Toyobo
Corporate History & Strategy

In the early Meiji era, Japan's spinning industry was primarily a government-run enterprise. The Meiji government established government-operated spinning mills throughout the country as part of its policy to promote industry, but production capacity per mill was limited to 2,000 spindles, a significant gap in productivity compared to Western spinning mills operating at scales of tens of thousands of spindles. Small-scale government mills could not achieve the cost competitiveness needed to compete with imported cotton yarn, and the supply of domestically produced cotton yarn faced structural constraints.

In response, Eiichi Shibusawa, a prominent figure in the business world, focused on the privatization and scaling up of the spinning industry. He judged that an internationally competitive spinning industry could not be nurtured as an extension of government operations, and conceived a plan to consolidate private capital to build a large-scale production system in one stroke. For Shibusawa, the spinning industry was also a symbolic enterprise demonstrating the self-reliance of modern industry through private initiative.

In May 1882, Osaka Boseki Company was established with Eiichi Shibusawa at the center. Many aristocrats were among the investors, with 38% of the initial shareholders being aristocrats (the Maeda, Mori, Tokugawa, and Date families). Osaka Boseki took the form of realizing the business concept devised by Shibusawa through the capital of former daimyo families. The participation of aristocrats served both as a means of raising business capital and as a mechanism to guarantee the creditworthiness of the newly established company.

In July of the following year, 1883, Osaka Boseki established the Sangenya headquarters plant in Taisho-ku, Osaka. Equipped with 15,000 spindles, the plant had production capacity over seven times that of government-run mills. By using steam engines as the power source, the plant enabled day-and-night operations, establishing a production system fundamentally different from conventional spinning mills that depended on water power.

In the first year of operation (1883) of the Sangenya headquarters plant, there were 293 workers. By the fourth year of operation (1886), the number exceeded 1,000 at 1,073, and by 1909 it reached 10,950. Osaka Boseki grew into a large-scale spinning company with 10,000 workers within approximately 25 years of its establishment.

The commercialization of Osaka Boseki demonstrated that large-scale spinning by private capital was commercially viable. This track record became a catalyst for the successive establishment of private spinning companies domestically, and set the direction for the rapid development of Japan's spinning industry throughout the Meiji era. Osaka Boseki was a pioneering case that simultaneously achieved two transitions: from government to private operation and the scaling up of production.

Denshichi Ito, a wealthy merchant from Yokkaichi City, Mie Prefecture, turned his attention to Western-style spinning around 1870 and established the Mie Spinning Mill to commercialize the business. However, excessive capital investment combined with product quality issues and constraints from the water-powered location led to poor performance from immediately after opening. Despite entering the industry with expectations for the spinning business's future potential, it was difficult to stabilize as a business in its small-scale and underfunded state, and external support for management restructuring became unavoidable.

In 1883, Denshichi Ito approached Eiichi Shibusawa seeking a breakthrough in management. Shibusawa had already established Osaka Boseki Company and was promoting the scaling up of private spinning, having demonstrated the importance of scale in the spinning business. For Ito, Shibusawa was the person most worthy of reliance in terms of both business vision and fundraising.

Eiichi Shibusawa proposed to Denshichi Ito the construction of a large-scale factory with 10,000 spindles. Rather than simply repairing the equipment of the old Mie Spinning Mill, a policy was presented to build a full-scale spinning factory in Yokkaichi modeled after Osaka Boseki. Based on this proposal, in 1884, Ito established a new company, 'Mie Boseki Company,' separate from the old spinning mill.

Because Mie Boseki Company was established following the model of Osaka Boseki, it maintained a close relationship with Osaka Boseki. Eiichi Shibusawa served as an advisor to Mie Boseki, continuously involved in the management of both companies. This relationship through Shibusawa laid the groundwork for the 1914 merger of Osaka Boseki and Mie Boseki to form Toyobo.

From the late Meiji to early Taisho periods, spinning companies proliferated domestically and price competition intensified. While each company expanded cotton yarn production capacity, demand growth could not keep pace with the increase in supply, and the industry as a whole took on the appearance of excessive competition. Under these conditions, industry reorganization through large spinning companies acquiring small and medium-sized ones became active, and consolidation of the number of companies progressed.

Osaka Boseki and Mie Boseki were both based in the Kansai region and had expanded their scale by successively merging local spinning companies. Both companies had Eiichi Shibusawa involved in their management as advisor, and were close both organizationally and in terms of personnel. As industry reorganization progressed further, the option of enhancing competitiveness through integration rather than each company individually pursuing scale became increasingly realistic.

