Komatsu Ltd. - Company Profile, Information, Business Description, History, Background Information on Komatsu Ltd.

2-3-6, Akasaka
Tokyo 107-8414

Company Perspectives:

The mission of our business, centering on construction, mining and utility (compact) equipment, is to contribute to the prosperity of our customers through safe, innovative products and services and globalized operations while working to ensure the stable growth of the Komatsu Group by establishing a solid position in each market. We are working to become an international leader in the quality and reliability of our products produced around the world, the quality and speed of customer support, and safety and environment concerns.

History of Komatsu Ltd.

Komatsu Ltd. is the world's second largest manufacturer of construction and mining equipment, after Caterpillar Inc. More than 70 percent of the company's revenues are generated from the sale of construction and mining equipment, including bulldozers, dump trucks, hydraulic excavators, mobile debris crushers, motor graders, rough-terrain cranes, tunnel-boring machines, and wheel loaders. Komatsu also has a major division devoted to the production of electronics. This business, responsible for about 7 percent of revenues, is involved in the production of electronic materials, including silicon wafers and polycrystalline silicon, both of which are used to make semiconductors; semiconductor manufacturing equipment; factory and office automation equipment; and local area network-related peripheral equipment. Komatsu divisions produce a wide variety of other products, including metal forging and stamping presses, sheet metal machinery, machine tools, forklift trucks, armored personnel carriers and other defense equipment, recycling plants, prefabricated office structures, and outdoor power equipment.

Although its main manufacturing operations are in Japan, Komatsu owns production plants and sales and service units in other countries, mainly the United States, Canada, Mexico, Brazil, the United Kingdom, Germany, Italy, Indonesia, China, Thailand, India, and Taiwan. Komatsu is involved in a number of joint ventures with various domestic and foreign partners, including Cummins Inc. of the United States, Bangkok Motor Works Co., Ltd. of Thailand, Larsen & Toubro Ltd. of India, and Ushio Inc. of Japan. About 54 percent of the company's net sales are generated outside of Japan, with 25 percent stemming from North and South America, about 12 percent each from Europe and from Asia (excluding Japan) and Oceania, and 4 percent from the Middle East and Africa.

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 Ltd. 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 workforce 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. Forklift trucks, dump trucks, and armored cars were added to the line in 1953, with shell mold castings introduced the following year. 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. Three years later, 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 buildup 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. In 1967 the company established its first overseas subsidiary, N.V. Komatsu Europe S.A., which was based in Belgium. President Kawai articulated the company's goal was to "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 20 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-80s

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. Komatsu began producing bulldozers in Brazil in 1975, marking the company's first production of construction equipment outside of Japan.

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. This move gained Komatsu its first U.S. manufacturing facility. 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 S.p.A. 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 that 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 high-powered 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, Inc., Komatsu Dresser Company. Included within the venture were Komatsu's two U.S. subsidiaries and Dresser's construction machinery division, thereby forming the second largest maker of construction machinery in the United States. 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: Early to Mid-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. Whereas 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, Groupwide," with a more concrete aim to double sales by the mid-1990s.

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 nonconstruction business grew by 40 percent between 1989 and 1992. Nevertheless, the Komatsu Dresser Company lost money, because of deteriorating markets for heavy equipment and 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 workforce 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 United States and Brazil in 1993, and increased its imports of parts from Brazil, South Korea, Indonesia, and China.

Komatsu also continued its longstanding relationship with Cummins Engine Company. In 1993 the companies formed two joint ventures to manufacture and sell diesel engines. A Japan-based unit was created to make Cummins' small engines, and a unit based in the United States was formed to produce Komatsu's large engines.

There were a number of ownership changes that affected the Komatsu Dresser venture in the early to mid-1990s. In August 1992 Dresser Industries spun off its industrial businesses, including its 50 percent stake in Komatsu Dresser, to its shareholders, forming Indresco, Inc. Then in September 1993 Komatsu increased its stake in the venture to 81 percent by buying out part of Indresco's interest. Finally, in 1994 Komatsu purchased Indresco's remaining stake, taking full control of Komatsu Dresser. In January 1996 the U.S. subsidiary was renamed Komatsu America International Company.

A key to Komatsu's continued growth was its diversification into new markets, including nonconstruction 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 U.S. company. By 1995 the venture, called Applied Komatsu Technology Inc., had become a competitive force in the Japanese market for computer liquid crystal displays. Meanwhile, in 1994 Komatsu expanded into the local area network (LAN) equipment market by beginning production of two types of hubs and a print server.

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. 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 because of the massive Kobe earthquake in January 1995. Around the world, Komatsu had 15 plants in ten countries outside Japan as of 1995, and the company entered new joint ventures in Thailand, Vietnam, and China in that year. In June 1995 Satoru Anzaki became the new president of Komatsu, and former president Kataka became chairman.

