4-1-1, Imai
Daishowa Paper Manufacturing Co., Ltd. was in 1990 the second-largest papermaking company in Japan. It produced about two-and-one-half million metric tons of paper and paperboard at that time, generating approximately 10% of Japan's annual paper production. Known for diverse operations, its concentrations include newsprint, kraft paper, and paperboard. The firm also manufactures laminated particleboard and operates forestry and related businesses. Daishowa operates five mills and a building-materials plant in Japan, and several other mills in Canada, the United States, and Australia. With its corporate headquarters in Fuji City, Daishowa dominates the Shizuoka Prefecture, south of Mount Fuji, where most of its major industrial complexes have been built.
Daishowa traces it origins back to Saito Ltd., a brokerage firm supplying raw materials to the paper industry, founded in 1921 by Chiichiro Saito, father of Daishowa's honorary chairman in 1991, Ryoei Saito, and grandfather of its president, Kiminori Saito. In 1922 the company became Saito Brothers Co. and the business expanded to include paper sales. In March 1927 Saito Ltd. established Showa Paper Company with a capitalization of ¥100,000 and began producing paper and paperboard at Yoskinaga. Shortly thereafter, in 1933, Saito Ltd. built a mill in Suzukawa for the production of kraft paper.
War between Japan and China broke out in July of 1937, and in September Japan's government approved two economic-control laws. The Temporary Capital Adjustment Act curtailed the establishment of companies, capital increases, payments, bond flotations, and long-term loans. The Temporary Export and Import Commodities Measures gave the government control of the import and export of raw materials. In 1938, nevertheless, with a capitalization of ¥5.5 million, Saito Ltd. merged with four other Shizuoka companies to form Daishowa Paper Manufacturing Company. The Saito family retained control of the new company. One year later, the Suzukawa mill became the first integrated kraft paper mill in Japan.
Japan's pulp and paper industry hit its peak wartime capacity in 1940, when its paper output was 1.7 million tons. Industry in Japan declined steadily as the war dragged on, and in 1941 Japan provoked a war in the Pacific with the attack on the U.S. Pearl Harbor. By 1946 the overall production of the Japanese pulp and paper industry had shrunk to 231,190 tons, less than 20% of what it had been in in 1940. Despite this gloomy portent, Daishowa would ride the tsunami of Japan's fierce industrial and economic recovery, landing safely on the shores of mega-prosperity with many of its fellow industrial companies. The Allied powers readily aided Japan's fast-paced growth by their postwar control of the powerful ancient Japanese business monopolies, the zaibatsu. In 1937 the top three zaibatsu. controlled 65% of pulp and 83% of the paper industry; by 1950 these figures were reduced to 39% and 57%, respectively. With the democratization of industry in Japan, there erupted fierce competition in most industries, which spurred rapid technological expansion and the building of new facilities.
It was at this time that Ryoei Saito, a young businessman and Chiichiro Saito's son, assumed leadership at Daishowa. The younger Saito led his family-controlled, publicly traded company in a violent struggle against three kingpins of the Japanese paper establishment, Oji Paper Company, Jujo Paper Company, and Honshu Paper Company. This trio had been created from Oji Paper, part of the Mitsui zaibatsu, when Oji Paper was divided after World War II. In 1950, five years after the end of the war, construction of the Fuji mill began, and production started in 1953. In 1960 Daishowa started production of coated paper. In the same year, production was begun on a mill in Shiraoi that was to become one of Daishowa's largest integrated mills, producing pulp, paper, and paperboard. Saito's aggressive price cutting and rapidly increasing market share may have appeared uncouth to the Japanese, but by 1965 Daishowa had seized the number-two spot among Japanese papermakers.
Japan's economy continued to ride high, peaking from 1965 to 1973, when production of paper and paperboard mushroomed 10% to 11% annually. The Iwanu mill was built in 1967. Daishowa imported its first U.S. woodchips in 1965. Daishowa Paper Trading Co., Ltd. was established as an independent sales organization in 1967, the same year that Harris Daishowa (Australia) Pty., Ltd., the corporation's Australian subsidiary, was established. In 1968 Daishowa Pulp Manufacturing Co., Ltd. was founded, followed by Daishowa-Marubeni International Ltd., in Canada in 1969, and Daishowa Uniboard Co., Ltd. in 1970.
