Yokohama Rubber - Company History

B.F. Goodrich, brought in as a cable maker's diversification

The parent of Yokohama Rubber was Yokohama Electric Wire Manufacturing (now Furukawa Electric), which made the rubber used to sheathe electric cable[1]. That firm began in 1884 as a private business founded in Yokohama by Yamada Yoshichi (山田与七)[2]; producing paraffined telegraph wire, cotton-wound wire and lighting wire, it was Japan's first insulated-wire works[3], and it later passed under the capital of Furukawa Gomei, the supplier of its copper wire, and so into the Furukawa group[4]. In 1917 Nakagawa Suekichi (中川末吉), later president of Furukawa Electric, is said to have identified the rubber industry as a promising one and to have planned the domestic manufacture of high-grade rubber goods[5]. Japan at that time was modernising its steel, electric power and machinery industries, and demand for industrial rubber goods — belting, hose, motor tyres — was expanding rapidly, yet most of it was met by imports from abroad. The plan carried both an industrial-policy meaning, raising a new domestic producer, and a corporate strategy: diversifying the Furukawa group out from cable into the neighbouring rubber products.

As it looked for a technology partner, its aims coincided with those of B.F. Goodrich of the United States, which kept an office in Japan and intended to build a manufacturing establishment in the Orient. In October of the same year the two companies established, on equal shareholdings and with capital of ¥2.5 million[6], the joint venture Yokohama Rubber Manufacturing Co. (横濱護謨製造株式会社) at Uratakashima-cho, Yokohama, Kanagawa[7][8], with Nakajima Kumakichi (中島久萬吉) as its first chairman of the board[9]. Each side held 50 per cent, and the memorandum they exchanged is recorded as dividing the work so that Goodrich supplied the technology and the Furukawa side ran the business; from its founding, then, the company carried a two-legged structure combining foreign technical strength with domestic managerial control. Its stated objects included the import and sale of tyres and industrial goods[10], and it was given the position of a starting point for ending the Taisho-era dependence on imported high-grade rubber goods, and of the nucleus of a Furukawa-group tyre maker.

Two losses of the production base: the Great Kanto Earthquake and the war

In 1921 the company built its first factory at Hiranuma in Yokohama[11] and began full production of belting, hose, packing and cord tyres. Then, in September 1923, the Great Kanto Earthquake destroyed the Hiranuma works completely; operations were suspended[12] at the cost of 24 employees killed[13], and the head office moved to Kojimachi-ku, Tokyo (now Chiyoda-ku)[14] to wait for a chance to start again. Having lost its production base barely six years after its founding, the company went through what amounted to a period of suspension, scraping by for a time on selling goods imported from Goodrich, and the work of starting the business that it had built up before the war was set back by the earthquake. Seen from Goodrich, its joint-venture partner, rebuilding the Japanese base had likewise become a management problem.

In 1929 it rebuilt a second Yokohama plant at Heian-cho in Tsurumi-ku[15], put on track the volume production of industrial rubber goods — hose, belting, packing — and of motor tyres, and by 1931 had managed to win original-equipment tyre orders from Ford Japan and General Motors Japan. A threefold expansion followed in 1934, and the production base lost in the earthquake had broadly been recovered. In 1938 the company tied up with Toyobo to establish Toyo Tire & Rubber, taking its first step overseas[16]. After the Sino-Japanese conflict began the rubber industry was absorbed into the war economy: starting in 1942, when the army entrusted it with running an existing plant in Japanese-occupied Singapore[17], the plants it built across South-East Asia came to number 16[18].

In April 1945, however, in the last months of the war, American air raids burned out 90 per cent of the Yokohama works[19], and the five overseas plants it had spread from the continent to South-East Asia — in China, Korea, Vietnam and the Philippines — were without exception abandoned in the fighting[20], forcing on the company a second start from zero after the earthquake. The head office moved again that same month, to Minato-ku, Tokyo[21], and it was driven into a position of having to draw up a plan for post-war reconstruction. The production network that had swollen under war demand to an unprecedented size collapsed at a stroke with the surrender, in the home islands and in South-East Asia alike; even so, by March 1947 the company had managed to restore and re-equip the plants that remained, at Mie and Mishima[22], and so barely secured the first footing of its post-war rebuild.

Restarting: from burnt-out plants to a revived American technology tie-up

In the confusion after the war the company set about restarting its business on the plants that had escaped the fires, at Mie, Mishima and Ageo. The Mie plant had been built during the war, in August 1943, in Watarai-gun (now Ise)[23]; having been spared, it became the first footing of post-war production. In March 1946, immediately after the surrender, the company opened a new plant at Mishima in Shizuoka[24], giving it the role of supplementing part of the production capability of the Kanto region, and with it began rebuilding its production network for the recovery years. Giving up a return to Hiranuma in Yokohama, its pre-war home, was in effect the groundwork for the later strategy of concentrating at Hiratsuka, and can be judged a management decision that also worked as the occasion for reviewing the dispersal of the Kanto plants. It was a moment in which the experience of losing factories twice before the war became the driving force that shaped the post-war strategy for its sites.

