OJI PAPER CO., LTD. History

Company Perspectives:

The twenty-first century will be a period of major change on a global scale, driven by advances in information technology, the trend toward globalization, and efforts to overcome urgent environmental problems. Oji Paper has set a new goal for this new and unexplored era. That goal is to become an Asian corporate citizen domiciled in Japan operating under our fundamental corporate ideals of contribution to the environment and culture, a commitment to reform and speed, and a determination to build and maintain trust throughout the world. Oji Paper is determined to achieve robust growth in the twenty-first century, while enhancing its total group strength.

Key Dates:

1873:

Eiichi Shibusawa founds Shoshi-Gaisha.

1890:

Shoshi-Gaisha changes its name to Oji Paper Manufacturing Company.

1933:

Oji Paper Manufacturing Company merges with Fuji Paper and Karafuto Industry.

1953:

Oji forms Alaska Pulp Company.

1970:

Oji merges with Kita Nippon Paper Company.

1990:

Oji forms Howe Sound Pulp and Paper Limited, a joint venture with Canfor Corporation.

1993:

Oji merges with Kanzaki Paper Manufacturing Co., Ltd.

1996:

Oji merges with Honshu Paper Co.

1999:

Oji closes Kumano paper mill.

2001:

Soichiro Suzuki takes charge of Oji.

2003:

Oji announces plans for new plant in Nantong City, China.

Company History:

Oji Paper Co., Ltd., Japan's second largest paper producer, operates 16 mills in Japan that annually manufacture over seven million tons of printing and writing papers, corrugated board and boxboard, as well as packaging and wrapping papers, paper-based containers, thermal papers, plastics, and disposable diapers. Oji is also involved in the production of chemicals for papermaking and packaging. With over 120 subsidiaries and affiliates worldwide, Oji's operations extend throughout Asia, Europe, and the Americas. As Japan's paper market has become saturated, Oji, like its rival paper producers, has made expansion abroad, particularly in other parts of Asia, its key strategy.

Early Years: 1873-1933

In 1873 Eiichi Shibusawa founded Japan's first private paper manufacturer and the first Japanese company to employ Western papermaking technology. The venture, called Shoshi-Gaisha, received financial backing from the Japanese government and from two of Japan's prominent zaibatsu, or conglomerates, Mitsui and Shimada. Shibusawa, on the heels of a major success in which he had imported, assembled, and successfully started up Japan's first Western-style cotton-textile mill, persuaded his investors that he could do the same thing in the manufacture of paper. The project involved the purchase and assembly of a British paper mill. Two years later, in 1875, Shoshi-Gaisha's first mill, the Oji mill, went into production. Shoshi-Gaisha was, at first, unprofitable, but as Japanese paper consumers began to accept the first domestic paper, the company became profitable.

The 1880s showed substantial growth for Shoshi-Gaisha but little in the way of profits for the company's investors. By 1890, though still not very profitable, Shoshi-Gaisha had virtually monopolized the manufacture of Western-style paper in Japan. Shibusawa had sent his nephew, Heizaburo Okawa, abroad to study the latest foreign technology, and by 1890, a more efficient and profitable production system was developed. Shibusawa by this time needed fresh capital for Shoshi-Gaisha, and he approached the Mitsui Bank. Mitsui Bank, a leading member of the Mitsui group and one of Shoshi-Gaisha's initial backers, agreed to provide more funds to revamp Shoshi-Gaisha's production system. Hikojiro Nakamigawa, managing director of Mitsui Bank, then used the bank's equity position in the company to remove Shibusawa and Okawa, who was by then Japan's foremost papermaking expert, from Shoshi-Gaisha's management.

Nakamigawa brought in Ginjiro Fujihara from another of the huge zaibatsu's many operations, along with a new management and production team. In 1893 the company's name was changed to the Oji Paper Manufacturing Company. The new management team began the process of building Oji into one of Japan's largest and most successful industrial organizations.

In the years preceding and following the turn of the century Oji's growth paralleled the rapid expansion of the entire Mitsui zaibatsu. Abandoning many of its traditional craft-oriented and retail businesses, the Mitsui zaibatsu focused its growth on heavy industry. By utilizing a worldwide marketing strategy, the zaibatsu increased all of the group's sales and global markets. Shortages in consumer and industrial goods caused by Europe's retooling to meet the demands of World War I opened up new opportunities for Japanese business on a global scale. During World War I Japan's exports tripled, reaching more than $1 billion annually. Industrial production as a whole quadrupled, and during these years, Oji's sales spiraled, creating even greater opportunities in business on a level that was international in scope. The company also became one of Japan's largest employers.

