Most people benefit from Toyobo’s products every day without realizing it, from films, resins and medical equipment to cosmetics ingredients, textiles and hi-tech fibers. President Seiji Narahara explains the challenges and turnaround that the highly adaptable and successful yet modest and society-conscious company has experienced in recent decades, often reflecting Japan’s own transformation.
You strive to be a representative company here in Japan. Tell us about what this means for you in your future objectives and daily implementation of your corporate goals.
Thank you very much. We still don’t believe that we are the representative company of Japan just yet. About 50 years ago, we were. But because of the change of the world environment and the business environment we’ve had very difficult times for some years, and at last we are in the recovery mode and have started growing again. We seek to reclaim our status as one of the primary companies in Japan.
Toyobo was established about 130 years ago as a cotton spinning company, right after the Meiji restoration, when Japan was a very poor country. We didn’t have enough for cotton clothes with the cotton thread that we needed for everyday life, so we had to import them from countries like Britain. We were very poor in the country but we still had to pay for these imports from other countries. Mr. Eiichi Shibusawa, the founder of this company, was worried about the situation, and he decided to start the production of cotton products here in Japan.
We were not established to make money or to be profitable, but to serve the country or the world. This is still in our DNA and that is still our basic vision and policy. Today we continue on our goal to help and serve the society and as a result maybe we can earn some money and be profitable.
We were growing very favorably, and in the 1930s we were the world’s largest spinning company. In the 1950s we were the largest spinning company in Japan in terms of sales as well as net income, so we were a representative company back then. Around the 60s we started to produce synthetic fibers as well as films.
After that, in the 70s we started to face difficult times. At first we were too favorable in our business in Japan, then this industry was the target of the Japan-US trade talks and the trade frictions. The Asian countries started to have the power with new technologies in the textile industries, and the yen became very strong in the exchange market, so we started to lose the competitive edge. After that, for 30 years we’ve been facing a very difficult situation in terms of technology and human resources. However, we had these new businesses with these new technologies and we branched out to adapt.
After these 30 years we did very drastic structural reforms in the business portfolio at Toyobo and then we finally started to grow again, expanding on our new businesses and moving beyond just textiles.
I think this is a very similar situation today. In Toyobo Japan, we used to earn from the commodity goods, but it makes more sense to produce these in the emerging Asian countries because of the cost benefits, and they are able to produce high quality commodity products right now. Instead, we have these new technologies to serve society; that is why we keep changing our portfolio. So now our portfolio is completely different from the one we used to have 20 years ago; maybe this is a very similar situation as the entire Japan.
Currently, we have 40% from the films and the functional polymers, 20% from the industrial material based on our textile technologies, 10% from healthcare, and the remaining 20% is textiles, including functional textiles, white textiles for Arabic traditional menswear in the Middle East, thobes. Actually, we are the number one company in the luxury market for Japan-made thobes. We’ve been providing this very specialized unique product.
We were rather slow to convert ourselves to the global companies because we didn’t take big risks in our textile industries, so we have been very slow to change that portfolio for about 20 years. Twenty years ago only 10% was the global business and the rest was domestic business, but now we have new needs overseas so now we have 30% of the business coming from other countries.
Next one is airbag fabrics: we provide 40% of the yarn for airbags worldwide. We are one of the top four manufacturers for the enzymes of the diagnostic reagents, and we are number one manufacturer for enzymes for self-monitoring of blood glucose.
We also have technologies to make pure water out of seawater, and we provide reverse osmosis membrane elements for desalination. Our market share in Gulf Cooperation Council countries is 50%. When we look at Saudi Arabia especially, on the coast almost 70% of the membrane comes from our products and we provide the drinking water for more than 6 million people.
We have a very high market share in this area because people really want to make sure they are safe, healthy, and that it is good for the environment. That’s why it should be high in quality and high in functionality; it may be also higher cost wise, but they need a very good quality item. That’s why we are very strong in this.
I think this is the way that Japanese companies would survive. If it is a commodity product it should be very low in cost, and that is why Japanese, European or US companies cannot compete in this area. We cannot be a company selling cheaper commodity products. Instead, we have to look for high quality to provide for higher value. I think it’s a strong point about Japanese companies.
