Toray
Corporate History & Strategy

In the 1920s in Japan, chemical fibers undergoing industrialization attracted interest as an investment destination for corporate profits accumulated during World War I. Rayon production was expanding in the West as a substitute for natural fibers, and its industrialization was being considered in Japan as well. Mitsui & Co. selected the chemical fiber business as the use for profits gained during the war and advanced plans for the venture that would later become Toyo Rayon. While the textile industry was susceptible to economic fluctuations, demand for industrial yarn was expected to be stable.

In the domestic chemical fiber market, Teijin had already established rayon mass production, and Mitsui & Co.'s entry was as a latecomer. With the first mover holding advantages in both technology and distribution, there were reportedly debates within the Mitsui Group about the decision to enter. On the other hand, the rayon market was in an expansion phase, and demand exceeded what multiple companies could supply. Being a latecomer itself was not the risk; rather, the time required for technology introduction and mass production system development was recognized as the risk.

In 1925, a special office was established within Mitsui & Co. to advance technology research and equipment planning for the chemical fiber business. Preparations were made not merely as an investment project but on the premise of continuous business operations, and Toyo Rayon was positioned within the Mitsui Group as the entity responsible for chemical fibers. Additionally, because labor disputes could affect management in the textile industry, the decision was made at this stage not to use the 'Mitsui' name in the company name.

In January 1926, Toyo Rayon Co., Ltd. was established with capital of 10 million yen, and the chemical fiber rayon manufacturing business was officially launched as a subsidiary of Mitsui & Co. In April of the same year, construction of the Shiga Plant in Otsu, Shiga Prefecture began. In rayon manufacturing, water quality used in the process directly affects product quality, so Mitsui & Co. conducted water quality surveys at over 20 locations in Japan and determined that the Lake Biwa water system's quality was suitable for the 'double delivery method' technology being introduced.

Regarding securing engineers, rather than poaching from existing companies, a policy was adopted of hiring young graduates fresh from university and having them acquire skills under foreign engineers. Technology study trips to Europe were conducted in 1925, and priority was given to developing personnel who understood the process internally rather than rushing short-term production launch. Being a late entrant, the judgment behind this was to secure long-term competitiveness through in-house technology accumulation.

This human resource development policy required time before production could begin, but led to building a system that did not depend on external parties for manufacturing process know-how. Rayon spinning is a precise process requiring management of temperature, humidity, and solution concentration, and the presence of engineers with on-site judgment capabilities was essential for quality stability. The fact that not only equipment introduction but also personnel to operate the processes were developed simultaneously was a distinguishing feature of Toyo Rayon's founding period.

At 11:40 PM on August 15, 1927, the first thread was spun from the spinning equipment at the Shiga Plant, and the trial was successful. Foreign engineers and Japanese technicians stood before the spinning machine, and the thread from the first spindle was of good quality. This success was the result of equipment and personnel preparations proceeding as planned, and meant that Toyo Rayon's rayon business had entered the practical stage.

Following the successful trial, mass production preparations proceeded, and in January 1928, full-scale production began with 40 spinning machines in operation. The rayon produced was shipped mainly through Mitsui & Co.'s distribution channels, and sales challenges were absorbed to a certain extent by the parent company's distribution network. In June 1929, the Shiga Plant was completed, and the production capacity envisioned during planning was established.

Subsequently, equipment expansion and operation adjustments were made in line with increasing demand, and by 1931, the company accounted for approximately 20% of domestic rayon production. Despite entering as a latecomer, by steadily advancing process stabilization and supply volume expansion, the company established the top domestic mass production system by the 1930s. Equipment investment backed by Mitsui & Co.'s capital strength combined with the policy of developing engineers in-house, and the rayon business became established as Toyo Rayon's foundation.

Toray had been aware of DuPont's nylon development since as early as 1927 before the war and had been advancing its own basic research on nylon. However, the technology gap with the U.S. widened due to wartime research interruptions, and catching up through independent development was constrained in terms of both time and funding. During the postwar technology revival period, synthetic fibers attracted attention as the next-generation core material, and acquiring nylon technology was recognized as essential to establishing a business pillar following rayon.

