The early days of Japanese trading companies

Raw material imports from Asia and machines from the West led to the expansion of both the manufacturing sector and, on the basis of fertilizer imports, the agriculture sector. Exports of manufactured goods to Asia and the US, notably including cotton to Asia (Abe Reference Abe and Sugihara2005) and raw silk to the US, led to the growth of the manufacturing sector and, in the case of the silk-reeling industry in which raw material—in the form of cocoons—was produced by domestic farmers, the agricultural sector (Nakabayashi Reference Nakabayashi2003; Reference Nakabayashi and Tanimoto2006). Notably, Japan’s industrialization during the first age of globalization was facilitated by Japanese general trading companies (sōgō shōsha), such as Mitsui & Company and Mitsubishi Corporation; Japanese shipping companies, such as the shipping department of Mitsui & Company and Nippon Yūsen Kaisha; and a foreign exchange bank, the Yokohama Specie Bank. Although Japan’s international trade was dominated by Western trading companies, Western shipping companies, and Western foreign exchange banks until the 1880s, the shares of their Japanese counterparts began to increase in the late 1890s (Sugiyama Reference Sugiyama1988, 34–90). This situation differed from that of other Asian nations that were entirely dependent on Western trading companies, Western shipping companies, and Western foreign exchange banks to expand their international trade. For this reason Japanese trading companies attracted the attention of researchers from the late 1970s to the 1990s (Nakagawa Reference Nakagawa1978; Lifson and Yoshino Reference Lifson and Yoshino1986; Yonekawa and Yoshihara Reference Yonekawa and Yoshihara1987; Yonekawa Reference Yonekawa1990; Jones Reference Jones1996; Jones and Wale Reference Jones and Wale1998). These researchers have reached a consensus indicating that general trading companies contributed substantially to Japan’s industrialization and thereby fostered the first age of globalization (Omori, Oshima, and Kiyama Reference Omori, Oshima and Kiyama2011; Okazaki and Oishi Reference Oishi2023).

Both of the largest trading companies—Mitsui & Company and Mitsubishi Corporation—began with a focus on commission trading. Mitsui began proprietary trading in the late 1890s in the context of very commoditized goods such as rice, raw cotton, and dried herring. Its proprietary trading then expanded to encompass commodities such as raw silk, cotton yarns, cotton fabric, lumber, wheat, sugar, and jute bags (Suzuki Reference Suzuki1981). Although Mitsubishi delayed its entry into the field of proprietary trading, its revenues from commission trading and proprietary trading became equalized in the 1920s (Okazaki Reference Okazaki2024). Notably, proprietary and commission trading returns varied only slightly. In the case of Mitsubishi, in 1922, the proprietary trading margin was 2.91%, and the corresponding figure for commission trading was 2.00%, for a difference of 0.92%. In 1928, these margins were 2.06% and 1.50%, respectively, for a difference of 0.56%, and in 1936, they were 2.07% and 2.03%, respectively, for a difference of only 0.03% (Okazaki Reference Okazaki2024, 6). Therefore, these differences were marginal or even negligible. Since proprietary trading entailed far greater risks, Okazaki (Reference Okazaki2024) referred to this result as “rather surprising” (Okazaki Reference Okazaki2024, 5).

If the types of traded goods are taken into consideration, however, these results are not surprising. Proprietary trading involves the trading of commoditized goods in competitive markets, such as those associated with actively traded debt instruments in financial markets. In contrast, in the context of commission trading, companies earn fees by finding matches between buyers and sellers of highly differentiated goods. This value of the information processing that occurs when potential buyers are matched with potential sellers of differentiated goods could can be characterized as a margin comparable to that of proprietary trading. We investigate how trading companies pursue the task of commission trading with respect to highly differentiated goods.

Oil and Manchuria

Throughout the nineteenth to the twenty-first centuries, oil has been a strategic resource (Randall Reference Randall2005), especially for Japan, which lacked rich oil reserves both at home and in its colonies (Vernon Reference Vernon1983, 89–92; Painter Reference Painter2012). For imperial Japan, whose navy was heavily dependent on oil imports from its hypothetical enemy, the US, the question of how to diversify the country’s oil procurement was critical. The development of the oil-shale industry associated with the Fushun Coal Mine under the South Manchuria Railway was viewed as a promising option in this respect (Lim Reference Lim2008, 24–26; The War History Office of the National Defense College of Japan Reference Remmelink2018, 11).

