Ajinomoto Co., Inc.

1890–1956

Ajinomoto Co., Inc., the world's first and still-largest producer of monosodium glutamate (MSG), is one of Japan's largest food-processing companies. In addition to seasonings, Ajinomoto produces edible oils, frozen and processed foods, beverages and dairy products, amino acids, pharmaceuticals, and other specialty chemicals. Although the company has operations in 20 countries, it derives nearly 80 percent of its revenues in its domestic sphere.

Origins and Postwar Activities

MSG, the company's mainstay for more than 80 years, was discovered in kelp by Kikunae Ikeda at the University of Tokyo in 1908. With help from Ikeda, Saburosuke and Chuji Suzuki--two brothers who had been extracting iodine from seaweed since 1890--formed Ajinomoto to produce the substance commercially. They began marketing it in 1909 as "AJI-NO-MOTO," which translates literally as "essence of taste."

The company focused on international sales and established a strong base in chemical development at its inception. A New York office was opened in 1917, and between the wars production and sales offices were opened throughout Asia, giving the company a global position decades before other Japanese companies. During this time the company began to produce MSG from soybean protein, which eventually led to the production of cooking oils. World War II halted MSG production, but between 1947 and 1953 AJI-NO-MOTO became available in the United States and Europe, and the company also began to sell cooking oil. In 1954 Ajinomoto opened offices in São Paulo, Paris, Bangkok, and Hong Kong.

Emphasis on chemical research culminated in the creation of the Central Research Laboratories in 1956. Research during the 1950s brought about not only different biological and synthetic methods of MSG production, but an entry into the pharmaceutical industry. The development of crystalline essential amino acids, used for intravenous solutions, introduced Ajinomoto to pharmaceuticals. Amino acids were found to have a wide variety of applications, and before the end of the decade they were being used in the company's seasonings and animal-feed additives.

In 1989 Ajinomoto ventured further into the area of fine chemicals through the US$92.4 million acquisition of S.A.

1962–1979

Food Processing in the 1960s

The company took larger strides toward internationalization in the 1960s. Most overseas growth was limited to expanded production of seasonings in Asia and South America. However, through joint ventures and licensing agreements with U.S. and European companies, Ajinomoto increased its presence on those continents and at the same time expanded its product line domestically. The first large-scale licensing agreement came in 1962 when it began marketing Kellogg's breakfast cereals in Japan. A similar agreement with CPC International Inc. to manufacture and market Knorr soups was reached in 1965. These ventures established the company as a food processor and not just a seasonings producer. After 1965, the company applied its research to the development of new seasonings, soups, margarine, mayonnaise, frozen foods, and flavored edible oils. In 1973 Ajinomoto formed yet another joint venture, with General Foods, to produce coffees, instant coffees, and soft drinks.

The oil crisis led most companies to consolidate in 1973 and 1974, and internal development of food products increased during the 1970s. By 1978 seasonings accounted for only 22 percent of sales and processed food had boomed to 31 percent from 3 percent in 1965. In 1970 the company created Ajinomoto Frozen Foods and also began to collaborate with the NutraSweet Company of the United States. A 1979 joint venture with Dannon introduced dairy products for the first time to the company's product line.

Expanding Pharmaceutical Operations in the 1980s

Ajinomoto's new focus on products derived from its amino acids research proved well-timed as the company entered the 1980s. Growth in the Japanese food industry slowed significantly. Although MSG sales overseas increased, the domestic market was mature. Food-related products, which made up 80 percent of the company's sales, could no longer be relied on for large-scale or long-term growth. Management initiated a plan to expand its fine chemicals divisions further while diversifying the food products made by its overseas subsidiaries.

1980–1990

Pharmaceutical product sales were ¥20 billion in 1980; U.S. medical institutions and pharmaceutical manufacturers purchased half of the company's output. Although the reliance on exports would prove damaging to many Japanese companies as the yen appreciated in the late 1980s, Ajinomoto's extensive research investments in the 1970s gave it prominence in the field and made the division less vulnerable to international cycles.

The diversification into the pharmaceutical business was not easy. The complexity of the pharmaceutical market called for completely different marketing techniques as well as lengthy approval processes from various governments. In order to defray these high research-and-development costs, Ajinomoto typically used other companies to market its drugs or used licensed companies to produce them.

