ASAHI GLASS COMPANY : DIVERSIFICATION STRATEGY

GROUP 7:
SUMIT KATHURIA (0414/53)
SUMIT KUMAR (0415/53)
SUMIT KUMAR CHAUHAN (0416/53)
SUMIT RANJAN (0417/53)
SUSHANT JAMDAR (0418/53)
 AGC DEVELOPMENTS : TIMELINE

1916-1917 1961
1907 Started production First entry into 1980
Founded of refractory bricks organic chemical Developed
by Toshiya for in house use and business. Started structural
Iwasaki production of soda production of ceramics
ash to provide a raw propylene glycol and
material for glass propylene oxide

1966 1987
1907-1912 1956 First Founded Asahi
Established entry into Komag Co.,
Production Ltd. ( a joint
of sheet Indo-Asahi electronic
Glass. First related venture with
glass for the Komag of the
first time in overseas entry business
after WWII United States
Japan
 ISSUES FACING ASAHI GLASS IN 1993

1. Accelerated globalization in glass

Performance Measure
The accelerated globalization of the company challenged Asahi Glasss 16
traditional international practice.
14
Asahi Glass was still developing its organizational capabilities outside of
12
Asia
10
2. Slow growth of Electronics
8
Asahi glass was struggling to establish a firm position in the fast-cycle
electronics industry beyond its existing activities 6

In the LCD business new TFT technology had been introduced and 4

major electronic firms with strong skills in semiconductor 2

manufacturing had entered the now-large market
0
Mitsubishi Electric had taken a leading role in the joint venture with 1965 1970 1975 1980 1985 1990 1995

80% shareholding Return on Sales Return on Assets Return on Equity

In the second joint venture with Komag, Inc they had entered the
wrong business
ISSUES FACING ASAHI GLASS IN 1993

3. Emerging new glass opportunities

Emerging opportunities in new glass did not come with any clear indication as to what direction the company
should take.
Asahi glass established a Fine Glass Division in 1985 and a New Glass Research Laboratory in 1988
It took leadership in the New Glass forum
4. Challenges of combining technological expertise
To capitalize on new glass technology and other growth opportunities it was necessary to integrate various
technological expertise
5. Revitalizing the corporate culture
As the company grew bigger the pioneering spirit was fading away.
The marketing executive wanted to create an entrepreneurial culture in the company
DID THE COMPANY NEED TO DIVERSIFY ?

Glass Industry Related products

Take advantage of excess resources and capabilities Economies of scope
Chemicals Related products
Could face diminishing growth prospects in future if it focus only on glass related products
Ceramic Industries Related products
To increase revenue by taking advantage of boom in demand Financial economics
Electronic Industry Unrelated products
New growth opportunities emerged due to expertise in core sector

Yes, there was a need to diversify and Asahi made the right decision by doing so.
 DIVERSIFICATIONS
Glass Industry Chemical Industry Ceramic Industry Electronic Industry

Asahi became Japans Company was prepared Searched for high
market leader in glass to exploit boom in
sheet manufacturing demand
Depended heavily on For creating value they
European imports took advantage of
To exploit scope economies of scope
economies of raw After joint venture with
material, they began PPG industries, Asahi
manufacturing caustic Glass company began
soda and soda ash. producing CFC which had
wide industry application
1920 1930
Slow Growth of basic
volume opportunities. materials businesses*
Company already had Entered electronics
strong identity within industry due to growth
construction industry, potential and
its wholesalers dealt management expertise
directly with builders Entered into
Licensed technology semiconductor
from Swedish firm, Asahi business and developed
Glass company began glass delay lines for TV
manufacturing manufacturers
Lightweight cement
*Exhibit 5
1960 1980
 SUCCESSES OF DIVERSIFICATIONS?

Diversification into Ceramics and chemicals

Asahi Glass relied heavily on European Soda Ash and refractory bricks.
Difficulties in importing during WW1.
Backward Integration
Economies of scope: Using Raw salt to produce caustic soda (alkali) in addition to soda ash

TV Glass Bulbs & automobile safety glass businesses

Licensed technologies from Corning Glass works.
Market leader in Japan with an exceptional quality control record and distinguished technology

Diversification into Construction Material Business

Expanding production of wall, ceiling & floor construction materials
Demand for its Glass reinforced cement (GRC) fireproof siding boards surged despite the recession
in Japan in 1990s.
Developing system technologies for construction.
 SUCCESSES OF DIVERSIFICATIONS?