In the early twentieth century, Manchuria was a crucial geopolitical region in which the Republic of China, the US, the USSR, and Japan were all interested. Russia had built and operated the Chinese Eastern Railway in Manchuria since 1897. As a result of the Russo-Japanese War, in 1904–1905, Japan acquired the southern Manchurian portion of the Chinese Eastern Railway and reorganized it as the South Manchuria Railway. In 1917, the USSR inherited the remaining portion of this railway. The Imperial Japanese Army assassinated the warlord of Manchuria, Zhang Zuolin (Chang Tsuo-lin), in 1928, and invaded Manchuria in 1931, contriving to separate it from the Republic of China. In addition to this military invasion, Japan also increased its investment in Manchuria. The coal and oil-shale industries in the Fushun Coal Mine, which was operated by the South Manchuria Railway, were among the most significant such industries (Schumpeter Reference Schumpeter2001, 382–83; Matsukata Reference Matsukata2001, 258–66, 293–348; Copeland Reference Copeland2015, 157–62).

The oil-shale industry in transition

In the mid-nineteenth century, the Scottish oil-shale industry led the emergence of the global oil industry. However, beginning in the late nineteenth century, oil production from wells in the US and the Middle East increased and became competitive in terms of price. Therefore, when imperial Japan was in the process of planning to develop the oil-shale industry in Manchuria in the 1920s, the oil industry was in a transitional phase. While British (specifically Scottish) technology was in stable operation at this time and had become well established, its competitiveness in the global market had begun to decline (Gavin Reference Gavin1924, 91–96; Okamura Reference Okamura1926, 277; Butt Reference Butt1965, Harvie Reference Harvie2010, Gallois Reference Gallois2012, Dean Reference Dean, Craig, Gerali, Macaulay and Sorkhabi2018, Craig and Underhill Reference Craig and Underhill2019). These issues were exacerbated by the emergence of another source of shale oil, i.e., Estonia (Dyni Reference Dyni2006, 38).

The provincial government of Estonia first sent experts to Scotland in 1919 to consider the possibility of adopting Scottish distillation technology. The experts who visited the Scottish oil-shale plant reported that Scottish technology was unsuitable for Estonian shale as a result of chemical differences between Estonian and Scottish shale. Therefore, in 1921, the Estonian government decided to develop its own technology on the basis of German internal heating technology that had been developed for coal retorts, and the resulting plant was completed in 1924. The internally heated vertical retorts were known as “gas generators.” The output of Estonian shale oil subsequently increased (Soone and Doilov Reference Soone and Doilov2003; Tammiksaar Reference Tammiksaar2014).

One difference between Scottish technology for oil-shale distillation—as represented by the Pumpherston type of retorts—and other developing technologies pertained to whether external or internal heating is used for retorts. The Scottish-type distillation plant featured distilling pipes inside the chimney, and fire surrounded the distilling pipe, which was covered by a wall. This basic structure was developed in the late nineteenth century and was used throughout the 1920s (Beilby Reference Beilby1897; Henderson Reference Henderson1897; Brownlie Reference Brownlie1929). In contrast, internal heating for distillation from coal to oil, under which fire was surrounded by distilling pipes, developed quickly in Germany beginning in the early twentieth century (Fischer Reference Fischer1924, 76–80; Fischer Reference Fischer and Lessing1925, 88–94). The application of a type of internally heated retort that was designed for coal distillation to kerogen shale distillation represented a straightforward approach in this context.

