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A Century of Capturing Niches / Financial Times (Dec. 13, 2017)

A Century of Capturing Niches

In sectors as varied as electronics, automotives, and pharmaceuticals, Nitto Denko Corporation has pursued a "Global Niche Top™" strategy of capturing targeted market segments, keeping ahead of rivals, and staying versatile.

If you check your email today, it is more than likely that you will be reading it through optical films manufactured by Nitto. The Japanese manufacturer based in Osaka has the top global market share of LCD polarizers, a type of optical film used in smartphones, computers, televisions, and other devices. Besides these films, more than a dozen other Nitto technologies (including touch sensors, adhesive sheets, and micro porous films which shut out water and dust, but allows air through) are embedded in the latest high-end smartphones.

Nitto's dominance as a supplier for optic displays is only one of many the maker has cultivated. In sectors as varied as electronics, automotives, and pharmaceuticals, Nitto has pursued what it calls a "Global Niche Top™" strategy of capturing targeted market segments. Though originally an industrial tape maker established in 1918, Nitto has constantly squeezed new applications from its core technologies of adhesion, coating, and polymer processing. It now offers some 13,500 products across more than70 business sectors globally. Across the huge line-up, the company concentrates on becoming top-runners in each. It then leverages this position to keep abreast, and stay ahead of, market changes.

"If we were to describe Nitto in one phrase, it is our niche strategy," says Hideo Takasaki, President and CEO of Nitto. "For us, a niche is an evolving and growing market segment where Nitto can realize its strengths effectively and develop competitive advantages comfortably."

The approach has kept the materials company nimble and profitable. For the first half-year ended in September 2017, Nitto reported a 20 per cent increase in revenue and 133 per cent increase in operating income, compared to the same period a year earlier. Revenue forecasts for the full year ending March 2018 were also revised upwards by 7.5 per cent to Y860bn($7.6bn), with operating income expected to jump by 35 per cent to Y135bn.

Advantages of the niche top

Becoming a dominant supplier ensures not only high growth and profitability, but also vital links to clients.

"As the top supplier, we have the tremendous advantage of getting more, better, and faster information than others about what our clients plan to do next," says Takasaki. "And by working closely with top clients that are leading innovation in their respective industries, we can evolve together with the market."

Take displays for example. When Nitto first started making narrow strips of polarizers in the 1970s for calculator displays and digital watches, the tiny market was highly specialized. LCD use then expanded into video games, TVs, computers, and later smartphones. As a dominant supplier, Nitto developed ever newer and higher-value added polarizers in close cooperation with its clients. In the process, the company took a bird’s-eye-view of the industry and pursued an intellectual property strategy that contributed to the evolution of display technology.

The next big trend in displays is a shift to organic light emitting diodes. Nitto is preparing to supply many of the functional materials to be used for these next-generation displays, particularly for ultra-thin and flexible OLEDs. Despite concerns in the industry about an increasingly commodified smartphone market, Nitto is confident about maintaining its presence by developing niche, cutting-edge technologies. The company estimates that revenues, per smartphone unit, from supplying materials for flexible OLED would be as much as 25 per cent larger than its current LCD business.

Converging into automotive electronics

Along with supplying electronics components, Nitto has been a significant supplier of industrial tapes and materials used in the automotive sector. For example, the company's reinforcing tapes reduce vibrations and noise, for steel/aluminium panels used in car doors. These materials help reduce the weight of vehicles and their environmental impact.

Beside these industrial materials, the ever-accelerating electrification of cars in recent years has opened up another window for growth. Demand for automotive electronic components has surged with the proliferation of electric vehicles and advanced driver-assistance systems. Autonomous driving systems are developing rapidly. And as the boundaries of electronics and automotive sectors dissolve, the automotive business model centred on traditional carmakers has become more fluid. First-tier automotive suppliers and tech giants are influencing industry direction. These disruptions are providing new opportunities for Nitto.

"Our business know-how, strengths, as well as contacts in the electronics sector will help us capture a larger share of automotive business, particularly in partnership with increasingly competitive tier businesses worldwide," explains Takasaki.