During the late 1960s and early 1970s Japan began to pay the price for its dynamic resurgance. One particularly disturbing cost was the pollution caused by its bustling industry. The Japanese government began to crack down on kogai, or pollution. In Shizouka Prefecture, there was particular trouble with toxic sludge on the bottom of Tagonoura Bay, for which the government held Daishowa responsible. Daishowa, like most industrial companies, complied with government demands for environmental protection, in particular for protecting water against pollution.
As environmental issues continued to galvanize public outcry, many business converted to the use of recycled paper. By the early 1990s, demand for recycled paper was growing faster than supply, and Daishowa was in tune with the trend. Daishowa had been recycling pulp since 1959, when it started producing de-inked pulp (DIP) from old newspapers at the Fuji mill. Progressive efforts to develop higher-quality recycled pulp resulted in the formation of a project in 1985 that concentrated on improving the de-inking process. In 1988 the resulting improved system was installed in a new plant at Yoshinaga that produced a superior DIP. In 1990 Daishowa had 13 de-inking facilities in 4 of its Japanese mills; it produced 2,000 tons a day of recycled pulp for use in making paperboard and paper. Construction of two more such facilities was planned for 1991, adding capacity for an additional 330 tons per day.
The environmental crackdown of the 1970s and the oil crisis of 1973 were followed by a severe general recession. Average annual growth in the pulp and paper market shrank to a mere 1.1% from 1973 through 1982. Daishowa, nevertheless, showed a striking increase in sales and profitability from 1978 to 1979, when it rose in international status from 37th to 20th place in pulp and paper companies worldwide. Daishowa ranked fifth among companies outside North America, and third among those in Japan. Its sales were US$1.3 billion; earnings were US$14.5 million.
Despite the oil crisis and the ensuing financial difficulties, Daishowa continued its program of unabated expansion. Having just established foreign holdings, in the United States and Canada, in 1980 it upgraded its facilities at Iwanuma to lower the weight of its newsprint, in keeping with the industry trend toward lighter papers. The mill would have a capacity of 360,000 tons per day of newsprint in addition to 120,000 tons per day of coated paper. In addition, Daishowa installed a machine to produce carbonless copy paper at Yoshinaga, following the trend set by Taio Paper--now Daio Paper--earlier in the year. These expansions came at a time when imports to Japan were rising despite the weakening Japanese demand for paper. From 1977 through 1982, imports rose an average of 17% per year. Although imports ultimately comprised only 2% to 4% of total Japanese consumption, newsprint and kraft linerboard, two of Daishowa's specialties, represented 70% of total imports, accounting for 8.9% of the newsprint, and 14.5% of the kraft linerboard consumed in Japan.
If import statistics did their job to rattle the pulp and paper business, other accumulated industry wide expenditures combined to ensure the industry's decline in the early 1980s. Excessive borrowing, expensive environmental-protection programs, and escalating energy costs took their toll. Daishowa, sporting its own portfolio of financial mistakes, became a casualty of the accelerating decline, dropping from its 1979 status as third-largest papermaker in Japan to last place among the top ten in 1982. As profits slid downward, Ryoei Saito was forced to resign and cede control of Daishowa to its principal creditor, the Sumitomo Bank, which appointed some of its own representatives to the Daishowa board. The Sumitomo Bank's rescue of Daishowa was not unique in Japan, where a firm typically cultivated a close relationship with one principal bank, relying on it for most borrowing needs. This bank maintains all financial information on the company and has substantial influence in its management. Nevertheless, Ryoei Saito did not take kindly to the management changes the Sumitiomo Bank deemed appropriate. For its part, Sumitomo found that in addition to overspending in new production facilities, Ryoei Saito had used approximately US$1 billion of corporate funds to build his art collection, buy golf courses, and play the stock market. The bank compelled Saito to sell off much of the highly regarded art collection, and he begrudgingly resigned.
