Creating Greater Joy & Well-Being
for All Stakeholders
with Our Hearts United
under “Our Philosophy”
With so many unforeseen changes occurring without warning and impacting our business in unexpected ways, we now find ourselves in the midst of a business environment full of diverse risks that can materialize at any moment and on a global scale.
If we are to keep pace with this rapidly shifting business environment, it is essential that our employees be able to make decisions on their own while responding to these changes and risks with greater speed and flexibility than ever before. The Sumitomo Rubber Group now has some 40,000 employees working all over the world. So that all of our diverse employees can move forward as a united team, we believe that our Purpose (the statement that defines our group’s very reason for existence) will become ever more important as a unifying force that brings us all together.
“Our Philosophy,” the corporate philosophy framework that the Sumitomo Rubber Group unveiled to the world in December 2020, was the culmination of nearly two years of working to devise an unshakeable foundation for our group, one that expands on the “Sumitomo Business Philosophy” in a way that resonates with our stakeholders around the world. It is quite fortunate that we were able to introduce “Our Philosophy” when we did, just as the world was undergoing a series of bewildering changes brought on by the COVID-19 pandemic.
When we first launched “Our Philosophy” throughout the Sumitomo Rubber Group, I was particularly pleased to receive messages of support from local members of staff at our overseas subsidiaries. One email that I received on the day of the launch read, “I fully agree with this new philosophy. I will be working to spread it throughout my company as well.” Although we are still in the process of disseminating “Our Philosophy,” I am nevertheless already getting a strong sense that it is beginning to sink in.
For the Sumitomo Rubber Group, 2021 was a year marked by enormous changes in the business environment. As the economy began to recover from the darkest days of the pandemic, we succeeded in increasing sales of Advanced Products in particular. At the same time, however, skyrocketing prices for raw materials and container shipping placed a significant strain on our profits. Thanks to the sure and steady preparations that we had made during the early stages of the pandemic to ready ourselves for the eventual recovery, we were able to ride the wave of rising demand to accelerate a strong comeback in sales performance.
Drawing on the strengths of our “Global Manufacturing, Sales & Service Network,” our “Global Supply Network” and our “Trilateral R&D Network (Japan/USA/Europe),” our Tire Business was able to get the most out of our global business framework by rapidly deploying a robust lineup of Advanced Products tailored to the needs of each market just as the recovery was picking up speed. For example, in the United States, we have built up trusting relationships with local tire dealers over the years thanks to the efforts of a specialized team whose purpose is to provide direct sales support to retailers. These efforts have paid off with the breakout success of our FALKEN WILDPEAK Series of 4x4/SUV tires, which have garnered widespread popularity by consistently aligning with the needs of users. FALKEN’s brand value is also on the rise in Europe, where our high-performance tires were ranked No. 1 overall in performance testing carried out in 2021 by one of the most influential automobile federations on the continent: ADAC (Allgemeiner Deutscher Automobil-Club), Europe’s largest motoring association. FALKEN tires also ranked first and third in terms of wear resistance in ADAC tire testing carried out in 2022, just as the onset of the EV Era brought renewed attention to tire performance. Speaking of EVs (electric vehicles), we launched our first-ever replacement tires for EVs, featuring the highest level of energy efficiency in our group’s history, on the Chinese market in 2022 and are planning to follow this up with the launch of new replacement tires for EVs on the European market in 2023.
Although it took us many years to build up a network capable of delivering such Advanced Products to our customers throughout the world, this network is now finally beginning to bear fruit. During my many years with the Sumitomo Rubber Group, I have spent quite a bit of time directly involved in replacement tire product development, marketing and sales. Based on my experience to date, I can say with confidence that our sales network and service network are now steadily equipping themselves with remarkable strength.
At the same time, however, the pace of long-needed improvements in terms of productivity and profitability at our factories in the United States and South Africa has been slower than we had expected, as the pandemic put the brakes on production activities while also making it difficult to send support teams from Japan. Nevertheless, these improvements have been moving forward surely and steadily. Indeed, we made the decision to invest in increasing production capacity at our U.S. factory after verifying the progress that they have made so far on their improvement plans. We also decided to invest in increasing production capacity at our factory in Brazil, which is already developing into a facility that can contribute to the overall profits and productivity of the Sumitomo Rubber Group as a whole.
Meanwhile, as social distancing brought renewed interest in golf as a leisure activity that can be enjoyed safely, our Sports Business rode a wave of surging demand to achieve remarkable sales growth across all of our major golf brands, further bolstered by Hideki Matsuyama’s historic win at The Masters Tournament using our golf clubs.
