Oji Holdings - Company History

The founding of Shoshi Kaisha, and the switch of pulp raw material

In February 1873 Shibusawa Eiichi (渋沢栄一) and his associates founded Shoshi Kaisha 抄紙会社 with capital of ¥150,000[1]. The site for the mill was fixed at Oji village in Tokyo, and the building was completed in June 1875[2]. The following year, 1876, the company renamed itself Seishi Kaisha[3]. The domestic market at the time was held down by cheap imported Western paper: the government notes of the early Meiji years were printed on German paper, and the gold-note exchange certificates on American[4]. Japan, which did not yet hold tariff autonomy, had no way of shutting imports out with high duties[5], and the only course open was to import the technology of Western papermaking and compete with it directly. Shoshi Kaisha ran up losses of more than ¥40,000 between its founding and 1875, and what carried it through was the flow of orders from the Paper Money Bureau for land-deed and revenue-stamp paper[6].

Papermaking in Europe and America ran on rags[7], and the supply of them had reached its limit while prices climbed sharply. The technique developed to break the deadlock — blending in barley straw — was brought home by Okawa Heizaburo (大川平三郎), who was sent to the United States in 1879[8]. Shibusawa Eiichi recalled in later years that it had never occurred to him at the time that straw could be turned into paper[9]. A complete set of straw digesters was finished in February 1883, and in October 1886 the company resolved to build a new mill at Kita, in Keta village 気多村大字気田, on the upper reaches of the Tenryu river[10]. Japan’s first wood-pulp mill was completed in February 1890[11], and in November 1893 the company took the name Oji Paper.

Mitsui’s seizure of control[12] came with conflict inside the company. When the 1893 plant expansion led Oji to consult Mitsui about a capital increase[13], Nakamigawa Hikojiro (中上川彦次郎) took the opening to shift the real power Shibusawa Eiichi held over to Mitsui, and Fujiyama Raita (藤山雷太), sent in from Mitsui, clashed bitterly with the managing director Okawa Heizaburo[14]. In 1898, when Okawa — until then a managing director alongside Fujiyama — was demoted to ordinary director, engineers who opposed the move stirred up the workforce and more than 150 men went on strike[15]. The dispute was settled by the resignation of both Shibusawa Eiichi and Okawa Heizaburo[16], and Mitsui’s plan succeeded. Fujiwara Ginjiro (藤原銀次郎), who became head-office manager that September, handled the settlement[17], and Oji passed into the Mitsui group.

The Tomakomai gamble and self-sufficiency in newsprint

Mitsui’s capital did not turn the results around[18]. Masuda Takashi (益田孝), one of the Mitsui chiefs, complained that he had had quite enough of the paper business[19], and Fujiyama Raita, who had replaced Okawa Heizaburo as managing director, resigned in 1902. Under his successor Suzuki Umeshiro (鈴木梅四郎)[20] the slump continued, and the company wrote its capital down from ¥2 million to ¥500,000[21]. What changed the situation was the Russo-Japanese War: newspaper and magazine publishing swelled, and demand rose to a point where it was said that publishing had never known such a shortage of paper[22]. Imports of Western paper, flat since 1901, returned to twice their earlier level, and existing paper companies expanded their mills while new firms were founded one after another[23].

Suzuki Umeshiro settled on building a new newsprint-reel mill in Hokkaido and kept working on Mitsui until they agreed[24]. Oji had bought forest land along the Tenryu river in the 1880s and built the Kita and Chubu mills there, but repeated floods had piled up losses[25], and the move to Hokkaido was also a way out of that. Preparations began around 1904; Tomakomai was chosen as the site best suited to developing hydroelectric power and to cutting raw timber, the building site was fixed in 1906, and capital was raised at a stroke to ¥6 million[26]. Construction proved so difficult that gravel scattered along the shore was gathered up for the concrete, and the original budget of ¥4 million swelled to roughly twice that[27]. The shortfall was covered by borrowing from Mitsui Bank, and the Tomakomai mill was completed in September 1910[28]. The 142-inch-wide paper machine installed there was reckoned the largest and most modern even in America[29], and with the Ebetsu and Tomakomai mills both running, the Japanese paper industry became self-sufficient in newsprint[30].

