Asahi
Asahi
Asahi
Having started with the manufacture of flat glass, AGC had diversified into a large
number of mostly related businesses. The company had adopted the strategies of
product, industry and geographical diversification. In some of the businesses the
company has been successful while in others it has not been able to meet the
targets.
The successful diversification attempts were mostly in the traditional glass and
chemicals industries. For eg. : fabricated glass (56% domestic market share & 20%
global market share), Glass bulbs for CRT (50% domestic market share & 30% global
market share), chemicals (40% market share in soda-ash, 46% market share in
caustic soda). On the other hand, the Ceramics division had not grown remarkably.
Similarly, the Electronics Division had not been able to meet the companys targets
and the growth rate was slower than expected.
The diversification policy that AGC had aggressively followed had definitely related
in the expansion of the business into a $10.5bn company. However Exhibit 1
indicates that the growth in sales was not accompanied by a proportionate increase
in profitability. The Return on Sales, Return on Assets and Return on Equity, the 3
key financial measures of the success of any company, have steadily declined for
AGC from 1970 1992. The returns is 1992 are almost half of those of 1990. Such a
dramatic decline in two years is an alarming situation in the opinion of the group.
Also Asahis ROS, ROA and ROE, though higher than its competitors in Japan (Nippon
Sheet Glass, Central Glass, Nippon Electric Glass), were significantly lower than its
international competitors -PPG and St. Gobain (Exhibits 8 and 9).
From this analysis the group feels that AGCs diversification strategy was successful
in expanding the global reach of the business (from a Japanese business to a truly
global firm) and increasing the revenue of the company (10.82% CAGR in the period
1970 -1992). But the strategy was unsuccessful in reserving the profitability of the
company (decline in profitability from 7.3% in 1970 to 1.8% in 1992). So it seems
that the expansion came at the cost of profits.