Ajinomoto Expecting Expansion

February 12/Tokyo/Asia Pacific Food and Drinks Insights -- Japanese seasonings giant Ajinomoto has confirmed it will be proactively seeking mergers and acquisitions (M&A) opportunities to facilitate expansion in fiscal 2010. With international expansion a core objective, this strategy sees Ajinomoto follow in the footsteps of its compatriots in looking overseas in a bid to combat domestic market maturity.

Business Monitor International (BMI) has been closely monitoring the activities of Japanese food and drink firms as they begin to acknowledge the growing importance of becoming multinationals. Due to the vast size and high spending levels of the Japanese market, domestic companies have been slow off the mark in terms of pursuing international growth. However, with Japan's greying population placing limits on the use of high-end innovation as a growth tool, the emphasis placed on overseas expansion has grown, BMI believes.

Alcoholic drinks majors Asahi, Kirin and Suntory have all been active in international M&A deals in the last six months, while in early February Ajinomoto's seasonings rival Kikkoman was prioritizing an international growth drive to grow its global market share. Other major food industry players, including Meiji Dairies, Meiji Seika, Morinaga Milk and Morinaga & Co, are expected to turn their attention to international markets once their planned respective mergers are complete.

The challenges facing Japanese producers domestically are not new; innovation has long been flogged as the final sales growth option available in what has long been a stagnant market. However, the rate at which international expansion has been pursued in recent months is indicative of newer market conditions, namely the weak domestic economy and the strength of the yen.

For the first nine months of fiscal 2009, ending December, Ajinomoto posted a net loss of $47.9 million, as compared to a $336.3 million profit for the same period of '08. The company attributed the decline to weak domestic demand; it generates two-thirds of its revenues in Japan, and the sharp economic deterioration has increased the urgency with which it must target higher growth international markets.

However, helping Ajinomoto and its peers in their international growth drive is the current strength of the yen, which makes overseas acquisition targets relatively affordable. The yen is now trading at 89.84 against the dollar, compared to 106.93 a year ago, and this has certainly added impetus to Japanese companies' international ambitions.

From the February 16, 2009, Prepared Foods E-dition