Spiraling Out of Control

In the late 1990s, a U.S. IT company incorporated a subsidiary in Japan (“Hashi-co Systems”) to sell the company’s products into the lucrative Japanese market. Upon receiving orders in Japan, Hashi-co purchased goods from the U.S. headquarters and then sold them to a network of distributors, which, in turn, resold them to the end customers. 

Typically, the distributors would pay Hashi-co for the goods 30 to 60 days after Hashi-co had shipped them, and then the end customer would pay the distributors at a later date. The distributor, therefore, bore some of the financial burden due to the time lag.

Hashi-co’s sales grew for many years and recorded increasingly large sales with certain distributors including “Ichi-co,” a subsidiary of a significant Japanese technology company. This success was mostly attributed to “Mr. Sato,” the representative director of Hashi-co. With Mr. Sato directing the sales strategy, business grew at a much greater rate than predicted.