Businessweek Archives

Unilever, Procter & Gamble...And Kao?

Industries: Personal Care

Unilever, Procter & Gamble...And Kao?

The Japanese manufacturer wants to be a global power

If the Japanese are justly famous for discouraging innovation, Kao Corp. is a mold-breaker. While most of the rest of Corporate Japan slogs through another year of recession, the Tokyo-based maker of household products is about to report record profits, of more than $300 million, for the year to Mar. 31. One reason: a cleverly designed cosmetic device aimed at young consumers with complexion problems. Since its debut two years ago, the Biore Pore pack has spread through global markets like fire through a parched forest. Suddenly, Kao is running with giants Procter & Gamble Co. and Unilever Group. "If you compare their products," says Toshihiko Ginbayashi, an analyst at Morgan Stanley Japan Ltd., "Kao surpasses P&G in most categories."

No mean accomplishment. While Kao's soaps, shampoos, and detergents are top sellers at home, it has been a big-fish, small-pond story. Last year, Kao reported earnings of $185 million on revenues of $6.9 billion. Compare that with P&G's $37 billion in worldwide sales, or Unilever's $50 billion. But overseas sales are already a third of total revenue, up from 20% just three years ago. And now, boosted by the success of its pore pack, Kao is determined to go global with personal-care products dreamed up in its own labs.STRIP MINE. Kao's new resoLve is already evident. When Andrew Jergens Co., its U.S. subsidiary, acquired the Curel brand from Bausch & Lomb Inc. last year, Kao jumped to No. 2 in the U.S. skin-care market, behind Unilever. Now, the company wants to develop its Biore brand in the U.S. and European markets. In Asia, it aims to consolidate its strongest product lines--detergents and sanitary napkins, for instance--before pushing into areas where it now lags. Says Takuya Goto, Kao's president and chief executive: "We need highly unique products."

That's a fair description of Kao's basic bet on innovative products to Help close the gap. Take the pore pack, a $5 box of 10 strips that the user bands across the nose; when peeled away, the strip removes the oils and dirt that clog pores. Unit sales are now 9 million a month, chiefly in Japan, the U.S., and Western Europe--where Marie Claire and 15 other fashion magazines named it consumer product of the year in 1998.

The pore pack reflects a longstanding commitment to product development. Of Kao's 7,000 employees, 2,000 are dedicated to research and development--more than triple the proportion at P&G. Unique is the word for some of Kao's hits: Car Mypet Vega, a waterless car wash in a spray bottle; and a miniature folding mop called the "Quickle Wiper." One reason such oddities succeed is Kao's assiduous use of housecalls to gauge consumer responses to product ideas.

Kao also seems committed to a corporate makeover. Executives want to replace the seniority management structure with a pay-and-promotion system based on merit. In a recent nod to shareholders, Kao closed a loss-making unit that manufactured floppy disks--a painful move for a Japanese company.

Kao executives figure they have to act fast or lose out to P&G and Unilever, which are expanding in Japan and Asia. "Unless you aggressively seize opportunities abroad," says President Goto, "you will be overwhelmed." The new thinking seems to please investors. In a market that tumbled by a third last year, Kao's share price gained by almost the same percentage. Foreign investors have doubled their holdings in the stock in the past three years, to 25%.

Kao's transformation will not be easy. Some analysts say Kao does not yet make full use of managers with international experience--a common enough problem among Japanese corporations. And its 6% return on equity is minuscule compared with P&G's 28% or Unilever's 24%. At least no one at Kao seems to be ducking the difficulties. "We must bring ourselves closer to the world's best firms," acknowledges Shotaro Watanabe, Kao's executive vice-president and chief financial officer. Pore packs will help, but the hits must keep on coming.By Miki Tanikawa in TokyoReturn to top

Cash Is for Losers
blog comments powered by Disqus