Given our recent sales performance, we now anticipate achieving one of the key targets set forth in our 2020 Midterm Plan as early as 2022, namely, sales revenue of at least ¥1 trillion by 2025. This achievement is the result of our tireless efforts to respond to the needs of customers in each market when it comes to product appeal, quality, price, delivery and aftermarket service. At the same time, these sales revenue also represent the sum total of all of the trust that customers place in the Sumitomo Rubber Group. Moving forward, we will continue working to increase sales by striving to earn an even higher level of trust from our customers.
One of the major challenges that our group now faces is the fact that we have not yet managed to translate strong sales into a commensurate increase in profits. From the beginning, our Midterm Plan business profit target of at least ¥100 billion represented a much higher hurdle than our sales revenue target of at least ¥1 trillion. And so, in order to raise the bar for profits and offset the impact of the economic downturn brought about by the pandemic, we have been working tirelessly to “Reinforce Our Foundation for Profitability” and “Improve Our Organizational Framework” as part of our “Be the Change” (BTC) Project to reinforce the foundations of our business. As a result of these activities, we have now brought to light several lingering inefficiencies that have hindered our efforts to establish and build up our global business framework.
First of all, while we enjoy strong sales of Advanced Products, many of our general-purpose products are tires in smaller sizes, which tend to have lower profit margins. These unprofitable tire sizes reduce our overall efficiency when it comes to production, the procurement of raw materials and research and development. As such, there is now a pressing need to raise the bar for profits by paring down and optimizing our lineup of tire sizes.
Next, fixed costs are increasing at a higher rate than sales, while per-employee sales and profits are also falling short of targets. So that we may bring to light various underlying inefficiencies, we are pushing ahead with DX (Digital Transformation) at full speed with the goal of completing this transformation in 2025. The resulting “visualization of management” will enable us to focus our human resources on key areas of business and optimize overall personnel placement so that we can increase output from these key areas while reducing overall fixed costs.
In tandem with the above activities, we have also spent the last two years working tirelessly to “Reinforce Our Foundation for Generating Profits” as part of our BTC Project.
Our next major step in these efforts will be business selection and concentration, which means analyzing our business portfolio based on the concept of ROIC management in order to clearly identify the lines of business to focus on for expansion, lines of business to focus on to improve profitability and so forth so that we can more flexibly adjust the allocation of our business resources while adding, restructuring and eliminating lines of business as needed.
So that we may further accelerate these efforts moving forward, we are now hard at work on a comprehensive revision of our Midterm Plan. In light of the positive results that we have seen thus far from the BTC Project when it comes to generating cash, we are also planning to launch a new Groupwide project to generate the additional cash that we will need to achieve further growth down the line, with the launch of this project set to coincide with the revision of our Midterm Plan.
Our BTC Project takes its name from a quote by none other than India’s “Father of the Nation,” Mahatma Gandhi, who famously said, “You must be the change you want to see in the world.” We chose this quote because it reflects our hope that each and every employee will play a leading role in bringing about change, exercising their personal initiative to change our group for the better rather than simply waiting for somebody else to make change happen.
Since kicking off in 2020, the BTC Project has launched multiple task forces that are now actively engaged in various activities to tackle specific challenges in a wide range of fields. For example, the task forces tasked with creating new value and generating cash and profits have so far come up with over 6,000 ideas for measures to achieve these aims. In the coming years, we will be working to put each of these ideas into action surely and steadily.
These activities are already producing positive effects, including employees undertaking all sorts of new challenges throughout our group and dynamic cooperation across organizations that are producing solid results. At the same time, these activities are equipping our organization with the skills and know-how that we will need to tackle Groupwide challenges through cooperation between organizations, in turn adding to our store of strength to keep moving forward no matter what challenges we may face in the future. The Sumitomo Rubber Group will continue to make the most of the positive effects of the BTC Project in terms of closer cooperation between organizations as well as a stronger overall organizational framework.
The BTC Project is currently in the process of expanding these activities to our overseas bases of operation, where they are already producing success stories. Thanks to these activities, communication between our Head Office in Japan and our global group companies is more active than ever before, with employees all over the world sharing results and know-how while pushing each other to raise the bar all around.
Launched in February 2019, our “Diversity & Inclusion Project” (D&I Project) aims to create a corporate culture that enables each of our diverse employees to truly shine. Since its inception, this project has gradually expanded its activities while actively seeking out and incorporating the opinions of employees throughout our group in the interests of crafting better allaround policy measures. In particular, our D&I Project aims to transition away from the outmoded organizational management styles of the past and move toward building organizations that generate innovation through teamwork that is based on mutual respect among diverse teammates, as well as workplaces that produce new ideas through active discussion in a safe and open environment.
