Nippon Paint
Corporate History & Strategy

In the early Meiji era, Jujiro Motegi, who was studying chemistry at Kaisei School (now the University of Tokyo), became interested in paint manufacturing technologies widely used in Europe and the United States. He learned paint manufacturing techniques from German chemist Wagner and, after developing zinc oxide paint, succeeded in commercializing Japan's first Western-style paint. In October 1881, he founded the cooperative 'Komei-sha' (now Nippon Paint) in Mita Shikoku-cho, Shiba-ku, Tokyo, and began manufacturing and selling domestically produced paints.

At the time of Komei-sha's founding, the Imperial Japanese Navy was its sole customer, and the entire output was delivered to the Navy. The Navy sought domestic production of ship coatings, and Komei-sha's achievement as the first to commercialize Western-style paints in Japan led to orders from a national industry promotion perspective. The factory was located in Tokyo because the Navy's only base at the time was in Yokosuka.

Nippon Paint was the first-mover in domestic paint production and was recognized as the industry's pioneer. The first competitor emerged five years after Komei-sha's founding in 1886, when Osaka Abe Paint Manufacturing (now Dai Nippon Toryo) was established in Osaka. Throughout the Meiji era, paint demand was almost entirely limited to naval vessel applications, which simultaneously caused both the delay in competitor entry and the constraint on market size.

While Nippon Paint established its position as the pioneer of domestic paints, it struggled for an extended period to develop a customer base beyond the Navy. The civilian paint market did not begin to expand significantly until the Taisho era with increasing construction demand, and for approximately 40 years from its founding, the company maintained a business structure heavily dependent on the Navy. The situation of a first-mover founding in an immature market and having to wait for market growth illustrates the coexistence of technological first-mover advantage and commercial constraints.

Throughout the Meiji era, the Navy expanded its fleet anchorages, establishing new bases centered on western Japan including Sasebo and Kure in addition to the existing Yokosuka base. As Navy paint sales extended to western Japan, operating from Tokyo alone became a constraint on business expansion. The need for geographic expansion of production and sales elevated the need for enhanced fundraising capabilities as a management priority.

Accordingly, in March 1898, Nippon Paint Manufacturing Co., Ltd. was established, and through the issuance of shares, capital was broadly solicited from investors to fund the construction of new large-scale factories in both Tokyo and Osaka. At the time of establishment, 150 individuals subscribed as shareholders, completing the transition to a corporate structure separating ownership from management. Hatsutaro Tasaka was appointed president, though establishing a stable management structure required several subsequent changes in leadership.

Simultaneously with incorporation, the site for a new Tokyo factory was determined in Minami-Shinagawa, where the former Shinagawa Glass Manufacturing site was acquired and the Tokyo factory was built. As of 2024, this Tokyo factory continues to operate as Nippon Paint's Tokyo office, having been in use for 126 years. In western Japan, the Osaka factory was established in 1905, with Oyodo along the Shin-Yodo River selected for its superior water transportation access.

The establishment of the Tokyo-Osaka two-base structure enabled Nippon Paint to develop a production and supply system capable of serving the Navy's nationwide bases. As of 2024, the Osaka factory functions as Nippon Paint's Osaka headquarters, meaning that the factory locations selected in the Meiji era have determined the company's present-day headquarters location. The fundraising capability gained through incorporation shaped the fundamental spatial structure of Nippon Paint's Tokyo-Osaka dual bases.

The factories established in Shinagawa and Oyodo continued to function as Nippon Paint's core bases through subsequent business expansion and organizational transformations. The factory locations selected in the Meiji era to correspond to the geographic distribution of Navy bases have remained business bases for over 120 years, including the postwar period when the Navy as a customer had ceased to exist. This demonstrates the dynamics whereby early-stage real estate acquisitions define a company's spatial structure over the long term.

The separation of ownership and management at the time of incorporation also laid the groundwork that later enabled the participation of Obata Genzaburo in management. By opening a path for non-founding-family external talent to participate in management through share acquisition, Nippon Paint developed a corporate character that departed early from founding-family control.

Buoyed by the economic boom during World War I (through 1919), Nippon Paint aggressively expanded capital expenditures, establishing branch factories across Japan. However, the end of the war in 1919 caused a sharp decline in paint demand including military orders, and the production capacity expanded during the boom became excessive. The burden of capital expenditure compressed earnings, and Nippon Paint fell into the most severe management crisis since its founding.

To rebuild management, Genzaburo Obata, who had served as head of the Osaka branch, was appointed Senior Managing Director (effectively the top executive). The core of the restructuring plan involved relocating the business center from Tokyo to Osaka, divesting unprofitable businesses (zinc smelting, pigments, etc.), and closing branch factories scattered across the country. Obata assumed full management authority as the person tasked with cleaning up the aftermath of the expansion strategy.

