Into mining equipment: buying H-E Parts and Bradken for the wear-parts business (2016)

How to earn during the years you cannot win on the machine

As a route for a latecomer to catch the top two, what Hitachi Construction Machinery chose was not a performance contest on the machine itself but the side of the business made of parts that wear out and get replaced. That a company stuck below ten per cent share in large dump trucks moved first to secure the demand that reliably falls due at the once-in-four-years overhaul can be read as arranging a way to earn during the years it cannot win on the machine. That it committed roughly ¥80 billion at a time when major mineral prices were at their lowest in a decade and head office was soliciting early retirements is where the character of the judgement shows.

The reading that consumables are resilient to the cycle, however, was only half right. At Bradken, disposing of non-core businesses produced ¥14 billion of restructuring costs, and H-E Parts fell short of plan against competition in the Americas and Latin America. Parts and reconditioning are also businesses that compete on price close to the customer’s site; buying the top brand does not complete them. Even so, that the main battlegrounds of the two acquired companies were the United States and Australia meshed with a shift that took the Americas to 24% of sales. The work of relocating the earning ground to resource economies and the Americas, after China disappeared, can be seen to have started with the purchase of parts companies.