HOYA
Corporate History & Strategy

In November 1941, brothers Shoichi Yamanaka and Shigeru Yamanaka founded Toyo Optical Glass Works (now HOYA) in Hoya-cho, Kita-Tama County, Tokyo. Shoichi Yamanaka was 44 years old at the time, and the brothers had previously been involved in managing Owari Paper Manufacturing Co., Ltd. Their entry was from the entirely unrelated paper industry, but the urgent need for domestic production of military-use optical glass during the Pacific War served as the catalyst for founding. Shoichi Yamanaka had graduated from the Army's Artillery Effectiveness School and reportedly received support from then-Prime Minister Hideki Tojo.

However, coming from the paper industry, they lacked the technical expertise in 'glass melting' essential for optical glass production. Shoichi Yamanaka laid a straw mat in front of the melting furnace to sleep there, and conducted glass melting experiments around the clock regardless of day or night. Existing clay crucibles could not produce optical glass of stable quality, so while broadly collecting materials from outside sources, he embarked on developing his own glass melting method and crucibles. The fact that the technical starting point was essentially zero characterized HOYA's founding period.

The manufacturing management experience from the paper industry could not be directly transferred to optical glass quality control, but the similarity in manufacturing processes—material blending and firing temperature control—may have provided Shoichi Yamanaka with a basic aptitude when undertaking melting experiments. During wartime, technology transfer from existing optical glass manufacturers was not to be expected, and technology had to be established through independent trial and error. This situation is presumed to have formed the prototype of the self-reliance ethos that has pervaded HOYA ever since.

After approximately two years of trial and error, in March 1943, Shoichi Yamanaka completed a new crucible and achieved the melting of optical glass 'Hoya BK7.' BK7 is a glass with low dispersion and resistance to moisture and contamination, and was adopted as a lens for military binoculars. The quality was recognized, and in May 1943, HOYA was designated as a Navy-controlled factory. The designation meant stable orders, and within just one and a half years of founding, the company was incorporated into the military procurement network.

Achieving melting required devising an original glass melting method rather than imitating existing manufacturers' processes. It can be argued that precisely because they came from the paper industry, they were able to approach crucible improvement without being bound by the established conventions of the optical glass industry. In August 1944, the company reorganized into a corporation, and by the end of the war, approximately 100 personnel were engaged in the business. Within just over three years of founding, the company had built a foundation as a military-use optical glass manufacturer.

BK7 was positioned as a representative optical glass product of the era, and production continued over an extended period thereafter. Technically, it was an accumulation of unglamorous process improvements in clay crucible refinement, but since the quality of optical glass depends entirely on crucible performance, this improvement was fundamental to product quality. Although it was a limited market of military demand, the process of achieving mass production of products meeting quality standards through technology developed from scratch is positioned as the origin of HOYA's technology-oriented ethos.

With the quality of BK7 recognized, HOYA established its business foundation as a military-use optical glass manufacturer. The designation as a Navy-controlled factory guaranteed stable orders, and within just two years of founding, the company became an indispensable supplier in the military procurement system. The growth to 100 employees demonstrates the magnitude of domestic production demand under the wartime economy. However, with the end of the war in August 1945, demand for military binocular lenses vanished overnight, and HOYA faced the collapse of its very business premise just four years after founding.

The disappearance of demand due to the end of the war exposed the vulnerability of a business structure fully dependent on military demand. The extreme situation of revenue dropping to zero demonstrated that complete dependence on a single customer is structurally defenseless against sudden changes in the external environment. This experience became the most fundamental lesson for HOYA's management. The consistent orientation toward business diversification and demand source dispersion that HOYA has pursued ever since has its roots in the original experience of military dependence collapsing with the end of the war.

This crisis would lead to the business transformation into crystal glass, but the experience of the founding-period structure dependent on military demand becoming worthless with the end of the war decisively shaped HOYA's early management. The significance of experiencing how fragile growth without demand diversification can be, within just four years of founding, is profound. From the construction of a direct sales system by Tetsuo Suzuki to market share strategy, and further to the transition to ROE-focused management, the consistent pursuit of avoiding single-source dependence can be read as the underlying current of HOYA's management decisions.

With the end of the war in August 1945, HOYA completely lost demand for military-use optical glass, its mainstay since founding. Facing a crisis of corporate survival with employees on the payroll but revenue gone, the company was forced to pivot to civilian products. Crystal glass tableware was selected, and manufacturing began in October 1945 with sales to the US military (GHQ) stationed in Japan.