Concurrently with the management turnaround, Genzaburo Obata personally acquired Nippon Paint shares, becoming the largest shareholder (4% ownership) as of the end of April 1926. Obata remained involved in Nippon Paint's management through 1958, and in 1965 his eldest son Chiaki Obata became president, serving as top executive until his retirement as chairman in 1980. As a result, the Obata family-led management structure continued for approximately 60 years from 1917 to 1980.

However, the Obata family's shareholding remained consistently limited, and this was not a control structure backed by ownership. The position of largest shareholder with a 4% holding was premised on dispersed ownership with no other significant major shareholders. This structurally fragile management control with a weak capital foundation was precisely what created the conditions that enabled Wuthelam to gradually acquire management control through share purchases from the 2000s onward.

From the 1950s through the 1960s, domestic automobile production surged, and the automotive coatings market experienced rapid growth. Nippon Paint and Kansai Paint emerged as the two major coatings manufacturers that ramped up automotive paint supply, while Dai Nippon Toryo, previously part of the industry's top three, was slow to respond to the automotive segment. As a result, a duopoly of Kansai Paint and Nippon Paint was formed in automotive coatings.

The growth of automotive coatings became a turning point that rewrote the competitive landscape of the coatings industry. In a paint market that had begun with naval applications and expanded into architectural uses, automotive coatings introduced new quality and supply requirements. Only companies that possessed both the technical capability to meet automakers' stringent quality standards and the supply infrastructure for mass production were able to enter the segment, and the industry hierarchy was redefined.

Nippon Paint decided to build dedicated automotive coatings factories near automakers' main production plants. In 1967, the Hiroshima factory was established to serve Mazda (Ujina Plant), and in the same year the Aichi factory (Takahama, Aichi Prefecture) was built to establish a supply system for Toyota Motor. The selection of locations adjacent to customer factories reflected the requirement for proximity in automotive coatings due to quality control and delivery speed demands.

Meanwhile, competitor Kansai Paint similarly established factories in Nagoya and the Kanto region, expanding its business with Toyota, Nissan, and Honda. While Nippon Paint focused on western Japan and Nagoya, Kansai Paint also secured production bases in the Kanto region. As a result, dual sourcing became the norm in automotive coatings, and despite the oligopolistic market structure, price competition constrained profitability.

The duopoly between Nippon Paint and Kansai Paint in automotive coatings provided stable positioning within the industry. However, as long as automakers intentionally maintained a dual-sourcing system, pricing power remained limited, and despite the oligopolistic market structure, seller-side profitability was constrained. The dynamic whereby buyer bargaining power offset oligopoly profits formed a ceiling on growth in the domestic coatings market.

This structural constraint on domestic profitability became one of the factors that later drove Nippon Paint's increasing reliance on the NIPSEA business. To escape the domestic structure of sharing profits with a competitor, the company had to either expand the market itself or enter a domain where the competitor did not exist. The Asian joint venture strategy can be positioned as a structural response to this constraint.

Nippon Paint had built a production and sales network in Southeast Asia before the war, but lost all overseas assets with Japan's defeat in 1945. In 1962, Chiaki Obata (then Senior Managing Director) of Nippon Paint traveled to Singapore to plan the re-expansion of sales in Southeast Asia. However, given Southeast Asia's colonial history under European powers, Western coatings manufacturers held established market shares, leaving limited room for Nippon Paint as a latecomer.

Furthermore, the Singapore government's announcement of a 20% tariff on imported paints and a policy of approving only one joint venture coatings company created a time constraint on decision-making. Nippon Paint was compelled to secure a joint venture partner ahead of Western companies, and gained contact with Goh Cheng Liang, who was working at Thai conglomerate Charoen Pokphand.

Between 1962 and 1963, Nippon Paint established joint venture companies with Charoen Pokphand, marking its re-entry into Southeast Asia. The ownership structure was set at 30% for Nippon Paint, 60% for the local partner, and 10% for a Japanese trading company, with Nippon Paint responsible for technical and production guidance and the local partner handling sales. When Goh Cheng Liang subsequently departed Charoen Pokphand to found Wuthelam, the joint venture partnership was transferred to Wuthelam.

Under Goh Cheng Liang's management, the NIPSEA business (Nippon Paint South East Asia) expanded rapidly, entering Malaysia, Thailand, Indonesia, Hong Kong, and the Philippines in succession from the 1960s through the 1970s. Nippon Paint's minority stake structure entrenched a division of roles whereby local management was entrusted to Goh while Nippon Paint participated through technology licensing.