In 1951, nylon was barely established in Japan, and whether it would be commercially viable for apparel applications was unclear. While many textile manufacturers were skeptical about nylon's future, Toray's decision to introduce nylon was perceived as exceptional even within the industry. It was precisely because the company had a stable earnings base from its existing rayon business that investment in uncertain synthetic fibers was possible.

Meanwhile, stable supply of the raw material caprolactam was also a challenge. In 1949, a partnership was formed with Toa Gosei, and plans to establish a supply system for caprolactam by constructing a new plant in Nagoya proceeded in parallel. By simultaneously preparing technology introduction, capital investment, and raw material procurement, the intent was demonstrated to launch nylon not merely as a research topic but as a business premised on mass production.

In June 1951, Toray signed a nylon technology licensing agreement with DuPont of the United States. As consideration for the agreement, an upfront royalty payment of 3 million dollars was required, equivalent to 1.08 billion yen at the exchange rate of the time. Toray's paid-in capital at the time was 750 million yen, making this an investment that significantly exceeded its capital. If the technology introduction did not proceed as planned, it could have had serious financial implications.

The agreement was limited to the acquisition of patent licensing rights for nylon manufacturing and did not include the provision of manufacturing know-how. Establishing manufacturing technology had to be advanced by Toray itself, and acquiring the patent did not directly mean acquiring mass production capability. Nevertheless, Toray judged that securing the patent was a prerequisite for future mass production and chose to proceed with the agreement. Chairman Shigeki Tashiro proposed installment payment negotiations and worked to reduce the financial burden while finalizing the contract.

Additionally, as a production base for nylon mass production, the former Mitsubishi Heavy Industries Oe Plant was acquired in May 1950, and construction of the Nagoya Plant proceeded. Rather than co-locating with existing rayon plants, a new plant dedicated to synthetic fibers was established, adopting a policy of establishing equipment and processes specialized for nylon manufacturing at an early stage. The decision to repurpose buildings that had been used for aircraft production during wartime was a choice prioritizing launch speed.

In April 1951, the Nagoya Plant's No. 1 Factory began operations, and nylon production started. In October of the same year, the No. 2 Factory also began operations, and the mass production system was established in stages. Having acquired only the patent without receiving know-how, the production ramp-up process required much trial and error in quality stabilization and process management, but the policy of establishing technology in-house led to long-term technology accumulation.

The start of nylon mass production brought significant changes to Toray's business structure. It became the starting point for transforming from a rayon-only entity into a synthetic fiber manufacturer, and the technological foundation was formed that would support subsequent expansion into polyester and carbon fiber. The investment decision exceeding paid-in capital resulted in securing first-mover advantage in the synthetic fiber field, becoming the catalyst for establishing Toray's competitive position in the domestic synthetic fiber market.

Meanwhile, this investment decision was supported by strong risk-taking by the management team at the time. Rather than having conviction in nylon's future, the underlying driver was the sense of crisis that failing to secure synthetic fiber technology would mean losing future competitiveness. The judgment to proceed simultaneously with technology licensing, capital investment, and raw material procurement was inherited as the prototype of Toray's management approach of 'not stopping technology' in subsequent business developments.

From the late 1960s to 1970, Japan's textile industry faced structural earnings deterioration. In addition to exchange rate movements toward yen appreciation, Asian countries such as South Korea and Taiwan expanded textile production capacity, intensifying price competition primarily in apparel applications. For synthetic fiber manufacturers, diversification to seek new growth opportunities in non-fiber fields became a common management challenge.

For Toray as well, the high degree of dependence on the textile business was a management issue. While possessing the largest domestic production capacity in nylon and polyester, constraints were becoming apparent in both volume growth and profitability due to market maturation and price declines. Business diversification was being considered as an option, but whether the company could be competitive in non-fiber fields was an unknown.

Under these circumstances, resins and films emerged as promising candidates for diversification. Both fields shared commonalities with polymer synthesis, molding, and mass production technologies accumulated through synthetic fibers, and while end products and applications differed, they were domains where the existing technology base could be applied. By deploying technology into industrial materials fields with different demand structures from textiles, a policy to expand the business portfolio was indicated.

