Asahi Glass Company (AGC) was established in the early 1900 to reduce Japan’s dependency on imports. The firm was the first successful venture into the flat glass industry. Three years after the it started production, AGC registered its first profits, and since then it has established itself as a market leader focusing its efforts on diversification. Today, the AGC Group’s business covers four industrial fields, namely glass, electronics, chemicals as well as ceramics. Through the establishment of pioneering technologies combined with expertise developed over more than a century of technological innovation, AGC offers a diverse portfolio of products for clients across a wide range of industries. For instance, the company provides architectural glass and automotive glass as well as extending to display glass in the ‘New Glass’ sub-sector. From a managerial perspective, the AGC Group pushes the limits in the creation of new standards of value. However, much remains undiscussed when it comes to geographical and technological diversification in making the company the giant it is today.
Asahi Glass Company (AGC) has experienced a variety of crises, such as the Second World War of 1945, the oil crisis of 1973, as well as the global financial meltdown of 2008. The enterprise has not only survived these critical instances but also grow from being a Japanese startup to a global icon in different industries. As explained by Furrer (2015), AGC’s owes its success to diversification. After establishing itself as a leading local entity in Japan’s glass industry, the company progressively expanded its range of businesses as well as geographical opportunities through acquisitions, mergers, and internal growth. Today, the AGC Group’s business covers four industrial fields, including glass, electronics, chemicals as well as ceramics. in 1992, 56% of AGCs sales revenues came from glass, 39% from chemicals, 6% from electrics, and 2% from ceramics (Harvard Business School Publishing Corporation, 1994). Currently, according to the company report of 2017, the trend seems to be the same; however, on average, the glass revenues are dropping while growth in the electrics industry has been somewhat slow. Therefore, it can be argued that diversification has not purely helped AGC survive through tough iconic times but helped it manage its growth by expanding its revenue horizons.
Table 1. Product diversification financial report
|Glass||48% (667.3 billion yen)||53% (686.3 billion yen)||52% (692.9 billion yen)||53% (680.0 billion yen)||50% (735.1 billion yen)|
|Electronics||25% (346.0 billion yen)||22% (319.7 billion yen)||22% (288.6 billion yen)||20% (258.1 billion yen)||18% (262.4 billion yen)|
|Chemicals||21% (290.7 billion yen)||23% (317.2 billion yen)||24% (318.5 billion yen)||25% (316.6 billion yen)||30% (437.6 billion yen)|
|Ceramics and others||6% (78.6 billion yen)||2% (80.8 billion yen)||2%(68.1 billion yen)||2% (70.8 billion yen)||2% (75.4 billion yen)|
|1382.6 billion yen||1404 billion yen||1368.1 billion yen||1325.5 billion yen||1510.5 billion yen|
|Net Sales trends||1320.0 billion yen||1348.3 billion yen||1326.3 billion yen||1282.6 billion yen||1463.5 billion yen|
|Operating Profits trends||79.9 billion yen||62.1 billion yen||71.2 billion yen||96.3 billion yen||119.6 billion yen|
Sources: The data presented is collected from company annual reports by the author
Tabe 2 above shows the product diversification strategy used by AGC from 2013 to 2017. The data shows although the glass markets remain constant, making profits of 68 billion during the period. all other products improved significantly in terms of sales, thus increasing profitability. The main reason for AGC taking up all four diversification models is its abundance of resources. The electric, ceramic, as well as chemical productsmay be considered part of AGC’s horizontal diversification strategies as each represents a new product. However, there are great technological relations when it comes to developing these products reducing production costs. Additionally as explained by Fahlman (2018), venturing into the chemical and electric industry has helped AGC to maintain a regular supply of material with better quality as well as lower process thus making chemical production part of its vertical diversification strategy. An analysis of AGC’s products reveals that the company does utilize its potential of already existing networks, partnerships, and marketing systems in adding value as well as revenue with limited costs. Finally, by diversifying to new regions, AGC triggers a higher return ratio while investing in what most may think is a new industry.
Over a half a century ago, AGC developed its then-revolutionary glass bulbs for television picture tubes. The move was the firm’s first step towards the diversification strategy. As explained by the Asahi Glass Company (2016) report, in 1955, ACG developed its first electronic material in the form of glass bulbs used for television picture tubes. Since then the company has applied leading-edge technologies such as surface treatment and molding in its glass-forming electric devices. Currently, AGC offers a wide range of electric materials, such as synthetic quartz glass, high-purity silicon carbide jigs as well as other semiconductor manufacturing components, CMOS/ CCD blue filters and various optical materials for smart devices such as smartphones, digital cameras, and tablets, glass frit plus paste display materials for electrical insulation. Despite the introduction of high quality products into the market, the electric sub-sector has struggled to majorly impact on company’s revenues. As indicated in table 1 the electric sub-sector is on a poor business trajectory, from making 346.0 billion yen in 2013 while making u 25% of AGCs revenue to making 262.4 billion yen in 2017 only constituting to 18% of sales. As indicated by Todd (2018), the electric business is highly competitive and the supplier bargaining power is low because of a high number of substitutes. Additionally, AGC’s electric options are currently being substituted for less costly options, for the company to maximize its current situation there is a need to sub-contract production to another partner thus getting a higher return on investments.
