Nagase & Company, Ltd.

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Nagase & Company, Ltd.

1-17- Shinmachi 1-chome
Nishi-ku
Osaka 550
Japan
(06) 535-2114
Fax: (06) 535-2160

Public Company
Incorporated: December 1917
Employees: 1,860
Sales: ¥599.0 billion (US$4.69 billion)
Stock Exchanges: Tokyo, Osaka
SICs: 5169 Chemicals & Allied Products, Nec; 5198 Paints, Varnishes & Supplies

Nagase & Company, Ltd. is Japan’s foremost chemical products trading company. The company deals mainly in dyestuffs and chemicals, but also handles a variety of plastics, semiconductor manufacturing materials and equipment, pharmaceuticals, enzymes, medial and dairy farming equipment, abrasives, cosmetics, and the equipment to manufacture them. Nagase is different than other chemical companies in Japan in that the bulk of its products are produced under license from other companies. As a chemical trading company, Nagase merely distributes the finished products of other companies or manufactures those products as a licensee. As a result, Nagase is not required to devote huge sums of money to maintain leading technology labs devoted specifically to the development of new chemical compounds. Instead, these responsibilities fall to the companies for whom Nagase acts as an agent. Their investments in new technology are recovered through sales, and companies such as Nagase are there to facilitate greater sales.

Like many other venerable Japanese companies, Nagase traces its history back more than 160 years. The company was originally established as a small family trading enterprise, dealing mainly in dyestuffs that were used to color fabric. Even then Nagase did not function as a manufacturer of commodities, but as a wholesaler/retailer. While little is known about the founding family, the company was established in Osaka in 1832 at a time when Japan was closed to international relations. Osaka, one of Japan’s major pre-industrial centers of commerce, provided an excellent market for Nagase. Many of the area’s industries were based in the production and finishing of textiles. As these industries prospered, so did Nagase’s small business.

Decades later, when Japan opened its doors to international commerce, Nagase became acquainted with foreign dyes that contained unusual pigments, derived mostly from unique plants and other organic sources along the trade routes of the Middle East, India, Southeast Asia, and the United States. At the time of the Meiji Restoration in the 1860s, when Japan embraced an effort to modernize and industrialize along Western models, Nagase experienced another period of expansion. As Japanese textile manufacturers adopted more efficient Western production methods, their output increased. This resulted in increased demand for silk and other fabrics and the dyes to color them. The growth of Japan’s production capacity enabled the country to export a wide variety of products. One of the most lucrative at the beginning of Japan’s industrial period was textile products. The fine quality of the silk, careful construction, and beautiful pure dyes made Japanese fabrics and clothing extremely valuable in trading.

As the production capacity of resource-poor Japan increased, the economy became increasingly mercantilist. Japanese manufacturers now imported the majority of the resources needed to make a product, and then finished the goods and sold them at a value added premium. The same situation existed for Nagase, which in 1900 established business ties with the Chemical Industry of Basle, A.G., now known as Ciba-Geigy Ltd. Nagase imported a variety of products from Ciba, but virtually all were chemicals limited to industrial applications. Ciba, meanwhile, had become involved in manufacturing Pharmaceuticals, a few of which Nagase later handled.

By 1917 Nagase had outgrown its heritage as a family company. In order to expand, the company required massive sums of money that could not be satisfied through conventional investment loans. In December of that year the company was formally incorporated. The majority of shares remained in family hands or were purchased by banks and other large corporations.

To establish better ties with emerging chemical industries in the United States, Nagase had set up a sales office in New York City in 1915. From this office, Nagase could better observe developments in the American chemical industry and quickly establish purchase orders and sales agreements for new products. The office marked a major success in 1923 when Nagase established an important trading relationship with Eastman Kodak Company, a manufacturer of chemicals and photographic materials. The importance of Nagase’s agency business grew dramatically in 1930 when the company reached an agreement with the Union Carbide Corporation to market that company’s products in Japan. A few months later Nagase established a similar agreement with the Swedish chemical concern Aktiebolaget Separator, now known as Alfa Laval AB.

