Komatsu Ltd.

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Komatsu Ltd.

2-3-6, Akasaka
Minato-ku, Tokyo 107
Japan
81-3-5561-2616
Fax: 81-3-3505-9662

Public Company
Incorporated: 1921
Employees: 28,040
Sales: 918.9 billion (US$10.6 billion) (1995)
Stock Exchanges: Tokyo Osaka Nagoya Luxembourg
Frankfurt
SICs: 3531 Construction Machinery & Equipment; 3541 Machine Tools, Metal Cutting Types; 3561 Pumps & Pumping Equipment

An international leader in the manufacture of construction equipment and industrial machinery, Komatsu Ltd. is the second-largest manufacturer of construction tractors and earth movers in the United States, after Caterpillar. The company’s products include forklift trucks, dump trucks, bulldozers, hydraulic excavators, road surface survey vehicles, and roughterrain cranes. Komatsu also has a major division devoted to the production of electronics. This business includes production related to semi-conductors and computer technology for use in factory automation. Komatsu divisions produce a wide variety of other products, including plastics injection molding machinery, electronic parts, optical tablets, laser machines, armored cars for the military, small-diameter pipe jacking systems, machine tools, diesel engines, and hydraulic presses. Komatsu also has a growing division producing equipment for the recycling and incineration business.

While its main manufacturing operations are in Japan, Komatsu owns production plants and sales and service units in other countries, mainly in the United States, Canada, the United Kingdom, Mexico, and Indonesia. Other operations with foreign partners are located in India, New Zealand, Malaysia, China, the Republic of Korea, Turkey, Germany, and Italy.

19th-Century Origins

Komatsu had its origins in 1894 when the Takeuchi Mining Company was founded. A major expansion occurred in 1917, during World War I, when the Komatsu ironworks was established to manufacture mining equipment and machine tools to expand the mining operations. The name Komatsu came into existence in 1921 when the ironworks separated from the mining company to become Komatsu. Tashiro Shiraishi, an engineer, was the founder and first president, serving until 1925. In the 1920s and 1930s the firm grew as a major manufacturer of machine tools and pumps, including development of a metal press in 1924 and the firm’s first farm tractor in 1931. Production of steel materials began in 1935.

By 1929 the number of employees had risen to 742, from its original 1921 work force of 121 employees, but during the depth of the Great Depression in 1933 it dropped to 505 workers. The firm soon increased production and by 1936 increased its staff to 601. Mitsugi Nakemura served as president during the Depression and war years, from 1934 to 1946.

During World War II the firm expanded by supplying the navy with antiaircraft artillery shells and bulldozers. Komatsu’s first major product after the war was a redesigned bulldozer, which came off the assembly line in 1947. One year later diesel engines were produced. From 1947 to 1964 President Yoshinari Kawai provided key leadership in rebuilding the company and making it a global multinational corporation.

The Korean War gave the Japanese economy a boost with orders from the United States to supply its troops in Korea. At that time the firm had plants in Awazu, Osaka, Kaweasaki, Himi, and Komatsu, Japan. Production of forklift trucks, dump trucks, armored cars, and shell mold castings were added to the line. By 1959 defense production included armored personnel carriers and self-propelled cannons.

International activities increased in 1955 when both construction equipment and presses were shipped outside the country. In 1958 operations began in India with an agreement between the firm and the Indian government to manufacture tractors. Another license agreement was signed with a U.S. manufacturer, Cummins Engine Company, to make and sell diesel engines.

1960s: Sights on Caterpillar

By the early 1960s the firm had grown to the point where a new headquarters was needed, and the Komatsu Building was constructed in Tokyo. In 1964 the firm received the Deming Prize for quality, named after William Edwards Deming, the American quality guru whose writings on quality control between 1950 and 1952 became the bible of Japanese manufacturing.

