Fujifilm Holdings — Company History

A subsidy worth 40 per cent of capital, and the pledge left by a ¥360,000 deficit

In January 1934 Dainippon Celluloid separated the whole of its photographic film business and transferred it to a successor company, founding Fuji Photo Film with capital of ¥3 million and 340 employees. Domestic film had appeared before — Asahi Photo Industry 旭写真工業 put a Japanese-made film on sale in 1924, and Rokuoh-sha 六桜社 followed in 1929 — but in both cases the film base itself was imported. Dainippon Celluloid, which set out to make that base at home, spent some fifteen years in preparation and from 1933 pressed ahead with building a photographic film factory at Ashigara-machi in the Ashigarakami district of Kanagawa prefecture, completing it in January 1934. The new company took over this Ashigara plant entire, and for the first time in Japan an integrated production line running from film base through to finished product was in place. The site had been chosen for the soft water of the Sakawa river, fed by Mount Fuji and the Tanzawa mountains, and for the low humidity of the Ashigarakami district.

In 1936, immediately after the founding, the company stumbled on volume production, posting an accumulated deficit of ¥360,000 that put the continuation of the business in doubt. The performance of its emulsions did not catch up with the foreign product, and in the judgement of the processing laboratories the domestic film was at a level held to be hopeless. Kobayashi Setsutaro (小林節太郎), who would later become the fourth president, asked the staff inside the company where they stood: We committed ourselves to making film in Japan on the strength of an enormous subsidy amounting to 40 per cent of our capital. I have run this company believing our mission was to drive out the foreign product, and yet we have posted an accumulated deficit of ¥360,000 and the company is in a state that must be called alarming. Anyone who wishes to leave should feel free to go (私の履歴書, 1977) — setting out that he would share whatever came with those who stayed to help rebuild. In June 1938 the company built the Odawara plant, expanding a fine chemicals division for silver nitrate and dyes and a precision optical instruments division for optical glass and cameras, and separating out lines dedicated to volume production.

With the enforcement of the Photographic Sensitised Materials Manufacturing Business Act in 1939, photographic film became an item under state control supplied to the Army and Navy. In March 1944 the company acquired Enomoto Optical & Precision Machinery Works 榎本光学精機製作所, and by the end of the war it had reached a scale of some 8,000 employees. After the war it established Tennenshoku Shashin 天然色写真 in April 1946 and laid a distribution and processing network across eastern and western Japan through four principal distributors. In May 1949 it listed on the Tokyo and Osaka stock exchanges, setting out again as a publicly traded manufacturer specialising in photography.

Domestic film outshone by the imports, and liberalisation approaching

In 1951 the company completed Japan's first colour film for feature-length motion pictures, and the following year, 1952, it put the Neopan SS roll film on sale. In 1954 it completed a new film factory built on automated lines, and by the end of that year it had finished the conversion of its film base to a non-flammable one, begun in 1953. In 1956 it was awarded the Deming Prize in recognition of the excellence of its quality control. In these twenty years the specialist manufacturer that had set out under the banner of domestic production had assembled, on its own, both a product range and a system of quality control.

By October 1961 Japanese-made cameras had become widespread, but in colour film, where demand had risen sharply, a quality gap between the domestic and the imported product remained. Cheap domestic film looked inferior in its colours while the expensive imports were held to be worth the money, and both Fuji Photo Film and Konishiroku Photo Industry were in dread of the import liberalisation due the following year. Once liberalisation came, Agfa and Kodak alike were expected to cut prices, spread processing equipment across the country and turn to a full offensive. Domestic film would have its real capability tested from the moment of that liberalisation.

A copier joint venture, and colour film used as a bargaining chip

In February 1962 the company established Fuji Xerox as a joint venture with Rank Xerox of Britain, gaining in the xerographic copier a source of income outside photographic sensitised materials. A copier, once installed, brought in steady revenue in proportion to the volume of copying that followed, and until the patents expired in the 1970s it held a monopoly of the market and earned high margins. In October 1963 Fuji Photo Film built the Fujinomiya plant and moved into making its own baryta and baryta base paper for photographic printing paper; in December 1965 it set up Fuji Photo Film U.S.A. in New York State, and in June 1966 Fuji Photo Film (Europe) GmbH in Germany. In December 1972 it built the Yoshida-Minami plant and began manufacturing PS plates, the presensitised plates used in offset printing.

