,347

1 0 1,691 (100) 0 1,691 1904 2 0 1,510 (86) 247 (14)a 1,757

1 912 (22)a 1,458 (35) 1,843 (44) 4,212 19052 1,425 (22) 1,674 (26) 3,276 (51) 6,375

1 2,105 (29) 1,592 (22) 3,587 (49) 7,284 19062 2,146 (30) 1,865 (26) 3,212 (44) 7,223

1 2,659 (29) 2,239 (24) 4,260 (47) 9,158 19072 2,660 (28) 1,429 (15) 5,253 (56) 9,341

1 2,866 (31) 1,599 (17) 4,796 (52) 9,261 19082 2,765 (30) 6,299 (69) 7 (0) 9,071

1 2,796 (32) 5,145 (59) 821 (9) 8,762 19092 2,889 (34) 4,159 (49) 1,451 (17) 8,499

1 3,101 (37) . 4,474 (53) 887 (10) 8,462 19102 2,884 (32) 2,547 (29) 3,446 (39) 8,877

1 3,172 (37) 3,434 (40) 1,885 (22) 8,491 19112 3,365 (37) 5,683 (62) 90 (1) 9.138

a%of total produced

Source:Japan Cotton Spinners'Association,Reference Book for Cotton-Spinning,second half of1903to second half of 1911.

Nishinomiya mill).In the first half of1906this yarn accounted for71

percent of the company's cotton-yarn production.17)The remaining29percent consisted of the sixteen-and twenty-count doubling yarn manufactured at the No.1Spinning Mill(the Denpo mill).In October1906the company also began production of such varieties of yarn as left sixteen count and left eighteen count,but their output was not enough to change significantly the shares of total production held by the old

mainstays.Naigaiwata sold around70percent of its cotton yarn in external

markets.Of this,left twenty-count yarn accounted for71percent by

volume,and sixteen-and twenty-count doubling yarn,for the remain

der in the first half of1906.Almost all of the left twenty count was

exported while the doubling yarns were marketed at home.Left

twenty-count,which supplied20percent of total domestic demand for

cotton yarn,represented the second largest product area after right

sixteen-count yarn,but the domestic market for left twenty count was

controlled by the oligopolistic enterprises.Naigaiwata avoided entering this field and dared to seek markets for this yarn overseas.By con

trast,sixteen- and twenty-count doubling yarn were rather specialized

products;after the weaving division took some of the output of these

114

Table9 Rates of Return on Paid-up Capital of the Top Twenty Spinning Companies(unit:%)

The "Big Ten" Firms

Kanega- Mie Fuji Settsu Osaka Osaka Japan Japan Kishi- Amaga-Year Semester fuchi Gas Union Silk wada saki

(#1) (#2) (#3) (#4) (#5) (#6) (#7) (#8) (#9) (#10)

1 66.8 80.4 47.7 123.0 49.7 74.4 29.6 - 74.0 92.8 19062 67.3 67.3 50.3 124.0 44.0 83.5 28.1 - 72.0 126.0 .

1 54.3 64.1 53.4 112.0 43.8 72.4 37.4 30.3 72.0 100.0 19072 38.8 36.2 42.1 87.0 37.2 62.6 34.5 13.2 56.0 98.0

1 23.6 19.4 22.4 34.0 19.4 15.1 26.5 - 8.4 38.0 71.0 19082 19.7 21.1 14.2 3.0 20.1 21.6 18.8 2.9 30.0 46.0

Small-to-Medium Firms

Tokyo Fuku- Naigai- Kura- Kibi Sakai Ozu Waka- Kasa- Saniiki National Year Semester shima wata shiki Saishi yama oka Total

(#11) (#12) (#13) (#14) (#15) (#16) (#17) (#18) (#19) (#20)

1 34.0 79.6 34.5 88.2 n.a. 80.5 n.a. 36.3 31.8 62.0 53.9 (35 cos) 19062 27.9 89.9 33.8 58.4 n.a. 67.8 n.a. 27.5 30.5 64.4 54.3 (32 cos)

19071 20.6 89.3 44.1 95.8 n.a. 72.7 n.a. 27.0 37.7 70.4 39.3 (28 cos) 2 18.1 79.3 26.7 47.9 n.a. 56.7 n.a. 15.0 12.0 62.6 33.9 (27 cos)

1 2.1 17.4 0.03 10.3 n.a. 12.0 n.a. - 8.5 - 7.6 22.2 13.0 (28 cos) 19082 4.4 12.0 5.7 12.1 * - 2.0 n.a. 1.2 n.a.** 20.1 13.5 (27 cos)

aNational ranking,based on number of spindles in December1907

*Purchased by Kurashiki Cotton Spinning Company

**Reached lease agreement with Fukushima Cotton Spinning Company in August1908

Note:For Japan Silk,Wakayama,and the national total,the rates were calculated from•gEigyo Seiseki Hyo•h(•gTable of Business Results•h)

in Japan Cotton Spinners'Association,Reference Book for Cotton Spinning,1906-1908;the figures for net profit listed therein were

used without revision.For the rest,the rates were calculated from company business reports and Kazuo Yamaguchi,ed.,Nihon Sangyo

Kin'yushi Kenkyu:Boseki Kin'yu Hen(Studies in the History of Industrial Finance in Japan:Cotton Spinning Finance),1970,p.99at the

end of the volume(for•grevised net profit•h),using the following formula:

[(revised net profit+depreciation)•€paid-up capital]•~2=rate of return on paid-up capital.