In January 1970, as part of its diversification, Toray executed capital investment in the resin and film fields, constructing multiple production sites. The Chiba Plant for ABS resin mass production, the Tokai Plant for PP film, and the Gifu Plant for PE film were all new-build facilities, constructed not as additions to existing plants but as dedicated lines for each application.

At the time, the resin and film markets were expected to grow primarily in packaging, industrial, and electrical/electronics applications. Packaging film was seeing increased usage accompanying the expansion of food and daily goods distribution, and ABS resin was gaining adoption as a material for home appliances and automotive parts. All these applications anticipated volume-based expansion, and preemptive securing of production capacity was competitively important.

The investment decision prioritized developing supply systems for future demand increases over short-term profitability. By repurposing polymer technologies cultivated in textiles into resins and films, development costs were suppressed while production facilities were preemptively secured. Having mass production capability in non-fiber fields was a first step in transforming Toray's business structure.

By the 1980s, the resin and film fields had grown with volume expansion. In the film field, PET, OPP, and PE increased usage in packaging applications, and demand for home and commercial videotape film expanded rapidly. In magnetic tape applications, the company reached a level accounting for approximately half of the domestic market in the late 1980s, becoming a factor driving overall film business production volume.

In the plastics field, adoption progressed for home appliances and automotive parts centered on ABS resin, with usage increasing alongside trends toward product miniaturization and weight reduction. By the late 1980s, the film business alone reached annual sales of approximately 100 billion yen, and the plastics field centered on resins and films expanded to account for approximately 23% of Toray's total sales around 1990.

The sales composition, which had been textile-only, changed through the growth of the resin and film businesses. The 1970 capital investment that served as the starting point for diversification took over 10 years to establish business scale, adding depth to Toray's earnings structure. On the other hand, magnetic tape applications saw rapid demand decline from the 1990s onward due to the progress of digitalization, later revealing that volume-based investment premised on market growth did not guarantee long-term profitability.

In the late 1960s, carbon fiber remained at the research and prototype stage, and its evaluation as an industrial material was not established. While the characteristics of being lightweight and high-strength were confirmed, the high manufacturing cost and limited applications left the outlook for mass production and commercialization uncertain. Around 1970, carbon fiber was used only in sports equipment and some industrial applications, and application to aircraft was at the stage of being discussed as a future possibility.

During this period, Toray positioned carbon fiber not merely as an advanced material but as a business candidate on the extension of polymer technology. The precursor fiber technology and firing process technology cultivated through acrylic fiber were continuous with carbon fiber manufacturing, and the technological accumulation as a fiber manufacturer could be directly utilized. As a material derived from fibers, it was judged that there was room to develop the market over time.

Meanwhile, few companies committed to commercializing carbon fiber. Mass production technology was not established, market scale was unpredictable, and an investment decision tolerating long-term losses was required. While many chemical manufacturers withdrew at the research stage, Toray continued R&D and advanced consideration of capital investment toward mass production. Whether carbon fiber was viewed as an extension of the textile business or evaluated independently as a new business would lead to different investment conclusions.

In August 1971, Toray began selling carbon fiber 'Torayca.' The main applications at launch were in the sports and leisure field, centered on limited applications such as fishing rods and golf shafts. Production volume was small and manufacturing costs were high, resulting in low profitability and continued operating losses.

At this stage, Toray did not choose to withdraw and continued investing in equipment improvement and quality stabilization while carrying losses. Carbon fiber was a material requiring time for application development, and particularly for the promising future application of aircraft, long-term certification and quality evaluation were necessary. Early profit recovery was not expected, but improving the material's completeness was itself positioned as an investment for the future.

The decision to continue operating at a loss was difficult to justify by management standards emphasizing short-term profitability. However, at Toray, the policy of continuing research with a long time horizon without immediately evaluating technology development by business results was shared among management. The investment in carbon fiber was consistent with past experiences of investing ahead in technology introduction for nylon and polyester, and the corporate culture of 'leading with technology' in uncertain markets supported the decision.

