MITSUBISHI RAYON CO., LTD. History

Company History:

Mitsubishi Rayon Co., Ltd., originally a major Japanese producer of rayon, is now an important manufacturer of acrylics, plastics, polyesters, and optical fibers. The company, part of the huge Mitsubishi trading network, reflects the general trends in Japan's textile industry, which has undergone a drastic restructuring in recent years. In 1961 natural and synthetic textiles provided Japan's largest export earnings and employed 1.2 million workers. Over the last three decades, low-wage competition from textile industries in neighboring Asian countries and increasing U.S. protectionism have greatly reduced the importance of Japanese textiles and have caused Mitsubishi Rayon and its Japanese competitors to look for new products and markets.

Textiles became important early in the history of Japanese industry. Cotton and wool spinning existed before the Meiji restoration in 1868, but afterwards the Japanese government provided spurs to industrialization by buying foreign plant and equipment abroad. Inflation fears during the 1880s caused the government to sell the plant to private investors. Close links between these investors and the government allowed many of these enterprises to develop into the powerful zaibatsu or giant trading enterprises. Much of the textile industry, however, remained in the hands of small-scale producers. They became increasingly dependent on zaibatsu like Mitsubishi for the distribution and international marketing of their products.

Japan has always been famous for its silk. After Commodore Perry opened Japan to international trade in 1853, foreign demand rose and provided an important source of foreign exchange that allowed the Japanese government to purchase industrial plant and equipment abroad.

The textile industry is often cited as a textbook example of an ideal industry for an industrializing country because it is a low-wage, labor-intensive business in which countries like turn-of-the-century Japan enjoyed a strong advantage over more developed countries like Britain. Later Japan would discover that this was an advantage it could also lose, but by the 1920s Japan had become successful at cotton and wool spinning and weaving. In the early 1930s textiles accounted for about one-third of the country's industrial product and provided employment to half the country's industrial workers.

Rayon, the first universally popular man-made fiber, was taken up eagerly by Japanese industry in 1929. The plantcellulose-derived material was first known as "artificial silk" or "wood silk" until the term "rayon" was coined in 1924. Rayon was inspired by the need to reproduce chemically what a silkworm does in creating silk from its own body fluids. In the industrial process, cellulose is converted to a liquid compound and then back to cellulose in the form of fiber. The cellulose is usually derived from soft woods or the short fibers adhering to cotton seeds.

In 1892 rayon was first commercially produced in France, but it was discontinued because of its high flammability. A year later, viscous rayon was developed in Britain and remains the most popular form. Its ability to absorb moisture has made it a popular clothing material. It is also used in carpets, home furnishings, and tires.

Mitsubishi Rayon was one of a number of rayon companies set up in the 1930s. Historically, the industry has been characterized by fragmentation and a large number of small-scale producers. Producers like Shinko Rayon Ltd., as the company was first known when it was incorporated in 1933, were and are dependent on the zaibatsu. The trading giant Mitsubishi controlled Shinko Rayon when it began producing rayon in 1934. By 1937 the Japanese rayon industry was already the largest in the world. Production had risen to 326 million pounds (lb) from 27 million lb in 1929. The government had encouraged production for strategic reasons, and the textile industry as a whole employed nearly half the country's industrial work force, bringing in more foreign exchange than any other export industry.

Shortages of cotton, wool, and other raw materials led the government to encourage the production of man-made and synthetic fibers, and these shortages became worse as World War II began. A 1938 law required the use of a percentage of man-made or synthetic fibers in the manufacture of woolen and cotton goods. Japan claimed to have invented a new manufacturing process for nylon--invented in the United States in the late 1930s--during the war, but soon afterward Japanese companies had to buy licensing rights for this same process from U.S. companies.

War production reorganization led to a series of reintegrations and mergers within the Mitsubishi empire. In 1942 Shinko Rayon was merged with Japan Chemical Industries and began the production of acrylics. Two years later, a further merger created the giant Mitsubishi Chemical.

After Japan's defeat in 1945, the Allied--overwhelmingly American--occupation authorities were determined to break up the huge zaibatsu as part of a program that purged 50,000 businessmen and politicians and reformed land tenure, education, government, and the legal and financial systems. They hoped to destroy the business and bureaucratic combinations that had been powerful engines for Japan's prewar conquests in Asia.

