Komatsu — Company History

A machinery maker that set out in mining equipment and electric cast steel

Komatsu’s origins go back to Takeuchi Mining, led by Takeuchi Meitaro (竹内明太郎), an industrialist from Tosa. Takeuchi ran the Yoshitani coal mine (芳谷炭坑) at Karatsu in Saga Prefecture and the Yusenji copper mine in Ishikawa Prefecture, and in 1917, in order to build and repair mining machinery in-house, he opened the Komatsu Iron Works at Komatsu town in Ishikawa, close to the Yusenji mine. As its first director he brought in Hashimoto Masujiro (橋本増治郎) of Kaishinsha, a pioneer of the domestically built motor car. When the slump that followed the First World War forced the parent company, Takeuchi Mining, to contract, the decision was taken to spin the iron works off as a separate company, and on 13 May 1921 Komatsu Manufacturing Co., Ltd. was incorporated with capital of ¥1 million. Its business at the outset went beyond mining and excavating machinery to electric cast steel produced by electric steelmaking, giving the firm a footing in both machinery and steel.

In April 1922, the year after incorporation, Komatsu took over the Komatsu Electric Steelworks from Takeuchi Mining, so that it could cover everything from casting steel in-house to assembling the finished machine. But the Great Kanto Earthquake left the parent, Takeuchi Mining, unable to carry on, and with the post-war slump on top of it the business sank into difficulty. The man who turned it round was Nakamura Mitsugi (中村税), brought in as president in 1925. Under him the company escaped the crisis, and from the Manchurian Incident onwards it expanded on rising demand for cast steel and press machinery. Monthly cast-steel output reached the highest volume in the industry, and the works supplied the machinery division internally while selling high-grade castings on the outside market.

Home-grown tractors, and bulldozer prototypes built to Army order

Having found its footing in mining equipment and machine tools, Komatsu looked for a distinctive product no one else was making, and in 1931, at the request of the Ministry of Agriculture and Forestry, moved into building agricultural tractors in Japan. Taking a small tractor made by Caterpillar of the United States as its model, it produced a prototype two-tonne crawler tractor — the first built in Japan. The following year, 1932, it completed an improved version, the Komatsu G25, and delivered it to the Army among others. The tractor was a product that could use a great deal of cast steel, Komatsu’s strength, and the fact that its existing steelmaking plant could be put to work exactly as it stood was decisive in the choice. In May 1938 the Awazu plant was built on the outskirts of Komatsu for integrated production, and volume output for the settlement of Manchuria began in earnest.

Once the war began, Komatsu built various towing vehicles and earth-moving machines at the request of the Army and Navy. The bulldozer was one of them. As vice-president Kawai Ryoichi (河合良一) recounted in 1963, the Army ordered that Japan should be able to build the machines the American forces used to lay out airfields, and three prototypes were made working from photographs. They were shipped to the Philippines and Guadalcanal, but the Guadalcanal consignment never arrived, and the machines that reached the Philippines were captured before there was time to use them. The 1943 prototypes never reached volume production before the war ended. Post-war production therefore began in a country with almost no bulldozers in service at all.

Orders cancelled outright, and the rebuild under Kawai Yoshinari

After the war Komatsu answered the food-production policy of bringing three million 町歩 (chobu, roughly a hectare each) of national land under cultivation, and switched to making petrol-engined tractors. Some five other firms, Niigata Engineering and Kubo Iron Works among them, entered the same product. But the occupation authorities ordered petrol supplies to Japan halted, and petrol tractors could no longer be built. In 1947 the Ministry of Agriculture and Forestry responded by cancelling its tractor orders outright. Tractors and farm implements accounted for more than 60% of the company’s total output value at the time, and their termination was called inside the firm the “second defeat”. At a works that had lost its mainstay overnight, a major dispute broke out over pay demands, growing into the hundred-day struggle spoken of as “Toho in the east, Komatsu in the west”.

