Unitika Ltd. - Company Profile, Information, Business Description, History, Background Information on Unitika Ltd.

Osaka Center Building
4-1-3, Kyutaro-cho, Chuo-ku
Osaka 541-8566

Company Perspectives:

Unitika is a company that closely examines the needs of consumers while working in harmony with the environment. Our many areas of endeavor range from objects too small to see with the unaided eye to environmental initiatives affecting the entire planet. Our accomplishments are the result of the strong connections among each of the Unitika Group members that form our solid organization. Dedicated to giving consumers more out of life while working in harmony with the environment, Unitika is finding new ways to use its growing resources.

History of Unitika Ltd.

Through its many subsidiaries, Unitika Ltd. operates as a leading manufacturer in the Japanese fibers and plastics industry. The company began a major restructuring effort in the late 1990s and spun off its main fiber and textiles businesses, creating subsidiaries Unitika Textiles Ltd. and Unitika Fibers Ltd. The firm's main business segments include its High Polymers division, which produce films, resins, synthetics, vinylon fibers, polyester and nylon, cotton nonwoven fabrics, and biodegradable plastic products. Unitika also has holdings involved in water treatment facilities, incinerators, air pollution prevention, chemicals, advanced materials, and biotechnology.

Early History

Unitika was created in 1969 out of the merger of the Nichibo and Nippon Rayon companies. Until 1964, the former was known as the Dainippon Spinning Company, which formed, along with Toyobo and Kanegafuchi, the dominant triumvirate in Japan's interwar spinning industry. Dainippon itself emerged at the end of World War I out of the amalgamation of five separate concerns initiated by Amagasaki Spinners Ltd., and it is this last company which is therefore regarded as the founder of the present company.

Cotton-spinning was the chosen vehicle for Japan's industrialization in the last quarter of the 19th century, remaining until World War II the nation's most important single industry and the spearhead of its successful attempt to create a modern industrialized economy capable of competing with those of the West. Although spinning mills had existed in Japan since the 1860s, it is generally agreed that it was the establishment in 1882 of the famous Osaka Spinning Company which began the spectacular growth of Japan's indigenous cotton-spinning industry.

The Osaka mill was both sufficiently large-scale and powerful--driven by steam, and with 10,000 spindles--to be able to compete with the mills of Britain and the United States, and its success set a pattern for mill development in the ensuing two decades. The reorganization of the nation's capital in the 1880s, along with the emergence of a powerful merchant-banking class, especially in the Osaka area, were the other necessary ingredients for the expansion of the industry. Among the numerous spinning companies established in this period was Amagasaki Spinners Ltd., set up in 1889 in Hyogo province by a group of Osaka merchants and bankers.

By 1895, the company was ranked as one of the dozen largest spinning concerns in the country, with over 27,000 spindles. During this decade the company discarded mule frames in favor of the more efficient ring frames to enhance its productive capacity of coarse-grade cotton yarn. Amagasaki's factory workers were typical of those of the cotton-spinning industry of the day--young women recruited from the provinces who lived in the company's own dormitories. Their relative docility and--by Western standards--meager pay helped provide the company with a distinct cost advantage over foreign competitors. However, the extremely rapid expansion of the industry produced severe shortages of skilled labor and led to the phenomenon of labor piracy among competing firms. In order to combat this, the industry set up the Japan Cotton Spinners' Association in 1882, and this body remained for the next 50 years the governing body of the industry as a whole and the vehicle for governmental intervention in it. The Association's effectiveness in the latter respect was soon displayed when over-production in the final years of the 1890s led to an enforced cut-back in production, the first of many such cut-backs to affect the spinning industry in the decades to come.

Key Mergers and Production Innovations: 1900s-30s

By the early years of the 20th century, the industry had become characterized by an excessive number of competing companies. Although the Sino-Japanese War of 1895-96, the Russo-Japanese War of 1904-05, and especially World War I stimulated the industry by opening up new opportunities in China, Korea, and Formosa (later Taiwan), it was clear that rationalization was necessary. A series of mergers in which Amagasaki figured prominently was initiated in the industry. The company absorbed the Toyo Textile Company in 1908, the Tokyo Spinning Company in 1914, the Nihon Spinning Company in 1916, and finally in 1918 the Settu Spinning Company. The new giant composite, now with mills all over the country, was named the Dainippon Spinning Company. The merger process appears to have had the effect of bringing to an end what one industry historian, S. Yonekawa, has called "a period of trial and error" in the company's management and operational spheres.

The financial crisis of 1920 affected Dainippon severely, but the management cooperated with the other large spinning firms in a far-sighted policy of using financial reserves built up in the profitable war years to avert a total breakdown in the yarn and fiber markets. From this experience, Dainippon learned the importance of guarding itself against price fluctuations in raw cotton, and during the 1920s and 1930s the company adopted a number of measures--such as "hedge-selling," whereby the company sold raw cotton on a cotton exchange in amounts equal to their cotton holdings to offset any losses on the purchases--to lessen such risks. Dainippon further protected itself from the notorious vagaries of the cotton market by diversifying into synthetic fiber production, and to this end set up the Nippon Rayon Company in 1926.

