Mitsubishi Heavy Industries, Ltd. - Company Profile, Information, Business Description, History, Background Information on Mitsubishi Heavy Industries, Ltd.

5-1, Marunouchi 2-chome
Chiyoda-ku, Tokyo 100

History of Mitsubishi Heavy Industries, Ltd.

Since the 1880s the diversified collection of industrial manufacturers now known as Mitsubishi Heavy Industries (MHI) has constituted the heart of the vast Mitsubishi group. Essentially all of Mitsubishi's many industrial offspring were developed as adjuncts to its shipbuilding business, begun in 1884. After suffering several dissolutions in the 20th century, MHI reemerged in 1964 as the world's leading shipbuilder and a powerful competitor in several related engineering fields. Since the disastrous mid-1970s slump in shipping--caused principally by the OPEC oil crisis--MHI has accelerated its investment in other fields and reduced shipbuilding to a comparatively minor 11 percent of sales. Its heavy-machinery, power-plant, and construction-equipment divisions are all larger than the original shipbuilding business. With the addition of aircraft production, rocket design, and countless other engineering projects, MHI ranks as one of the world's foremost heavy industrial manufacturers.

The Mitsubishi interest in shipping and shipbuilding extends back to the group's founding in 19th-century Japan. Yataro Iwasaki, born in 1834 to a rural samurai family, early in his life became an official with the Kaiseken, the agency responsible for regulating trade in his native Tosa domain, on the island of Shikoku. By adroitly straddling the roles of public official and private entrepreneur, Iwasaki was able to start a small shipping company in the late 1860s. In 1875 the Japanese government gave Iwasaki the 13 steamships that he had operated on its behalf during a brief military engagement with Formosa, making his newly named Mitsubishi Shokai--or Three-Diamond Company, the source of the firm's logo--the dominant shipping agent in Japan.

With extensive mining interests and a talent for currency speculation, Iwasaki became so successful that the government created a rival shipping firm, the KUK, to foster competitive pricing. After a short fare war that threatened the ruin of both firms, Mitsubishi's shipping assets were merged with those of the KUK in 1885 to form a single, state-sponsored company. Mitsubishi retained a small amount of stock and exercised some control in the new firm, but its interest shifted to land-based industries, in particular mining and shipbuilding. In 1884, unable to make a go of shipbuilding, the Japanese government had loaned and then transferred outright its two leading shipyards to the private sector. Mitsubishi took control of the best of these, located in Nagasaki, and became Japan's premier builder of ships and the only one capable of competing in the international marketplace.

Japan's shipbuilding industry was still relatively primitive, however, and remained so until the 1896 Shipbuilding Promotion Law combined with the Sino-Japanese War to spur domestic demand. Mitsubishi, by this time known as Mitsubishi Goshi Kaisha, became the favorite supplier of large ocean-going vessels to the state shipping company NYK, building 43 percent of all ships ordered between 1896 and World War I. Despite the close ties between the two companies, it appears that Mitsubishi did not receive preferential treatment. Indeed, although Mitsubishi gained fame in 1898 as the supplier of Japan's first ocean-going steamship--the 6,000-ton Hitachi Maru--its delivery was so tardy that the NYK awarded a second, similar contract to a British firm.

From 1896 through 1904, the eight years between Japan's wars with China and Russia, Mitsubishi's shipbuilding business increased by nearly 300 percent. In 1905 it acquired a second dockyard, in Kobe, and by 1911 employed some 11,000 workers at Nagasaki alone. Mitsubishi's shipbuilding division was not yet especially profitable--a disproportionate amount of the parent company's profits still came from mining and stock dividends--but it soon gave rise to a panoply of subordinate industries that supplied the yards with raw materials and parts. For example, in 1905 the Kobe yard spawned what would eventually become Mitsubishi Electric Corporation, a leading manufacturer of generators and electric appliances. Other shipbuilding divisions grew into power plants and independent producers of airplanes, automobiles, and heavy equipment. Bolstered by its highly profitable mining interests, Mitsubishi was able to afford the vast sums of money and years of work required to transform its subsidiaries into world leaders.

