Niterra (NGK Spark Plug) - Company History

Spun out of NGK Insulators, and rebuilt after 2,000 dismissals

Research into spark plugs had begun in 1921 at the sister company NGK Insulators (日本碍子, today 日本ガイシ), fifteen years before the company itself existed[1]. Taking that work with it, in October 1936 Nippon Tokushu Togyo (日本特殊陶業) was incorporated with capital of ¥1 million, inheriting three manufacturing divisions from NGK Insulators: spark plugs, filters and acid-resistant mortar[2][3]. Founded in Nagoya, Aichi Prefecture[4], it applied ceramic sintering technology and set out, as its stated purpose, to localise production of the spark plugs for cars and aircraft that Japan still had to import. In June 1943 it returned the filter and acid-resistant mortar divisions to NGK Insulators and concentrated on spark plugs alone[5]. Through the war it made spark plugs for aircraft to meet military demand[6], and by March 1945 employed 2,887 people[7]. Defeat wiped that demand out: in November 1945 the company dismissed 2,000 employees[8] and shrank its operations, and only ten years after its founding its survival itself was the question. The postwar recovery, built on converting from military to civilian demand, starts from that contraction.

As the postwar recovery took hold and the motor industry was rebuilt, demand for spark plugs turned upward again[9]. In 1949 the company listed on the Tokyo and Nagoya stock exchanges[10], giving it access to the capital market for the equipment renewal and reconstruction it needed, and formally beginning its life as an independent listed company. In 1956 its executives visited the major American plug makers and saw for themselves how much more productive the overseas plants were[11]. That visit set off a serious programme of production improvement: rationalisation of the manufacturing process along American mass-production lines[12], better quality, and more sophisticated inspection[13], introduced in sequence. Raising quality and productivity together, as the axis on which it would differentiate itself from domestic rivals, was the patient work that laid the company's foundations.

A 70% domestic share and the high-margin replacement market

In 1959 the company began local production of spark plugs in Brazil, its first move overseas[14]. The investment answered the Brazilian government's policy of localising the motor industry, and stands out as an unusually early case of a Japanese parts maker committing to production abroad[15]. Plugs built by the local subsidiary, Brasil Tokushu Togyo (ブラジル特殊陶業), were fitted to cars assembled locally by General Motors, Willys-Overland, Simca and Volkswagen[16], proof of the quality of a product built to an international standard. In March 1962 the Komaki plant was built to raise plug output as passenger cars spread through Japan[17]. By 1966 the company held 70% of Japanese spark-plug production by volume[18], pulling clear of Denso — which had a technical tie-up with Bosch — and taking command of the domestic market[19]. A 70% share fed straight through into pricing power, not only on original equipment but in the replacement market, and became the core of an earnings base that would hold for decades.

Alongside that share, it was the profitability of the replacement market that carried the business. Replacement plugs are a consumable, changed as a matter of course at the statutory vehicle inspection and at service intervals, and structurally carry a higher margin than plugs sold for new-car fitment[20]. In June 1966 the company set up NGK U.S.A. (米国NGK) in Los Angeles[21][22] and began selling replacement plugs abroad, taking the replacement-market model it had built at home overseas. A spark plug that sold for $1 (¥190) in 1958 was repriced upward in 1970 with the new NGK Super, and the product moved up the value scale step by step. With pricing power in both original equipment and replacement, a business model that earned steadily became fixed in the structure of the company. Bido Shinichi (尾堂真一) would later set a long-term target of a 60% world share, putting the global extension of this replacement-led model at the centre of management.

By 1968 spark-plug output had reached 2.6 million units a month at the head-office plant and 2.9 million at Komaki — 5.5 million a month in total — and more than 70% of the domestic market[23]. The quality was recognised abroad as well, and exports to the United States and more than eighty other countries roughly doubled year after year[24]. In parallel, NTK New Ceramics — industrial ceramics that had grown out of research into spark-plug insulators — went into full production in 1949[25], supplying special ceramic materials with high electrical insulation, wear resistance and heat resistance to the electronics, machinery, chemical and textile industries. Annual sales stood at around $19.4M (¥7bn), and the company ran debt-free, with no borrowings at all[26]: mass production and exports grew on top of a conservative balance sheet.

Entering ceramic IC packages

In October 1967, as integrated circuits began to spread through electronics, Nippon Tokushu Togyo began manufacturing and selling ceramic IC packages. Ceramic was emerging as the material for the packages that house an IC chip, and by turning the sintering technology it had built up in spark plugs toward semiconductors, the company began diversifying in earnest outside the motor industry. In 1982 it also began making and selling oxygen sensors, which measure the concentration of exhaust gases, widening the range of applications for its ceramics and broadening the automotive parts business. With ceramic sintering as the common technology, a distinctive structure took shape — spark plugs, semiconductor packages and oxygen sensors, three quite different fields handled at once.