Nippon Paint's minority stake structure was maintained for over half a century until the consolidation of the NIPSEA business was achieved in 2014. Because equity stakes remained at 25–50%, even as the NIPSEA business grew rapidly across Asia, the majority of profits were not reflected in Nippon Paint's consolidated financial statements. While royalty income was received as compensation for technology licensing, the structure of being unable to fully capture the fruits of growth was entrenched over an extended period.

On the other hand, the very fact that Goh Cheng Liang and Wuthelam led the management of the NIPSEA business was what made market development across Asian countries possible. It remains uncertain whether Nippon Paint could have achieved equivalent growth had it held management control, and the discretion given to the local operator in exchange for the constraints of minority ownership supported the rapid growth of the NIPSEA business.

As of 1982, Goh Cheng Liang, founder of Wuthelam and manager of NIPSEA, foresaw the maturation of the paint business in Southeast Asia, which had been developed since the 1960s. With NIPSEA already holding high market shares across Southeast Asian countries, growth potential in existing markets was becoming limited. While Goh pursued diversification into hospitals and department stores at the group level, in the coatings business he sought to develop new growth markets.

Goh focused on the Chinese market because he judged that entry into Western markets would be difficult given the established competition there. Although China's market economy had not yet been introduced in 1982, Goh anticipated future marketization and positioned China as the next primary market. The judgment to recognize China's growth potential before the introduction of market economics laid the groundwork for NIPSEA's full-scale entry into China in the early 1990s.

Based on Goh's foresight, the NIPSEA Group began its full-scale entry into China in the early 1990s. As China's economic growth and urbanization progressed, demand for architectural coatings expanded explosively, and NIPSEA's China operations achieved rapid growth. The Chinese market grew into the largest pillar of sales and profit within the NIPSEA business, becoming positioned at the core of the group's global operations.

Goh's focus on the Chinese market was a structural decision by an operator who felt constraints in both Western and Southeast Asian markets and selected the largest remaining untapped market through a process of elimination. The strategy of selecting markets where competition was not yet established and entering early had been consistent since the Singapore entry in 1962, and the China expansion was a natural extension of this approach. NIPSEA's growth was attributable to foresight, but it was also the outcome of a consistent market selection strategy centered on competitor avoidance.

Throughout the 2010s, global consolidation progressed in the coatings industry. The financial crisis slowed growth in automotive coatings in advanced economies, prompting major coatings companies to aggressively pursue acquisitions to focus on architectural coatings in emerging markets. Global majors including Akzo Nobel of the Netherlands and PPG Industries and Sherwin-Williams of the United States executed successive large-scale acquisitions, accelerating industry concentration.

Nippon Paint had fallen behind in acquiring overseas companies during this global consolidation, with its share of the global coatings market remaining at approximately 4%. While the company had a foundation in Asian markets through the NIPSEA business, the joint venture structure constrained profit capture, leaving the company at a disadvantage in the global scale competition.

Amid an accelerating industry consolidation, in March 2013 Wuthelam—the Asian joint venture partner and major Nippon Paint shareholder (14.5% ownership)—submitted an acquisition proposal. Wuthelam sought to acquire a 45% stake in Nippon Paint, with the acquisition price estimated at approximately 72 billion yen.

Accepting the acquisition proposal would effectively mean Nippon Paint becoming a Wuthelam affiliate, losing its substantive management independence. Nippon Paint's management initially resisted this proposal, and in 2013 decided to reject the acquisition offer. However, approximately one year later, Nippon Paint reversed course and decided to accept an increase in Wuthelam's ownership stake.

This decision was effectively led by Kenji Sakai (then Chairman), and it became a turning point that anticipated Wuthelam's future management involvement. The recognition that standalone growth had its limits amid global consolidation is presumed to have been behind the decision to concede on independence.

In June 2014, Nippon Paint executed a third-party allotment to Wuthelam, raising 102.3 billion yen, and Wuthelam's ownership reached 39%. Nippon Paint became an affiliate of Wuthelam while maintaining its listing on the Tokyo Stock Exchange.

Wuthelam decided to appoint two directors to Nippon Paint to strengthen its management involvement, but the existing management team was kept in place. The phased approach of starting with board representation rather than immediately seizing control is presumed to reflect consideration for the over-50-year relationship as joint venture partners.

However, this seemingly moderate involvement was the starting point for a series of developments: the establishment of a five-member independent outside director system in 2018, the transition to a 'Company with Three Committees' governance structure in 2020, and the third-party allotment in 2021 that raised Wuthelam's stake to 58.7%.

The 2014 capital increase is positioned as the first turning point in Wuthelam's gradual acquisition of management control over Nippon Paint. Having transformed from a capital partner to a management controller after a 50-year joint venture relationship, Wuthelam's entry marked a definitive inflection point in Nippon Paint's management history.

