CSO Interview

We will steadily promote well-grounded strategies and measures while keeping an eye out for opportunities and risks in the uncertain business environment.

Member of the Board, Executive Officer,
CSO; CDO·CIO;
General Manager, Corporate Planning & Administration Division

Hiroyuki Naka

I was named Chief Strategy Officer (CSO) in April.
Joining ITOCHU in 1987, I was assigned to the present- day Textile Company but have since spent around half of my career in jobs related to business planning. Especially in these last 10 years, I have been closely engaged in businesses that now form the core of ITOCHU’s business strategies, namely FamilyMart and CP and CITIC, in the Corporate Planning & Administration Division, which promotes Companywide projects connected to formulating business plans and implementing growth strategies, and in the Food Company. Going forward, to leverage the insights I have gained as the Chief Digital & Information Officer (CDO·CIO) and firmly put ITOCHU’s business strategies on a growth trajectory, I intend to continue building business models, focusing on the front lines, that transcend conventional frameworks when necessary.

Q1. Going forward, what are some key points you will focus on when investing?

A1. We have compiled four lessons and am working to ingrain them internally.

ITOCHU has investment and exit criteria, so we, of course, adhere to these criteria. Another given assumption is that when formulating investment strategies, we pay attention to country risks including current geopolitical risks and foreign exchange rates. Moreover, we need to pay sufficient attention to the validity of business plans and future business potential based on SDG trends, which constitute checklist items for investment criteria.（→ Business Investment）[PDF]

As the lead of ITOCHU, the Corporate Planning & Administration Division compiled the following four lessons learned from past investment failures. By repeatedly sharing them at major Companywide meetings, I strive to ingrain them so we will pay heed to them from the very moment we begin to study a frontline investment opportunity.

The Four Lessons


1. Overpaying for investment
2. Investments aimed at seizing profit from investees
3. Relationships with partners
4. Lack of hands-on management
Regarding the first lesson, investing in projects that assume future synergy creation and increase in value will inevitably generate goodwill, but it is especially important to control the value of investments to minimize future risk of impairment loss. Trade purchases are similar, but when business performance is strong, it is easy to forget the discipline of “buying low,” so I am working hard to reinforce this mindset. For example, I warn against immediately jumping at project opportunities introduced by external parties. The second lesson refers to investments that target solely an increase in consolidated profit only through the investment itself, which is something that tends to happen in business divisions that seem unlikely to meet their quantitative targets. Because they are only targeted for current profit contributions, these assets tend to already be at peak profitability or in a field or area with limited insight. At the same time, there is a high possibility that the investment returns of profits and dividends will decline in the near future. We are careful to avoid these kinds of short sighted investments. The third and fourth lessons have similarities. There are investments where ITOCHU cannot seize management control or take the initiative and must instead rely on partners. They especially need attention if the partner has poor business sense or a weak financial foundation. Diligently polishing businesses through hands-on management is a strength of ITOCHU’s management and one of its unique characteristics. Therefore, the most important key is first determining whether ITOCHU can seize management control or take the initiative when investing.

Q2. What factors do you pay attention to when promoting DX on the front lines of business?

A2. We will steadily build up individual projects that are expected to swiftly contribute to profit.

ITOCHU’s DX is not some grand scheme to build an industry-wide platform. Our DX is well-grounded. We do not make DX itself a target. Instead, we steadily build up individual projects that are expected to swiftly contribute to profit, namely those that optimize supply chains and make operations more efficient while leveraging existing business foundations. We will then work to horizontally roll out these projects inside and outside the Group. As a result, the Group is promoting DX and data organization on the front lines of each business in which it has strengths. We aim to instill this approach.

The existence of the Companywide IT & Digital Strategy Division supports this frontline-led DX. From FYE 2022, we formed the IT & Digital Strategy Division by unifying the headquarters’ DX promotion organization of the Business Innovation Department, which cultivates new business fields, and the IT Planning Division, which was responsible for IT systems. We established a system that supports and promotes corporate DX, which is connected to the “cut” and “prevent” principles in ITOCHU, and business DX, which is connected to the “earn” principle that is conscious of the Groupwide market-oriented perspective and customer contact points.

Going forward, the IT & Digital Strategy Division and the ICT & Financial Business Company, which holds one of Japan’s largest system integrators, CTC, will play a central role in steadily promoting projects with comprehensive end-to-end process support, including the identification of business issues, proof-of-concept tests, cost-benefit analysis, and practical application.

For example, at distribution centers of NIPPON ACCESS, INC., we are installing AI automated ordering systems for 1,500 items at FamilyMart. By utilizing downstream data, we have already verified a 30% decrease in inventory and around a 50% decrease in order-related workload. We began operating AI systems at all 47 distribution centers. In addition, in FYE 2023, we plan to roll out the insights we gained from this supply chain initiative of FamilyMart to the supermarket industry, etc.

In the near future, our plan is to achieve further profit growth by utilizing digital technologies, including AI and data, at the front lines of each business as a matter of course.

Q3. How will you respond to risks related to Russia–Ukraine and what is your policy on initiatives with CITIC?

A3. Our guidance has already taken potential geopolitical risks into account.

In Russia, ITOCHU operates mainly energy-related businesses and an automobile-related business. In Ukraine, we operate an automobile-related business. As of March 31, 2022, our exposure to Russia and to Ukraine stood at ¥42.1 billion and ¥2.6 billion, respectively.

Our FYE 2023 management plan has already factored in all plausible concerns, including Russia- and Ukraine-related losses in affiliates. Even if an additional loss is recorded, we have determined that we have made a sufficient “backstop” by setting a loss buffer of ¥30.0 billion.（→ Country Risk）[PDF]

In addition, regarding business in China, although we need to similarly pay attention as other countries and regions, the generally shared understanding is that there are high expectations for the market, which has around 1.4 billion people and is forecast to grow substantially. Since commencing a strategic business and capital alliance with CITIC, our credibility in conducting business in China has been significantly enhanced. From a long-term perspective, there is no change in our view that this will be a benefit. There is no change in our medium- to long-term policies for our engagement. The consolidated net profit of CITIC in FY 2021 was HK$70.2 billion (around ¥1 trillion), up 24% year on year. Furthermore, the dividends ITOCHU received grew to ¥25.3 billion, the sixth consecutive year of increased profit and dividends since commencing this investment in 2015. Although issues remain, such as improvement of the share price, business performance has remained strong, progressing toward its five year plan target of HK$100.0 billion in consolidated net profit in FY 2025.