DAIKIN INDUSTRIES, LTD. History

Company History:

Daikin Industries is the leading Japanese manufacturer of commercial air conditioning and refrigeration units. With over 25% of those markets under its control, Daikin also has branched into the residential air conditioning business and most recently added production in the areas of oil hydraulics and computer-aided design/manufacturing (CAD/CAM). As a major manufacturer of air conditioners, Daikin has long been deeply involved in the chemistry of coolants, and now faces the difficult task of finding substitutes for environmentally damaging agents such as the chlorofluorocarbon group.

Daikin was founded in 1924 during a period of robust economic activity in Japan. Although Japan had trailed the Western nations in the adoption of most modern technologies, by the 1920s its major industrial groups had taken shape and were able to provide secondary industries such as air conditioning with the raw materials they needed to get started. In 1924, air conditioning was still a very young industry, the necessary refrigerants only recently having been developed in the United States. Daikin, one of the earliest Japanese entrants in the new business, quickly established a solid customer base and the beginnings of an effective marketing group. The 1927 financial crisis that shook all of Japan proved only a temporary obstacle to Daikin's growth, but the ensuing Great Depression of 1929 caused economic hardship for the company. The lean years of the early 1930s were ended by Japan's intensive military buildup, which eventually provided every industrial concern with all the business it could handle. Daikin's sales soared as the general upturn translated into increased orders even for companies not directly involved in weapons production.

World War II ended with the nearly complete destruction of Japan's industrial base. Scanty records do not indicate the extent of Daikin's losses, but, like most of the country's capital-intensive firms, it faced the massive job of retooling and rebuilding. In addition, the Allied administrative command in Japan dissolved the great zaibatsu, or industrial conglomerates, which had organized and controlled most of the country's economic activity. Daikin, which had long been associated with the Sumitomo zaibatsu, thus not only had to rebuild its shattered assets but also adjust to a new economic order of decreased cooperation and interdependence. On the other hand, the Japanese government quickly evolved a highly supportive economic policy of subsidies and planned growth, which helped Daikin and the rest of Japanese industry get back on its feet.

The postwar decades were an unqualified success for Daikin. As in the United States, Japanese use of air conditioning and refrigerants in general soared in the 1950s. The increasing construction of high-rise office and residential buildings encouraged the use of the large, centralized air conditioning units in which Daikin specialized. A small but growing number of individual consumers also were beginning to demand air conditioning for the home. Japan's booming industrial economy, particularly the electronics firms, required Daikin's heavy-duty air conditioners. As the Japanese gained a reputation for excellence in electronics, the number of factories needing a temperature- and humidity-controlled environment grew rapidly, contributing to Daikin's impressive domestic sales gains. Finally, like so many other Japanese companies, Daikin began a tentative program of overseas expansion, originally restricted to its immediate neighbors along the Pacific Rim. Its success there encouraged Daikin to enter the important European market in 1972, when it formed Daikin Europe N.V. in Belgium to serve as its European headquarters. Daikin was the first Japanese maker of air conditioners to establish a base in Europe and has remained the Japanese leader ever since.

In the meantime, Daikin had developed a number of ancillary businesses. Its experience in the chemistry of coolants helped Daikin to build a highly successful chemical division specializing in the manufacture and sale of fluoropolymers, and of fluorocarbon gases, the basic ingredient in air conditioning coolants. Similarly, from air conditioning Daikin found its way into the production of refrigerating units for use in factories, warehouses, and restaurants. From its knowledge of coolant hydraulics, Daikin evolved a business specializing in the manufacture of pumps and valves used in oil hydraulics. Daikin has played an increasing role as a supplier of explosives and related equipment to Japan's Defense Ministry. Daikin has used its increasingly diverse production mix to cushion the effect of cyclical depressions in the construction industry, with which it does the great majority of its business. However, air conditioning and refrigeration provide the bulk of Daikin's revenue and will continue to do so for the foreseeable future.

With Japan's emergence as one of the world's leading economic powers in the 1970s, Daikin enjoyed its most productive decade yet. Despite the shock of the 1973 OPEC oil embargo, which caused problems for the Japanese economy, Daikin solidified its leading domestic position and expanded its overseas presence. Daikin as yet had no representation in the highly competitive U.S. air-conditioning market, the world's largest, and it spent a number of years planning a strategy aimed at gaining a foothold there. In the meantime Daikin pushed into Hong Kong, Singapore, and Australia and set up Daikin Air Conditioning (Thailand) Company, Ltd. in Thailand. Daikin also won business in Europe, where the highly urban population began to make greater use of air conditioning at home and at work.

