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Kaneka Corporation, Kanekalon Division

2015 15th Porter Prize Winner Synthetic fibers for hair accessories
Developed and upgraded the hair accessary product market for women in Africa. Helped to develop more value-added activities at every stage of the industry value chain ─ encompassing the hair accessary product manufacturers, wholesalers, retailers, and beauty salons ─ so that they can all benefit from the development of the market.
The size of the market for the synthetic fibers used as the materials for hair accessory products (i.e. wigs and hair extensions) is not large, accounting for less than 1% of the total synthetic fiber market (on a volume basis). Kaneka holds a 40% share of the global market, and a 60% share of the African market, a market in which further growth is expected. Hair accessory products are an accessible daily fashion item for African women, whose hair tends not to grow long. This is one reason why the African market is the biggest in the world ─ accounting for 50% of global demand for hair accessory products in 2014 (according to Kaneka).

Kaneka, a fiber maker, does not produce hair accessory products. However, it did help to develop the market for hair accessory products in Africa by introducing to local beauty shops popular hairstyles from around the world, and by proposing hairstyles to the makers of hair accessory products.

Many Japanese fiber makers entered this market during the fashion wig boom in the 1960s and 1970s. However, once the boom ended, many competitors exited the market, and only two Japanese makers now supply this market. Their current competitors are Korean and Chinese fiber makers. The fibers used in hair accessory products are acrylic, vinyl chloride, polyester and polypropylene, and each material performs differently in terms of heat-resistance, workability, nonflammability and cost.

Unique Value Proposition

Kanekalon Division's philosophy is to "be a fiber business with sustainable growth, achieved through high profitability, and contribute to society by creating culture." Its mission is to provide "beauty, quality and safety" to women.

Kaneka not only supplies fibers as materials for hair accessory products, it also provides solutions to the industry's value chain, which extends from the fibers to the end-users. Kaneka communicates directly with hair accessory product makers, wholesalers, retailers, and beauty salons to understand their needs and provide support that will add value to their activities.

Kaneka manufactures the largest variety of fibers. The only fibers Kaneka does not supply are human hair and flammable fibers (out of a concern for safety). Kaneka's fibers add a natural look and touch to the fashionable hair accessories. Some of these fibers have unique features. Acrylic Kanekalon, which doesn't get dirty easily and is fast-drying, responds to new demand among the growing number of middle-class women in Africa who have added swimming to their leisure activities. Kaneka has made popular the use of a heat styling iron for hairstyling by providing nonflammable heat-resistant polyester Kanekalon. This material has made it easier for women to change their hairstyles.

For hair accessory makers, Kaneka proposes products based on an understanding of both hairstyles that are popular around the world and local customer needs. Kaneka's proposals include suggestions about using a combination of different kinds of fibers. The company also makes recommendations regarding superior methods for processing and finishing. This has made possible the introduction of new hairstyles to African women.

Kaneka helps the makers of hair accessory products improve the quality control and productivity of their factories, knowing that reliable quality and stable supply can be differentiating factors for consumers. Kaneka helps hair accessory makers conduct process analysis and improve the production environment. The company also helps educate the workers involved in the actual production of hair accessory products in the factory. Some specially selected factory workers (both men and women) have been invited to visit Kaneka's factory in Japan and learn about the fiber materials and quality control. Thanks to these efforts, both quality control and productivity have improved for the makers of hair accessory products, and these local factory workers have been assigned to higher positions.

For beauty salons, Kaneka hosts seminars and teaches hairdressers how to distinguish differences in the quality of hair extensions and other synthetic hair accessory products, and how to create new hairstyles. This helps them to improve their skills. Meanwhile, end-users have started going to beauty salons instead of just asking their family members to attach their hair extensions at home. Since 2010, Kaneka has been organizing the annual Kanekalon Hair Show in Nigeria, in order to encourage hairdressers to improve their skills. This event includes a hairstyle design competition, and local hairdressers must compete and win in their own regional blocks before preceding to the final contest, held in Lagos, Nigeria's largest commercial city.

