Denka - Company History

One scientist's technology, taken up by Mitsui capital

Japan's carbide industry began with a single scientist, Fujiyama Tsuneichi (藤山常一). In 1902 Fujiyama founded the Sankyozawa Carbide Works (三居沢カーバイド製造所) on the outskirts of Sendai and began the first carbide production in Japan[1]. In 1912 the same man started the Hokkai Carbide Works (北海カーバイド工場) at Tomakomai in Hokkaido, and that plant became the parent body of Denki Kagaku Kogyo[2]. Carbide manufacture that began at Sankyozawa passed through the Hokkai works at Tomakomai and led on to the founding of a company underwritten by Mitsui capital. This prehistory, which began as one individual's invention, is the starting point of the carbide chemistry Denka carries as its founding business.

The origin of Denki Kagaku Kogyo lies in the Hokkai Carbide Works, which the scientist Fujiyama Tsuneichi set up on his own account at Tomakomai in Hokkaido. Fujiyama succeeded in producing carbide in 1913 and calcium cyanamide the following year, in 1914. The money behind the venture came from twenty-one Mitsui men including Makita Tamaki (牧田環), Fujiwara Ginjiro (藤原銀次郎) and Dan Takuma (團琢磨)[3]. With senior figures of the Mitsui mainstream taking up an individual's invention directly, the first commercialisation of electrochemical industry in Japan began to move. Japan at the time depended on chemical fertiliser imported from Europe, and building domestic production was an urgent matter of state policy. The company was born at the moment three things coincided: the geography of Tomakomai, where limestone and a power source stood together; the interruption of imports brought by the First World War; and the timing of Mitsui Gomei's search for a way into the chemical industry.

When the First World War cut off calcium cyanamide imports from Europe and momentum for entering the chemical industry rose inside Mitsui Gomei, this plant happened to be standing at Tomakomai. In May 1915 the patents of Dr Fujiyama and the business of the Hokkai Carbide Works were taken over[4] and Denki Kagaku Kogyo was established with capital of ¥5 million[5]. The name came from the fact that carbide manufacture rests on a chemical reaction driven by electricity[6]. That one individual's invention was picked up by a wartime interruption of imports and by a Mitsui investment decision, and so became a company, is the origin of Denka's 110-year history. The founding capital of ¥5 million was, for the time, a symbolic commitment by the Mitsui group to a full entry into the chemical industry. From then on the company grew into a principal player in the domestic production of calcium cyanamide, against the background of this Mitsui shareholding and the state-driven demand for more fertiliser.

A founding-era siting strategy pinned to the sources of the raw materials

The raw materials of carbide are electricity, limestone and carbon materials, and because these are heavy goods the plants had to be put where the resources came out of the ground. Works were completed in 1916 at Fushun in the former Manchuria (coke) and at Omuta in Fukuoka Prefecture (coke)[7], and in 1921 at Omi (青海) in Niigata Prefecture (high-purity limestone)[8]; for Omi the company built its own hydroelectric stations at Kotakigawa (小滝川), Ohshogawa (大所川) and Umikawa No. 1 to No. 4 (海川第1〜第4) between 1921 and 1930. Holding the electricity in its own hands and standing directly on the sources of limestone and coke was a siting strategy that settled the cost structure of the electrochemical business itself. To an industrial structure that pours an enormous quantity of electricity into every tonne of carbide, the company of the founding era gave the answer of vertical integration — its own hydroelectric stations and its own high-purity limestone mine. This Omi site would later become the parent body of PVC, chloroprene and cement.

Fushun was transferred to the South Manchuria Railway in 1920, but abroad the company also took part in establishing Manchuria Electro-Chemical Industry (満州電気化学工業), Taiwan Denka (台湾電化), Shandong Denka (山東電化) and Indochina Electro-Chemical Industry (印度支那電化工業); in the prewar period the company was also an agent of state-led expansion across Asia. Defeat wiped out almost all of the overseas assets, and the Oyodogawa power station (大淀川発電所), into which the company had been compelled to invest during the war, was not returned afterwards, so part of the asset base built up in the founding era was lost to the war. The network of businesses spread across Manchuria, Taiwan, north China and French Indochina, and some of the company's own hydroelectric stations, never came back, and the postwar company restarted around Omi and Omuta at home. The experience of losing at a stroke the overseas network it had built as a state-policy enterprise before the war casts a shadow over the way it later designed its overseas expansion.

The high postwar dividend that funded diversification

The emergency programme for increasing chemical fertiliser production, drawn up to break the postwar food shortage, and the removal of sales controls in 1950, reactivated the calcium cyanamide market. In the second half of 1951 and the first half of 1952 the company paid a dividend of 40 per cent, the first such rate since its founding[9], and its share price reached a high of ¥520 and a low of ¥438 in 1952[10], extraordinary figures for the time. What was accumulated then became the means to widen the range of the next business. A company that had produced only calcium cyanamide in its founding years had recovered enough earning power to pay 40 per cent twice in succession, and with it the strength to start moving on the next investment. The founding business of calcium cyanamide earned, for a time, on the tailwind of the state policy of increasing food production during the postwar recovery, and that earning became the means to fund the diversification of the next era.

Following the five-year plan for expanding the organic synthetic chemical industry drawn up in 1948, the company decided to commercialise polyvinyl chloride resin and vinyl acetate monomer, and began PVC production at its Shibukawa plant in 1951. In 1953 it established Denka Cement (電化セメント) to supply cement made at the Omi works to the Hokuriku region, and the departure from standing on carbide alone began. Demand during the postwar recovery and the reserves built by the 40 per cent dividend pushed the shift from a fertiliser company to a chemical company. The carbide chain built at Omi branched into calcium cyanamide, PVC and cement, and the prototype of diversification was fixed in the first half of the 1950s. A co-product business structure that pours a single intermediate into several end products would define the logic of Denka's diversification from then on.