Bandai Co., Ltd.
Bandai Co., Ltd.
Sales: ¥227.93 billion ($1.72 billion) (2002)
Stock Exchanges: Tokyo
Ticker Symbol: BNDCY
NAIC: 339932 Game, Toy, and Children’s Vehicle Manufacturing
Bandai Co., Ltd. is the third-largest toy manufacturer in the world. The company is best known for products derived from popular television and comic book characters such as Power Rangers, Gundam, and Ultraman. These range from action figures and their accessories to video game software, clothing, and candy. The firm has also had success with faddish toys like the “digital pets” Tamagotchi and Digimon and other ventures that include selling toys in vending machines and providing digital content online and through cellphones. Other Bandai units make animated television programs and movies, design and manufacture amusement machines and amusement centers, make stationery, and sell, lease, and manage real estate properties. Based in Japan, where it is the number one toy maker, Bandai distributes its products worldwide.
Bandai’s roots date to post-World War II Japan, where Naoharu Yamashina, a war veteran who had lost an eye in combat, was struggling to make a living. The son of a rice retailer, Yamashina had studied business in high school, and after the war he began working for a textile wholesaler in Kanazawa run by his wife’s brother. Business was slow, and when a neighbor told him of the potential for success in toy sales, Yamashina convinced his employer to send him to Tokyo to try this new field. Putting in long hours there with his wife, he gradually built up a small toy distribution business.
In 1950, Yamashina took control of the toy distributorship and renamed it Bandai, which was derived from the Chinese phrase for “things that are eternal.” At this time the firm was mainly selling celluloid and metallic toys, along with rubber swimming rings.
Deciding to add an original product to its lineup, in September of 1950 Bandai introduced the Rhythm Ball, a beach ball with a bell inside. The Rhythm Ball initially suffered from a high rate of defects, but its quality was improved and the company soon added other products such as the metal B-26 Night Plane. In March 1951, Bandai began to export inexpensive toys like metal cars and planes to the United States and other foreign markets. The growing company built a new shipping and warehousing facility in the spring of 1953, and in the summer added research and development, product inspection, and transportation departments.
In early 1955, Bandai established a manufacturing facility, the Waraku Works, and during the summer began construction of a new Tokyo headquarters and introduced a new “BC” logo. The fall of 1955 saw the firm offer its first product guarantee for the Toyopet Crown model car. Bandai highlighted this in television commercials that began airing in 1958, which used the phrase, “The Red Box means a BC-guaranteed toy.” The following year a Cars of the World model line was launched, and the company’s logo was redesigned to stress its emphasis on quality. In the early 1960s, Bandai began to establish direct overseas sales and opened an office in New York.
Character-Based Toys Debut in 1963
In 1963, Bandai introduced its first toy based on a children’s television character, which was called Astroboy. The firm would go on to refine a strategy of helping to fund a new program’s development and then sponsoring its episodes as they were broadcast, running ads for derivative products that might include action figures, toy vehicles, and costumes. Beginning in 1966, Bandai found success with toys based on Ultra-man, a giant, caped, metal-skinned hero who fired laser beams and battled monsters. The live-action program and some of its related toys were later imported to the United States, though their impact there was slight. Other Bandai character products were taken from manga, the serial comic books which were hugely popular in Japan. To keep up with a growing demand for its toys, Bandai built the Toy Town Manufacturing Complex, which opened in October of 1965.
In the latter half of the 1960s, the company had hits with Water Motor, Thunderbird, and Naughty Flipper toys, as well as Crazy Foam. In the fall of 1969, Bandai formed a Travel Services unit and acquired an additional factory in Shimizu City, where it would manufacture plastic model toys such as the World Car, Thunderbird 2, and Beetle series.
The firm established Tonka Japan in 1970 in a marketing tie-up with that company, and a year later it added a Models unit and created Popy as a manufacturer of character toys. In 1975, Bandai again changed its logo and trademark designs as part of the launch of a new worldwide marketing effort. Ties were established in October of that year with U.S. model maker Monogram, and in 1976 toy giant Mattel began selling Bandai’s Mazinger action figures in the United States under the brand name “Shogun.” Bandai entered the publishing business in the fall of 1976 with “The Moving Picture Book,” later formally establishing Bandai Publishing as a subsidiary.
In November of 1976, the company opened a new factory for Popy toys and in April of 1977 began marketing encapsulated toys in vending machines. During the same year, the firm founded its first overseas manufacturing entity, Bandai (H.K.) Co., Ltd., in Hong Kong. In 1978, Bandai America, Inc. was formed to market the company’s toys in the United States, and the following year the B-AI Electronics and B-AI Mibu units were formed.