The product quality was recognized, and in 1947 it received the designation of 'Occupation Forces approved product.' Reflecting this business transformation, the company changed its name from 'Toyo Optical Glass Works' to 'Hoya Crystal Glass Works' the same year. It was a transformation from an optical glass manufacturer to a crystal glass manufacturer, marking a turning point where HOYA's business axis shifted.

The entry into crystal glass was made possible because the optical glass melting and forming technologies were applicable to glass products in general. However, this was a pivot driven by the external pressure of military demand disappearing, not a decision made after sufficiently verifying competitiveness in civilian markets. The choice to jump into the nearest available market for survival contained the seeds of the later collapse due to exchange rate fluctuations.

In 1947, HOYA began manufacturing chandeliers and developed them as a full-scale export business to North America. Czechoslovakia, which had been one of Europe's leading chandelier production centers before the war, had fallen into the Soviet communist bloc, creating a supply shortage of chandeliers in the US market. HOYA entered the North American market by exploiting this supply vacuum and rapidly expanded sales.

The North American export expansion was dramatic, and by around 1949, a business structure had formed where approximately 90% of HOYA's revenue depended on chandelier exports to North America. Although the transition from military to civilian demand had been achieved, the structure of concentrating on a single product's exports was essentially the same as during the military era. The target of dependence had changed, but the degree of concentration had actually deepened.

Capital had been invested in equipment to establish a chandelier mass production system, predicated on continued North American market demand. This capital investment would harbor a structural vulnerability where fixed cost burdens would squeeze management when exchange rates fluctuated. The pattern of investment decisions during boom times amplifying risk during downturns was a recurring pattern in HOYA's early management.

In April 1949, the government established the single exchange rate of '1 dollar = 360 yen.' HOYA's export transactions had been conducted at a rate of 1 dollar = 600 yen, making this effectively a 40% yen appreciation that rapidly deteriorated export profitability. Having invested capital in equipment for chandelier mass production compounded the cash flow crunch.

In 1950, HOYA decided on workforce reduction and, while facing labor disputes, laid off the majority of its 550 employees. The company ultimately restarted with fewer than 100 employees. Within just nine years of founding, the company had experienced a series of upheavals: the disappearance of military demand, business transformation, rapid export growth, exchange rate fluctuations, and management crisis.

This was a case where a structure with 90% of revenue dependent on a single export product collapsed at once due to a change in the external environment of exchange rates. It became clear that the concentrated risk structure had not been resolved—only the target of dependence had changed from military demand to crystal exports. This experience directly informed the background of Tetsuo Suzuki's 1960 five-year plan, in which emphasis on domestic demand and construction of a direct sales system were positioned as the top priorities.

The economic downturn of 1955 caused HOYA's performance to deteriorate, and in 1956, Shigeru Yamanaka, the founding-family president, collapsed from a cerebral hemorrhage due to stress. Unable to continue running the business, HOYA fell into a management crisis without a president. Furthermore, in 1957, co-founder Shoichi Yamanaka suddenly passed away from an illness stemming from the strain of financial difficulties. Just 16 years after founding, the company lost the people who had been running it.

Selected as successor was Tetsuo Suzuki, son-in-law of Shoichi Yamanaka. An engineer from Tokyo Institute of Technology, he had joined HOYA in 1944 and served as chief engineer overseeing optical glass manufacturing. His appointment as president at the young age of 32 was not a planned succession but rather a process-of-elimination decision made when virtually no other successor options existed.

Tetsuo Suzuki's appointment as president signified a transition from direct management by the founding Yamanaka brothers to the son-in-law. While a relative of the founding family, Suzuki was from a technical background and thoroughly versed in optical glass melting technology. Although his management experience was limited, his deep understanding of technology provided the groundwork for unique strengths in manufacturing management decisions.

Suzuki subsequently pursued departure from the revenue structure dependent on crystal glass exports and led the formulation of the 1960 five-year plan. He drove a series of reforms that redefined HOYA as an optical manufacturer, including merging affiliated companies, introducing a divisional system, and building a direct sales network for eyeglass lenses. His engineering background enabled business concepts rooted in the manufacturing floor.

In 1967, Tetsuo Suzuki was held responsible for losses caused by advance investment in the eyeglass business and was demoted to advisor under pressure from banks and an internal coup. However, rather than fully retiring, Suzuki remained as advisor and spent three years accumulating additional stock purchases. In 1970, he returned as president. He recaptured management control through the logic of capital—stock ownership.

