4. Toshiya hvasaki, who founded our
company in 1907, succeeded in
Japan's first commercial
manufacturing of flat glass after
numerous failures. He used to say,
"Never take the easy way out, but
confront difficulties."
He built the corporate culture to
challenge the most difficult
problems.
Shinya Ishizu, President
and CEO
6. About Asahi Glass
Company
1998
• Shinya Ishizu was
appointed president
and CEO of AGC
1999
• Economic Value
Added (EVA) had
been introduced at
AGC’s Japanese
operations
2002
• AGC split into 4
business units
• Appointed 2 non-
Japanese
executives to
manage the glass
business
2003
• Who would be his
successor?
7. Asahi Glass Company in
2003
6th largest among all Japanese companies
Annual sales of ￥1.3 trillion
200 subsidiaries and affiliates in 25 countries
￥52.4 billion in overseas operating profits
Market leader or 2nd largest among global
competitors:
Market Market share
Flat Glass 21%
Automotive Glass 30%
CRT Glass Bulbs 32% (the world leader)
PDP Glass substrates 90%
8. Asahi Glass Company in
2003Sales
glass products
electronics and displays
chemicals
other products
54%
24%
19%
3%
10. Finance Function
time Influential issues Cross-
shareholding
Raising Funds
through Capital
Markets
1960s~
1970s
Banks as the major
providers of debt capital
to AGC.
BOTM: 3.8% interest
of AGC
AGC: 0.9% interest
of BOTM’s holding
company
1960s- relied upon
loans from Japanese
banks
1970s- began to raise
funds in overseas
markets
1980s Japanese capital
markets become
increasingly deregulated,
AGC began to use
capital market more
actively.
AGC’s CFO would
like to divest those
cross-shareholding
shares and shrink
AGC’s balance sheet.
AGC realized the
importance of capital
markets and in 1983
obtained S&P ratings
11. Finance Function
time Influential issues Cross-shareholding Raising Funds
through Capital
Markets
1990s The bad debt problems and
the banking crisis let most
Japanese companies reduce
the percentage of cross-
shareholding.
_ AGC encouraged all of its
major subsidiaries to manage
their companies without
relying on the parent
company's credit.
2003 AGC planned to sell its
holdings of bank shares,
including those of BOTM,
thereby reducing its cross-
shareholding in Nov. 2003.
In most regions, the finance
companies would handle the
funding issues. But the main
bank relationship is still vary
important because some
Japanese banks will treat
Asian subsidiaries as AGC
parent credit.
16. Reorganization and Value
Creation Management
in 1998 AGC implemented a strategy to focus on
company performance as a whole. In the same year,
AGC launched a "Shrink to Grow" strategy
response to weak domestic performance and the
Asian economic crisis of the previous year. (1997)
These paired strategies aimed at selective and
focused allocation of resources among the various
businesses in AGC's portfolio.
17. Reorganization and Value
Creation Management
In April 2002, AGC announced a new group vision of
"Look Beyond," an initiative aimed at clarifying shared
value.
The reorganization encompassed three distinct
changes:
(1) the creation of in-house companies on global
basis;
(2) corporate governance reform; and
(3) the definition of group corporate and business
operating functions.
18. Creation of In-House
Companies
In 2002, the company established four “in-house
companies,” organized along product lines to foster
international coordination.
Two non-Japanese executives were appointed as
heads of in-house companies.
Now it is a global, integrated organization.
19. Corporate Governance
Reform
AGC implemented a series of reforms to separate
execution and oversight of management.
Delegation of authority to in-house company
presidents allowed the board to narrow their focus to
a few strategic issues. It allows us to have more in-
depth discussions on each topic.
20. Corporate Governance
Reform
In June 2003, AGC established a four-person
nominating committee to oversee the executive
succession process.
This was again a departure from standard Japanese
business practice: the majority of Japanese
companies that presidents picked their own
successors.