Makoto Yamashina Takes Control of Firm: 1980
In 1980, Naoharu Yamashina’s son took over the job of president from his father, who continued to serve as board chairman. 35-year old Makoto Yamashina, who had a degree in economics from Keio University, had originally worked at a publishing firm, where he wanted to become an editor. When he was instead assigned to sell encyclopedias, he left to join his father at Bandai.
After taking over as president, the aggressive younger Yamashina fired many of his father’s senior executives and replaced them with people closer to his own age. This was a shocking move to many in the “lifetime employment” culture of Japan, but Makoto Yamashina was interested in operating his company in a different way, modeled more on the U.S. style. He also began making changes to the traditional distribution pattern for toys, dealing directly with large retail chains rather than selling to them through middlemen.
Shortly after he took control, Bandai launched its Gundam toy line, based on a cartoon program about futuristic warriors. The series was popular, and, like Ultraman, Gundam became a long-term moneymaker for the company. In 1981, the firm marketed its first candy products and expanded to Europe, opening French and Italian subsidiaries. These were followed in 1982 by Dutch, British, and Australian branches. The year 1982 also saw Bandai form a department to develop and create original animation and film projects, and a new subsidiary, Emotion, which began to open video shops in Japan. In 1983, the company added an apparel department, founded a division called A.E. Planning (later Bandai Visual), and launched its first original feature film, Daws, which came out in the fall.
The Bandai Group aspires to grow and develop as a company, fulfilling dreams and providing happiness to people around the world while making a positive contribution to society. The main tenets of our management philosophy are as follows. 1. Shareholder satisfaction: As well as honoring the trust of our shareholders by passing on profits and disclosing relevant information in a fair and appropriate manner, Bandai strives to continuously improve the company’s business performance, aiming to maximize the value of its shares. 2. Customer satisfaction: Bandai is committed to developing and supplying products and services that meet the needs of the times, to enhancing the quality of people ‘s lives, and to making an ongoing contribution to the world’s cultural richness. 3. Job satisfaction for employees: Bandai believes that human resources are the key to corporate growth and development, and we respect the professional aspirations and ambitions of our employees. Careful to ensure that the right employee is in the right job, we carry out impartial and rigorous staff assessments, we and do all we can to help employees augment their skills and to maintain staff morale at a high level. 4. Good corporate citizenship: Bandai is fully aware of our role and duties as a corporate member of society and is fully committed to our policy of environmental responsibility. 5. Flexible and pragmatic management: In line with our global perspective, Bandai keeps closely in touch with changing trends and adapts management infrastructure in accordance with the needs of the times.
Gobots Invade America: 1984
In 1984, Bandai had another go at the U.S. market with toys called Gobots, which were Americanized versions of the popular Machine Robo line that had been available in Japan and elsewhere for several years. Gobots were mechanical creatures that could change into vehicles and fight battles against a series of evil counterparts. Despite the best efforts of Bandai and Tonka, their U.S. distributor, the Gobots were ultimately displaced by the rival Transformers, which were marketed by toy giant Hasbro and based on a line made by a Bandai competitor. Transformers were larger, and their associated television program was perceived as better than one featuring the Gobots, while Tonka also had some problems supplying retailers with the toys when they began to sell. It would be almost a decade before Bandai would again make an impact in the U.S. market.
Meanwhile, the company had begun expanding its operations in Asia, opening a second plant in Hong Kong and forming a Chinese joint venture called the China Fuman Toy Company. Bandai was experiencing a sharp decline in sales at this time, with 1985 revenues of 70.7 billion yen ($495 million) down significantly from the previous year’s figure of 84.5 billion yen. The company went public with a listing on the Tokyo Stock Exchange’s Second Section in January of 1986, but due to the lingering sales downturn cancelled a secondary offering slated for early 1987. A line of products tied to a hit Japanese cartoon and comic book series, Dragon Ball, was one bright spot for the company, as was the Kitty Stick furry toy.
As part of its plan to move all manufacturing abroad, in March of 1987 the company formed a joint venture in Thailand, Bandai and K.C. Co., with Imperial Thai Toy. Bandai also moved the production and marketing staff of its overseas division from the firm’s headquarters in Tokyo to its Hong Kong subsidiary. Other ventures aimed at strengthening the bottom line included branching out into non-toy areas such as health equipment and video sales. In the latter category, Bandai reached an agreement with the Walt Disney Company to market up to 150 of its video titles in Japan for a two year period.
