BUSINESS A S I A - P A C I F I C
DAINIPPON KEEPS THE INK BLACK Japanese leader strives to boost profits by cutting costs, focusing on core businesses JEAN-FRANCOIS TREMBLAY, C&EN HONG KONG
appears to have proceeded without fuss. In 1986, when D I C was led by its au thoritarian and U.S.-educated president, Shigekuni Kawamura, it spent $550 mil lion to acquire the graphic arts and mate rials division of U.S.-based Sun Chemical, one of the world's top ink producers, with operations in numerous countries. Further taking advantage of the low cost of capital prevailing in Japan in the late 1980s, in 1987 D I C spent $540 million to buy Reichhold, a U.S. manufacturer of unsatu rated polyesters and coatings.
IN BOTH CASES, the takeover took 28% of other Asian countries'. In its oth N THE 1 9 8 0 S , WHEN U.S. COMPANIES months to complete. DIC's initial bid for er core businesses, D I C estimates that it were sequentially surrendering to pur Sun was worth $425 million and that for has a 27% global market share in organic chase offers from firms headquartered Reichhold, $473 million, but management pigments and a 20% share in unsaturated in Tokyo, Dainippon Ink & Chemicals at both firms initially resisted DIC's ad polyester. was called bold, aggressive, and even vances, insisting on higher offers. 'American" because it was not adverse to DIC's last large acquisition, made in mounting hostile takeovers. 1999 under Okumura's tenure, was the It appears that the acquisitions were $550 million purchase of the Coates Lomade more for strategic reasons than in a Nowadays, D I C does not acquire for rilleux printing ink business fromTotalFiquest for profitability Although D I C had eign companies as energetically as it did na. The deal was executed by DIC's sub to pay a premium for Reichhold, the com then. Instead, the priority for the world's sidiary Sun Chemical and, compared with pany was not highly profitable. In 1986, largest ink company is to make the vari other takeovers D I C has undertaken, Reichhold posted a $ 15.6 million profit on ous subsidiaries it has acquired over the — sales of $765.6 million, a return on past 15 years fit together better. Yet sales of just 2 % . Reichhold was in Japan, where corporate plans tend C O L O R F U L Organic pigments used in the nonetheless more profitable than to be vague, DIC's four-month-old manufacturing of ink. blueprint for the future stands out 0 DIC, which the same year earned $37 for its thoroughness. 1 million on nonconsolidated sales of § $2.7 billion, a return of 1.3%. 'At the end of fiscal 2001, we real I Profitability in recent years has reized that the economic situation was Q mained low. In the fiscal year ended very difficult, both globally and in March 31,2001, D I C reported a con Japan," says Kozo Okumura, DIC's 66solidated net profit of $ 115 million on year-old president. "Therefore, we had sales of $75 billion, representing a re to reinforce our management struc turn of 1.5%. In the previousfiscalyear, ture in the U.S., Europe, and Japan." due to special accounting charges, it Okumura, who hails from the firm's posted a loss of $48 million on sales petrochemical division, took the top of $72 billion. job in 1998. Still, it was arguably a clever move Facing a difficult environment at for D I C to acquire foreign companies home and armed with few unique involved in a business it knew some technologies when they venture thing about. Other companies at the abroad, Japanese chemical companies time made different choices. Mit have mostly been shrinking over the subishi Petrochemical, one of the two past decade. In contrast, D I C has been companies that later merged into Mit increasing the number of staff it em DAINIPPON INK AT A GLANCE subishi Chemical, instead invested lo ploys internationally, largely through cally in petrochemicals, a business acquisition. Headquarters: Tokyo in which Japan has no competitive Founded:1908 Takeovers of businesses will slow advantage. down for now. "I think that the con Sales: $7.5 billion (48% from Japan] ventional large-scale acquisitions have Net income: $115 million Besides, ink is not a bad business. "If pretty much come on hold," Okumu an industrialized country is growing Employees: 30,350 (27% of them in Japan) ra says. "The reason is that our share in at 2%, then the ink market will also Major businesses: World's largest producer of our core businesses is sufficiently high grow at about 2%," Okumura says. inks, organic pigments, and unsaturated polyester. that I don't see a need to actively en "But in the Asian region" —except Supplies wide range of products such as inks for hance it further at the moment." Japan—"we can hope in the future for inkjet printers, coatings, printing machines, predouble-digit growth." According to sensitized plates, liquid crystals, epoxy resins, In printing inks, D I C reckons that DIC, the ink market in Asia is about its global market share is 32%. T h e composite materials, and synthetic resins. half the North American market. And company estimates that it operates Website: www.dic.co.jp on top of paying close attention to 41% of Europe's ink capacity, 25% of NOTE: Financial data are for fiscal year ended March 31, 2001. emerging markets, D I C also produces North America's, 23% ofJapan's, and