In June 1914, Osaka Boseki Corporation and Mie Boseki Corporation merged to form Toyobo Corporation. The merger created a system operating 16 factories centered in the Kansai region, making it one of the largest manufacturers in the domestic spinning industry. The person who drove the merger was Eiichi Shibusawa, and his concurrent role as advisor to both companies contributed to the smooth progress of merger negotiations.

As of the end of December of the same year, Toyobo achieved 440,000 installed spindles (1st in Japan) and cotton yarn production of 28,000 bales (1st in Japan), securing the top domestic position in both spinning equipment and production volume. It narrowly surpassed the second-ranked Kanegafuchi Boseki (429,000 spindles), and Toyobo established its position as the top domestic spinning manufacturer from its first year after the merger.

In the 1950s, petroleum-derived synthetic fibers such as nylon and polyester were being commercialized, forcing spinning manufacturers whose mainstay had been natural and chemical fibers to respond to new technologies. Synthetic fibers offered superior durability and uniformity compared to natural fibers, and demand expansion as clothing materials was anticipated, prompting each company to explore entry through technology transfer from overseas manufacturers. Which synthetic fiber to choose was a critical management decision that determined the selection of technology partners and the scale of capital investment.

Toyobo focused on acrylic fibers among synthetic fibers, concluding a technology assistance agreement with the American company ACC in 1956. Together with Sumitomo Chemical, the company established the joint venture 'Nippon Exlan Industries' and embarked on the domestic production of acrylic fibers. In April 1958, a new plant was established at Saidaiji in Okayama Prefecture, putting in place a mass production system for acrylic fibers.

While Toyobo had decided to focus on acrylic fibers, an approach came in 1954 from British company ICI regarding a technology partnership for polyester fibers. However, Toyobo declined this proposal. Polyester fiber required large-scale capital investment in the manufacture of its raw material, terephthalic acid, and at the time there was no certainty of its marketability as a textile product. Under the policy of concentrating management resources on acrylic fibers, parallel investment in polyester was avoided.

As a result of this decision, in the polyester fiber domain, Teijin and Toray—which had partnered with ICI for technology transfer—took the lead. Polyester subsequently became widely adopted not only for clothing but also as industrial materials, becoming the mainstream synthetic fiber. While Toyobo built a certain business foundation in acrylic fibers, it was placed in a late-mover position in polyester, which became the largest market within synthetic fibers.

In the 1960s, the proliferation of synthetic fibers and excessive competition made the business environment increasingly harsh for mid-tier and smaller spinning manufacturers in Japan's textile industry. Each company found it difficult to maintain production scale while securing profitability, and the industry entered a phase where corporate consolidation became active once again.

Kureha Boseki was a textile manufacturer established in 1929 by the founding family of Itochu, operating plants at Kureha, Nyuzen, Omachi, Toyoshina, Inami, Sakahogi, and Shogawa, centered in the Hokuriku region. While its workforce reached approximately 14,000, the intensifying competition in the textile business led the company to see limits in standalone growth and to seek a merger with a larger company. Kureha Boseki President Kyoichi Ito proposed a merger to Toyobo President Toyosaburo Taniguchi, and negotiations commenced.

In August 1965, Toyobo and Kureha Boseki announced their merger. Toyobo was designated as the surviving entity, with Kureha Boseki shares exchanged at a ratio of 8 Toyobo shares for every 10 Kureha Boseki shares. Toyobo had approximately 19,000 employees and Kureha Boseki approximately 14,000, creating a textile manufacturer with 33,000 employees after the merger.

The practical benefit of the merger for Toyobo was the acquisition of Kureha Boseki's nylon production equipment. Kureha Boseki had entered the nylon business in 1960, ahead of Toyobo. Toyobo had been late to enter polyester in synthetic fibers and also lacked nylon equipment. The merger aimed to avoid the cost and time of building nylon facilities from scratch and to complement its synthetic fiber lineup.

The merger was completed on April 26, 1966, and operations commenced under the trade name 'Toyobo.' The Hokuriku region factory group was added to Toyobo's production bases, expanding the production system spanning cotton spinning, synthetic fibers, and chemical fibers. Immediately after the merger, Toyobo became one of the largest companies in the spinning industry by employee count.

This merger was one of the reorganizations that occurred in the textile industry during the 1960s. At the time of the merger announcement, President Taniguchi stated, 'In England, Manchester's textile industry has been consolidated into the two major capitals of ICI and Courtaulds,' indicating his recognition that similar consolidation was inevitable for Japan's textile industry. The decision to overcome excessive competition in the textile business through corporate consolidation was, at that point, a response aligned with the overall industry trend.