In the US, an experiment was conducted by the Bureau of Mines, from 1926 to 1929, with the goal of comparing internal heating with external heating. A standard Pumpherston commercial type was used to represent an external heating distillation process, and the Nevada-Texas-Utah process of the N-T-U Company in California was employed to represent an internal heating process (Gavin Reference Gavin1928). On the basis of these results, the Bureau of Mines conducted an experiment regarding the N-T-U process in a larger plant from 1946–1951 (Lankford and Ellis Reference Lankford and Ellis1951; Hull, Guthrie, and Sipprelle Reference Hull, Guthrie and Sipprelle1951). The N-T-U process employed internal direct heating via internal combustion. The Union Oil Company in California also implemented an internal heating process in 1943 (Russell Reference Russell1980, 107). Both the N-T-U and Union Oil processes offered the advantage of a “better heat economy” (Hull, Guthrie, and Sipprelle Reference Hull, Guthrie and Sipprelle1951, 9). However, after 60 years of experimental study, the oil-shale industry in the US had not achieved genuine commercialization (Russell Reference Russell1980, 102). As the traditional Scottish distillation process continuously lost its competitive edge to natural petroleum, only the oil-shale industries in Estonia and Manchuria continued to produce oil commercially (Russell Reference Russell1980, 3) before the so-called “shale oil revolution” that resulted from horizontal drilling and hydraulic fracturing in the US in the 2000s (Hughes Reference Hughes2013).

A case study: The oil-shale project in Manchuria

The imperial Japanese navy predominantly depended on oil imported from the US and, for the remainder, the Dutch East Indies. The navy sought alternative sources of such fuel, and one possibility identified in this context was oil shale in the Fushun Coal Mine, which was owned by the South Manchuria Railway. Kerogen shale was found in Manchuria in 1909, after which the South Manchuria Railway began to conduct studies on the kerogen shale industry (Okamura Reference Okamura1926; Reference Okamura1930; Lim Reference Lim2008, 21–45; The War History Office of the National Defense College of Japan Reference Remmelink2018, 11).

Although both the navy and the South Manchuria Railway aimed to produce oil by distilling kerogen shale from Fushun, the priorities of these two groups did not necessarily match. On the one hand, the navy aimed to diversify oil sources and prioritized the reliability of oil production. On the other hand, even if the South Manchuria Railway was partially state owned, it was still required to earn a profit. Therefore, its priority was cost performance.

Experts from the South Manchuria Railway, the navy, and the army formed a council for procurement that met from May 21 to 28, 1925. Tadao Kimura, a researcher associated with the Central Laboratory of the South Manchuria Railway, studied distillation methods for two years prior to 1924 and advocated for the Scottish method (Okamura Reference Okamura1926, 278).

The council first decided to employ the Scottish technology that Kimura recommended, a decision which received strong support from the navy. The navy pushed for the early realization of this process based on the use of well-established Scottish technology. However, the navy also demanded cost reductions (Yamamoto Reference Yamamoto2003; Iizuka Reference Iizuka2003).

In 1924, Estonia began operating a plant that featured an internal heating system, which proved to be successful. As a result of this inspiration, the South Manchuria Railway began to conduct experiments with the internal heating method in 1925 and concluded that internal heating on the basis of the German Mondgas method was more effective, particularly given that Fushun kerogen included less oil than did Scottish kerogen. Kinzō Okamura, Department Chief of the Fushun Coal Mining Industry of the South Manchuria Railway, led the development of this internal heating system. In 1926, the internal heating method was implemented, and the South Manchuria Railway decided to build an original distillation plant on the basis of German technology in 1926. This internal heating vertical retort system for dry distillation is known as the “Fushun-type” retort (Okamura Reference Okamura1926; Oshima and Uchida Reference Oshima and Uchida1926; Qian, Wang, and Li Reference Qian, Wang and Li2003).

The South Manchuria Railway began constructing the first retort in 1928 and completed the construction process in 1929. Additionally, the construction of a second retort began in 1929 (Okamura Reference Okamura1926; Journal of the Society of Chemical Industry 1929, 1180; Okamura Reference Okamura1930; Lim Reference Lim2008, 27). The production of crude oil derived from oil - shale at the Fushun East Plant was 63,509 tons in 1931, which increased to 120,299 tons in 1935 and 224,519 tons in 1941; it reached a peak by the end of the war at 257,618 tons in 1942. Assuming that the navy requires 500,000 tons of oil per year, the Fushun plant accounted for roughly half of this total. While the production of this plant fell far short of the goal of supplying Japan’s entire civil and military consumption of oil, it substantially diversified the fuel sources of the navy (Lim Reference Lim2008, 36, 152). Furthermore, as China was believed to be unable to produce oil, the successful operation of the Fushun oil-shale industry represented “a major step toward China’s self-reliance by challenging the deep-seated myth of China’s oil impoverishment” (Lim Reference Lim2008, 37).

