Hitachi Ltd.

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Hitachi Ltd.

6, Kanda Surugadai 4-chome
Chiyoda-ku, Tokyo 101
Japan
03 (258) 1111

Public Company Incorporated: 1920
Employees: 77,135
Sales: ¥2.933 trillion (US$18.428 billion)
Market Value: ¥2.767 trillion (US$17.383 billion)
Stock Index: Luxembourg Frankfurt New York Amsterdam Paris Hong Kong Tokyo Osaka Nagoya

Although it is recognized primarily for its stereo components and high-technological telecommunications equipment, Hitachi Limited of Japan is one of the world’s largest diversified manufacturers of industrial machinery. Most of its popular consumer items (VCRs, televisions, mircowave ovens) have been spin-offs of its larger operations. Throughout its 77 year history Hitachi has supplied many of Japan’s leading industrial corporations. Hitachi produces everything from hydroelectric turbines and state-of-the-art nuclear generators to advanced semi-conductors and electrical locomotives. It has even developed a robot that does ice sculpture.

Hitachi has often been called the General Electric of Japan, and the Hitachi management is proud of the association. There are, in fact, quite a few similarities. General Electric is larger than Hitachi, but not significantly. Hitachi has 151 offices in 39 countries and operates 106 factories which manufacture 40,000 different products. The company has 486 subsidiaries and over 1,000 affiliates, making it one of the world’s 30 largest conglomerates. General Electric’s and Hitachi’s revenues are also close, both around the $30 billion mark. Moreover, Hitachi has imitated General Electric in technological and management training areas.

The story behind Hitachi’s rise to success involves a man and his electric motor. In 1910 a Japanese nationalist named Namihei Odaira was upset with the lack of mechanical expertise in his country. Most Japanese industrial companies imported their technology from Europe and the United States, claiming that similar Japanese equipment was unreliable. To prove them wrong Odaira, a recent graduate of the Tokyo Institute of Science, began making his own 5-horsepower electric motors. These were then leased to a copper mine located in the hills above the fishing village of Hitachi (which means rising sun).

The motors worked efficiently for the copper mine but Odaira had trouble selling them to other Japanese firms. It was not until the outbreak of World War I that Hitachi was able to gain some large customers. A major power company found that, because of the war, it could not obtain the three large turbines it had ordered from Germany and was forced to turn to Hitachi in the absence of a better alternative. Odaira made the best of his opportunity, delivering the 10,000 h.p. power generators in five months. The power company was impressed and sent more orders to Hitachi. Soon other corporations came to Odaira for help in building their industrial sectors.

In the 1920’s Hitachi expanded its operations to meet the growing demand of Japan’s burgeoning industrial economy. Through the acquisition of other companies, Hitachi became the nation’s largest manufacturer of pumps, blowers and other mechanical equipment. The company also became involved in metal working and began manufacturing copper cable and rolling stock. These developments served to consolidate Hitachi’s ability to build and supply a major manufacturer without outside help. In 1924 it also built Japan’s first electric locomotive.

The coming to power of the Japanese military government in the 1930’s forced some changes at Hitachi. Although Hitachi tried to maintain its independence, the company was nonetheless pressured into manufacturing war material, including radar and sonar equipment for the Imperial Navy. Odaira, however, was successful in preventing Hitachi from manufacturing actual weapons. The war itself devastated the company. Many of its factories were destroyed by Allied bombing raids.

Following the war, the American occupational forces tried to disband Hitachi altogether. Odaira himself was removed from the company. After three years of negotiations Hitachi was “allowed” to maintain all but 19 of its manufacturing plants. The cost of such a production shutdown was prohibitive. This was followed by a three month labor strike in 1950 that severely hindered Hitachi’s reconstruction efforts. Only the Korean War saved the company from complete collapse. Hitachi and many other struggling Japanese industrial firms benefited from defense contracts offered by the American military.

During the 1950’s Chikara Kurata, who had succeeded Odaira as president of Hitachi, directed the company into an era of market expansion. Anticipating the future of electronic engineering, he established technology “tie-ups” with General Electric and RCA. He also initiated a number of licensing agreements which allowed Hitachi to compete, through affiliates, in the worldwide market. In the 1960’s the firm also moved into the consumer goods sphere, introducing its own brand of household appliances and entertainment equipment. More importantly, however, Kurata began investing in computer research. In 1957 Hitachi built its first computer and entered into the high-technological age.

During the 1960’s Hitachi developed Japan’s first online computer system, and emerged as the world’s largest producer of analog computers which are used in scientific research to compile complex statistical data.

Despite its technical advances, Hitachi and most other Japanese electronics companies were still far behind IBM. The Japanese Ministry of International Trade and Industry took direct action to narrow the gap and make Japan competitive. It funded a cooperative research and development effort which involved most of Japan’s major technical firms. The goal was to design a computer that could match IBM’s top line. Hitachi benefited greatly from this program, and ended its overseas policy of non-confrontation. From that point forward, the high-tech competition between America and Japan, and between IBM and Hitachi in particular, was under way.

