KOBE, Japan-Marking its first decade as an international tire manufacturer in 1994, Sumitomo Rubber Industries Ltd. can look back with considerable pride at what it has accomplished. With its 1984 purchase of Dunlop Holdings P.L.C., Sumitomo not only raised its one-time British parent from the ranks of the near dead, but Japan's second-largest tire manufacturer also succeeded in restoring the Dunlop brand in the global marketplace.
And with its purchase of a controlling interest in Buffalo, N.Y.-based Dunlop Tire Corp. two years later, Sumitomo became the first Japanese tire maker to gain a production foothold in all three of the world's biggest markets-Japan, Europe and the U.S.
Moreover, Sumitomo's European and North American expansion ushered in a series of global mergers and acquisitions within the tire industry, including:
Continental A.G.'s 1987 purchase of majority equity in General Tire Corp.;
Bridgestone Corp.'s acquisition of Firestone Tire & Rubber Co., Pirelli Group's purchase of the former Armstrong Tire Co. and Groupe Michelin's joint venture with Japan's Okamoto Industries Inc.-all in 1988;
Michelin's 1989 buyout of Uniroyal Goodrich Tire Co., and;
Yokohama Rubber Co. Ltd.'s acquisition of Mohawk Rubber Co., also in 1989.
``They did an excellent job,'' said securities analyst Michael Remington of S.G. Warburg Securities (Japan) Inc., describing Sumitomo's turnaround of Dunlop's European operations.
``Dunlop was in dreadful condition when Sumitomo Rubber went in,'' Mr. Remington said, noting that the European economy-particularly that of Great Britain-was in a difficult period.
Over the three years preceding Sumitomo's May 1984 takeover agreement (which went into effect in January of the following year), Dunlop had lost approximately $217.4 million and was growing increasingly indebted to a consortium of 42 banks.
Sumitomo's former chairman Kyohei Yokose, who was dispatched to England to oversee the operation, recalls that before the European acquisition, Sumitomo's only manufacturing experience outside of Japan was with a small facility for latex gloves in Malaysia.
Compounding matters, Dunlop's European manufacturing facilities were scattered over three countries-England, Germany and France.
SP Tyres U.K. Ltd., manufacturer of the Dunlop brand in the United Kingdom, is in Birmingham, England; the German manufacturer, SP Reifenwerke GmbH, is at Hanau, near Frankfurt; and Dunlop France S.A. is near Paris.
There also was the problem of language, Mr. Yokose recalls. Most of the Japanese advisers Sumitomo sent to Europe spoke English, but only a handful were conversant in German or French.
Equally disconcerting, Mr. Yokose said, was the prospect of dealing with different industrial cultures and unions in each of the three countries.
Fortunately for Sumitomo, the situation it ultimately encountered in these countries proved more favorable than anticipated.
Employee morale was found to be unexpectedly good. Just as unexpected was the willingness of line workers to embrace to the new ``Japanese'' management approach. In a number of instances-most notably at Dunlop France-workers actually ``requested'' to be allowed to wear uniforms on the job.
All of this came as a pleasant surprise to management in Kobe, which attributed it to the decision to bring Dunlop employees to Japan to see firsthand how their counterparts there lived and worked. Some 300 French workers and 100 each from Germany and England spent time in Japan.
Getting management to change its ways-and give up some of its perks-proved more difficult.
``We strongly believe that the failure of Dunlop was caused by a communications breakdown between management and workers,'' said Sumitomo Rubber chairman Shizuo Katsurada.
Soon after the takeover, special cafeteria and parking privileges at Dunlop were eliminated. And Sumitomo's management also made it known that ``lifetime employment''-a key labor practice in Japan-also would be a corporate objective in Europe.
Said Mr. Katsurada: ``We felt we had to be more paternalistic and offer Dunlop workers greater security. In Japan, a company and its employees are one body having the same destiny.''
The Japanese parent company also made an early decision to modernize and upgrade Dunlop's aging European plants, where productivity in 1985 was only one-third of Japanese levels. Through investments totaling nearly $100 million, productivity has since doubled.
Sumitomo's goals in Europe were to achieve a profit or break even in three years' time. It succeeded even at deficit-ridden SP Tyres, which in 1987 earned its first after-tax profit in 14 years. Both SP Reifenwerke and Dunlop France broke even in 1985.
Sumitomo's 1984 acquisition marked an end to the Japanese company's traditional dependency on Europe, which dates back to the early 1900s when Dunlop Rubber Co. set up Japan's first modern rubber factory to produce bicycle and rickshaw tires. It also represented a reversal of positions, as it is now Dunlop that is dependent on Sumitomo for survival.
During the 1960s, Sumitomo's fortunes rose in direct proportion to Dunlop's decline. It was only 34 years ago that a consortium of Sumitomo group companies led by Sumitomo Electric Industries Ltd. acquired a 60-percent equity stake in the former Dunlop Rubber Co. (Japan) Ltd.
Then in the spring of 1964, a renamed Sumitomo Rubber Industries signed a 20-year technical exchange agreement with its former British parent company.
For the first 10 years of that agreement, or through the mid-1970s, Sumitomo Rubber acquired a considerable amount of technology from Dunlop. ``But after that,'' Mr. Yokose said, ``we surpassed them, our roles essentially having reversed.''
It was the expiration of that technical exchange agreement that precipitated takeover talks in the summer of 1981. During preliminary discussions, Alan Lord, Dunlop's managing director, proposed that Sumitomo assume control of his company's loss-plagued operations.
Initially, the Japanese company agreed to purchase only Dunlop's tire production facilities in Britain and Germany (a total of four plants) and Dunlop's tire technical division in Birmingham, England.
Dunlop France (with its two tire plants) was not part of the original package and was added several months later. Nearing bankruptcy, however, it was first to come under Japanese control.
When the dust finally settled, Dunlop had trimmed its labor force by 25 percent from 14,000 to the current level of about 10,500. Since the purchase, the company has trimmed only 300 employees, mostly through attrition.
As for the future, Mr. Katsurada said Sumitomo has no plans to build new production facilities in Europe or North America. Instead, he said, the company plans to achieve productivity gains through its capital investments.
In 1993, Sumitomo spent an estimated $72 million on upgrading European production facilities and $27 million in the U.S.