Addressing business meeting costs within trading companies

While Mitsui & Company viewed the staff and the amount of time that they spent attempting to interact with potential clients as critical, the imputation of the costs of such social spending became an issue in this context. Social spending, including the allocation of specialized staff, the search for potential sellers of highly differentiated goods and the provision of logistical support that could enable clients to visit potential sellers and their operation sites, was highly likely to provide the company as a whole with a higher margin per transaction than operations in competitive commodity markets. However, for financially independent branches, their own social spending for the purpose of advising potential clients in another branch represents a positive externality. Without addressing this issue, social spending by branches for the purpose of information exchange within the trading company as a whole inevitably becomes less than optimal.

In a conference of directors of overseas branches that was convened by headquarters in 1921, the director of the Hong Kong branch, which was the gateway to East Asian markets for the company, emphasized the fact that 99 percent of its capacity to treat guests was spent on visitors with references from other branches. He demanded the imputation of such social spending to branches from which these visitors to the Hong Kong branch originated. Otherwise, he implicitly warned that the Hong Kong branch would provide less-than-optimal support to visitors in terms of the maximization of Mitsui’s profit as a whole on the basis of its “reputation.”Footnote ¹ With respect to the global operations of Mitsui & Company, the San Francisco branch served as a gateway to the West after the First World War. The costs incurred by the San Francisco branch rose accordingly. A letter sent by the San Francisco branch manager to headquarters in 1924 detailed the burdens that the branch faced as a result of the time spent by the staff on taxi rides and telegraphs. Additionally, the letter described somewhat burdensome tasks that they were expected to perform for visitors, such as attending on engineers who wanted to visit the port and railways to see facilities there or answering “eccentric questions” “such as how thick the asphalt on the road surface is in San Francisco”; the staff thus complained that “we do not necessarily know from A to Z.”Footnote ²

The letter as a whole aimed to make headquarters staff aware of the substantial costs incurred by the San Francisco branch. Moreover, the letter included valuable information regarding the roles that visitors expected the trading company to play. Visitors to the San Francisco branch from Japan, who were often engineers, were experts in their field. Although the letter complained about “eccentric” questions from these visitors, such questions were likely asked to test the knowledge of the trading company’s staff. For example, the thickness of “the asphalt on the road surfaces” is a crucial factor that affects the cost of construction and the durability of the road. In-person observations at facilities are critical with respect to the task of acquiring tacit knowledge regarding operations beyond what can be ascertained on the basis of academic journals. The complaint that visitors were attempting to confirm the knowledge level of the trading company’s agents indicates that visitors suspected and confirmed that these agents were not experts in engineering. This situation may have been due to the fact that the staff members of the trading companies mostly had degrees in business, economics, or law rather than engineering. This point is related to the expectations of client companies regarding the roles played by trading companies in this context, as discussed below.

The issue of cost imputation was thus crucial, particularly because each branch represented an accounting entity. In response to this request by the San Francisco branch, in May 1924 Mitsui & Company introduced an imputation system for social spending, according to which the costs of the social spending exhibited by a visitor’s destination branch were imputed to the visitor’s original branch, which had issued a reference for the visitor. The notification for the branches also mentioned that visitors’ origin branches should not misguide them into expecting exceptional levels of business entertainment.Footnote ³ The aim of such social interactions was not to participate in tasty dinners but rather to exchange information.