When World War I began in 1914, Japanese shipping lines were unable to procure a sufficient number of foreign ships to maintain their booming business, and so turned to local manufacturers such as Mitsubishi. Japanese production increased more than tenfold between 1914 and 1919, with Mitsubishi leading the field. So great was the surge in business that the Iwasaki family, still in control of Mitsubishi Goshi Kaisha--the group's holding company--decided to spin off a number of its leading divisions into separate, publicly held companies, thereby gaining access to outside capital without substantially weakening the company's dominant position. In 1917 the Mitsubishi Shipbuilding Company (MSC) was created, along with Mitsubishi Bank, Ltd., Mitsubishi Iron Works, and a trading company for the entire group, now called Mitsubishi Corporation. The major components of the Mitsubishi zaibatsu, or conglomerate, were thus in place by 1920, although the ensuing years would bring many modifications to its structure.

As is generally the case, the wartime buildup in ship orders was followed by a severe depression. As business declined below prewar levels many shipbuilders were bankrupted and all were forced to make drastic layoffs. The slump continued throughout the 1920s, merging into the Great Depression. Mitsubishi's lack of shipbuilding contracts continued until the beginning of World War II. In the meantime, however, MSC was actively pursuing a number of other technological developments, most notably the airplane and the automobile. Having made its first airplane in 1916 and first auto in the following year, MSC grouped these products under the name Mitsubishi Internal Combustion Engine Manufacturing Company in 1920. This offshoot went through several changes before taking the name of Mitsubishi Aircraft Company in 1928, at which time it was already one of Japan's leading manufacturers of military aircraft. After six years of independence, however, the aircraft and automobile facilities were once again united with MSC to form Mitsubishi Heavy Industries in 1934. It is not clear why this strategy was adopted, but the imminent prospect of war with China may have suggested the need for a more unified industrial force.

To stimulate the moribund shipping industry, the Japanese government instituted the Scrap and Build Scheme in 1932. This policy called for shipowners, aided by government subsidies, to replace their older vessels with a smaller number of new, more efficient ships. In this way Japan's excess capacity could be reduced while simultaneously modernizing its fleet and promoting new shipbuilding technology. As the leading Japanese builder, Mitsubishi Heavy Industries (MHI) greatly benefited from this program, and even more so from the program's successor, the 1937 Superior Shipbuilding Promotion Scheme. This campaign was clearly prompted by Japan's preparations for war, as it subsidized the construction of large cargo ships with an eye to their eventual use for the transportation of troops and supplies. In the years following, government intervention in shipbuilding escalated to outright control, as the Imperial Navy placed all dockyard facilities under its direct command in 1942. The MHI yards at Nagasaki and Kobe produced a wide range of government warships, including the world's largest battleship, the Musashi. In addition, MHI used its aircraft experience to build 4,000 bombers and some 14,000 of the famous Zero fighters, widely recognized as the finest flying machine in the Pacific during the war's early years. The Zero provided an early example of the cost efficiency and quality that marked Japanese industrial design. A lightweight machine, the Zero could be produced quickly and economically, yet it boasted superior aerobatic abilities and heavy firing power. The Zero made Mitsubishi infamous in the West, discouraging postwar marketers of other Mitsubishi products from highlighting the company name in advertising.

At the end of the war in 1945, an estimated 80 percent of Japan's shipyards were still in usable condition. Mitsubishi's main yard at Nagasaki, however, did not escape the effects of the world's second atomic explosion. At war's end the occupying Allied forces halted all shipbuilding activity, restricting the heart of Japan's industrial economy. During the two years in which this ban remained in effect, MHI kept busy by repairing damaged vessels and even using its massive plants for the manufacture of furniture and kitchen utensils.

With the growing realization that Japan could be a strategic asset in the postwar battle against Asian communism, the Allies relaxed the more stringent limitations, and many Japanese companies resumed production. For MHI, occupation forces waited until 1950 to chop its mighty assets into three distinct and geographically separated firms: West Japan Heavy Industries, Central Japan Heavy Industries, and East Japan Heavy Industries. Part of an effort to destroy the Mitsubishi zaibatsu as a recognizable entity, the division of MHI was intended to force the three companies to compete against each other for contracts, thus hindering their growth.

The rest of the Mitsubishi group was similarly fragmented, and although it gradually reassumed its former shape, the Iwasaki family no longer controlled the various subsidiaries by means of a single holding company. Instead, each of the major Mitsubishi companies acquired stock in its fellow companies, and a triumvirate composed of the former MHI companies, Mitsubishi Bank, and the group's trading company became the unofficial head of what remained a voluntary economic entity. It is remarkable that this loosely connected portfolio of war-ravaged corporations should then have proceeded to outperform its global competitors over the next few decades. The three heavy-industry companies, in particular, faced an almost impossible situation. Forced to compete with one another, forbidden from pursuing the military contracts that had formerly provided a huge portion of its business, and confronted by international competitors whose technological progress had not been interrupted by the war, the new MHI trio appeared destined for failure.