Nitto already produces visible light-blocking material for head-up displays and is currently developing sensor materials in radars used to measure distances between cars. Electronic insulation tape for motors, battery materials, and plastic optical cables (see column) are some of Nitto's other technologies which will be in increasing demand for next-generation cars.

Pursuing opportunities across diverse dimensions

Nitto's niche strategy is complemented by a "multi-dimensional" business approach rooted in its core technologies. Its trajectory in the medical industry is a prime example. Since the 1960s, the company had produced various medical adhesive tapes, including bandages as well as patches placed on the skin to deliver drugs, such as for asthma and hypertension. This business line continues with innovations such as the Nitto PassPort™an advanced patch system that creates micropores on the skin to deliver biological drugs.

More recently, the company has made a splash in the market for oligonucleotides, a next-generation biomedical therapeutics. In 2011, Nitto acquired Avecia, a Boston-based company, giving it more than 60 per cent of the global market for contract manufacturing of oligonucleotides. This "niche top" position, Takasaki explains, gives the company an unrivalled view of trends in a market at its infancy. Anticipating growth, the company has expanded its drug manufacturing facility in Nitto Avecia last year.

Besides contract manufacturing, Nitto has also engaged in drug discovery for oligonucleotide therapy since 2007. Nitto has also signed an agreement with US Bristol-Myers Squibb to develop oligonucleotide drugs for cirrhosis of the liver. In its "life science" division, revenues increased while profits fell year-on-year for the first half of fiscal 2017 as a result of capital investments during this period. By fiscal 2018, Nitto aims for Y50bn in sales, representing a 12 per cent jump from results in fiscal 2016.

To a new century of challenges

With its 100th birthday approaching, Nitto looks forward to a new century of challenges.

"We see our centenary as a fantastic opportunity to reconnect with our strengths and prepare for another century of growth which we call the ‘Nitto-New Century’" says Takasaki. "We hope to provide not just products that make the world convenient, but improve people's lives overall."

To this end, Nitto has announced that it will be focusing on generating greater value in the three domains of Green (environment), Clean (new energy), and Fine (life science).

To gain greater global brand awareness for these goals, Nitto has also become the first Japanese title sponsor for the Nitto ATP Finals. The world-class tennis tournament, Takasaki says, embodies the spirit of challenge and global level competition to which Nitto is committed. Like the tennis stars who competed in London this autumn, the Japanese company is keeping its eyes on the ball, ready to return whatever falls in its side of the court.

Fantastic Plastic Optical Cables

Nitto has excelled in producing materials for electronic devices used in output, such as optic films for LCD and OLEDs, as well as in input, such as conductive films for touch panels. Nitto felt that new value would be generated by providing technologies which transmit data between the two ends. So in September, the company announced its plans for developing and commercializing a new type of plastic optical cable.

The new plastic-based cables, being developed together with Keio University, feature a number of advantages over existing ones made of glass or wire. In addition to being able to transmit high-speed data transmission of over 100 Gbps, the new cables are lighter and more flexible. These features allow mass data transmission in more compact spaces. Being also resistant to noise, the plastic cables can achieve undisrupted transmissions in environments with other radio waves, such as wi-fi.

One of the new cable’s key applications will be 8K TV displays (which uses 7,680x4,320-pixels and provides 16 times as sharp a resolution as standard high definition TV). Japan's national broadcaster has announced that the 2020 Tokyo Olympic games will be fully broadcast in 8K, leaving TV makers and component suppliers rushing to supply markets before the opening ceremonies. 8K imaging has also been used for medical use with endoscopes, cameras used for taking images inside bodies. The new plastic optical cables are also highly heat and shock resistant, making them ideal for connecting information and electronic equipment on-board planes and in cars. Its flexibility is also useful for optic cabling in smaller, movable parts of robots and drones.

With the huge range of potential commercial applications, many of them converging with Nitto's "Green, Clean, and Fine" domains, the plastic optical cable business is expected to become a key growth pillar for the company. Nitto has announced plans to establish mass-production by 2019 and generate as much as JPY100bn in revenues by 2023 from the plastic optical cables.

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