Kawai Yoshinari (河合良成), brought in as president at this crisis, had as an agriculture ministry official been the very man who urged tractor production on Komatsu, and felt a moral responsibility for the cancellation. He drew ¥30 million of finance from the Reconstruction Finance Bank to settle the dispute, and on taking office as president at the end of 1947 pushed through the dismissal of some 700 employees and began the rebuild. In May 1949 the company listed its shares on both the Tokyo and Osaka stock exchanges, opening a route to raising money from outside. The D50 bulldozer had been completed in 1947, bringing to market as a product the design left over from the wartime prototypes. Even so, the only bulldozers civil-engineering contractors owned were domestic machines or surplus sold off by the occupation forces, and the market itself was still small.

Shell orders for the US forces, 72% of turnover

Kawai Yoshinari, in a hurry to rebuild, looked for a way out in producing shells for the American forces against the background of the Korean War, and from 1949 put shell production on a serious footing. Because the occupation authorities made ownership of a dedicated plant a condition of the orders, in October 1952 Komatsu took over the Hirakata works of the former Osaka Army Arsenal and set it up as the Osaka plant. In December of the same year it absorbed Ikegai Automobile Manufacturing, which became the Kawasaki plant, and Chuetsu Denka Kogyo, which became the Himi plant. The shell business was vast: orders over the four years from 1952 to 1955 came to more than US$44.78 million, some $44.4M (¥16bn), about 40% of all shell orders placed in Japan.

But shells swelled until they made up 72% of turnover, leaving the company with an earnings structure that rose and fell on a single order from the US forces. Bulldozer production continued alongside, rising from 10 to 15 units a month around 1952–53 to 20 to 30 a month by about 1955. There were almost no imports, and since the only machines contractors owned were domestic or occupation surplus, the number in service nationwide could be worked out almost entirely from domestic output. Precisely because the market had started from a point where virtually nothing was in service, the growth rate of bulldozer production stayed higher than that of any other machine type.

Dropping shells for bulldozers — the conversion of 1956

When the Korean War armistice of 1953 shrank the shell boom, Komatsu decided in May 1956 to convert production at the Osaka plant — formally transferred to it by then — from military work to bulldozers across the board. As early as 1950 bulldozers had accounted for 53% of total output value, so a mainstay product had already grown up even if shells were let go. New models had been introduced almost every year since the D50 was completed in 1947, and cumulative production passed 1,000 units in 1954. Annual turnover reached $34.4M (¥12bn) in 1958, and the year to December 1959 recorded turnover of $25.6M (¥9bn) and profit of just over $1.9M (¥700m), the highest in the company’s history to that point.

The conversion was underpinned by demand from road building: road investment by the state, the highway public corporation and local authorities together grew from $169.4M (¥61bn) in 1954 to $381.1M (¥137bn) in 1958, $876.7M (¥316bn) in 1961 and $1.2B (¥415bn) in 1962. The Third Five-Year Road Improvement Plan, begun in 1961, ran to $6.4B (¥2.3tn), and investment in 1963 was put at $1.4B (¥520bn) to $1.5B (¥530bn). Bulldozer sales moved with the volume of that work, with roughly a quarter of all units sold going to road projects. Alongside this, from 1957 the company placed branches and sales offices in every prefecture across the country, switching to selling construction machinery itself rather than through agents.

Capital liberalisation and the Maru-A campaign — concentrating on quality alone

When the government adopted the Outline of the Plan for the Liberalisation of Trade and Foreign Exchange in 1960, imports of machinery were progressively freed and the liberalisation of capital came onto the agenda. Caterpillar, which held more than half the world bulldozer market, was preparing to produce inside Japan through a joint venture with Shin Mitsubishi Heavy Industries. Kawai Yoshinari protested to the Ministry of International Trade and Industry, but judged that the tide of national policy would be hard to stop, and narrowed the counter-measure to a single point: improving quality. The reasoning was that Komatsu was behind on neither sales network nor production capacity, and that only reliability and durability fell short of Caterpillar’s machines. Around 1961 the company set up a liberalisation task force internally and began redesigning its bulldozers.