The man chosen by the zaibatsu to guide Oji though this period of large growth was Ginjiro Fujihara. A strong proponent of all types of Japanese expansionism, Fujihara boasted in one of his books that Japan's enterprising traders would go to all points on the globe, no matter how intimidating the climate in an effort to sell Japanese goods and promote Japanese business interests. Fujihara also believed that the country's strong leanings toward military imperialism was good for Japan, in general, and Oji's business, specifically. He felt that investing in the nation's military power would result in Japan's industrial producers having more power in the international marketplace.

1930s and World War II

In 1933, in the midst of a period of rapid industrial growth, the company merged with Japan's two other paper producing giants, Fuji Paper and Karafuto Industry. The new coalition created a company that supplied Japan with 78 percent of its paper needs. Japan established a puppet government in Manchuria in 1932, and in 1937 invaded China. Despite its isolating effect, war, it seemed, was good for business. During this time, Fujihara became one of the leaders of Japan's heavily industrialized, and militarized, economy as a result of his successes in running Oji. While still in control of the company, he was appointed director of the Industrial Equipment Management Control Association, a control corporation whose sole purpose was to remove obstacles to growth in the Japanese economy and to foster the establishment of new business enterprises.

During World War II Oji participated in wartime production to the extent it was able. Fujihara bowed to government demands that production be enhanced, but as a member of the Cabinet Advisory Council Fujihara spoke out against the National Socialist goal of nationalizing industry. Fujihara became the most powerful businessman in Japan in 1943, when he was appointed to a high government post, from which he continued to defend private enterprise. In 1944 Fujihara became head of the Ministry of Munitions, a challenging post at the end of the war, with labor and materials in short supply. While Fujihara was certainly patriotic and was equally opposed to nationalization of Japanese industry, his opinion of the war itself is less clear. Despite critical shortages of raw materials, Oji, like every other large Japanese business, contributed its share of production during the war years.

Postwar Developments

With the end of the war and the Allied occupation of Japan, Fujihara and many other business leaders were stripped of their authority. The Holding Company Liquidation Commission (HCLC) was formed by the occupation forces. The commission's job was to break up the huge zaibatsu that for centuries had monopolized Japanese trade and industry. The HCLC's purpose was to install the beginnings of a democratic, capitalistic system controlled by a greater number of smaller groups of Japanese businessmen and entrepreneurs, and to reestablish the Japanese economy on a self-supporting basis as quickly as possible. In all, 42 holding companies were dissolved. The Mitsui zaibatsu's holdings came through the process relatively intact. Oji, however, was one of Mitsui's few casualties, and, in 1949, was forced to deconcentrate. The company was broken into three separate paper manufacturing businesses, Jujo Paper Co., Ltd.; Honshu Paper Co., Ltd.; and Tomakomai Paper Co., Ltd. Tomakomai Paper was renamed Oji Paper Co., Ltd., after a brief time. The restructuring that resulted from the application of the postwar Excessive Economic Power Deconcentration Law was completed in August 1949.

Along with the forced breakup, Oji was faced with the problem of diminished supplies of imported pulp to feed the company's paper mills. The loss of forest resources in Manchuria, Korea, and Sakhalin after the war led to a boom in the domestic production of pulp. The boom in turn created a serious threat to Japan's remaining forests. The Council for the Conservation of Natural Resources, which was headed by an Oji vice-president and forestry expert, Jun'ichiro Kobayashi, put the brakes on the reckless depletion of Japan's forest.

Using his newly appointed post on the council, Kobayashi used postwar Allied competition to pressure the United States to allow the development of the Alaska Pulp Company, in 1953. The United States agreed to Kobayashi's plan, knowing that the alternative available to Oji and its sister companies was to try to exploit the Soviet Union's vast Siberian forests. U.S. leadership was wary of permitting the Soviets and Japan to develop any strong business affiliations. After a series of meetings in Washington, D.C., with the State Department and the Interior Department, tentative approval was given to form a company to import Alaskan forest products to Japan. In 1953 the Alaska Pulp Company was established with start-up capital of about $1 million. After a great deal of trans-Pacific negotiation, an additional $20 million was raised for the venture, half from U.S. investors and half from Japanese. The Alaska Pulp project was the first large postwar overseas investment made by the Japanese paper industry and helped to revitalize U.S.-Japanese business relations.

With the end of the Allied occupation in 1952, prospects for all Japanese businesses were good. Slowly those who had reigned supreme as the leaders of the prewar zaibatsu regained much of the control and influence they had prior to 1945. Ginjiro Fujihara, Oji's president for many years, died in 1960 at the age of 91. His disciples were instrumental in the reorganization of the paper and pulp industry in Japan and became presidents of the four largest paper companies to emerge after the war.

Growth in the 1960s and 1970s

The new Japanese industrial sector was very different from what had existed prior to World War II. During the early 1960s Oji was one of many companies that underwent a complete modernization of its production methods and milling plants. These changes in the company's production techniques took place at a time when Japan's labor movement was also going through a new, more progressive transformation. The Japanese worker had more power than ever before; and the layoffs and firings that took place as a result of the modernization of Oji's mills caused numerous problems including strikes and, in turn, retaliatory lockouts.