After his return, Suzuki replaced the executives who had opposed him and pushed forward a management policy emphasizing diversification and market share. He led HOYA's management for over 30 years until stepping down to chairman in 1993, forming the backbone of the company's management philosophy including five-year plans, direct sales systems, market share strategy, and ROE-focused management. The trajectory of Suzuki's career as a business leader, starting from an unplanned succession, stands as an example where individual capability compensated for the absence of institutional business succession.

In the late 1950s, HOYA's revenue was predominantly from crystal glass exports centered on chandeliers for North America. Although it had narrowly survived the 1949 management crisis triggered by the single exchange rate establishment, the increase in competition in the North American market and vulnerability to exchange rate risk had not been resolved. Structural limits had emerged for growth based on crystal glass alone.

Additionally, following the 1955 securities downturn, performance deteriorated and founding-family president Shigeru Yamanaka collapsed from a cerebral hemorrhage, making the rebuilding of the management structure urgent. Tetsuo Suzuki, who became president in 1957, recognized breaking free from the revenue structure dependent on crystal glass exports as the top management priority. Suzuki's belief that 'the possibility of a product that is not accepted in the domestic market succeeding overseas is extremely rare' defined the plan's direction.

The transformation Suzuki envisioned simultaneously advanced two shifts: moving the center of gravity from exports to domestic demand, and shifting the business axis from crystal glass to optical products. For HOYA, where dependence on a single product and single market had caused two collapses in nine years, diversifying the business structure was an essential condition for survival.

In 1960, HOYA formulated its first-ever five-year management plan. The plan's three pillars were: consolidation of management resources through the merger of three affiliated companies (Hoya Optical, Hoya Optical Glass Sales, and Yamanaka Optical), introduction of a divisional system, and development of a direct sales network. At the time of the merger, the company name was changed from 'Hoya Crystal Glass' to 'Hoya Glass,' removing 'crystal' from the name to declare at the corporate identity level the transition to an optical manufacturer.

Organizationally, a two-division system was introduced with the 'Optical Division' and 'Crystal Division,' and in 1967, an 'Eyeglass Division' was added to form a three-division structure. On the sales side, starting in 1962, transactions through agents and wholesalers were reduced, and a direct sales structure was built. Mid-career sales hires were actively recruited, and the retail shop organization 'Hoya-kai' was established in eight districts nationwide.

The design of this direct sales structure reflected Tetsuo Suzuki's operational philosophy. With the company's sales capacity set at 100, production capacity would be kept at 85 or 80, with the shortfall outsourced to competitors or overseas manufacturers. Through this mechanism, even during downturns, the company's own factories could maintain full utilization, avoiding the vicious cycle of inventory buildup and discounting. This operational design—avoiding overinvestment during booms and maintaining utilization during busts—became the backbone of HOYA's earnings stability.

Diversification and direct sales system construction based on the five-year plan steadily bore fruit throughout the 1960s. In the crystal business, the product mix shifted from lighting to tableware, and in the optical business, subcontract lens production for Nikon and Minolta expanded against the backdrop of the camera boom. The eyeglass lens business, entered in 1958, grew in sales alongside the development of the direct sales network, securing a 20% domestic share by 1974.

HOYA's direct sales structure contributed to earnings stability not only during boom times but also during downturns. While competitors suffered from excess inventory and discounting during recessions, HOYA maintained full utilization at its own factories and continued stable operations. The choice of direct sales as a distribution channel functioned as a mechanism that integrated production management and profit management.

This plan was the starting point where HOYA rewrote its self-definition from a crystal glass export company to an optical manufacturer. While the three measures—merger, divisional system, and direct sales—are individually common management techniques, the distinguishing feature of Tetsuo Suzuki's management was integrating them under a single philosophy of operational design. The backbone of the high-profitability structure that HOYA maintained for the subsequent 30 years can be traced back to this 1960 plan.

In fiscal year ending March 1966, HOYA recorded a net loss of 700 million yen and fell to zero dividend for the first time since listing. The cause was advance investment in the eyeglass business. HOYA had been mass-hiring sales personnel to build a direct sales network for eyeglass lenses, but the 1965 securities downturn depressed sales, and the fixed costs of sales personnel squeezed earnings. The direct sales system was designed to contribute to long-term earnings stability, but being caught in a recession while still under construction backfired.

The bank lending partners took issue with the fall into the red. The banks had originally opposed the formation of a direct sales network in the eyeglass business and held President Tetsuo Suzuki (then 42 years old) accountable. Criticism also erupted internally, with growing calls for a management overhaul. The direct sales system that Suzuki had led would later contribute to earnings stability, but at this point, only the burden of advance investment was visible.