Sales Growth
Oil crises and diversification into Electronics 1400000
2 oil crises in Japan in 1970s led to modest expansion 1200000
phase of Japanese economy. Growth of its basic material 1000000
Others

businesses slowed. 800000 Electronics

Sales
Electronics business started as the fourth pillar 600000
Ceramics
Developed Glass delay lines for TV picture quality. 400000
Chemical
Focussed on areas such as displays, optoelectronics and 200000

IC components where AGC had prior processing and 0

1970 1975 1980 1986 1987 1988 1989 1990 1991 1992
Glass and
Related
fabricating knowledge. Year

Development of LCDs as a hedge against substitution of Diversification

LCDs for the TV Glass bulb business. into Electronics
JV Optrex with Mitsubishi for LCD displays in products
like Wrist watches, calculators, automotive panels etc.
Optrex became second largest manufacturer of LCDs.

Exhibit 5
HOW DO YOU SELECT AN APPROPRIATE BUSINESS FOR DIVERSIFICATION?

The Attractiveness test: The industry chosen for diversification must be structurally attractive or capable of
being made attractive.
The cost-of-entry test: The cost of entry must not capitalize all the future profits.
The better-off test: Combining different, but related, businesses should enhance the competitive advantages of
all the individual businesses.

In most cases, cost-of-entry cancels out advantages of industry attractiveness.

It can make sense for a company to enter an unattractive industry so long as the cost of entry is sufficiently discounted
and the better-off test is met.
DID ASAHI GLASS CO. CHOOSE APPROPRIATE BUSINESSES FOR
DIVERSIFICATION?
Chemical
Ceramics
& Refractories Glass & related products
Electronics

Unrelated Related

Criteria Glass & Chemical Ceramics Electronics

related & Refractories
products
Serve similar Markets & use similar
distribution systems
Employ Similar production
technologies
Exploit similar science-based
research
 MODES OF DIVERSIFICATION
Business Mode(s) of Diversification
Glass & Construction Material business Internal Growth, Joint Venture, Acquisition
Chemical business Internal Growth, Joint Venture, Acquisition
Ceramics business Internal Growth
Electronics business Joint Venture, Acquisition
Correct Mode(s) of diversification or not? - Situational
Diversification Mode Reason
Diversification into Ceramics and chemicals Internal Growth Difficulty in importing Raw Material during WWII
TV Glass Bulbs & automobile safety glass businesses IG + JV Technology expertise (IG) & Globalization (JV)
Diversification into Construction Material Business Licensing + IG Distribution channel already existed
Diversification into Electronics - Optrex Joint Venture Originated from cooperative research project & high capital
Belgian (Glaverbel) and Dutch (MaasGlas) subsidiary Acquisition Globalization: In order to learn about European markets
CORPORATE STRATEGY : AGC VS US FIRMS

Building relationships with local distributors

Glass products directly transported to wholesalers & dealers
AGC provided financial and technical support to 400 small-sized independent wholesalers in Japan
Developed a one to one relationship with the distributors which was not common in the North American markets

Lesser intervention in foreign operations1

In an effort to localize its foreign operations AGC only exercised indirect influence over its overseas subsidiaries
Did not dictate day to day activities like local pricing but only the overall strategy
Executive meetings were called once every 3 or 4 months to discuss important managerial issues

Focused investments in R&D

AGC investing 304 million dollars2 on R&D expenditure for FY 1992
Maximum among all firms with a significant difference of 83 million dollars when compare to its USA based rival PPG

Source: 1. Exhibit 7, 2. Exhibit 9

WHAT TO DO WITH THE ELECTRONIC BUSINESS TODAY?

Electronic business still sluggish even after a decade long presence

The company should not focus on TFT(thin film transistor) & films head electronic division
AGC unable to compete with other rivals having more expertise and experience such as Hitachi, Toshiba &
NEC
Mitsubishi Electric had 80% share of the TFT manufacturing joint venture, so AGC had less profits from this
Thin film heads were seen as an assembly business rather than materials so the management was less
interested due to lack of expertise

However, no need for divesting the entire electronic business because:

LCDs (active matrix) have a market growth of 30-40% per annum* showing immense promise

*Source: Exhibit 10
Thank You!