Securing Karafuto’s forests, and output curbs as a standing condition

In 1911 Fujiwara Ginjiro returned as managing director[31]. The paper industry pushed north into southern Karafuto, which had become Japanese territory through the Russo-Japanese War; Mitsui built a pulp-stock mill at Otomari in 1913, but pulp production did not proceed as planned and the plant was merged into Oji Paper almost as soon as it opened, coming under Fujiwara’s management[32]. When the governor of Karafuto offered to hand over timber free of charge, Fujiwara replied that nothing is so expensive as what is given away, and signed instead a twenty-year contract at 5 sen per shakujime, a Japanese unit of timber volume[33]. Holding long and cheap concessions, Oji, Fuji Paper and Karafuto Kogyo earned profits far above the rest of the industry as prices rose amid the wartime difficulty of importing pulp during the First World War[34]. Oji Paper, which had been paying a steady 4 per cent dividend, paid out 50 per cent in the first half of 1920[35].

The wartime boom ended with the collapse of share prices at the end of March 1920[36], and the paper industry entered an age of output curbs. In December that year the Japan Paper Association took the industry’s first step into production limits, to work off stock and hold prices up, and twelve leading firms joined a compulsory 20 per cent cut[37]. The effect showed in falling inventories; the cut was reduced to 10 per cent in March 1922 and lifted altogether that December[38]. In the Great Kanto Earthquake of September 1923 the paper companies suffered comparatively light damage, and most were running again within a month[39]. The paper destroyed happened to equal exactly one month’s output, and with exports rising on the collapse of the exchange rate, sales showed an extraordinary increase[40].

Okawa Heizaburo, who had left Oji, founded Karafuto Kogyo in 1913 and in 1919 also took the presidency of Fuji Paper, setting himself against Oji[41]. Each expansion answered another — Oji added the Toyohara mill, Karafuto Kogyo put up a pulp mill at Maoka — and Karafuto Kogyo ended up with debts of more than ¥100 million from its heavy expansion and the slump that followed the return to the gold standard[42]. Early in 1930 a Canadian paper company began dumping newsprint on the large newspapers, the Asahi and Mainichi among them, at 20 per cent below the domestic price[43], and Oji, Fuji Paper and Karafuto Kogyo had no choice but to deliver at the price offered. With even the state-of-the-art Tomakomai mill running at a loss for the duration of the price war[44], Fujiwara Ginjiro concluded that the cause lay in the weakness of three separate companies, and set his mind on a merger with the Mitsui zaibatsu behind him[45].

One of the world’s great paper companies, then broken up under the Occupation

When the financial panic of 1927 left Karafuto Kogyo unable to continue, Ikeda Shigeaki (池田成彬) of Mitsui Bank and Yuki Toyotaro (結城豊太郎) of the Industrial Bank of Japan stepped in as mediators[46]. In May 1933 Oji Paper merged with Fuji Paper and Karafuto Kogyo and started afresh as one of the world’s great paper companies, with capital of ¥150 million and 24 mills[47]. Fujiwara Ginjiro became president[48]. After the merger Oji counted 34 mills and held 80 per cent of national output, and 95 per cent in newsprint[49]. A combine of sixteen directly held companies and forty affiliates[50] took shape through the merger.

Defeat cost the company a great deal. Six-tenths of Oji Paper’s assets lay outside Japan proper, and the heaviest loss was Karafuto, which had produced about 40 per cent of its pulp and whose equipment was far superior to anything at home[51]. In January 1946 Oji Paper — closely tied to the Mitsui zaibatsu and producing about half of Japan’s paper output — was placed, together with its forty affiliates, under GHQ’s Company Restriction Order[52]. Its capital at the time was ¥310 million, with 6.2 million shares and 24,459 shareholders[53]. All of its overseas assets and 23 associated companies were separated off[54], and what remained in its hands were the fifteen mills in Japan proper.

On 9 July 1947 GHQ put forward a plan to divide the fourteen domestic mills among nine companies[55], splitting them into Tomakomai, Kushiro, Jujo-Edogawa, Fuji-Iwabuchi, Nakatsu-Fushiki, Miyakojima-Yodogawa-Kumano, Kokura, Sakamoto and Yatsushiro[56]. Oji countered first with a seven-way plan to draw the talks out, then followed with a five-way plan[57]. When shifts in the international climate brought signs that the deconcentration law would be applied more leniently, the company seized the moment and brought in a three-way plan, which the authorities approved[58]. On 7 January 1949 the formal order to break Oji Paper into three companies came down[59]. Nakajima Keiji (中島慶次), the last president of the old Oji Paper, accepted the three-way split under the Occupation with a heavy heart[60].