Ryoichi Kawai became president in 1964. The 1960s saw an economic build-up for Japan as a result of the Vietnam War, and Komatsu’s expansion continued at a rapid pace. In the latter part of the decade a new engine plant began production in Japan, a radio-controlled bulldozer was introduced, and a technical research center was established. President Kawai articulated the company’s goal as “surpass Caterpillar.” Each year, Kawai presented his managers with a clear set of priorities modeled after Caterpillar’s performance. The yearly priorities were then worked into detailed plans of action, known as Plan, Do, Check Act (PDCA). Kawai’s growth strategy was clearly successful. Over the next twenty years, Komatsu grew from a small local manufacturer to a serious competitor in the global construction market. As a result, Komatsu’s management style became widely studied and emulated.

Global Expansion, 1970s and 1980s

In 1970 the firm began its first direct investment in the United States, with the establishment of Komatsu America Corporation. Other foreign operations soon followed, in Singapore, Australia, Mexico, Brazil, and China.

In 1981 Komatsu was awarded the Japan Quality Control Prize, to honor the company’s outstanding production quality. The following year Shoji Nogawa became president. The 1980s brought expansion of global operations. In 1985, after a number of incentives from the state of Tennessee, Komatsu purchased a 55-acre empty plant in Chattanooga, a purchase that reflected a decision by the firm to challenge its principal rival, Caterpillar, in its home market. Canadian operations expanded as well, as two plants were built in Quebec and Ontario. European operations included an interest in the West German construction firm of Hamomag AG, a licensing agreement with FAI of Italy, and a plant in the United Kingdom.

The year 1987 marked expansion in other areas, such as the establishment of two financial subsidiaries in Europe, the marketing of plastics injection molding machinery, and the development of a telephone with a data terminal. At the same time, the construction market was changing, and Komatsu’s sales began to slump. From 1985 to 1987, construction equipment sales dropped each year. As a result, the company president, Shoji Nogawa, was dismissed by Chairman Ryoichi Kawai, and changes were instituted. In 1988 an international business division was set up in the Tokyo headquarters. The division had three regional groups which were the main focus of the firm’s international business operations: the Americas, Europe, and Japan. The goals of the division included development of joint ventures around the world and overseas purchase of parts.

In 1988 the company established a new subsidiary, Komatsu Trading International, to increase imports to Japan, in response to the Japanese government’s commitment to reduce its trade surplus by importing more foreign products. As a result, logging machinery from Canada, backhoe loaders from Italy, and highpowered motor boats from Norway were brought into Japan for sale in the domestic market under importer agreements between Komatsu and companies in the respective countries.

Also in 1988, Komatsu sharpened its competitive edge in the U.S. market by forming a joint venture with Dresser Industries, Komatsu Dresser Company. This combination of a major U.S. producer with a major Japanese global player, Komatsu, added considerable research-and-development resources to the U.S. firm. Furthermore, the combination enabled Komatsu to move assembly of its construction equipment to the United States, using Dresser plants that were running at 50 percent capacity while Komatsu was unable to fill all of its orders.

New Targets, 1990s

A new president, Tetsuya Katada, took over in 1989. Katada decided that Komatsu’s management had been hampered to some extent by the company’s goal of catching Caterpillar. While this strategy had worked remarkably well in expanding the company while the global market was growing, now that worldwide demand for construction equipment was down, Komatsu did not have the flexibility to adapt. Katada believed that the creativity of Komatsu’s middle managers had been sacrificed while everyone was concentrating on Caterpillar, and that managers had grown afraid to question the direction of the company. Katada’s solution was to stop comparing Komatsu to Caterpillar. He encouraged managers to think of Komatsu as a “total technology enterprise,” and to find new products and markets that fit the wider definition of the company. Komatsu’s new goal became the somewhat broader “Growth, Global, Group wide,” with a more concrete aim to double sales by the mid-1990s.