Building a direct sales system would, once completed, generate a mechanism to maintain utilization even during downturns, but during the construction phase, it weighed on management as an increase in fixed costs. The mismatch between the investment timeline and the performance evaluation timeline was the structural background of Suzuki's departure. This was a situation where the risk of a long-term design philosophy being rejected entirely when it manifests as short-term performance deterioration became apparent.

In 1967, Tetsuo Suzuki was demoted from president to advisor. In his place, Mr. Shimada (from the Shoko Chukin Bank), who had been an auditor, became president. Suzuki's demotion was the result of combined pressure from banks and internal criticism—effectively an internal coup. Suzuki presented as a condition for his demotion that the construction of the direct sales network for the eyeglass business would continue.

After his demotion, Suzuki remained in the advisor position while traveling between manufacturing sites such as factories. When he occasionally visited headquarters, he was met with an attitude of 'What are you doing here?' He felt betrayed by employees he himself had recruited. Suzuki later reflected on this experience as 'a complete reversal of attitude.' However, choosing return over retirement, Suzuki began quietly accumulating stock purchases behind the scenes.

During his three years as advisor, Suzuki doubled his shareholding ratio. The development of a manager expelled by bank pressure and internal personnel moves building a foundation for return through the logic of capital demonstrates the weight of stock ownership in Japanese corporate governance. The structure that expulsion through personnel authority can be overturned by stock ownership was exposed during these three years.

In 1970, Tetsuo Suzuki returned as president of HOYA. The primary factor in his return was the increased shareholding ratio over three years. Upon his return, Suzuki had compiled a list of executives and employees who had betrayed him during his advisor period, and simultaneously with assuming the presidency, executed a replacement of board members. The entire process from departure to return was a battle to recapture management control.

After his return, Suzuki fully pursued the completion of the direct sales system along with a management policy emphasizing diversification and market share. The eyeglass business direct sales network that had caused his departure subsequently functioned as the foundation of HOYA's earnings stability, achieving a 20% domestic share by 1974. The investment decision that had been rejected at the time of his departure was ultimately vindicated.

The circumstances of this departure and return demonstrated that in Japanese companies, the ultimate determinant of management control is capital ownership. The logic of personnel moves—bank pressure and internal majority maneuvering—was overturned by the logic of capital—stock purchases. Thereafter, Suzuki led HOYA's management until stepping down to chairman in 1993, irreversibly transforming the company's business structure and management philosophy.

In 1970, Tetsuo Suzuki returned as president of HOYA. Three years had passed since the 1967 internal coup that relegated him to advisor, during which he had accumulated stock purchases to recapture management control. At the time of his return, HOYA was facing slowing growth due to market saturation in its mainstay crystal glass tableware and camera optical glass businesses.

In response, Suzuki announced a policy of directing management resources toward diversification into new fields rather than extensions of existing businesses. The targets selected for diversification were adjacent areas where optical technology could be applied, such as soft contact lenses and semiconductor mask substrates. These were areas with high technical barriers to entry and limited market size, but where securing a high market share would yield stable earnings.

Alongside diversification, HOYA formally articulated management targets for market share of its core products. The targets were to achieve one of three conditions: secure over 50% market share in core products, hold twice the share of the second-place company, or exceed the combined share of the second and third-place companies. Suzuki believed that high market share would lower per-unit product costs and create an investment capacity gap over competitors.

In maintaining market share, the company adopted an operational policy of intentionally suppressing factory utilization even during boom periods, leaving capacity headroom. The design was that while competitors faced excess inventory and price cuts during downturns, HOYA would maintain stable operations and expand share. Suzuki's concept of defining market share itself as 'an irreplaceable asset' formed the core of HOYA's management philosophy.

From the 1970s onward, HOYA executed its entry into soft contact lenses (1972) and semiconductor mask substrates (1974), pursuing diversification. As a result of pursuing high market share in each business, by 1987, a business composition had formed with dominant positions in multiple niche markets: eyeglass lenses at 36%, crystal tableware at 65%, optical lenses at 60%, and mask blanks at 75% global share.

This business composition defined HOYA's high-profitability structure not as competing in massive markets but as a collection of dominant positions in small-scale markets with high technical barriers to entry. In fiscal year ending March 1990, HOYA achieved an operating margin of 12.5%, an exceptional level for Japanese manufacturers. The market share targets Suzuki set in 1970 had come to fruition after approximately 17 years, demonstrating how the consistent application of management philosophy translated into margin design.

