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Shimogaichi, Yoichi 1934–

Yoichi Shimogaichi
1934

President, JFE Holdings

Nationality: Japanese.

Born: August 26, 1934, in Tokyo, Japan.

Education: Attended University of Tokyo.

Career: NKK Corporation, 19581981, various positions; 19811986, general manager of sales coordination in export and corporate planning departments; 19871989, general manager of corporate planning department; 19891991, managing director; 19911994, senior managing director, deputy director of steel division; 19941997, executive vice president, executive director of steel division; 19972002, president; JFE Holdings, 2002, president.

Address: JFE Holdings, 1-1-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan; http://www.jfe-holdings.co.jp/en/index.html.

In 2002 Yoichi Shimogaichi became the president of JFE Holdings, the Japanese steel company that was listed as one of Fortune 's Global Most Admired Companies in 2004. Shimogaichi spent his entire professional career in the steel industry, working his way up the corporate ladder at Japan's number-two steelmaker NKK Corporation for 44 years. After earning the position of president there Shimogaichi organized a merger with the number-three Japanese steelmaker Kawasaki Steel. The new company, JFE Holdings, quickly became a model for successful megamergers. Shimogaichi was named president of JFE Holdings and thenceforth set about reforming Japan's steel industry into a modern, competitive marketplace.

SAW THE PROMISE OF STEEL

Yoichi Shimogaichi was born on August 26, 1934, in Tokyo, Japan. He spent all of his childhood in that city and received his education at the University of Tokyo. Upon finishing his studies, Shimogaichi took the Japanese exam to become a civil servant; after passing the test, however, he decided

that he did not care much for bureaucracy. He briefly considered pursuing careers in banking and trading but decided that those careers as well would turn him into a bureaucrat. He eventually grew interested in the steel industry in large part be cause of its potential for growth; he told Leo Lewis of Japan Inc., "It was an era before the mass production of cars. The shipbuilding and cement industries were healthy, with promising futures" (February 2004).

Shimogaichi started his steel career with NKK Corporation in 1958. The steel company had been founded in 1912 as Japan's first manufacturer of seamless pipes and then expanded into steelmaking, shipbuilding, steel fabrication, construction, industrial machinery, and engineering. Shimogaichi was also attracted to the company because of its location; he had hoped to find a job near his hometown of Tokyo, and NKK was headquartered in nearby Kawasaki.

Shimogaichi worked in a variety of positions throughout his long career with NKK, including general manager of sales coordination, export operations, and corporate planning. In June 1987 he was appointed to NKK's board; four years later he was promoted to senior managing director and deputy director of the steel division. In 1994 he assumed the role of vice president of the company. In 1997 the NKK president Shunkichi Miyoshi decided to step down and passed his role on to Shimogaichi.

CHALLENGED AS PRESIDENT OF NKK STEEL

By the time Shimogaichi became president of NKK, the steel industry was facing serious economic challenges. Steel was an old industry trying to adapt to a technologically advanced global economy. In order to adjust to the ever-changing modern landscape and growing competition, Shimogaichi and NKK instituted new business practices, such as adopting international accounting standards for assessing companies on group bases, rather than focusing solely on parent companies, and consolidating subsidiaries in the financial sector. Over time Shimogaichi and other top steel leaders became increasingly concerned with improving profitability and reducing liabilities.

Although NKK was Japan's second-largest steel company, it was struggling financially by the end of the 1990s. In 1999 NKK was unable to meet its profit forecast because of an unexpected drop in steel prices. The overall global economy was suffering and the car and construction industries were hit especially hard. That same year one of NKK's electric-furnace subsidiaries, Toa Steel, went out of business and NKK had to absorb Toa's liabilities.

SUCCESSFULLY COORDINATED MEGAMERGER

In order to remain competitive in the tightening steel market, Shimogaichi and NKK decided to join forces with Japan's third-largest steel company Kawasaki Steel. In 2000 the two companies began to share transportation and purchasing functions; a year later NKK and Kawasaki announced plans for a merger. Shimogaichi explained in the Financial Times, "We felt that NKK and Kawasaki, as they exist now, did not have the sufficient presence to compete successfully as our rivals, material suppliers, and steel customers have become extremely large through consolidation" (September 27, 2002).

The unification of NKK and Kawasaki Steel was the most significant move in the steel industry since the 1970 merger between Yawata Iron and Steel Company and Fuji Iron and Steel Company, which formed Nippon Steel Corporation. After the merger Nippon grew to become not only Japan's but also the world's largest steelmaker. In 2002 NKK and Kawasaki merged to become JFE Holdings, short for Japan Iron Holdings (where Fe is the chemical symbol for that element). Shimogaichi became the president of the new company, while the Kawasaki Steel chairman Kanji Emoto assumed the role of JFE chairman.

