The quiet king of Japanese shipbuilding expands its empire
Family-held Imabari Shipbuilding eclipses rivals Mitsui and Mitsubishi
EIKI HAYASHI, Nikkei staff writer
TOKYO -- It buys more steel than any other Japanese company except Toyota Motor, and its shipbuilding dominance is such that rivals Mistui and Mitsubishi group are now turning to it for help.
Yet the inner workings of Imabari Shipbuilding -- a family-controlled company with a history going back over a hundred years -- remain murky.
Its latest move, however, not only puts the unlisted company in the spotlight, it may also ignite a wave of industry realignment.
On Jan. 12, Imabari announced that it had reached a basic agreement to take over Minaminippon Shipbuilding from Mitsui O.S.K. Lines and Mitsui Engineering & Shipbuilding, which own 24% and 25%, respectively, of the Oita Prefecture-based company.
The shipping company and shipbuilder approached Imabari about a potential acquisition in the spring of 2017. After spending half a year reviewing Minaminippon's operations and assets, Imabari was not inclined to buy.
For one thing, most of Imabari's shipyards are on the Seto Inland Sea in western Japan. The company felt that transporting vessel components from there to Minaminippon's shipyard in Oita, in the country's south, would simply be too costly.
President Yukito Higaki, however, had the final say. "We can finance it using whatever sources we have. I think we should accept the offer," he reportedly told his executives.
Both Mitsui O.S.K. and Mitsui Engineering wanted to divest their stakes in Minaminippon, which had posted two consecutive years of losses. Higaki reasoned that if Imabari went through with the deal, it would have a better relationship with Mitsui O.S.K., a buyer of Imabari vessels. He hoped it would also encourage Mitsui Engineering, which sells engines to Imabari, to treat his company more favorably. Imabari's ability to pursue this "spend a dime, make a dollar" strategy is a testament to its strong position in the industry.
At one time, Japanese shipbuilders controlled half of the global market, but their time at the top ended in the 1990s as Chinese and South Korean rivals took the lead. The combined share for Japanese companies' now languishes around 20%, having taken a further hit from the slowdown in shipbuilding after the global financial crisis. This slowdown also affected comprehensive heavy machinery makers, including Mitsubishi Heavy Industries and Kawasaki Heavy Industries, prompting them to restructure their operations.
Amid the stagnation in Japanese shipbuilding, Imabari appears to be the only player that is thriving. Its commercial vessel production as measured by cargo-carrying capacity totaled about 4 million tons in fiscal 2016, six times more than Mitsubishi Heavy and seven times more than Mitsui Engineering. Its revenue in that year totaled 373.4 billion yen ($3.43 billion). Globally, it boasts the fourth-largest market share, after South Korean rivals including Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering.
Imabari opened a 40 billion yen dock in Marugame, Kagawa Prefecture, last September. Its aggressive expansion stands in sharp contrast to its domestic peers.
Its relationship with Mitsubishi Heavy has also changed markedly.
In March 2017, Imabari announced a tie-up with its rival -- a deal reportedly struck in response to entreaties from Mitsubishi. Under the tie-up, the two companies jointly procure steel plate and other materials. This is a boon for Mitsubishi, which can benefit from Imabari's bargaining power as the single largest player in the industry.
"Imabari now overshadows Mitsui and Mitsubishi in terms of both [market] share and name recognition," an industry insider said. "It took over the throne, in both name and substance."
The situation is a far cry from what it once was. In 1971, Imabari reached a deal under which Mitsubishi Heavy provided it with design assistance for a fee. Imabari remained in a junior position relative to Mitsubishi until the 2000s.
"We are finally regarded as their equal," Higaki said. The president could have gone further in his remarks: Imabari is now widening its lead.
The president of a rival shipbuilder attributed Imabari's success to the strong grip that its leadership exerts on the company.
"They can vote to make acquisitions that appear to be unreasonable and sign large deals where it's hard to recover investment because it's an unlisted company not dogged by quarterly results and because it has an autocratic leadership," the rival president said.
To find out how accurate that observation is, this reporter visited the Higaki family in Imabari, Ehime Prefecture.
Imabari Castle, with its distinctive white walls, is about a 30-minute walk from JR Imabari Station. Near a bridge across a moat stands a bronze statue. Contrary to expectations, it is not daimyo Todo Takatora, who built the castle in the 17th century. Rather, the statue is of Toshiyuki Higaki, the 89-year-old father of Imabari President Yukito Higaki, who is now head of the group.
An elderly man sitting on a nearby bench was happy to talk about the statue.
"We owe a lot to Higaki-san because he helped this town grow," he said, pointing to the statue and smiling.
About 20 members of the Higaki family work at Imabari, and each has a business card bearing a two-digit code next to their name. The number on the left indicates the cardholder's father -- 1 for the eldest son of the late Shoichi Higaki, the effective founder of Imabari, 2 for the second eldest, and so on. The number on the right indicates which number son the cardholder himself is.