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BUSINESS new materials, such as inks for inkjet print ers and environmentally friendly inks based on soybean oil. DIC, therefore, seems to have a basi cally sound strategy for a basically sound business. If low profits continue to be a problem, management reasons that it is because the company has not been run ning itself tightly enough. The restruc turing plan it announced in February is thus primarily aimed at cutting costs, boosting efficiency, and focusing on core operations. Between 1999 and 2002, D I C expects to reap $385 million by selling businesses in areas it considers noncore. One exam ple is the sale of Reichhold's carpet and pa per latex businesses to Dow Chemical last year. And the sale of Reichhold's Swift Adhesives business to the Swiss firm Forbo Holding was completed last month. In Japan, D I C closed two plants and is preparing to close a third. Sun Chemical will close 20 offices in Europe and Amer ica, and Reichhold will close one plant each in Europe and the U.S. THESE MOVES WILL lead to substantial reductions in head count. D I C foresees that it will reduce its head count from 30,500 on March 31, 2 0 0 1 , to 25,000 three years from now In Japan, D I C will reduce its staff by 26% to 6,000. Counter to those cuts, outside Japan, principally in Asian countries, D I C will raise personnel by about 6% to 5,000. Sun will cut per sonnel by 16% to 12,000. Reichhold, large ly owing to the business sales, will reduce its head count by 41% to 1,450. DIC expects to be able to do more with less staff partly through better coopera tion between headquarters in Tokyo and its major subsidiaries. Although their acqui sitions took place 15 years ago, Sun and Reich hold have continued to operate mostly as independent companies. Okumura says there have been ongoing exchanges of technical and financial personnel. More over, DIC has dispatched a chief financial officer from Tokyo to Reichhold. And that's not all. Under the new plan, D I C will consolidate Coates's operations in Asia into its own. In the U.S., Reichhold will begin to sell some of the products that DIC has been successfully marketing inJapan. Globally all of DIC's components will cooperate more closely in terms of pro curement, R&D, financial operations, and implementation of information systems. For example, DIC subsidiaries that make ink will increasingly work together to source their raw materials from the cheap est suppliers in China and India. 16
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But DIC's management is careful to em- I retire, and through cash bonuses to em phasize that its new plan is more incre ployees who leave voluntarily. mental than radical. Speaking about "We have a three-year midterm plan," Coates, with which he is most familiar, Okumura says. "It is not that all of a sud Okumura explains that the changes under I den we decided to lay people off or forced way are following a progres >. our staff to retire early." In sive path. 0 Europe and the U.S., in cond trast, the head count reduc'After the acquisitions, we | tions will entail outright laywanted to harness Coates's J offs as well as business sales. strengths, maintain its busi m ness scope, and keep its good o personnel, and we took a 1 DIC IS NOT getting radical in year or so to achieve this soft its portfolio streamlining ei landing," he says. "This fis ther. While it will increase its cal year, we will make some focus on ink, pigments, and changes so that the effects of polyester, it will only partial the purchase of Coates can ly reduce its large number of be maximized." subsidiaries in Japan and abroad. The company will Sun, Reichhold, and Coates 0 k U m U r a continue to run portfolios of will maintain a high level of autonomy "Our group strategy is global, vertically integrated businesses, for exam but on a local level, you have to take action ple, manufacturing bathtubs because it on a local basis because of the nature of produces the sheet moulding compounds our products," Okumura says. He adds that that are used to make them. there is no need to reinforce management D I C understands well the difference cohesion by moving top executives of Sun between core and non-core businesses, says or Reichhold to Tokyo. Akihiro Saiki, manager of corporate strate gic planning at DIC. But the company does Conversely DIC will not dispatch more not want to be just an ink company some executives from Japan. The head office, thing it would become if it were to divest where the majority of management is not from all its non-core businesses. fluent in English, will continue to work with overseas subsidiaries—where only a Productwise, D I C has been allocating handful of executives know Japanese— its R&D resources to emerging or fastmostly by phone and e-mail. growing markets. The company is partic ularly proud of its development of liquid Similarly, the large reductions D I C has crystals used in making advanced tliin-fllmtransistor, color flat displays. Previously, only Chisso and Merck KGaA supplied the rapidly expanding market. D I C has been introducing new types of inks and pig ments, such as the soy-based ink, distin guished by the small amount ofvolatile or ganic compounds that they release after application. Through the careful development of new products and the strengthening of its internal management, D I C has re turned to a less flamboyant growth mod el. Rather than deciding which compa nies to acquire and how, D I C faces its greatest challenge in integrating the com panies it acquired in Europe and the U.S. in the past 15 years. PRECISION A technician measures The integration won't be easy as these firms have their own long histories; Coates, physical properties with a laser. for instance, was founded in the 18th cen tury And boosting corporate cohesiveness announced will, at least in Japan, not en will be that much more difficult since DIC tail layoffs. D I C may have a global per does not intend to promote executives from spective, but laying off personnel inJapan Sun, Reichhold, or Coates to senior man is a controversial step it wants to avoid. agement positions inlbkyo. The new strat T h e 2 6 % reduction in Japanese head egy may be just what DIC needs, but im count will be achieved by selling off busi plementing it will likely be a struggle. ■ nesses, by not replacing employees who HTTP://PUBS.ACS.ORG/CEN