As one of the largest zaibatsu, Mitsubishi was a prominent target for the Allied restructuring of Japanese industry. In 1950 Mitsubishi Chemical was split into its original constituents: Shinko Rayon, Japan Chemical Industries, and Mitsubishi Chemical. Although Shinko Rayon was renamed Mitsubishi Rayon Company on December 1, 1952, Mitsubishi decreased its equity interest in the company through a listing on the Japanese stock exchanges in the same month.

Mitsubishi's equity interest in Mitsubishi Rayon decreased from the 1950s onward--by the 1990s it was about 14%--but the company has remained part of the Mitsubishi empire in a way that is typical of the cooperative company structures that have replaced the prewar zaibatsu. With interlocking directorates and shared ownerships and projects, Mitsubishi Rayon and other Mitsubishi-affiliated companies are able to buy and sell to each other at favorable rates and use the formidable international trading and financing facilities of the parent company.

Allied occupation authorities may have destroyed the power of the prewar zaibatsu but, fearing chaos, they left the other partner in Japan's industrial machine, the bureaucracy, largely intact. Japanese officials soon proved themselves to be just as capable of coordinating a state industrial policy with Mitsubishi and the other new, interlocking empires. This powerful combination has allowed Japan to restructure its industries to anticipate changes in the international marketplace and avoid some of the pains of industrial obsolescence and unemployment familiar to many Western industries. The textile industry is often cited as an illustration of the ability of the Japanese Ministry of Trade and Industry (MITI) to provide central "administrative guidance"--not legal but virtually compulsory rules--to force Japanese industry to respond to changing world markets.

By 1949, under encouragement from MITI, the Japanese textile industry started to manufacture synthetics on a large scale. In the 1950s Japan's role as a supply base for the Korean War led to an economic boom. MITI virtually shut down the uneconomic Japanese coal industry. It could force mergers or directly import foreign technology. Some companies and industries received favorable treatment and advice from MITI. When the textiles industry first fell into a slump in 1952, MITI circumvented the anti-monopoly law and formed an effective cartel, which included Mitsubishi Rayon, to discourage overcapacity. In 1953 the anti-monopoly law was significantly weakened by new legislation.

The textile industry quickly found its feet again. Textile workers' wages remained low, the yen was undervalued, and the United States had not yet demanded trade protection from Japanese goods. Today's Asian competitors--South Korea, Taiwan, Hong Kong, Singapore, and Malaysia--were still recovering from war. China was consolidating its Communist revolution and its huge supply of cheap labor was barely a factor in the international marketplace.

In the 1957-58 recession the cotton-spinning and rayon industries experienced a slump that caused them to reassess their position. As Mitsubishi Rayon and other large textile concerns accelerated diversification into synthetic fibers in 1959, MITI began to take a closer look at textiles, which had once again become the country's largest industry.

Mitsubishi had begun to manufacture acetate, a synthetic textile fiber made from cellulose, in the mid-195Os. By 1962 acetates were used in Japanese cigarette filters. The company increasingly specialized in acrylic fibers and set up a separate subsidiary, Shinko Acrylic Fibres, in 1957, though this was remerged into the main company in 1968. Manufacture of polypropylene, used for upholstery and carpets, began in 1962 and triacetates were added to the product list in 1967.

National production of cotton fabrics and yarns reached a high of 3.38 billion square meters in 1961 and fell into steady decline, while production of synthetics grew rapidly from 116 million square meters in 1957 to 2,397 million square meters in 1969. Much of this output was exported to the United States, where the domestic industry began to complain loudly to Congress and the Johnson and Nixon administrations.

At the same time, MITI had become worried about overcapacity. Installation of synthetics-manufacturing equipment was made subject to prior government approval in 1960. By the mid-1960s, MITI was strictly rationing facilities that could be built for the production of synthetic fibers. The fact that firms like Mitsubishi that had obtained early approval retained a competitive edge over firms that failed to get approval later was criticized.

Nevertheless, Japanese manufacturers continued to be successful in selling to the United States. After long, drawn-out negotiations failed to yield results, the Japanese Textile Federation--including Mitsubishi Rayon--and MITI decided to try to diffuse growing U.S. political opposition by adopting voluntary curbs on textile exports to the United States for three years after July 1, 1971.

