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Successful Restructuring

Posted on: Sunday, 14 August 2005, 03:01 CDT

A major problem for the global economy in 2004 was soaring prices of raw materials and mineral fuel. For the first half, the overall situation moved firmly with the U.S. business continuing steady undertone and with China maintaining the expansionary tone in Asia.

For the second half, however, the growth rate decelerated under the influence of the slowdown in the digital product market as well as raw material and mineral fuel prices that stayed high. For the first half, the Japanese economy continued a moderate recovery trend because of the growth in exports and equipment investment in the growth sector, For the second half, nevertheless, a sense of speed reduction began to make an appearance as a consequence of supply- demand adjustments of digital products.

What actions were taken by Japanese textile firms in response to such an environment? Toray Industries, Inc. worked on the expansion of earnings by intensifying corporate mentality and by implementing business structural reforms. Consequently, Toray reported as follows for a fiscal year ending in March 2005: consolidated sales, 1 trillion 298.6 billion yen, up 19.3% from the preceding year; operating profits, 81.1 billion yen, up 42.7%; ordinary profits, 76.8 billion yen, up 48.8%; and current profits, 34.4 billion yen, up 64.5%. Toray renewed all-time highs in sales, operating profits and ordinary profits, respectively.

Asahi Kasei Corporation posted consolidated sales of 1 trillion 377.7 billion yen, up 9.9% from the preceding year and operating profits of 115.8 billion yen, up 90.1%. Ordinary profits were 112.9 billion yen, up 110.4% and current profits were 56.5 billion yen, 104%. Sales recorded an all-time high in 1991, but this was the second largest. Operating profits registered an all-time high in 1989, but this was the next largest.

Most textile firms reported all-time highs in sales and profits around 1989-1991. Subsequently, with the collapse of Japan's bubble economy, the business operation slackened. For the fiscal year ending in March 2005, however, firms reporting favorable performance exceeding or equal to those all-time highs appeared one after another. An increasing number of scholars consider that the Japanese economy has hit the bottom and the business condition is recovering smoothly. Chemicals indicate a high degree of contribution to profits. This is the result of the deeper infiltration of price increases resulting from rising prices of raw materials and mineral fuel.

All seven firms, namely, Asahi Kasei, Toray, Teijin, Toyobo, Kuraray, Mitsubishi Rayon and Unitika posted higher sales and higher profits. Nevertheless, as far as the textile division is concerned, only four of the seven firms registered higher sales and higher profits. These four firms are Teijin, Toray, Asahi Kasei and Kuraray. Three firms, namely, Toyobo, Mitsubishi Rayon and Unitika registered lower sales and lower profits. The total results of textile divisions of all seven firms combined were consolidated sales of 1 trillion 366.8 billion (up 9,8% from the preceding year) and operating profits of 55.3 billion yen (up 19%), Since the ratio of operating profits to sales for this fiscal year rose to 4% from 3.7% in the preceding year, it is clear that the earning power has improved.

It should be borne in mind, however, that the governing factors to determine the superiority of operation varied from firm to firm. The business like chemicals and resin that allows a straight shift of rising material costs to product prices is entirely different from the textile business. In other words, a satisfactory price rise is impracticable in the textile business. Many firms producing polyester filament for apparel applications operate in the red. The same thing holds true with spandex operations as well.

These textile products are affected adversely in a head-on price competition with Chinese firms. So in the textile business, only firms which achieved success in aramid fibers, man-made leather and nonwovens were able to improve their results. This trend prevailed virtually among all firms. Nevertheless, Toray was an exceptional case in its way of doing business. Toray does not offer high- function fibers such as aramid fibers and its nonwovens business is not sizable. In the case of Toray, carbon fibers are incorporated into the nonfiber sector.

On the basis of typical versatile fibers such as polyester, nylon and acrylic, Toray has increased profits. This signifies that Toray has achieved considerable results through the development of new products and new commercial distribution, which Toray calls "New Value Creator." This is really a successful case of an aggressive shift of rising material cost to product prices and a conversion of product categories to highly profitable items.

Copyright Osaka Senken Ltd. Jul 2005

Source: Asian Textile Business

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