In December 1949, as the dissolution of the zaibatsu loosened Furukawa's control, the company revived the technical tie-up with B.F. Goodrich that the war had cut off[25]. A company created to end import dependence and to carry domestic manufacture was setting out again, after war damage and the zaibatsu dissolution, still from a position of needing American technology; resuming that technical relationship with a major American maker, severed during the war, was an important moment that became the foundation of the post-war catch-up in quality. Six months later, in April 1950, its shares were listed on the first sections of both the Tokyo and Osaka stock exchanges[26], securing a route to raise money from the market during the recovery years and setting a firm financial base under its steps as an independent listed company. The listing gave it the financial backing it needed to build once more the production base the war had taken away.

Hiratsuka: 80,000 tsubo, and the command post of the post-war rebuild

After the war the company was carrying an inefficient structure of small plants scattered across the Kanto region. Management gave up rebuilding the burnt-out Yokohama works and, in August 1950, applied to GHQ for permission to use a site of 80,000 tsubo at Hiratsuka in Kanagawa[27], owned by the Ministry of Finance and administered by the US Eighth Army. Having obtained permission, it began full operation there as the Hiratsuka plant in August 1952, and by concentrating on that one site the Yokohama, Kanamachi and Fujisawa plants together with the research laboratory at Fujisawa[28], it raised an integrated works that served as the command post of a post-war rebuild breaking with the pre-war dispersal. Production equipment scattered by the war was gathered onto a single site, and the body that would support post-war efficiency and a wide product range was set down here — the moment at which the key site of its post-war production strategy took shape.

In 1957 it began making aircraft parts (fuel tanks and hose)[29], starting to turn its rubber-processing technology to neighbouring fields. In March 1960 it introduced a divisional structure, putting six divisions in place — tyres, industrial goods, synthetics, sundries, components and overseas[30] — and reached a clear turning point towards a management structure aimed at becoming an all-round rubber maker. In January 1961 the head-office building, the Hama Gomu Building, was completed, and in October of the same year the shares were also listed on the first section of the Nagoya Stock Exchange[31]. Then in October 1963 the trade name was changed from Yokohama Rubber Manufacturing (横濱護謨製造) to The Yokohama Rubber Co., Ltd. (横浜ゴム株式会社)[32], carrying into the company name itself the new brand of a post-war all-round rubber maker — a moment given the symbolic position of shedding the pre-war style.

A late mass-production investment at Shinshiro, and the lead handed to Bridgestone

The income-doubling plan of 1960 and the coming of mass motoring overlapped, and demand for motor tyres rose from the middle of the 1960s. Yokohama Rubber built a dedicated tyre plant at Shinshiro in Aichi in June 1964 to put added capacity in place[33], and in 1967 succeeded in developing Japan's first steel radial tyre for passenger cars[34], followed in 1969 by radials for trucks and buses[35]. In June 1973 it built the Ibaraki plant in Higashi-Ibaraki-gun, Ibaraki, and in October 1974 the Onomichi plant at Onomichi in Hiroshima, dedicated to tyres for construction and mining machinery[36], putting up production sites by application one after another. Technically this was a period in which it ran at the head of the industry, and in November 1969 it established a sales company in the United States, Yokohama Tire Corporation[37], laying a foothold for opening overseas markets in earnest.

On the timing of mass-production investment, however, it was overtaken by Bridgestone, the later entrant. Bridgestone had run its Tokyo plant from 1960 and had already established mass production[38], and because Shinshiro came on stream later than that, Yokohama Rubber could not recover its advantage of scale in the fight for share in the high-volume supply of passenger-car tyres. From the 1960s Bridgestone held down the leading position in domestic tyres, and Yokohama Rubber was placed in second[39] — a position in which it would spend the following half-century, and from which, paradoxically, the need for a strategy that did not compete on volume came into view. It was also a period in which the reputation of a technical front-runner and the reality of being late to mass production drifted apart.

Back-to-back losses, then ADVAN and the push into businesses other than tyres

Through the first oil crisis of 1973 and the negative GNP growth of 1974 that followed, the Japanese economy entered its period of stable growth[40]. The structure by which it could not beat the leader Bridgestone in price competition on commodity products began to appear plainly in the results, and Yokohama Rubber fell to a second consecutive net loss in the year to December 1978[41]. Caught between high raw-material costs and weak demand, the limits of a corporate constitution that made no profit however long it went on fighting on price were exposed, and in these years the ground was clearly laid for the later turn towards brand differentiation and diversification outside tyres — a moment that may be called the turning point of the company's business model. From here on, under a sense of crisis, a policy took shape of aiming at products chosen for their added value rather than chasing volume.