As a result of the amalgamation process of the previous decade, Dainippon in the 1920s had a somewhat complex management structure composed of departments based on its various products. A modern divisional system did not emerge until after 1945. Dainippon was, however, notable for its innovative work on production processes. A company engineer, Kasuo Imamura, who had joined the new Dainippon after the absorption of the Settu Spinning Company in 1918, developed the new, efficient ECO-type high-draft spindle which was to become the most favored type of spindle in the industry as a whole. Dainippon was quick to take advantage of Toyota's revolutionary automatic looms after 1926 to increase efficiency in production and thereby enable it to reduce the size of its work force. The company's Sekigahara plant was the first in the country to employ the more efficient unit drive, whereby each unit had its own power source, for all of its operations in 1932. Innovations such as these enabled Dainippon to maintain its position in the inter-war decades as one of the industry's leading operations despite such setbacks as the enforcement in 1929 of the Revised Factory Law (1923), which ended the profitable all-night work system known as "midnight labor," and the Great Depression that followed, during which the company had to discharge half of its labor force.

Surviving the War Years

In the mid-1930s, the Japanese textile industry replaced that of Britain as world leader. The threat from Japan was felt to be so grave that protectionist measures were taken by Britain and the United States against the Japanese, severely affecting export-dependent companies such as Dainippon. The position of the firm and of the industry as a whole was further threatened in the second half of the decade when the imposition of sanctions against Japan by the Western democracies checked the supply of raw cotton from India and the United States, thereby forcing reductions in cotton-yarn production. The year 1937 saw the first government-imposed controls on prices, and for the next eight years virtually every aspect of the company's operations came under increasing governmental scrutiny and control. During 1940-41, the spinning industry was reorganized into 14 so-called units in an attempt to place it on a strengthened war-footing. Dainippon managed to remain intact, constituting one of the 14 units. A further series of amalgamations took place in 1943, culminating in the emergence of a grouping known as the "Big Ten" spinners, but once again Dainippon retained its corporate integrity despite this imposed aggregation. For the spinning industry, the war years were harsh ones, bringing government-imposed ceiling prices, the rationing of increasingly scant supplies of raw cotton, the turning over of mills to munitions production, and their subjection to Allied aerial attack in the latter stages of the conflict. By the time of Japan's surrender in 1945, the industry was a shadow of its former self.

After the surrender, Dainippon found itself subject to the ordinances of the Supreme Commander for the Allied Powers (SCAP), some of which were designed to force the break-up of large multi-product firms such as Dainippon by stripping away their non-spinning activities. Fortunately for Dainippon and the other members of the "Big Ten," SCAP revised these plans. In 1949, the industry was allowed to return to private trade, although SCAP maintained a close supervisory control in some areas. For example, production controls were not lifted until 1951.

With the return of Japanese sovereignty, the Ministry of Trade and Industry (MITI) embarked on a series of plans to resuscitate the industry, deciding that textile manufacturing should shift its emphasis from cotton to synthetic and chemical products in view of the latter's greater foreign earnings potential. Thus, it was that the 1950s saw Dainippon and the other majors expand their synthetic yarn production.

The Korean War gave the Japanese economy a very significant boost, stimulating recovery in the fibers industry as in many others. From the mid-1950s, Dainippon and the other majors entered upon a 15-year period of high growth. Symptomatic of the company's restored fortunes was its 1965 establishment of Nippon Ester Co., Ltd. in a joint venture.

A Recession Leads to Diversification: 1970s-80s

However, the 1969-72 Japan-U.S. textile negotiations, and even more the oil shock which followed in 1973, brought an abrupt end to this prosperity. Steep rises in raw materials, labor, and fuel costs, plus growing competition from the newly industrializing countries of Northeast and Southeast Asia, combined to present a serious threat to Unitika's competitiveness abroad and its home market in Japan. Dainippon had renamed itself Nichibo in 1964 and Unitika in 1969 on the merging of the Nichibo and Nippon Rayon Companies.

The recession forced Unitika to close down two of its cotton staple mills in 1975 and reduce synthetic fiber production. In the same year, the company announced plans to work in concert with Toyobo (Toyo Boseki Kaisha) and Kanebo (Kanegafuchi Boseki Kaisha) to help pull the industry out of the recession. The one bright spot was polyester filament, for the production of which Unitika received permission to open a plant at Sabae in a joint venture with Kanebo.

