Jan. 04, 2012
Susumu Kato President and CEO, Sumitomo Corporation

The environment for our company
Last year a number of major natural disasters struck places around the world, such as the Great East Japan Earthquake, earthquakes in Turkey, and flooding in Thailand, causing tremendous damage. It was also a year of ongoing instability on the global political and economic fronts, as seen in such developments as the regime changes resulting from the democracy movements in the Middle East, the budget deficit problem in the United States, the sovereign risk problem in Europe, and protests against social and economic inequality in a number of advanced countries.

The Great East Japan Earthquake caused the loss of many precious lives, and victims of the disaster are still struggling valiantly to overcome their difficulties. In addition to providing humanitarian support of various sorts, we intend to continue implementing long-term support that will contribute to the recovery of industry, and we are involved in a number of specific efforts.

What sort of year will 2012 be? Sumitomo Shoji Research Institute has predicted the year 2012 will be a "year of politics," testing the power of economies to recover with support from policy measures adopted by elected politicians.

Presidential elections are coming up this year in the United States and Russia; China also is slated to have a change of its top leaders. Governments in various countries will be emphasizing economic policies with a focus on the approaching elections, and the effects of these policies should gradually emerge, meaning that we can hope to see a halt in the downward slide of economic performance. However, the sovereign risk problem in the euro area includes structural elements and is not amenable to a solution in the near term, and it is difficult to expect significant improvement again this year in the United States economy, given the problems in the housing sector and the persistently high rate of unemployment. Japan also faces difficulties, notably the appreciation of the yen, and the situation will probably continue to be challenging. Emerging countries like China and India, which have been powering the global economy with their rapid growth, may feel the effects of the slowdown in the advanced countries. So the environment for our company will continue to be one of great uncertainty, and we should be aware that major changes may occur.

Bracing ourselves with a sense of modesty
In April last year we embarked on a new medium-term management plan, f(x). Despite the state of the economic environment, we achieved healthy results in the first half (April-September) of the fiscal year, and we raised our forecast of consolidated net income for the fiscal year as a whole from ¥220 billion to ¥250 billion. I credit this to the efforts that all of you have been putting forth on a daily basis. But we must keep in mind the fact that we enjoyed some favorable conditions during the first half, such as the surge in prices of resources. We need to avoid getting carried away by short-term results and to recognize that our present position is not something we have achieved just through our own power; let us brace ourselves with a sense of modesty and keep working at our operations.

Global-scale issues
Now I would like to consider the changes in the world around us from a longer-term perspective.

According to recent data from the United Nations, the world's population topped 7 billion last year, and the figure is expected to rise to 9.3 billion by the middle of the current century. The number of seniors aged 60 or over will roughly triple to 2.4 billion, and the share of the population living in cities is seen as rising from the current level of around 50% to around 70%. The growth and urbanization of the population will make it necessary to secure additional resources and to improve transportation and other infrastructure. And the increase in the number of seniors will create needs for new services in such fields as medical and nursing care.

Also, according to the International Energy Agency, despite the slowdown of economic growth in advanced countries, the demand for primary energy in 2010 continued to increase supported by solid demand in emerging countries, and the volume of carbon dioxide emissions reached a record high. This upward trend is expected to continue. And there is a possibility that the moves around the world to review nuclear energy policy and the political turmoil in countries in the Middle East and North Africa will cause major changes in the energy supply-demand balance. As was discussed at last year's COP17 (17th Conference of the Parties to the United Nations Framework Convention on Climate Change), there is a need to develop energy sources that give greater consideration to environmental issues.

Amid the rapid shifts in the global power structure and in industrial structures,  many people, goods, and services moving freely and speedily across national borders. Numerous countries are working together to find solutions for these global-scale issues, and companies that are active globally are also expected to play a part in this process.

In this context, taking these major social issues as "new needs" that society as a whole is seeking to meet for the future, we need to actively undertake efforts aimed at finding solutions, drawing on our integrated strength from both inside and outside the company. The task of securing resources like water, food, and energy and improving infrastructure to cope with population growth, the creation of "smart cities" aimed at achieving a recycling-oriented society, the formation of new lifestyles to suit the needs of aging societies--the areas for us to get involved in stretch forth without limit.

Meeting new needs
We will take these major global-scale social issues as new needs and work at resolving them to meet the expectations we face. To achieve this goal, what sort of points should we focus on? I would like to cite three points:

The first is to appropriately assess the concrete shape of the needs and take action accordingly. Global-scale social issues are common to the entire world, but in considering ways of resolving them, we need to keep in mind the distinctive features of each region. So it is important to get as accurate a grasp as possible of the various needs that differ from one region to another.

The second is to draw together the strengths of various partners for resolving these social issues. There are many companies that have globally unique strengths or that are well versed in the particular features of their regions. Among such companies it is important for us to find ones with which we can share values--ways of thinking, visions and missions, ethical views, and business philosophies--and work with them as partners. If we can find common values, it should be possible for us to overcome most difficulties together.

Third is to address these issues on a long-term basis. Social issues are issues precisely because they are not easy to resolve. Reaching solutions will require climbing over any number of high walls. It is crucial for us to address our undertakings with persistence and force on a long-term basis, with the ambition of taking the lead in creating a better society. It is our mission to work at strengthening and expanding our existing earnings base, but rather than being caught up just with short-term results, I hope we will all intrepidly take on major challenges that only we can handle.

The points I have just cited are precisely the sorts of matters we are addressing under f(x). The business model innovation that we are implementing under f(x) is aimed at changing our business models in response to new needs. Under this plan we are also working to enhance our integrated corporate strength on a global basis, which will make it possible for us also to work at providing solutions for social issues in countries around the world.

Each of our regional organizations has an extremely important role to play in the global enhancement of our integrated corporate strength. Locally rooted insight and judgment is more essential than anything else, both for grasping needs accurately through familiarity with local conditions and for finding partners with whom we can share the passion for resolving issues and jointly develop new businesses.

So the expectations we are directing at our regional organizations are extremely great. I hope that our people in these organizations will give full rein to their own strengths and undertake new businesses on their own initiative, thereby achieving dramatic expansion of their business activities. I should also note that it is not enough just for regional organizations to make efforts. We must further invigorate action at the local level on the basis of even closer communication and strategy sharing with the divisions responsible for product strategies. This year I intend to focus energy on building up the systems for this purpose.


Striving together
Our Sumitomo predecessors launched businesses, advanced them, and developed them with a commitment to integrity and sound management and enterprising spirit. They also approached their work with the idea that their business activities must be not just for their own benefit but also for the benefit of society and the country, along with a determination to create business projects on a long-term basis so as to benefit the country. These lofty sentiments live on to this day in our Corporate Mission Statement, under which we "aim to be a global organization that constantly stays a step ahead in dealing with change, creates new value, and contributes broadly to society."

As I noted at the beginning of this message, I believe we should anticipate ongoing uncertainty in the economic environment. Particularly at a time like this, I would ask you to take a more elevated viewpoint, consider changes to represent chances, and tackle major issues.

In my New Year's message last year, I offered you "growing together" as my watchword. This year I propose that we intrepidly strive to meet new needs together with our partners around the world, with "striving together" as the watchword for our joint efforts.

As my New Year's calligraphy exercise this year I selected the three words kokufuku (overcome [difficulties]), ch

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