SUMITOMO RUBBER INDUSTRIES, LTD. History

Company History:

Sumitomo Rubber Industries, Ltd., Japan's third-largest automobile tire producer, manufactures tires under the Dunlop name in the United Kingdom, Germany, France, and the United States, as well as in its home country. It is also a significant producer of golf and other sporting goods, and imports high-performance car tires from Europe and golf clubs from the United States.

The company is part of the Sumitomo group, one of Japan's largest keiretsu, or conglomerates. The Sumitomo group originated in a 17th-century book and medicine shop founded by Masatomo Sumitomo, a former samurai. Another Sumitomo family member perfected a method of extracting silver from crude copper by using lead, and by the late 17th century, the family ran a prominent copper mine and refinery. By the time of the Meiji Restoration in 1868, which initiated Japan's industrialization, Sumitomo's investment and development of copper mines made it one of Japan's largest companies.

The Sumitomo group owned an interest in Dunlop Japan, a unit of the British company Dunlop, when it was established in Kobe in 1909. Dunlop produced its first tires in Japan in 1913, and Sumitomo Rubber was established shortly thereafter, in 1917. A close relationship developed and continued between the two companies.

By the early 1940s, the Sumitomo group had matured into one of Japan's leading zaibatsu, huge industrial concerns tightly controlled by a central board. When Japan went to war against the United States in 1941, all Sumitomo enterprises were pressed into military production. By the end of World War II in 1945, Sumitomo's industrial facilities had been substantially damaged by air raids, but the company was slated for rehabilitation during the postwar occupation and restoration period.

All zaibatsu were disbanded at that time under antimonopoly laws, so each Sumitomo unit became an independent company. When antitrust legislation was eased in the early 1950s, Sumitomo associates began re-establishing former business ties. Like other former zaibatsu, Sumitomo gathered its former companies together again through its family-owned bank, which facilitated cross-ownership of shares between the companies. These looser, but still powerful, industrial groups were called keiretsu, with Sumitomo ranking third among them, after Mitsubishi and Mitsui.

Sumitomo Electric Industries, another member of the Sumitomo group, bought a majority share of Dunlop Japan in 1963, and changed Dunlop's name to Sumitomo Rubber Industries (SRI). The rubber concern remained one of Sumitomo's smaller ventures, selling mostly within Japan, and ranking 12th in the world market as of 1985. By 1987 however, SRI ranked sixth in the global tire market, with tire-manufacturing bases in Europe, the United States, and Japan, the world's three centers of automobile production. With a 6% share of the market, it was creeping up on fourth-place Firestone and fifth-place Uniroyal, while the pack was led by Goodyear with 20%, followed by Michelin with 17% and Japan's Bridgestone with 8%.

SRI's change in status came about through the company's acquisition of additional Dunlop operations. During the early 1980s, a growing number of Japanese companies realized that to compete in the world market, they must buy into foreign companies, thus obviating a static home economy and trade barriers abroad. SRI became a trendsetter when it purchased a 98% interest in Dunlop's tire production in France, Germany, and the United Kingdom for $240 million in 1984.

Dunlop was on the verge of bankruptcy when the friendly takeover was initiated. The British company had made a critical error in the early 1960s when it deemed steel-belted radial tires a passing fad. Instead of developing a steel-belted radial like pioneer Michelin, the company opted to produce cheaper textile radial tires. These wore longer than traditional crossply tires, but could not perform like steel-belted radials. By the 1970s, when it was clear that steel-belted radial had superseded conventional tires, Dunlop did not have the capital to initiate steel-belted radial production.

Another of Dunlop's miscues was its acquisition of an interest in the Italian tire maker Pirelli in 1971. Pirelli had significant losses that year, and Dunlop had to write off its ¥40 million investment in the Italian company. The highly inflationary period of 1974-1975 dealt a blow to Dunlop's borrowing power precisely when it should have been stepping up radial production. Although 1978 was one of its most profitable years ever, Dunlop's debt soon absorbed all its profits, and by 1983 the company was losing money. The company opted to reduce its product range, a mistake in the highly specialized tire market. Lack of cash meant that production facilities were in disrepair and design and development programs were canceled. Several factories were shut down as employees were cut from 5,000 to less than 3,500 in the United Kingdom. Morale was abysmal and even top executives quit. Finally in 1984, the British company found itself unable to refinance its French subsidiary's losses, and had to let it go into receivership.

SRI had maintained close technical and commercial links with Dunlop. Its investment in the operation was massive, so the Japanese company did not want Dunlop to fall into competitors' hands. Also, SRI saw that the Dunlop operations could be highly profitable if given the proper financial and managerial backing; so, at Dunlop's behest, it acquired most of the company's tire business in 1984. Dunlop's U.S. tire business was bought out by its management in 1984, but was acquired by SRI two years later.

SRI changed the U.K. company's name to SP Tyres, and the German one to SP Reifenwerke, but retained the Dunlop brand name. SRI officials predicted that the heavily loss-making U.K. operations would be profitable within three years. That appeared to be an audacious claim, but by 1986 SP Tyres achieved an operating profit, and by 1987 made after-tax profits, which increased the following year.

SRI renovated its newly acquired plants and cut the work force by about 20%. The company established a ten-point recovery plan focusing on communication, training, employee participation in company goal-setting, equality among workers, cleanliness, job security, capital expenditure, staff flexibility, improved production methods, and compensation. The Japanese company, believing that local people would know their plants better than the new parent company personnel, allowed each of its newly acquired factories to maintain its own management, with Japanese advisors standing by as consultants. A massive capital investment was directed at improving quality and production efficiency, and, by 1989, SP Tyres was making 40% more tires than before the acquisition with 30% fewer workers.

Sumitomo Rubber Industries headed into the 1990s with growth in all three of its divisions--tires, sports equipment, and allied goods. Total sales climbed 14% in 1990, although a depressed market for automobile tires contributed to an 81% decrease in profits. The drop also reflected heavy capital investment in its overseas plants. SRI looked to new technologies and improved coordination of its operations. In December 1990, it incorporated Sumitomo Rubber Europe B.V. in the Netherlands to oversee its European operations and help prepare for the integration of the European market in 1992.

Principal Subsidiaries: Sumitomo Rubber Europe B.V.(Netherlands); SP Tyres UK Ltd.; SPReifenwerke GmbH (Germany); Dunlop France S.A.; Dunlop Tire Corporation (U.S.A.).

Further Reading:

• Arbose, Jules, "What's Behind the Rebirth of Dunlop in Europe? The Japanese," International Management, July-August 1987.
• Radford, G.D., "How Sumitomo Transformed Dunlop Tyres," Long Range Planning, June 1989.

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

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