Page 118 - Accelerating out of the Great Recession

DEFENSE FIRST

ion for most Japanese business was to develop large and diver-
sified companies, Shin-Etsu recognized that maintaining lean
and focused operations would give it the best chance of success.
In practice, this strategy resulted in Shin-Etsu’s plastics divi-
sion focusing on one type of commodity plastic—polyvinyl chlo-
ride (PVC). Meanwhile, its competitor, Mitsubishi, continued to
invest in five different kinds of commodity plastics through the
1990s. With its single-minded focus on PVC, Shin-Etsu was
able to develop market leadership and therefore create a scale
advantage, while at the same time it used its expertise with PVC
to develop new and better products and manufacturing
processes. During the 1990s, Shin-Etsu was known for having
one of the leanest operations of all global PVC manufacturers.
One factory produced 2 million tons of PVC per year with only
200 staff; by contrast, its competitors employed 2,000 people or
more to produce the same amount of PVC.
Shin-Etsu’s decision to focus on a lean advantage early in the
1990s led to sustained success, resulting in a 126 percent
increase in earnings before interest and taxes (EBIT) and a 4.6
percent gain in market share by 2000. The average EBIT of its
six closest competitors in the specialized chemicals industry
grew by only 18 percent in the same period (1990–2000).
Things were going well for Shin-Etsu in 2000, but when the
dot-com bubble burst, Japan entered another recessionary period.
To protect its business fundamentals, Shin-Etsu restructured
again, eliminating 10 percent of its workforce. True to its coun-
tercyclic philosophy, Shin-Etsu also invested capital in develop-
ing new manufacturing capabilities, preparing it for the upturn.
By first protecting business fundamentals, Shin-Etsu was
able to use its position of strength to take more aggressive
actions throughout the Lost Decade. With its focus on PVC,

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