Trying to Spin Out of Trouble

Though Japan is still the world's biggest exporter of cotton goods, its cotton-spinning industry has been declining steadily for a decade. Stepped-up international competition, notably from the U.S., Britain and West Germany, has cut Japan's share of the world market from 30% in 1955 to 22% last year. Cutthroat rivalry at home has helped shave profit margins from an average of 8% ten years ago to barely 1.4% today. All the while, the rapid rise of synthetic fibers has done much to dampen world demand for cottons.

Last week, seeking to improve their fortunes through consolidation and streamlining, two of Japan's leading cotton-spinning companies decided to become one. Toyobo Co., the leading spinner (1964 sales: $250 million), announced that it would merge with fourth-ranking Kureha Spinning Co. (1964 sales: $100 million). The surprise merger was the best evidence yet that Japan's tradition-bound cotton industry is at last beginning to meet the challenges that face it.

The Underseller Undersold. The industry's troubles began with widespread restrictions by other countries against importing the cheap "dollar blouses" with which Japan flooded world markets in the 1950s. The reaction is still strong. This year, sweeping import barriers set up by Japan's major African customers (Nigeria, Tanzania, Kenya and Uganda) will contribute substantially to an estimated 5% decline in the country's cotton exports. On top of this, Japan is losing ground in traditional markets simply because spinners in other countries have been quicker to modernize, and thus to undersell the Japanese.

The problem is that only about 10% of the facilities of Japan's ten biggest spinners consists of up-to-date, mechanized equipment. The main obstacle to modernization: as profits shrink, companies are finding it increasingly difficult to shoulder the high costs of automating their plants. Many are turning to synthetics, but in doing so must compete against the greater experience and entrenched position of existing synthetic-fiber producers.

Concentrating for Efficiency. The Toyobo-Kureha combine is the first instance in which the ailing industry has adopted the drastic solution that the government has been urging: concentration of capital and increased efficiency through merger. "We should have done this a long time ago," says Toyobo President Toyosaburo Taniguchi, 64, who will head the new venture with the assistance of Kureha's Kyoichi Ito, 51. The new company, which will keep the name Toyobo, will have a combined capital of $51 million and 32,000 employees in 33 mills. The merger, almost sure to be followed by others, will provide an early test of the industry's ability to make a comeback in an increasingly competitive market.

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