In the interests of furthering these D&I Activities, we recently provided training on unconscious bias to all of our executives and managers. I myself became aware of many new things during my conversations with the instructor, the main points of which I have shared with employees throughout our group in the form of a special message from the president. In fact, throughout our group, it is now becoming more and more common to stop for a moment and ask ourselves, “Am I making this decision based on some unconscious bias?”
Measures to empower women in the workplace are a key area of focus for our D&I Activities. Accordingly, as part of these activities, a team led by women has been working to come up with various policy measures to bridge the gender gap, such as preparing a manual for supporting employees who are balancing the demands of work and childcare, establishing a system for following up on employees who have had to put their careers on hold due to childbirth and childcare and implementing a mentor system in 2021. While gradually expanding these activities, we also began conducting questionnaire surveys of all female employees in 2021 in order to gain a better understanding of and monitor the status of women in our group.
In 2021, we also provided training on LGBT issues to all of our executives and managers and established an external liaison office that LGBT employees can contact for consultations. These and other activities earned us a Silver Certificate from the civil rights organization “Work with Pride” in their “PRIDE Index 2021,” which rates companies on the basis of corporate efforts to support the LGBT community. In 2022, we also established rules recognizing same-sex partnerships, enabling LGBT employees and their partners to take advantage of many of the same benefits as spouses for the first time.
In 2022, we established a new D&I Group within our Human Resources Department with the aim of further accelerating these efforts. Our D&I Group is already working to expand these activities around such keywords as “men’s participation in childcare” while ensuring that our group remains up to date with the latest revisions to the Child Care and Family Care Leave Act.
In order to ensure that the Sumitomo Rubber Group would be able to live up to the ideals of “Our Philosophy” while ensuring the sustainable growth and development of both our group and society as a whole, we saw a clear need for an ambitious new policy, one based on long-term perspectives that look to the world of 2050 and beyond. Thus, in August 2021, we set forth a new Long-Term Sustainability Policy: “Driving Our Future Challenge 2050.”
Since its founding, the Sumitomo Rubber Group has produced numerous Japan-first and world-first products, including Japan’s first domestic automobile tire, Japan’s first radial tire and even the world’s first 100% fossil resource-free tire made from all-natural materials.
In the process, we developed new technologies that enabled us to manufacture tires without relying on petroleum, with a particular focus on biomass materials as the key to making 100% fossil resource-free tires a reality. Since then, we have continued to advance biomass technology as well as technologies to increase the amount of recycled raw materials in our tires. With the ultimate aim of contributing to the realization of carbon neutrality, we have set targets to increase the sustainable raw material content of our tires to 40% by the year 2030 and to 100% by the year 2050. Our Sports Business and Industrial and Other Products Business are also working to raise the sustainable raw material content of their products to 100% by the year 2050.
When it comes to creating sustainable tires that are safe for both people and the environment, the Sumitomo Rubber Group is currently working to complete the development of SMART TYRE CONCEPT by the year 2029, when we plan to have all of our innovative Safety Technologies (for greater peace of mind) and ENASAVE Technologies (for a healthier environment) fully ready. Then, we plan to incorporate at least one SMART TYRE CONCEPT technology in every new tire that we bring to market from 2030 onward.
“Driving Our Future Challenge 2050” encompasses a range of efforts to achieve carbon neutrality (with a focus on Scopes 1 and 2). For example, in August 2021, we initiated a proof of concept involving the use of hydrogen to power certain manufacturing processes at our Shirakawa Factory in Japan. Utilizing both solar power and hydrogen energy, the Shirakawa Factory plans to complete the transition to clean energy for all processes on the NEO-T01 production line (which produces high-performance tires) in 2023, thus making CO2 emission-free tire manufacturing a reality. Moving forward, Shirakawa Factory will gradually transition all of its manufacturing processes to hydrogen energy, and we are looking to expand the use of hydrogen energy to our other factories in Japan and around the world in the near future.
Meanwhile, when it comes to the Social and Governance aspects of ESG, we are working to reinforce our foundations to support ambitious new Groupwide challenges, with efforts focusing on health and safety, improving our organizational culture and climate, promoting harmony and respect for diversity, upholding human rights, supply chain management, augmenting corporate governance and ensuring full compliance.
The “Sumitomo Business Philosophy” has been passed down through the generations over the 400-year history of the Sumitomo Group. The Sumitomo Rubber Group also carries on the ideals of the “Sumitomo Business Philosophy,” which has long served as the basis for decision-making throughout all of our wide-ranging business activities. In 1963, we incorporated the “Sumitomo Business Philosophy” into our very first Corporate Philosophy, which has since undergone several revisions in keeping with the changing times and reflecting various changes within our group. Nevertheless, the core ideals of “fulfilling our corporate social responsibilities,” “pursuing greater happiness for all group employees” and “rising to the expectations of our customers” remain unchanged.