Throughout the 1960s, petroleum-derived synthetic fibers such as polyester and nylon proliferated rapidly in the textile market. As a result, chemical fibers made from wood pulp (staple fiber and rayon) lost their competitiveness, and at Toyobo as well, utilization rates declined at the Iwakuni plant producing staple fiber and the Inuyama plant supplying pulp. At the Inuyama plant in particular, actual production stood at only 45-80 tons per day against a breakeven line of 300 tons per day, and the original role of supplying raw materials for chemical fibers was being lost.

The slump in the chemical fiber business was not limited to Toyobo but was a structural challenge faced by the entire staple fiber and rayon manufacturing sector. It was clear that chemical fibers were inferior to synthetic fibers in both cost and quality in the competitive landscape, and converting existing production equipment to uses other than chemical fibers emerged as a management priority.

In March 1968, Toyobo established the 'Chemical Products Division' to organizationally drive new businesses to replace chemical fibers. A policy was set to convert the Inuyama plant, which had been used for pulp production, into a production base for film products. This was a conversion from supplying raw materials for chemical fibers to resin processing—a different product domain—a decision to replace business content while utilizing existing equipment and location.

At the Inuyama plant, production of biaxially oriented polyester film began in March 1971, followed by biaxially oriented nylon film in July 1976. The plant that had withdrawn from the pulp business was repurposed as a production base for film production, a non-textile business. The establishment of this Chemical Products Division became the starting point for Toyobo's full-scale entry into film and resin business.

Miyuki Keori was a woolen textile manufacturer engaged in the production and sale of men's suits, achieving a recurring profit-to-sales ratio of 38% in the fiscal year ending April 1979 through a strategy of specializing in high-end men's suits. It was known as an unusually profitable company within the textile industry, thanks to a differentiated business model based on domestic production of high-end men's suits.

However, from the 1990s onward, affordable imported men's suit retail chains such as Aoyama Trading emerged, significantly lowering the price range in Miyuki Keori's core men's suit market. Dependent on domestic production, Miyuki Keori lost its price competitiveness, and the profitability of its textile business deteriorated. By the fiscal year ending March 2009, the textile business had fallen into the red, and the company was sustaining itself through profits from a real estate leasing business utilizing former factory sites in Nagoya.

Toyobo had been investing in Miyuki Keori since 1942, maintaining a relationship spanning over half a century as the largest shareholder with approximately 41% ownership. Miyuki Keori had transitioned to a holding company structure in 2003 and was listed on the TSE First Section as Miyuki Holdings, but was in a situation where rebuilding management had become difficult due to the poor performance of its textile business.

In May 2009, Toyobo made Miyuki Holdings a wholly owned subsidiary through a share exchange. The acquisition cost was 6.6 billion yen. Since Miyuki HD's net assets exceeded the acquisition cost, Toyobo recorded 4.1 billion yen as 'negative goodwill' and amortized it equally over five years. This was a rescue-type acquisition of a long-standing affiliated company, and was a decision driven more by the need to deal with an investee in financial difficulty than by the goal of rebuilding the textile business.

Through the acquisition, Toyobo obtained Miyuki Keori's men's suit-oriented woolen textile business and real estate business. In particular, commercial facilities located in prime areas of Nagoya added a new revenue source to Toyobo's real estate portfolio. Rather than restoring competitiveness in the textile business itself, the substantive content of the acquisition was the comprehensive acquisition of assets including real estate.

For Toyobo, the acquisition of Miyuki HD was based on the judgment that it could not leave unaddressed the deteriorating management of an affiliated company in which it had been involved for many years through its approximately 41% investment. The acquisition terms that generated 4.1 billion yen in negative goodwill meant that the acquisition price fell below Miyuki HD's asset value, reflecting the market's low assessment of its future value as a textile business.

As LCD TVs grew larger, quality requirements for polarizer protective films were rising. Conventional mainstream triacetyl cellulose (TAC) films had a quality issue of being prone to 'warping' when applied to large panels. In LCD panel manufacturing processes, the flatness of polarizer protective film directly affects display quality, making warping reduction an important technical challenge for LCD TV manufacturers.

Toyobo had been operating its film business since the 1960s, building a track record of producing biaxially oriented polyester film and nylon film starting from the Inuyama plant. The accumulated film stretching technology over many years provided a technological foundation applicable to the new field of LCD applications.

In 2013, Toyobo developed the ultra-birefringent film for polarizer protection 'Cosmoshine SRF' and began sales for LCD TVs. With properties that suppress warping compared to TAC films, it was adopted by LCD TV manufacturers as a solution to quality issues in large LCD panels. Having captured the market as a replacement for conventional products, by 2024 the company secured a 60% global market share (1st place) in polarizer protective film for LCD TVs.