In 1983 Daishowa annonced that it would repay the Sumitomo Bank's ¥23.5 billion in loans by June of that year and then terminate the relationship with Sumitomo. The move shocked the Japanese business community, in which bank-company relations are likely to last indefinitely. In June 1986, Ryoei Saito was able to regain control of the business, expelling his brother Kikuzo Saito from Daishowa's presidency and ousting a board director who had close ties with Sumitomo. Kikuzo Saito later claimed that Ryoei Saito had borrowed substantially from Daishowa funds for his own personal use. The Sumitomo Bank remains one of Daishowa's major institutional shareholders, with 3.9% of Daishowa's stock in 1990.
Once back at Daishowa, this time as honorary chairman of the company, Ryoie Saito remained true to his established interests and style. In May 1990, Saito caused a flurry in the international art market by purchasing the two most expensive paintings ever sold by auction: Renoir's At the Moulin de la Galette, which sold for US$78.1 million, and Vincent van Gogh's Portrait of Dr. Gachet, purchased for US$82.5 million. The paintings were snapped up within three days of each other, and although Saito deemed his shopping spree "no big deal" he also granted that his funds were borrowed against the collateral of Daishowa real estate.
In the early 1990s the Saito family continued to control 20% to 40% of the firm; in combination with its real estate holdings, the family's net worth was somewhere around US$1 billion. In an effort to prevent dilution of the Saito family's stake, Daishowa managed to expand during the late 1980s without issuing new stock, principally by taking on additional loans. This strategy more than doubled its debt between 1987 and 1990 to US$3 billion, more than five times shareholders' equity. In 1990 profits dropped 35% to US$35 million.
Kiminori Saito, nevertheless, continues his father's aggressive expansion of Daishowa, probably fueling the growth with family resources from Ashitaka Rinsan Kogyo, the family holding company. In April of 1990 that firm spent US$49 million to buy Daishowa's share of a 23-year-old Australian eucalyptus-chip venture with C. Itoh. It also purchased 25% of the preferred shares of Daishowa's new pulp mill in Alberta, Canada. On the other hand, a Japanese corporate research firm indicated that Ashitaka's 1990 accumulated debt of $300 million was created by borrowing against the collateral of Daishowa. Whatever the stability and origins of its financial underpinnings, Daishowa's expansion showed no signs of slowing down during the early 1990s. Its domestic expansion budget was a healthy US$330 million in 1991.
In addition to its development on its home turf, Daishowa aggressively expanded its overseas operations. In 1990 its major joint-venture operations included Cariboo Pulp & Paper Company, a softwood bleached kraft pulp mill, and Quesnel River Pulp Company, a chemi-thermo-mechanical pulp mill, both located in British Columbia, Canada. Foreign acquisitions made by Daishowa during 1988 include a US$78 million investment for Daishowa America Port Angeles mill, in Washington state. The company upgraded the mill with another US$52 million investment. In addition to producing newsprint, paperboard, pulp, lumber, and chemicals, as of 1990, the mill provided 20% of the paper used in U.S. telephone directories. The company spent an estimated US$500 million to purchase the North American assets of Reed International, a Quebec mill chiefly generating newsprint for Canadian and U.S. newspapers such as The Washington Post and The New York Post. In 1988, Daishowa started construction of its Peace River Pulp mill, a major bleached kraft pulp mill in Alberta, Canada. In early 1990, Daishowa bought a lumber mill from Canadian Forest Products to supply the plant, which began operations in summer 1990.
Principal Subsidiaries: Daishowa America Co., Ltd.(U.S.A.); Harris-Daishowa (Australia) Pty., Ltd.; Daishowa Canada Co., Ltd.; Daishowa (H.K.) Co., Ltd. (Hong Kong); Daishowa Canada Holdings Ltd.; Daishowa Forest Products (Canada); Daishowa, Inc. (Canada); Daishowa-Marubeni International, Ltd. (Canada).
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