Nevertheless, Oji continued its growth in the paper business with virtually no attempt at diversification. In 1970 Oji merged with Kita Nippon Paper Company, and several years later merged again, this time with Nippon Pulp Industries. A pulp mill was constructed in New Zealand in 1971 that was followed by the construction of another mill in Brazil the following year.

With so much expansion, Oji wanted to insure itself of a continuous supply of forest products to provide necessary raw materials. To this end, the company established the Institute for Forest Tree Improvement, in Kuriyama and Kameyama. One of the most important contributions made by the institute was the Biomass Conversion project. Sponsored by the Japanese government, the project developed a new variety of poplar tree capable of growing three meters in the same number of months.

Over time, Oji also became more attuned to the advantages offered by diversification. The company started to develop production methods for value-added papers, that is, photographic papers, sanitary products, and thermal and other forms of communication-equipment papers. In the 1970s and 1980s, Oji expanded its line of specialty and consumer-oriented paper products. In 1989, the company began producing and marketing its own line of disposable diapers. Under the guidance of Oji's president, Kazuo Chiba, the company was in the early 1990s actively involved in new product research and development to further broaden its product lines.

Rapid Growth in the 1980s

Fueled by the booming Japanese economy of the 1980s, the nation's paper industry as a whole rapidly expanded its capacity. As part of this process, in 1988 Oji participated in a $1 billion joint venture with the Canadian-based Canfor Corporation to form Howe Sound Pulp & Paper Ltd. Howe's first production mill in Vancouver was completed in 1990, and was capable of producing 585 tons of newsprint and 1,000 tons of market kraft paper per day. Oji marketed the newsprint, while the kraft pulp was sold by Canfor Pulp Sales. Howe got off to a rocky start, though. Low pulp prices and operating difficulties in the mill eroded early profits.

Undeterred, Oji further increased its size and production capabilities in 1989 as a result of another merger with Toyo Pulp Company. At that time, the company's annual output of newsprint had reached almost 900,000 tons. The company produced as many as 200 different types of newsprint to meet the specific demands of its different customers.

Consolidation in the 1990s

By the early 1990s, however, Oji and its competitors had created a supply glut that threatened to swallow the industry. Oversupply led to a collapse in paper prices, at the same time that demand for paper was flagging because of the crash of the entire Japanese economy. In response, the major players in the industry sought to retain or even increase their market share by slashing paper prices. Rather than stabilizing the industry, however, this strategy wrought further devastation. The Wall Street Journal Europe called the paper industry's situation the "worst of the postwar era." Like other paper companies, Oji's financial reports reflected the industry's hard times. The company's pretax profits for fiscal 1990 dropped 33 percent from the previous year. Fiscal 1991 proved no better; Oji's pretax profit plummeted another 46 percent, while sales fell 1.3 percent.

With the failure of their price-cutting strategy, Japan's leading paper manufacturers began to consolidate as a means to eliminate excess capacity. In 1992, Jujo Paper Co. (Japan's third largest producer) and Sanyo-Kokusaku Pulp Co. (Japan's fifth largest paper company) agreed to merge, setting off a nearly decade-long spree of mergers and acquisitions in the industry. The Jujo-Sanyo combination, rechristened Nippon Paper Industries Co., surpassed Oji to become the nation's largest paper company with a market share of 17.3 percent. Oji responded in 1993 when it merged with Kanzaki Paper Manufacturing Co., the seventh largest paper company in Japan. The two firms complemented each other. Oji was a dominant force in general paper products, including newsprint and printing paper (though Oji's share of Japan's printing paper market had slipped behind Nippon Paper's). Meanwhile Kanzaki (a spinoff from the pre-World War II Oji Paper) specialized in higher-end surface treated and processed paper products.

Oji further reconnected with its roots three years later, in 1996, when it merged with Honshu Paper Co. Ltd., Japan's top producer of paperboards. (Like Kanzaki, Honshu was separated from Oji during the postwar deconcentration.) The resulting company boasted Japan's largest production capacity in paper and paperboard, surpassing its chief rival, Nippon Paper Industries, and ringing up sales of ¥1 trillion. Yet Oji's eye was not squarely on the bottom line. As an analyst for SBC Warburg Securities explained to the Asian Wall Street Journal, "[Oji is] thinking about winning market share more than about profitability."

Indeed, while the Honshu merger added bulk to Oji, it did not immediately rejuvenate the company. In fact, the acquisitions of Kanzaki and Honshu presented Oji with new challenges. Oji was now faced with redundancies, overlapping subsidiaries, and unanticipated inefficiencies. By 1997, the company had sprawled to encompass 88 distinct groups, a reflection of its unwillingness to alter its cozy internal practices. As the Nikkei Business Daily noted, Oji was known for its "calm corporate atmosphere," in which its management earned the top salaries in the industry and brutal efficiency had never been required.

