Teijin — Company History

Kaneko Naokichi's backing and the birth of a Suzuki Shoten rayon maker

Teijin's founding business goes back to the Yonezawa Artificial Silk Works (米沢人造絹糸所), a branch plant that Azuma Kogyo (東工業) set up in Yonezawa in 1915; its artificial-silk department was separated out in 1918 and became the oldest chemical-fibre company in Japan. Kaneko Naokichi (金子直吉), known as the chief manager of the trading house Suzuki Shoten, supported the technical development work of Hata Itsuzo (秦逸三), a lecturer at Yonezawa Higher Technical School who was researching artificial silk, and of Hisamura Seita (久村清太), a researcher in leather, and in 1918 established Teikoku Jinzo Kenshi (帝国人造絹糸, Imperial Rayon) in Yonezawa, Yamagata Prefecture, with capital of ¥5 million. The division of labour was set from the outset: Kaneko took charge of raising the money and of the overall design of the business, while Hata and Hisamura handled the development of the manufacturing technology for artificial silk. Measured against the technology of the day, the Yonezawa plant at the founding was no more than an experimental production site, and the building of a proper mass-production system had to wait for the later Iwakuni works. As Oya Shinzo (大屋晋三), later president, recalled — artificial silk was extremely promising (Diamond, April 1953) — the Teijin of its founding years set out as a late entrant standing at the entrance to a growing market.

In February 1926 a new plant was raised in Hiroshima, and in January 1927 the Iwakuni works began operating, shifting the company onto a mass-production footing and carrying it from the experimental stage at Yonezawa into commercial production. That same year, however, the Showa financial panic struck and Suzuki Shoten, the parent company, went under. Teijin could no longer carry on with a management constitution that depended on the group, but the rayon business itself was a growth field for which rising demand was expected on the international market of the time, and the company reconstituted its base through a change of shareholders. Looking back on Teijin in the heyday of artificial silk, Oya Shinzo later said that until 1931 Teijin's real profits exceeded those of every other artificial-silk company put together (Diamond, April 1953). After independence the company built a new plant at Mihara in 1934 and set up Dai-ni Teikoku Jinzo Kenshi (第二帝国人造絹糸, Second Imperial Rayon), closing the inefficient Yonezawa and Hiroshima works. By the end of 1937 its rayon-yarn capacity had reached a little over 141 tonnes a day, making it Japan's largest producer of rayon yarn. A structure for running the firm as an independent company, away from the backing of Suzuki Shoten, was now in place, and the ground was laid for the post-war turn into a synthetic-fibre maker.

The imbalance in plant and equipment dragged on for some time. In his 1953 recollection Oya Shinzo said of the company's production sites that alongside the efficient, up-to-date Iwakuni works we also held the old and inefficient Hiroshima works, and the Yonezawa works, which should rather be called primitive (Diamond, April 1953), speaking frankly of how several generations of equipment had stood side by side from the earliest years through the war period. The momentum of the artificial-silk boom, which had pushed an unknown latecomer into the top ranks of the industry in a short time, is recalled in the same passage as the moment when the company became very good indeed (Diamond, April 1953). The coexistence of old and new production equipment shaped the preconditions for post-war capital-spending decisions and for the conversion to synthetic fibre, and made for a starting point at which the question of what to do with the future of the founding rayon business had to be placed at the centre of management.

Oya Shinzo's turn from acetate to polyester

During the post-war rebuilding, Oya Shinzo became president and led the move into synthetic fibres. In November 1955 the Matsuyama works began Japan's first volume production of acetate fibre, but its applications on the domestic market stayed within a limited range and the market never expanded to the scale that had been expected. Three years after volume production began, half-year sales were still below the level management had originally hoped for, and the concentrated capital investment in acetate fibre did not translate into growth in Teijin's own revenue. This bitter experience in the early phase of diversifying into synthetic fibres became an undercurrent in the company's technical culture that shaped Oya's decision-making when the time came to enter polyester and nylon.

The period from 1947, when Oya went into politics and left the company, was one reason the turn towards synthetic fibres came late. In his 1965 book Oya described the mood inside the firm at the time: the profits made in the artificial-silk boom were not reinvested in synthetics, they were reinvested in leisure (Watashi no Keiei Rinen 私の経営理念, 1965), and he went so far as to write that in those days at Teijin they said you could not get on unless you were good at golf, so everyone from the top down threw themselves into golf (same, 1965). In his 1953 recollection he contrasted Toray's investment in nylon with Teijin's restoration of rayon, and said of his own company's judgement that Teijin, regarded as moderate and sensible, was left far behind in their dust and that this was the first cause of Teijin's decline (Diamond, April 1953). This frank acknowledgement of failure by the man in charge became the starting point of the next offensive.