21. Defining Group Corporate and
Business Operating Functions
Group Corporate
Group corporate was charged with
oversight of each business operating
organization,, allocation of
management resources, providing a
common management platform, and
developing new businesses
Business Operating
22. Defining Group Corporate and
Business Operating Functions
Business Operating
in-house companies and SBUs were given
greater autonomy than they had previously
“The freedom” allow the unit to maximize the
value of its constituent businesses.
23. Defining Group Corporate and
Business Operating Functions
The functions of group corporate consist of
global corporate service and regional shared
service.
24. Create internal company
system
AGC began to globalize human resources
management
100 senior managers
200 "high potential" middle managers
About 30% of these candidates were non-Japanese
choking off their future with the company
26. Create internal company
system
100 senior managers
200 "high potential" middle managers
About 30% of these candidates were non-
Japanese
27. EVA
Economic Value Added (EVA)
An estimate of a firm's economic profit
A measure of financial performance based on
the concept that:
All capital has a cost!
The lower the cost of capital is,
the greater the value of a company has
Earning more than the cost of capital
creates value for shareholders
28. EVA Calculation
EVA = NOPAT – CE x WACC
EVA Rate =
𝐍𝐎𝐏𝐀𝐓
𝐂𝐄 𝒙 𝐖𝐀𝐂𝐂
EVA = 0 => EVA rate = 1
NOPAT : Net Operating Profit After Tax
CE : Capital Employed
WACC : Weighted Average Cost of Capital
(The Cost of Capital calculated by
the weighted-average cost of debt and equity.)
29. WACC Formula
WACC = (1 - t) x Rd x
D
D+E
+ Re x
E
D+E
t : Corporate Tax rate
Rd : Cost of debt
Re : Cost of equity
D : Amount of debt
E : Amount of equity
Note: The interest payment is tax deductible
Debt-to-Equity Ratio
e.g. For AGC:
Debt : D / ( D + E ) = 0.7 / ( 0.7 + 1 ) = 0.41
Equity : E / ( D + E ) = 1.0 / ( 0.7 + 1 ) = 0.59
30. Using EVA at AGC
In 1999, EVA was introduced at AGC’s Japanese operations.
Aim:
To maximize the shareholders’ value
Purpose:
Resource allocation & decision making
Performance evaluation for managers and executives
22 executive officers were evaluated based on improvement in EVA (WACC =
8 %)
About 1,400 lower level managers in Japan were evaluated based on EVA
(WACC = 5 %) => Cost of capital in Japan in 1999
EVA rate was mapped to mangers’ bonus using a 7-grade rating system
31. Industrialized
Countries
Currency for calculation:
Local currency, e.g. JPY
Cost of debt: Rd =Rrisk-free + Credit Spread
Risk-free rate of the country
(Based on the information provided by Financial Times)
Credit spread (%)
Cost of equity: Re =Rrisk-free + Beta x Market Premium
Calculated using Capital Asset Pricing Model (CAPM)
Market premium
(Based on the information provided by Ibbotson)
32. e.g. Japan
Cost of Debt:
Rd =Rrisk-free + Credit Spread
= 0.84 % + 1.00 % = 1.84 %
Cost of Equity:
Re =Rrisk-free + Beta x Market Premium
= 0.84 % + 1 x 5.4 % = 6.24 %
Tax Rate in Japan = 42.05 %
WACCJapan
=(1 – 42.05 %) x 1.84 % x 0.41 + 6.24 % x 0.59
= 4.1 %
33. Emerging Markets
Currency for calculation:
USD
Cost of debt :
Rd = U.S. 10-year Treasury Bond yield + Credit Spread
+ Country Risk Premium
Country Risk Premium
(Based on JP Morgan Discount Rates)
Cost of equity :
Estimated based on the information provided by Ibbotson & JP Morgan
CAPM not as useful due to lack of historical information on the stocks
34. e.g. Indonesia
Cost of Debt:
Rd = U.S. 10-year Treasury Bond yield
+ Credit Spread + Country Risk Premium
= 4.2 % + 1.00 % + 6.0 % = 1.84 %
Cost of Equity:
Re =(28.9 % + 15.9 %) / 2 = 22.39 %
Tax Rate in Indonesia = 30 %
WACCIndonesia
=(1 – 30 %) x 11.2 % x 0.41 + 22.39 % x 0.59
= 16.4 %
35. Risk Category
Developed by R & I (Rating & Investment Information Inc.)