Table7 Naigaiwata's Cotton-Cloth Production (units:bales of yarn consumed:%of total

yardage of cloth produced by the firm)

Narrow-Width Double-Width Cotton ClothWhite Cotton Cloth Coarse

Year Semester T-Cloth Cotton Sheeting Drill Subtotal TotalCloth

19051399(44%)36%20%0%0%513(56%)9122491(34)125400934(66)1,425

19061615(29)656001,490(71)2,1052602(28)4814901,544(72)2,146

19071634(24)48151302,025(76)2,6592606(23)16204102,054(77)2,660

19081670(23)28282102,196(77)2,8662637(23)16223902,128(77)2,765

19091787(28)5022012,009(72)2,7962641(22)44181412,248(78)2,889

19101461(15)40311312,640(85)3,1012666(23)20282802,218(77)2,884

19111787(25)20292702,385(75)3,1722821(24)9313602,544(76)3,365

Note:The figures for narrow-width cotton cloth indlude towels from the second semester of1906to the second semester of1907and light cotton cloth in

both semesters of1909.Source:Japan Cotton Spinners'Association,Reference Book for Cotton Spinning.

1905-1911

indicated in Table8,was that the company's share of the total output of coarse cotton cloth in Japan soared from12percent in the latter half of1905to96percent in the latter half of1909.

With the fall in demand for coarse cotton cloth ,T-cloth became Naigaiwata's biggest cotton-textile product in1906 .Under the impact of competition from sheeting,however,total Japanese production of

T-cloth began to decline in1907,and Naigaiwata's output of the latter ,while fluctuating widely,also dropped.In the latter half of1906the company entered the rapidly growing field of sheeting manufacture ,exporting its product to Korea.19)But the firm had difficulty establishing a position in this product market owing to competition from Japan's major spinning-and-weaving enterprises.Yet,on the whole,Naigaiwata's weaving division showed favorable results,moving

expeditiously as it did from T-cloth to sheeting production while securing a place for the company in the markets for white cotton cloth in

Korea and coarse cotton cloth at home.Thus did Naigaiwata expand its weaving division by avoiding com

petition with the oligopolistic first-corners;meanwhile,in the sale of

116

Table8 Naigaiwata's Share of the Total Production of Cotton Cloth by Japanese Spinning-and-Weaving Enterprises

(unit:%of total yardage of cloth produced)

Narrow-Width CoarseYear Semester White Cotton Towels T-Cloth Cotton Sheeting Drill

Cloth Cloth

11000740019052100021200

110001217001906210036142110

110052162720190721009664960

1380946301908258077930

162013720019092450169620

152020961119102570810030

1590768201911253039320

1570738301912255028730

Source:Japan Cotton Spinners'Association,Reference Book for Cotton-Spinning,1905-1912.

yarn it exported almost all of its main product,left twenty-count,and sought to penetrate the domestic market in the rather specialized areas

of sixteen-and twenty-count doubling yarn.As noted earlier,this mar

keting strategy initially achieved the results the company had hoped

for.Emboldened by this success,Naigaiwata went on transforming itself into a spinning-and-weaving enterprise.

(3)The Recession and the Limits to Naigaiwata's Marketing Strategy.At the beginning of1907domestic demand for cotton yarn showed

signs of diminishing.Further,in September of that year exports to China began to decline owing to a sudden drop in the price of silver;from220,000bales in1906,those exports fell to190,000in1907and to130,000in1908.20)Meanwhile,domestic consumption slipped from650,000bales in1907to600,000the following year.Reflecting the slump in the demand for cotton yarn,the market price of left twentycount yarn dropped from\126in July1907to\102in May1908.In response,the Japanese spinning industry,acting through the Dainip

pon Boseki Rengokai(Japan Cotton-Spinners'Association),devised such countermeasures as curtailing operations by suspending work for

five days a month beginning in January1908and promoting yarn

117

exports by offering over two thousand premium tickets worth a total of

50,000Mexican silver dollars beginning in March1908.21)

From the latter half of1907,when the Chinese market for cotton

yarn started to contract,to the first half of1908,Naigaiwata stepped up

the exports it had been carrying on up to that time.Adding twenty

count doubling yarn,which the firm began exporting in the latter half

of1906,to its main product,left twenty-count,one finds that

Naigaiwata exported79percent of the yarn it put up for sale in the

latter half of1907,and75percent in the first half of1908.Despite this

export drive,however,the business results of the company's spinning

division took a turn for the worse.In the latter half of1907the divi

sion's revenues started•gto decline owing to a drop in the price of

yarn,•hand in the first half of1908it suffered•gsome loss.•h22)Con

sequently,the rate of return•@ on Naigaiwata's paid-up capital fell shar

ply from44.1percent in the first half of1907to26.7percent in the sec

ond half of that year and to0.03percent in the first half of1908.23)

In the latter half of1908Naigaiwata's spinning division was forced

to withdraw from the•@ increasingly competitive export market and to

shift the focus of its yarn sales to the domestic scene.During that

semester the division's exports came to only seven bales of left twenty

count,as almost all of the yarn put up for sale was marketed at home.

The amount of cotton yarn the company targeted for the domestic

market increased rapidly from1,599bales in the first half of1908to

6,299bales the following semester.But the left twenty-count yarn of

Naigaiwata,which did•@not enjoy a strong position in the domestic mar-

ket,had to fight against heavy odds as competition intensified during

the recession.It was not easy to encroach on the territory of the leading

•@rival enterprises.In the end,Naigaiwata could only report that the

earnings of the spinning division for the second half of1908were•gnot

as we had hoped.•h24)The company's rate of return on paid-up capital

that semester was5.7percent,remaining at the low level reached in the

previous•@ period.Thus Naigaiwata faced the second crisis of its exis-

tence.

During the1907-1908recession,every spinning enterprise found

itself in a slump.Nevertheless,as•@ Table9shows,the business results

of the oligopolistic firms were more stable than those of•@Naigaiwata.

For both semesters of1908,the rate of return on paid-up capital of the

ten biggest•@ spinning companies,with the exception of Japan Silk,was

generally around20percent.Even higher•@ rates were achieved by some

firms,especially Amagasaki,which recorded earnings of71percent

for the first half of1908and46percent for the second.These com-

118

Furthermore,Naigaiwata strove to expand its weaving division.