Japanese industry continued to grow at an enormous pace through much of the 1930s as Japanese industrial companies began to exploit the massive natural resources of neighboring countries, such as Korea and Taiwan, which were occupied by Japan. By 1937, however, Japan turned toward military adventurism, by invading China and, ultimately, the rest of Asia. With Japan on a war footing, called the “quasi-war economy,” many of Japan’s principal industries came under direct government control. Nagase, a major company in the chemicals industry, was also committed to war production. The primary nature of its business, however, was in trading. A trade embargo from the United States cut off Nagase’s supply of American products, and the war in Europe virtually eliminated business with Ciba and other firms located in England and Germany.

But Nagase did manufacture a small quantity of products under license agreements. As long as raw materials were available, the company could remain in production. It managed to stay in business through much of the war, manufacturing coloring agents for military uniforms, flags, camouflage, and clothing. By the end of the war, Nagase was less devastated by bombing than by the complete unavailability of raw materials. The firm was effectively closed even before the armistice was concluded.

The managerial leadership of many companies, primarily the zaibatsu conglomerates, were subject to review by war tribunals. Many lost their positions, but few were imprisoned. Nagase, for its small and largely involuntary role in the Japanese war effort, was spared from these investigations. Faced with rebuilding the Japanese economy, many industries picked up where they left off. Once again, the textile industry emerged as an engine of growth for the economy because its factories survived the war and there was both strong domestic and foreign demand for the products. With trade restrictions eliminated, Nagase was able to resume its import agreements with numerous manufacturers. Nagase also rebuilt its non-dye operations, providing crucial chemicals and chemical technologies to a variety of industries, including ferrous and non-ferrous metals manufacturing, paint, and other compound manufacturing. The company’s position in this area was strengthened in 1952 when it expanded its agreement with Eastman to include trading contracts with Eastman Chemical Products.

The 1950s were a period of strong growth for Japan’s basic heavy industries. Companies in these fields laid the foundation for many new industries, including ship and vehicle manufacturing, electronics, and chemicals. Nagase’s role in this period was primarily that of supplier, providing the necessary ingredients for paints and other treatments that finished large machinery. As volume increased, so did the demand for specially engineered products with unusual qualities and tolerances. This gave rise to additional contracts with foreign companies, bringing high-technology compounds and processes to Japan and firmly establishing Nagase’s position as a market leader in high-tech chemicals.

Nagase gained a listing on the Osaka stock exchange index in 1964, enabling a wider variety of primarily local private investors to become owners of the company. Five years later Nagase was listed on the larger Tokyo index, and shares in the company were traded nationally and internationally.

In 1968 Nagase concluded an exclusive distributorship with General Electric Company of the United States, handling a variety of that company’s products in Japan. Three years later, General Electric and Nagase established a plastics manufacturing joint venture called Engineering Plastics, Ltd. This important agreement was followed by the formation of a special joint venture with Ciba-Geigy in 1970. Nagase re-established its relationship with Ciba-Geigy immediately after World War II, when the Swiss company was divested from the German pharmaceutical combine IG Farben. Ciba remained one of the world’s leading chemical engineering companies, and was a major supplier and licenser of Nagase. Nagase established a third joint venture company in 1974, called Landauer-Nagase Ltd. Nagase’s partner in the venture was the American company Technical Operations, Inc. (now called Landauer, Inc.).

During the 1970s, Nagase gained a firmer position in the international market as a supplier of proprietary engineered compounds and processes. Foreign offices were no longer established with the single aim of gaining distribution of production rights. Instead, Nagase was now competing in foreign markets as a supplier. The company set up two subsidiaries in 1971, Nagase (Hong Kong) Ltd. and the Nagase America Corporation. The company established another subsidiary, Nagase Singapore (Pte) Ltd. in 1975. In 1980 the company opened an operation in Germany, Nagase Europa GmbH, and a second office in Singapore called Chang Fong Overseas Enterprises (Pte) Ltd. Rounding out its expansion into Southeast Asia, the company established Nagase (Malaysia) Sdn. Bhd. in 1982. Nagase subsequently opened new offices in the United States, Taiwan, Korea, England, Holland, Thailand, Canada, India, and Indonesia.