In 1970, photomask substrates were developed in HOYA's Optical Division. In the semiconductor manufacturing process, photomasks are used to transfer circuit patterns, and the mask substrates require glass materials with high surface precision and low thermal expansion coefficients. HOYA applied the composition, melting, and processing technologies cultivated in optical glass manufacturing to this field.

In 1972, it received an order from IBM for IC mask plates and decided to pursue the business in earnest. The subsidiary Hoya Electronics was established, and in 1973, the Nagasaka Factory was built in Yamanashi Prefecture to set up production capabilities. This was the turning point where an optical glass manufacturer transformed into a supplier of materials indispensable to semiconductor manufacturing processes, and it was the entry into the business that would generate the longest-term revenue base among HOYA's diversification strategy.

In 1974, HOYA began full-scale manufacturing of semiconductor mask substrates. Furthermore, in 1980, it commenced manufacturing of chrome blanks—products with chrome film deposited on glass substrates. In 1983, it established a production technology laboratory in Hachioji, Tokyo, and expanded the business to include chrome mask manufacturing. An integrated production system from glass materials to chrome masks had been constructed.

Semiconductor manufacturers had called for HOYA to become a manufacturer capable of integrated production from glass materials to chrome masks. By meeting this demand, HOYA secured approximately 60% global share of chrome blanks by 1980, establishing the world's top position. Since suppliers capable of integrated production were limited, the early timing of entry contributed to barrier formation.

The technological foundations of optical glass composition, melting, and polishing cultivated since founding directly led to the construction of a dominant position in the semiconductor industry supply chain. For HOYA, the mask substrate business was one where the barriers to entry were high as an application of existing technology, and demand expanded along with the growth of the semiconductor industry. The fact that 60% global share was secured by 1980 demonstrates that when the technology application target is appropriate, a dominant position can be established in a relatively short period.

This business later evolved into EUV mask blanks, becoming a pillar of HOYA's earnings as materials indispensable to cutting-edge semiconductor manufacturing processes. The technological continuity from the crucible technology developed to melt military-use BK7 during the founding period to the manufacture of semiconductor mask substrates tells the story that HOYA's diversification was not a scattered expansion into unrelated fields but developed along a single axis of optical glass technology application.

As of 1987, HOYA's core products had secured the following market shares: eyeglass lenses at 36% domestic share, crystal tableware at 65%, optical lenses at 60%, and mask blanks at 75% global share. The management target of 'over 50% market share in core products' that Tetsuo Suzuki had announced in 1970 had been largely achieved after approximately 17 years.

HOYA's business composition had formed a portfolio of multiple products holding dominant shares in small markets. While individual market sizes were not large, the high share delivered per-unit cost advantages and pricing power, with each business generating stable earnings. The distinguishing feature of HOYA's business design was pursuing dominant share in small-scale markets rather than mid-level share in massive markets.

As a collection of high-share products, in fiscal year ending March 1990, HOYA recorded revenue of 123.3 billion yen and operating profit of 15.4 billion yen, achieving an operating margin of 12.5%. This was an exceptional level for Japanese manufacturers, with the combination of market share strategy and direct sales system contributing to margin improvement. HOYA achieved capital-efficient management by building dominant positions in niche markets with high technical barriers to entry rather than pursuing massive markets.

The operational policy of intentionally suppressing production capacity during boom times and maintaining stable operations during downturns generated an earnings structure resistant to business cycle fluctuations. This operational philosophy originated from the direct sales system introduced in the 1960 five-year plan and was consistently applied across each business division. The trinity of market share pursuit, direct sales system, and operational design was the structure behind the 12.5% operating margin figure.

Stable earnings based on high market share became the precondition for HOYA's management transformation from the 1990s onward. The 1994 reform placing ROE at the center of management metrics was possible because the stable cash flow generated by each business provided the capital for reform. The withdrawal from unprofitable businesses and the acquisition and subsequent sale of Pentax, among other portfolio reshufflings, were made executable because the high earnings from core businesses provided the financial headroom.

However, this business composition also harbored inherent limitations. Because each market was small, growth ceilings for individual businesses arrived early. Furthermore, vulnerabilities inherent to niche markets also existed, such as the pharmaceutical affairs issue in the contact lens business and the shrinking crystal tableware market. While high market share functioned as a barrier to entry, it offered no defensive power against the shrinkage of the market itself—this structural limitation was the backdrop to the business restructuring from the 1990s onward.