In August 1961 it established the Maru-A task force (マルA対策本部), with executive director Kawai Ryoichi in charge. Named after the ace in a pack of cards, it was positioned as a campaign taking precedence over any other matter inside the company. User criticism meetings turned up 182 items, and claim analysis and field surveys identified 1,657 problem points; some 3,200 of the machine’s 4,000 parts — about 80% — were modified. Total quality control, going beyond statistical quality control alone, was introduced company-wide, and the policy of developing everything in-house was bent far enough to fit engines from Cummins of the United States. For the three highest-volume models, 32 prototypes each were built, 96 in all: six were run day and night on endurance tests, and 90 were put into the field with engineers attached to observe how they performed.

In September 1963 the first counter-measure machines went on sale, and when the D50A embodying the quality improvements was launched as the “Super” series, the number of claims fell to a fifth of what it had been. The warranty was extended from 300 hours and three months to 600 hours and six months. At that point Komatsu held about 60% of the domestic bulldozer market, first in the industry, and led in motor graders, forklifts and shovel loaders as well. Construction machinery accounted for 62–63% of total turnover, industrial vehicles about 17% and industrial machinery 7%. The scale of the company had changed beyond recognition in five years: comparing the first half of 1958 with the first half of 1963, capital had gone from $6.3M (¥2bn) to $41.7M (¥15bn), total assets from $39.4M (¥14bn) to $229.4M (¥83bn), and sales from $16.4M (¥6bn) to $82.2M (¥30bn).

A ten-year late entry overturned by 650 direct sales points

Having secured the top position at home in bulldozers, Komatsu carried a long-standing problem: a business weighted towards a single machine type. The power shovel was the strongest line after the bulldozer, and civil-engineering work generally used one power shovel for every four bulldozers. The company completed an in-house machine, the SP04, at the Osaka plant in 1959, but shortcomings in its hydraulic equipment kept it from full production. It therefore switched to developing through a partnership, setting up Komatsu-Bucyrus with capital from Bucyrus-Erie of the United States and Mitsui & Co., and obtaining approval in June 1963. In December 1962 it also built the Oyama plant to make cast-iron engine components.

Full entry into hydraulic excavators came in May 1968, some ten years later than the industry average. Production of the “15-H” began on the basis of the technical tie-up with Bucyrus-Erie, but Komatsu’s share of domestic hydraulic excavator production stood at only 14% as late as 1974. Caterpillar Mitsubishi had 16% that year: the handicap of a late start showed directly in the figures. The turn came with the improved “15HT-2” launched in 1972, whose better durability drew more enquiries from construction sites. The share rose to 21% in 1979, passing Caterpillar Mitsubishi’s 18% for the first time. The pattern was to make up for lateness in technology with the sheer size of the sales channel built in the existing business.

What carried the reversal was the breadth of the sales organisation: the direct-sales structure built from 1957 had been spread across the whole country by the bulldozer. For hydraulic excavators too the network reached 650 points in Japan, far larger than Caterpillar Mitsubishi’s 200 or Hitachi Construction Machinery’s 350, and that scale worked directly on selling excavators to customers who overlapped with existing bulldozer buyers. In 1976 Komatsu took the top domestic share in hydraulic excavators, raising it to 32% by 1987, against 14% for Caterpillar Mitsubishi and 28% for Hitachi Construction Machinery. In bulldozers it had reached a 65% domestic sales share in 1973, making it the only construction machinery maker to hold first place at home in two mainstay machine types.

From a domestic base to an export-led structure

The axis of growth moved from Japan abroad. In 1963 exports were only 6–7% of total turnover and 10% of bulldozer sales, yet Komatsu accounted for more than 90% of all Japanese bulldozer exports. It had a technical tie-up with the Indian Ministry of Defence to build machines locally, and had already exported more than 1,000 bulldozers. In February 1970 it established Komatsu America and set about opening up the US market. In 1969 the sales split was $69.2M (¥25bn) in exports against $507.5M (¥183bn) at home, an export ratio of 12%; by 1982 it had reversed to $1.7B (¥418bn) in exports against $943.1M (¥235bn) at home, an export ratio of 64%.

