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Asia300

Itochu's new management team reflects CEO's sense of crisis

Lack of tangible benefits from China's CITIC led chief of Japanese trading house to remain

Current Itochu President and Chief Executive Masahiro Okafuji, right, who will become chairman but remain CEO, and Yoshihisa Suzuki, who will take on the roles of president and chief operating officer, in Tokyo on Jan. 18.

TOKYO -- The new top management team of a Japanese trading company Itochu reflects an acute sense of corporate crisis by its current President and CEO Masahiro Okafuji.

Soon after the announcement in mid-January, market attention was focused on Okafuji's continued role in a top leadership position. Since then, however, scrutiny has shifted to the new businesses that Itochu plans to undertake in the coming months and years.

Okafuji will become chairman but remain as CEO, effective April 1, while Senior Managing Executive Officer Yoshihisa Suzuki will be promoted to president and chief operating officer. In addition, Executive Officer Shunsuke Noda will assume the post of chief strategy officer.

Both Suzuki and Noda come from Itochu's information and financial operations. Noda served as president of Itochu's portal website Excite Japan.

The new management is designed to "further advance the existing business model," said Akira Morimoto, senior analyst at SMBC Nikko Securities.

Itochu has been expanding its operations under the leadership of Okafuji, who has steered the company toward areas beyond resources. In the current fiscal year ending March 31, the company is expected to post a record group net profit of 400 billion yen ($3.67 billion), up 14% from the previous year.

The price of Itochu's stock has risen roughly 40% over the past year, lifting the company's market capitalization to 3.7 trillion yen and allowing it to join Mitsubishi Corp. and Mitsui & Co. as one of the top three Japanese trading houses.

As chief strategy officer, Noda will be tasked with promoting the creation of new business models in such fields as artificial intelligence and the internet of things, where equipment and computers are connected via the internet.

Attention has now turned to specific business model that Itochu will create under the new management team.

At a press conference on Jan. 18 to announce the company's management changes, Suzuki stressed the importance of "partnership and retail on a global basis," suggesting that China's state-owned investment company CITIC, with which Itochu has formed a capital alliance, and FamilyMart Uny Holdings, a convenience-store chain operator belonging to the Itochu group, will be cores of operations under the new leadership.

E-commerce in China is one target area. Itochu has already decided to invest a total of 7.6 billion yen jointly with KDDI and SBI Holdings in Inagora, a Tokyo-based cross-border e-commerce platform focused on China. Through the supply of merchandise to China by its group companies, Itochu plans to study the needs of Chinese consumers and gain the necessary logistical know-how for use in its joint operations with CITIC.

But there have been snags. CITIC has failed to make noticeable contributions to its capital alliance with Itochu. Although Itochu spent 600 billion yen on the alliance in 2015, the formation of specific strategies -- especially in the fields of financial services and e-commerce -- have been delayed due largely to CITIC's slow decision-making. Itochu clearly did not anticipate such risks among state-owned Chinese enterprises.

"Chinese people strongly tend to lay importance on titles," Okafuji said at the same press conference, as he explained that he will retain the CEO post partly to help maintain and reinforce Itochu's relationship with CITIC. Noda will be responsible for promoting the alliance on a day-to-day basis.

Since Jan. 17 -- the day before the management-change press conference -- Itochu's stock price has fallen 1.1%. Other trading houses have also seen their stock prices weaken.

Given the Nikkei Stock Average's decline of 2.4% during the same period, investors appear to be determining that Itochu's earnings will neither rise nor fall sharply under the new management team. The company's stock price is being supported possibly because of its relatively high dividend yield of 3.2% as of Friday.

Itochu is finalizing the preparation of a new medium-term management plan due to be released this spring. The new leadership's heavy task is to show a solid growth scenario detailing how the company will reinforce its e-economic and financial services in cooperation with CITIC.

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