After installing100narrow-width looms in the Denpo mill in the latter

half of1904,the company continued to enlarge this division,so that by

the end of the first half of1906the firm possessed837looms,making

it Japan's third largest weaving enterprise.The kinds of cotton textiles

it produced were different from those manufactured by spinning-cum

weaving enterprises that held oligopolistic positions such as the Mie

and Osaka spinning companies.At the time,Korea was the largest

export market for Japanese cotton textiles,especially narrow-width

white cotton cloth.The latter had been produced by hand weavers and

was the cotton textile Naigaiwata initially undertook to make.The

company thus became the first spinning-cum-weaving enterprise to

produce narrow-width white cotton cloth for the Korean market.As Table7shows,from1906on this cloth accounted for about a fourth of

the weaving yarn consumed by the firm,and its level of production

remained relatively steady.After the Russo-Japanese,however,

Japanese-made sheeting entered the Korean market on a large scale,

and in the face of competition from this product Korean imports of

Japanese-made white cotton cloth began to decline after reaching a

peak of\1.99million in1905.18)Against this backdrop Naigaiwata tried to enter new fields,using the narrow-width looms to produce

towels in1906-1907and light cotton cloth in1909.

While running narrow-width looms at the Denpo mill,Naigaiwata operated double-width looms on a larger scale at the Nishinomiya factory.Immediately after purchasing the Nishinomiya mill,the company had it center its production on coarse cotton cloth to meet the increase in military demand accompanying the Russo-Japanese War,which was taking place at the time.As a result,fully41percent of the weaving

yarn consumed by the company in1905went into the manufacture of coarse ,cotton cloth.After the war,production of the latter dropped

sharply along with the decline in military demand,but Naigaiwata nevertheless continued to seek military orders.The upshot of this,as

goods,the rest was all marketed domestically.In the first half of1906,twenty-count and sixteen-count doubling yarn accounted respectively for only0.4percent and0.9percent of all Japanese cotton-yarn production,but Naigaiwata held34percent of the production of twentycount doubling yarn,a figure second only to that of the Osaka Union Spinning Company,and77percent of the output of sixteen-count doubling yarn.Thus,while exporting its main product,left twenty-count yarn,Naigaiwata put up for sale at home the rather specialized twenty- and sixteen-count doubling yarns.

119

panies had established oligopolies in the principal cotton-yarn markets at home,and fluctuations in either domestic or foreign markets had

relatively little impact on them.

By contrast,the business performance of small-to-medium firms was far worse.Of the eight concerns for which results are available,only Sanuki Boseki Kaisha(Sanuki Cotton-Spinning Co.)was able to

achieve rates of return on paid-up capital comparable to those of the oligopolistic enterprises for both semesters of1908.After that,two firms,Fukushima Boseki Kaisha(Fukushima Cotton-Spinning Co.)and Kurashiki Boseki Kaisha(Kurashiki Cotton- Spinning Co.),had rates in the10-percent range for both of those periods,and two others,Tokyo Boseki Kaisha(Tokyo Cotton-Spinning Co.)and Naigaiwata,had rates in the single digits.The remaining three companies recorded losses in one or the other of those semesters.Small-to-medium enter-

prises in the Japanese cotton-spinning industry were thus placed in a difficult position,and Naigaiwata was no exception.

3.The Establishment of a Manufacturing Base in the Export Market

(1)The Decision to Advance into China.As noted earlier,in the latter half of1908Naigaiwata was compelled

to turn from China to Japan as the main market for its yarn sales,but

business continued to slump.This experience forced the company to

recognize once again that the market base for its existence and growth

was to be found solely in China and not at home.Moreover,it was

clear from the1908crisis that an export strategy was not enough to gain

a competitive advantage and stable position in the Chinese market.Naigaiwata realized that a more positive strategy was needed,and the

solution it came up with was on-the-spot manufacturing in China.At the time,the Chinese market for machine-made cotton yarn,

which was the Japanese spinning industry's biggest export market,was

continuing to expand,albeit slowly,due to China's economic develop

ment and the substitution of hand-made for machine-made yarn.

Imported yarn met around70percent of Chinese demand,and under

pressure from imports the local spinning industry remained depressed.To secure a place in the Chinese market,Naigaiwata had to gain a com

petitive edge over imported rather than locally manufactured yarn.In

particular,it had to stand up to the leading Japanese enterprises,which were cutting into the market share held by exporters in India.

Compared to imported yarn,cotton yarn produced in China was

obviously advantageous from a cost standpoint insofar as outlays on

120

shipping and customs could be curtailed.25)For example,when cotton

yarn made in Shanghai and the comparable product imported at Shan

ghai from Japan were sold to the interior by way of other treaty ports,

the yarn produced in Shanghai was charged at\2.64per bale less in

customs duties than was its Japanese counterpart.26)In addition,labor

costs were lower than in Japan,and•@ depending on the method of fac

tory management there was room for reducing the labor cost per bale

from the level achieved theretofore by the Shanghai cotton-spinning

industry.27)At the time,Shanghai spinning mills suffered from low

levels of equipment productivity,what with incomplete facilities,poor

maintenance,and low rates of operation and turnover.Owing to a lack

of training and discipline among workers,labor productivity was also

low.For instance,Narazo Takatsuji,who investigated the spinning

mill of the Santai Boseki Kaisha(Sant'ai Cotton Spinning Co.)in the

first half of1905,stated as follows:•gAmong Chinese laborers,two to

three first-class workers handle one ring frame(400spindles).With the

daily wage of a worker being25sen and with each ring frame requiring

two people,one ends up paying50sen in wages per ring frame.•hBy

contrast,•gamong spinning company workers in Japan,one person

handles a400-spindle ring frame,•g and•gone pays less than50sen in

wages•hper worker.28)In other words,since wages per worker were

lower in Shanghai,if one were to install the latest equipment,improve

labor skills,and implement the kind of factory management common

in Japan,it would be possible to reduce operating costs below the cur

rent level of local spinning firms.