The 1980s were a period of mixed results at Daikin. In a thriving Japanese economy, domestic sales continued at record-breaking levels, and Daikin remained the industry's undisputed leader. Yet overseas business suffered from the 1985 appreciation in the yen, which made Daikin products prohibitively expensive and dropped total overseas operations into the red for several years. Daikin entered the U.S. market focusing on the sale of residential window air conditioners. It hoped to build market share on those and on the popular Japanese concept of "split-room" air conditioning, in which individual room-units are connected to a single outside compressor but remain independently controlled, cutting electric bills. From such residential sales Daikin planned to move on to its bread-and-butter commercial business and eventually build local factories to save on freight and tariffs. Nevertheless, by 1990, Daikin failed to claim a significant portion of the U.S. market and temporarily shelved its plans for local production plants, its progress impeded by the expensive yen and the crowded U.S. market.

In 1982, Daikin inaugurated an electronics division to develop tools for the industrial engineering field. By 1983, when Daikin's corporate sales reached $700 million, the company was manufacturing industrial robots as well as assembling parts developed by American Robot Corporation of Pittsburgh. Robotics proved to be less than successful, however, and was gradually phased out of Daikin's product mix. The electronics division nevertheless went on to manufacture a variety of CAD/CAM hardware and software aimed at the upper end of that market.

A distressing setback was the spate of bad publicity generated by a 1988 trade scandal. Daikin was charged with selling a high-density halogenated hydrocarbon called Halon 2402 to the Soviet Union in violation of Allied trade bans on such materials; Halon 2402 can be used in missile guidance systems. Japan was especially sensitive to such criticism because Toshiba Corporation had suffered a similar scandal in 1987; the Ministry of International Trade and Information and Japan's judiciary pursued well-publicized investigations of the incident. Daikin admitted to selling 1,238 metric tons of Halon 2402, but said it did so by mistake, shipping ultra-pure Halon instead of the normal and unrestricted dilute form. The Japanese government fined Daikin the trivial sum of US$14,000 and forbade the company to sell to communist countries for six months. More painful for Daikin was the public exposure of wrongdoing, particularly discomforting in Japan, where honor is as important in business as it is in private life.

It became clear in the 1980s that chlorofluorocarbons (CFCs) were contributing to the destruction of the earth's critical ozone layer. Along with the rest of the air conditioning industry, Daikin began the 1990s searching for substitutes for a crucial ingredient in its most important product, and needing to find it quickly. Daikin had already reduced CFC levels where possible while increasing its research and development budget to find a long-term solution to the problem. By 1990, under Chairman Kiyoshi Sugasawa and President Minoru Yamada, Daikin hoped it had found the solution in a series of hydrochlorofluorocarbons and hydrofluorocarbons, which it planned to begin producing in 1992-1993.

Daikin remains dependent on air conditioning and refrigeration which contributed about 75% of its sales in 1989, almost 90% of which were generated domestically. It continues to dominate Japan's commercial air conditioning business and has made inroads in the residential market as well. With a leading position in Japan, the company's future growth will have to come at least in part from overseas sales. Daikin appears poised for major expansion in Europe, where it is preparing for the 1992 unified market, but it has yet to succeed in the tough U.S. market. The company's business along the Pacific Rim continues to grow.

In 1989 Daikin's chemical division contributed about 13.5% to Daikin's sales and in the future should yield an ever-growing number of new products, such as the synthetic chemicals Daikin developed for use in the semiconductor industry. Aside from its troubled experience with certain fluorochemicals, Daikin produced fluoropolymers used for molding and the coating of wires. Oil hydraulic systems, defense contracts, and electronics each added about 5% to Daikin's 1989 sales, helping the company weather the worst of the construction industry's ups and downs. Daikin boasts an unusual mix of products in the chemical, mechanical engineering, and electronics fields, a combination of diverse technologies.

Principal Subsidiaries: Daikin Plant Co., Ltd.; Tokyo Daikin Airconditioning and Engineering Co., Ltd.; Osaka Daikin Airconditioning and Engineering Co., Ltd.; Kita-Kyushu Daikin Airconditioning and Engineering Co., Ltd.; Chukyo Daikin Airconditioning and Engineering Co., Ltd.; Daikin Europe N.V. (Belgium); Daikin Australia Pty. Ltd.; A.C.E. Daikin (Singapore) Pte., Ltd.

Source: International Directory of Company Histories, Vol. 3. St. James Press, 1991.

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