SEKISUI CHEMICAL CO., LTD. History

Company Perspectives:

The Sekisui Chemical Group defines a "good company" as one that has a favorable image and continuing growth. We intend to maximize business growth and corporate value with customer satisfaction to respond to the expectations of our shareholders. In addition, through our business, products and contribution to society, we aim to contribute to the community and the global environment. We actively support the self-actualization of the employees who are the driving force of our corporate activities. The Sekisui Chemical Group will pursue a prominent position in the marketplace and high profitability. We will continue to grow as a "good company," thereby fulfilling our corporate responsibilities and responding to the expectations of our customers, shareholders, employees, community, and environment.

Key Dates:

1947:

Sekisui Sangyo is established in Osaka.

1953:

The company lists on the Tokyo Stock Exchange.

1960:

The firm sets up Sekisui House Industry as an independent company.

1983:

The five manufacturing plants of Sekisui House, by now the largest housing firm in Japan, build more than 40,000 houses.

1998:

A weak housing market forces Sekisui to post a loss.

2002:

Sekisui continues to restructure; the company reports a net loss of ¥52.11 billion.

Company History:

Sekisui Chemical Co., Ltd., a member of the Sekisui keiretsu group of companies, operates three main business divisions, including Housing Company, Urban Infrastructure and Environmental Products Company, and High Performance Plastics Company. Prefabricated housing accounts for over half of Sekisui's sales. Its other products include plastic pipes, rain gutters, roofing materials, foams, packaging and industrial tapes, films, adhesives, high-functional resin, and transdermal and diagnostic drugs.

Early History

A glimpse at post-World War II Japan revealed only devastation. The war left millions homeless and many others, including six million soldiers, looking for jobs. Reconstruction efforts in the economic, industrial, and political sectors, however, were effective. The reform program, led by General Douglas MacArthur through the Allied occupation of Japan, transformed the country's economy by breaking up the largest zaibatsu (conglomerates), providing a new sense of freedom for workers, and increasing the number of business owners and managers. Recovery took hold. In this era, Sekisui Chemical Company was established as Sekisui Sangyo in Osaka, in 1947.

The company's initial products were chemicals and plastic products for home and industry. In 1948, it set up plants in Nara and Osaka. The company became the first to install an automatic plastic injection molding machine in the Nara plant. Nevertheless, production demands on Sekisui were such that the company established a new plant in Kyoto in 1952. This was followed by two additional facilities, in Amagasaki and Tokyo, in 1953. That same year, the company listed on the Tokyo Stock Exchange.

International expansion was its next logical direction for Sekisui. In 1962, a new subsidiary, Sekisui Chemical GmbH, in Düsseldorf, was formed. In New Jersey, Sekisui Products, Inc., was established in 1963. That same year, the firm also opened Sekisui Malaysia Company. Eventually, the name of this subsidiary would be changed to Sekisui Singapore (Private) Ltd.

Prefab Housing: Late 1950s and 1960s

As the company continued to develop products for the housing, industrial, and construction industries, a new market developed: prefabricated housing. Prefabricated houses allowed components to be made in a factory before being assembled at the home site. By the close of the 1950s, the practice had caught on in Japan. Prefab housing offered a new approach to the traditional Japanese method of tediously cutting wood for a home, piece by piece, according to a carpenter's specifications; in prefab units, standard lumber sizes were provided.

In the early 1960s, a Sekisui engineer visited Disneyland in California, in part to see the plastic "house of the future" designed by Monsanto Company. He returned to Japan with hopes of creating a similar home, although his efforts were not successful. Like many of the first prefab houses, the new model lacked the style and comfort of conventional homes. Explained a company spokesperson in Fortune (October 17, 1983), "The houses were cheap looking, and people weren't interested."

After improving initial designs to include fiberboard and aluminum panels set in steel frames, Sekisui's prefab homes were better received. In 1960, the firm set up Sekisui House Industry as an independent company. It would be active primarily in building steel-frame houses. In 1961, Sekisui House opened a plant in Shiga and began marketing its Type B, one-story prefab home. In 1962, Sekisui then introduced a new model, the two-story Type 2B. The following year, the firm changed its name to Sekisui House. The remainder of the decade saw a flurry of activity from the young company, including several new models. Among them were the Sekisui House Type E, a one-story home developed in 1965; Type F, a two-story home, also developed in 1965; Type G, a five-story house designed in 1968; and Type H, a two-story model designed in 1969.

By the early 1970s, the "unit house" entered the market as a new form of prefab housing. It differed from previous wood-frame prefabs in that it was enclosed in a steel frame and it utilized concrete and metal in its walls and ceilings. In addition, the home could be built on an assembly line in room-size segments. In 1971, Sekisui erected 260 such homes, which were termed Sekisui Heim. Each could be built in a matter of hours. While the majority of Japanese homes continued to be built by conventional methods, prefab houses gained a good market share. In 1972, the total housing market in Japan reached a record high: two million new homes. By 1973, the company's Musashi and Nara plants were each producing 2,000 unit homes per month.