Nevertheless, it was clear that Unitika had to diversify away from fibers production, and from this period dates the company's movement into non-fiber activities, although the benefits of this diversification was at least a decade away. In the later years of the 1970s, the company experienced a continued decline in the profitability of its business. Consequently, it withdrew in 1977 from a joint cotton-spinning venture in Singapore. In the next year, it was the first of the industry's large firms to cut its work force by making 650 employees redundant: declining profitability meant there was little revenue to invest in increasing productive capacity, so cost-reduction by this method was the company's chosen response to the recession. Further measures to bolster the fiber business included the voluntary production cutbacks in which the company took part in the late 1970s and early to mid-1980s; this action was designed to raise low product prices, and mutual inter-company mill inspections were put in place in order to enforce the cutbacks.

Unitika saw that if it was to survive it had to develop new value-added high-technology products. An example of this kind of development was the commercialization in 1979 of a special type of nylon filament designed to reduce static electricity in work garments. The company also embarked on the internationalization of its operations by involvement in technology licensing agreements and a new round of joint ventures abroad, on this occasion in Hong Kong, Italy, and the United States.

In 1981, in a further bid to improve production efficiency in the fibers business, Unitika announced plans to replace some 1,000 of its looms with 400 of the most up-to-date machines. Two years later, the company joined with seven other leading firms in forming a Research and Development Association to speed up and reduce the cost of development of more efficient production methods. One project was the design of a new cotton-spinning machine up to 17 times as productive as existing models.

However, these and other moves could not prevent the post-1985 rise in the value of the yen that caused further decline in the profitability of the important export sector. In 1986, Unitika announced plans to shed some 800 employees in an effort to reduce the size of its work force by the end of the decade. The impact of a strong yen on export competitiveness again underlined the necessity of rapidly expanding the non-fibers business, which in 1991 amounted to about 33 percent of total sales, while simultaneously concentrating on the equally rapid development and commercialization of high-value, high-technology products in the mainstay yarns sector.

The company's cost-cutting and diversification efforts led to profits in 1989, enabling the company to resume its dividend payment to shareholders for the first time since 1977. By this time, Unitika's non-textile businesses were experiencing steady growth, its recent acquisitions were beginning to pay off, and key product launches--including Solar, a heat retaining fiber--were successful.

Restructuring in the 1990s and Beyond

The 1990s initiated a period of change and restructuring for Unitika as the company continued to develop new products and expand into new territories during the first half of the decade. In 1991, the company established a women's clothing material company based in France with Dollfus Meig et Cie. It also formed subsidiaries in Indonesia, Hong Kong, and Thailand. Unitika's financial success, however, came to a halt in 1994 when the company posted losses due to the increase of imports into the region. The firm's textiles division experienced a sales drop of 14.5 percent while its nontextiles business experienced a 6.6 percent gain. That year, the company exited the rayon filament production market and began to make sweeping changes within its textiles division, closing several plants and cutting jobs.

While Unitika worked at restructuring operations, it faced many challenges. Japan's economy began faltering in the late 1990s, consumer spending dropped, and competition increased. As a result, Unitika's sales fell during 1997 and 1998 and profits were hard to come by. As such, the company made a strategic move in 1999 and spun off its textiles and fibers business. As part of this streamlining effort two new subsidiaries were created--Unitika Textiles Ltd. and Unitika Fibers Ltd.

After nearly a decade of unsteady profits, Unitika management was forced to adopt a new business plan in 2000 that included cutting the number of its subsidiaries drastically. By this time, the company's holdings included 92 different businesses, and Unitika hoped to halve that number by 2003. As part of this new direction, the company focused on five main operating units related to synthetic fibers, polymers, the environment, functional materials, and life and health.

Profits and sales continued to fall into 2002, due in part to increased competition and weak global economies. Sales dropped by 11 percent over fiscal 2001 while the company posted net income of $10 million, a 66 percent drop over the previous year. As profits and sales continued their downward trend, Unitika revamped expansion efforts. Plans to construct a new spun-bond facility were dropped, and the company instead looked to make improvements to existing machinery.

Unitika was certain its survival depended on its ability to diversify its holdings in a cost efficient manner. The company continued with its strategy--which was started in the late 1970s--and focused on developing new value-added high-technology products as well as non-fiber products. Unitika's future fortunes, however, remained dependent on the firm's ability to turn that strategy into a reality.

Principal Subsidiaries: Brazcot Limitada (Brazil); Unitika do Brasil Industria Textil Limitada (Brazil); Thai Nylon Co. Ltd. (Thailand); Kian Dai Wools Co. Ltd. (Hong Kong); P.T. Unitex (Indonesia); Unitika America Corporation (U.S.); Unitika Hong Kong Ltd.; South Overseas Fashion Ltd. (Hong Kong); Unitra (Indonesia); Inner Mongolia Donghao Cashmere Products Co. Ltd. (Inner Mongolia); PT Emblem Asia (Indonesia); Tusco (Thailand); Unitika Textiles Ltd.; Unitika Fibers Ltd.

Principal Competitors: Dainippon Ink and Chemicals Inc.; Kuraray Co. Ltd.; Toray Industries Inc.


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