The strong point about Toyobo is that we have a wide range of technologies coming from the synthetic fibers like polyester and nylon. It’s the same as other companies like Toray, Teijin and Kuraray. We were rather slow to move on to the new technologies because we had a huge portion of the cotton spinning. Later, we started our reform in our company and established diversified technologies and businesses based on our core technologies. This is our strong point.
Do you communicate these strengths to your potential partners and potential customers? Do you think they understand the quality and the value of your products?
Most of the business of Toyobo is B2B so it all comes from the long-term relationships in trust with the customers. They already know that we have very good quality and high function products. Maybe we are very low profile but they know we are a very serious and honest company, and they know that we are making a very good product in quality and functionalities.
However, for the new businesses as I said, I think we have to make more effort so that people know more about this. At this point, as for the new businesses, still many people think, “Who is Toyobo? What is Toyobo?” That is a fact. We would like to make more effort to establish the brand with the new businesses, to let the people have a better image about us.
It’s interesting because your products probably touch everybody’s life multiple times every day, from airbags to resins to enzymes, so to capitalize on that is a huge opportunity.
We have no name. Like I said the food packaging, the plastic film, is something everyone sees every day, but even the Japanese really don’t know 50% of food packaging films comes from Toyobo.
Maybe you can outline what your ambitions for this are, indeed especially for your overseas expansion, particularly with the US and the signing of the TPP?
After we completed the structure reform, we still had some difficulty in making more profits, so in order to improve our profits we had to move on to the new market which is outside Japan with new products, and that cannot happen overnight. We were investing to achieve that goal and now we are eager to grow our sales and profit. Our target is ¥500 billion of sales and ¥50 billion of profit. But our first target is to have a profit of ¥30 billion, with good products in the overseas market.
As you mentioned, if the TPP is agreed and concluded, maybe export is a good idea, which means we produce in Japan and export it. But instead, I think it’s even more important to produce locally in order to meet local needs and to avoid the risk of the currency exchange rate. We are now expanding our production sites globally.
Toyobo used to have overseas production sites of textiles. For example we still have some of them remaining – like the plant location in Brazil, it’s been there for 60 years – and we still have the same infrastructure for our new businesses, like engineering plastic products. And at the same time, we have acquired some overseas sites such as PHP in Germany for the airbag yarn, which helped us to increase our market share, as well as the Spanish company of diagnostic reagents to expand our market share.
As a top producer in Japan for food packaging, airbag yarn production, sales of enzymes for self-monitoring of blood glucose, etc., why is it exactly you don’t consider your brand as a representative brand of your country?
I said that because in terms of sales or the income profit we are still small, I think. But on the other hand I am not saying that we have to be gigantic because we are focusing on very specialized, unique and rather small industries. That is our target. Still, we are aiming to increase our sales and profit to be a category leader. That is why I said that we are not the representative company in Japan.
What would you say have been the keys to the success that you’ve experienced in turning the company around over the past 30 years and becoming more global?
We actually had to change ourselves because we were in the textile industry. Textile was the first one to become a commodity, which is why we were forced to change ourselves. Textile became a commodity and we lost 20 years in Japan and we had to move on to other specialties. For example, we used to have the business of tirecords, fibers for tire reinforcement. Two years ago we exited that business.
We concentrate, we review what we do, so that we can just keep doing business to better serve the world and the market. The important thing is to keep the categories and the products and the segment which can be very helpful to the world; we have to focus on that.
Mahatma Gandhi famously said “a country’s culture lies in the heart and the soul of its people.” How would you describe Japan’s culture to somebody who has never visited Japan before?
You may think that individual Japanese are very shy and quiet, and very very serious. In Japan we have this concept that the sun always looks at us. So even if we are alone, when there is no one around us, we don’t want to be any cause of a problem. So for example even if no one is looking at me or looking at us, we pick up rubbish, and that’s what the Japanese people are. And that is what Toyobo is, as well as other Japanese companies. Most Japanese companies management would like to better serve the country and the market, that’s why we are here, most of us, the Japanese and the Japanese companies are very sincere, serious and very honest.