At the time Naigaiwata established manufacturing facilities in

China,it was in a more favorable position to do so than its fellow spin

ning companies in Japan.This was because it had accumulated busi

ness experience in China through its purchase of raw cotton and sale of

cotton goods there.As mentioned earlier,after setting up a branch

office in Shanghai in March1889for the purpose of buying raw cotton,

Naigaiwata had established agencies at Tien-ching in August1898to

sell cotton yarn and at Ying-kou,Antunt,Tie-ling,and Sia-shih

around the time of the Russo-Japanese War to expand trade in general

merchandise.Through these kinds of commercial activities,the com

pany had built up a reliable distribution network while developing

talented personnel well versed in Chinese business.Needless to say,

the firm was able to apply these resources to the management of a spin

ning enterprise in Shanghai.29)

Furthermore,Naigaiwata possessed the leadership necessary for

realizing the establishment of cotton spinning operations in China.

121

The construction of its Shanghai mill meant that the company was moving to preempt the export market of other Japanese spinning firms,which naturally were none too pleased with this development.For the great majority of these firms,which sought to expand their businesses by obtaining a share of the China market through exports,Naigaiwata's new Shanghai mill signified the appearance of a powerful rival.Harboring doubts about the prospects for success of Naigaiwata's venture,these other spinners criticized its actions.30)Yoshizo Kontaibo,for example,expressed the following negative opinion:31)

The productivity of the Chinese spinning industry is low,the

quality of its product is inferior,and the demand for Chinese-made

cotton yarn is not increasing.The reason for this,it has been

thought heretofore,is that Chinese spinners mainly use native raw

cotton,have old and poorly maintained machinery,and employ

workers with inferior skills.Accordingly,there have appeared some

who think that,if one were to improve the cotton blend,renovate

the machinery,train the workers properly,and modernize the man

agement of the plant,then the results could be ameliorated.But the

real reason for the poor performance of the Chinese spinning indus

try lies in the weather,specifically the temperature.Consequently,

China is an unsuitable place for cotton spinning.32)

In addition,Sanji Muto criticized Naigaiwata's behavior from the

standpoint of the national economy:•gEven with the existing5-percent

tariff,there are Japanese spinners who carry on business in Shanghai.

•hIf Japanese spinners build plants in China,•git will no longer be possible

for(Japanese)workers,and any other persons concerned,to secure

additional,indirect benefits of the industry.Even if profit can be

obtained on the capital,(the business)will mainly serve to enrich

China itself while Japan will gain practically nothing.•h33)

Thus,a critical attitude towards the establishment of manufacturing

facilities in China predominated among Japanese spinners.What

Naigaiwata needed to go ahead with such facilities in this climate,

besides a proper recognition of its unique economic problems and

opportunities,was strong leadership.On this point,Director Kawa

mura had great significance.A highly confident man,Kawamura had

both long experience and a deep interest in doing business in China.34)

After being apprenticed to the Osaka cotton wholesaler Matsusakaya

in1864at the age of fourteen,he had engaged in the raw cotton trade,

but as demand for the import of Chinese cotton had risen with the

rapid expansion of the Japanese spinning industry,Kawamura had

122

gone to China in1884to investigate the Yu-yao region of Chekiang province.Based on that experience,in October of the following year he and a Chinese cotton dealer had set up a joint cotton-ginning enter

prise on the north bank of the Yangtze at Ning-bo.In1886Kawamura had moved to the Osaka Cotton-Spinning Company and as assistant manager had taken charge of raw cotton purchases.In1887he had investigated the state of raw cotton in the Tong-shou and Nan-xiang area of China.On the basis of his report,Osaka Cotton Spinning had made plans to establish a cotton-ginning mill in Shanghai .Further,after making a field survey of Indian cotton in1889 ,Kawamura had proposed that the company produce twenty-count yarn from a blend of Indian and Chinese cotton.Osaka Cotton-Spinning had adopted his suggestion and,while driving Indian-made twenty count out of the domestic market,had begun exporting its new product to China in July1891.The fact that Kawamura was thus experienced in Sino-Japanese business made it possible for him to direct Naigaiwata's plans for establishing manufacturing facilities in China.

(2)Construction of the Shanghai Mill.

On January25,1909,the following report was read at the general

meeting of Naigaiwata stockholders:•gIn view of changes in the general

situation with regard to our company's business,we recognize the

advantageousness from now on of putting efforts into spinning and

weaving and,in order to carry that out,consider it preferable to con

duct operations in Shanghai rather than at home.Accordingly,we are

now in the process of investigating the matter.•h35)

Subsequently,at the stockholders'general meeting on July24of

that year,a•gresolution to establish a spinning mill in Shanghai,China•hwas passed.36)In the latter half of1909the company bought some eight

acres of land facing the Sochow River for use as a factory site .37)Then,

in December it ordered machinery with a capacity of20,000spindles

from Platt Brothers through Mitsui&Co.At the end of the first half

of1911,two years after the start of construction ,the Shanghai mill

entered trial production,and on October10of that year it held its

opening ceremony.In November the plant put all20 ,000spindles into operation,producing sixteen-and twenty-count yarn .Naigaiwata set

up a Shanghai branch office in July of that year to buy materials and

sell products for the Shanghai mill .The yarn it manufactured was

offered for sale under the trademark•gSuigetsu•h(•gMoon on the

Water•h).And in producing raw cotton from India the firm participated

as a member of the spinners'association in the conference with ship-

123

ping companies for the importation of Indian cotton.38)

The construction cost of the Shanghai mill was between\1.27and

\1.46million.If one takes the latter figure,64percent of it was

covered through the appropriation of held assets,with inventory

accounting for33percent and disposal of securities for31percent.Of

the remainder,7percent was met through an increase in reserves,27

percent through short-term notes,and3percent through loans.39)

The Shanghai mill embodied the latest in Japanese spinning

technology and proved to be an eye-opener in Shanghai.It introduced

the most up-to-date machinery as well as new methods such as running

the machines with electricity purchased from the municipal power sta

tion.

