A year earlier, Itochu acquired Petaluma, Calif.–based Solar Depot LLC, which distributes, finances, and installs solar energy systems for residential and commercial markets. And in 2007, Itochu bought Mandeville, La.–based MedSurg Specialty Devices, which distributes robotic equipment that helps pharmacists and doctors prepare hazardous drugs. Taking a page from the U.S. private equity industry, Itochu has recently established Principal Investments Group, an in-house investment firm.
Among the other top trading firms, in late 2006 Mitsui acquired SunWize Technologies Inc., a photovoltaic business located in Kingston, N.Y., and Marubeni America Corporation has made a variety of energy investments, including a series of biomass acquisitions. Mitsubishi International has a portfolio of a half-dozen small companies, purchased and operated through Red Diamond Capital, a $150 million buyout fund. The fifth major trading firm, Sumitomo Corporation, has been less active.
Collectively, these efforts are not going unnoticed. Says Hugh Patrick, a professor at Columbia Business School and director of its Center on Japanese Economy and Business, “If you look at the major trading companies, now more than half of their capital is invested in a range of direct investments in firms engaging in some production activities, rather than just trading. In a rather quiet way, trading companies have transformed themselves into investment conglomerates.”
Itochu and its rivals are bullish on the U.S. because they view it as the perfect place to learn how innovative technologies take shape. “We have always looked to the U.S. for new business models,” says CEO Kobayashi. “When we want to do new business, we go to the United States for new concepts.”
But that isn’t the case with renewable energy. The U.S. lags the rest of the Western world in developing solar technologies, so the Japanese plan to inject their technology and know-how through their U.S. investments. They are primarily acquiring solar systems integrators, which will buy cells and panels from manufacturers in Japan and elsewhere and install them in the United States. Columbia’s Patrick says the U.S. stands to benefit from these arrangements. He estimates that 20 percent of the total cost of solar implementations is tied up in local installation and maintenance. “Those are American jobs,” he says.
However, these firms (and perhaps the future growth of the U.S. solar industry) will be dependent on Japanese ownership and management. “This is an area where Japan can take leadership,” says Gen Hajime Ito, president of the Japan External Trade Organization in New York, which is part of the Ministry of Economy, Trade, and Industry (METI). METI is the new name of the Ministry of International Trade and Industry, or MITI, which played a strong role in shaping Japan’s postwar economic ascendance.
Twenty years ago, if a top MITI official had proclaimed that Japan would take a commanding position in a sensitive sector of the U.S. economy, it would have sparked anger in American streets — or at least rhetoric in the halls of Congress. But today it appears even the most promising sectors of the U.S. economy need all the help they can get.
William J. Holstein is the author of Why GM Matters: Inside the Race to Transform an American Icon (Walker, 2009). For more on his work, see www.williamjholstein.com.