In 1989, the company moved into a new headquarters building in Tokyo, and entered the music business by forming the Emotion label and establishing a relationship with the firm Apollon Music Industry. The year also saw opening of the Ultraman “Shot M78” retail outlet. In 1991, Bandai became 5 percent owner of a $200 million satellite-based video-on-demand startup called Entertainment Made Convenient, formed a sales subsidiary in Taiwan, and began marketing Chara-Can, its first line of toys packaged with drinks.
Power Rangers Make American Debut: 1993
In 1993, Bandai had its biggest international success to date with toys based on the live-action show Mighty Morphin’ Power Rangers (called Jyu Rangah in Japan when originally shown there). The series once again featured superheroes that battled the forces of evil. Unlike many such exports, the live-action Power Rangers show was partially reshot for North American broadcast, adding some non-Asian characters and increasing the ratio of females to males. Soon after its U.S. debut in August 1993 on the Fox network, the program became a surprise hit. Demand for Power Rangers toys quickly outstripped their availability, leading to frantic scenes in stores as parents tried to secure them for their children.
Working to take advantage of this success, in March 1994 Bandai announced it would build factories in Vietnam and Mexico to increase output as well as to lower costs. The firm was hoping to triple production of Power Rangers toys and also add new items to the line, as a Power Rangers motion picture that was in the works was expected to keep interest in the characters high for the foreseeable future. Bandai was now focusing more and more on the international marketplace, as the Japanese toy market was shrinking due to a declining birthrate in that country.
Despite the company’s success with Power Rangers, it experienced a sizable earnings loss for the year as the result of a February 1993 decision to end an agreement with Nintendo to market that company’s video game equipment and software in Europe. Several of Bandai’s regional subsidiaries experienced drastic revenue drops, and the firm was forced to write off billions of yen worth of outdated games and players, leading to a loss of $18.6 million for the fiscal year.
In its home country, Bandai’s reach now extended beyond toys to such items as candy, clothing, shampoo, personal organizers, and word processors. An estimated 20 percent of toy-store shelf space in Japan was occupied by the firm’s products. Bandai continued to sponsor a number of cartoon programs on television, notably Pretty Soldier Sailor Moon, in which five young girls used the power of the moon to combat aliens, and Crayon Shin-Chan, a program about a mischievous preschooler that was watched by viewers of all ages. The company launched about 60 new characters each year, and when one of them caught on marketing and manufacturing would be ramped up to flood stores with products. Bandai might introduce—and pull from the market—between 8,000 and 10,000 items per year, most of which only appeared in Japan. By this time the firm was manufacturing just a quarter of its own products, down from 45 percent in 1988, with the rest contracted out. Character-based items accounted for more than 80 percent of revenues. Other developments at this time included the purchase of majority ownership in Sunrise, one of Japan’s top animation companies, and participation in a joint venture to build a theme park near Tokyo Disneyland.
- Naoharu Yamashina begins distributing toys in Tokyo for his brother-in-law.
- Yamashina takes over the business and renames it Bandai.
- Bandai introduces its own toys and begins exporting cheap ones abroad.
- The company creates its first toys based on characters from a television program.
- The Popy character toy unit is formed.
- Yamashina’s son Makoto is named president of the firm.
- Changeable Gobots toys are launched in United States but are outsold by Transformers.
- Power Rangers toys become a huge success in United States and other markets.
- Pippin game console and Tamagotchi virtual pets are introduced.
- Pippin and a proposed merger with Sega are abandoned; Makoto Yamashina steps down.
- A 5 percent stake in the firm is sold to Mattel Co.
- Digital content unit is spun off to create Bandai Networks Co., Inc.
- Ground is broken for the company’s new 15-story headquarters in Tokyo.
- Bandai announces its plan to create a holding company structure by 2005.
In November 1994, Bandai took one of its biggest risks to date when it announced it would develop, with computer maker Apple, a multimedia device that would plug into a television monitor and could be used for game play and Web browsing. To be called “Pippin,” the product would retail for approximately $500, considerably less than a computer but more than a typical video-game player. It was to use CD-ROM discs that would also be playable on Apple computers. The machine could be upgraded with purchase of a keyboard and other peripherals for use as a word processor. Bandai subsequently formed three new U.S. subsidiaries to increase its presence in that country, including Bandai Digital Entertainment, Inc., which would market Pippin.
In March 1996, the Pippin Atmark, as it was now called, was introduced in Japan. Its $620 price tag was almost 25 percent higher than originally projected. Reviews were mixed, with a typical response being that the machine was overpriced as a video-game platform but under-equipped as a computer. Both Bandai and Apple had high hopes for Pippin, as the Power Rangers phenomenon was in decline and Apple was increasingly losing its market share to Windows-based equipment. Bandai officials admitted that the firm was not making money on Pippin players but expressed confidence that sales of software and subscriptions to a Bandai-owned online service would make it profitable.