About thirty Chinese workers were already being trained at the

Nishinomiya mill in August1909with a view to having them become

foremen at the Shanghai plant.40)Unlike the spinning enterprises of

Western capitalists in China,Naigaiwata's Shanghai mill did not make

use of compradores;rather,the company basically introduced the

direct management method practiced in Japanese factories for the

employment and supervision of workers.Fujio Hioki,a Naigaiwata

stockholder who visited the plant in April1913,commented on the

working conditions of factory hands as follows:•gWhereas in spinning

companies under Chinese or German management everything is done

according to Chinese methods and confusion reigns within the mill,in

this company Chinese go to work under the same systematic rules that

Japanese do,and since the labor force is mixed,twelve-and thirteen

year-old boys obediently follow the work orders of girls.•h41)

Thus,in the Shanghai plant Naigaiwata installed the latest equip

ment and put into effect the factory management system it had

developed at its two domestic mills,and the productivity of the plant

was far greater than that of other Shanghai spinning establishments.42)

In this way,Naigaiwata secured a manufacturing base in Shanghai so

as to gain a competitive advantage in the Chinese market over cotton

yarn exporters in Japan and India.43)

4.Conclusion

Naigaiwata&Co.,Ltd.established its business foundations by

importing raw cotton during the take-off period of the modern

Japanese cotton-spinning industry and subsequently added the expor

tation of cotton goods to become a leading distributor for the industry.

The company then followed its small-scale involvement in cotton spin

-124

ning beginning in1903by entering that field in earnest two years later.This took place just before the system of oligopoly was established in the Japanese spinning industry.At that time powerful firstcomers were in the process of securing oligopolistic positions,using their predominance in such major product areas as low-count,doubling,and

gassed yarn to squeeze out small-to-medium spinners,most of them latecomers.This meant that the opportunity for younger spinning companies to penetrate the domestic market for cotton yarn was severely limited.

Faced with this kind of home market environment,Naigaiwata expanded its scale of production while developing a marketing strategy that would enable it to break out of the position to which latecomers were relegated.For example,the company kept in check the degree of its reliance on yarn sales by having the weaving division consume around30percent of the firm's yarn output.Further,the company exported about70percent of the yarn it put up for sale.The left twenty-count yarn,which ranked with right sixteen count as a best seller in the domestic market,became Naigaiwata's main product,accounting for71percent of the yarn it manufactured.After some of this yarn was consumed by the company's weaving division,almost all of the remainder was exported.Meanwhile,the products Naigaiwata

put on the domestic market were the fairly specialized sixteen-and twenty-count doubling yarn,for which the demand was small in scale and of which the firm was able to become the largest and second largest

producer,respectively.This marketing strategy enabled Naigaiwata's spinning and weaving divisions to obtain satisfactory results at the outset and to become the company's leading sector.

In1907,however,domestic demand began to stagnate;furthermore,beginning in the fall of that year,exports plummeted owing to the recession in China and the slump in the price of silver.As a result,Naigaiwata's business results suddenly took a turn for the worse.At first the company had focused on exports,but the spinning division had

proven unprofitable.Naigaiwata therefore was compelled for the time being to put all of its products on the home market.But it was difficult to enter that market,and the spinning division remained in a slump.This crisis prompted Naigaiwata to recognize anew that it had to base its existence and growth on overseas markets.Moreover,the company realized from its experience in the first half of1908that to secure a stable market in China it needed a more positive strategy than the one it had been pursuing up until then.The answer was to produce in China.

In order to establish itself in the Chinese market for machine-made

125

yarn,Naigaiwata had to gain a competitive edge not only over native

spinners but also over exporters in India,who held some70percent of

the Chinese market,and especially over those in Japan,who were

steadily expanding their shares of the market.Cotton yarn produced in

China had the advantage over imported yarn because of savings in cus

toms duties and freight costs.Also,since wages in Shanghai were

lower than those in Japan,it was possible to reduce the production

costs of locally manufactured yarn by improving labor productivity.In

short,Naigaiwata's on-the-spot mill had plenty of opportunity to gain

the upper hand in the Chinese market over native spinners as well as

over exporters in India and Japan,who were the company's principal

rivals in Shanghai.

At the time Naigaiwata established its manufacturing facility in

China,it enjoyed an advantage over its fellow spinners.Specifically,

through its export-import business the firm had developed personnel

who were well versed in doing business in China,and it had also built

up a network for distributing cotton goods in the Chinese market.In

addition,Naigaiwata had the leadership needed to bring about the

establishment of manufacturing operations in that country.

Naigaiwata and its director,Rihei Kawamura,moved steadily towards

realizing the Shanghai plant,sustained by Kawamura's many years'

experience and strong interest in China-related business.As a result,

the Shanghai mill met the company's expectations in terms of both

competitiveness and results.Thereafter,with China as its base

Naigaiwata achieved rapid growth.It thus overcame the restrictions

imposed on latecomers by the oligopolistic structure of the Japanese

spinning industry by producing within the export market.

Notes

1)On Naigaiwata's establishment of manufacturing operations in

China,see the following:Naosuke Takamura,Nihon Shihonshugi

Shiron(The History of Japanese Capitalism),1982,chap.6,sec.

3.Takamura argues that,in order to overcome the slump in the

cotton import business,Naigaiwata advanced into China under

the leadership of Rihei Kawamura,based on his experience in

operating spinning mills in Japan and doing business in China;

Mitsuhaya Kajinishi,ed.,Gendai Nihon Sangyo Hattatsushi XI

Sen'i(History of the Development of Modern Japanese Industry

XI Textiles),vol.1,1964,p.393;Takeo Izumi,•gNihon Boseki

Shihon no Chugoku Shijo Shinshutsu ni Kansuru Ichi Kosatsu•h(A

126

Study on the Advance of Japanese Cotton-Spinning Enterprises

into the China Market),in Senshu Keizaigaku Ronshu(Senshu

Univ.Journal of Economics),vol.7,no.1,1972;Mitsuo Fujii et

al.,Nihon Takokuseki Kigyo no Shiteki Tenkai(Historical

Development of Japanese Multinational Enterprises),vol.1,

1975,chap.9,sec.2;Tien-ji Yang,•gChugoku ni okeru Nihon

Bosekigyo(•eZaikabo')to Minzokubo to no Sokoku•h(Conflicts

between Japanese Cotton-Spinners in China and Chinese Cotton

Spinners),in Hiroshi Abe,ed.,Nitchu Kankei to Bunka Masatsu

(Sino-Japanese Relations and Cultural Conflicts),1982.