Throughout the 1970s, carbon fiber applications gradually expanded, centered on the sports and leisure field. Around 1980, sports applications accounted for more than half by volume, but the share of industrial and aircraft applications was gradually increasing. The aircraft field in particular was limited in volume but had high added value and was positioned as a future growth area.

With the expansion of applications, carbon fiber's positioning changed from an experimental material to an industrial material. Toray advanced quality stability and supply system development, working to build practical relationships with aircraft manufacturers. This accumulation formed the foundation for Boeing supply spanning B767 in 1982, B777 in 1990, and B787 in 2006.

The launch of Torayca was limited as a short-term business achievement, but it became the starting point for the carbon fiber business spanning the subsequent decades. By continuing the business while tolerating losses in the 1970s, mass production technology and quality management know-how accumulated, forming the technological foundation capable of meeting the demands of aircraft applications where reliability is required. The fact that approximately 40 years were needed for the carbon fiber business to reach a commercially viable level illustrates the time gap between technological accumulation and business viability.

In the 1970s, Japan's textile industry faced multiple structural headwinds. The yen appreciation following the 1971 Nixon Shock deteriorated export profitability, and the rise of textile manufacturers in South Korea, Taiwan, and China reduced price competitiveness. Mass-production textile businesses were becoming difficult to maintain profitably under advanced-country cost structures, and major domestic textile manufacturers were becoming aware of business structure transformation as a management challenge.

In practice, Kanebo adopted 'Pentagon Management' promoting expansion into non-fiber fields such as cosmetics, and Nisshinbo expanded investment into industrial applications such as brake pads. Moving away from textiles was accepted as a natural choice based on the management rationality of the time, and 'de-fiber' became an industry-wide trend. It was an era when remaining in the textile business was instead viewed as a management risk.

Under these circumstances, Toray President Tsuguhide Fujiyoshi clearly rejected the de-fiber strategy in December 1975. The recognition was presented that fibers are essential materials supporting clothing, food, and shelter, and that the source of competitiveness lies not in the business field itself but in the depth of technology. Rather than leaving fibers due to short-term earnings deterioration, a management policy was put forward to secure competitive advantage by continuing to refine technology.

At the same time, President Fujiyoshi also presented his own views on diversification. Technology generated during the fiber R&D process should be actively deployed in non-fiber fields, but rather than leaving fibers to shift to different fields, business expansion deriving from the fiber technology base was the correct direction. The judgment was to reject de-fiber while affirming diversification on the extension of fibers.

Under the policy of 'remaining in fibers,' Toray concentrated R&D resources in the fiber field. On that extension, efforts toward not commodity fibers but high-value-added materials deepened, accelerating focus on advanced materials including carbon fiber. While industry peers who chose de-fiber were relinquishing their fiber technology accumulation, Toray chose the path of differentiation by maintaining and deepening its fiber technology base.

The stance of 'remaining in fibers' expressed in the 1970s did not, in result, narrow the business domain. Diversification proceeding from fiber technology as the starting point into resins, films, and carbon fiber progressed, and remaining in fibers conversely enabled the transformation into an advanced materials manufacturer. The decision to reject de-fiber was not clinging to fibers but a choice that believed in the applicability of fiber technology, as demonstrated by subsequent business developments.

In the early 1980s, improving fuel efficiency through airframe weight reduction had become a major design challenge in the aviation industry. Carbon fiber reinforced plastics, with their high specific strength, began to be considered as candidates for structural materials to replace conventional aluminum alloys. Material manufacturers were required to deliver not only performance but also stable supply and quality management, as well as compliance with certification standards and inspection systems specific to aircraft applications.

Boeing unveiled the new twin-engine B767 in 1981, indicating a policy to adopt composite materials for part of the fuselage structure. In material selection, supply capability and process management track records were also evaluation criteria in addition to performance. While aircraft applications were limited in volume, they premised long-term involvement from the design stage, and for material manufacturers, building continuous business relationships was more important than short-term sales.

At this point, carbon fiber had track records in research and sports applications, but there was no precedent for its adoption as a structural material for commercial passenger aircraft. Meeting aircraft-specific requirements such as long-term durability and quality uniformity across manufacturing lots required accumulating actual aircraft usage experience. While market scale was difficult to foresee, entering the aircraft field held strategic significance for expanding carbon fiber applications.