Tamagotchi “Virtual Pet” Takes Japan By Storm: 1996
In November 1996, a toy designed by former housewife Aki Maita was launched which would become the company’s next blockbuster hit. This was the Tamagotchi, an electronic egg-shaped device attached to a keychain. A small screen on the front displayed an image of a chicken-like creature, which would have to be “cared for” by manipulating several buttons. If it was not tended to, the creature would die; by pressing a button, another creature could be hatched. If cared for properly, the character could grow and change, “living” for up to several weeks. The toys quickly became popular in Japan, perhaps in part because they annoyed parents, who had to go to great lengths to secure them, after which they were often faced with babysitting the Tamagotchi when the child had other responsibilities.
By February 1997, Bandai was so far behind in filling orders that it issued a public apology, at the same time launching Tamagotchi version 2. Tamagotchis were so difficult to obtain that some Bandai employees reported being threatened with harm by Japanese “Yakuza” gangsters if they would not turn over copies of the toys, which were reportedly selling for as much as ¥50,000 on the black market, 25 times their list price. New variations were soon in development, including Tamapitchi, a pair of cellphones that could send an animated character from one device to another, enabling it to mate and create a third creature.
While all this was taking place, Bandai was also laying plans for an October 1997 merger with video game giant Sega, which would create an entertainment conglomerate on par with the Walt Disney Company. Bandai’s employees showed strong opposition to the move, however, and industry analysts were not enthusiastic. In late May, Makoto Yamashina abruptly called off the deal, simultaneously tendering his resignation as head of the company. He was replaced by a Bandai veteran, Takashi Mogi, who had earlier helped salvage several troubled subsidiaries.
Along with the turmoil caused by the cancelled merger, Bandai was also suffering from the failure of Pippin, which was discontinued in March after total sales of just 42,000 units worldwide. The misfire would end up costing the company more than $200 million in write-offs.
Tamagotchi sales had now peaked in Japan, but the product’s launch in the international market had just begun and it was proving to be nearly as successful abroad. Tamagotchi spinoff items such as clothes and video games were already in the pipeline, as was followup DigiMon, which could be connected to another toy for battles, the winner gaining some of the loser’s strength. By the end of 1997, 40 million Tamagotchis had been sold worldwide. On a sad note, in October 1997 Bandai founder Naoharu Yamashina passed away at the age of 79.
In March 1998, the firm opened its first Ultraman Club, which contained shops and amusement machines. The club, one of a projected chain of ten, would be used in part for researching toy trends. A restructuring also took place in the spring which realigned the company into ten units that included Toys, Entertainment, Service, Production, and Images and Music. Other new developments of the year included formation of a U.S. home video division, creation of a line of character-based gardening tools, and the introduction of “Silent Shout,” a lollipop which broadcast music into a consumer’s head through vibrations in the candy’s battery-powered handle. A popular toy of this period was the hyper yo-yo, which had a special bearing inside that allowed more complex movements than a standard yo-yo.
In the spring of 1999, Bandai introduced another new product, WonderSwan, a handheld electronic game toy which could be used by itself or connected to another unit or a computer. It had been designed by Gunpei Yokoi, creator of Nintendo’s similar Game Boy. In the spring of 1999, the company also changed its top leadership, with Takeo Takaso becoming president and Yukimasa Sugiura CEO and chairman. Takashi Mogi had stepped down because of the company’s poor recent financial performance, which came as the Tamagotchi craze burned itself out. Makoto Yamashina, who had been serving as chairman since stepping down as CEO, was named honorary chairman.
Mattel Buys into Bandai: July 1999
In the summer of 1999, Bandai announced it was selling a 5 percent stake in the firm to toy industry leader Mattel, Inc. as the first step in a new cooperative marketing agreement. Bandai would have the option of buying 5 percent of Mattel as well. The move gave Bandai its first presence in Latin America, while Mattel would be strengthened in Japan, where its prior efforts had met with little success. Bandai would continue to distribute its own toys to the United States in the short term. Other projected benefits of the union were mutual development of new toys and sales of Bandai products through a Web site Mattel was preparing to launch. Bandai had recently also joined with seven other companies to form a joint venture called e-Shopping Toys Corp. to sell toys on the Internet. Another joint venture was announced a few months later in which Bandai and Japan’s other top three toy makers would produce robot toys. The company was now increasingly focusing on technology-based offerings, including robotic pets, video and computer games, and digital content provision.
