Hitachi, Ltd.
Corporate History & Strategy

Fusanosuke Kuhara, who had been involved in turning around the Kosaka Mine at Fujita-gumi (now DOWA Holdings) during the Meiji era, decided to start his own mining venture. In 1905, he acquired the Hitachi Copper Mine located in Taga District, Ibaraki Prefecture, entering the mining industry, and subsequently continued acquiring mines across Japan to form the Kuhara zaibatsu. Kuhara's mining operations were characterized by aggressive rationalization through the introduction of imported machinery, and at Hitachi Copper Mine he steadily expanded mineral output by utilizing equipment such as drainage pumps.

The Hitachi Copper Mine's output progressed smoothly, and in 1912, Kuhara Mining Company was incorporated. However, the vast majority of machinery used in mine operations was imported from abroad, and the time and expense required for repairs and procuring parts when equipment broke down constrained operational efficiency. In the mining industry, where stable machinery operation directly determines output volume, total dependence on foreign products also posed a business risk.

To address this challenge, Fusanosuke Kuhara recruited engineer Namihei Odaira, who had been his subordinate at Fujita-gumi. After leaving Fujita-gumi, Odaira had moved to Tokyo Electric Light (now Tokyo Electric Power Company), where he had grown concerned that virtually all major electrical products used in Japan — motors, generators, and transformers — were imports from abroad. After arriving at Hitachi Mine, Odaira gained hands-on knowledge of foreign-made electrical equipment through power plant construction work, and accumulated the technical expertise needed for domestic production by repeatedly repairing broken equipment.

Through repeated disassembly and repair of foreign-made motors at the Hitachi Mine repair workshop, Namihei Odaira decided to pursue domestic production of motors. At the time, the mainstream approach among domestic electrical manufacturers was to expand their businesses through technology licensing agreements with Western companies such as GE and Westinghouse. However, Odaira believed that 'if we are going to pay royalties, we should invest the same amount in our own research,' and chose the path of independent development without relying on foreign technology.

After much trial and error, in 1910 (Meiji 43), Namihei Odaira completed a 5-horsepower induction motor using domestic technology. In the domestic electrical market, products from Western manufacturers held overwhelming market share, and it was unclear whether an unproven domestically-made motor would be accepted by the market. Odaira envisioned a path of first proving the product's reliability through in-house use at Hitachi Mine, then gradually expanding to external sales.

Following the completion of the 5-horsepower motor, Kuhara Mining established the Shibauchi Factory (now Hitachi's Yamate Plant) on the Hitachi Mine grounds as a motor manufacturing base. This marked the founding of Hitachi. Namihei Odaira led the factory operations, beginning production of motors for mining use and expanding the product line to generators and transformers as orders grew. For Fusanosuke Kuhara, electrical manufacturing was merely an ancillary division of the mining business, but Odaira had the determination to develop electrical engineering into an independent enterprise.

The motors produced at the Shibauchi Factory were not limited to in-house use at Hitachi Mine but began winning external orders from other mines and factories. Having met the durability and reliability requirements of mining applications, it became recognized in the market that domestically-made motors could be practically competitive against foreign products. Electrical manufacturing gradually grew into a self-sustaining business, increasing its presence within the Kuhara Mining organization.

The domestic technology principle chosen by Namihei Odaira defined Hitachi's management policy for an extended period. While many contemporary electrical manufacturers expanded their product lines through technology licensing with foreign companies, Hitachi maintained its unique path of concentrating management resources on in-house technology development. This policy was upheld for approximately 40 years until Hitachi concluded a technology licensing agreement with GE in 1953, forming the foundation of Hitachi's technology accumulation.

As the electrical division's performance expanded, independence from the mining business became a practical issue. Fusanosuke Kuhara was reluctant about diversification into the electrical division, and a clash of direction arose between him and Namihei Odaira. As a result of Odaira's repeated insistence on separation and independence, Hitachi, Ltd. was established in 1918 with a capital of 10 million yen, achieving independence from Kuhara Mining. The electrical business that started from a mine repair workshop had built itself into an independent corporate structure in eight years, marking the starting point for establishing a unique position in Japan's electrical industry.

During World War II, Hitachi had established military factories across Japan, expanding its scale to become one of the country's largest comprehensive electrical manufacturers. However, with the end of the war in August 1945, military demand vanished overnight, leaving the company burdened with massive surplus personnel. As of 1949, total employees numbered approximately 44,000, of which management judged approximately 8,500 to be surplus. By the end of July 1949, the equity ratio had fallen to 14.1%, a level that could jeopardize continued bank borrowing.

