Company Perspectives:

TOTO LTD. was established in 1917 as a manufacturing and sales company for sanitary ware. The Company has grown steadily through the years by emphasizing its philosophy of customer satisfaction, or always putting the customer first. Today, TOTO offers product lines from bathroom and restroom fixtures and components to system products such as unit bathrooms and system kitchens.

Company History:

TOTO LTD. is a leading Japanese manufacturer of plumbing products, including toilets, urinals, faucets, toilet seats, water heaters, and new ceramic materials; and system products, which include modular bathrooms, system toilets, modular kitchens, modular vanity cabinets, indoor and outdoor tiles, artificial marble countertops, and plastic and enameled cast-iron bathtubs. Though traditionally a business specializing in water-related household products, TOTO has further expanded its product line into nonhousehold projects such as those for hotels and offices. The company's overseas operations include sales companies and branches in China, Hong Kong, Singapore, South Korea, Taiwan, the United States, and Vietnam; and manufacturing companies in China, Germany, Indonesia, Malaysia, the Philippines, South Korea, Taiwan, Thailand, and the United States. Despite TOTO's increasing global presence, the vast majority of its sales are generated domestically.

Early History

The company was incorporated in 1917 as Toyo Toki Company, Ltd., in Kokura, Japan, with assets of ¥1 million. The company's inception took place during the Taisho era, a time of great social and economic change during which the Japanese economy grew and expanded, and the number of urban dwellers increased. As the demand for new, modern, urban housing increased, so did the demand for TOTO's ceramic products, and in 1920 the company introduced to its production facilities Japan's first tunnel kiln--a long narrow kiln with products carried on conveyors. Throughout the company's first half-century, TOTO's fortunes would parallel the growth and activity of the Japanese economy as a whole.

The company's growth was stifled in 1927 due to a serious economic depression that struck Japan as a result of overextended capital investment and production. This was the beginning of extremely difficult times for TOTO. A financial panic followed the recession, and TOTO, along with most Japanese businesses, was forced to curtail production in the face of declining demand. The worldwide Great Depression, devaluation of the yen on world markets, and the removal of Japan from the gold standard all contributed to economic chaos. Moreover, in that same year a huge earthquake caused an even greater strain on Japan's economy. However, massive government expenditures on reconstruction helped TOTO survive extremely perilous times. In an effort to stimulate the economy, military expenditures were increased, reconstruction was accelerated again, and a period of military expansionism began, which did not stop until the end of World War II.

During the war years, despite the government's redirection of most Japanese industry to war production, TOTO continued to grow. In 1937 it had finished construction of a second sanitaryware manufacturing facility in Chigasaki. Still, conditions were difficult, as the Allied naval blockade had created extreme shortages in all raw materials, including coal, a basic ingredient needed by TOTO to fire its kilns. Moreover, in August 1945, the company as well as the entire city of Kokura, had just escaped total annihilation, since Kokura had been slated as the target of the second U.S. nuclear bomb. Because of extremely heavy cloud cover, however, and after three passes by the B-29 bomber carrying the bomb, the plane proceeded to its secondary target, Nagasaki.

Postwar Growth

At the end of the war, industrial production stood at about one-third that of prewar Japan; by 1965, manufacturing had risen to nearly four times that of the mid-1930s. The average family consumed 75 percent more goods and services than before the war, and during the 1950s and 1960s, TOTO began manufacturing new products, such as bath fittings. In 1964 TOTO ventured into the modular products field for the first time when it began manufacturing prefabricated bathrooms. The company kept pace with increased demand for its products by opening four more plants in the Kokura area, a plant in Shiga, and another located near the Chigasaki plant, which had been built before the war. By 1970, when Japan was experiencing water shortages, TOTO had developed a toilet that used only 1.6 gallons per flush. That year, the company also began manufacturing enamel baths and changed its name from Toyo Toki to TOTO LTD.

Along with the new product lines and name, came the development of new ceramics technologies. Traditional ceramics had several drawbacks, since they were inferior in weldability and workability. However, these problems were eliminated with the addition of silicon carbide, silicon nitride, and boron nitride into ceramic composition. The new ceramic compositions, a welcome improvement, were useful in the fields of engineering ceramics, given their thermal, wear, and corrosion resistances, as well as in electroceramics (in insulators or semiconductors).

During the years preceding the war, Japanese products had a general reputation for inferior workmanship and materials. As the scope of TOTO's markets and sales efforts expanded, an emphasis on total quality control became a priority. The development of an integrated quality-control system brought TOTO into a period of rapid growth and diversification of its product line. Sales grew as the company used the just-in-time method in both the ordering and delivery of raw materials it needed for production and in its sales program, by offering the same quick and timely response to the companies it supplied with products.

Most Japanese manufacturing had its roots in job-lot production, that is, producing a narrow range of products well and in great numbers. In its first 60 years of existence, for example, TOTO had concentrated on the production of a limited line of sanitary earthenware products. With mastery of the new and more efficient manufacturing techniques, sanitaryware would come to represent less than 20 percent of the company's total sales and production by the early 1990s.