In December 1968 the Ministry of International Trade and Industry settled on an intention to liberalise colour film imports outright, setting out a policy of freeing motion picture film within the year and 8mm, 16mm and ordinary camera film in stages over one to one and a half years from the following fiscal year. Behind it lay a calculation at MITI: in order to put off liberalising future strategic industries such as electronic goods, colour film would be offered up as material for the negotiation. In October 1969 a rumour spread that Kodak was about to cut prices, and the domestic makers were faint-hearted — if Kodak attacks the Japanese market in earnest, we will not last a moment, like Coca-Cola or Nescafé (Yomiuri Shimbun, 14 October 1969).

By 1973 the price at the counter stood at $2 (¥500) for the domestic product against $4 (¥1,200) for the imported one. On 4 February 1977 Fuji Photo Film put the Fujicolor F-II 400, an ISO 400 ultra-high-speed 35mm colour negative film, on sale in 36-exposure rolls at a standard retail price of $4 (¥950), matching the imports on speed while holding on to its advantage on price. In approving the development, the executive committee issued an unusual instruction: unanimously, let us concentrate everything we have on developing this new product, and spend as much of the budget as you like, and put in as many people as you can gather (President, December 1977).

Catching and overtaking EK, and the ¥150bn of operating profit it piled up

In May 1980 Onishi Minoru (大西實) became president. He came from the sales side, a man who had carried the green Fujicolor banner on his rounds and posted outstanding results. Onishi rallied the company behind a slogan of plain simplicity — catch EK (Eastman Kodak), then overtake it — and by about 1987 had turned Fuji Photo Film into a business that earned $1.0B (¥150bn) in operating profit as a matter of course. It was a management of thrift, accumulating financial strength and then using that money to press steadily ahead with product development, plant construction and the building of the sales network; nothing of the company's internal affairs was ever allowed out.

In 1983 it put the FCR on sale, the world's first X-ray image diagnostic system to store radiographs digitally. Domestic production of medical X-ray film went back to 1936, two years after the founding, and it is from there that a line of business running alongside photographic sensitised materials extends. By 1985 the domestic photographic film market had Fuji Photo Film out on its own with a little over 70 per cent, Konishiroku Photo Industry with just under 20 per cent and Kodak third with a little over 10 per cent. In August 1982 the company established Fuji Photo Film B.V. in the Netherlands and in July 1988 Fuji Photo Film, Inc. in South Carolina, moving integrated production of film and printing paper overseas.

The profits it earned were not handed to shareholders but piled up inside the company, and until the late 1990s a payout ratio below 10 per cent was the settled norm. Consolidated retained earnings reached $10.5B (¥1.14tn) at the end of the year to March 1996, a scale at which a one-point rise in interest rates would add about $27.6M (¥3bn) a year in interest. Yet management efficiency was moving in the opposite direction: return on equity peaked at 19.1 per cent in 1981 and fell year by year to 5.8 per cent by the year to March 1996, so that the profit it had stored up was not being reinvested efficiently.

The clean win in the US–Japan film dispute, and the taste of success it left

The Japanese market for photographic products grew year by year from $3.2B (¥731bn) in 1980 to $9.1B (¥1.15tn) in 1992, then turned negative as maturity slowed the growth in volume and a strong yen brought in foreign film and printing paper, shrinking to $11.3B (¥1.06tn) by 1995. In May 1995 Eastman Kodak, which held 70 per cent of the market in the United States, filed a complaint with the Office of the United States Trade Representative under Section 301 of the Trade Act, alleging that Fuji Photo Film, which held 70 per cent of the market in Japan, was engaged in exclusionary trade practices through high rebates and the like. In June 1996 the USTR published the findings of its Section 301 investigation, holding the acts of the Japanese government to be unjustifiable, and at the same time brought a complaint against Japan at the World Trade Organisation.

In December 1997 the WTO dispute settlement panel produced an interim report finding no fact of obstructed access to the Japanese market, and the US–Japan film dispute was settled in Fujifilm's favour. In January 1998 a final report rejecting the American claims almost in full was conveyed to both governments; running to 476 pages, it devoted most of its length to the question of non-violation complaints. Over the same period Kodak's core film and printing paper had their export margins damaged by the strong dollar, and it announced 10,000 job cuts worldwide and $1 billion of cost reductions over two years. The complete victory in Japan left inside Fuji Photo Film what can only be called a hard-won experience of success.

Around the time of that victory, in 1997, domestic shipments of colour film reached their peak and Fuji Photo Film's operating margin topped out at the same moment. Even so the Onishi regime did not change a strategy centred on photographic film; where it turned instead was to tightening the screws internally. In April 1996, for the first time in about ten years, it revised the management grade system, lowering the age at which each grade fell due for retirement and imposing an across-the-board pay cut — but the reduction in personnel costs came to only a few hundred million yen a year, and it brought a fall in employee motivation.

