BUSINESS ECONOMICS (SYNDICATE 5)

ASAHI GLASS COMPANY : DIVERSIFICATION STRATEGY(SYNDICATE 5)Harris Desfianto (29113006)Defri M. Firmansyah (29113014)Poltak Pardamean S. (29113035)Resti Regina (29113060) Harry Harsa (29113083)

INTRODUCTIONFirst founded in 1907 by Toshiya IwasakiWas the oldest and the largest glass manufacturer in Japan and the member of Mitsubishi Corp.Through internal growth, acquisitions, and joint venture become a multinational company in 1992 with consolidated sales over than $10 billions (23% outside Japan).

COMPANY HISTORY1. From Start Up to World War II (1907-1945)1907 : Founded by Mr. Iwasaki -> although others and government failed to manufacture glass commercially. Iwasaki still continued the business with commitment and his pioneer spirit and mission to succed.1909 : Begin sheet glass production. With imported material from Belgium.1912 : Made his first profit.1916 : Made in house refractory bricks.1917 : Started to make soda ash (glass raw material) internally.1932 : Started to produce Caustic Soda (an alcali chemicals). (Their First Related Diversification. Beside glass, they develop expertise in chemicals and ceramics)COMPANY HISTORY2. From World War II to Oil Crises (1945-1973)1950 : Pilkington (Britishs glass manufacturer) invented float glass process with Revolutionary technology that have significant quality compared to flat/sheet glass. -> Asahi glass and other major glass companies licensed the float process.1954 : Licensed from corning glass works, started to produce TV glass bulb. -Fiber glass-1956 : Entered fabricated automobile (safety) glass business -borosilicate Glass-, and leading in these two markets. 1962 : Began producing and marketing Autocraved Lighweight Cement (ALC), licensing from swedish firm. (Their second diversification in construction industry).1973 : Licensed from Pilkington began to produce GRC (Glass Reinforced Cement).COMPANY HISTORY3. From Oil Crises through Early 1990s (1973-1990s)1970s : The revenue of glass and construction business accounted for more 50% of total revenue, and chemical business for about 40%.1976 : Began building an electronic business as the fourth pillar. Glass, Chemicals, Ceramics, Electronics. Because of the potential growth and the experties of the management. Producing Liquid Crystal Display. (The third diversification).1981 : New business division established to produce Optical Lense, both glass and plastic lense. (The fourth diversification).COMPANY HISTORY4. Globalization ( Foreign Expansion) 1964 : Established flat glass company in Thailand1972 : Established flat glass company in Indonesia1964 : Established flat glass company in India1980s : When BSN (one of the largest glass manufacturer from France) decided to exit the glass industry, Asahi Aquired two of four their subsidiaries, in Belgium and Dutch. 1979 : Build operation of TV glass bulbs in Singapore1980 : Build operation of TV glass bulbs in TaiwanFlat Glass GlobalizationAutomobile & TV Glass Globalization1988 : Took over Cornings TV glass bulb facilities in USA1974 : Started fabricated automotive glass in Taiwan and Indonesia1985 : Started fabricated automotive glass in USAChemicals Globalization1965 : Started produce caustic soda and chlorine in Thailand.1989 : Started produce caustic soda, polimers in Indonesia.1990 : JV with Tenneco in USA to mine natural soda ash.DIVERSIFICATION STRATEGYLevel and Type of DiversificationGlass & ConstructionChemicalsModerate to High Levels of Diversification.CeramicsElectronicsRelated linked (mixed related and unrelated)Glass & related : 56 %Chemicals : 30 %Ceramics : 3 %Electronics : 6 %Profit Share:DIVERSIFICATION STRATEGYReasons for DiversificationImplementing StrategiesDiversification ReasonSub Reason1. Produce caustic soda2. Float glass3. TV bulbs (fiber glass)4. ALC cement5. GRC cement6. Producing LCD7. Made optical glass- Value creating diversification- Economies of scope- Value creating diversification- Market power- Value creating diversification- Market power- Value creating diversification(unrelated)- Financial economi-es- Value creating diversification(unrelated)- Financial economi-es- Financial economi-es- Financial economi-es- Value creating diversification(unrelated)- Value creating diversification(unrelated)THE ISSUES President Hirochi Seya and other top management of Asahi Glass believed that the company was at a critical juncture in 1993. Adversely affected by Japans recession, the companys sales had a levelled off and net income had dropped in the previous three years.

its original domestic glass business had matured, while the rapid globalization of Its activities into Europe and North America challenged its management practices.