Alongside the growth in exports the company prepared for competition with foreign rivals in both technology and production: in April 1985 it opened a laboratory for advanced technology such as mechatronics and new materials, and in September 1988 it formed Komatsu Dresser Company as a joint venture with Dresser Industries of the United States, giving it a production base in North America. The joint venture was later renamed Komatsu America Company (米州コマツカンパニー) and its operations folded into Komatsu America. Growth in scale, however, stopped in the 1980s: parent-company turnover of $2.2B (¥505bn) in 1980 was higher than the $3.6B (¥476bn) of the year to March 1999, and parent-company ordinary profit peaked in 1982, consolidated net profit in 1981.

“Beyond construction equipment” and the tilt towards silicon wafers

The direction set out to break the stagnation came from Katada Tetsuya (片田哲也), who became president in 1989. While putting overseas production bases for construction machinery in place, he made explicit a “beyond construction equipment” line under which half of turnover would come from diversified divisions outside construction machinery. In 1991 the trademark bulldozer mounted on the roof of the head office at Akasaka in Tokyo was taken down. In April 1993 the move beyond construction equipment was formally adopted, together with a policy of investing aggressively in the silicon wafer business. In June 1994 Komatsu Industries and Komatsu Machinery were established and part of the industrial machinery sales operation was transferred to them, and in July 1997 Komatsu Castex was set up, with the casting business moved across that October.

The move into electronics itself was old, beginning with Komatsu Electronic Metals, founded in 1960 ahead of Caterpillar’s entry into Japan. But that company fell behind Shin-Etsu Handotai and Sumitomo Sitix in overseas expansion, and while it stood within the top three in Japan it was only fifth or sixth in the world. Anzaki Satoru (安崎暁), who became president in 1995, judged that electronics beat construction machinery on the growth prospects of the world market, and concentrated investment there. Komatsu Electronic Metals decided around 1994–95 to build new plants in the United States and Taiwan, and over the three years from the year to March 1997 to the year to March 1999 it carried out more than $1.1B (¥130bn) of capital expenditure. Consolidated capital spending in the electronics division was $656.9M (¥80bn) in FY1997 and $472.2M (¥62bn) in FY1998, a step up from around ¥10 billion before that.

The first consolidated loss, and the first operating loss in company history

The bet was broken by the semiconductor slump: the silicon wafer market shrank in 1998 by 9% by area and by more than 20% by value against the previous year. Komatsu Electronic Metals posted a loss of $150.5M (¥20bn) on consolidated turnover of $475.2M (¥62bn) in the year to March 1999. Construction machinery, the core business, was hit by weak domestic demand and could not absorb the losses of the diversified divisions, so Komatsu recorded a consolidated loss of $94M (¥12bn) for the year to March 1999 — its first since consolidated accounts were introduced in 1964. Komatsu Electronic Metals halted operation of the American plant completed in 1997, and in March 1999 transferred its shares to its parent, Komatsu.

The losses did not end with one year. From 1996 the mainstay construction machinery business deteriorated in step with domestic public works. In the year to March 2002 the company fell into the first operating loss in its history, and the consolidated bottom line was a loss of $663.3M (¥81bn). Through the construction machinery slump of the 1990s it had closed four domestic plants and cut production capacity by 40%, and still the numbers would not turn. The electronics business meant to stabilise earnings had betrayed expectations too. The cause did not lie in the diversified divisions alone: the core construction machinery division itself had fallen to a level barely above break-even.