Problems in Germany in the 1970s

In 1970, Sekisui House built a new plant, in Kanto. The following year, the firm was listed on the Osaka and Tokyo Stock Exchanges and unveiled the Terrace House and Type K House, which featured a hip roof. The firm's success in the Japanese market sparked ambitious hopes of exporting its prefab homes. In 1973, Sekisui invested in a West German plant, with plans to build 500 homes there annually. Because the houses cost more than expected, however, actual sales were closer to 120. Masaru Tanabe, president of Sekisui House, told Fortune (October 17, 1983) that expectations were not met because "the Germans didn't work hard enough, so our productivity went down." After investing $7 million in the German facility, Sekisui finally gave up in 1982, and the plant was closed.

While the unsuccessful venture in West Germany may have left the company apprehensive about exporting its housing products, it did manage to build a hotel and group of college classrooms and dormitories in Nigeria in the early 1980s. It continued to make capital investments in major rural construction, setting up specialized firms along the way. The company engaged in other real estate activities, including developing and selling housing lots.

In 1972, Sekisui House listed its stock on the Amsterdam and Nagoya Stock Exchanges. The following year, it built a new plant in Yamaguchi. In 1977, its stock was also listed on the Frankfurt Stock Exchange. For its quality-control efforts, Sekisui Chemical was awarded Japan's prestigious Deming Prize in 1979.

In the 1980s, the use of computer-aided design helped Sekisui offer more customized homes. Seated before a computer terminal with a Sekisui sales representative, customers could then view a standard model and add extra rooms or increase the size of present rooms, all with the touch of a few buttons. After sending the order to a regional factory, the finished components could be assembled in a few hours thanks to the company's highly automated facilities. Similar to automobile factories, the plants featured assembly lines that moved housing modules into an assembly area. Robots helped to collect various components that were to be shipped to a building site. At the site, the structure was assembled in less than a day, although plumbing and electrical work required another one or two weeks.

With a population of 119 million people living in a comparatively small area, about the size of California, prefab housing continued to be a viable solution for the nation's housing problem. For Sekisui, the homes' success seemed undaunted by the slowing real estate market of the 1980s. By 1982, total housing construction dropped to 1.2 million homes, yet prefab sales continued to climb. Overall prefabs dominated 12 percent of the housing market, surpassing industry expectations. The five manufacturing plants of Sekisui House, by then the largest housing firm in Japan, built more than 40,000 houses in 1983.

Recession Leads to Diversification in the 1980s

At Sekisui Chemical, the recession of the early 1980s sparked a move toward diversification. Chemical companies throughout the world looked to higher-priced specialty products for their profits. Sekisui Chemical, whose sales dropped from $1.34 billion in 1981 to $1.29 billion in 1982, was no exception. By the end of the decade, its diverse product line would include not only home products and housing materials but agricultural and fishing products, packaging products, and automotive products. By 1984, Japanese plastic and chemical companies saw a return to higher production and profit levels; annual sales at Sekisui climbed to $1.43 billion. An agreement in 1986 with Meisei Electric helped the firm expand its home product line to include home security equipment. Throughout the mid-1980s, chemical companies that had diversified, rather than relying on basic petrochemicals, earned higher profits. Despite the declining yen, the company saw increased sales because of higher domestic demand. By 1987, sales amounted to $3 billion, more than double the figures of five years earlier.

Sekisui continued its diversification efforts in 1989, when it formed a joint venture with Union Carbide Chemicals & Plastics Company. The venture, Hexatec Polymers, was developed to make resins for toners used in copying machines and laser printers. The venture relied on Sekisui's technology, as well as the marketing expertise of both firms, to make the new start-up successful.

Automotive products, including parts, anticorrosive materials, and foam products, also held new promise for Sekisui. In 1989, Voltek, a division of Sekisui America Corporation, developed an extrusion coating process for use as an automotive headliner. The new method, which combined polyolefin foam and thermoplastic elastomer, was developed as an alternative to PVC material to resist cracking, heat, and fading. It was first installed on 1990 Toyota Camry and Nissan Sentra models. In addition, the company's polyvinyl butyral film, used in automotive safety glass, had gained more than half of market share.

By the end of the 1980s, Sekisui's new ventures were clearly paying off. The company began producing medical instruments and electronic equipment, such as photoelectro-magnetic discs. To prepare for the coming unification of the European Economic Community, it added a new subsidiary, Sekisui International Finance, in 1989. In addition to supplying data on Europe's financial markets, the new venture was developed to handle such financial activities as loans, foreign exchanges, mergers and acquisitions, and technology transfer agreements. In the meantime, Sekisui House expanded its product line to include wooden and concrete houses, as well as apartments. The firm also began work on a research institute in Kyoto in the late 1980s.