In addition to financial deterioration, strikes by labor unions were intensifying at factories across the country. Some union members became violent, with acts of brutality against plant managers becoming prevalent. Practices known as 'Oath of the Hot Sands,' where plant managers were forced to run continuously on a sports field under the blazing sun, and 'Daruma Drop,' where they were made to stand on an oil drum only to have it kicked over, resulted in plant managers being beaten unconscious with bruises covering their entire bodies.

Expenditures related to labor disputes amounted to approximately 500 million yen, and the financial condition deteriorated further amid no prospect of business revenue recovery. If the disputes continued to drag on, the very survival of the company was at stake. Hitachi was forced to choose between workforce reduction and corporate bankruptcy. With bank trust eroding, management decided on a workforce reduction of approximately 8,500 people.

Hitachi's management decided on the 8,500-person workforce reduction and adopted a stance of refusing the union's demands for reversal. The union called a strike demanding reversal of the workforce reduction, leading to a complete production shutdown at factories nationwide. Management accepted this situation and adopted a policy of not resuming negotiations until the union capitulated.

Production remained completely shut down for 10 days, 20 days, then over a month, yet management did not budge. A complete shutdown of all factories meant loss of revenue, a fiscal gamble for a company facing bankruptcy risk with an equity ratio of 14.1%. Nevertheless, management cut off negotiations and held firm to their strategy of attrition, waiting for the union to exhaust itself.

As the dispute passed the one-and-a-half-month mark, fissures began to appear among union members at factories across the country. Although the union tried to conceal it, voluntary resignees began emerging from various plants. After approximately 60 days of dispute, Hitachi proceeded with soliciting voluntary retirements while purging radical union members, completing the reduction of 8,500 employees.

After the dispute's conclusion, Hitachi needed approximately 2 to 3 billion yen in startup capital in addition to the approximately 500 million yen in dispute-related losses. Having been consumed by labor disputes, Hitachi had lost the trust of banks, and prospects for fundraising were bleak. Coordinated lending centered on the Industrial Bank of Japan (IBJ) was essential, but the stance of each bank was cautious.

At a meeting where representatives from each bank gathered, IBJ Managing Director Shimada stood up and expressed his support for Hitachi's reconstruction plan. Director Shimada called on each bank to provide lending beyond the planned amount, and coordinated lending totaling 400 million yen was decided. With this banking consortium's support, Hitachi avoided a funding collapse and gained a foothold for reconstruction from rock bottom.

The approximately 60-day dispute became a turning point in Hitachi's postwar history. A starting point was formed for breaking away from the military-dependent structure and building a peacetime business framework. The policy of 'not moving' demonstrated by management during this dispute imprinted on Hitachi a decision-making pattern of holding firm to established policy even in situations where the outlook was uncertain.

Throughout the 1950s, Hitachi actively pursued technology licensing agreements with foreign companies. In 1952, Hitachi obtained a patent license for cathode ray tube technology from RCA to enter the television market. In 1953, it obtained a patent license for steam turbines from GE, establishing a position to follow Toshiba in the generator field. Furthermore, in 1954, it concluded a transistor patent license with WE (Western Electric), aiming to enter semiconductor manufacturing.

These technology licensing agreements effectively represented the abandonment of the 'domestic technology principle' that founder Namihei Odaira had championed. For more than 40 years since the company's founding, while rival electrical manufacturers expanded their businesses through licensing with GE and WE, Hitachi had insisted on in-house technology development. However, facing the postwar technology gap, Hitachi judged that entering the growth markets of television, generators, and semiconductors through independent development alone would be difficult, and shifted its policy to introducing foreign technology.

The consecutive technology licensing agreements with RCA, GE, and WE were not individual business decisions but carried the intention of comprehensively designing the business foundation for a postwar comprehensive electrical manufacturer. Television addressed the rapid growth of the consumer electronics market, steam turbines targeted reconstruction demand for electrical power infrastructure, and transistors anticipated the next-generation electronic components market. Within three years, Hitachi assembled the positions to simultaneously enter the consumer, heavy electrical, and semiconductor fields.

In the technology licensing agreement with GE, Toshiba already had a licensing relationship with GE, and Hitachi was in a follower position. However, Hitachi judged that introducing GE's technology for early commercialization would better prevent the loss of business opportunities than insisting on in-house development of steam turbines. The 1953 licensing agreement represented a clear departure from the domestic technology principle — a pragmatic management decision recognizing the postwar technology gap.

Throughout the high-growth era, Hitachi adopted a policy of spinning off business areas not falling under its core electrical business as subsidiaries. In 1956, it established Hitachi Metals (former steel division) and Hitachi Cable (former cable division). In 1961, it established Hitachi Chemical; in 1964, Hitachi Construction Machinery; and in 1967, Hitachi Transport System — each as a subsidiary. Non-electrical businesses were carved out from the parent while maintaining management control through ownership of more than 50% of shares.