2)The main sources for this section are Naigaiwata Kabushiki

Kaisha(Naigaiwata&Co.,Ltd.)ed.,Naigaiwata Kabushiki

Kaisha50Nenshi(Fifty Years of Naigaiwata&Co.,Ltd.),1937,

chap.1;and Naosuke Takamura,•gNaigaiwata Kaisha

•h(Naigaiwata&Co.),in Kazuo Yamaguchi,ed.,Nihon Sangyo

Kin'yushi Kenkyu:Boseki Kin'yu Hen(Studies in the History of

Industrial Finance in Japan:Cotton Spinning Finance),1970.

3)Concerning the activities of Mitsui&Co.and Japan Cotton Trad

ing Co.,the following sources were consulted:Nihon Keieishi

Kenkyujo(Japan Business History Institute),ed.,Mitsui Bussan

Kaisha100 Nenshi(One Hundred Years of Mitsui&Co.,),vol.1,

1978,pp.152-153,232-233;Naosuke Takamura,Nihon

Bosekigyoshi Josetsu(Introduction to the History of the Japanese

Cotton-Spinning Industry),vol.2,1970,pp.163-166;and Nichi

men Jitsugyo Kaisha(Japan Cotton and General Trading Co.),

Nichimen70Nenshi(Seventy Years of the Japan Cotton and Gen

eral Trading Co.),1962,pp.22-23,30-31.

4)Gosho Kabushiki Kaisha(Gosho&Co.,Ltd.),Gosho60Nenshi

(Sixty Years of Gosho),1967,pp.97,102-103,105,107-108,236-

238,247-249.

5)Taichi Kinukawa,Honpo Menshi Bosekishi(History of the Cot

ton-Spinning Industry in Japan),vol.6,1942,pp.364-365.

6)Naigaiwata&Co.,Ltd.,Eigyo Hokokusho(Business Report),

first half of1905.

7)Interview with Kiyoshi Inoue,July25,1974,at Mengyo Kaikan,

Osaka(tape recording in author's possession).Inoue said he

heard this from Ueda,the manager of the Nishinomiya mill,in

July1909.Naigaiwata borrowed\400,000from the130th Bank

and used\150,000in company funds to purchase the Nishinomiya

mill.Subsequently,by1906the firm had appropriated\140,000

for depreciation costs at the mill and had paid back the\400,000

127

loan(Naigaiwata&Co.,Ltd.,Business Report,first half of1905

to first half of1906).If the funds used to repay this loan came out

of the profits of the Nishinomiya mill,then this would support

Inoue's statement.

8)Naigaiwata&Co.,Ltd.,Business Report,first half of1908.

9)Ibid.,second half of1908.

10)On the development of the latecomers,see by Kazuo Sugiyama:

•gMeiji Ki Kohatsu Dai Boseki Kigyo no Shikin Chotatsu:Fuji

Boseki,Osaka Godo Boseki no Bunseki•h(Capital Procurement

in the Latecomers among Large Spinning Enterprises in the Meiji

Era:Analysis of Fuji and Osaka Union Cotton Spinning Com

panies),in Kin'yu Keizai(Journal of Financial Economics),nos.

123-124,135,July and October1970,August1972;and•gSenzen,

Boseki Kigyo no Zaimu Katsudo•h(The Financial Activity of Pre

war Cotton-Spinning Enterprises),in Keiei Shigaku(Business

History Review),vol.5,no.1,1970.In these articles,Sugiyama

takes Fukushima,Kishiwada,Fuji,and Osaka Union spinning

companies to be latecomers and analyzes their growth in terms of

capital raising.

11)The figure\64million was arrived at by multiplying current prices

by numbers of bales.Current prices were taken from•gTable of

High and Low Current Prices of Spun Yarn for December1907•h

in Df bales.Current prices were taken from•gTable of High and

Low Current Prices of Spun Yarn for December1907•hin Daini

hon Boseki Rengokai(Japan Cotton-Spinners'Association),ed.,

Dainihon Boseki Rengokai Geppo(Monthly Report of the Japan

Cotton-Spinners'Association),January1908,and numbers of

bales from Menshi Boseki Jijo Sankosho(Reference Book for

Cotton-Spinning),second half of1907.

12)The markets for Japanese-made cotton yarn in the latter half of

1907were as follows:

13)Takamura regards the period from the panic of1900-1901to the

eve of World War I as a formative period in the development of

spinning monopolies,an era in which the eight companies which

would later become the six major spinners established monopolies

in specific product markets.The latter,which formed the basis for

the extraction of monopolistic profits,consisted of the export mar

ket for coarse yarn and the domestic markets for medium-count

doubling yarn,gassed yarn,and double-width cotton goods.

Takamura,Introduction to the History of the Japanese Cotton

Spinning Industry,vol.2,1971,chap.6,sec.2,subsecs.1-2.While

128

relying on the findings of Takamura and others,the present article

seeks to locate the significance of the oligopolistic system in the

share of the domestic market held by large-scale spinning enter

prises and to explain the process by which the oligopoly was

formed in terms of the opportunities afforded spinners to enter

major domestic product markets.

14)Kinukawa,History of the Cotton-Spinning Industry in Japan,vol.

7,1944,p.230.