In 1988 Nagase received an award from the Ministry of International Trade and Industry, Japan’s government agency charged with industrial coordination. Nagase was awarded for its contributions to international trade through import promotion. This was an unusual and important commendation in light of Japan’s much larger and often maligned export industries.

In 1989 the bulk of Nagase’s business was still in the distribution of other company’s products, leading to a decision to establish a new Science and Technology Foundation and a Research and Development center at Kobe. These research institutes were dedicated to testing existing processes for improvement and developing new biotechnologies and organically engineered chemicals. This marked an important turn in Nagase’s mission; the company was no longer interested in merely handling another company’s products. The lead time required to yield such technological breakthroughs is long. In addition, it takes many years to assemble a qualified staff that can properly channel the group’s energies toward a successful discovery. The primary focus of the group is the development of organic chemical products.

In 1990 Nagase set up a plastics manufacturing operation in Taiwan called Nagase Wah Lee Plastics. This facility manufactures plastic compounds for several manufacturers in Taiwan that produce computer and electrical appliance casings and other products. In April of 1992 Nagase reintroduced itself to the chemical industry as a “technical information trader,” promoting a new group of five subsidiary companies: Nagase Electronic Chemicals, Teikoku Chemical Industries, Nagase Chemicals, Nagase Biochemicals and Nagase Fine Chemical. These companies form the crux of Nagase’s effort to pioneer biochemicals and organic compounds.

Nagase remains under the control of the founding family. Shozo Nagase, who oversaw much of the company’s expansion during the 1960s and 1970s, serves as chairman. Hideo Nagase, another descendant of the company’s founder, is president. Over the course of more than 160 years, Nagase has grown into one of Japan’s largest chemical companies. Dyes and pigments for fabric, paper, and detergents comprise ten percent of the company’s sales volume, while fine and industrial chemicals—including pharmaceuticals, cosmetics and biochemicals—comprise 38 percent. A further 42 percent of Nagase’s sales are derived from plastics used in the automotive and electronics industries. The remainder of Nagase’s sales comes from electronics, machinery, medical systems, and cosmetics.

Nagase was one of the first Japanese companies to make the foray into biochemicals. With the practical experience of its manufacturing affiliates and sales operations and the strength of its research institute, Nagase is a leader in these technologies. The company has been successful in laying the foundation for diversification and indigenously developed chemical technologies. In the future, this will enable the company to distance itself from lower-margin license production agreements with other companies and to develop its own more profitable patented products and processes.

Principal Subsidiaries

Nagase Barrel Finishing Systems Co., Ltd.; Nagase Beauty Care Co., Ltd.; Nagase Biochemical Sales Co., Ltd.; Nagase Electronic Equipment Service Co., Ltd.; Nagase Elex Co., Ltd.; Nagase Information Development, Ltd.; Nagase Machinery Service Co., Ltd.; Nagase Medicals Co., Ltd.; Nagase Plastics Co., Ltd; Nagase Storage & Distribution Co., Ltd.; Nagase Biochemicals, Ltd.; Nagase Chemicals Ltd.; Nagase-CIBA Ltd.; Nagase Cosmetics Co., Ltd.; Nagase Electronics Chemicals Ltd.; Nagase Fine Chemicals Ltd.; GE Plastics Japan Ltd.; Honshu Rheem Co., Ltd.; Kyoraku Co., Ltd.; Landauer-Nagase Ltd.; Setsunan Kasei Co., Ltd.; Teikoku Chemical Industries Co., Ltd.; Totaku Industries, Inc.; Nagase America Corp.; Nagase California Corp. (USA); Sofix Corp. (USA); Canada Mold Technology Inc.; Nagase & Co., Ltd. (Korea); Nagase (Taiwan) Co., Ltd.; Nagase Wah Lee Plastics Corp. (Taiwan); Nagase (Hong Kong) Ltd.; Nagase (Thailand) Co., Ltd.; Nagase (Malaysia) Sdn. Bhd.; Nagase Singapore (Pte) Ltd.; Chang Fong Overseas Enterprises (Pte) Ltd. (Singapore): Nagase (Europa) GmbH (Germany); Nagase Finance Europe B.V. (Netherlands).