In that same year, 1978, the company launched ADVAN, a radial for passenger cars[42]. Ahead of the industry it set out a new concept, the high-performance tyre, in a product that aimed at a brand chosen for performance rather than price; it opened the era of high-performance tyres that followed and became the core of Yokohama Rubber's brand differentiation. In parallel it grew businesses outside tyres — conveyor belting, high-pressure hose, building sealants — and in November 1983 established the sporting-goods company Sports Complex (now PRGR) to enter golf equipment[43], adding the INTEST brand in 1988[44]. Avoiding the ground where Bridgestone led with low-cost volume, and securing profit through differentiation on performance and diversification outside tyres, settled into place as the company's business model.

Goodrich's exit, and local production in North America through the Mohawk purchase

In May 1981 B.F. Goodrich, its partner since the founding, decided to sell most of its Yokohama Rubber shares, and the joint-venture relationship of 64 years came in effect to an end. With the capital relationship wound up the company became, in name and in fact, an independent Japanese tyre maker, and was pressed to rebuild its overseas strategy by itself. Through the first half of the 1980s it established sales companies in the United States, Canada, Australia and Germany in turn, taking the step of resuming its overseas expansion by first putting a distribution network in place, with local production to follow stage by stage — the path along which it reset its post-war overseas business. It was an event that stands out even in the company's history as a turning point, shedding the identity of a Japanese-American joint venture that it had carried since its founding.

Eight years later, in April 1988, the company established a three-way joint venture in the United States, GTY Tire Company, to make tyres for trucks and buses, and production began in 1990. In October 1989 it acquired Mohawk Rubber Company of the United States in order to make passenger-car tyres, and in July 1992 Yokohama Tire Corporation absorbed Mohawk Rubber, completing the integration of sales and production in North America. Exactly ten years after Goodrich left, the company had advanced as far as holding its own production base in the country from which it had once taken its technology, completing the integration of local production and local sales of passenger-car tyres in North America — an important moment that may be called the culmination of its overseas expansion in the 1980s.

Building China end to end, and the first net loss in the Lehman shock

Starting from the establishment of Hangzhou Yokohama Tire in December 2001, the company extended its tyre production network in China at speed. In November 2005 it established a business holding company, Yokohama Rubber (China), to bind its Chinese operations into a single structure, and the following January, in 2006, it launched in quick succession a conveyor-belting joint venture in Shandong, Shandong Yokohama Rubber Industrial Products, and in April of that year a company in Suzhou making steel radial tyres for trucks and buses. Covering everything from commodity passenger-car tyres to industrial rubber goods end to end inside China was the substance of the concentrated build-out of Chinese sites in the middle of the 2000s, a move that symbolised the full start of a strategy to make China a major base.

In parallel, in January 2007, it established Yokohama India, moving to capture tyre demand in emerging markets. In August 2008 it established Yokohama Asia in Thailand and in December LLC Yokohama R.P.Z. in Russia, one after the other, and was adding local sales and procurement bases around the world. After the Lehman shock, however, the year to March 2009 brought the first net loss since the founding, $59.9M (¥6bn), under the effect of the sharp fall in world demand for cars caused by the financial crisis. The following year, in July, it established Yokohama Industrial Products Europe GmbH in Germany and Yokohama Tire Japan, formed by merging 19 domestic replacement-market distributors, seeking to recover through a reorganised sales network; but it was a moment in which the smallness of its scale was exposed under a world recession.

A long plateau: third place at home as Sumitomo Rubber rose

In the scale of its tyre business the company had held second place behind Bridgestone since the 1960s, but from the 2000s Sumitomo Rubber Industries grew and the pattern of Yokohama falling to third at home settled in. Consolidated revenue for the year to December 2016 was $5.5B (¥596bn), a gap of more than five times against the $30.3B (¥3.3tn) of the leader Bridgestone, and below Sumitomo Rubber's $7.0B (¥757bn) as well. Given the economies of scale in the tyre business, it may be said that no realistic route remained by which it could overturn the top two on the main battlefield of passenger-car and truck tyres, and management's attention was necessarily driven towards the neighbouring fields.

Its moves centred on those neighbouring fields and on adding overseas production capacity. In May 2013 it established a tyre manufacturing and sales company in Mississippi and in January 2014 another in Virginia, expanding North American capacity again, and in September of that year it acquired Parker MHP of Italy to go after world share in marine products such as marine hose. In January 2015 it also bought Kameyama Bead, a specialist in tyre bead, from Fuji Seiko, extending its reach into the neighbouring parts of the domestic supply chain. On the main line of passenger-car tyres there was little it could move, and the need to find another axis of business remained as a management problem — a long plateau that amounted to the run-up to the next round of M&A.