In January 1957 Teijin concluded a technical tie-up with Imperial Chemical Industries (ICI) of Britain and decided to enter polyester fibre. Within a framework of joint introduction by the industry together with Toray, it began selling under the trade name Tetoron, and polyester, with its excellent dyeability and durability, formed a new domestic market suited mainly to clothing applications. Oya himself later spoke with pride of the choice: I argued for putting polyester fibre first, and decided it. It was truly the solemn, decisive moment of a decision that is the grave responsibility of a manager (Watashi no Keiei Rinen 私の経営理念, 1965), placing it as a choice made in conscious awareness of the divergence from Toyobo and Mitsubishi Rayon, which in the same period leaned towards acrylic fibre. In 1962 the company also entered nylon through a technical tie-up with Allied Chemical of the United States, and the building of a three-field synthetic-fibre structure went forward. In 1971 it took the decision to withdraw from rayon production, its mainstay business since the founding, abandoning its original trade and completing its redefinition as a synthetic-fibre maker.

The Future Business Division and the trial and error of diversifying beyond fibre

In 1968 Teijin set up the Future Business Division (未来事業本部), a new-business organisation with a high degree of independence, and embarked on an organisational reform for which there were few precedents at the time. It was a design put forward top-down by Oya Shinzo, and it involved gathering around 100 specialists from outside the company as mid-career hires and committing them to a dedicated organisation on the front line of new-business development. In a 1963 interview Oya had spoken openly of a plan to diversify away from fibre: even if we take up something we have never handled at all, the possibility is emerging that we can succeed in a surprisingly short time, and anything at all — within the range where our technology and experience are versatile, we mean to take up whatever is profitable and gives good return on capital (成功の秘訣, The Secret of Success, 1963). In 1969 he said that unless there is a basic attitude of challenging the possibilities of the future in an aggressive way, future business cannot come into being (Keizaijin, May 1969), urging the building of an organisational culture that would take on risk.

Management, however, never defined the specific fields the new businesses were to address or the criteria for withdrawing from them, and through the establishment of subsidiaries and joint ventures with foreign companies more than fifty business areas were opened up — information services, education, energy development, fine chemicals and others. The Future Business Division, launched amid the futures boom that peaked with the 1970 Osaka Expo, was hit by the storms of the dollar shock and the oil shock in the first half of the 1970s and was forced into withdrawal or retrenchment in several of its areas. There was little technical relationship between the various businesses, and the result was that management resources were dispersed inside the company; in pharmaceuticals, though, a degree of continuity and technical accumulation was achieved, and the field of candidates to remain as a pillar outside fibre was narrowed down.

In 1978, as a production-adjustment measure in the fibre business, the company closed the Nagoya plant entirely and pushed through a management decision to cut some 2,650 jobs. The scale amounted to roughly a quarter of its employees, and the sorting and selection of the future businesses proceeded in parallel with the structural contraction of fibre. Industry observers in 1976 held that although the fields it had put its hand to were varied — information services, education, energy development, food-resource development, transport-related industries, fine chemicals — no conspicuous results had come out, and that breaking away from a single leg of Tetoron looked like being pushed back (Shukan Toyo Keizai, 4 September 1976). In the end this became the starting point of a process by which pharmaceuticals was narrowed down as the priority field for the future, and it became the axis supporting the later reshaping of Teijin's business structure. It was the period in which the selection criterion Oya had stated publicly — whatever gives good return on capital (成功の秘訣, 1963) — began, ten years on, to take concrete shape as a portfolio of businesses.

Establishing pharmaceuticals, and the making of Feburic

In February 1980, after long years of research and development, Teijin launched a new drug, Venilon, and roughly a decade of sustained R&D investment finally bore fruit in sales. In an interview that year management said that as a concrete business, for the next five years we shall have to work with medicine and pharmaceuticals at the centre. It is about ten years since we started research in pharmaceuticals, and we have poured an enormous sum into it as research and development spending, adding that so we cannot do this and that as well (Nikkei Business, 20 October 1980), stating plainly inside and outside the company that the policy was shifting from the diversification of the Future Business Division to a concentration on pharmaceuticals. In 1985 a structure for increased output of Tetoron film was put in place at the Utsunomiya works, and in 1989 full-scale pharmaceutical production began at Iwakuni.

A 1982 press report conveyed in concrete figures how far management resources were being tilted towards pharmaceuticals. More than a third of the technical graduates recruited were assigned to the pharmaceutical division, and research and development spending reached the order of $12M (¥3bn) a year. It was an extraordinary allocation of people relative to the weight of the division in sales, and Venilon, a treatment for severe infectious disease, grew rapidly to monthly sales of $6M (¥2bn) on a drug-price basis within less than two years of going on sale (Nikkei Sangyo Shimbun, 11 January 1982). Since in 1976 pharmaceuticals had consisted of four products at the test stage — vitamin preparations, haemostatics and the like — with losses accumulating (Shukan Toyo Keizai, 4 September 1976), this was a reversal achieved in a mere five or six years. The management judgement that placed pharmaceuticals strategically, as an adjacent field to which the organic-synthesis technology cultivated in fibre could be applied directly, prepared the later growth of the drug business.