The increase in exports was to be kept to 5% in the first year and 6% in the following two years, with actual exports in 1970 serving as a base, but President Richard Nixon and the U.S. textile industry quickly denounced the agreement. Nixon had received large campaign donations from the U.S. industry. He also wanted the votes of textile workers concentrated in the Southern states, where he focused his "southern strategy" for his reelection.

The president's 1971 action to discontinue the convertibility of the dollar--the "Nixon Shock"--did far more to shake up the Japanese textile industry. The yen lost its favorable fixed rate position and drifted upward. As the 1973 oil price hikes by OPEC increased synthetic production costs, Mitsubishi Rayon faced new challenges from low-wage Asian competitors who began a steady assault on the Japanese home market. By 1986 Japan was a net textile importer.

All these factors created a slump that hit the industry hard in 1974 and lasted into the early 1990s. Mitsubishi Rayon retrenched by cutting its work force by 25% in 1975-1976 and then by selling its head office building in 1977. Prices for fibers continued to drop. An attempt by the Japanese Chemical Fibers Association to form a cartel failed in early 1977. After a forum of company presidents failed to cope with domestic prices, by October 1977 MITI decided to intervene with the first "production curtailments based on MITI advice" since 1965-1966.

By the late 1970s it became clear to the company's management that changes in Japan's world market position in textile fibers were permanent. Mitsubishi Rayon decided to withdraw from rayon staple production and reduce its dependence on the production of textile fibers in favor of plastics and other synthetics.

In November 1977 Toyobo, another major textile firm, and Mitsubishi Rayon rejected a widely expected merger in favor of a joint venture to develop a joint acrylics marketing firm. In early 1978 Mitsubishi Rayon closed its rayon staple production facilities.

In 1979 MITI and the government discouraged further expansion of the synthetic fiber industry. Synthetic fiber manufacturers were required to dispose of 18% of their manufacturing facilities. MITI encouraged synthetic textile makers to diversify.

Despite efforts by Mitsubishi Rayon and other companies to cope with these changes, domestic and export textile sales continued to slump and by 1980 Japanese textiles had acquired a reputation as a "sunset industry." By this time, however, the company was well on the way to diversification into non-textile synthetic materials, especially optical fibers and engineering plastics like methyl methacrylate resin (MMA). The company soon had one of the world's largest production capacities for MMA. In the year to March 1985, non-fiber products already accounted for more than half of Mitsubishi Rayon's sales.

By the beginning of the 1990s, the name "Mitsubishi Rayon" seemed a misnomer. The company had ceased production of its original product, rayon staple, in 1978. Non-textile synthetics, rather than man-made cellulose textiles, now dominate its diversified production. The main cellulose product is now acetate: the company is the largest acetate producer in Japan and had about 50% of the cigarette filter market in 1990. Plastics and resins accounted for 41% of total sales, acrylic fibers accounted for 18%, polyester filaments for 15%, and acetate fibers for 15%. In effect, only one-third of the company's gross sales are now derived from fibers.

Mitsubishi Rayon has expanded its facilities from its original Otake Production Center near Hiroshima, where it makes acrylic fibers and MMA resins, to additional large centers at Toyohashi, near Nagoya, producing polyester, polypropylene, and carbon fiber, and Toyama, on the west coast of Honshu, producing acetates.

New high-performance fibers are expected to show significant growth in the 1990s, but for Mitsubishi Rayon diversification into non-textile activities has already paid off. Operating profits have shown a steady increase over the period 1988-1991 but even in its new diversified activities the company faces difficulties similar to those of other Japanese firms: a highly valued yen and intense competition from Taiwan and South Korea. Like all its rivals, it looks to technological efficiency and research into promising fields like biotechnology to guarantee continued success.

Principal Subsidiaries: Mitsubishi Rayon Engineering Company Ltd; Mitsubishi-Burlington; Ryoko Company Ltd (68%); Ryoko Electronics Company; Nitto Chemical Industry (53%); Dupont-Mitsubishi Rayon Company Ltd. (50%); P.T. Vonex Indonesia (45%); Mitsubishi Rayon America Inc; Metco North America Inc; Pan Pacific Yarn.

Source: International Directory of Company Histories, Vol. 5. St. James Press, 1992.

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