Each subsidiary carried out a stock listing once its performance stabilized. Hitachi Cable and Hitachi Metals were listed in 1961, Hitachi Chemical in 1970, and Hitachi Construction Machinery in 1981 — all operating as 'listed subsidiaries' in which Hitachi held a majority stake. By choosing listing rather than business divestiture, the subsidiaries could raise capital from capital markets and secure talent while the parent company maintained control.

The approach of spinning off non-electrical businesses as subsidiaries and listing them was a structure characteristic of Japanese companies — granting operational independence while the parent maintained control. By granting subsidiaries management independence, business decision-making agility was enhanced, and through listing, external capital could be raised while the parent maintained involvement in management policy as majority shareholder. This structure functioned effectively during Hitachi Group's expansion period.

However, from the 2010s onward, the parent-subsidiary listing structure came under criticism as an inefficient capital structure that could harm minority shareholder interests. Following the Kawamura reforms, Hitachi proceeded to sell shares of its listed subsidiaries, sequentially divesting holdings in Hitachi Cable, Hitachi Metals, Hitachi Chemical, Hitachi Construction Machinery, and Hitachi Transport System. The structure that took more than 60 years from establishment in 1956 to complete divestiture demonstrates the long-term nature of decision-making at Hitachi.

In the wake of the global demand downturn triggered by the Lehman Brothers collapse in fall 2008, Hitachi posted a net loss of approximately 788 billion yen for the fiscal year ended March 2009. This was the largest loss ever recorded by a Japanese manufacturer, and the consolidated equity ratio plunged from 20.6% in the prior year to 11.2%. The primary driver of the massive loss was the approximately 390 billion yen write-down of deferred tax assets, as the deterioration in business earnings made it impossible to forecast future tax refunds.

In February 2009, ahead of the loss announcement, Hitachi decided on a workforce reduction of 7,000 employees to urgently cut fixed costs. However, the damage to the financial base was severe, and it was understood that another Lehman-scale recession would have meant bankruptcy for Hitachi. An equity ratio of 11.2% was at a level that could jeopardize continued bank borrowing, severely constraining management flexibility.

Hitachi's nomination committee decided on a change of president in response to the management crisis. The person nominated was Takashi Kawamura. Kawamura had served as a director of Hitachi from 1999, then moved to become chairman of subsidiary Hitachi Maxell in 2007 — an unusual comeback appointment for a parent company presidency. In April 2009, Kawamura assumed the position of Representative Executive Officer and President, and set about financial reconstruction.

Takashi Kawamura embarked on financial reconstruction immediately after taking office. In December 2009, he executed a third-party allotment, public offering, and convertible bond issuance, raising a total of 349.2 billion yen. The approximately 13% dilution relative to outstanding shares drew criticism from shareholders worldwide. However, restoring the equity ratio was a prerequisite for management reconstruction, and the capital raise was carried out knowing full well it would damage existing shareholders' interests.

Subsequently, in 2012, Hitachi sold its HDD manufacturing business — acquired from IBM for approximately 2 billion USD — to Western Digital for approximately 4.8 billion USD (approximately 390 billion yen). The gain on sale and cash secured brought the equity ratio up to 18.8%, achieving financial stabilization. Through these two-stage measures of capital raise and business divestiture, the equity ratio was raised from 11.2% to 18.8% between fiscal 2008 and fiscal 2012.

In parallel with financial reconstruction, the Kawamura administration pushed withdrawal from businesses suffering deteriorating profitability. In 2011, the decision was made to withdraw from in-house television production, ending 55 years of television manufacturing that had begun in 1956. Subsidiary Hitachi Displays was transferred to the Innovation Network Corporation of Japan-led Japan Display, and Hitachi completely exited display manufacturing.

Management resources freed up by the withdrawal from television and display businesses were concentrated on social infrastructure businesses such as overseas railway vehicles and power transmission and distribution. The business divestitures faced strong pushback from senior executives, who protested, 'How can you so easily sell off businesses we built with blood, sweat, and tears?' However, Kawamura held firm on the structural reform policy. Hitachi's business structure was set on a path of transformation from comprehensive electrical to one centered on social infrastructure and IT.

The series of measures executed under the Kawamura administration became a turning point in Hitachi's management. Three decisions — recovery of the financial base through capital raising, securing funds through HDD business divestiture, and withdrawal from television — each entailed short-term pain, but clearly established the direction of abandoning the comprehensive electrical banner and restructuring the business portfolio.

In April 2011, Kawamura became Chairman of the Board, with Hiroaki Nakanishi succeeding him as president. The 'selection and concentration' policy demonstrated during Kawamura's two-year tenure was carried forward into subsequent major transactions including listed subsidiary divestitures and the GlobalLogic acquisition. The structural reform that began with a 788 billion yen loss became the starting point for transforming Hitachi from a comprehensive electrical manufacturer into a social innovation enterprise.