Oji's traditional ways began to change in 1999, when the company reported its first postwar annual net loss. The company began consolidating its sprawling operations. In March, Oji announced it would cut its workforce by 1,500 over a three-year period. A few months later, Oji closed its Kumano paper mill in the Wakayama Prefecture. The company also began to tackle its problems with overlapping operations, particularly in the low margin paperboard products sector.

Adjustments and Renewal: 2000 and Beyond

In 2000, Oji received an additional spur to improve its profitability when its top competitor, Nippon Paper Industries, announced it was merging with the Daishowa Paper Manufacturing Co. The result of this union--Nippon Unipac Holding Co.--had sales of ¥1.22 trillion and a 32.2 percent share of the Japanese market. With this last installment in the decade-long series of acquisitions, the Japanese paper industry was largely controlled by two major powers: Oji and Nippon Unipac. Oji was falling behind.

To reverse this trend, Oji brought Shoichiro Suzuki to the helm in 2001. Suzuki immediately announced new short and long-term goals for the company, and instituted additional restructuring steps. "To maintain profitability, the company needs to continue efforts to streamline operations and secure new earnings sources," Suzuki told the Nikkei Report. "We intend to take a fresh look at every aspect of our operations." He paid special attention to the company's paperboard affiliates. Oji turned four cardboard-related affiliates into a wholly owned subsidiary and then merged the subsidiary with the newly created Oji Paperboard Co., a centralized Oji group that oversaw production and sales of cardboard material. This move was expected to save ¥10.5 billion ($87 million).

Suzuki also formally conceded what market analysts had long recognized: the Japanese paper market was saturated. Consolidating inefficient operations and bolstering domestic paper prices would only go so far. What Oji needed most was new markets, and Suzuki pinpointed Asia as the region in which his company should focus its expansion. China, in particular, was promising terrain. Spurred by its rapid economic growth, China's demand for paper was expected to grow roughly 9 percent a year. In 2001, Oji announced it would invest $1.2 billion in paper producing facilities in Asia during a five-year period. "Japan will continue to be our home, but we need to expand our 'home' into Asia to keep the company growing," an Oji spokesperson told Dow Jones Commodities Service.

In keeping with this strategy, in 2002 Oji purchased from Procter & Gamble its P&G Suzhou operation, a paper products manufacturing plant near Shanghai. With this move, Oji gained access to the household products market in Shanghai, China's region with the largest purchasing power. Less than a year later, Oji announced an even bolder move. It would begin construction on a $1.69 billion plant in Nantong City, China. By 2006, the plant was expected to have a production capacity of 600,000 tons per year and to be the world's largest pulp/paper integrated paper works. By 2010 the company estimated that the new plant would account for 18 percent of the firm's current capacity.

Principal Subsidiaries: Oji Paperboard Co., Ltd.; Fuji Paper Co., Ltd.; Nepia Co., Ltd.; Oji Container Co., Ltd.; Chiyoda Container Corporation; Oji Packaging Co., Ltd.; Oji Tac Co., Ltd.; KS-Systems Inc.; Toyo Pack Co., Ltd.; Oji Timber Co., Ltd.; Oji Forestry & Landscaping Co., Ltd.; Oji Logistics Co., Ltd.; Yufutsu Wharf Co., Ltd.; Kokusai Pulp & Paper Co., Ltd.; Oji Trading Co., Ltd.; Oji Engineering Co., Ltd.; Oji Business Center Co., Ltd.; Honshu Toshin Co., Ltd.

Principal Competitors: Georgia-Pacific Corporation; Hokuetsu Paper Mills, Ltd.; International Paper Company; Mitsubishi Paper Mills Limited; Nippon Unipac Holding; Weyerhaeuser Company.

Further Reading:

• "Japan's Oji Paper to Merge with Kanzaki," Asian Wall Street Journal, February 1, 1993. "Jujo Paper Co., Sanyo-Kokusaku Agree to Merge," Wall Street Journal Europe, July 9, 1992.
• "Oji Chief Eyes Asia for New Profit Sources," Nikkei Report, September 25, 2002.
• "Oji Paper Embarks on Drastic Rationalization," Nikkei Business Daily, September 24, 2002.
• Roberts, John G., Mitsui: Three Centuries of Japanese Business, New York: Weatherhill, 1989.
• Sarmiento, Prime, "Japan's Oji Paper Plans Huge Expansion in Asia," Dow Jones Commodities Service, June 13, 2001.
• A Vision of the Future, Tokyo: Oji Paper Co., Ltd., [1989].

Source: International Directory of Company Histories, Vol. 57. St. James Press, 2004.