Kaneka has made a major contribution in helping the African hair accessory products market to become a more upscale market. One example is the braid segment. Polypropylene once dominated this segment with a 70% market share. Indeed, polypropylene is less expensive, at about 50 cents a package, but it is flammable. Taking into consideration that hair extensions and wigs might catch fire when women are cooking, Kaneka does not include flammable materials in its synthetic fiber product line. Instead, Kaneka encourages the use of acrylic Kanekalon for synthetic braid extensions. According to the company, the most appealing feature of acrylic Kanekalon is that it is easier to arrange into hairstyles, involving a simple process. Another merit is that this fiber material does not hurt the hairdressers' finger tips when they are handling it. Moreover, as a more expensive product, it delivers a higher margin to hair accessory product makers, wholesalers, retailers and beauty salons. In the early 2000s, acrylic Kanekalon had a 70% share of the market for synthetic braid extensions.

Kanekalon hair products are more expensive than those of competitors, as illustrated in the case of the braid extensions mentioned above.

Unique Value Chain

In order to deliver solutions to the entire industry value chain (through to the end-user), the Kanekalon Division has created a unique value chain that includes marketing, R&D, manufacturing, and human resource management.

Marketing
As a result of holding a large market share, Kaneka has access to macro-level market data (i.e. data on the balance between supply and demand in the global market). However, the company also conducts its own market research at the micro-level, by counting the number of hairstyle variations on the street, for example. Kaneka has a better understanding of the market than hair accessory product makers and beauty salons.

Kaneka has established a track record in creating markets for its products utilizing a "pull" strategy. First, Kaneka helps consumers recognize their need for hair accessory products. Next, consumers ask for Kaneka products at retailers and beauty salons. Finally, retailers and beauty salons convey consumers' requests directly to the makers of hair accessory products. When Kaneka first entered the African market, it introduced to beauticians and consumers various hairstyle and color products that were trending among African Americans in the U.S. Kaneka has successfully differentiated its Kanekalon brand items from existing products by positioning them as high-value-added products. As for weave extensions, Kaneka was a latecomer. In a strategic move, Kaneko created weave extension products that featured new styles and all-new colors that had become possible by mixing acrylic Kanekalon and vinyl chloride Kanekalon. Kaneka made prototypes of these new products and introduced them to the market. Sure enough, end-users, upon seeing these new products, urged wholesalers to request that hair accessory product makers use Kanekalon materials. Now, vinyl chloride Kanekalon currently enjoys a 50% share of the market in Africa. In order to have greater influence on consumers, Kaneka has organized the annual Kanekalon Hair Show in Lagos, Nigeria, which was first held in 2010. At this event, hairdressers compete and show off their skills using Kanekalon products.

R&D
Kaneka manufactures four kinds of synthetic fibers: acrylic, vinyl chloride, polyester and polypropylene. Kaneka is able to submit product proposals directly to hair accessory makers because it has the broadest product line in the industry, as well as because of the fact that some materials are more appropriate for hair accessory products than others.

In Africa, researchers of Kanekalon fibers visit hair accessory factories and beauty salons, where they speak directly with people in the field, as well as consumers, to learn about their various needs. This feedback is then reflected in the development of fibers.

The Product Development Group is responsible for the next step in product development, which is to evaluate hair accessory prototypes that have been created in-house at the company's own prototyping factory. The Product Development Group evaluates the prototypes in terms of performance and manufacturability (i.e. the feasibility of mass production) for hair accessory makers. Later, working in collaboration with hair accessory makers, the Product Development Group conducts the test marketing of the new hair accessory products. Finally, the fiber development team is given feedback on the results of test marketing.

Manufacturing
Kanekalon fibers are manufactured in Japan, China and Malaysia.

Kaneka maintains a balance between demand and supply throughout the industry value chain in order to prevent a significant shortage of supply, which often happens in a rapidly growing market. A shortage of supply often encourages new entrants or allows competitors to grow their market share. Kaneka forecasts demand based on its analysis, and proposes capacity expansion to hair accessory product makers if it determines that their manufacturing volumes are insufficient. If hair accessory makers have an overcapacity, Kaneka encourages them to export to markets where the supply is insufficient. Kaneka can do this because it has the broadest coverage of the global market.

Human Resources Management
In order to contribute to the industry's entire value chain, Kaneka provides its employees extensive training, and organizes educational programs that cover a variety of topics, including the properties of fibers, foreign language instruction, marketing, and explanations on how to use the machinery that produces hair accessory products. In addition, the company arranges on-the-job training at beauty salons and hair accessory factories. Employees are also given the opportunity to undergo on-the-job training for market research in the field. Kaneka hires people with backgrounds as professional beauticians, and encourages other employees to obtain a beautician license. Sales staff are assigned to the New Product Development Group for at least one month of training, and as part of this training they assemble hair accessory products. Fiber researchers are required to learn the basics of marketing.