In April 1982, Boeing designated Toray, Toho Rayon, and U.S.-based Union Carbide as the three carbon fiber material manufacturers for the B767. Toray began supplying carbon fiber as structural material for aircraft and advanced compliance with quality standards and inspection systems specific to aircraft applications. The adopted areas were limited to parts of the fuselage structure, but accumulation of quality data through actual aircraft use began.

Based on the B767 supply track record, Toray continued technical coordination with Boeing. Practical experience accumulated across aircraft models, including responding to design changes and optimizing manufacturing conditions. While limited in volume, the process of building trust with the aircraft manufacturer advanced during this period. In 1985, internal personnel reallocation was conducted, strengthening response capability for the carbon fiber business.

In April 1990, Toray won the order for carbon fiber components for Boeing's next-generation large aircraft B777. The B777 adopted composite materials for major structural components including the tail, and the volume of carbon fiber used increased dramatically compared to the B767. For the order, a 10-year supply contract of approximately 80 billion yen was presented, and the carbon fiber business moved from limited applications to a mass-production supply business.

Through the B777 adoption, carbon fiber became continuously used as a major structural material for commercial passenger aircraft. The expansion of adopted areas was evaluated as the result of accumulated supply track records and process compliance since the B767, in addition to material characteristics. Involvement from the design stage, quality management systems, and stable supply track records became entry barriers that were difficult for other material manufacturers to replicate in a short period.

The number of companies capable of supplying carbon fiber was limited due to manufacturing process complexity, and in aircraft applications, the difficulty of new entry was further heightened by the long periods required for certification and evaluation. Toray established its position as an aircraft carbon fiber manufacturer by continuing supply across models from B767 to B777. In 1992, the U.S. subsidiary TCA was established, and from 1994, local production for Boeing began.

On the other hand, the demand structure for aircraft carbon fiber was an oligopolistic market concentrated between Boeing and Airbus, with demand trends dependent on next-generation aircraft development plans. For Toray, a structure was forming where the primary customer was concentrated on Boeing, and while the 10-year 80 billion yen order represented a stable supply opportunity, the business structure simultaneously contained the risk of dependence on a specific customer.

Carbon fiber had been under R&D since the 1960s, but commercialization as a business was long unrealized. Due to the complexity of manufacturing processes, stringent quality standards required for aircraft applications, and limited market scale, many chemical manufacturers withdrew during development, and few companies maintained mass production technology. Toray continued carbon fiber R&D and supply system development for approximately 40 years while tolerating losses, building up supply track records across models from B767 to B777.

In the B767, carbon fiber was adopted for parts of the fuselage structure, and in the B777, for major structural components including the tail, with the scope of use expanding in stages. Through supply for each model, quality management systems, certification compliance, and design-stage coordination experience accumulated, and a continuous business relationship spanning aircraft models was formed between Toray and Boeing.

Entering the 2000s, Boeing was considering full-scale adoption of composite materials for the airframe structure of its next passenger aircraft. The plan was to adopt carbon fiber across the entire airframe including the main wing and fuselage, which had previously been limited to parts of the structure, to improve fuel efficiency by approximately 20%. Material suppliers were required to provide even greater supply scale and long-term stable supply than before, and past track records were directly linked to selection in this situation.

In April 2006, it was announced that Toray's carbon fiber would be fully adopted as the primary structural material for the Boeing 787. The 787 used composite materials across wide sections of the airframe including the fuselage and main wing, with the composite material ratio of airframe weight reaching approximately 50%. Compared to conventional aircraft, the volume of carbon fiber used increased dramatically, and the scale of material supply reached a qualitatively different level.

For the 787 material procurement, Boeing chose not competitive procurement from multiple companies but a long-term exclusive supply contract with Toray. The contract period was 16 years, with total order value said to be approximately 1 trillion yen. Because carbon fiber has long manufacturing processes and requires strict traceability and quality reproducibility, concentrated procurement from a company with long-term supply track records was judged rational.

