(Summary Article)

By Nozomu Kawamoto

Epson Toyocom Corporation ("Epson Toyocom") is a model for how business integration should work at its best. Before their operations were amalgamated in October 2005, Seiko Epson Corporation ("Epson")’s crystal device business and Toyo Communications Equipment Co., Ltd. ("Toyocom") were struggling to enhance their respective market positions. But today, Epson Toyocom finds itself a frontrunner in the burgeoning market for crystal devices and commands massive orders from the world’s biggest manufacturers of cellular phones and other digital devices while enjoying their overwhelming confidence. The key to this successful marriage has been the synergy arising from the joining of the two companies’ complementary strengths.

Opposites Attract
Epson’s strength was in 32 kilohertz tuning-fork crystal units for the consumer market, which the company initially began building when manufacturing Seiko-brand watches and which are currently also used as time-keeping mechanisms in a wide assortment of digital equipment. It claimed over 60% of the cell-phone market, but the size of the 32 kHz tuning-fork market is relatively small, with Japanese device makers ringing up annual sales of around 40 billion.

"We realized that unless we could also become a top maker of AT crystal units and other devices that resonate at much higher frequencies, in both the consumer and industrial segments, we could never expect to become the overall leader." This is because the total crystal device market in Japan (which accounts for nearly 70% of the global market) is much bigger, estimated at around 240 billion.

"We’d been trying for years to develop a manufacturing base for AT crystal units and oscillators, but it’s not easy to start up a division from scratch. You need engineers, production facilities, and most of all manufacturing customers. Even with excellent products, newcomers tend to be the first ones to lose contracts when demand eases."

The AT segment was one of Toyocom’s strengths, and so it was natural for Epson to court this manufacturer when the time came to round out its product lineup. Toyocom, on its side, was looking for a partner to augment its shortcomings in volume production and to help speed up operations, areas where Epson excelled, so the attraction was mutual.

Merging of Cultures
What accounts for the successful synergy so far? In addition to the fusing of Epson’s production know-how and Toyocom’s high-precision expertise, Kagami believes that an underlying factor has been a similarity in the two company’s corporate cultures.

"There’s a shared pride in and dedication to engineering excellence. This has helped us to overcome a number of major hurdles, including differences in terminology and the integration of personnel and information systems."

Kagami reminds engineers, though, to be on their guard against overconfidence and to pay greater attention to market needs. "About 40 percent of our sales are made to the world’s biggest cell-phone makers, and they’ve told us how happy they are with our products and our successful integration. But no matter how superior our technology may be, it will be of no use to our customers unless we can meet their needs and production schedules."

Broader Horizons
One recent step Kagami took in anticipation of customer needs was the expansion of Epson Toyocom’s Miyazaki Plant with a 3 billion investment.

The plant will initially produce tuning-fork chips, but Kagami plans to launch production of photographic AT crystal unit chips as well utilizing state-of-the-art photolithographic processing technology to carve out a new market for quartz devices featuring subminiature design and ultra-high-precision, which Epson Toyocom calls QMEMS.

This processing technology achieves higher quality with greater efficiency and is expected to strengthen Epson Toyocom’s plans to provide broader, more organic solutions under its "3D strategy" centered not only on timing devices but also sensing and optical devices.

"There is constant pricing pressure in our industry, and demand can be unstable. Under such circumstances, it’s natural to become cautious. But looking at the broader picture, it’s clear that we’re in a high-growth sector, and that to keep pace with the market you have to keep growing. It’s important to have confidence and believe that it’s possible to achieve whatever we set our sights on achieving. The time to expand," Kagami notes, "is now."

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Nozomu Kawamoto is a freelance writer and translator based in Kyoto.