Logistical support for the client

The key persons among the above-mentioned council members, with regard to decisions concerning the procurement of oil-shale distillation facilities for the Fushun Coal Mining Industry under the South Manchuria Railway, were Tadao Kimura, a researcher at the Central Laboratory of the South Manchuria Railway; Kinzō Okamura, the Department Chief of the Fushun Coal Mining Industry; Keidō Uehara, a researcher at the Fuel Fabrication Plant and an engineer major with the Imperial Navy; and Kanji Kurihara, a professor at Meiji Vocational College and an engineer at the Tokuyama Coal Briquetting Plant of the Imperial Navy. In 1924, this group sought technical information at the global level to prepare for the council meeting that was planned in 1925. In particular, Kinzō Okamura from the South Manchuria Railway and Kanji Kurihara from the navy played critical roles in these procurement decisions (Okamura Reference Okamura1926; Yamamoto Reference Yamamoto2003).

In 1923, Tajirō Shirahama, the manager of the Equipment Division of the General Accounting Department of the South Manchuria Railway, and Jō Ushijima, the manager of Railway Operation of the Department of Railway of the South Manchuria Railway, planned an official trip to London with the aim of studying oil-shale distillation facilities in Britain. The director of the Dalian branch of the Mitsubishi Corporation sent a letter to the director of the London branch. This letter was titled “On the effects of attending to clients on official trips” and requested someone from the London branch to greet Shirahama and Ushijima.Footnote ⁴

As the letter emphasized opportunities to earn “truly noteworthy profits” by “courteously treat[ing] clients who make official trips” from Manchuria, it highlighted various points to which attention was to be given. First, clients from the South Manchuria Railway and other authorities would be hesitant to receive gifts and accept Mitsubishi’s invitation to an even less conspicuous dinner, which made such gifts and dinners merely wastes of money. In particular, government officials declined such opportunities. Thus, second, the Dalian branch did not want other branches that hosted visitors to whom the branch had provided references to spend large amounts to satisfy “material needs” and emphasized the fact that “it would be sufficient to communicate with them seriously and courteously” as an “established habit” within Mitsubishi because “hospitality by fellow Japanese would be far more valued than money” by “travelers far from home, and the pleasant memory would last for a long, long, long time.” Third, the letter noted that visitors from the South Manchuria Railway and other organizations were often on “a mission to study industrial machines and further on a mission to procure them” and that “these trips were a step toward [their] further promotions [in their companies].” Fourth, the letter warned that Mitsui & Company was ahead of Mitsubishi Corporation in terms of its pursuit of “ten-thousand-yen orders from the South Manchuria Railway.” Given this advanced position of Mitsui & Company, the letter advocated an increase in personnel to engage with visitors and suggested that “sufficient efforts should be made to investigate the names of visitors and to transmit such information internally.”

The first point, which claimed that potential clients from the South Manchuria Railway and other authorities such as the imperial army and the imperial navy did not want to participate in lavish dinners, might have been due to the desire of these actors to save time or to the stringent probes of investigators under the Constitution of the Empire of Japan of 1889. Law enforcement, including in terms of corruption investigations, was independent and thus stringent before 1945 (Mitani Reference Mitani1980).

The second point, which indicated that potential clients sought to interact with fellow Japanese persons overseas, is consistent with the results reported by Rauch and Trindade (Reference Rauch and Trindade2002), who claimed that only the density of the Chinese population in a given country is associated with growth in trades between that country and China. Potential clients did not need dinners but did need to spend time with Japanese staff overseas. Furthermore, the task of supporting visitors was viewed as a long-term investment in social networks after those visitors received promotions, as they would never forget the hospitality that they experienced.

The third and most important point is that potential clients were eager to access information regarding new technologies in the West and that the resources allocated by the rival Mitsui & Company to meet the corresponding demand highlight the importance of the in-person exchange of information, which was facilitated by trading companies. Forming in-person links between the potential demand and supply sides at the global level, that is, information exchanges, was identified as the most critical task of trading companies in highly differentiated high-end markets.

