How Successful Has Agc's Diversification for Domestic Flat Glass Been?

AGC Case

1. How successful has AGC's diversification for domestic flat glass been?

AGC has found much success in its strategies for diversification, greatly expanding its scope from a sheet glass manufacturing company. Simply by looking at industries spanned and customers served, AGC’s early diversification led to great growth. After initially purchasing materials to make glass, AGC began to make its own raw materials, and then sell them to other manufacturers. The exploding demand for glass and its various, and continually growing number of functions allowed AGC a strong core business in glass manufacturing. Slowly, AGC was able to diversify and expand into tangential businesses. The construction and chemical businesses allowed AGC to tap into other growing revenue streams, as the chemical business accounted for about 40% of revenue by the early 1970’s. Diversifications branching from current businesses seemed to work best, by providing steady and educated expansion into related markets. Conversely, the decision to jump into electronics was a more difficult process.
 

1. Did AGC need to diversify?

With growth in the glass market beginning to stagnate following the boom subsequent to World War II, AGC was in a position where it needed to diversify to find new avenues for growth.  Revenue growth was falling short of management’s expectations in the early 1970’s. The decision to expand to electronics was based in the industry’s growth potential as well as AGC’s management’s mild experience in the area. These reasons do not strongly justify the decision to develop an electronics business. While new business for AGC had blossomed from associations with other industries in the past, most were related to industrialized manufacturing. Most were under the same umbrella covering materials/construction. A move to the electronics industry would begin to serve a different consumer in an advanced era.

1. Did the mode of diversification affect success?

AGC attempted to diversify through internal growth, acquisitions, and joint ventures. AGC’s attempt to diversify through internal growth was a slow and steady approach. Benefits included getting to know a product area before jumping into it. This reduced risks associated with getting into a new line of business. However, the slow process of gaining exposure to a new type of glass function or new type of chemical material, and then beginning to manufacture that product prevented any major leaps in revenue growth. Acquisitions allowed quicker expansion into new industries, such as AGC’s purchase of controlling interests in Nippon Carbide Industries Co. and ELNA. Acquisitions also allowed entrance to new geographical markets that could be going through more favorable stages of growth than the home market. However, acquisitions came along with unrelated business units such as those of ELNA hat were not necessarily appropriate for AGC. Additionally, Japan’s culture at the time was not particularly amenable to acquisitions and headhunting, possibly bringing negative attention to the company. Joint ventures also expanded reach to areas that may be closed off to AGC alone. Joint ventures provided AGC access to markets in Thailand and Indonesia that were protected by local governments. While joint ventures hedge risk, they also diminish the rewards from a potential new market, as they must be shared with a partner. Acquisitions and joint ventures also provide companies with economies of scale, and economies of scope. For decisions to expand into less familiar markets, joint ventures are more appropriate.