Ajinomoto Co., Inc.

1-5-8, Kyobashi
Chuo-ku
Tokyo 104
Japan
(03) 272-1111

Public Company
Incorporated: 1909
Employees: 9,532
Sales: ¥509.94 billion (US$4.08 billion)
Stock Index: Tokyo Osaka Nagoya

Ajinomoto, the world’s first and still-largest producer of monosodium glutamate (MSG), is one of Japan’s largest food-processing companies. In addition to seasonings, Ajinomoto produces edible oils, frozen and processed foods, amino acids, pharmaceuticals, and other specialty chemicals. But the company entered the 1990s determined to become one of Japan’s leading developers of life-science products and pharmaceuticals. This dramatic shift stems from a strong technological base that extends back to the company’s birth. Although Ajinomoto has been manufacturing for the pharmaceutical industry since 1956, it has simultaneously broadened its food-processing operations. By funding costly drug research and development with cash flow from its food products and cashing in on products developed slowly over the last 20 years, the company stands to grow rapidly with the demand for amino acid-based products.

MSG, the company’s mainstay for more than 80 years, was discovered in kelp by Kikunae Ikeda at the University of Tokyo in 1908. With help from Ikeda, Saburosuke and Chuji Suzuki—two brothers who had been extracting iodine from seaweed since 1890—formed Ajinomoto to produce the substance commercially. They began marketing it in 1909 as “AJI-NO-MOTO,” which translates literally as “essence of taste.”

The company has had a focus on international sales and a strong base in chemical development since its inception. A New York office was opened in 1917, and between the wars production and sales offices were opened throughout Asia, giving it a global position decades before other Japanese companies. During this time the company began to produce MSG from soybean protein, which eventually led to the production of cooking oils. World War II halted MSG production, but between 1947 and 1953 AJI-NO-MOTO became available in the United States and Europe, and the company also began to sell cooking oil. In 1954, Ajinomoto opened offices in São Paulo, Paris, Bangkok, and Hong Kong.

Emphasis on chemical research culminated in the creation of the Central Research Laboratories in 1956. Research during the 1950s brought about not only different biological and synthetic methods of MSG production, but an entry into an industry that today is the division most important to management. The development of crystalline essential amino acids, used for intravenous solutions, introduced Ajinomoto to pharmaceuticals. Amino acids were found to have a wide variety of applications, and before the end of the decade they were being used in the company’s seasonings and animal-feed additives.

The company took larger strides toward internationalization in the 1960s. Most overseas growth was limited to expanded production of seasonings in Asia and South America. But through joint ventures and licensing agreements with American and European companies, Ajinomoto increased its presence on those continents and at the same time expanded its product line domestically. The first large-scale licensing agreement came in 1962 when it began marketing Kellogg’s breakfast cereals in Japan. A similar agreement with CPC International to manufacture and market Knorr soups was reached in 1965. These ventures established the company as a food processor and not just a seasonings producer. After 1965, the company applied its research to the development of new seasonings, soups, margarine, mayonnaise, frozen foods, and flavored edible oils. In 1973, Ajinomoto formed yet another joint venture, with General Foods, to produce coffees, instant coffees, and soft drinks.

The oil crisis led most companies to consolidate in 1973 and 1974, and internal development of food products increased during the 1970s. By 1978 seasonings accounted for only 22% of sales and processed food had boomed to 31% from 3% in 1965. In 1970 the company created Ajinomoto Frozen Foods and also began to collaborate with the NutraSweet Company of the United States that year. A 1979 joint venture with Dannon introduced dairy products for the first time to the company’s product line.

Ajinomoto’s new focus on products derived from its amino acids research proved well-timed as the company entered the 1980s. Growth in the Japanese food industry slowed significantly. Although MSG sales overseas increased, the domestic market was mature. Food-related products, which made up 80% of the company’s sales, could no longer be relied on for large-scale or long-term growth. Management initiated a plan to expand its fine chemicals divisions further while diversifying the food products made by its overseas subsidiaries.

Pharmaceutical-product sales were ¥20 billion in 1980; U.S. medical institutions and pharmaceutical manufacturers purchased half of the company’s output. Although the reliance on exports would prove damaging to many Japanese companies as the yen appreciated in the late 1980s, Ajinomoto’s extensive research investments in the 1970s gave it prominence in the field and made the division less vulnerable to international cycles.