The new thermal power plant project in South Africa was originally a contract won by Hitachi for approximately 570 billion yen. The joint venture Mitsubishi Hitachi Power Systems (MHI 65% / Hitachi 35%), established with MHI in 2014, inherited the project. However, schedule delays and cost overruns occurred, giving rise to liability for damages. A dispute arose between MHI and Hitachi over the allocation of losses, and in July 2017, MHI filed a claim for approximately 770 billion yen with the Japan Commercial Arbitration Association.

MHI's position was that since Hitachi had originally won the contract independently, all project losses should be borne by Hitachi. The fact that the allocation of contract responsibility had not been clearly defined at the time of the joint venture's establishment became a factor that escalated into a dispute between partners. The claimed amount of 770 billion yen exceeded the original contract value of 570 billion yen, and the outcome of the arbitration could have had a material impact on Hitachi's finances.

In 2019, a settlement was reached between MHI and Hitachi. Hitachi recorded settlement-related losses of 375.9 billion yen and transferred its shares in Mitsubishi Hitachi Power Systems to MHI. This resulted in Hitachi's complete withdrawal from the thermal power joint venture, ending the partnership with MHI that had begun in 2014.

This settlement represented both a financial blow to Hitachi and a complete withdrawal from the thermal power business. The outcome of a joint venture that Hitachi had entered with a 35% stake being dissolved through share transfer following a dispute with the partner exposed the structural problem of ambiguous allocation of contract responsibility in joint ventures. Hitachi effectively withdrew from one corner of its founding power generation business.

To strengthen its automotive parts business (Automotive Systems), Hitachi announced in 2019 the management integration with three Honda-affiliated parts manufacturers. The three companies were Keihin, Showa, and Nissin Kogyo, all of which were facing declining profitability. The aim was to consolidate Hitachi Automotive and the three Honda-affiliated companies into a single entity to generate R&D spending for next-generation technologies such as autonomous driving.

The integration vehicle was to be a new company called 'Hitachi Astemo,' established as a joint venture between Hitachi (66.6%) and Honda (33.4%). This ownership structure gave Hitachi control as a subsidiary. Hitachi Astemo was formally launched in 2021, integrating the three acquired companies. The total acquisition cost was approximately 196 billion yen.

The integration gave Hitachi Astemo a certain scale in the automotive parts field. Performance for FY2022 showed revenue of 643 billion yen and net income of 36.9 billion yen, indicating a smooth start. However, supply chain disruptions and rising raw material costs across the automotive industry were beginning to weigh on operations, and it was uncertain whether integration benefits would materialize consistently.

In FY2023, Hitachi Astemo's net income plunged to negative 81 billion yen. From a profit of 36.9 billion yen the prior year, it swung to a significant loss, exposing the fragility of the earnings base just two years after integration. In Hitachi's consolidated results, Hitachi Astemo's losses became a drag on profit margins, and it was recognized as a portfolio issue.

Hitachi decided in 2023 to reduce its stake in Hitachi Astemo by approximately 40%. It sold approximately 26% of its holdings to Honda and JIC Capital for a combined approximately 158 billion yen, recording a business restructuring gain of 94 billion yen in FY2024. This share sale transitioned Hitachi Astemo from a Hitachi subsidiary to a non-equity-method investment.

Hitachi has publicly stated its intention for Hitachi Astemo to eventually go public, signaling a de facto withdrawal from the automotive parts business. The transition from subsidiary to non-equity-method status was a financial decision to remove a factor dragging down consolidated profit margins. The speed at which a subsidiary established with a 66.6% stake was moved outside the consolidated group in just four years indicates the acceleration of business portfolio turnover.

Hitachi Astemo, which was launched as a subsidiary after investing approximately 196 billion yen to integrate three Honda-affiliated companies, was removed from Hitachi's consolidation scope following significant losses in FY2023. The 158 billion yen recovered through share sales represents approximately 80% of the invested capital, but the value of the remaining stake depends on the company's enterprise value at the time of a future IPO. The economic outcome of the integration remains undetermined.

The Hitachi Astemo case concisely illustrates the shift in Hitachi's business portfolio management. Hitachi, which once held listed subsidiaries for over 60 years, moved a newly established subsidiary outside the consolidated group in just four years — a concrete example of business management premised on 'turnover' rather than 'holding,' established since the 2009 Kawamura reforms.

The de facto withdrawal from automotive parts is an extension of Hitachi's policy to concentrate management resources on social infrastructure and IT. The transition of Hitachi Astemo to non-equity-method status relieved the downward pressure on consolidated profit margins. For Hitachi, automotive parts are no longer a target for growth investment, and a phased withdrawal is underway with the eventual dissolution of the Honda joint venture in sight.