Expanding Product Lines and Sales in the 1980s

In the 1980s, under the leadership of Hiroshi Shirakawa and then Yoshine Koga, TOTO took giant strides in expanding both its product line and sales organization. The company developed and maintained a network of retail sales locations that served the general public as well as designers, along with its traditional distribution to the home construction industry. New products, such as modular kitchens, vanity units, high-quality ceramic tile, water heaters, whirlpool bathtubs, high-tech toilets, "washlets" (microcomputer-controlled toilet seats with a warm-water washing feature), precision measuring tools, optical connectors, and magnetic discs contributed to explosive growth in sales in the 1980s. The increase in sales was met with the construction of almost completely automated production plants using both robotics and worker-free automated production lines.

Along with the growth of its product line, the company had begun overseas expansion of both its sales and manufacturing functions. In 1986 TOTO established the Cera Trading Company, the function of which was to import and market other manufacturers' plumbing products in an effort to expand TOTO's total market share. Beginning with the company's first joint venture with Kawasaki in 1986, resulting in the formation of the Nihron Yupro Corporation, TOTO was by the end of the 1980s doing business in France, Germany, Indonesia, Korea, Thailand, Hong Kong, Taiwan, and the People's Republic of China.

1990s: Expansion in the United States and China

Further overseas expansion came in the 1990s. TOTO entered the U.S. market in 1990 through the formation of a sales company called TOTO Kiki U.S.A., Inc. The main impetus for this move was the increasing numbers of U.S. communities that were instituting regulations mandating water-saving low-flush systems. TOTO's 1.6 gallons-per-flush toilets perfectly filled this burgeoning need. In 1992 TOTO expanded its U.S. presence with the opening of a facility for the manufacture of water-saving toilets, which was located in Atlanta and was operated through a newly formed subsidiary, TOTO Industries (Atlanta), Inc. The success of this venture led to the addition in 1996 of a second plant to the Atlanta operations. Also in 1996 TOTO established a third U.S. subsidiary--TOTO U.S.A., Inc.--which was set up to coordinate the company's U.S. activities.

China was a second market that TOTO targeted for significant expansion in the 1990s. The company began establishing manufacturing operations there, with the resulting products sold in China as well as exported to Japan and other countries. In fiscal 1994 the Beijing TOTO Co., Ltd. was established to produce toilets and other sanitaryware. In June 1996 Nanjing TOTO Co., Ltd. began production of cast-iron bathtubs, and one month later TOTO Dalian Co., Ltd. began making faucets. In 1995 TOTO set up TOTO (China) Co., Ltd. to coordinate the company's overall activities in that nation.

To further increase its line of new products, TOTO completed construction in 1991 of a new research and development laboratory at the Chigasaki plant. Among the new products that TOTO subsequently introduced was the Revlis (Silver) line of water-related products designed for senior citizens. People aged 65 and over in Japan were expected to increase from 15 percent of the population in 1990 to more than 20 percent by 2010 and to more than 30 percent by 2020, providing a solid basis for the Revlis line. Among the initial products in the line was an elevating toilet seat unit, which could be raised and lowered electrically. Another area of research was in developing a photocatalyst--a substance that changes its properties when exposed to light--that would repel water. Initially envisioned as an application to be used in bathroom tiles to prevent mildew and odors, TOTO's hydrophilic photocatalyst technology was first put to commercial use in a film for automobile side-view mirrors that ensured that mirrors were always clear, even in the rain or snow. This product was launched in April 1997 under the brand name Hydrotect.

Meanwhile, the 1991 end to the Japanese economic boom--which had peaked from 1986 to 1990--led to prolonged difficulties for TOTO. Most of the company's products were closely tied to the health of the construction industry in Japan, and the slumping economy drastically reduced the number of new housing starts. As a result TOTO's revenue growth slowed significantly, while net income figures were on the decline. The situation worsened during the fiscal year ending in March 1998 as the Japanese economy fell into recession during 1997. Housing starts fell another 21.6 percent in 1997, to 1.3 million units. TOTO's net sales thereupon fell from ¥472.27 billion in fiscal 1997 to ¥419.85 billion in 1998. Net income during this time fell from ¥11.87 billion to ¥3.42 billion. During 1998 TOTO announced that 1,000 jobs would be cut from its workforce by 2000 and that six factories would suspend production. That year, housing starts in Japan fell below 1.2 million units and renovations were down as well. Sales for fiscal 1999 fell another 13 percent, while TOTO posted a net loss of ¥21 billion, partly attributable to the workforce cuts, as an early retirement program led the company to dole out ¥15.5 billion in severance pay. While the Japanese economy continued in its weakened state in the late 1990s, TOTO was working hard to reduce its dependence on housing starts, an objective that was of vital importance to the company's future.