Decline of Business Brings Growth Opportunities

: Many small and medium-sized enterprises’ managers hesitate to launch new businesses for the diversification or business change. In the case of new business launching by Yamato Industrial and Yamaguchi Kasei, decline of their existing businesses was a threat, and simultaneously, it has become an opportunity for launching new business, just as the saying “tough times bring opportunity.” In addition, the experience of launching a second business, rather than experience at startup, will motivate managers to launch businesses continuously.


Introduction
pointed out that many small and medium-sized enterprises (SMEs) are turnover firms, and do not last long after they start. Diversification of new businesses is an effective method for the stable growth of firms (Ansoff, 1957), yet the small number of SMEs that aggressively diversify can be noted as a factor in the large number of turnover firms. 1 When a company is founded, managers are expected to have the entrepreneurship required to launch a new business. So why, then, do they not launch second and third businesses after the first? The following factors can be noted.
(1) Managers lose the ambition to start new businesses. Penrose (1959,1980,1995,2009) pointed out that some managers are satisfied 2 with a certain amount of monetary compensation, and do not have the ambition for further business expansion. In addition, goals are sometimes achieved at the time a company is started when entrepreneurial motives are to work at one's own discretion or to work regardless of age (Kuratko, Hornsby, & Nffziger, 1997;Tsuchiya, 2016).
(2) Managers become overwhelmed with managing their existing businesses, and lose any capacity to launch a new business. After a company is founded, the company needs management of human resources, finances, and legal aspects to survive as a corporate organization (Lewis & Churchill, 1983). When founders do this work without hiring outside 1 The Small and Medium Enterprise Agency (2013) used actual data to show that SMEs diversify and undergo business transformation at less frequency compared to large firms. 2 Herzberg, Mausner, and Snyderman (1959) noted that monetary compensation is a hygiene factor that suppresses dissatisfaction, and is not a motivating factor. experts as managers, their existing business takes away their time and energy, making it difficult to deal with launching a new business.
(3) The belief that the current scope of business should be maintained becomes established in managers. If a company has a clear business plan, it is given a consistent direction for product development, which is a factor in promoting the success of a company launch (Delmar & Shane, 2003

A Case of YI
This section is about the diversification of YI, based on Kosugi (2014), and first introduces its primary business of control cable-related products, and then the launch of its LED penlight business.

Growth through the control cable business
YI is an SME located in Shizuoka Prefecture that was founded in 1944. In its initial period its primary business was the manufacture and sales of agricultural tools, but at the request of Yamaha Motor Co., Ltd., which had begun to manufacture motorcycles, it became a partner company, and started to manufacture tools and jigs in 1955. YI was highly regarded in its ongoing relationship with Yamaha, and became responsible for assembly of motorcycle control cables starting in 1958. This became its primary business, and the company subsequently began process innovation with control cables.
Expansion outside of control cables began with the company undertaking the manufacture of water tubes for outboard motors in 1963, and the company acquired pipe bending technology. Leveraging this, the company moved into the business of manufacturing metal pipe products for Yamaha's motorcycles, and then moved forward with customers outside of motorcycles, while taking orders to manufacture rubber hoses for automotive heat pipes and air conditioning using resin molding technology.
With its above business expansion mainly with control cables, the company responded to the requests of customers, primarily Yamaha, to leverage the related metal processing and resin molding technologies it had developed. This can be seen as technology-related or market-related business expansion.

Launch of LED pen light business
YI grew with its control cable business at its core, but after the collapse of the Japanese economic bubble at the start of the 1990s, motorcycle sales decreased, which brought down revenues from control cable sales. The company was also forced to reduce the cost of control cables by 30%, but even with continued production innovation, management predicted that they would eventually reach their limit. There was a growing sense across the company of the need to create YI-branded products to become more than a supplier company. Inspired from the experience that the whole company was excited by coloring the venue with various lights at a celebration party of the company's 50th anniversary, they started a new product development project with the concept to "make a product that brightens the world and makes people happy." Mr. Ujihara, the head of R&D at YI was put in charge of this

A Case of YK
This section is about the diversification of YK, based on Hanaoka and Wada (2018), and first introduces its primary business of expanded polystyrene-related products, and then the launch of their mousse tire business using "expanded thermoplastic polyurethane (E-TPU)."

Growth through the expanded polystyrene products business
YK is an SME located in Aich Prefecture that was founded in 1953. At the time of its founding, it manufactured rubber string, and it shifted to expanded polystyrene manufacturing, where domestic demand was growing rapidly. Later, the company steadily expanded into the business of packaging material, insulation for home appliances automobile parts, floats for fishery and civil engineering work, and bead cushions.
Business expansion in this period can be seen as a technology-related expansion leveraging the technology for molding expanded polystyrene as a core competence.

Launch of mousse tire business
The collapse of the Japanese economic bubble, the appearance of alternative products on the market, and price wars caused firms from newly developing countries all halved the Japanese domestic market for expanded polystyrene, and greatly damaged YK performance. The company took orders from anyone just to maintain revenues. This resulted in the company neglecting profit, which put it in an even worse situation.  This was the second instance of product development using E-TPU in the world, the first being the soles of Adidas running shoes, and was the first such effort in Japan. Sales of the product began in January 2016. The business plan for the product was entered into the 15th Mikawa Business Plan Contest, and received the top prize in the general division. With that prize in hand, the product was featured in several newspapers, and covered in an NHK program broadcast nationwide. This resulted in a great deal of attention and the product becoming a great hit, which restored YK's performance.
Even after the success of the mousse tire, President Matsukura is working on ideas for new businesses.

Discussion
Core rigidity constrains business development in firms, and is part and parcel with the utility of core capability (Leonard- Barton, 1992;Takahashi, 2015). The decline seen in existing businesses is a clear signal of a drop in the utility of existing core capability, and lowers core rigidity. Further, the decline of an existing business decreases the allocation of resources to existing businesses, and creating legitimacy for investing resources in the launch of a new business. 6 As the commonly used expression "tough times bring opportunity" goes, it was the decline of existing businesses at YI and YK, and the simultaneous risk, that brought opportunities to launch new businesses.
In looking at what happened after the successful launches of the new businesses at YI and YK, we can see that YI moved into the illumination business for homes and commerce facilities, while at YK the company president was looking for a business using E-TPU, both changing to ambitiously start new businesses. For a company to continuously launch businesses and enjoy sustainable growth, the experience of launching a second business is perhaps more important than the experience of launching the first.