This contract fundamentally changed the earnings structure of Toray's carbon fiber business. At the stage of sports applications and limited aircraft adoption, carbon fiber had been a high-value-added but small-scale business. With the full adoption for the 787, business scale expanded in both volume and value, and the conditions were established for viability as a continuous supply business for mass-produced passenger aircraft.

With the start of supply for the 787, carbon fiber became established as a major structural material for commercial passenger aircraft. The volume per airframe far exceeded conventional aircraft, with continuous supply linked to the aircraft's production rate becoming the premise. Toray developed a production system through its U.S. subsidiary, building a supply network close to Boeing's manufacturing facilities.

With the established position in aircraft applications, the carbon fiber business came to occupy an important position in Toray's earnings structure. The structure where materials are incorporated from the design stage meant that once adopted, continuous transactions throughout the aircraft model's production period could be expected, while the risk of business fortunes being directly linked to the primary customer's development and production plans was also entailed.

In practice, carbon fiber demand fluctuated due to customer-side circumstances including 787 production delays and the subsequent grounding of the Boeing 737 MAX. In 2020, Toray's U.S. subsidiary implemented a 25% workforce reduction due to the slump in Boeing-related sales. The aircraft business established through 40 years of losses simultaneously carried the structural challenge of high dependence on a specific customer, and the need for application diversification emerged as a management issue.

In the 2010s, Toray's carbon fiber business had established its position in high-value-added fields centered on aircraft applications. However, the structure where the majority of demand was concentrated on Boeing-related orders carried the risk of business fortunes being influenced by the customer's production plans. As expanding into applications beyond aircraft was recognized as a management challenge, industrial applications such as wind power generation and automotive attracted attention as growth fields.

In industrial applications, while the same high quality as aircraft applications was not required, price competitiveness and large-volume supply capability were demanded. This was a different market segment from the high-performance carbon fiber Toray had traditionally handled, and large-tow, low-cost carbon fiber was suitable. Toray itself did not have a mass production system in the large-tow segment, and entering this market required responses in both technology and equipment.

In February 2014, Toray acquired U.S.-based Zoltek Companies. The acquisition expenditure was 91.3 billion yen, with 23.2 billion yen recorded as goodwill. Zoltek was a company specializing in large-tow carbon fiber primarily for wind turbine blades, possessing distribution channels and mass production technology in industrial applications. Toray aimed to enter the large-volume supply market for industrial applications in addition to high-performance carbon fiber for aircraft.

However, contrary to Toray's intentions, demand for wind power did not expand as expected. Through the 2020s, carbon fiber demand for wind power installations remained sluggish, and Zoltek's business trended below plan. In the fiscal year ending March 2024, Toray decided on full impairment of approximately 13.9 billion yen of Zoltek-related goodwill. The approximately 100 billion yen acquisition resulted in the strategic intent of expanding into industrial applications diverging from market reality.

Entering the 2010s, carbon fiber applications had expanded beyond the aircraft field into industrial and mobility applications. With increasing applications requiring light weight and durability, situations arose where supplying carbon fiber alone could not fully meet customer requirements. The ability to propose solutions including resin design and intermediate materials was growing in importance as a competitive condition required of material manufacturers.

Particularly in Western markets, the approach of coordinating material specifications from the design stage had become established in aerospace, defense, and industrial equipment fields. Carbon fiber manufacturers were expected to provide not just fiber supply but material solutions including resin formulations and molding conditions tailored to applications. Companies with such capability were limited, and incorporating intermediate material technology in-house was seen as providing competitive advantage.

Toray held an overwhelming position as the world's largest carbon fiber supplier in precursor fiber supply, but its in-house technology accumulation in intermediate and molding materials was not necessarily sufficient. As applications expanded, the challenge emerged of building a system to provide not just carbon fiber as raw material but composite materials optimized for applications.

In July 2018, Toray decided to acquire TenCate Advanced Composites Holding B.V. of the Netherlands. The acquisition cost was approximately 117.1 billion yen, with 65.7 billion yen recorded as goodwill. The company developed carbon fiber composite materials using thermoplastic resins and high-heat-resistant thermosetting resins, with supply track records in industrial applications in addition to aerospace.