Several factors combined to help MHI get past this critical period. The 1947 Programmed Shipbuilding Scheme provided low-interest government loans to the shipping companies that needed but could not afford new vessels. In effect, the government decided which ships should be built and helped pay for them, injecting the capital needed to restart a business cycle that had nearly ground to a halt. Secondly, the three companies were able to use some of their idle aircraft facilities in the manufacture of motor scooters and automobiles. Under the direction of the head designer of the Zero, Kubo Tomyo, the rejuvenated auto division sold about 500,000 scooters before the government asked it to resume making small autos in 1959. Thirdly, Japan's shipbuilders realized that the Japanese economy depended on ships and their manufacture, and that if Japanese ship producers could not compete in the postwar international market the entire nation would suffer.

Driven by such a threat to its existence, the former MHI companies hired an increasing number of highly competent engineering graduates from Japan's leading universities and set them to work emulating the advanced technology of the United States and Western European countries. Able to rely on trade unions that were loyal and flexible in the extreme, they were soon producing ocean-going vessels equal in quality to but less expensive than anything made in the West. The Korean War of 1951 to 1953 triggered a huge increase in orders and, after surviving the short depression following the Korean War, the companies were able to exploit the rapidly developing worldwide demand for oil tankers. The tanker market was in turn given a tremendous jolt by the Suez Canal crisis of 1956, since the canal closing sparked a surge of orders for larger, more efficient ships able to complete the long journey around Africa. Between 1954 and 1956 total orders at Japanese builders more than tripled to 2.9 million gross tons, of which at least two-thirds were placed by foreign shipping companies.

The post-Suez depression in shipbuilding was severe enough to prompt fresh diversification at MHI. Increased research financing was devoted to civil engineering, plant construction, and automobiles, all of which MHI's years of experience in heavy industry had well prepared it to undertake. In 1958, in cooperation with 23 other Mitsubishi Group corporations, Mitsubishi Heavy Industries created Mitsubishi Atomic Power Industries. MHI continues to dominate contemporary Japanese production of atomic power. Automobile production rose steadily, if not as quickly as at rivals Toyota and Nissan, and by 1964 the Nagoya plants were manufacturing 4,000 cars per month. Even aircraft production had been resumed by the early 1960s.

With the world increasingly dependent on imported oil and Japan's construction skills honed to perfection, Mitsubishi was hit by an avalanche of orders for tankers during the 1960s and early 1970s. To accommodate this extraordinary boom, the three parts of MHI were once again united, resulting in the 1964 rebirth of Mitsubishi Heavy Industries. This giant's 77,000 employees and $700 million in sales were spread among a handful of the most important heavy industries, but shipbuilding utilized the bulk of MHI's resources. A new dock with 300,000-gross-ton capacity was built at Nagasaki in 1965, followed by the 1972 completion of a mammoth 1-million-gross-ton supertanker facility at the same yard. This ultra-efficient dock enjoyed only a short life, however--the oil crisis of 1973 and 1974 soon brought tanker orders to a near standstill, permanently crippling the entire Japanese shipbuilding industry.

The economic downturn was devastating. By 1975, the last of the peak tanker years, 40 percent of MHI sales and one-third of its workers were involved in shipbuilding. By 1985 those numbers were 15 percent and 17 percent, respectively, and they have since continued to decline. Once again, the Japanese were confronted with a catastrophic loss of business, but MHI managed to shift its assets quickly enough to survive. Having already spun off its automobile division to form Mitsubishi Motors Corporation in 1970, MHI aggressively pursued clients in the power-plant and factory-design fields. It also resumed its position as the top supplier of military hardware to Japan's growing defense force. MHI has streamlined its production facilities by shifting employees from older industries such as shipbuilding to newer ones such as machinery and power-plant production, at the same time allowing natural attrition to shrink its overall labor bill.

The result is a very diversified company. Mitsubishi Motors is no longer a consolidated subsidiary of its parent. In 1990 MHI owned less than 26 percent of the automaker's stock. Given MHI's traditionally poor marketing and consumer sales skills this separation will likely prove a boon for each company.