The 1990s and Beyond

Sekisui Chemical entered the 1990s with a product line that encompassed flooring and furniture for office automation; pipes, gutters, and other construction products; industrial and automotive products; packaging materials; medical and electronic equipment; and agricultural and fishing products. Products for the home ranged from furniture to household chemicals.

During this time period, Sekisui Chemical operated as Japan's largest synthetic resin processing company and the largest prefabricated home builder. While the company experienced success in the early to mid-1990s, however, it began to struggle during the latter half of the decade. A slowdown in the housing sector forced Sekisui to rethink its strategy for its prefabricated division. As such, the firm executed a restructuring plan that refocused the division's core business. As a result of the reorganization, the company shuttered some of its steel and wood-based operations.

Weak consumer spending and the continued slowdown in housing development wreaked havoc on the company's bottom line. From 1998 to 2002, Sekisui reported losses. In order to combat turbulent market conditions, Sekisui embarked on an aggressive restructuring of its entire business line. The plan included the sale of unprofitable subsidiaries, including its U.S.-based PVC pipe manufacturer. Overall, the company laid off over 2,000 employees and discontinued two prefabricated housing product lines. Poor demand for its office equipment plastic parts forced the closure of its plasticizers plant in Sakai and its plastics part facility in Fujieda. Sekisui's net loss for fiscal 2002 grew to ¥52.11 billion.

In order to shore up sales and profits, Sekisui's management team launched a new strategy that focused the company's efforts on products related to the environment and cutting-edge chemistry. The firm's 2004 annual report outlined the new Sekisui vision: "We aim to build a highly profitable group of businesses by providing strikingly original products and services. We will achieve this by developing the cutting-edge chemistry and environmental technologies that are our unique strengths to a level of prominence that cannot be paralleled by competitors."

As part of this strategy, Sekisui entered into several key partnerships and acquisitions. In 2002, it formed a joint venture with Qingdao Construction Group to manufacture and sell water pipes in Qingdao, China. It also landed a contract to provide thermal barrier films for auto glass to Euyao Glass Industry Group Co. In 2003, the company purchased a 51 percent interest in Shanghai Redflag Plastic Co. Ltd. As a result of the deal, Sekisui secured a 30 percent share of the foaming polyolefin market in China.

By now, Sekisui was organized into three main business divisions: Housing Company, Urban Infrastructure and Environmental Products Company (UIEP), and High Performance Plastics Company (HPP). Each division focused on increasing its competitive stance by offering products and solutions based on the company's new vision. For example, the Housing Company focused on the environment by offering customers "zero utility expense" houses. These homes were equipped with photovoltaic generators. UIEP targeted environmental solutions in pipe systems while HPP focused on information technology, automotive parts, medical products, and functional building materials.

The company's efforts appeared to pay off. During 2003 and 2004, both sales and net income grew. In fact, during 2004 net income climbed by 61.5 percent over the previous year to ¥15 billion. While weak economic conditions had forced Sekisui to undergo significant change during the early 2000s, its management was confident that their actions had left the company well positioned to experience success in the years to come.

Principal Divisions: Housing Company; Urban Infrastructureand Environmental Products Company; High Performance Plastics Company.

Principal Competitors: Asahi Kasei Corporation; Kubota Corporation; Taisei Corporation.

Further Reading:

• "Dire Straits--Komatsu Is the Latest Japanese Vinyls Player to Embark on Restructuring," Asian Chemical News, September 26, 1997.
• "Japan's Sekisui Chem to Exit Office Equipment Plastics Parts Business," Asia Pulse, December 3, 2001.
• Levy, Emanual, "P/A Technics Industrialized Housing," Progressive Architecture, February 1987.
• Onosko, Tim, "Digitized Dream Dwelling," Omni, June 1985.
• "Sekisui Chem Aims to Raise Profitability," Reuters News, March 23, 2001.
• "Sekisui Chemical Expects This FY Group Net Profit Y22B," Dow Jones International News, April 27, 2004.
• "Sekisui Chemical Posts Wider Loss for Its Fiscal Year," Asian Wall Street Journal, May 17, 2002, p. M3.
• "Sekisui Chemical to Restructure Prefab Housing Business," Dow Jones International News, September 25, 1998.
• "Sekisui Chemical to Top Group Profit Growth Rankings," Japan Economic Newswire, July 10, 1995.
• Smith, Lee, "Now Japan Moves Ahead in Prefabs," Fortune, October 17, 1983.
• Ushio, Shota, and Paula Block, "Japanese Specialty Chemicals: The Coming Wave," Chemical Week, July 9, 1986.

Source: International Directory of Company Histories, Vol.72. St. James Press, 2005.

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