Cutting away a 6% gap in selling costs — Sakane Masahiro’s structural reform

In June 2001 Sakane Masahiro (坂根正弘) became president. An engineer by training, a graduate of the faculty of engineering at Osaka City University, he had run the American joint venture in 1991. That venture had been losing money, and over three years Sakane halved both its plants and its workforce. What he took from the American experience was a pattern of judgement: once it is clear that going this far will secure survival, do not do it in instalments — carry it through all at once, in a short period. What alarmed him most on taking office was that earnings in the construction machinery division had fallen to barely above break-even. His first task was to establish exhaustively why that profitability was so low.

One fact the inquiry brought out was that domestic construction machinery had fallen into a loss-making price war that was eating everything earned overseas. The other, the high level of selling and administrative expenses, showed plainly in the figures: comparing the manufacturing cost of a 20-tonne-class hydraulic excavator built in eight countries, Japan’s was the lowest, and yet the operating margin was consistently 6% below Caterpillar’s. Komatsu ran the first early-retirement scheme in its history, cutting about 1,100 people, consolidated a model line-up that had grown complicated in answer to customer requests, and pressed on with merging and closing subsidiaries, taking $411.5M (¥50bn) — the 6% — out of selling and administrative expenses at a stroke.

Electronics was dealt with too: Komatsu Electronic Metals withdrew from silicon wafer manufacture in the United States and moved to joint production with Formosa Plastics. Asiml, which made polycrystalline silicon, had its shares sold to a Norwegian company. Fixed-cost reduction alone lifted the following year’s operating profit to $263.4M (¥33bn) in the black. After returning to profit in the year to March 2003, the company set a record operating profit in the year to March 2005, the first in twenty-two years since the year to March 1983. In October 2006 it transferred a majority of Komatsu Electronic Metals’ shares to SUMCO and deconsolidated it, completing the exit from the electronics business it had begun in 1960.

Greater Asia, and a full line in mining equipment

Once narrowed back to the core business, the source of earnings was machine operating data: KOMTRAX, a machine operation management system with GPS built in, captures the location and working condition of construction machines over a communications line. It was fitted as standard to the main domestic models from 2001, and once its effect had been proved by introducing it in China, standard fitment was extended to Europe and the Americas from 2006. In its markets the company set “Greater Asia” — taking in everything from the Middle East through China to Russia — as its main battleground, and the region’s share of construction and mining equipment sales rose from 15% in FY2000 to 27% in 2005. In October 2005 it announced the simultaneous construction of the first new domestic plants in eleven years, spending $272.4M (¥30bn) in total to bring the Ibaraki and Kanazawa plants on stream in January 2007.

In June 2007 Noji Kunio (野路國夫) was promoted to president, and Sakane became chairman with representative authority. The year to March 2007 was the third consecutive year of record profit. The gap in scale against Caterpillar remained, however: total turnover in FY2006 was about $43.0B (¥5tn) for Caterpillar against about $15.5B (¥1.8tn) for Komatsu, and about $26.7B (¥3.1tn) against about $12.9B (¥1.5tn) in construction machinery alone. The main reason for the gap lay in the composition of the market: Japan had accounted for 40% of the world until the first half of the 1990s but was down to about 15% by 2005, while in the United States, which had taken first place instead, Caterpillar held a 40% share. In China, Sany Heavy Industry took the annual lead in units sold from Komatsu by a narrow margin in 2011.

The problem left was the range of mining equipment: Komatsu had no machines for underground mining, and none of the 400-tonne payload class rope shovels, draglines or drills used in open-pit work. On 21 July 2016, under Ohashi Tetsuji (大橋徹二), Komatsu announced that it would acquire Joy Global of the United States at US$28.30 a share, some US$2.89 billion in all, completing the process in April 2017. Joy Global, founded in 1884, was a major mining equipment maker with about 13,400 employees and consolidated turnover of about US$3.17 billion in the year to October 2015. In July 2021 part of the rights and obligations of the Smart Construction business was transferred to LANDLOG, which changed its name to EARTHBRAIN. For the year to March 2022 consolidated turnover was $25.5B (¥2.8tn) and profit attributable to shareholders $2.0B (¥225bn).