In 1987 the joint Ajinomoto-CPC International venture was altered, with Ajinomoto taking full control of the Japanese joint venture firm, Knorr Foods Co., Ltd. At the same time, Ajinomoto purchased from CPC a 50 percent equity stake in CPC's seven Asian subsidiaries located in six countries. In 1990 Ajinomoto joined with the Calpis Food Industry Co., Ltd. in an agreement whereby beverages and dairy products manufactured and marketed by Calpis would be distributed by Ajinomoto.

Ajinomoto's new venture department was established in 1987 with a focus on new markets and cooperative producers in the life-sciences area. The department symbolized the company's commitment to the industry, and earnings showed why. In 1988 sales rose only 0.5 percent, but earnings grew 15.4 percent--due largely to the much higher margins the company earned on life-science products. In 1989 Ajinomoto ventured further into the area of fine chemicals through the US$92.4 million acquisition of S.A. OmniChem N.V. of Belgium, a maker of intermediate chemical products for the pharmaceutical and food industries.

Although the international market for research and development in pharmaceuticals made Ajinomoto less vulnerable to currency valuation cycles, a strong yen hurt the company nonetheless. In response to a reduced export market, the company turned to domestic food sales in the late 1980s, becoming more active in restaurants and foodservice and entering the fresh vegetable and fish market for the first time. The food-processing division was the only one in 1988 to show an increase in sales&mdashø 40.6 percent of the company total--reflecting the influence of the difficult export market. Ajinomoto hoped to increase its overseas food production by taking advantage of the strong yen to acquire companies and diversify the product lines of its foreign subsidiaries.

1992–2005

The company continued to spend a higher percentage (3.3 percent) of sales on research than most food processors did, reflecting its interest in the fine chemical and pharmaceutical industries. In addition to this money, the Japanese government funded research on problems such as AIDS, and in the late 1980s university research became available to commercial developers. Funding from the MIT Cancer Research Institute, for example, helped support research and provide a wider variety of potential developments.

1990s and Beyond

In the 1990s Ajinomoto expanded rapidly in the increasingly open market of China, establishing seasoning, food, and pharmaceutical operations there. The company also continued to pursue joint venture opportunities. In 1992 Ajinomoto joined with Calpis and the French food conglomerate Danone Group to form Calpis Ajinomoto Danone Co., Ltd., a Japanese-based marketer of chilled desserts, most of which were made from dairy products. In the pharmaceuticals sector, Ajinomoto expanded its research in the areas of immune diseases and diabetes. In 1994 the company licensed to Sandoz AG of Switzerland a diabetes treatment. Moreover, in 1996 the U.S. Food and Drug Administration recommended as a first-line therapy for AIDS a drug called dideoxyinosine that Ajinomoto had developed.

The 1990s also saw the company struggle through a number of difficulties. The prolonged Japanese economic downturn led to only moderate increases in net sales during the early and mid-1990s and stagnated profits. Results improved during the later years of the decade, with net sales increasing from ¥750.84 billion in 1996 to ¥788.4 billion in 1997 to ¥835.97 billion in 1998, while net income rose from ¥10.49 billion in 1996 to ¥15.33 billion in 1997 to ¥17.98 billion in 1998. Other troubles included a U.S. investigation into allegations of international price fixing in the food and feed additive business. The investigation led to a criminal felony case brought in August 1996 against Ajinomoto and two other Asian companies charging them with conspiring to illegally fix the worldwide price of lysine--a livestock feed additive--in concert with Archer-Daniels-Midland Co. of the United States. In November 1996 Ajinomoto pleaded guilty to one conspiracy count and agreed to pay a $10 million fine. In early 1997 two Ajinomoto executives were indicted on charges of paying ¥6 million (US$47,500) to sokaiya gangsters. The sokaiya were Japanese mob extortionists who blackmailed companies by threatening to disrupt annual shareholder meetings. This scandal led to the resignation of the president of Ajinomoto, Shunsuke Inamori, who took personal responsibility for the alleged payoffs.

The new president, Kunio Egashira, announced in early 1999 that Ajinomoto would adopt a holding company system by the year 2002 and integrate 130 domestic and overseas group companies into about 90 firms. The company also planned to reduce its overall number of employees from 5,200 to 4,800 by 2005, and to cut its 150-person administrative staff in half by 2002. Through these moves to consolidate and streamline operations, Ajinomoto hoped to improve its early 21st century profitability.