At first JFE Holdings wholly owned both NKK and Kawasaki Steel; by 2003 the company was reorganized into JFE Steel Corporation, JFE Engineering, JFE Urban Development Corporation, JFE Research and Development, and other firms. JFE Steel merged the operations of NKK's Fukuyama steel mills and Kawasaki's Mizushima steel mills into a regional production center in western Japan. The successful merger made JFE Holdings, with total annual production totaling 30 million tons, comparable in size to Nippon Steel and South Korea's Posco Steel.

CREATED A COMPETITIVE ADVANTAGE WITH JFE

Shimogaichi saw the merger with Kawasaki as a way to increase the scale of his steel company in order to compete amid poor market conditions, such as low steel prices and overcapacity in Japan. Through the merger Kawasaki and NKK could share technologies, reduce redundancies in investments, and cut costs. They were also able to consolidate production, increasing efficiency and improving their bargaining power with suppliers, automakers, and electronic groups. The goal of the newly formed JFE Holdings was to cut annual costs by ¥80 billion by 2006. Shimogaichi told Japan Economic Newswire, "I expected it to be difficult due to differences in corporate cultures, but members of both companies are willing to go forward to achieve one goal" (August 31, 2002).

By 2004 JFE Holdings had exceeded expectations and had become a model for the successful coordination of a megamerger. Based on market value alone, in only two years JFE Holdings became the biggest steelmaker in the world. The secret to the company's success was the way in which it took the old industry of steel and made it appealing in the modern global market, often touting its technological advantages over competitors. Shimogaichi explained to Leo Lewis of Japan Inc., "The secret is our technology, which came from both NKK and Kawasaki and is now strongly united" (February 2004).

In investing heavily in research and development, JFE Steel relied on new technologies and new techniques to develop types of steel that would be highly valued by automakers and other manufacturers. High-tensile steel was an example of a high-value-added product showcasing JFE's technological strengths. The strong, lightweight steel was potentially a very attractive material for the automotive industries. JFE engineers worked with their clients from the early design stages in order to tailor steel products to their needs. The challenge for Shimogaichi was to keep JFE's technological advances ahead of the competition. He acknowledged that technology could be stolen or passed on to competitorsparticularly in Chinabut he was not especially concerned about the problem because he was confident that JFE would stay ahead of the game regardless.

Shimogaichi further credited the success of JFE to the facility with which it moved outside of the Japanese domestic market and became an international competitor; in particular Shimogaichi sought to increase JFE's position in the Asian market. He explained to Nikkei Weekly, "The volume of steel used in Japan is decreasing. Since our plan is to maintain or even slightly increase production, we need to think of East Asia as our home market" (February 24, 2003). Economic growth in China, especially in construction and automobiles, opened new markets for JFE, and Shimogaichi expected the demand for steel in China to double that in Japan.

LIMITLESS VISION

Shimogaichi did not limit his visions of expansion to Asia. He speculated in Nikkei Weekly, "We also need to take a stab at the huge U.S. market. Maybe we can take advantage of the North American Free Trade Agreement" (February 24, 2003). While the steel industry in the United States was heavily protected by the American government, President George W. Bush revoked steel import tariffs in 2003, opening the market to foreign competition from companies like JFE Steel.

Shimogaichi was a grounded and practical businessman who made difficult and far-reaching decisions based upon careful consideration of market conditions and business practices. He appreciated the value of his employeesand their happinessas well as the need for employee loyalty during major company changes. After over 40 years of experience in the steel industry, Shimogaichi emerged as a powerful leader; his bold vision and calculated risk taking was paying off with JFE Holdings. In 2003 the company debuted on the Fortune Global 500 list at number 226 with over $19 million in revenues.

See also entry on NKK Corporation in International Directory of Company Histories.

sources for further information

Furukawa, Tsukasa, "Japanese Steelmakers Map Long-Range Strategies," Business and Industry, October 3, 2000, p. 7A.

Hijino, Ken, "JFE President Hopes Merger Will Add Steel," Financial Times, September 27, 2002, p. 29.

"JFE Holdings Cleans Slate to Avoid Factionalism," Nikkei Weekly, May 26, 2003.

"JFE Holdings Prepares to Steal Top Position," Nikkei Weekly, February 24, 2003.

"JFE Holdings to Tackle China Issue," Japan Economic Newswire, August 31, 2002.

Lewis, Leo, "Man of Steel: An Exclusive Interview with Japan's Steelmaking Giant," Japan Inc., February 2004, pp. 4855.

Tanikawa, Miki, "Steelmakers in Japan Plan Joint Effort," New York Times, April 14, 2001.

Janet P. Stamatel

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