The Supreme Canning Company (the true name of the company is disguised) is an independent US packer of tomato paste and other tomato products (whole peeled tomatoes, chopped tomatoes, tomatoes and zucchini, ketchup, tomato paste, and pizza and other sauces). The company is located in the state of California.

Although it produces some cans with its own-brand label, much of its output is canned for others and their brand names and labels are put on the cans. It produces shelf-size cans for eventual sale at retail, and gallon-size cans for use by restaurants and industrial users. It also packs tomato paste in 55-gallon drums, and in plastic containers holding approximately 0.7 cubic meters (with the flexible plastic container held inside a heavy shipping container). Supreme Canning Company’s annual processing capacity is in excess of 100,000 tons of tomatoes (processed during an operating season of approximately three months).

The market for tomatoes is divided into three segments with distinct characteristics:

1. Fresh tomatoes are produced in many countries, with much cross-border trade and frequent trade disputes. Canadian and US farmers have had a series of trade disputes with each country claiming dumping by companies in the other of fresh tomatoes of different varieties at different times. In 2004 the year-round supply of fresh tomatoes from Mexico was depressing prices for US farmers (www.dailydemocrat.com/2004). Special varieties of hothouse tomatoes from the Netherlands are sold in other European countries and overseas.

2. Canning of tomatoes is carried out in fewer countries because of the market size required to support economically sized factories.

3. Even fewer countries (and packers within countries) produce the tomato paste used by other tomato-canning companies to make end products such as tomato soup. Economical production of tomato paste requires an extremely large supply of tomatoes that could be harvested by machines (or very cheap labor) and easily transported to the processing facility. California’s Central Valley was an ideal location for such processing because of its vast amount of relatively flat land, large farms, and good road network. China, with its low wage rates, was also a producer of tomato paste, and exported paste to Italy.

Italy is a major exporter of canned tomato products, but a net importer of tomato paste. The tomato paste is used along with domestic fresh tomatoes in making and canning various tomato products. Italy exports canned tomato products to many countries.

Supreme Canning Company, along with other US producers, was pressed by a combination of heavy competition from factories overseas (particularly in Italy)

and inadequate domestic demand. Tri Valley Growers, California’s largest agricultural cooperative and processor of 10% of the canned tomato products sold in the United States, had gone bankrupt in 2000. A surge in demand from Italy, which decreased its imports from China in 2003–4 when the SARS epidemic occurred, provided a temporary increase in demand for Californian tomato paste. But Supreme Canning Company still needed additional markets.

One potential bright spot for the Supreme Canning Company had been the possibility of getting into the Japanese market. Japan was reducing trade barriers and attempting to encourage imports. At the same time, the popularity of pizza and Italian-style foods and restaurants had grown rapidly, creating an increased demand for specialty tomato products. Because of the scarcity of land, the nation had not gone into the largescale production required to support an economical domestic tomato-canning industry. The insistence of Japanese consumers (and companies) on high quality had resulted in relatively low sensitivity to the prices of food products.

An inquiry that had been received from a food packer and distributor in Japan indicated interest from that side.

The Japanese firm handled a large number of products, was well known in Japan, and was much larger than the US firm. Since Supreme Canning Company did not have well-known brand names of its own, it was interested in acting as a large-scale supplier of products made to customers’ specifications for use by the customer or distribution under the customer’s label. Thus the inquiry from Japan was most welcome.

The Japanese company invited senior executives of the US firm to visit their production facilities and offices in Japan. Both the president and chairman of the board of Supreme Canning Company had a four-day visit with executives of the company in Japan. The president of the US company, who had some knowledge of Japanese business practice from studies at Stanford University and from his widespread reading, attempted to act as a guide to Japanese business practice. The chairman of the board had little knowledge of Japan, and viewed himself as a decisive man of action. Although there were a few minor misunderstandings, the visit was concluded successfully and the Americans invited the Japanese to visit their plant in California for four days.

The Japanese indicated their interest in the signing of a mutual letter of cooperation. The chairman of the board of Supreme Canning was not interested in this, but rather wanted some specific agreements and contracts. As the time for the Japanese visit to the United States drew near, the Japanese indicated that their president would not be able to come. Some senior executives would be able to meet, but they would only be able to spend two days instead of four. The vice-chairman of the board of the Californian company wrote asking why the Japanese were not going to send their president, and inquiring why they could not spend four days instead of two, ‘as we did in Japan.’ The letter was frank and direct. The tone was that of a person talking to an equal, but not with any great deal of politeness. The Japanese company decided to cancel the visit, and no further negotiations or serious contacts were made.

Some months later, a local businessman of Japanese extraction asked the president of Supreme Canning Company if some representatives of another (and even larger)

Japanese food products producer and distributor could visit the plant. Four Japanese showed up along with the local businessman, who acted as interpreter and go-between.

The three middle-aged Japanese produced their meishi (business cards) and introduced themselves. Each spoke some English. The older man did not present a card and was not introduced. When the president of the US company asked who he was, the go-between said ‘He’s just one of the company’s directors.’ The visit concluded without discussion of any business possibilities, but this was to be expected in an initial visit from Japanese businessmen.

Supreme’s president later found out the family name of the unknown visitor, and immediately recognized it as being that of the president of the Japanese company. He assumed that the president of the Japanese company had come but had hidden the fact. He felt that he had been taken advantage of. He telephoned the go-between and told him that he never wanted anyone from that company in his plant again.

From a description of the unknown visitor, a consultant to the company realized that the visitor was not the president of the Japanese company. Rather, it was the semi-retired father of the president. The father retained a position on the board of directors and maintained a lively interest in company activities, but was not active in day to-day affairs. Unlike his son who was fluent in English, he spoke only Japanese. The consultant suddenly realized that the chairman of the board of the US company apparently did not understand:

● the Japanese preference for getting to know people well before doing business;

● the significance of a letter of cooperation (which could be expected to be a first step in concluding a long-term business agreement);

● the status relationship in Japan of little companies to big ones (larger companies have greater status, and their managers are shown greater respect);

● the status relationship in Japan of sellers to buyers (buyers have greater status, and their managers are shown greater respect).

Questions

1. Was the chairman of the US company wrong for not having found out in advance about Japanese business practice? Explain.

2. Were the Japanese wrong for not having found out about US business practice before they initiated contacts? Explain.

3. What should the president of the US company do now?