Company Perspectives

In order to ensure its future growth as the most reliable partner for its customers, the company is doubling its efforts to reciprocate customer trust with new concept-driven products and services. Made with leading-edge engineering insights, these products will reflect the creativity of Komatsu people worldwide coming together under the new corporate motto of “Work for the World. Care for the Community.”

Katada’s success became clear quickly. Sales had been declining since 1982, but after Katada initiated the new business strategy, sales began to climb again. Komatsu’s non-construction business grew by 40 percent between 1989 and 1992. Nevertheless, the Komatsu Dresser Company lost money, due to deteriorating markets for heavy equipment and to problems with the merger. The Dresser and Komatsu product lines were to remain distinct under the merged company, but this resulted in dealers within the company directly competing with each other. Dresser managers also reported problems communicating with their Komatsu counterparts. This was to some extent remedied when Komatsu began bringing its American employees to Japan to learn more about Japanese culture and work. Steep appreciation of the Japanese yen also ate into Komatsu’s profits. In 1993 Komatsu introduced cost-cutting measures, including some cuts in its work force and streamlining of its manufacturing facilities in Japan.

The firm had shown a quick response to the 1992 integration of Europe by the European Common Market. British operations included purchase agreements with the British firm of Perkins Engines Ltd. for diesel engines to power Komatsu excavators. The U.K. plant in Birtley was the main production facility for European construction equipment. Other parts came from Spain, France, Belgium, and Germany. An additional agreement with the Italian firm of FAI to manufacture under license mini-hydraulic excavators added to a strong European presence. Komatsu also began expanding its production of large trucks in the U.S. and Brazil in 1993, and increased its imports of parts from Brazil, South Korea, Indonesia and China.

A key to Komatsu’s continued growth was its diversification into new markets, including non-construction businesses. Electronics became Komatsu’s second most important business area. To increase its presence in this area, Komatsu made a strategic alliance with Applied Materials, Inc., a U.S. manufacturer of computer display panels, in 1993. Komatsu invested tens of millions of dollars in a 50 percent share of a new joint venture with the American company, renamed Applied Komatsu Technology Inc. (AKT). By 1995 AKT had become a competitive force in the Japanese market for computer liquid crystal displays.

Komatsu also began to focus more on business ventures related to recycling. In 1994 the company began a joint venture with Japan Samtech Co. Ltd., a leading Japanese maker of incinerators. And in 1995 Komatsu entered an agreement with a leading plastics recycler in the United States, Pure Tech International, to begin building and marketing recycling plants in Japan. Komatsu also continued to press for an expansion of its core construction business worldwide in the mid-1990s. Construction in Komatsu’s domestic market boomed in 1995 and 1996, sadly due to the massive Kobe earthquake in January 1995. Around the world, Komatsu had 15 plants in 10 countries outside Japan as of 1995, and the company entered new joint ventures in Thailand, Vietnam, and China in that year.

Future Plans

And Komatsu had concrete plans for the future of its business. Satoru Anzaki became the new president of Komatsu Ltd. in June 1995, and former president Kataka became chairman. Under this new leadership, the company aimed to continue diversifying its business through new joint ventures, and to localize control of many of its overseas subsidiaries to make them more competitive in their own regions. Komatsu also planned to become the world’s number one maker of hydraulic excavators—the kind of clear goal Komatsu has excelled at meeting in the past.

Principal Subsidiaries

Komatsu Dresser Company (U.S., 50%); Komatsu UK Ltd.; Dina Komatsu Nacional S.A. de C.V. (Mexico, 68.4%); P.T. Komatsu Indonesia (55%); Komatsu Dresser Brazil (50%); Komatsu America Industries Corp. (U.S.); Komatsu Europe International N.V. (Belgium); Komatsu Baumaschinen Deutschland (Germany); Komatsu Singapore Pte. Ltd; Komatsu Australia Pty.; Komatsu Overseas Finance PLC (U.K.); Komatsu Finance (Netherlands) B.V.