In August 1924, Kinzō Okamura planned to visit, through the ports of Dalian and Yokohama, the US, Britain, Germany, and Sweden, with the goal of obtaining knowledge concerning oil-shale retorts. The director of the Dalian branch of the Mitsubishi Corporation sent a letter to headquarters with the aim of becoming involved in the project. The letter reported that Okamura declined an invitation to a dinner involving a meeting with the Dalian branch because Dalian was “the home of the South Manchuria Railway,” which indicates that he was concerned about of the possibility of being suspected of corruption. Furthermore, the letter requested that someone from headquarters in Tokyo meet Okamura before his departure to the US.Footnote ⁵ After the letter from the Dalian branch was received, Kyōhei Katō, the Executive Managing Director, and Yoshitoshi Kōno, the Vice Director of the Division of Machinery at headquarters of the Mitsubishi Corporation, met Okamura on August 16, 1924, in which context they became aware of the aim of the trip and his requests to visit plants in the US. Subsequently, headquarters informed branches in North America of Okamura’s intention to visit.Footnote ⁶ The director of the Fuel Division at Mitsubishi Corporation sent a letter to the San Francisco branch to describe this point.Footnote ⁷

The letter reports that Kinzō Okamura wanted to visit the Avon Refinery of the Associated Oil Company, from which the Mitsubishi Corporation had imported oil, and warned that Mitsui & Company had also approached him. The General Petroleum Corporation in California granted exclusive sales rights in Japan to Mitsui & Company. Therefore, the Mitsubishi Corporation suspected that Mitsui might invite Okamura to visit a General Petroleum plant.

The director of the Dalian branch of the Mitsubishi Corporation also sent a letter to the director of the San Francisco branch, noting thatFootnote ⁸

Moreover, branches of Mitsui & Company also shared information concerning Kinzō Okamura. Seko, the director of the London branch of Mitsui & Company, sent a letter to the Seattle branch.Footnote ⁹

In the end, Mitsui succeeded in being the only company to attend to Okamura. On the West Coast, the director of the San Francisco branch of Mitsui & Company exclusively attended to Okamura, and other companies, such as the Mitsubishi Corporation, could not approach him.Footnote ¹⁰ Okamura subsequently traveled to New York via Chicago. The New York branch of Mitsui & Company attended to him and reported on this visit as follows.Footnote ¹¹

The New York branch of Mitsui & Company made this point in a letter to the London branch on October 2, 1924, as follows.Footnote ¹²

Although Okamura was interested in new technologies that were under study in the US, he did not consider them to be appropriate for procurement. In contrast, given the long history of the Scotch oil-shale industry, Okamura felt that British manufacturers seemed to be ready to supply reliable types of equipment. As of 1924, namely, after Okamura had visited plants in the US but before he had visited plants in Britain, he viewed the Scottish method as the most reliable approach and tentatively supported it. Meanwhile, Tadao Kimura, a researcher at the Central Laboratory of the South Manchuria Railway, traveled in other directions through Europe and arrived in the US in February 1924 with the goal of visiting various plants. The New York branch of Mitsui & Company reported on Kimura’s visit in a letter as follows:Footnote ¹⁶

As Takeda & Company, the dealership of Craig & Co. of Scotland in Japan, was going bankrupt, the letter noted that Mitsui & Company “should not miss” the opportunity in question. When Kimura returned from the US to Yokohama, Japan, the Department of Mining in the Tokyo Branch of Mitsui & Company contacted him and detailed this meeting to the Department of Machinery in the Dalian Branch on April 20, 1925.Footnote ¹⁷

First, following his trip through Europe to the US and his visits to operation sites and manufacturers, Kimura was confident in the Scottish external heating method. Among the two promising candidates—Caig & Co., whose dealership in Japan was Takada & Company, and Simon-Carves, whose dealership in Japan was Mitsui & Company—Craig & Co. was preferred over Simon-Carves. Thus, Kimura implicitly indicated that Mitsui & Company should take over the dealership of Craig & Co., as Takada & Company was going bankrupt.

Second, Kimura dismissed the “Thyssen”Footnote ¹⁸ method that Mitsubishi recommended as “not worth thinking about at all.” He was also skeptical about German internal heating distillation systems such as the one by “Mondgas”Footnote ¹⁹ because “none of the German facilities were intended for ‘oil shale’ but were intended only for low-temperature distillation of coal.” Although “facilities developed for coal could surely be utilized for ‘oil shale’ after minor changes in design” and “experimental facilities of such applications to ‘oil shale’ are being attempted in various places to determine whether they are practically workable, there are very few plants of commercial scale other than [external heating distillation systems] in the UK, which makes us imagine how different ‘oil shale’ is from coal [distillation systems]”, though admitting that “German products are sophisticated and superior to others in extracting byproducts.” Thus, he maintained that “there should be debates regarding whether the South Manchuria Railway is to adapt German products immediately.”

