Q1. How successful successful have AGC’s AGC’s diversications diversications been? Having started with the manufacture of at glass AGC had diversied into a large number of mostl! related businesses. "he com#an! had ado#ted the strategies of #roduct industr! and geogra#hical diversication. $n some of the businesses the com#an! has been successful while in others it has not been able to meet the targets. "he successful successful diversication attem#ts were mostl! in the traditional glass and chemicals industries. %or eg. & fabricated glass '()* domestic mar+et share , -* global mar+et share/ Glass bulbs for C0" '(* domestic mar+et share , * global mar+et share/ chemicals '2* mar+et share in soda3ash 2)* mar+et share in caustic soda/. 4n the other hand the Ceramics division had not grown remar+abl!. 5imilarl! the 6lectronics 7ivision had not been able to meet the com#an!’s targets and the growth rate was slower than e8#ected. "he diversication #olic! that AGC had aggressivel! aggressivel! followed had denitel! related in the the e8#ans e8#ansion ion of the busin business ess into a 91.(b 91.(bn n com#an com#an! !. Howeve Howeverr 68hibi 68hibitt 1 indicates that the growth in sales was not accom#anied b! a #ro#ortionate increase increase in #rotabilit!. "he 0eturn on 5ales 0eturn on Assets and 0eturn on 6:uit! the +e! nancial measures of the success of an! com#an! have steadil! declined for AGC from 1;< = 1;;-. "he returns is 1;;- are almost half of those of 1;;. 5uch a dramatic decline in two !ears is an alarming situation in the o#inion of the grou#. Also Asahi’s 045 04A and 046 though higher than its com#etitors in >a#an 'i##on 5heet Glass Central Glass i##on 6lectric Glass/ were signicantl! lower than its international international com#etitors 3@@G and 5t. Gobain '68hibits and ;/. %rom this anal!sis the grou# feels that AGC’s diversication strateg! was successful in e8#anding the global reach of the business 'from a >a#anese business to a trul! global rm/ and increasing the revenue of the com#an! '1.-* CAG0 in the #eriod 1;< 31;;-/. But the strateg! was unsuccessful in reserving the #rotabilit! of the com#an! 'decline in #rotabilit! from <.* in 1;< to 1.* in 1;;-/. 5o it seems that the e8#ansion came at the cost of #rots.
Q-. 7id the com#an! need to diversif!? AGC needed to diversif! due to the advantages of diversication as detailed below& •
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Asahi started its diversication b! bac+ward integrating through #roduction of +e! raw materials for glass manufacture li+e refractor! bric+s caustic soda etc. "his hel#ed the com#an! to actuall! avoid de#ending on im#orted in#uts and achieve economies of sco#e and consolidate its mar+et #osition. "he com#an! also develo#ed the technolog! and e8#ertise in chemicals o#ening u# a new area of doing business. "he glass industr! in >a#an was a mature industr! in 1;;- and demand had almost remained constant since 1;s. 5o to maintain the growth traector! of an! business in such situations it is essential for a com#an! to diversif! into new mar+ets andDor #roducts.
Q. 7id it choose a##ro#riate businesses and mode of diversication? AGC diversied into a ver! wide variet! of #roducts = chemicals ranging from in#uts to glass #roduction li+e soda3ash caustic soda etc to s#ecialiEed chemicals li+e foam urethane uoro#ol!mer resins etc s#ecialiEed glass #roducts li+e glass bulbs for C0" "F tubes C7 dis#la!s o#hthalmic lenses and frames construction materials electronics ceramics and s#ecialit! hoem health and medical #roducts including hot bath water #urier egg timer etc. "he businesses were a mi8 of related and unrelated businesses. However in s#ite of such e8tensive diversication glass still contributed ()* of the sales and also the biggest generator of #rots. "he 6lectronics business could not meet the internal growth targets but involved signicant e8#enditure es#eciall! on 0,7. $n the ceramics business the com#an! had initiall! focused on structural ceramics which failed to create a sucient mar+et and though the com#an! later shifted to functional ceramics I!ocera out#erformed AGC. 5imilarl! after ma+ing signicant investments in the dis+ head manufacturing business the com#an! realiEed it was an assembl! business not a material business which was their forte. 5o as a grou# we feel that the com#an! should be more #rudent in the choice of new businesses and ma! even e8#lore the o#tion of divesting certain businesses that do not contribute signicantl! to the to#line andDor bottomline and also lac+ #otential for future growth. "he com#an! should diversif! more into related areas where it can leverage its e8isting resources and ca#abilities because as research shows related diversication #roduces the highest returns. However the com#an!’s choice of method of diversication was commendable. $t built businesses from inside and the com#an! fostered develo#ment of a #ioneer and entre#reneurial culture. $t also activel! engaged in mergers and ac:uisitions to grow fast and get access to better technolog! and wider mar+ets.