Through this acquisition, Toray incorporated a product lineup including intermediate and molding materials in addition to carbon fiber supply. Response to different design requirements for each application and material supply at stages closer to customers' development processes became possible. Following Zoltek, this second acquisition in the 100 billion yen range demonstrated the intent to extend the carbon fiber business beyond raw material supply into a composite materials business.

Behind the acquisition was also a response to the structure where aircraft carbon fiber supply was concentrated on Boeing. TenCate had a broad customer base including Airbus, and from the perspective of customer diversification, the acquisition had significance. The acquisition embodied multiple aims: mitigating customer concentration risk in the aircraft field while capturing growth opportunities in industrial and mobility applications.

After the acquisition, Toray advanced supply through TenCate's product lineup to industrial equipment and mobility fields in addition to aerospace. The application composition of carbon fiber gradually diversified from aircraft-biased, with the industrial application ratio increasing. TenCate's thermoplastic resin technology, with characteristics of high molding freedom and shortened processing time, was expected to have affinity with mobility fields requiring mass producibility.

However, with the TenCate acquisition following Zoltek, approximately 200 billion yen of invested capital had accumulated in Toray's carbon fiber-related business. While the business domain was expanded through acquisitions, whether this could generate earnings commensurate with invested capital depended on recovery of aircraft demand and market expansion in industrial applications.

The sharp decline in Boeing-related sales in 2020 was a manifestation of customer concentration risk that emerged before acquisition-driven application diversification was complete. While the system to handle precursor fiber, intermediate materials, and molding materials consistently was established for the overall carbon fiber business, investment recovery and profitability improvement remained continuing challenges. Following Zoltek's impairment, whether the overall carbon fiber-related business's ROIC could exceed the cost of capital became a management focal point.

Entering the 2020s, Toray faced the structural challenge that profitability was not improving relative to sales scale. When ROIC was calculated by business, the reality that some businesses prioritizing volume maintenance and equipment utilization rates were dragging down capital efficiency became visible. As PBR consistently remained below 1x, the board of directors attributed low PBR not to growth potential but to profitability, and a policy was shared to re-examine the relationship between invested capital and profits on a business-unit basis.

What this analysis revealed was a group of businesses that had maintained market share but where profitability had declined due to limits on price pass-through and fixed cost burdens. In parts of fibers, films, and resins, past decisions prioritizing equipment maintenance and volume assurance were hindering capital efficiency improvement. The transition to management with ROIC as the overarching concept was made explicit, and the need for a cross-company framework to address low-profitability businesses was recognized.

In 2024, Toray launched the structural reform initiative 'D-Project.' Targets were businesses where invested capital was large and room for profitability improvement was limited, such as PP spunbond, Western films, polyester staple fiber, and Zoltek. D-Project was designed not as an initiative to uniformly divest low-profitability businesses but as a process to decompose the relationship between invested capital, fixed costs, volume, and price for each business and verify the conditions under which ROIC would be viable.

In individual businesses, the Western film operations proceeded with stopping commodity product lines and shifting to value-added products, while Zoltek implemented switching to production systems aligned with utilization rates. Rather than first deciding between withdrawal and continuation, the sequence adopted was that contraction or withdrawal was selected as a result of verifying whether profits commensurate with invested capital could be generated. The difference from conventional medium-term plans was that the objective was maximizing profits from existing invested capital rather than growth investment.

With the introduction of D-Project, Toray now possesses a framework for evaluating growth investment and structural reform under the same ROIC criteria. Previously, growth investment was prioritized and low-profitability business reviews were gradual and partial, but under D-Project, a decision to proceed with contraction or withdrawal for businesses that do not meet profitability conditions is institutionally embedded. The function of numerically relativizing past decisions that had premised scale maintenance is what is expected of D-Project.

On the other hand, the effectiveness of D-Project depends on how thoroughly decisions are made for individual businesses. Toray's business portfolio includes businesses with deep technological accumulation and many internal advocates, and whether withdrawal decisions can be mechanically made based solely on ROIC figures is organizationally uncharted. There may still be distance between the structural reform framework being established and actual rationalization of unprofitable businesses proceeding.