June 11, 2014 3:18 am JST

World Cup kicks off Asahi Glass' South American tour

TATSUYA OKADA and HIDETAKE MIYAMOTO, Nikkei staff writers

TOKYO/SAO PAULO -- Asahi Glass has pulled out all the stops in building its first South American factory in Brazil, moving into a market dominated by U.S. and European competitors as it aims to expand throughout the continent.

     While Brazil gears up for Thursday's start of the World Cup soccer tournament, Asahi Glass has already made its contribution to the quadrennial event by building state-of-the-art player benches.

Bench press

Asahi Glass delivered the player benches to all 12 stadiums that will host World Cup matches. These seats feature cutting-edge technologies, including roofs made from the strong glass used to protect smartphone and tablet screens.

     "We want to show off the possibilities of Asahi Glass' technologies to the world," President and Chief Executive Officer Kazuhiko Ishimura said Tuesday at an unveiling of the bench in Tokyo.

     For Asahi Glass, the World Cup is not just about burnishing its image. The company brought a new plant onstream in Brazil last October, aiming to have it running at full capacity by 2016. Launching a float-glass furnace for construction-use products and a production line for automotive glass at around the same time is seen as a daring move. But Ishimura, who personally checked out the plant, nearly 200km east of Sao Paulo at the end of April, sounded confident about the quality.

     Brazil has no major local glass manufacturers of its own. The automotive glass market is dominated by Cebrace, a joint venture between France's Saint-Gobain and U.K. concern Pilkington, which itself is under the umbrella of Japan's Nippon Sheet Glass. Meanwhile, U.S. company Guardian maintains a commanding lead in the market for construction-use product. Asahi Glass believes if it can break into Brazil, it can replicate the success in other emerging markets.

     Asahi Glass hand-picked 100 of its best personnel from 15 or so countries, including Belgium, Germany, France, Italy, Japan and the U.S., to assemble a team for Brazilian operations. It divided up work among Europeans versed in that region's culture and designs, Americans with logistics expertise, Japanese workers with strength in plant management and cost-cutting, and others.

     The company will aim to increase its share of the Brazilian housing glass market to 10% by year-end, Ishimura said. It also intends to market products to Japanese and European automakers with local manufacturing operations when they redesign vehicles.

     Asahi Glass held a groundbreaking ceremony in San Luis Potosi in central Mexico this past Friday for an automotive glass factory slated to go online in 2016. Nissan and other Japanese automakers are building and expanding plants nearby. Asahi Glass sees the Mexican plant as its No. 2 base, after the Brazilian factory, for expanding in Central and South America.

LCD glass woes

After Ishimura took the helm in March 2008, the Lehman shock and the European debt crisis forced Asahi Glass to reorganize its global production network. It suspended float-glass furnaces at European sites, including Italy and Belgium, and also slashed personnel. With the structural reform in Europe running its course, the company is ready to reverse course to go on the offensive, according to Ishimura.

     Strengthening its LCD glass business is the next challenge. Panel manufacturers have been pressing Asahi Glass to lower prices. Operating profit from its electronics segment, which includes display glass, thus fell to 74.1 billion yen ($716 million) for 2013 from 189.9 billion yen in 2010.

     One way to deal with deteriorating earnings for LCD glass substrates is to boost sales of special shock-resistant glass by applying know-how acquired through production of liquid crystal display glass to solar panels, construction materials and other products.

     Developing new products is another path. The company recently developed the world's thinnest sheet glass, boasting a thickness of just 0.05mm. This material could find its way into such products as bendable ultrathin display devices.

     Asahi Glass is the global sheet glass leader, with a market share of roughly 18% by production capacity -- slightly exceeding Saint-Gobain and Nippon Sheet Glass. But Saint-Gobain is bigger and generates more operating profit. Asahi Glass projects operating profit to decline for the fourth year in a row this fiscal year.

     "The drop in profits from LCD glass is serious," says Akiko Kuwahara, an analyst at Merrill Lynch Japan Securities. "The company should act quickly."

     To solidify its global leadership, Asahi Glass must become a formidable presence in South America and reduce its dependence on the display glass business.