In 1991 the company succeeded in the chemical synthesis of febuxostat, a treatment for hyperuricaemia, and after long clinical trials launched it on the domestic market in May 2011 as Feburic tablets. A uric-acid-lowering effect surpassing that of existing drugs was confirmed in clinical practice, and it became a landmark medicine, obtaining manufacturing and marketing approval with hyperuricaemia itself as the indication, beyond the conventional framework of gout treatment. Annual sales reached about $476.3M (¥38bn) at their peak, establishing it as the largest product in Teijin's pharmaceuticals business. It was a long pharmaceutical project that took some twenty years from the start of basic research to launch, and a product of the culture of patient technical investment cultivated in the fibre business.

The aramid acquisition and the concentration on high-performance materials

In April 1999 Teijin introduced an advisory board, putting in place a distinctive mechanism under which outside figures including John Krol, the former chairman of DuPont, gave their views on the president's performance assessment and on medium- and long-term management policy. In June of the same year it took a capital stake in Toho Rayon by acquiring shares from Nisshinbo, a strategic piece of M&A that secured production capacity and related technology in carbon fibre. In 2001 Toho Rayon was renamed Toho Tenax, making explicit inside and outside the company the policy of placing the carbon-fibre business at the core of group management. It was a period in which two important management reforms — the introduction of an advanced corporate-governance mechanism, and the elevation of carbon fibre to the core — began to move in parallel.

In October 2000 the company decided to buy the para-aramid fibre business Twaron from Acordis of the Netherlands. It was a management judgement to acquire high-performance-fibre capacity and an existing customer base through M&A rather than by expanding its own plant, and it marked the point at which Teijin came to stand, in name and in substance, among the top one or two in the world aramid market. Sales grew in applications such as optical fibre and automotive safety components, and high-performance fibre was established as a priority business within Teijin. The direction — a structural break from the general-purpose fibre business of the past and a concentration on high-performance materials — became clear here, and it formed the managerial foundation for the later full-scale expansion into automotive components.

Buying and integrating automotive composites, and the problem of returns

In January 2017 Teijin decided to acquire the American automotive-parts maker CSP (Continental Structural Plastics) for about $757.8M (¥85bn). It was a deal driven by the strategic aim of acquiring volume-production capacity for structural components using glass-fibre composites, together with sales channels to the North American carmakers, and of extending a customer relationship that had until then stopped at the supply of materials up to the level of the finished part. Management at the time explained CSP's competitiveness by saying that with light parts that could be mass-produced by injection moulding and sold cheaply, the business could compete for ten or twenty years, and set out a further vision of a full-turnkey approach, supplying an entire vehicle production system, as the ultimate form — a conception that took in everything from materials supply to contract manufacturing of finished vehicles.

In 2018 a succession of European makers of automotive interior materials, beginning with the German Brink group, were also acquired, and in 2021 the whole run of global acquisitions was consolidated into Teijin Automotive Technologies in the United States as a way of unifying their management. After this series of cross-border acquisitions, however, structural problems came to the surface, centred on the American sites: falling plant productivity and difficulty in securing local labour. Continued additional investment was needed in equipment renewal and in improving existing processes, and a hard operating environment that squeezed overall earnings persisted. The company had also gone through the reverse of falling into a net loss in the year ended March 2015, and a review of the entire business portfolio remains the top management priority, still unresolved.

Feburic's patent cliff and the rebuilding of pharmaceuticals

It had been settled well in advance that Feburic tablets, the largest product in Teijin's pharmaceuticals business, would come off patent in 2022, and the loss of revenue from the mass entry of generics weighed heavily on management as an unavoidable problem. Lacking a strong new-drug pipeline of its own, in April 2021 the company acquired from Takeda Pharmaceutical the domestic marketing rights to four diabetes drugs — Nesina, Liovel, Inisync and Zafatek — at a capital outlay of about $1.2B (¥133bn). It was the largest deployment of invested capital in the history of Teijin's pharmaceuticals business, and a strategic decision to sustain the earning continuity of that business.

After the acquisition of the marketing rights, the company went on securing stable annual sales in the range of $225.9M (¥25bn) to $250.5M (¥28bn), offsetting almost entirely, on a sales basis, the revenue lost to Feburic's patent expiry. The four products acquired, however, are all in the mature phase of the pharmaceutical life cycle, and the structure has a future contraction of the diabetes-drug market as a whole built into it over the medium and long term. This was investment that buys time through the acquisition of marketing rights rather than essential growth from the company's own drug discovery, and the fundamental management question — how to secure a growth engine for pharmaceuticals over the medium and long term — remains as an issue still demanding a solution.