Thus, Managing Director Mutsuya Higaki, the second son of Shoichi's fourth son, has the code number 4-2, while 5-1 is the code for Managing Director Kiyoshi Higaki, the first son of the founder's fifth son.
There are more than 100 Higaki family members. In addition to Imabari, many of them work at group companies and affiliates, as well as companies that have close business relationships with the shipbuilder.
An Imabari general affairs manager said the code numbers are useful in "helping us to avoid confusion."
In many family businesses, the eldest son of the incumbent leader is often the heir apparent. But Imabari President Yukito Higaki's number is 3-1, not 1-1.
Rather than naming the eldest son president, at Imabari, siblings take turns serving as president once their father steps down.
When the eldest son of the founder retired as president and became chairman in 1992, Toshiyuki, the third son -- and the man whose statue stands before Imabari Castle -- became president, while the second, fourth, and fifth sons took positions of vice chairman, vice president and managing director, respectively.
It was only after the founder's fifth son, who took over from Toshiyuki, died in 2005 that Yukito became the first of his generation to serve as president.
After graduating from Tokyo's Keio University, Yukito joined general trader Mitsui & Co., where he gained experience in the shipping business for two years before joining Imabari.
Toshiyuki, who was a driving force in jump-starting Imabari's growth, attached great importance to harmony among the Higaki family members.
When the company nominated his second son -- Kazuyuki Higaki, the present executive senior managing director -- as director in 2000, Toshiyuki disagreed, although the he was unable to block the move.
His opposition was so vehement that people close to him wondered if the two men had some kind of personal conflict. This was not the case, according to Kazuyuki, who said his father did not think it was a good idea to promote two members of the third generation -- Kazuyuki and Yukito -- at the same time. There had been no precedent for it.
"I knew he had given so much thought to this," Kazuyuki said. "He was worried it could disturb the harmony within the family."
According to residents of Ehime Prefecture, the Higakis are simple, down-to-earth people.
A person close to the family said he was surprised to find that one family member had written her name on the inside of her bag, explaining that it would help her find it if she left it somewhere. Yukito, meanwhile, always travels economy class when he has to fly for business and mainly takes the train when he travels around Tokyo.
The strong solidarity and apparent humility of the Higakis have much to do with how the company was formed.
The Higakis trace their roots to a family of vassals serving the Kurushima family, pirates in feudal Japan who controlled the Seto Inland Sea during the Azuchi Momoyama period (1568-1600).
Despite this early connection to ships and the sea, however, it was not until centuries later that the family ventured into shipbuilding.
Yukito's great grandfather, Tameji Higaki, established a shipbuilding company bearing the family name in Imabari in 1900. During World War II, the government forced six shipbuilders in the region to merge to create what would become Imabari Shipbuilding.
Initially, the management positions, including that of president, were held mostly by more powerful local businesspeople, while the highest position the Higakis received was overseeing the shipwrights.
When the war was over, Shoichi Higaki left the company with his son and others and formed a new shipbuilder. When Imabari's management approached Shoichi for help after losing most of its shipwrights, he raised money and bought out the company.
"Maybe they learned the importance of family unity and made it their creed because they were not the pure founding family and had the bitter experience of being forced to leave the company, which taught them the importance of forming a majority," said an Imabari insider familiar with the company's history. "I imagine they developed a family culture of humility because the members have tried not to antagonize each other."
The source of Imabari's strength lies in a business model based on renting out ships.
Yukito Higaki also serves as president of Imabari subsidiary Shoei Kisen. The company does not disclose its accounts, but according to an insider, it has a fleet of over 150 large commercial vessels that it leases to major shipping companies, such as Nippon Yusen.
Shoei has expanded its business in recent years as large shipping companies have cut back on ship purchases to improve their balance sheets. Buoyed by strong demand, Shoei ordered vessels from Imabari, fattening its parent's order books.
Thanks to this, Imabari's Marugame dockyard has been kept busy, most recently building vessels to fulfill lease orders from Taiwanese shipping giant Evergreen Marine. It also won an order from Mitsui O.S.K. Lines for a vessel that can carry 20,000 containers.
While Shoei's continually expanding fleet certainly generates cash for Imabari, it has become difficult to charge high leasing fees given the prolonged slump in shipbuilding since the global financial crisis. Once new vessel orders become unprofitable, this model may hit a snag.
Meanwhile, the industry appears ready for a wave of realignment. In a recent development, Mitsui Engineering on Feb. 1 announced a tie-up deal with Tsuneishi Shipbuilding in Hiroshima Prefecture, across the Seto Inland Sea from Ehime. Similar moves may pressure Imabari into working more with listed companies, which may bring new pressure to disclose its financial information. The Higaki family faces a challenge to maintain growth while adapting to a changing business environment.