Lion Corporation

Lion Corporation

3-7, Honjo 1-chome
Sumida-ku, Tokyo 130
Japan
(03) 3621-6211
Fax: (03) 3621-6029

Public Company
Incorporated: 1919 as Lion Soap Co., Ltd. and T. Kobayashi & Co., Ltd.
Employees: 3,842
Sales: ¥314.43 billion (US$2.19 billion)
Stock Exchanges: Tokyo Osaka

Lion Corporation is Japan’s biggest seller of toothpastes, and a major producer of other toiletries and soaps. Operated by the same family, the Kobayashis, throughout its entire history, the company has earned a prominent place in its domestic market, while maintaining successful overseas ventures.

Kobayashi Tomijiro Shoten was founded in 1891 by Tomijiro Kobayashi, to produce soap. In 1902 Japan concluded an alliance with Great Britain, and just three years later, in 1905, Kobayashi first exported its products to the United Kingdom and the United States. In 1919 Kobayashi split into two entities. Lion Soap Co., Ltd. was comprised of Kobayashi’s soap division and T. Kobayashi & Co., Ltd. was comprised of the remainder of Kobayashi Tomijiro Shoten. The Kobayashi family retained control of both companies. In 1940 Lion Soap Company became Lion Fat & Oil Co., Ltd., reflecting a shift in its activities in conjunction with Japan’s military buildup. T. Kobayashi became the Lion Dentifrice Co., Ltd. in 1949. During the first part of its history, both portions of the Kobayashi’s enterprise flourished. Starting in the 1960s, however, substantial changes were made in the operations of the companies.

In the mid-1960s Lion Fat & Oil found itself in heated competition with the Kao Soap Company, which, in Japan, held the lead in sales of synthetic detergents. With the generous use of public relations and advertising, Lion challenged that lead, accomplishing a strong rise in sales in the first half of 1968. Later that year, the company aggressively confronted Kao in its area of greatest strength, western Japan, by building a new plant in Sakai, Osaka. This new factory, capable of producing both powder and liquid detergents, increased Lion’s production capacity by about 30%, from 14,500 tons to 19,000 tons monthly. Lion benefited from its substitution of petrochemical products for agricultural oils. The use of alcohol-rich petrochemicals enabled the company to cut production costs.

Lion’s growth during this period was based on the development of new technology and the expansion of its foreign connections. By 1972 sales reached US$27 million. In 1973 Lion Fat & Oil entered into a cooperative arrangement with Akzo, a Dutch chemical company, with the expectation of benefiting its chemical and household-products operations.

By the mid-1970s Lion Dentifrice was running second to Kao in the field of toiletries, but the forecast was for sinking profits for the next term as a consequence of rising costs for raw materials and stiff competition, from Japanese companies and from U.S. giant Procter & Gamble, which had recently entered the market in a joint venture with another Japanese firm. Lion Dentrifice sales began to grow, however, in the first half of 1976, increasing 12% over the same period a year earlier, as demand for its traditional dental products increased, and sales of new, products, such as products for the eye and for hair, grew as well. Throughout this period, both Lion companies enjoyed strong financial positions and relative lack of debt.

Given the intense competition the two Lion companies faced and the need to control costs for high-volume, low-price products, separate corporate structures for Lion Fat & Oil and Lion Dentrifice were inefficient. The similarity in the companies’ names caused confusion among wholesalers and business partners. In late 1977 it was announced that the two companies would merge into one, on an equal basis, with the aim of creating one sales force to market all Lion products. Facing a stagnant market and subject to cut-throat competition, Lion leaders expected the reunited company, with a solidified corporate image, to expand in old areas, initiate new products, and enter into new markets.

In 1978 Lion Products Co., Ltd. was created, and in 1980 this sales organization joined with the two older Lion companies to form Lion Corporation. The newly unified company moved to increase the efficiency of its product distribution by implementing a retail-information system for its wholesalers, which in turn led to the 1985 creation of a management company for the entire toiletries industry.

Throughout the 1980s Lion continued its research-and-development activities, leading to new products that were keyed to new niches in a crowded market. Responding to environmental concerns, the company marketed Top, a non-phosphorous detergent, in 1980. In 1981 the company introduced Clinica, a plaque-fighting toothpaste that used enzymes to clean the teeth. Other new products, such as Look bathroom cleaner and Soft in 1, a combination shampoo and rinse, made strong contributions to the company’s sales for the late 1980s.