From fiscal 1995 to fiscal 1998 Komatsu enjoyed four consecutive years of increasing net profit and sales. The company was aided by the booming U.S. economy and a surge in spending on infrastructure projects in the burgeoning market of east Asia. This period was highlighted by a continued drive into new markets and the formation of several more joint ventures.

In January 1996 Komatsu joined with Mannesmann Demag AG to form the German venture Demag Komatsu GmbH, which was charged with developing and producing super-large hydraulic excavators for the global mining industry. Komatsu had already entered the mining market through its former joint venture with Dresser, which brought to the company the Haulpak line of mining trucks. Further involvement in this sector came through the March 1996 acquisition of controlling interest in Modular Mining Systems, Inc., maker of electronic mine management systems. Then in April 1997 Komatsu created Vernon Hills, Illinois-based Komatsu Mining Systems, Inc. as the international headquarters for its rapidly growing mining equipment business. Also created in 1997 and also based in Vernon Hills was Komatsu Utility Corporation, which took over the manufacturing of backhoe loaders, compact excavators, compact wheel loaders, and compact bulldozers and the marketing of these products to the utility, construction, and rental markets.

The desire to capture a greater share of the increasing market for construction machinery in southeast Asia led Komatsu in mid-1996 to create Komatsu Asia & Pacific Pte. Ltd. in Singapore to coordinate and expand its operations in the region. That year the company also began manufacturing construction equipment in Thailand, giving it two production bases in Asia, the other being in Indonesia. In early 1998 Komatsu joined with Larsen & Toubro Ltd. of India to form Bangalore-based L&T-Komatsu Limited, which would make Komatsu hydraulic excavators and sell them in India and bordering countries. Around this same time, Cummins Engine and Komatsu formed a third joint venture, a Japan-based firm called Industrial Power Alliance, Ltd. This venture was an extension of the previous ones and was formed to research and develop next-generation industrial diesel engines. (Cummins Engine shortened its name to Cummins Inc. in 2001.)

Late 1990s and Beyond: Declining Fortunes and Restructuring Efforts

The late 1990s and early 2000s brought a sharp decline in Komatsu's fortunes. One factor was fallout from the Asian economic crisis that erupted in mid-1997 and that brought a halt to the rapid growth in southeast Asia. At the same time, the already struggling Japanese economy went into its steepest postwar recession, prompting Komatsu customers to slash their orders for construction equipment. In addition, Komatsu's electronics business was hit hard by the deterioration in the price of and the demand for silicon wafers. Record results from the still buoyant U.S. and European economies were not enough to keep Komatsu from falling into the red for the fiscal year ending in March 1999--the first full-year loss in the company's history. Net sales declined that year by 3.8 percent.

Komatsu responded by launching a restructuring of its domestic construction equipment manufacturing operations in November 1998. Three factories were closed over the course of the next two years, resulting in a 20 percent reduction in production floor space. Komatsu also halted production at its semiconductor plant in Hillsboro, Oregon, announcing that it would concentrate its production in Japan and Taiwan. In a further pullback in its electronics business, Komatsu in November 1999 sold its stake in Applied Komatsu Technology, the flat panel display joint venture, to its partner, Applied Materials. Komatsu also reorganized its management structure during 1999 by slashing the number of board members from 26 to 8 and appointing a person from outside the company to the board. These moves were designed to speed up the decision-making process and enhance the objectivity and transparency of management. Katada and Anzaki remained chairman and president, respectively.

Although Komatsu returned to profitability in fiscal 2000 and 2001, the recovery would prove short-lived. During these two years, the company established additional joint ventures. In February 2000 an agreement was reached with Linde AG of Germany on global collaboration in the production and marketing of forklift truck and related products. Komatsu joined with Ushio Inc. of Japan in August 2000 to form a joint venture called Gigaphoton Inc. to develop, manufacture, and sell excimer lasers used as lithography tools in the production of semiconductors. In December 2000 Komatsu acquired Hensley Industries, Inc., a U.S. maker of construction and mining equipment components.

Also in 2000, Anzaki hired Keith Sheldon, a retired General Motors Corporation, for the new position of global financial officer. Sheldon's task was to overhaul Komatsu's system of financial management, prepare the company for an eventual listing on the New York Stock Exchange, and lay the foundation for revamping the company through takeovers and spinoffs of noncore operations. For a Japanese company to hire a foreigner for such a high-level position was quite bold, and it was indicative of Anzaki's desire to transform Komatsu into a more American- or European-style company. In a similar vein, Anzaki a few years earlier had begun trying to boost the company's return on equity in clear imitation of U.S. and European multinationals. And during fiscal 2001 Komatsu announced that it planned to introduce a stock option scheme for 47 top employees. In June 2001 Masahiro Sakane, an executive vice-president, was appointed president, succeeding Anzaki, who became chairman.