Third, regarding American technology, Kimura was ordered by the South Manchuria Railway to visit relevant facilities and observe the “Hartman” methodFootnote ²⁰ and the “Trumble” method.Footnote ²¹ However, he was concerned that “mechanical troubles could occur with both the ‘Hartman’ method and the ‘Trumble’ method,” and noted that, “[i]n particular, the ‘Hartman’ method is still under study” and that he “cannot imagine that the current model could be utilized for the ‘shale’ of Manchuria.” The letter also indicated that Kimura did not seem to appreciate Okamura.

Among the methods under experiments in the US, the Hartman rotary continuous retort for distillation used external heating (Hamor Reference Hamor and McKee1925, 157), whereas the Trumble oil cycle distillation used internal heating with “superheated steam” (Lyder, Goodwin, and McKee Reference Lyder, Goodwin, McKee and McKee1925, 290). As Kimura noted, coal distillation had been well established (Fischer Reference Fischer1924, 76–80). The issue was whether it could be applied feasibly to kerogen shale distillation.

Thus, Kimura prioritized reliability and recommended external heating system made by Simon-Carves, which had worked with the Scottish oil-shale industry. Furthermore, Kimura did not think highly of the German Mondgas and did not appreciate Okamura, who subsequently preferred the internal heating system suggested by Mondgas. As discussed above, Okamura took the lead in the development of an internal heating system in 1925. However, in 1924, Kimura valued Scottish external heating technology, and as noted above, Okamura also considered the Scottish method to be the most feasible before his visit to Britain.

Engineers who were associated with the navy and joined the council for procurement also visited sites in the US in person and acquired tacit knowledge there, and Mitsui & Company arranged their visits. When Kanji Kurihara, from the navy, visited the US on his way back from Europe, in October 23–28, 1924, the New York Branch attended to him and coordinated his visit to oil-shale distillation facilities that employed the Hartman method. When Keidō Uehara from the navy stayed in Los Angeles on October 2–10, 1924, headquarters and the New York Branch of the company arranged for him to visit oil fields in California.Footnote ²² Headquarters and the Dalian Branch of Mitsui & Company closely shared information regarding the procurement policy of the South Manchuria Railway. The Dalian Branch of Mitsui & Company analyzed the prospective procurement policy of the South Manchurian Railway in a letter that was sent to headquarters in March 1925.Footnote ²³

The letter speculated that the South Manchuria Railway still viewed the Scottish method as the most promising; however, no consensus had been reached even among the individuals who were responsible for procurement regarding which option to choose among the Scottish candidates, such as Craig & Co., whose dealership in Japan was Takada & Company, and Simon-Carves, whose dealership in Japan was Mitsui & Company. The letter aimed to facilitate the sharing of strategically important information between the Dalian branch and headquarters with the goal of outflanking Mitsubishi Corporation.

As described in above, while the council first decided to implement the Scottish method in 1925, engineers from the South Manchuria Railway, led by Kinzō Okamura, began to experiment with retorts for distillation featuring internal heating in the same year. Following the success of this experiment, the company built a distillation system featuring internally heated retorts in 1928, and this system began operations in 1929.

Trading companies were not directly involved in critical moments of these technical decisions. Instead, they sought information regarding procurement candidates. To obtain such information, agents of trading companies accompanied engineers associated with the South Manchuria Railway on visits to sites in the West. They arranged in-person visits to operating sites, which provided engineers with tacit knowledge, and they conveyed information regarding the specifications of candidate facilities that was expected by the South Manchuria Railway. By providing logistical support that could facilitate the matching of potential suppliers worldwide with clients at home, trading companies were able to address the issue of asymmetric information between the demand and supply sides during the first age of globalization.