JSR Rejuvenates

Yokkaichi, an industrial city near Nagoya in central Japan, is where JSR Corp. first began to produce synthetic rubber in 1960. JSR still makes this archetypal old-economy material there as well as acrylonitrile-butadiene-styrene, an engineering plastic. But the site has also turned into a base for development and production of the most advanced electronic materials

That JSR is thriving in Yokkaichi is a development that runs against the flow. Owing to deteriorating business conditions, neighboring chemical companies are shutting down plants and leaving the land vacant. If JSR had not diversified, it might be doing the same thing. But instead, it is acquiring some of the available land to set up new facilities for electronic materials.

JSR long ago saw the writing on the wall for its synthetic rubber business. Japan's expensive land and lack of natural resources were handicaps too severe to overcome.

The company started diversifying into electronic chemicals in 1979 when it began to produce photoresists. At the time, the materials resembled elastomers, says Seiichi Hasegawa, JSR's board member responsible for electronic materials. Since then, the company has been using the cash generated by its synthetic rubber operation to finance the development of its electronic chemicals business.

THE YOKKAICHI site vividly illustrates JSR's strategy in action. The styrene butadiene emulsions plant that started up in 1960 has been well-maintained by its operators, but it cannot hide its 40-plus years of age, and most of the workers are over 50. One gets the impression that the facilities are coming to the end of their life, but they will in fact be in operation for some time. JSR insists it will invest in the facilities as necessary, because it still considers rubber a core business and has long-term customers to satisfy. Tire manufacturer Bridgestone is both a client and the company's largest shareholder. Hasegawa says JSR has been hiring younger workers for the rubber plant in anticipation of the retirement of older operators.

In a nearby building, JSR conducts R&D for its business in semiconductor and flat-panel display materials. There, it is a different world. Hardly anyone is over 40 years old. Everyone seems to speak English and hold a Ph.D. in materials science or engineering. The facilities are equipped with instruments that look like they cost a fortune.

Hasegawa confirms that the investment is pricey. "This young man tells me what equipment he needs," Hasegawa says, referring to Yoshikazu Yamaguchi, the manager of JSR's semiconductor materials laboratory. "I then have to go to the board and explain why we should spend several million dollars on a single piece of equipment for our photoresist business."

The site employs 1,600 workers, more than a third of the workforce of JSR and its subsidiaries worldwide. JSR is continually launching new electronic materials, many of which are developed and made in Yokkaichi. It is now conducting experiments on 32-nm deep-ultraviolet photoresists, a product that the market won't need before 2007 or 2008, Hasegawa says. Short-term, he is most optimistic about demand for flat-panel display materials. "The market is still in its infancy," he says.

Firms that set out to diversify because their core business may face bleak prospects often fail. In addition to electronic materials, JSR could have expanded in all sorts of directions. During the Japanese real estate and stock market bubble of the 1980s, it was common for Japanese chemical companies to buy overpriced property, develop unneeded golf courses, or acquire doomed companies abroad.

Initially launched as a state-owned firm in 1957, JSR is a conservative company. But it has made its share of mistakes. It invested in some real estate ventures in the 1970s that eventually failed to work out. As for venturing abroad, it wrote off its stake in an Iranian petrochemical venture that it had to give up after the Islamic Revolution of 1979.

First named Japan Synthetic Rubber, JSR was the epitome of a rust-belt company. But rather than lay off people when conditions in its core business soured, it has successfully revitalized and is bringing bright, well-paid young people into Yokkaichi. Electronic materials account for about 40% of JSR's sales, and the company is one of the most profitable chemical producers around. The electronic materials business is subject to more cyclicality than are rubber and petrochemicals. But for JSR, electronic materials offer a way out of certain decline.