Greater Kanebo and Pentagon management: diversifying by addition (1961)

What a scale-first diversification left behind

At the centre of this decision is the fact that Muto Itoji faced the structural limit of a one-legged natural-fibre business head-on. It began with a personal act of will — flying to Italy himself to bring back nylon technology — and continued through sustained heavy investment in the Hofu plant and the cosmetics sales network; the Greater Kanebo plan can be read as a management decision in a hurry to restore a “greater Kanebo”. The way cosmetics and food were both explained as continuations of pre-war businesses also suggests an intent to place the diversification not as opportunistic expansion but on the line of Kanebo’s own history.

That said, this diversification was an addition unaccompanied by any contraction of the textile business, and the Pentagon management that Ito Junji inherited likewise left intact a one-legged structure in which only cosmetics won. The mechanism of using the profits of the strong business to sustain the weak ones continued even after the dividend was suspended in 1975, and its roots appear to run all the way to the distant consequence of the accounting fraud exposed in 2003. Widening the scale does not necessarily mean strengthening the structure of the business. Half a century on, this decision still leaves that question open.