In December 2014, Nippon Paint concluded a 'strategic alliance' with Wuthelam and decided to consolidate eight joint venture companies from its Asian operations dating back to 1962. The eight companies operated in China, Malaysia, and Singapore, and were all non-consolidated affiliates in which Nippon Paint held 25–50% equity stakes. While the NIPSEA business had achieved rapid growth under the minority ownership structure over half a century, the majority of profits had not been reflected in Nippon Paint's consolidated financial statements.

Nippon Paint consolidated the eight companies by increasing its ownership ratios to 51%. The fact that the consolidation of Asian operations was decided merely six months after the third-party allotment to Wuthelam (June 2014) suggests that the capital increase to deepen the relationship with Wuthelam and the capture of Asian operations were designed as an integrated plan.

For the consolidation of the eight joint venture companies, Nippon Paint recorded an acquisition cost of 296.5 billion yen. As the enterprise value of the joint ventures had increased substantially since the minority stakes were first taken in the 1960s, a gain of 148.8 billion yen on step acquisitions was recorded as extraordinary income. Goodwill of 190.4 billion yen was also recognized in connection with the acquisitions.

This accounting treatment demonstrates how unrealized gains accumulated during the half-century minority ownership period were crystallized in a single instance through the capital restructuring of consolidation. The growth of the NIPSEA business that had not been reflected in Nippon Paint's consolidated results was surfaced as a step acquisition gain triggered by the consolidation.

From the fiscal year ending March 2016, Nippon Paint began recording revenue from its Asian operations. Regionally, the contribution from China was particularly significant, and Nippon Paint's consolidated revenue posted substantial increases following the consolidation. As domestic coatings market maturation progressed, the Asian business centered on China became clearly positioned as the growth engine of the group.

The shift from royalty income as the primary revenue source from Asian operations to direct recognition of consolidated revenue and profit meant that Nippon Paint's financial structure transformed from a domestically centered coatings manufacturer to a company with Asian operations as its earnings pillar.

In 2017, global consolidation in the coatings industry reached full scale. Because paints are inherently difficult to differentiate as products, the strategy of reducing competitors through industry consolidation to strengthen pricing power was common across companies. Large-scale consolidation centered on Western markets was frequent, including Akzo Nobel of the Netherlands proposing to acquire Axalta Coating Systems of the United States.

While Nippon Paint had established its growth foundation through the consolidation of Asian operations, its presence in the U.S. market remained minimal. The United States was the world's largest coatings market, and building a business base there was an unavoidable challenge for a globally oriented Nippon Paint. Although the company had established a U.S. subsidiary in 1975, results were poor, and it renewed its pursuit of entry through acquisition.

Nippon Paint proposed an acquisition of Dunn-Edwards Corporation, headquartered in the United States. Dunn-Edwards, founded in 1925, was a long-established paint manufacturer whose strength lay in its distribution channels for architectural coatings in the U.S. market. Nippon Paint acquired Dunn-Edwards for approximately 68.7 billion yen, securing a foothold in the U.S. market.

However, post-acquisition revenue from the Americas operations stagnated. While the NIPSEA business had achieved high growth through early entry into markets where competition was not yet established, the U.S. was a mature market where major coatings manufacturers held entrenched market shares. In its second attempt at U.S. market entry following the 1975 subsidiary establishment, Nippon Paint was again unable to achieve a growth trajectory, highlighting the high barriers to entry in markets with established competition.

Nippon Paint's management proposed an acquisition of Axalta Coating Systems, a major U.S. coatings manufacturer, to counter Akzo Nobel and strengthen its global coatings business. The acquisition price was estimated at approximately one trillion yen, making it the largest acquisition in Nippon Paint's history. Behind the management's proposal was the recognition that securing scale was becoming a competitive survival requirement amid accelerating global consolidation.

This acquisition proposal is also presumed to have contained a defensive intent: by loading substantial interest-bearing debt onto Nippon Paint's balance sheet, a full acquisition of Nippon Paint by Wuthelam would be made more difficult. The dual objectives of accelerating global expansion and securing management independence from Wuthelam were reflected in the scale of the approximately one-trillion-yen acquisition proposal.

The Nippon Paint board, which included directors from the Wuthelam side such as the Goh family, vetoed management's approximately one-trillion-yen acquisition proposal. The stated reason was that the large-scale acquisition would increase interest-bearing debt and deteriorate Nippon Paint's financial position. However, the substantive reason for the opposition is presumed to have been to prevent debt accumulation from worsening the conditions for Wuthelam's eventual full acquisition of Nippon Paint.

The rejection of the Axalta acquisition was an event that made visible the fact that Nippon Paint's management decision-making was already under Wuthelam's influence. Since Wuthelam appointed directors following the 2014 capital increase, a structure had formed in which Wuthelam's interests took priority in major investment decisions, and management's freedom to independently execute large-scale acquisitions was effectively constrained.