MGMT 700 Asahi Glass Company

Asahi Glass Company was Japan’s first sheet glass manufacturer beginning in 1909 and became an industry leader in the glass manufacturing business. The company diversified its glass business into several ventures – chemical, electronics, ceramics, and construction materials. The diversification into the various industries as noted above was very successful, as by the 1950 to early 1970’s following the second world-war Asahi’s glass and construction materials business accounted for more than 50% of its total revenue, and its chemical business at 40% and other business segments including electronics and ceramics contributing to 10% of the company’s total revenue.

By 1992, the company’s glass (flat glass) business segment contributed 56% of total sales and revenue making it the most profitable segment out of the four diversification business segments.

I believe AGC’s diversification was much needed post the second world-war, as it helped serve as the foundation to emerging technologies and manufacturing of newer consumer products – cements, automotive lighting, paints, chemicals such as chlorofluorocarbons – CFC for refrigerators and air conditioners.

Following the oil crisis in the early 1990’s, AGC management – then President Mr. Sakabe decided to focus on the company’s electronic segment business because of its growth potential and having some expertise in the electronic industry. Furthermore, AGC top management had a goal of developing electronics to generate 10% of the company’s revenue within the next 10-years after its decision in the early 1990’s to focus on the electronics industry.

In hindsight, the decision to focus on the electronics segments proved to be a bad decision as AGC for a decade-long failed to established a firm position in the fast-cycle electronics industry beyond existing activities. Major players like Hitachi, Toshiba, and NEC with stronger skills in semiconductor manufacturing had entered the market, and in-part had greater market share that affected AGC’s significant capture of the market share in the electronics industry.

The company’s mode of diversification ultimately affected its success, as it focused historically on developing new products from its technologies. Rather than the appropriate diversification mode of developing products “to meet the needs of its customers – customer focused approach”.

AGC’s ultimate goal of global acceleration with its glass business, and expansion into glass related products was primarily the reason for the company to try all four business segments related to its glass business – chemical, construction, electronics, and ceramics. Some of the pros with pursuing the four segments is the company’s utilization of its technological expertise in an “economies of scale” approach to venture into new segments of business related to its core glass business. Other advantages with venturing into all four types of business segments is the resulting technologies and consumer products that emerged for production as a result of such aggressive expansion initiative.

However, such rapid business segmentation was not without problems and AGC began to loose focus with its ultimate business strategy and growth as it was involved in “many things at the same time”. Additionally, the company’s accelerated overseas expansion posed a challenge to traditional international practices despite the company’s international experience. For example, AGC began experiencing problems with coordinating its acquired business and management in Belgium – Glaverbel, which was responsible in developing the African, Middle Eastern, and Eastern Europe markets. While, I applaud AGC’s initiative in general with its bold diversification into various business segments with its glass business. However, the company’s approach was somewhat hasty and uncoordinated making it strategically arduous to integrate all segments of its business successfully.

Retrospectively, the electronics business did not align with AGC’s other business segments. Thus, owing to the poor and struggling performance of the electronics segment, it will be prudent for AGC to sell the electronics portion of its glass business to one of its main competitors and focus on integrating remaining segments that are more profitable.

Additionally, the company needed restructuring of its organizational culture from the top down to create room for encouragement, initiative, and innovation. As well as becoming ‘customer centered”. Such restructuring and strategy will redirects the company’s focus and vision, and ultimately result in innovation and aggressive pursuit of other glass-related business segments that gave growth in the past for AGC to become an industry leader in manufacturing of glass – related products.