15)Kiyoshi Inoue, who entered the Kanegafuchi Cotton-Spinning

Company in1910,Isaburo Suko,who joined Kanegafuchi in 1896,

and Ichitaro Ichihashi,managing director of Yagi Shoten(Yagi&

Co.)in1949,reminisce on the competition for markets among

spinning enterprises from late Meiji to Taisho in Asaichi Omori,

ed.,Men Boeki Hanseiki no Kuto(A Half Century of Struggle in

the Overseas Cotton Trade),1949,p.15.Inoue states therein as

follows:•gWhen I entered Kanegafuchi in1910,I remember we

had hundreds of beautiful lacquerware shingles on which the com

pany trademark and the words•eKanebo Special Agent'or'Selling

Agent'were painted in gold,and when customers would request

it we would send these to them•h;•gafter I moved to a new post in

Kyushu in1915,when I would make a round of courtesy calls on

customers,they would have cushions and clocks bearing the

Kanegafuchi trademark,and even abacuses engraved with our

company name.It had also become customary to hand out towels

dyed with the company trademark during the summer bon festival

and at year's end.I think this was because in places like Kyushu

Japanese-style reeled yarn used exclusively for hand-made cotton

cloth was still in great demand,and many customers came to buy

one reelful at a time.It was said that in the provinces during the

bon festival and at the end of the year people would compare the

price of one catty of sugar and one reelful of cotton yarn and use

the cheaper of the two[for gift-giving]•h;also,•gthe forty-two

count doubling yarn produced by the Amagasaki Cotton-Spinning

Company was selling well,as it was used in making the dyed cot

ton yarn of Kurume, but Kanegafuchi muscled into the market

and,proclaiming Kyushu to be its base,carried out a sale with

bonus gifts.Thereupon,Mr.Kodera[of Amagasaki],as I recall,

complained that this kind of competition was causing trouble.

•h16)In Tables6and7,the yarn Naigaiwata used in making cotton fab

rics is taken to be entirely the company's own product.

17)The numerical values in this paragraph and the next are based on

129

Japan Cotton-Spinners'Association,ed.,Monthly Report of the

Japan Cotton-Spinners'Association,February-July1906,

appended tables,and Reference Book for Cotton-Spinning,first

half of1906.

18)Goro Saitaya,•gChosen ni okeru Men-orimono no Jukyu Kankei

•h(Supply and Demand of Cotton Textiles in Korea),in Chosen

Menshifusho Rengokai(Association of Cotton Yarn and Textile

Traders of Korea),ed.,Chosen Mengyoshi(History of the Cotton

Industry in Korea),1929,pp.92-94,149-150.

19)Saitaya,pp.44-46.

20)Japan exported a total of270,000bales of cotton yarn in1906,

230,000bales in1907,and170,000bales in1908.Yudo Koda,

Honpo Mengyo no Tokeiteki Kenkyu(A Statistical Study of the

Japanese Cotton-Spinning Industry),1931,p.34.

21)Otokichi Shoji,Boseki Sogyo Tanshukushi(History of Opera

tional Curtailments in the Japanese Cotton-Spinning Industry),

1930,pp.145-153.

22)Naigaiwata&Co.,Ltd.,Business Report,second half of1907to

first half of1908.

23)Ibid.,first half of1907to first half of1908.

24)Naigaiwata&Co.,Ltd.,Business Report,second half of1908.Up

to that time,Naigaiwata had sold its left twenty-count yarn at a

price equal to or somewhat higher than the average price of yarn,

but beginning in April1908it began to sell the yarn at a price lower

than the national average.For example,in October1908the aver

age price nationwide was between\114.57and\117.35,while

the price of Naigaiwata's left twenty count ranged from\112.5to

\115.Japan Cotton-Spinners'Association,ed.,Monthly Report

of the Japan Cotton-Spinners'Association,July 1907-June1909.

25)Kiyoshi Inoue,•gNihon Bosekigyo Keiei no Ippan•g(An Outline

concerning the Management of Japanese Cotton-Spinning Enter

prises),graduation thesis,Tokyo College of Commerce,1910,

chaps.3-4.The cost of shipping one bale of cotton yarn from Kobe

to Shanghai in1908could not be determined,but according to the

Chugai Shogyo Shinpo(Chugai Commercial News)for March20,

1915,the cost of shipping one bale of cotton yarn from Japan to

Shanghai at that time was\1.5.Also,according to Yamaguchi

Noshomu gishi(Engineer of the Bureau of Agriculture and Com

merce),Manshu Sangyo Chosa Shiryo(Menpu oyobi Menshi)

(Survey Data on Manchurian Industry[Cotton Textiles and Cot

ton Yarn]),July1906,the comparable rate from Kobe to Ying-

130

k'ou in1906was••1.75.

26)The difference in customs duties was2.22ryo,which was con

verted to yen using the average exchange rate for1908of84.23ryo

per100yen.For more on this,see by the author:•gZaika

Bosekigyo no Seisei:Dainippon Boseki Kaisha no Jirei•h(The

Formation of the Japanese Spinning Industry in China:The Case

of Dainippon Cotton-Spinning Company),Keizai Keiei Ronso:

(Journal of Economics and Business Administration),1981,p.79.

27)The assertion that wages in China•@ were lower than those in Japan

is based on statements by the following:(1)Narazo Takatsuji,in

mid-1905,cited in Naosuke Takamura,Kindai Nihon Mengyo to

Chugoku(The Modern Japanese Cotton Industry and China),

1982,p.80;(2)a British commercial investigator in China,Jame-

son,cited in Monthly Report of the Japan Cotton-Spinners'

Association,no.153,May,1905,p.26;(3)Naigaiwata stockhol

der Fujio Hioki,based on his investigation of the Shanghai mill in

April 1913,in Naigaiwata&Co.,Ltd.,Kabunushi Sokai Gijiroku

(Minutes of the Stockholders'General Meetings),July25,1913;

and(4)Hirota Akiyama,executive director of Osaka Union Cot

ton-Spinning Company,cited in Osaka Jiji Shinpo(Osaka Cur-

rent-Events News),February10,1913.In addition,the statement

that unit manufacturing costs were higher in China is based on the

following:Kisaku Hashimoto,Shinkoku no Mengyo(The Cotton

Industry in China),1905,chap.2,secs.3-4;and Takamura,Kin-

dai Nihon Mengyo to Chugoku,p.80.

28)Hashimoto,pp.56-57.See also Takamura,p.80.