It was discovered that HOYA's three contact lens products—'SOFT' (launched 1972), '58' (launched 1986), and 'EX' (launched 1989)—had obtained approval from the Ministry of Health and Welfare with ingredient labeling that differed from actual composition. The issue originated from a HOYA employee's error, but the problem went unrecognized for years as products were distributed, resulting in a situation where approximately 400,000 people were using contact lenses with unapproved ingredient compositions.

In 1990, HOYA became aware of the problem and reported the situation to the Saitama Prefecture Pharmaceutical Affairs Division. The Ministry of Health and Welfare learned of the issue from the Saitama Prefecture report. While it was a serious case potentially violating the Pharmaceutical Affairs Act, HOYA's management judged that 'there have been no cases of side effects and there is no problem with the products,' and held an optimistic outlook that the Ministry would permit continued production.

Behind this optimistic judgment was a conflation of product safety with pharmaceutical regulatory compliance. For HOYA, what mattered was that the products had no quality issues, but for the regulatory authority, what was being assessed was whether the application content and actual composition matched. The failure to recognize the difference in logic between the two parties led to the delayed response and misjudgment.

In October 1990, the Ministry of Health and Welfare issued its ruling against HOYA. It ordered a full recall of the subject unapproved lenses and a suspension of existing product sales—a conclusion diametrically opposed to the 'continued production approval' HOYA had expected. This ruling effectively meant that HOYA's contact lens business would reach an impasse.

HOYA's management continuing to assert that 'there is no problem with the products' may have worsened their standing with the Ministry. The fact that the application ingredients and actual ingredients differed was a Pharmaceutical Affairs Act issue entirely separate from product safety, and HOYA's response misjudged the regulatory authority's decision criteria. The severity of the ruling was the consequence of failing to recognize the essential nature of the problem.

This ruling demonstrated that product quality and regulatory compliance are judged by entirely different standards. The reasoning that 'since we have confidence in quality, regulatory authorities should also be permissive' did not hold under the Pharmaceutical Affairs Act framework. Through HOYA's penalty, the principle was made explicit that in regulated industries, the precondition for business continuation is procedural legality, not the merits of the product itself.

Due to the recall and sales suspension of unapproved lenses, HOYA's domestic contact lens sales share plummeted from 15% (3rd domestically) to 1.3% (15th). A total of 3.9 billion yen in losses was recorded, and the contact lens business suffered devastating damage. Although soft contact lens production was resumed in April 1991, recovering lost market share was far from easy.

The sharp share decline meant that in the contact lens market, it was structurally difficult to reclaim distribution channels and customer trust once lost. During the recall and sales suspension period, competing manufacturers filled the distribution channels, drastically reducing the space for HOYA to re-enter. While 3.9 billion yen was the accounting figure, the non-financial loss of market position had a greater long-term impact.

This incident became one factor driving HOYA's business portfolio review from the 1990s onward. The stagnation of the contact lens business made visible the existence of areas among HOYA's business portfolio where competitiveness could not be maintained. The background of the 1994 ROE management transition explicitly identifying the cleanup of unprofitable businesses as a priority is considered to include the lessons of this incident.

In the early 1990s, HOYA was generating stable earnings through high market share in core products and the direct sales system, but had not reached international standards in terms of capital efficiency. Chairman Tetsuo Suzuki received a criticism from an executive of HOYA's US subsidiary that ROE (return on equity) was too low and recognized the need for reform. Suzuki judged that conventional 'Japanese-style management' was reaching its limits and believed that optimizing invested capital and headcount was the path for HOYA's survival.

Suzuki held the view that 'the Japanese-style management system built on lifetime employment and seniority-based promotion only works in Japan,' and pursued a transition to capital efficiency-focused management that was exceptional for a Japanese company. At the time, Japanese companies that explicitly adopted ROE as a management metric were rare. Additionally, the contact lens recall incident in 1990, which set back that business, and the maturation of core businesses also served as a backdrop pushing reform forward.

The fact that the catalyst for reform was external pressure from a US subsidiary executive rather than voluntary internal reflection illustrates the difficulty of internally driven transformation in Japanese companies. Companies generating stable earnings rarely develop the motivation to question their own management structure without external criticism. Suzuki received this criticism at age 70 and resolved to reform, demonstrating he was a business leader capable of shifting his perspective regardless of age.