MHI eventually emerged successfully from the disastrous downturn of the shipbuilding industry, and has become Japan's industrial leader in other areas as well. While there were minor sales losses during the weakening of the global economy in the early 1990s, MHI's diversified manufacturing interests quickly rebounded. On the eve of the 21st century, MHI is Japan's largest, most important, manufacturing concern.

At present, MHI consists of five principal divisions, with associated branches and joint ventures worldwide: shipbuilding and steel structures; power generation equipment and facilities; heavy machinery; aerospace and defense; general (multifunction) machinery and air conditioners.

The shipbuilding and steel structures manufacturing segment presently accounts for approximately 14 percent of MHI's sales, a figure likely to increase significantly. MHI is Japan's leading shipbuilder, while shipbuilding (passenger, merchant, naval vessels) accounts for approximately 65 percent of sales for this division. One reason for MHI's successful recovery from the severe downturn in the shipbuilding recession is the com-pany's transfer of thousands of highly skilled shipbuilding workers to other MHI divisions; when shipbuilding orders began to increase in the 1980s, these workers were shifted back to shipbuilding. Hence MHI does not suffer from the quandary of other leading shipbuilding industries in Japan and elsewhere: a severe shortage of skilled labor. The outlook for shipbuilding remains highly positive, in large part because of the need to overhaul the world's leaky oil tankers and other aged and increasingly unsafe and inefficient merchant vessels. In addition, MHI is the world leader in liquid natural gas carriers, which could emerge as the dominant fuel-powered vessel of the future.

MHI has also benefited from the Japanese government's commitment in the 1990s to engage in massive public works projects such as building and repairing roads, bridges, tunnels, smokestacks, and parking and leisure facilities. The steel structures industry of MHI, formerly a drag on the company, is growing and likely to expand into the next century.

MHI's power generation division is extremely strong and likely to remain so. Accounting for approximately 27 percent of sales, the division's principal customers are utility companies. Major products manufactured by this division include low-polluting, large gas turbines, electric power boilers, diesel engines, and nuclear power equipment. With the rise of the standard of living in southeast Asia overall, MHI sales in this division are expected to increase. In Japan, the shift to nuclear power continues, with the consequent growth in demand for nuclear power equipment. MHI is a leading company in developing alternative power technologies and in coal gasification techniques.

One MHI division that has not fared especially well has been heavy machinery. Most of the sales of this division (24 percent of total MHI sales) for years were centered on printing machinery. Demand for paper and pulp products has been stagnant for many years. The division, as a result, has been forging ahead in the development of environmental equipment, especially garbage incinerators, flue gas treatment products (to reduce noxious emissions in the atmosphere), and in gas engineering. MHI hopes that this division, mired in a perennial slump, improves its performance in the future.

Twenty-one percent of MHI's sales derive from its aircraft/defense component business. Although sales of defense-related equipment have slowed, MHI remains Japan's largest manufacturer and marketer of civil aircraft. Lastly, the general machinery/air conditioning segment accounts for 14 percent of company sales revenues. While sales of forklifts and construction machinery are stagnant, demand for air-conditioning equipment is growing, even in the depressed car manufacturing sector. Currently, air conditioning constitutes 57 percent of sales in this division.

MHI's five well-integrated manufacturing sectors, coupled with its attention to new technologies, have enabled the company to ensure that its major business segments remain growth industries. Nearly half of MHI's sales derive from its international markets, reflecting its reliance on a customer base that is worldwide.

Principal Subsidiaries: Mitsubishi Heavy Industries America, Inc. (U.S.A.); MHI Corrugating Machinery Company (U.S.A.); Mitsubishi Engine North America, Inc. (U.S.A.); MHI Forklift America, Inc. (U.S.A.); Bocar-MHI S.A. de C.V. (Mexico); Mitsubishi Brasileira de Industria Pesada Ltda. (Brazil); CBC Indústrias Pesadas S.A. (Brazil); ATA Combustao Tecnica S.A. (Brazil); Mitsubishi Heavy Industries Europe, Ltd. (U.K.); MHI Equipment Europe B.V. (Netherlands); Saudi Factory for Electrical Appliances Company, Ltd. (Saudi Arabia); Bohai & MHI Platform Engineering Co., Ltd. (China); Mitsubishi Heavy Industries (Hong Kong) Ltd.; MHI-Mahajak Air-Conditioners Co., Ltd. (Thailand); Thai Compressor Manufacturing Co., Ltd. (Thailand); Highway Toll Systems Sdn. Bhd. (Malaysia); MHI South East Asia Pte. Ltd. (Singapore).

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