29)Stockholders who visited the No.4Mill in April1913stated as fol

lows:•gThis company has many employees who are familiar with

conditions in China,having served in the branch offices or agen

cies set up in various parts of China in years past.Since such

employees are now engaged at this Shanghai mill,it enjoys a great

advantage and will no doubt have excellent results.Even if other

firms perceive this advantage,it is not something that can be

attained in a short period of time.•hNaigaiwata&Co.,Ltd.,

Minutes of the Stockholders'General Meetings,July 1913.The

same opinion was also expressed by a director of Fuji Gas Cotton

Spinning Company.•gShina no Boseki Jigyo Keiei•h(Management

of Spinning Enterprises in China),in Yamato Shinbun(Yamato

Newspaper),July28,1912.

30)Besides Kontaibo and Muto,cited below,the following also

criticized Naigaiwata's establishment of manufacturing facilities

131

in Shanghai:special Shanghai correspondent,•gShina Boseki

Ron•h(Cotton-Spinning in China),in Osaka Mainichi Shinbun

(Osaka Daily News),May16,18-19,1912;Shanghai correspon-

dent,•gShina no Bosekigyo•h(The Spinning Industry in China),in

Tokyo Jiji Shinpo(Tokyo Current-Events News),May16-18,

1912; Japan Cotton Trading's Executive Director,Matazo Kita,

•gMenshi oyobi Boseki no Zento•h(The Outlook for Cotton Yarn

and Spinning),in Osaka Shinpo(Osaka News),May20,1912;a

director of Fuji Gas Cotton-Spinning Company,•gShina no

Bosekigyo•h(Management of Spinning Enterprises in China),in

Yamato Shinbun,July 28,1912.However,by the beginning of

1913,with the success of Naigaiwata's Shanghai mill and the possi

bility of an increase in Chinese customs duties,many had come to

the opinion that it was advantageous for Japanese spinners to set

up operations in China.See,for example:•gBoseki Kai no Shin

Keiko•h(New Trends in the Cotton-Spinning Industry),in Osaka

Shinpo,December18,1912;•gShina ni okeru Boseki Kigyo

•h(Spinning Enterprises in China),in Osaka Jiji Shinpo,February1,

1913;interview with Hirota Akiyama,executive director of Osaka

Union Cotton-Spinning Company,•gBosekigyo no Shorai•h(The

Future of the Cotton-Spinning Industry),in Osaka Jiji Shinpo,

February10,1913.In articles such as these,it was reported that

Settsu,Mie,Fukushima,Amagasaki,and other spinning com

panies were planning to set up operations in Shanghai.On this

point,see especially the aforementioned article in the Osaka

Shinpo.

31)Keizai Hyoron(Review of Economic Issues),vol.11,no.5,April1911.on.7-11.

32)In fact,Naigaiwata reportedly took the problem of temperature

into serious consideration and adopted excessive countermea

sures.•gShina ni okeru Boseki Kigyo•h(Spinning Enterprises in

China),in Osaka Mainichi Shinbun,February 1,1913.

33)•gShina no Kanzei Kaisei:Tai-Shi Boekigyosha no Iken•h(Revision

of the Chinese Customs:The Opinion of One Engaged in Trade

with China),in Jiji Shinpo(Current-Events News),October19,

1913.

34)The information on Kawamura's career comes from Noboru Otani,Kawamura Rihei O Shoden(Short Biography of the Venerable Rihei Kawamura),1926.

35)Naigaiwata&Co.,Ltd.,Minutes of the Stockholders'General Meetings,January 25,1909.

132

36)Ibid.,Business Report,second half of1909.37)The description of the founding of the Shanghai mill is based on

the following sources:Naigaiwata&Co.,Ltd.,Business Report,

second half of 1909 to second half of1911;ibid.,Fifty Years of

Naigaiwata&Co.,Ltd.,chap.2;and•gNew Shanghai Cotton

Mill,•hNorth China Herald,October21,1911.

38)Taichi Kinukawa,Heiwa to Shina Mengyo(The Armistice and the Chinese Cotton Industry),1919,p.202.

39)The source for these data is Naigaiwata&Co.,Ltd.,Business Reports for the respective semesters.

40)Naigaiwata&Co.,Ltd.,Fifty Years of Naigaiwata&Co.,Ltd.,p.

37;Kiyoshi Inoue,•gMeiji Jidai no Omoide•h(Reminiscences of

the Meiji Period),in Nihon Mengyo Kurabu(Japan Cotton Indus

try Club),ed.,Geppo(Monthly Report),January1977,p.5.

41)Naigaiwata&Co.,Ltd.,Minutes of the Stockholders'General Meetings,July1913.

42)The period is somewhat later,but in April1916Naigaiwata's

Shanghai mill produced568g of sixteen-count yarn per spindle per

day,while other Shanghai mills had a comparable output of only

about454g of fourteen-count yarn.Toa Dobun Kai,ed.,Shina no

Kogyo(Manufacturing Industry in China),1916,p.142.In Japan,

moreover,in December1913the Settsu Cotton Spinning Com

pany had a daily yield per spindle of645g for its average yarn count

of sixteen,and Naigaiwata's No.2 Spinning Mill had a comparable

output of535g for its average yarn count of17.7.•gZenkoku

Boseki Kaisha Eigyo Jikkyo Ichiranhyo•h(Table of Actual Busi

ness Conditions of Spinning Companies Nationwide),in Monthly

Report of the Japan Cotton-Spinners'Association,December

1913.Further,an article in the June15,1912edition of the Osaka

Mainichi Shinbun entitled•gHojin no Shanghai Bosekigyo•h

(•gJapanese Spinning Enterprise in Shanghai•h)stated as follows:

•gThe No.3Mill of Naigaiwata&Co.,which is operated by

Japanese,is equipped with the latest machinery and facilities and

is known as the best in Shanghai for the excellent quality of its yarn

and the enormity of its output....•h

43)Gaining confidence through its management of the No.3Mill,Naigaiwata began construction of the No.4Mill(30,000spindles)in early1912and had it in full operation in October1913.Further,in November1914the company started operation of the No.5Mill

(50,000spindles).By the end of World War I the firm's spindleage had grown to170,000,making it the largest spinning enter-

133

prise in China.Translated by Steven Ericson

Harvard University

134