The glass industry is the main source of income for Asahi as indicated in Table 1. However, the smart devices that are the hallmark of the digital era have made the future of the new glass business profitable with estimated revenues of $20 billion by 2025. Flat glass could be considered as the company’s core competency and, over the years, products such as Infoverre, Glascene, and Augmented Mirror are examples of the enterprise’s investment in the new glass industry. Infoverre digital signage is a novice technology made up of an LCD directly attached to a building’s exterior facade or interior glass (Todd, 2018). The AGC Group has developed a non-reflective, clear images of a similar technology that gives afloating impression by applying integrated optical technologies developed through its chemicals sub-sector. Glascen is a glass screen that has the ability of mounting images onto it while maintaining its transparency when unused (Todd, 2018).Currently, AGC develops a type of Glascenglass that remains translucent when unused. Another digitized glass product that is in the market is the Augmented Mirror, a type of mirror that displays augmented reality (AR) on its surface (Todd, 2018). The product hasadequate visibility compared to conventional mirrors. To improve the company has to increase investments in new glass products in terms of quality to capture market demands.
Several aspects helped AGC to establish itself as a market leader in Japan’s local glass industry, the primary factor being value creation. As narrated by Furrer (2015), since the early 1950s, it became clear that AGC has a significant amount of resources that led management towards finding multiple uses its products in the glass industry. AGC then diversified into ceramic and chemical salesdue to market power and economies of scale. Additionally, as more similar entities became established in the Asian region, it became apparent to the managers that there was a need to venture into Europe and The Americas. By 1914, the company had made its first export of flat glass to England, which indicated that diversification helped spread business risks while improving capital returns. It can be argued that AGC chose the most appropriate businesses as well as the correct mode of diversification for several reasons. For example, diversification along with related products in different stages of the product cycle helped spread risks during crises. Additionally, by using acquisitions, internal growth, and joint ventures the company maximized investments. For example, an analysis of most unrelated ventures taken up by AGC shows it retained its expertise thus maintaining high efficiency.
Table 1 above shows that AGC product diversification strategy has been of significant help in growing the business. Nevertheless, the company also ventured to new territories particularly in Europe and the Americas.
Table 2. AGC Regional sales ratios
|Region||year||Sales ratio (billion Yen)|
|Japan and Asia||2012||911.1|
Sources: The data presented is collected from company annual reports by the author
From figure 2 above it is clear that the geographical diversification into Europe and The Americas has helped the company survive tough economic times particularly in the local Japanese or Asian market. For example, in 2013 the company made an estimated 1260.1 billion yen with 956.9 of the total amount coming from Japan and Asia. In 2016, the AGC made 1283.2 billion yen a higher amount than 2013 yet only 859.9 billion came from the local market. The higher revenues from other regions have helped the company grow underlying the diversification modes, as well as products selected by the company executives. From the figures presented in tables 1 and 2, it can be argued that both the product and geographical diversification philosophies have worked. However, the diversification to the development of electric devices was not as successful as ceramic and chemical products. The reason for this poor performance is the existence of cheaper alternatives in the market. Additionally, although the ceramic products have maintained a progressive increase in sales over the years, figures show slow effort. The reason is that the products have limited clientele.
Strategic management of resources can be the difference between a profitable business venture and a failing one. Over the years, various business studies scholars have emphasized this philosophy; nevertheless, its significance become conceptualized in the 21st century because of issues such as globalization. Asahi Glass Company (AGC), an entity established in the early 1900, has been subject to challenges through its century old existence and diversification has been its core strength in surviving these harsh times. In the manuscript, it is clear that the company invests on various related businesses from its core competence of glass manufacturing. Currently, the company has invested its resources in four industrial fields, namely glass, electronics, chemicals as well as ceramics as a form of product diversification. While some products, such as the chemicals and ceramics, have been highly profitable, the electrics options have been a letdown. Due to globalization as well as other market factors such as government policies on imports, the diversification strategy has become more complex to manage. This has led management to adopt geographical diversity as well. From the data presented on Table 2 in the manuscript this form of diversification has aided the AGC maintain some form of competitive advantage. The company depends on the sale of alternative products to maintain a high profit margin, underlining the importance of geographical and product diversification. As a recommendation for future studies in strategic management, AGC provides a case study subject on understanding aspects such as pricing, mergers, and acquisitions on non-related products such as the medical field.
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