In 1994, HOYA formulated a three-year medium-term management plan placing ROE at the core management metric. On the business side, it decided to concentrate investment in the 'electro-optics business' and directed resources to glass magnetic memory disk production equipment. The eyeglass business, a previous mainstay, was judged to have matured, and its investment priority was lowered. The policy was to execute business selection and concentration based on the quantitative criterion of ROE.

In organizational and personnel reforms, a wide range of measures were executed: surplus workforce reduction, transfer of personnel through corporate spin-offs, abolition of regular annual new graduate hiring, halving the number of managers, reduction of directors from 17 to 8, appointment of outside directors, and consolidation of subsidiaries from 22 to 7. A particularly problematic issue was the treatment of personnel employed in the crystal division—how to redeploy human resources fixed in a low-profitability business was a focal point of the reform.

Suzuki stated: 'I don't think lifetime employment is completely meaningless—70% of employees can have lifetime employment. But seniority-based promotion is unnecessary.' He emphasized that the reform's focus was on abolishing seniority and promoting labor mobility rather than wholesale rejection of employment. Suzuki's problem statement—'Someone who joined the company as a tableware technician decades ago still remains at the company even though there's no work left'—pointed to the reality that the personnel system had failed to keep pace with changes in business structure.

As a result of the reform, 220 employees retired and 939 were separated from the HOYA parent through spin-off transfers. Labor costs and personnel expenses were reduced by 1.5 to 2 billion yen, and the headquarters fixed cost structure was lightened. The board was restructured from an internal 16-member structure to an 8-member structure of 7 internal and 1 outside director. At that time, virtually no Japanese companies appointed outside directors, and HOYA's board reform attracted attention as a pioneering case.

These reforms enabled HOYA to transition to capital-efficient management focused on ROE. Business selection and concentration subsequently led to bold portfolio reshuffling such as withdrawal from the crystal business and the acquisition and sale of Pentax. The essence of this reform lay in institutionalizing the mechanism to release human resources and capital fixed in unprofitable businesses and reallocate them to growth businesses.

The 1994 reform led by Suzuki was the starting point where HOYA transformed its management philosophy from a 'high share, high profit' company to a 'capital efficiency-focused' company. While the share strategy built HOYA's business foundation, ROE management provided the mechanism to enable business foundation replacement. The layering of these two management philosophies in sequence is what characterizes HOYA's management constitution.

Following the 1994 transition to ROE-focused management, HOYA embarked on a fundamental redefinition of headquarters functions in 1997. In anticipation of transitioning to a holding company, headquarters duties were limited to 'business portfolio management,' with a design specializing in corporate strategy and finance. Personnel authority was fully delegated to five business-specific subsidiaries, separating business operations authority from headquarters.

Behind this design was the judgment that to continuously execute business selection and concentration, headquarters needed to step away from individual business operations and specialize in the function of evaluating profitability against invested capital on a cross-company basis. The more headquarters is involved in business operations, the more organizational resistance arises to withdrawing from unprofitable businesses. By making headquarters lean, the aim was to make business portfolio reshuffling structurally easier.

As a result of the organizational reform, HOYA's headquarters staff was reduced from 2,020 to 50. The approximately 97.5% reduction rate was an extreme level of headquarters function streamlining for a Japanese company. Simultaneously, the board was restructured, reducing from 16 internal members in the early 1990s to 8 members—7 internal and 1 outside director.

At the time, outside director appointments were rare among Japanese companies, and HOYA's board reform attracted attention as a pioneering initiative. The headquarters streamlining and board reform were the organizational embodiment of the 1994 ROE management declaration. By delegating business operations to subsidiaries and specializing headquarters in portfolio management, the organizational foundation was prepared for rapidly executing business withdrawals and corporate acquisitions from the 2000s onward.

In August 2007, HOYA acquired Pentax, a camera maker that had fallen into financial difficulty, making it a consolidated subsidiary. The acquisition cost was 94.7 billion yen. HOYA's target was not Pentax's main camera business but rather the endoscope-centered medical device business that served as a profit center. The acquisition was aligned with HOYA's strategy of strengthening the life care domain.

Former DELL Japan president Hiroshi Hamada was appointed as HOYA's COO to oversee post-acquisition management, and began reshuffling the business portfolio. However, Pentax was centered on domestic production with cameras constituting the majority of revenue, making profitability improvements difficult. Headcount was reduced from 5,585 to 3,892 and the Mashiko Factory and former Itabashi headquarters factory were closed, but these measures could not keep pace with the decline in camera demand.