Construction machinery orders in Japan declined precipitously in fiscal 2002 as the government greatly reduced its spending on public works projects. Demand also was falling in the now struggling U.S. and European economies. The main bright spot was China, which continued to grow. Komatsu was hit further by a drastic decline in the semiconductor market. Revenues for the year declined 5.5 percent, and the company fell back into the red, posting a net loss of ¥80.6 billion ($606 million).

Responding to this dismal performance, Komatsu announced a major restructuring in October 2001. Aiming to reduce annual fixed costs by ¥30 billion ($250 million) by 2004, the company said it would reduce its workforce by 2,200 workers, or about 10 percent. Komatsu also took a ¥26 billion write-off to shut down its Oregon semiconductor plant. In an attempt to reignite sales growth in its core construction machinery operations, the company said it would attempt to capture a larger share of the rental equipment, used equipment, and machinery repair markets. Further restructuring efforts came in 2002. The firm's U.S. construction, mining, and utility operations were merged within the Komatsu America Corp. subsidiary; included were Komatsu America International, Komatsu Mining Systems, and Komatsu Utility. The move was intended to cut costs and improve efficiency. It was clear that Komatsu was taking aggressive action in an attempt to spark a turnaround.

Principal Subsidiaries: Komatsu Zenoah Co.; Komatsu Hokkaido Ltd.; Komatsu Aomori Ltd. (98.1%); Komatsu Miyagi Ltd.; Komatsu Niigata Ltd. (70%); Komatsu Tokyo Ltd.; Komatsu Tokai Ltd.; Komatsu Gifu Ltd. (70%); Komatsu Kinki Ltd.; Komatsu Kyoto Co., Ltd.; Komatsu Minami Kinki Ltd.; Komatsu Nara Ltd.; Komatsu Hyogo Ltd. (89.7%); Komatsu Kagawa Ltd.; Komatsu Okayama Ltd.; Komatsu Hiroshima Ltd.; Komatsu Yamaguchi Ltd.; Komatsu Oita Ltd.; Komatsu Nishi Nihon Ltd.; Komatsu Kagoshima Ltd. (91.9%); Komatsu Okinawa Ltd.; Komatsu Parts Ltd.; Komatsu Used Equipment Corp.; Komatsu Trading, Inc.; Komatsu Diesel Co., Ltd.; Komatsu Safety Training Center Ltd.; Komatsu Castex Ltd.; Komatsu Metal Ltd.; Komatsu Electronic Metals Co., Ltd. (63.2%); Komatsu Semiconductors Corporation; Komatsu Electronics, Inc.; Komatsu Forklift Co., Ltd.; Komatsu House Co., Ltd. (88.5%); Komatsu Building Co., Ltd.; Komatsu Industries Corporation; Komatsu Machinery Corporation; Komatsu Artec Ltd.; Komatsu General Services Ltd.; Komatsu Business Support Ltd.; Komatsu Engineering Corp.; Komatsu Information Providing Ltd.; Komatsu Logistics Corp. (97.1%); Komatsu America Corp. (U.S.A.); Komatsu America International Company (U.S.A.); Komatsu Mining Systems, Inc. (U.S.A.); Komatsu Latin-America Corp. (U.S.A.); Komatsu Reman North America, Inc. (U.S.A.); Modular Mining Systems, Inc. (U.S.A.; 66.1%); Hensley Industries, Inc. (U.S.A.); Komatsu Cummins Chile Ltda. (81.8%); Komatsu do Brasil Ltda. (Brazil); Komatsu Mexicana S.A. de C.V. (Mexico); Komatsu Europe International N.V. (Belgium); Komatsu Mining Germany GmbH; Komatsu UK Ltd.; Komatsu Hanomag AG (Germany; 98.4%); Komatsu Utility Europe S.p.A. (Italy); Komatsu France S.A.; Komatsu Europe Coordination Center N.V. (Belgium); Komatsu Southern Africa (Pty) Ltd. (South Africa; 80%); Komatsu Asia & Pacific Pte. Ltd. (Singapore); PT Komatsu Indonesia Tbk (55.1%); Bangkok Komatsu Co., Ltd. (Thailand; 74.8%); Komatsu (Changzhou) Construction Machinery Corp. (China; 85%); Komatsu (Changzhou) Foundry Corp. (China; 95%); Komatsu (China) Ltd.; Komatsu (Shanghai) Ltd. (China); Komatsu Australia Holdings Pty. Ltd.; Komatsu Australia Pty. Ltd. (60%); Komatsu Silicon America, Inc. (U.S.A.); Advanced Silicon Materials LLC (U.S.A.); Komatsu Silicon Europe N.V. (Belgium); Formosa Komatsu Silicon Corporation (Taiwan; 50.9%); Komatsu America Industries LLC (U.S.A.); Komatsu Finance America Inc. (U.S.A.); Komatsu Finance (Netherlands) B.V.

Principal Competitors: Caterpillar Inc.; CNH Global N.V.; Terex Corporation; Ingersoll-Rand Company Limited.


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