In 1983 Lion laid out its goals for the next eight years, in a program designed to coincide with the arrival of the company’s centennial. The campaign involved strengthening existing fields, improving global business, and exploiting new business sectors, In order to facilitate the plan, a companywide restructuring was implemented. In an attempt to meet these goals, Lion developed new techniques in production and distribution. In conjunction with Akzo the company had finished construction of a plant for the refinement of raw materials in 1981 that used a new, low-pressure process to produce ingredients for household detergents. In 1983 in an effort to reduce production costs, essential in an industry where retail price-slashing is rampant and profit margins are low, Lion installed computer surveillance of the manufacturing process in its Kawasaki plant as a test, and ultimately scheduled controlled production to be implemented in all seven of the company’s plants by 1989.

Throughout the 1980s the company continued to work with foreign partners. In conjunction with Henkel, of Dusseldorf, Lion operated joint ventures in Taiwan, Hong Kong, and Germany, as well as in Japan. In 1987 the company entered into a joint venture with the U.S. firm S.C. Johnson & Son to buy the previously unprofitable line of plaque-fighting dental products, Check-Up. S.C. Johnson already was marketing Lion’s Zact toothpaste for smokers, in the United States. In June 1989 the company bought out S.C. Johnson’s 50% interest in Rydelle-Lion to form a wholly owned subsidiary, Lion Corporation (America), in an effort to establish a base for further entries into the U.S. oral-care and hair-care markets. Lion subsequently turned over the marketing of its Zact and Check-Up products to Schering-Plough, another U.S. firm, under a licensing agreement.

In July 1989 Lion announced a joint venture with Akzo and two other entities to build a plant for the production of silica in Map Ta Phud, Thailand. Lion further expanded its Thai operations later that year, when it announced plans to build another plant in Rayong, Thailand, with five other partners for the production of a chemical used to make detergents. Construction of the plant, with economic incentives granted by the Thai government, was slated to begin in May 1990. This overseas expansion, though aggressive, was not enough to prevent a 1988 decline in Lion’s sales and profits. Although 10% of the company’s sales came from outside Japan, “we are a little bit behind our main competitors in Japan in globalizing our operations,” a Lion representative admitted to Advertising Age on October 2, 1989.

Lion lagged behind its competitors in introducing a compact, highly concentrated detergent, a big market-winner in crowded Japan, where smaller is inevitably better. It was not until 1989 that Lion introduced Hi-Top, its compact product with fat-dissolving enzymes, in answer to Kao’s Attack. Attack had enabled Kao to grab better than half the detergent market when it hit the stores in 1987. In 1990 compact detergents made up 70% of the Japanese detergent market, with Lion’s overall share rising to around 25% after the introduction of its compact product.

Lion’s development of new products was not without problems, however. In mid-1989 the Health and Welfare Ministry of Japan closed a Lion factory after discovering that the company in 1986 had misrepresented certain qualities of its Pentadecan hair-growth product while attempting to get it approved. As a penalty, the company was forced to withdraw Pentadecan, the market leader, from Japanese and Southeast Asian distribution, and to cease the manufacture for 20 days of all products made by the same division, a move that cost Lion $14 million. More importantly, the resulting negative publicity damaged the company’s reputation, leading to fears about its overall image and sales.

Given these factors, it became clear by the end of 1989 that the company would not meet its goals until, perhaps, 1992. Shaken by its failure to beat Kao to market with an innovative compact detergent and facing a detergent price war and an overall lower market share, Lion set out to shore up profits by the end of 1989 by holding prices firm on its other products. In addition, the company planned to open a new fat-and-oil plant in Kagawa Prefecture, enabling it to launch a new product to vanquish Kao’s lead.

It remains to be seen whether Lion’s historical emphasis on innovative product development and foreign expansion will enable it to continue to thrive, or even take the lead, in an ever-changing market characterized by severe competition.

Principal Subsidiaries

Lion Fat & Oil (Taiwan) Co., Ltd.; Yu Kuo Chemical Co., Ltd. (Taiwan); Lionboy Trading Co., Ltd. (Taiwan); Taiwan Lion Chemistry Co., Ltd.; Taiwan Lion Trading Co., Ltd.; Lion Henkel (Taiwan) Ltd. (50%); Lion Corporation (T) Ltd. (Thailand); Lion Home Products (International) Ltd. (Hong Kong); Southern Lion Sdn. Bhd. (Malaysia); Lion Home Products (M) Sdn. Bhd. (Malaysia); Lion Home Products Pte., Ltd. (Singapore); Lion Corp. (America) (U.S.A.); Qingdao Lion Daily Necessities Chemicals Co., Ltd. (China, 50%).

—Elizabeth Rourke