Ultimately, HOYA decided to retain the high-profitability businesses such as endoscopes and sell the low-profitability former Pentax operations to Ricoh. In fiscal year ending March 2009, HOYA recorded impairment losses of 27.4 billion yen related to Pentax, and bore financial burden throughout the acquisition-to-sale process. The execution of acquisition and sale as a connected design reflected the ROE management stance adopted since 1994.

With the completion of the sale, Hiroshi Hamada, who had been responsible for post-acquisition restructuring, also retired as COO. The operation of extracting the endoscope business that HOYA needed and selling off the unnecessary camera business was a practical example of portfolio management combining acquisition and disposal.

The acquisition and sale of Pentax was an example where HOYA clearly demonstrated to the outside its management stance of separating unprofitable divisions. While 27.4 billion yen in impairment losses were recorded against the 94.7 billion yen acquisition cost, this showed that business portfolio reshuffling involves frictional financial costs. However, HOYA accepted these losses while prioritizing the medium-to-long-term strategy of strengthening the life care domain.

The incorporation of the endoscope business became the foundation of HOYA's subsequent medical business. Without the Pentax acquisition, HOYA's life care business would have been limited to eyeglass lenses and contact lenses. The method of not taking on the entire target company's businesses but incorporating only the parts that align with one's strategy and selling the rest was a typical behavioral pattern of companies managing business portfolios under ROE-focused management.

In the 2000s, HOYA's information and communications segment (semiconductor mask blanks, etc.) was driving growth in both revenue and profit, and capital investment was also tilted toward this area. Throughout the 2000s, the semiconductor industry's transition to 300mm silicon wafers progressed, and demand expansion from Asian semiconductor manufacturers supported the high profitability of HOYA's materials supply business.

Meanwhile, the eye care business (eyeglass lenses and contact lenses) was generating stable earnings but was deprioritized for capital investment behind information and communications. Since information and communications' growth rate exceeded eye care's, the tilt of investment allocation toward semiconductors was itself a rational decision. However, this tilt created a structure where semiconductor market business cycle fluctuations significantly affected HOYA's consolidated results.

The 2008 global financial crisis caused semiconductor manufacturers to freeze capital expenditure, and HOYA's information and communications segment fell into sharp revenue and profit decline. In contrast, the eye care business, as a daily necessity, was minimally affected and played a role in supporting consolidated results. This experience clearly exposed the risk of investment allocation skewed toward the semiconductor business.

Around 2012, HOYA shifted its investment policy and decided to prioritize capital investment and corporate acquisitions in Life Care (healthcare and medical). This was a shift from the tilted investment toward information and communications during the 2000s, aimed at strengthening areas in the daily necessities domain less affected by business cycle fluctuations. Earnings from information and communications were applied as acquisition funds for Life Care, executing the shift in capital allocation.

From 2012 onward, HOYA executed a series of corporate acquisitions centered on eyeglass lenses. In 2012, it acquired Optical for 8 billion yen, and in 2013, purchased Seiko Epson's eyeglass lens business for 4.8 billion yen. In 2017, it acquired Performance Optics of the United States for 30.1 billion yen, incorporating polycarbonate, photochromic, and polarized lens manufacturing capabilities. In the endoscope area, it acquired WASSENBURG for 3.7 billion yen in 2013, expanding into the cleaning equipment domain.

The total of this series of acquisitions exceeded 50 billion yen, representing the largest investment concentration for HOYA. The 2017 Performance Optics acquisition in particular involved goodwill of 23.8 billion yen out of the 30.1 billion yen acquisition consideration, representing a major deal concentrated on the Americas eyeglass lens business. Each acquisition was positioned as a regional or technological complement to the existing eyeglass lens business.

Throughout the 2010s, Life Care revenue continued to expand, reaching levels exceeding information and communications. While information and communications' contribution to profit remained significant, Life Care increasingly played the role of a stable earnings source less affected by business cycle fluctuations. The shift in investment policy materialized as a shift in business composition.

On the other hand, serial corporate acquisitions led to increased goodwill on the books. Under IFRS accounting standards, these intangible assets are subject to impairment testing and carry impairment risk that can materialize with changes in the business environment. In particular, goodwill concentrated on the Americas eyeglass lens business carries the potential for large-scale impairment losses if the acquired businesses' profitability deteriorates.

The investment shift to Life Care was a rational decision to diversify the business cycle risk from semiconductor overweight, but it generated a new financial risk through accumulated goodwill from acquisitions. The nature of risk has shifted from business cycle risk to impairment risk, demonstrating a structure where business portfolio management functions not as risk elimination but as risk transformation.