The companys diversification into electronic-related business had not meet Expectations.

Other opportunities such as new glass were appearing on the horizon. ANALYSIS1. The accelerated globalization in glassOverseas expansion was an immediate growth solution, as they had opportunityThat European government started to privatize the glass operations.

The potential growth of Asian countries also attracted attention. Asahi glass & PPG joint venture to build factory in China.

In North America, the market was enhanced in 1992 when Asahi and Glaverbel Acquired AFG industries which has 6 plants in USA and 1 plant in Canada.

There still have a growth in some markets.This strategy could have apositive impact to increase companys profit, because there was still growth in Foreign market. So, firm might continue to implement Overseas expansion but need truly commitment to taking global approach with more integration and coordination in operations.ANALYSIS2. Slow gowth of electronicsIn LCD business, new TFT technology had been introduced. NEC, Toshiba, HitachiHad entered the now large market.

Asahi and Mitsubishi electric built Advanced Display Inc. to produce TFT activematrix LCD.

In 1991, had a new joint venture with Komag Inc. developing new thin film heads For disk drive.

The making of disk head was an assembly business, distant from material business which Asahi had expertises and experiences.Electronics division share low profit for total Firms income (about 5%).ANALYSIS3. Emerging new glass opportunities(New Glass = Glass with inherent function such as selective light transparency,Photoconductivity, and electrical insulation)

Although they already joined the New Glass forum - an association established In 1985 to promote information exchange ranged from glass manufacturer, chemical,Metals, electronics, cable, and communication- there was no clear indication as to what direction company should take in New glass opportunities.

Some observers said, the New Glass business is rosy expected to reach about$20 billion.

Others observers pointed out New Glass would be in high technology fieldsWhose competitive environments were far different from traditional glass business.This strategy would make company in 50:50 position, which could get high profit or suffered loss of efforts and money as they did not have an experience in new high technology competition environtment.ANALYSIS4. Challenge of combining technological expertiseCombiing technological strategy to produce unique products. By example:

A. Bi-layer glass for automobiles which combined a layer of glass and that urethane to improve safety.B. Fluoropolymer-coated automotive window glass which repelled water more effectively.

This strategy would not be an easy task, for the company was not used to such cordination and the cultures of various divisions often differed.This strategy would not increase the profit significantly because the new unique products could be substitute the current technology without made any increasing in market share.ANALYSIS5. Revitalizing the corporate cultureThe company felt the pioneer spirit culture in their company going fade away.Historically, the company had relied on developing new products from its techno-Logies, and was not good at developing products that met the customers need.

Chairman Mr. Furomoto ( had been trying to create entrepreneurial culture in theCompany where wind can blow the organization and promote market in cus-Tomers focused approaches.

The revitalizing corporate culture may have significant impact for company in facing the global competition. Good corporate value/culture may create environment that encourage initiative and innovation inside the firm and also could create above average return for the company.As the President, Seya responsibled in making a policy regarding their long termStrategy for their company (AGC). Although Japan was suffered a crisis in that mo-ment and their domestic market reached their mature business, Seya needed to make decision to increase the firms net income which decreased consecutively in3 years. With the conditions occured to their company we have recommendationsin this situations (3 to 5 years plan):

Company needs to focus their strategy in expanding businesses to foreign market.(North America, Asia, and Europe). As data resulted, many of country outside of Japan still have a growth in their Glass market. Glass market also shared the highest net income to the total companys profit (56%). This conditions also described theExpertise and the experience of the company to this business.

The company should not focused in TFT & films head electronic division, which the firms could not compete with other rivals that has expertise more than companys had.CONCLUSIONThe emerging New Glass opportunities gives uncertain condition to the company.This situation still need a study further before company make decision regarding thisproblem whether to continue to develop the product or not.

The combining technological expertise would be hard to the company to be imple-mented because of the various culture of division internally . So this strategy would not be the best option to be planned soon.

Corporate culture revitalizing gives the firm the positive impact, that should beImplemented to increase initiative and invention among the employee in workingEnvironment.

CONCLUSION