Kaneka educates people at the lower end of the industry value chain. Kaneka hosts seminars on product quality and new hairstyles for hairdressers, and organizes hairstyling contests. For the makers of hair accessory products, Kaneka provides lectures on market analysis and quality control. The company also collaborates with hair accessory makers on the test marketing of prototypes. In addition, specially selected workers from hair accessory factories are invited to Japan and given instruction regarding the properties of various fibers, quality control and other issues related to production site management. As a result of this training, a factory in Kenya has been able to improve productivity by 24% and reduce the defect rate by 30% in one year. This factory, recognized as being the hair accessory maker's best factory, was made responsible for training workers at factories in other African countries. Factories in Uganda and Tanzania are especially eager to improve their performance, motivated by the achievements of the factory in Kenya, a neighboring country. Hair accessory makers not only have enjoyed improved profitability, but also have developed a deeper trust in Kaneka, which has contributed to a stable relationship.

Fit among Activities

The activities of the Kanekalon Division have been selected to realize 1) the division's philosophy, which is to "be a fiber business with sustainable growth, achieved through high profitability, and contribute to society by creating culture"; and 2) its mission of providing "beauty, quality and safety" to women. The core of its strategy is to be extensively and deeply involved with the industry value chain. Activities to realize this strategy include: 1) The optimization of supply; 2) an emphasis on human resource development; and 3) market-oriented R&D. These activities, which are well matched, form a highly coherent system for realizing the company's strategy. (Please refer to Kaneka Corporation, Kanekalon Division's activity system map, which appears at the end of this report.)

Innovation that Enabled Strategy

  • Development of the hair accessory products market in Africa. It was in the early 1980s when Kaneka noticed the African market (Senegal, specifically), a time when many African countries were experiencing turmoil following independence, and competitors were not considering Africa as a potential market.
  • Creation of a supply chain that enabled the penetration of the African market. Kaneka encouraged Korean-affiliated hair accessory product makers to open factories in Africa. Until then, hair accessory product makers had been exporting their products to the U.S. from Asia. In addition, Kaneka decided to begin working with Lebanese-affiliated hair accessory makers who had established a wide network in Africa. Hair accessory factories that use Kanekalon fibers are currently operating in 18 countries in Sub-Saharan Africa. In a sense, Kaneka has built the hair accessory product manufacturing industry in Africa.
  • The New Product Development Group undertakes the processing of fibers in-house, and can propose new final products. This requires substantial capital investment, but this willingness to invest is pervasive in Kaneka Corporation, and a deeper understanding of customers' products (i.e. the products of hair accessory makers) is considered a critical activity that enables the differentiation of Kaneka's products.

Trade-offs

  • Does not allow for oversupply in the market for the purpose of securing a higher market share or an increase in sales volumes. In order to maintain the value of its products, it ensures that supply remains tight.
  • Does not sell flammable fibers out of consideration for users' safety. Making fibers nonflammable is technologically challenging and means higher costs. Still, Kaneka remains committed to selling only nonflammable fibers.
  • Does not go after volume in the low end. Rather, tries to shift the market to the high end.
  • Does not increase the number of hair accessory product makers it deals with. The addition of more hair accessory product makers as customers would easily increase sales, but the company makes it a priority to share its business policy with its existing hair accessory makers. Kaneka works in together with these makers to maintain a commitment to quality, and endeavors to grow the market through the proposal of new hairstyles.

Consistency of Strategy over Time

The first consistent element in Kaneka's strategy is its commitment to safety. Even when flammable fibers dominated the market, Kaneka refused to sell flammable fibers.

The second element is a market orientation that is based on the understanding that consumers' needs are what drive the industry. A good example is the "pull" strategy (i.e. the strategy of approaching consumers and hairdressers directly) that the company employed when it entered the weave extension segment as a latecomer.

The third element is its commitment to contributing to the industry value chain and creating a win-win situation. Kaneka contributed to the enhancement of capabilities of its carefully selected business partners, who share the same values and competitive strategy. By cooperating with its partners, the company has expanded the market and enabled players to enjoy growth, high profitability, and the creation of employment.

The fourth element is its commitment to achieving high profitability through differentiated products (and avoiding price competition), as evidenced by the upscale shift in the market for braid products.

Profitability

Both the five-year average return on invested capital and return on sales exceed the industry average by a wide margin. (Profitability analysis was conducted by PwC Japan.)

Activity System Map

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