Through the 1990s the price of resin packaging for CPUs and MPUs fell, and the substitution away from ceramic accelerated. Nippon Tokushu Togyo ramped up mass production of resin packages for Intel in 1998, moving quickly to follow the change of material. A field it had entered on the strength of its ceramics was being pushed toward a fork in the road by the generational change of the material itself — the company found itself drawn onto a battlefield where its principal technical advantage did not count. In 2007 it put through an expansion plan at Komaki to raise output of semiconductor packages, and that investment coincided with the Lehman shock of 2008: as demand fell away, the drop in utilisation went straight to the results.

A global production network from South-East Asia to Europe and the Americas

From 1973 the company moved into local production in South-East Asia in earnest, and in 1975 expanded sales bases across Europe, the United States and Australia in turn. Since the move into Brazil in 1959, overseas sales had long been driven by exports; from the mid-1970s the helm was put over toward local production and sales-base building pursued in parallel. The strategy shifted to stacking up overseas production as a complement to the domestic plants. In 1990 local production in the developed markets began in earnest, and a global production system spanning Japan, Brazil, South-East Asia, Europe and the Americas was complete. In 2003 the company pushed production capacity in Asia further, strengthening supply into a growing Asian market, and the effort to shorten the distance between where plugs were made and where they were needed accelerated worldwide.

The overseas expansion of the spark plug was led by the replacement market. In emerging countries, where the number of vehicles on the road was rising, replacement demand for a consumable arose steadily, and the NGK brand won its position on quality and reliability. Because the replacement market is far more stable than new-car sales through the economic cycle, it became a steady source of earnings in the overseas business too, and the model of running original equipment and replacement side by side extended, unchanged, to a global scale. Placing production sites in developed and emerging markets alike spread foreign-exchange risk and allowed quick response to local demand, and holding a self-contained value chain in each major region had the further effect of raising resilience to political upheaval and disruption of logistics.

The Lehman shock and the restructuring of ceramic IC packages

In the year to March 2009 the company fell to a net loss. The collapse in car sales caused by the Lehman shock and the fall in semiconductor demand arrived at the same moment, and both the spark plug and the ceramic IC package businesses were hit together. With sales down in original equipment and replacement alike, the capital spending accumulated in the preceding years bore down as fixed cost, and the chain of collapsing revenue and reported losses could not be avoided; the fall in utilisation at the Komaki semiconductor plant was the emblematic case, and a direct drag on results. That two demand cycles which do not normally move in step — the motor market and the semiconductor market — sank at once is what made the loss so severe.

The ceramic IC package business was under double pressure, from the shift of material toward resin and from the decline in demand itself, and its restructuring went on — a review of capacity and a rationalisation of processes. The falling utilisation of the Komaki plant, whose expansion had been approved in 2007, was the emblematic case: the wave of material substitution and the swing in the wider economy arrived together, and the argument over whether the ceramic IC package business should continue at all built up, meeting by meeting, at board level. Structural headwinds in semiconductor materials and an abrupt turn in the motor market bearing down at once made the risk of depending on any single business a live management issue, and rebuilding the portfolio became a medium- and long-term proposition placed at the front of management, taking that experience as its starting point.

The one-billion spark plug plan and accelerating global expansion

In May 2013 the company announced a plan to produce one billion spark plugs, declaring publicly that it would accelerate the global expansion of its core business further. With the number of engine-powered vehicles on the world's roads still rising, raising the cumulative production scale of replacement plugs was intended to capture economies of scale and to deepen the penetration of the NGK brand in emerging markets at the same time. Even after the loss of the Lehman shock, and while looking coolly at the structural risk in the semiconductor package business, management chose to concentrate its resources on expanding the spark plug business and mining the replacement market more deeply — a shift of strategy set out publicly by the executive team, and an important turning point in the company's course.

From then on, production sites and sales networks were redeployed across developed and emerging markets alike, and the work of dividing the roles worldwide went on: local production matched to motorisation in the emerging countries, and higher value-added production in the developed ones. Setting a target as plain as the cumulative production of replacement plugs gave every production site in the group a common performance measure to share. The company pursued a strategy of raising its world share in spark plugs for engine-powered vehicles, and held for a long period to a management stance that put the spark plug business at the front as the principal source of profit in its portfolio. That judgement rested on a scenario in which engine-powered vehicles endure; once electrification began to advance in earnest in the 2020s, the stance itself came into question.