Country Category WACC (%) Average Cost of Capital (%)
Japan A 4.11 % 7 %
Taiwan B 10.40 % 10 %
Korea B 10.98 % 10 %
China C 10.27 % 13 %
Mexico C 11.13 % 13 %
Vietnam D 16.33 % 15 %
Indonesia D 16.39 % 15 %
36. WACC for Glass
Business
AGC calculated the WACC for each Business Unit of their
glass business based on the WACC of each country in which
the BU is operated
A). WACC for AGC’s Asia Flat Glass Business = 10 %
The weighted average of the WACCs of
Japan, China, Indonesia, Philippines, and Thailand
46 % of the capital employed in Asia was in emerging markets
with high WACCs
B). WACC for AGC’s Flat Panel Display Business = 7.4 %
88 % of the capital employed was in Japan (WACC = 7 %)
37. WACC for Non-Glass
Business
Since the operations of AGC’s non-glass business were
primarily in Japan, the WACC of Japan was used for EVA
calculation
A). WACC for AGC’s Electronic Business = 7 %
Tax rate = 41 %
B). WACC for AGC’s Building Material Business = 7 %
Tax rate = 42 %
Beta was initially used to reflect the risk of each business,
but there was no meaningful difference across diverse
business lines
38. Beta Coefficient
AGC used the average beta from various types of companies
for calculation
An unlevered beta of 0.7 was derived from
the average of 6 global material companies
Foreign glass companies
e.g. San-Gobain, Pilkington, PPG
Global material companies
e.g. Bridgestone, Shin-Etsu Chemical, DuPont
Then, lever it by debt-to-equity ratio of 0.7
=> Beta of AGC = 1 (for WACC calculation)
39. More on Beta
Since domestic glass companies were considered less relevant,
they were not used for the calculation for AGC’s beta
Less global and less diversified than AGC
e.g. Nippon Sheet Glass
(Held 33% of Japanese flat glass market)
e.g. Central Glass
(Held 27% of Japanese flat glass market)
40. Advantages of EVA
Managers’ attitude has been changed
More aware of the efficiency of capital
More sophisticated in resource allocation
Easy to compare investment result from various countries
AGC had a tendency to over-invest in the emerging
market countries
Because investment projects were evaluated based on
deceptively low hurdle rate
41. Shortcoming of EVA
EVA is not considered the best and only tool
for resource allocation & performance evaluation
Other conventional measures
Cash flow, ROE, etc
Lack of suitable performance targets
while communicating with investors
Debt-to-equity ratio improvement
Cash flow in the short run
42. Difficulties in Applying
EVA
Some managers remained unpersuaded to EVA’s worth
EVA was not used for their decision making
Senior management who introduced EVA
still relies on operating profits
For in-house companies performance evaluation
For medium-term plans development
Use of EVA was limited to executive officers and
employees in the parent company
Only 2.5% of total work force
43. AGC’s Next Challenge
“Never take the easy way out, but confront difficulties.”
– AGC’s Corporate Creed
EVA is just one step of change
After 100 years of history
Now – “Never take the difficult way out” ?!
Next Challenge
Cultural transformation for a large, successful company with a
century-long history
How to make all employees embrace the change
44. Ishizu’s Objective
Last year of his 6-year expected term as a president at
AGC before retirement
To have AGC continuously adapt itself to
an ever-changing global business environment
Is there a mechanism?
If yes, how can this mechanism be implemented?