Bandai’s revenues were dropping off at this time, but reorganizing efforts were paying off with an increase in net earnings. For the fiscal year ending in March of 2000, the company reported sales of ¥208.62 billion ($1.91 billion) and net earnings of ¥1.28 billion, up from the previous year’s loss of ¥16.4 billion.
In the spring of 2000, Bandai announced it would pay a bonus of ¥1 million for each baby an employee had after their second child. Japan’s birth rate was at an all-time low, and Bandai’s offer was the most generous to date of many that companies were making in an attempt to reverse this trend.
The fall of 2000 saw Bandai spin off a recently created cellphone and Internet content provider unit to create wholly owned subsidiary Bandai Networks Co., Inc. In January 2001, the firm sold a 50 percent stake it owned in Upper Deck Group, a California-based trading card maker. Upper Deck would continue to make cards featuring Bandai characters such as Gundam, which had only recently been introduced in the United States. The company also sold one of its Thai manufacturing plants and consolidated production there at a single facility near Bangkok, causing the loss of a number of jobs. A Chinese plant had been sold several years earlier.
Bandai’s financial picture continued to improve in 2001, with numbers released in the spring for the preceding fiscal year showing profits jumping to ¥12.9 billion on sales of ¥217 billion. In July, a joint venture was formed with two Korean firms to create Bandai GV Co., which would develop online games for the Japanese market. The company also announced it would introduce a higher-priced line of capsuled toys, which included such items as a digital watch priced at ¥300. In the fall, the firm began offering shares of its Bandai Visual unit on the JASDAQ Stock Exchange and formed a joint venture in Korea with several Japanese and Korean firms called Daiwon Digital Broadcasting Co. Ltd. to broadcast animated programs via satellite under the name AniOne TV.
In March 2002, another joint venture, Bandai Channel Co., was launched to provide digital content to computers and video game terminals that would be based on characters such as Gundam. The fiscal year just ended proved to be the firm’s best ever, with earnings hitting a record ¥21.99 billion ($170.7 million) on sales of ¥227.93 billion.
In the summer, Bandai bought Tsukuda Original Co.—a doll, toy and software maker—to help broaden the firm’s offerings. The year 2002 also saw Bandai begin construction of a new ¥4 billion headquarters building in Tokyo. Built on land near the company’s existing offices, it would feature a Bandai Museum exhibiting toys from the firm’s entire 52-year history. The 15-story facility was expected to open in April 2005. In the fall of 2002, Bandai announced it would revive the Strawberry Shortcake line of toys, which had been popular in the United States during the 1980s. Thirty items were to be released, retailing at between $3 and $20. In January 2003, the recently-purchased Tsukuda Original was sold to Wakui Corporation. Shortly afterwards, Bandai announced that the firm’s structure would be shifted to a holding company pattern over the next several years, with all of its various divisions spun off into wholly-owned subsidiaries.
After more than a half century, Bandai Co., Ltd. had grown to become the third-largest toy maker in the world. The firm continued to offer a wide range of character-based products as well as an ever-changing lineup of electronic toys, videos, video-games, clothing, capsuled items, and food. The multi-faceted firm was also increasingly expanding into the digital realm with the offerings of its Bandai Networks Co. unit and a series of joint ventures.
Banpresto Co., Ltd.; Bandai Visual Co., Ltd.; Bandai Networks Co., Ltd.; Sunrise Inc.; Yutaka Co., Ltd.; Megahouse Corp.; Seika Co., Ltd.; Banalex Corp.; Plex Co., Ltd.; Bee Co., Ltd.; Seeds Co., Ltd.; Artpresto Co., Ltd.; Happinet Corp.; Bandai Logipal Inc.; Bandai America Inc. (U.S.); Bandai Entertainment Inc. (U.S.); Bandai S.A. (France); Bandai U.K. Ltd. (U.K.); Bandai Espana S.A. (Spain); Bandai (H.K.) Co., Ltd. (Hong Kong); Bandai Trading (Shanghai) Co., Ltd. (China); Bandai Korea Co., Ltd. (Korea); Hebei Wanrong Co., Ltd. (China); Bandai Industrial Co., Ltd. (Thailand); Banpresto (H.K.) Ltd. (Hong Kong); Bandai Logipal (H.K.) Ltd. (Hong Kong).
Hasbro, Inc.; Mattel, Inc.; Nintendo Co., Ltd.; SEGA Corp.; Takara Co., Ltd.; Tomy Co., Ltd.
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