The diversification into the pharmaceutical business has not been easy. The complexity of the pharmaceutical market calls for completely different marketing techniques as well as lengthy approval processes from various governments. In order to defray these high research-and-development costs, Ajinomoto typically uses other companies to market its drugs or uses licensed companies to produce them.

Ajinomoto’s new venture department, established in 1987, will focus on new markets and cooperative producers in the life-sciences area. The department symbolizes the company’s commitment to the industry, and earnings show why. In 1988 sales rose only 0.5% but earnings grew 15.4%—due largely to the much higher margins the company can earn on life-science products.

Although the international market for research and development in pharmaceuticals makes Ajinomoto less vulnerable to currency valuation cycles, a strong yen hurts the company nonetheless. In response to a reduced export market, the company turned to domestic food sales in the late 1980s, becoming more active in restaurants and food service and entering the fresh vegetable and fish market for the first time. The food-processing division was the only one in 1988 to show an increase in sales—to 40.6% of the company total—reflecting the influence of the difficult export market. Ajinomoto hopes to increase its overseas food production by taking advantage of the strong yen to acquire companies and diversify the product lines of its foreign subsidiaries.

The company continues to spend a higher percentage (3.3%) of sales on research than most food processors do, reflecting its interest in the fine chemical and pharmaceutical industries. In addition to this money, the Japanese government funds research on problems like AIDS, and in the late 1980s university research became available to commercial developers. Funding from the MIT Cancer Research Institute, for example, will help fund research and provide a wider variety of potential developments.

Nonetheless, Ajinomoto remains one of Japan’s largest food companies. As such, it will continue to generate earnings increases despite currency fluctuations. Research conducted ten years ago is just now coming to fruition, and increased sales of its existing amino acids as well as new developments from current research give the company firm ground to stand on to make its ambitious ¥ 15 trillion sales projection for the year 2000.

Principal Subsidiaries:

Knorr Foods Co., Ltd.; Toyo Oil Mills Co., Ltd.; Ajinomoto Frozen Foods Co., Ltd.; Sanpuku Co., Ltd.; Tokyo Sanmi Co., Ltd.; Sanpo Unyu Co., Ltd.; Daimi Co., Ltd.; Daimi Butsuryu Co., Ltd.; Kumazawa Seiyu Sangyo Co., Ltd.; Ajinomoto Finance Inc.; Ajinomoto General Foods, Inc. (50%); Charles River Japan, Inc. (50%); Ajinomoto U.S.A., Inc.; Ajinomoto Interamericana Indústria e Comércio Ltda. (Brazil); Ajinomoto del Perú S.A.; Deutsche Ajinomoto GmbH. (Germany); Ajinomoto Co., (Thailand) Ltd.; Ajinomoto (Malaysia) Berhad; A.I.F. Investments Pte. Ltd. (Singapore); Heartland Lysine, Inc. (U.S.A.); Ajinomoto do Brasil Indústria e Comércio Ltda.; Nissin-Ajinomoto Alimentos Ltda. (Brazil); Eurolysine S.A. (France); Ajinomoto Osteuropa Handels-Gesellschaft mbH. (Austria); NutraSweet AG (Switzerland); Union Ajinomoto, Inc. (Philippines); California Manufacturing Co., Inc. (Philippines); P.T. Ajinomoto Indonesia; Ajinomoto Company (Hong Kong) Ltd.; CPC/AJI (Asia) Ltd. (Hong Kong); Corn Products Co. (Hong Kong) Ltd.; Ajinomoto (Singapore) Pte. Ltd.; CPC (Singapore) Pte. Ltd.; Wan Thai Foods Industry Co., Ltd.; CPC Thailand Ltd.; Best Foods Co. (Thailand) Ltd.; CPC (Malaysia) Sdn. Berhad; P.T. Ajinex International (Indonesia); CPC (Taiwan) Ltd.; Best Foods Ltd. (Taiwan); Cheil Frozen Foods Co., Ltd. (Korea); Omnichem S.A. (Belgium).