The “beyond construction equipment” diversification and the first consolidated loss (1993)

Which business to apply your strength to, rather than chasing growth

At the centre of this decision was a motive: to escape construction equipment, a business that swings violently with the economy. The idea — disliking the cyclical swings and seeking a new pillar in the growth market of electronics — was, in itself, coherent. The difficulty lay in where it fled to: silicon wafers, where specialists like Shin-Etsu Semiconductor led on share and technology. For a construction-equipment maker to catch up from behind on the materials technology specialists had honed, an unbroken tailwind in the market was indispensable. When that tailwind stopped, the scale-chasing investment turned into a burden.

What Komatsu learned from this failure was, it seems, a question — not scale or growth in itself, but which business to apply its own strength to. The cyclical swing of construction equipment could not be diluted through diversification; it could be overcome only by generating distinctive added value in the core construction-equipment business — and the later return to the core showed that answer. The difficulty of a latecomer challenging specialists on the strength of capital alone remains a question that reaches, beyond silicon wafers, to Japanese companies today. The paradox that an experience of failed diversification prepared the next generation’s strategy of focus is the aftertaste this decision leaves.