Editor's Notes
Asahi Glass was established in 1907.
The founder was named Toshiya Iwasaki, a nephew of the founder of Mitsubishi Group.
Asahi Glass began the production of flat glass in 1909, the very first manufacture of such product in Japan)
By the early 1950s, AGC was producing automotive glass and CRT glass bulbs for TV.
During 1956, AGC established its first overseas company in India, manufacturing flat glass.
During the 1960s and 1970s, AGC expanded international operations by building manufacturing plants in Thailand, Indonesia, Singapore, and other Southeast Asia contries.
During the 1980s and 1990s, AGC expanded European and US markets.
Shinya Ishizu, the leading actor of this case study.
Shinya Ishizu was appointed president and CEO of AGC in 1998.
He introduced a new management system for resource allocation and performance measurement based on “Economic Value Added (EVA)” at AGC’s Japanese operations in 1999.
In 2002, AGC split into 4 business units. Wayne will share more information of these 4 business units later.
Moreover, Shinya Ishizu appointed 2 non-Japanese executives to manage the glass business, which brought up the nerviness of some senior executives.
He faced the strong resistance from senior executives.
In 2003, Shinya Ishizu was wondering who would be his successor and how should he overcome those challenges after he started the organizational transformation actions.
In 2003, AGC was viewed as a Japan-based multinational manufacturer of flat glass, chemicals, and electronics and displays.
Annual sales of ￥1.3 trillion
200 subsidiaries and affiliates in 25 countries
￥52.4 billion in overseas operating profits
6th largest among all Japanese companies
In most product categories, AGC was either the market leader or second largest among global competitors
In 2003, AGC’s sales consisted of glass products (54% of sales), electronics and displays (24%), chemicals(19%), and other products(3%).
Main Bank
(1)Kept the largest amount of loans
(2)Had equity interest in the borrower
(3)Monitored the performance of the borrower
Cross-Shareholding Arrangements
(1)Vote for the management at general shareholders’ meeting
(2)Would not sell those shares without obtaining agreement from the other party
(3)Some corporations invited senior bank managers as executive or non-executive board members
1990s
(1)The bad debt problems and the banking crisis had a significant impact on the main bank system.
(2)Sales of equity holdings by both banks and corporations greatly reduced cross-shareholding.
背景介紹，亞洲金融危機，https://zh.wikipedia.org/wiki/亞洲金融危機
1990s
(1)The bad debt problems and the banking crisis had a significant impact on the main bank system.
(2)Sales of equity holdings by both banks and corporations greatly reduced cross-shareholding.
The acquisition of ACG and Glaverbel, AFG Industries presented some risks of the parent company. ACG encouraged all of its subsidiaries to manage their companies without relaying on the parent company’s credit. That means they tried to decentralized its funding decisions.
背景介紹，亞洲金融危機，https://zh.wikipedia.org/wiki/亞洲金融危機
The 1900s and 1910s
Japanese sheet-glass production began in this decade. And in 1907, Asahi Glass Company was established in Amagaski, Hyogo Prefecture.
日本的平板玻璃生产始于这十年。旭硝子公司于 1907 年在兵库县尼崎市创立。
Toshiya Iwasaki, who was born to the same family as the founder of the entire Mitsubishi group, graduated from London University with a degree in applied chemistry in 1903. At that time, no Japanese company had succeeded in producing flat glass for windows, although many had tried. Iwasaki committed himself to the task, reportedly not using the Mitsubishi name in case his failure might bring dishonor to it.
岩崎俊，谁是出生于同一个家庭作为整个三菱集团的创始人，毕业于伦敦大学，主修应用化学1903年那个时候，没有日本公司已成功地生产平板玻璃的窗户，虽然很多曾试过。岩崎致力于自己的任务，据报道，在未使用的情况下他的失败可能带来的耻辱它的三菱名称。
Their first overseas factory was in China, the Shoko Glass Co. Ltd., established in 1925.