Starting again with one mill at Tomakomai and ¥400 million of capital

In August 1949, under the Law for the Elimination of Excessive Concentration of Economic Power — the Occupation statute for breaking up dominant firms — Oji Paper was divided into three companies. This company started life as one of them, Tomakomai Paper[61], inheriting capital of $1.1M (¥400m) and a single mill. Jujo Paper took capital of ¥280 million and seven mills, Honshu Paper ¥250 million and seven mills[62], and employees’ preferences clustered on Honshu, with Tomakomai the least favoured of the three[63]. Oji Paper’s share of the paper market, 67.5 per cent at the end of the war, had fallen by 1950 — immediately after the break-up — to 37.7 per cent even counting all three successor companies together, and by 1955 to 27.7 per cent[64]. The leading maker that year, Jujo Paper, held only 11.6 per cent, and four newcomers — Daishowa Paper, Chuetsu Pulp, Takasaki Paper and Nihon Shigyo — had appeared among the top ten[65].

The special procurement demand that came with the Korean War from 1950 lifted the newly founded Tomakomai Paper[66]. Controls on designated production materials were lifted in stages from 1949, and were removed altogether with the abolition of official prices for newsprint and lower grades in May 1951[67]. Pulp and paper became the leading player in the “three whites” boom 三白景気 that followed the “textile” boom 糸へん景気, and in 1951 the seventeen listed pulp and paper companies recorded an average return on total capital of 29 per cent, about twice the manufacturing average[68]. Oji Paper and Jujo Paper each earned around $8.3M (¥3bn) that year and stood near the top of the national earnings rankings[69]. In June 1952, to match the construction of the Kasugai mill in Aichi prefecture, the company changed its name to Oji Paper Manufacturing 王子製紙工業[70], and began making fine paper and packaging paper at that mill[71].

The constraint on raw material became the next problem. With Karafuto — the storehouse of timber — gone and wartime over-cutting on top of it, post-war forest resources stood at half the pre-war figure by area and 70 per cent by volume[72]. From about 1952 timber prices pulled away from wholesale prices generally, and by 1955, against a wholesale price index of 343 times the pre-war base, timber had jumped to 510 times[73]. Oji answered from the raw-material side, setting up a forest tree-breeding laboratory in September 1956 and a central research laboratory in October 1957[74]. In July 1958 the Oji labour union went out on a 145-day strike[75], and in December 1960 the company took back the venerable name of Oji Paper[76].

Concentrated investment at Tomakomai, and the disadvantage of size

With the old name restored, Oji concentrated its newsprint investment at Tomakomai. It expanded the Kasugai mill in 1961 and moved into unglazed kraft paper for both heavy and light packaging[77], and in August 1964 installed at the new Tomakomai mill the new No.1 paper machine, at 274 inches of web width the largest in Japan[78]. The five-reel new No.3 machine was completed in April 1970, making Tomakomai the largest dedicated newsprint mill in the world[79]. Tomakomai, where large modern machines had been added repeatedly since 1939, held first place in the industry in newsprint throughout[80]. The product range widened to printing paper, writing and drawing paper, packaging paper and blueprint paper, and on the raw-material side the company held vast company forests and pursued research into forest tree breeding[81].

Even so, the gap in international scale stayed open. Against International Paper’s 1966 sales of $1.4B (¥522bn), the combined sales of the roughly twenty pulp and paper companies listed on the First Section of the Tokyo Stock Exchange came to $1.4B (¥505bn)[82]; Oji, Jujo and Honshu together did not reach half of the American company’s figure, and their net profit was less than an eighth of it[83]. A cycle had settled into the industry in which new plant created surplus capacity, and excessive competition drove product prices down, holding back stable growth[84]. For Fujiwara Ginjiro and the other elders of the old Oji, returning to the shape the company had held before the split was a long-cherished wish[85], and with capital liberalisation approaching, the disadvantage of size remained a problem common to all three successor companies[86].