The expansion of Cosmoshine SRF sales contributed to film segment profits, supporting the segment's profit growth from fiscal year 2015 onward. Although the profit breakdown is not disclosed, it is estimated to have grown into a revenue pillar in the film business as a product with the world's top market share. Toyobo's film business is broadly divided into packaging and industrial applications, and Cosmoshine SRF was positioned as a representative high-value-added product in industrial films.

In 1998, Toyobo began full-scale production of the high-strength fiber 'Zylon' at the Tsuruga plant. Zylon is a high-durability, high-heat-resistant synthetic fiber positioned as a high-value-added product for industrial materials and protective applications. Aiming for a revenue structure different from low-margin apparel fibers, the material was also exported to the U.S. market for use in bulletproof vests.

Bulletproof vests using Zylon were widely used by law enforcement agencies in the United States, but in December 2002, a bullet penetration incident occurred in California. Suspicion arose that the protective performance of the bulletproof vest had degraded due to deterioration of the Zylon fiber over time, and the issue of product safety became apparent. For Toyobo, this was a situation where Zylon, developed as a high-value-added fiber, turned into a litigation risk as the party responsible for quality issues.

Following the penetration incident, the U.S. Department of Justice filed lawsuits against Toyobo between 2005 and 2007. The plaintiff's claim was that 'Toyobo was aware that Zylon fiber degraded in strength prematurely under certain conditions, yet failed to disclose this information.' With both defects in quality itself and inadequacy of information disclosure being questioned, this became a lawsuit that required Toyobo to respond on both product liability and corporate responsibility fronts.

The litigation was prolonged, taking more than 10 years from filing to settlement. During that period, Toyobo continued to devote management resources to litigation in the United States. The situation of a Japanese textile manufacturer fighting prolonged litigation against the federal government under the U.S. judicial system was an unprecedented burden for Toyobo.

In March 2018, Toyobo chose settlement considering the impact of prolonged litigation on management. While denying the plaintiff's claims regarding Zylon's quality, Toyobo concluded the lawsuit by paying approximately 7 billion yen in settlement. This settlement amount was recorded as an extraordinary loss.

The Zylon lawsuit became a case demonstrating the risks of overseas expansion of high-value-added fibers. Since bulletproof vests are products directly connected to human life, standards for information disclosure regarding quality deterioration were required at a level different from ordinary textile products. For Toyobo, this was a case that made clear the importance of risk management appropriate to product applications in pursuing high-value-added textile business.

Throughout the 2010s, Toyobo's film business grew into a core business generating the majority of company-wide profits, with packaging and industrial applications as its two pillars. In industrial films, the LCD polarizer protective film 'Cosmoshine SRF' held a 60% global market share, serving as a stable revenue source alongside MLCC films. The packaging film business was a high-volume supply business targeting mass markets led by food packaging.

The raw materials for the film business are petrochemical products, with a structure where fluctuations in domestic naphtha prices directly affect manufacturing costs. While high profit margins can be secured when raw material prices are stable, the business carries an inherent risk that price pass-through to end products cannot keep pace when raw material prices surge. From 2022 onward, naphtha prices rose in response to the global surge in energy prices, and the film business's cost structure began to be squeezed.

In October 2022, Toyobo announced price increases for packaging film products. However, as raw material price increases exceeded expectations, a second round of price increases was decided in April 2023. The targets covered a wide range of products including biaxially oriented polypropylene film, cast polypropylene film, and linear low-density polyethylene film, centered on packaging films.

In the fiscal year ending March 2023, the film segment's operating profit dropped sharply from 19.8 billion yen in the previous year to 1.6 billion yen. The direct cause was that price pass-through to end products could not keep pace with the surge in raw material prices, with the pass-through rate remaining at approximately 70% despite the implementation of price increases. The sharp profit decline in a business that had been generating the majority of company-wide profits impacted Toyobo's overall earnings structure.

In the fiscal year ending March 2024, industrial film sales recovered, with demand for LCD-oriented films centered on Cosmoshine SRF picking up. On the other hand, packaging film profitability continued to be sluggish, with persistently high raw material prices and insufficient price pass-through remaining as ongoing challenges.

The sharp profit decline in the film segment exposed the risk of Toyobo's profits being concentrated in a specific business segment. There is a difference in price pass-through capability between industrial and packaging films; it became apparent that industrial films with world-leading market share products and commodity-oriented packaging films have different earnings resilience in a raw material price surge environment.