Hitachi has long been recognized for its ability to adapt to changing economic conditions. Its flexibility was especially evident during the 1974 OPEC oil crisis that devastated Japan (which imports nearly 95% of its energy) and its industrial sector. Drastic cost-cutting measures were taken to keep the firm financially solvent, and company executives voluntarily took 15% pay-cuts. Following 1975, when the company had its first disappointing fiscal year, sales and profits at Hitachi began to increase dramatically.

Hitachi appeared to be transforming itself into the IBM of the Orient, but perhaps it was trying too hard. In July of 1982, Hitachi and 11 of its employees were indicted on charges of commercial bribery and theft. Apparently some employees at Hitachi had been stealing confidential design secrets from IBM so as not to lose ground in the intense race for technological superiority. The FBI and the U.S. Justice Department arranged an operation which caught Hitachi employees paying for IBM documents.

Penalties for the offence were, on the surface, quite light. Hitachi was fined $24,000 and only two employees were given jail sentences. However, the negative publicity caused by the scandal damaged Hitachi considerably. News of the trial appeared just as the company was beginning a full-scale marketing campaign for its products in the U.S. Many American companies cancelled their orders or refused to receive shipments. According to an out of court settlement, Hitachi also pays IBM $40 to $46 million annually in royalties.

Hitachi recovered from this unfortunate set of circumstances, but is faced with other problems. Marketing has always been the company’s weakest department and is presently hampering Hitachi’s competitiveness abroad. Profits dropped for the first time in a decade in 1986, down 29% to $884 million. Part of the problem derives from the overly-strong yen, the worldwide decrease in semiconductor sales, and the loss of markets to inexpensively operated Taiwanese and Korean firms.

Yet the real reason behind Hitachi’s declining sales is that many of its product lines have either matured or are presently in low demand. The company is simply not positioned well to enter into fast-growing markets. Its profit margins are shrinking. Its two largest sectors, industrial equipment and consumer products, are in trouble; the former because the old industrial companies who are Hitachi’s chief customers are ordering less equipment, the latter due to an increase in the variety of VCR’s, TVs, etc., on department store shelves and Hitachi’s unimpressive marketing efforts. In the growing field of personal computers, for instance, Hitachi is far behind its rivals (NEC, Matsushita, Fujitsu) in sales. Despite building one of the very first personal computers, it now commands only 5% of this lucrative market. Hitachi’s brightest spot is its telecommunications operation, which competes strongly with IBM.

Once considered an extremely good investment, Hitachi stock has been performing poorly in the recent past. This was especially evident in 1986 during the record run on the Tokyo Stock Exchange; despite all the activity, Hitachi’s share price barely moved. Many investors have sold Hitachi stock in favor of more promising alternatives.

Exports have also fallen off. Debt-ridden Third World countries cannot afford Hitachi’s industrial machinery due to the uneven currency exchange; and U.S. and European heavy equipment sales have dropped for the same reasons they have fallen in Japan, namely, because of a deteriorating industrial sector.

To deal with these problems, present Hitachi president Katsushige Mita has sought to change the company’s approach to its business. “We cannot live with tradition alone,” he says. “I have to make Hitachi a more modern company.” To this end, Mita is reorganizing the firm. The production plants themselves are being made more cost-effective. To compete more effectively with Koreans and Taiwanese in the export market, Hitachi is increasing automation of its domestic plants and reducing labor costs. Overseas production plants are also part of Mita’s strategy. A VCR plant recently began operations in California, and an auto parts factory is scheduled to be built in Kentucky so as to be closer to Japanese carmakers in Detroit.

Research and development expenditures have been increased to help Hitachi keep pace with the ever-changing cycles of electronic technology. Mita intends to mass market Hitachi’s latest high-tech products and move the company away from the heavy industrial equipment. Hitachi officials are particularly excited about their new flat-screened TVs and erasable compact discs, which they hope will revolutionize home entertainment. There is also considerable interest in Hitachi’s new video printer that produces extremely clear snap-shot size prints from a television monitor.

Principal Subsidiaries

Asahi Kogyo Co., Ltd.; Babcock-Hitachi K.K.; Hitachi Cable, Ltd.; Hitachi Metals, Ltd.; Hitachi Chemical Co., Ltd.; Hitachi Chemical Co. America Ltd.; Hitachi Construction Machinery Co., Ltd.; Hitachi Maxwell, Ltd.; Hitachi Denshi, Ltd.; Hitachi Heating Appliances Co., Ltd.; Hitachi Kiden Kogyo, Ltd.; Hitachi Lighting, Ltd.; Hitachi Electronics Engineering Co., Ltd.; Hitachi Power Engineering Co., Ltd.; Hitachi Machinery & Engineering Ltd.; Hitachi Ohira Industrial Co., Ltd.; Hitachi Medical Corp.; Hitachi Seiko, Ltd.; Japan Servo Co., Ltd.; Nippo Tsushin Kogyo Co., Ltd.; Hitachi America Ltd.; Hitachi Consumer Products of America, Inc.; Hitachi Instruments, Inc.; Hitachi Semiconductor (America), Inc.; High Voltage Breakers, Inc.; Hydraulic Turbines, Inc.