Our Man In Zurich, Tokyo And Hong Kong

Jack Boles understands why people in the United States look quizzically at him when he talks about his business plan for Boles & Co. In 1981, when the San Francisco-based trading company was only two years old, he went to New York to raise equity capital for it and returned home empty-handed. A few months later, in London, he was able to line up $7.2 million in a week.

The British -- indeed most Europeans, and the Japanese, too -- have for centuries been doing something close to what Boles proposes to do. "But in New York," says Boles, "when we went to see the biggest names in the investment banking community, by and large their eyes glazed over. They'd say 'Tell me again what a trading company is.' "

A trading company -- the kind Boles is assembling -- manufactures nothing and owns no fixed assets. It buys where it finds the lowest cost, consistent with quality, and it sells where it gets the best price. It takes payment either in cash or in goods. It supplies capital technology, hardware, commodities, or raw materials. It is completely market-driven. It is also virtually unheard-of in the United States -- unheard-of by Americans, that is, but not by the Japanese.

The Department of Commerce could not supply figures but a Japanese source which isn't eager for publicity, reluctantly shared its own. Of the nearly $240 billion in goods and services exported by the United States in 1981, an estimated $22.7 billion, or 9.5%, passed through the 27 Japanese trading companies operating in the United States. And just 9 Japanese trading companies handled the bulk of those exports, $17.3 billion worth.

So, the Japanese trading companies profit not only on what they sell in the United States, where they imported $16.5 billion of goods and services in 1981 -- slightly more than 6% of all U.S. imports -- but also on the goods and services they export from the United States to Japan and to third countries.

Boles thinks that is not a bad business for an American to be in. He optimistically projects that by 1986 Boles & Co. will earn $150 million in pretax profits from $1.5 billion in revenues. By 1993, according to the Boles plan, the revenues will have risen to $18 billion, and the pretax profit margin will have stabilized at 2% to 3%. While that growth rate sounds ambitious, Boles claims it is no higher than the pace once set by Mitsubishi International Corp., the largest of the Japanese trading companies.

So far Boles & Co.'s revenues have grown from $396,000 in 1979, its first year, to an estimated $70 million in 1982. But it is the nature, not the size, of Boles & Co.'s business that is instructive.

Jack Boles, 46, appears charmingly bemused, with steel-rimmed glasses that seem just a little crooked on his nose and with hair that defies the brush. But for his expensive suit, he could be a midwestern history professor. He has had more luck in business than in politics. In 1968 he left his post as new-ventures manager for E.I. Du Pont de Nemours to become chairman of Citizens for Rockefeller. In 1972 he left a job as vice-president of Itek Corp. and headed the New Hampshire Presidential primary campaign for Rep. Pete McCloskey of California. From 1972 to 1979, while consulting, to pay the bills, he conceived the business plan for Boles & Co., which he based on several observations about how the world was, and still is, changing.

First, he decided that the United States is not the self-contained market that it once was or that many Americans still consider it to be. Asian and European steel makers, auto makers, and electronics companies are not just a temporary nuisance. They see the United States as part of their world market, and that is where they intend to keep doing business.

Second, and less obvious, Boles perceived that world commeree was becoming less product-driven and more marketdriven. Product-driven commerce is Henry Ford telling consumers what color Model T -- black -- they can buy from him. Or it is, as Boles says he observed more recently, the attitude displayed by Itek executives telling their overseas sales reps: "This is what we make; now go sell it."

Market-driven commerce, on the other hand, is illustrated by a story told by Washington attorney Frank Weil, who served in the Commerce Department during the Carter Administration. A couple Weil knows bought an electric rice cooker manufactured in Japan. They used it frequently. But during a transfer from the United States to Indonesia, the rice cooker was damaged. So the couple bought a new one -- same brand, same model -- to replace the damaged one. It cooked rice, but not the same way as the old one did. They returned it to the store and complained. The store manager was puzzled until he asked them where they had bought their first machine. "Ah," he said. "Americans like their rice one way. Indonesians like theirs another. So we make the rice cooker different for each country."

Stories like this, some suggest, make U.S. managers, especially of small and middle-size manufacturers, appear insensitive to fine distinctions in the marketplace and altogether less clever than their non-U.S. competitors. Such self-flagellation is pointless, in Boles's view, because it ignores a couple of historical facts One is that the U.S. domestic market has been voracious. U.S. industry, unlike the European or Japanese, has never had to look beyond its national borders for growth, respectable size, or profitability.

Another fact, often overlooked, is that U.S. companies have been innovators. When yours is the only computer, the only color TV tube, the only commercial jet aircraft, the world buys what you make or does without.

A third condition derives from the first two. Since U.S. industry, by and large, has been able to grow and profit by sticking close to home, and since foreign markets have usually bought U.S. goods when they lacked their own supplies, there has been no need for a domestic mechanism that would facilitate international trade across U.S. borders. In other words, until recently there was no need for what Boles calls an integrated trading company. Today, he obviously believes, there is.