他們们的第一批海外工厂开设在中国：即开设于 1925 年的昌光硝子株式会社大连工厂。
The Indo-Asahi Glass Co., Ltd. plant in India,ca. 1957, was our first overseas plant established after WW II.
位于印度的 Indo-Asahi Glass Co., Ltd.（摄于 1957 年）是二战后我们在海外开设的第一家工厂。
The 1900s and 1910s
Japanese sheet-glass production began in this decade. And in 1907, Asahi Glass Company was established in Amagaski, Hyogo Prefecture.
日本的平板玻璃生产始于这十年。旭硝子公司于 1907 年在兵库县尼崎市创立。
Toshiya Iwasaki, who was born to the same family as the founder of the entire Mitsubishi group, graduated from London University with a degree in applied chemistry in 1903. At that time, no Japanese company had succeeded in producing flat glass for windows, although many had tried. Iwasaki committed himself to the task, reportedly not using the Mitsubishi name in case his failure might bring dishonor to it.
岩崎俊，谁是出生于同一个家庭作为整个三菱集团的创始人，毕业于伦敦大学，主修应用化学1903年那个时候，没有日本公司已成功地生产平板玻璃的窗户，虽然很多曾试过。岩崎致力于自己的任务，据报道，在未使用的情况下他的失败可能带来的耻辱它的三菱名称。
Their first overseas factory was in China, the Shoko Glass Co. Ltd., established in 1925.
他們们的第一批海外工厂开设在中国：即开设于 1925 年的昌光硝子株式会社大连工厂。
The Indo-Asahi Glass Co., Ltd. plant in India,ca. 1957, was our first overseas plant established after WW II.
位于印度的 Indo-Asahi Glass Co., Ltd.（摄于 1957 年）是二战后我们在海外开设的第一家工厂。
The 1900s and 1910s
Japanese sheet-glass production began in this decade. And in 1907, Asahi Glass Company was established in Amagaski, Hyogo Prefecture.
日本的平板玻璃生产始于这十年。旭硝子公司于 1907 年在兵库县尼崎市创立。
Toshiya Iwasaki, who was born to the same family as the founder of the entire Mitsubishi group, graduated from London University with a degree in applied chemistry in 1903. At that time, no Japanese company had succeeded in producing flat glass for windows, although many had tried. Iwasaki committed himself to the task, reportedly not using the Mitsubishi name in case his failure might bring dishonor to it.
岩崎俊，谁是出生于同一个家庭作为整个三菱集团的创始人，毕业于伦敦大学，主修应用化学1903年那个时候，没有日本公司已成功地生产平板玻璃的窗户，虽然很多曾试过。岩崎致力于自己的任务，据报道，在未使用的情况下他的失败可能带来的耻辱它的三菱名称。
Their first overseas factory was in China, the Shoko Glass Co. Ltd., established in 1925.
他們们的第一批海外工厂开设在中国：即开设于 1925 年的昌光硝子株式会社大连工厂。
The Indo-Asahi Glass Co., Ltd. plant in India,ca. 1957, was our first overseas plant established after WW II.
位于印度的 Indo-Asahi Glass Co., Ltd.（摄于 1957 年）是二战后我们在海外开设的第一家工厂。
日本人對於規則、秩序就有一種近乎偏執的、不可顛簸的精神信仰
Japanese for the rule, there is an almost paranoid order can not be bumpy spiritual beliefs
資淺新人的升遷竟然一個個跑在你前面
New promotion will be more valued
「日本企業強調精神力和忍耐力，日本人相信只要努力去做，就一定可以完成。」「外商在工作上，所強調的就是方法、管理和效率。」
"Japanese companies emphasize mental strength and endurance, the Japanese believe that if they work hard to do it, it must be completed." "Foreign at work, emphasized that method, management and efficiency."
this strategy dismayed Japanese managers, who felt that with this strategy, AGC was choking off their future with the company.