Defeat with APS, and a change of president that changed no course

In 1995 Casio Computer launched the QV-10, a digital camera for the mass market. The following year, 1996, Fuji Photo Film worked with the rest of the industry to develop APS, a next-generation film easier to load than the existing one — but a great many consumers paid APS no attention at all and went to digital cameras. From 2000, the year Canon, the largest maker of APS cameras, committed to a full move to digital, the film market began to collapse at the steep rate of 30 per cent a year. Entrusting its position to APS, which was no more than a means of prolonging the life of existing film, led on to the company's later struggles in digital cameras.

Fuji Photo Film was the first manufacturer in the world to commercialise a digital camera recording images on an imaging semiconductor such as a CCD, and in the late 1990s it was contesting first or second place in world share. Yet set against film, which made extraordinary money, digital cameras were looked down on as an unprofitable business, and the share fell away before its eyes. Printing paper too was being eaten into by home inkjet printers sold on their photo printing, while the minilabs for prints at the counter cost more than $82,631 (¥10m), so that few photo shops could buy one — and in the meantime Seiko Epson and Canon were allowed to get ahead. By November 1997 a company of extraordinary profitability, still turning out more than $826.3M (¥100bn) in recurring profit a year on a parent-only basis, was already standing at a turning point.

In June 1996 Muneyuki Masayuki (宗雪雅幸) became president and Onishi Minoru moved up to chairman. In June 2000 Komori Shigetaka (古森重隆) took the presidency — a man from outside the mainstream, from the sales side of printing and recording media, who had fought his way through a fierce promotion race among the 1963 intake, a year called a bumper crop for talent. Onishi, however, stayed on as a chairman holding representative authority, and until Komori became chief executive in 2003 the course centred on photographic film did not move. Photographic film's share of sales, once close to 40 per cent, had fallen to 7.9 per cent by the year to March 2004.

VISION75, and the first 5,000 job cuts since the founding

On 20 January 2004, the day of the company's seventieth anniversary, chief executive Komori Shigetaka announced a medium-term management plan called VISION75. It rested on three pillars: growing new businesses to replace photographic film, strengthening group management so that the company could handle a diverse range of businesses, and pushing through structural reform of everything connected with photographic film. Rebuilding the domestic sales structure and reorganising production were to cut costs by about $601M (¥65bn) within three years, and the plan declared that the distribution structure which had been the source of the company's strength would be taken apart. Photographic film was earning two-thirds of the group's profit, but world demand for it had peaked in 2000, the year Komori became president, halved by 2006 and fallen below a tenth by 2010.

In October 2004 Fuji Photo Film abolished the system of four principal distributors with which it had shared its fate for some seventy years, setting up a sales subsidiary, Fujifilm Imaging, and transferring the distribution rights to it. Of the four long-established houses, headed by Asanuma & Co., founded in 1871, Omiya Shashin Yohin 近江屋写真用品, with 83 years of history, and Misuzu Sangyo 美スズ産業 were driven into liquidation. The four distributors' recurring margins had fallen below 1 per cent, and even allowing for the return of some $106.3M (¥12bn) in guarantee deposits held from the four, Fuji Photo Film's burden was put at ¥20bn to ¥30bn. Konica had abolished its own distributor system in 1997, but Fuji Photo Film, weighed down by the size of its past success and by deference to the industry, had been unable to touch the long-standing problem.

On 31 January 2006 Fuji Photo Film announced about 5,000 job cuts in its imaging business — a third of the roughly 15,000 people working in photography-related departments at home and abroad, and the first restructuring since the founding. One-off costs from shrinking production and distribution, some $1.4B (¥165bn) in total, were concentrated in that year and the next, and operating profit, which had run around $1.3B (¥150bn) a year, was halved. In October the same year the company carried out an incorporation-type split transferring all of its operations to Fujifilm Corporation and moved to a holding company, Fujifilm Holdings — and the two characters for photography disappeared from the corporate name. Fuji Xerox had become a consolidated subsidiary in March 2001 when the company acquired a further 25 per cent of its issued shares, but although it accounted for 40 per cent of consolidated sales a distance remained between the two; the move to a holding company brought them rapidly closer.