Now, with the promulgation of “Our Philosophy,” we have expanded on these ideals by defining the Purpose of the Sumitomo Rubber Group’s existence thusly: “Through innovation we will create a future of joy and well-being for all.” At the same time, we have also distilled the underlying worldview behind our Purpose into a simple corporate slogan: “Rubber and Beyond, Driving Our Future.” With our Purpose as a guiding light for all of our employees to follow, serving as the basis for every decision and the impetus for every action, we believe that each and every one of our employees worldwide will be able to make surefooted decisions while driving our group forward in the right direction toward accomplishing our goals.
The slogan “Rubber and Beyond, Driving Our Future” refers not only to the function of rubber in tires but also to the value that we hope to provide beyond functionality, namely, a brighter, happier future for everyone who comes into contact with our products and services. One way in which we are working to bring this ideal to fruition is through the ongoing advancement of our SMART TYRE CONCEPT for the development of nextgeneration tires and peripheral services. For example, the SMART TYRE CONCEPT is already giving rise to new solutions services that take full advantage of digital technology to adeptly respond to the rise of CASE, MaaS and other new innovations that are already transforming the automotive industry. In this way, we look forward to contributing to the Mobility Society of the Future by creating the kinds of value that future tires will require.
At the heart of our solutions services is our proprietary SENSING CORE Technology, which is able to detect road conditions, tire pressure, wear, load and even early signs of wheel detachment without using any kind of hardware-based sensors. What sets SENSING CORE apart is the fact that it uses tires themselves as sensors, which means that it does not require the installation of any additional hardware and is completely maintenance-free. At the same time, SENSING CORE can also create new value by sharing the data that it collects over the cloud in order to provide greater safety for autonomous vehicles while reducing maintenance costs, etc.
With electric vehicles (EVs) paving the way for the rise of a New Mobility Society, the Sumitomo Rubber Group recently introduced its very-first replacement tires designed specifically for EVs in China, where the automobile market is rapidly shifting away from fossil fuels. We are planning to follow this up with a foray into the market for EV tires in Europe in the near future. In addition to boasting the highest level of energy efficiency in our group’s history, these tires feature an innovative technology that our group pioneered: SILENT CORE. Installed in some 14 million tires sold to date, SILENT CORE equips tires with specialized noise-absorbing sponges to provide the quiet drive that EV users demand while contributing to a more pleasant mobility environment for all.
In spite of these advances, however, we also discovered quality control improprieties at Group factories in July 2021. It still brings me much regret and dismay to think of the great deal of trouble that these unfortunate incidents caused for our customers. The issues at our factory in South Africa came to light thanks to employees who had the courage to speak up about them. This discovery prompted us to perform a general inspection throughout our group, which led to the further discovery of issues with our marine fenders. We were ultimately able to respond to and correct these issues because of the employees who had the courage to speak up and share the truth. In response to these incidents, we have now established a new Quality Assurance HQ under my direct jurisdiction as president and are currently working to implement surefire and permanent measures to prevent such issues from arising in the future.
I believe that aligning our vectors around “Our Philosophy” will prove central to our efforts to ensure that nothing like this will ever happen again. To this end, it is essential that Group executives (myself included) take the initiative in instilling “Our Philosophy” throughout the Sumitomo Rubber Group to ensure all of our employees have the right mindset and to provide a firm basis for making decisions in the course of our day-to-day work. I am sure that if all employees take the time to ask themselves and their colleagues whether they are providing greater joy and well-being or whether they are living up to the ideals of honesty and integrity on a regular basis, these ideals will come to shape the mindset of our organization as a whole, which, in turn, will serve to align our entire group in the right direction.
I believe that what is now required of us is that each and every employee of the Sumitomo Rubber Group works to create and provide the world with greater joy and well-being for the environment, for people, for society and for the future.
Enhancing both our economic value and our value to society in keeping with our Midterm Plan will require taking on new challenges to create new innovation with each passing day as well as living up to the trust that is placed in us by our customers and by society while continuously creating value that exceeds all expectations. Living up to our Purpose means revamping our business to bring about greater satisfaction for our customers and our employees alike. What matters most in this process is that our Purpose resonates with all of our stakeholders, and so getting the message out will be a focal point of our efforts. As part of the ongoing process of revising our Midterm Plan, we are also now planning to redefine our ideal state of what our business should be.
Moving forward, the Sumitomo Rubber Group will continue striving to enhance our corporate value so that we may create greater joy and well-being for all of our stakeholders while at the same time pursuing greater happiness for all of our employees by promoting diversity and a corporate culture that enables each of our diverse employees to truly shine and taking full advantage of DX and other tools to improve the efficiency of our work, all while creating ever-greater innovation.