Asahi Glass and Co

Case Analysis: Asahi Glass Co

Group F5

Sunil Kumar Murmu 0402/52

Sunil V M 0403/52

Suraj S K 0404/52

Surbhi Singh 0405/52

Suresh Chopra 0406/52

1. How successful have AGCs diversification been?

Asahi Glass Company has been through different crisis like World War II (1945) and Oil crisis

(1973). It has not only survived through these crisis but also has grown from startup to a

company worth $10.5 billion (Exhibit 1). All this it has been able to achieve through

diversification. After establishing a leading position in the domestic glass industry, AGC

gradually expanded its range of businesses and its geographical scope through internal

growth, acquisitions and joint ventures. And in 1992 AGC sales came from glass and related

products(56%), chemicals (30%), electronics (6%), ceramics and refrigerators (2%) and the

remainder from other areas (Exhibit 6 and 7). Even though the growth in electronic industry

has been slow, AGC has scope to do well in manufacturing TV glass bulbs. Hence it can be

concluded that diversification has not only helped AGC survive through crisis but had

definitely helped it grow.

2. Did the company need to diversify?

There were many factors which favored AGC as it was doing well in its domestic market and

once it matured, it has to see for more opportunities. Major reason for diversification was

value creation. Whereas it was supported by other advantages like AGCs market power,

economies of scale and financial economies.

There were resources available in excess, as a result AGC had the capabilities and core

competencies that had multiple uses in glass industry. So due to economies of scale and

market power, AGC diversified in Glass and related products.

Also it could face diminishing growth if it would had only focused on glass and related

products.

As the original domestic market of glass business has matured, there was a need to go for

globalization of its activities. But in that too it faced challenges in its management practices

into Europe and North America.

The most important advantage of diversification was that it could spread its business risk.

Diversification would thus lead to superior means of reducing investment risk or improving

capital returns.

3. Did it choose appropriate businesses and the correct mode of diversification?

It can be said that AGC chose appropriate businesses for the following reason:

Spreading risk across different businesses- Different business line had different stages of

product life cycle, hence minimizing investment risk.

The gross profit of each business line increased over the period from 1970 to 1992 (Exhibit

1)

AGC diversified into following divisions using acquisition, internal growth and Joint venture

mode of diversification. For the Related business companies where it had expertise, it used

internal growth. Whereas for unrelated business companies where it had limited resource

and expertise it preferred joint venture.

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