The technology inventory that produced TAC film and Astalift

From 2003 Komori began by raising a 30-strong TAC film team to the rank of a division, and went on to create six new divisions — life sciences, fine chemicals, optical devices, endoscope systems and others. All were in growth fields, and all had been branded non-mainstream in the era of photographic film. When a manager proposed adding a single TAC film line at a management meeting in 2004, Komori countered by asking would two lines not be better? and had two installations built at once, each costing a little over ¥10bn. This was investment in extra capacity at a stage when the contest between liquid crystal and plasma displays had not been decided; sales of the flat panel display materials business grew from $702.7M (¥76bn) in the year to March 2004 to $2.7B (¥219bn) in the year to March 2011.

To find growth fields to replace film, Fujifilm set about taking an inventory of the technology it held. Half the material in photographic film is collagen, the same substance that makes up the skin, and the company judged that four things built up in making film — collagen research, control by light analysis, antioxidation and its own nanotechnology — could be turned to cosmetics. It entered the cosmetics market in 2006, and the following year, 2007, launched Astalift, a skincare brand built around the antioxidant astaxanthin, refined to the nanometre scale by its emulsification and dispersion technology. Three years after VISION75 was announced, sales for the year to March 2008 were $27.6B (¥2.85tn) and operating profit $2.0B (¥207bn), both records at the time.

Redeployment into healthcare, and the settlement of the Xerox affair

In March 2008 Fujifilm acquired shares in Toyama Chemical through a tender offer, making it a consolidated subsidiary. The offer price was ¥880 a share, a premium of 39.4 per cent on the ¥631 closing price of the last trading day before the announcement. Acquired jointly with Taisho Pharmaceutical, the holding ended at 66 per cent for Fujifilm and 34 per cent for Taisho, and the total cost of the acquisition reached about $1.3B (¥130bn). T-705, an antiviral drug taken in with the pipeline, received manufacturing and marketing approval in Japan in March 2014 under the name Avigan, ahead of the rest of the world. In March 2011 Fujifilm bought MSD Biologics and Diosynth, the contract manufacturing subsidiaries of Merck of the United States, entering contract manufacturing of biopharmaceuticals, and in March 2012 it acquired SonoSite of the United States, strong in portable ultrasound diagnostic equipment.

Of consolidated sales of $22.9B (¥2.49tn) in the year to March 2016, the document business accounted for 47 per cent and was struggling as office printing demand slackened. Fujifilm put itself forward to buy Toshiba Medical Systems but, after a close contest, lost out to Canon. In April 2017 an overstatement of profit came to light at Fuji Xerox's subsidiaries in New Zealand and Australia; Fujifilm Holdings' net profit for the years to March 2011 through March 2016 had been overstated by $250.5M (¥28bn) in total. On 31 January 2018 Fujifilm Holdings made public a plan to acquire 50.1 per cent of the shares of Xerox of the United States and combine it with Fuji Xerox under its wing. Under the structure no cash would leave the group: Fuji Xerox would borrow about $6.1B (¥670bn) from financial institutions to buy back the 75 per cent of its own shares held by Fujifilm Holdings, and that money would be applied to subscribing for a third-party allotment of new Xerox shares. But Carl Icahn, the largest shareholder, and Darwin Deason, the third largest, opposed the deal as undervaluing the company; on 27 April 2018 a New York State court ordered the combination halted, and on 13 May 2018 Xerox terminated the agreement.

Fujifilm Holdings sued for breach of contract, seeking more than $1 billion in damages, and then in November 2019 bought the 25 per cent stake in Fuji Xerox and related interests for $2.3 billion, making it a wholly owned subsidiary. The restrictions Xerox had placed on sales territories fell away, and Fujifilm gained a position from which it could supply its products freely, Europe and the Americas included. On the healthcare side, in August 2019 it acquired Biogen's manufacturing subsidiary in Denmark for about $890 million, raising contract biopharmaceutical production capacity roughly threefold to 150,000 litres across four plants. Hitachi's diagnostic imaging business, which Fujifilm announced in December 2019 it would buy for about $1.7B (¥179bn), became a consolidated subsidiary in March 2021, adding large diagnostic machines such as CT and MRI to the product range. Komori Shigetaka stood down in June 2021, and the target of ¥1tn in healthcare sales for the year to March 2027, set by Goto Teiichi (後藤禎一), who became president and chief executive that same month, was reached two years early; in the year to March 2025 the medical systems business recorded sales of $4.6B (¥693bn) against group sales of $21.4B (¥3.2tn). In biopharmaceutical contract manufacturing the company has set out a plan to widen cell culture capacity roughly fivefold, to a little over 750,000 litres by the year to March 2031, and to grow sales from $1.3B (¥203bn) in the year to March 2024 to ¥700bn.