Yokogawa Electric
Corporate History & Strategy

In Taisho-era Japan, industrial instruments were dependent on imports from Western manufacturers such as Westinghouse and Siemens. Domestic production of precision electrical instruments—ammeters, voltmeters, and wattmeters—had not been achieved, and the instruments used by the Ministry of Communications and the Navy Ministry were predominantly imported. Although demand for measurement was expanding with the development of the electrical industry, no domestic technological foundation existed to meet it.

Taminsuke Yokogawa, an architect who had been involved in designing the Imperial Theatre, the Mitsukoshi Main Store, and the Tokyo Stock Exchange, aspired to develop technology-driven businesses beyond his core architectural practice. In 1907, he had founded Yokogawa Bridge Works to enter the steel bridge field, and in 1915, he personally established the Electrical Instrument Research Laboratory in Shibuya, Tokyo, with the aim of domestically producing electrical instruments.

At the Electrical Instrument Research Laboratory, engineers in their twenties, including Ichiro Yokogawa (nephew of Taminsuke Yokogawa) and Susumu Aoki, worked on domesticating instruments. Taminsuke Yokogawa supported the engineers' study abroad in Western countries to introduce advanced technologies. By 1917, they succeeded in domestically producing precision electrical instruments (ammeters, voltmeters, and wattmeters), and when prototypes were brought to the Ministry of Communications and the Navy Ministry, they received evaluations comparable to imported products.

In December 1920, with commercialization prospects established, the operation was incorporated as Yokogawa Electric Works, Ltd. At the time of establishment, there were six shareholders, with Ichiro Yokogawa as the largest shareholder holding approximately 30% of shares. Founder Taminsuke Yokogawa did not hold shares, and thereafter family-owned management centered on Ichiro Yokogawa and the Yokogawa family was pursued. This was the starting point at which a research laboratory personally founded by an architect transformed into a family-owned instrument manufacturer.

The establishment of Yokogawa Electric can be positioned as part of Taminsuke Yokogawa's personal technology diversification strategy. The three businesses—Yokogawa Architectural Office for architectural design, Yokogawa Bridge Works for steel bridges, and Yokogawa Electric Works for electrical instruments—were all technology-centered manufacturing enterprises, and Taminsuke Yokogawa assigned engineers to each company to operate them independently.

The fact that Taminsuke Yokogawa did not hold shares himself and installed his nephew Ichiro Yokogawa as the largest shareholder was a design in which the founder entrusted business operations to the next generation. This structure created the foundation for Yokogawa Electric to endure not as the founder's personal enterprise but as a Yokogawa family enterprise. Thereafter, Yokogawa Electric would continue to develop technologies as a specialized instrument manufacturer.

In the 1950s, the advancement of electronics technology drove a rapid increase in the need for high-frequency measurement. High-frequency technology was essential for increasing the number of simultaneous telephone calls, and high-frequency instruments were required for testing communications equipment. However, domestic manufacturers including Yokogawa Electric had fallen behind in development, and high-frequency instruments continued to be import-dependent.

In the United States, the high-frequency instrument market was contested between two companies: GR (General Radio) and HP (Hewlett-Packard). HP was a venture company founded in Silicon Valley in 1934, but had grown rapidly with instruments leveraging electronics and computer technology, completing its IPO in 1957. While Yokogawa Electric had been founded earlier in the industrial instrument domain, the newcomer HP was technologically ahead in the new field of high-frequency.

Yokogawa Electric's Managing Director Tomoda visited the United States in 1950, toured the factories of GR and HP, and recognized the future potential of high-frequency instruments. However, Yokogawa Electric at the time lacked the technical capability to domestically produce these products, making technology introduction from overseas manufacturers unavoidable. Managing Director Shozo Yokogawa had concluded at an early stage that the company should partner with the rapidly growing HP rather than the established GR.

In 1961, Managing Director Shozo Yokogawa of Yokogawa Electric traveled to the United States and initiated partnership negotiations with HP. President Yamazaki had also been approaching HP since the mid-1950s, but HP maintained a policy of not licensing technology to anything other than wholly owned subsidiaries, and negotiations stalled for eight years.

The breakthrough came through a fortuitous personal connection. Mr. Garner of 'Japan Fund,' a major shareholder of Yokogawa Electric, also served as an outside director of HP, and learned of Yokogawa Electric's partnership intentions through a meeting with President Yamazaki. When Garner conveyed this to HP, the company reversed its position. Additionally, Japan was in the process of capital liberalization at the time, and the political necessity of forming joint ventures with local companies for foreign companies entering Japan also helped.

In August 1963, Yokogawa Hewlett-Packard (YHP) was established with an ownership split of 51% Yokogawa Electric and 49% HP, with capital of 500 million yen. In 1964, a headquarters factory was newly constructed in Hachioji, operated as an independent facility separate from Yokogawa Electric's Musashino headquarters. Although 380 employees transferred from Yokogawa Electric, the first three years saw struggles in sales and continued losses, with 100 employees returning to Yokogawa Electric—a rocky start.

Having overcome early difficulties, YHP expanded beyond industrial instruments into information processing equipment and medical devices, achieving revenue of 46.5 billion yen and ordinary income of 6.4 billion yen for the fiscal year ending October 1980. The ordinary income margin exceeded 13%, representing rare profitability for a joint venture company in Japanese manufacturing.

The high profitability was supported by the introduction of HP-style management practices. Particularly distinctive was the strict enforcement of list-price sales: while discounting to major customers was standard practice in the industrial instrument industry, YHP prohibited discounts in principle. The only exception was a 1% discount for payment within 30 days of delivery. Additionally, Shozo Yokogawa stated that 'obligating a subsidiary to pay high dividends so the parent company can depend on them is something a business leader should absolutely never do,' and capped YHP's dividend ratio at 20%, directing profits toward growth investment in the joint venture.

On the personnel front, the principle was complete transfers rather than secondments from Yokogawa Electric. Shozo Yokogawa stated, 'If you just temporarily second people, they become fence-sitters and never commit fully,' cutting off personnel dependence on the parent company. The policy of making the joint venture independent of the parent company in both money and people was the factor that enabled YHP to grow into an independent, highly profitable enterprise—a standout case among joint ventures in Japan.

The 1973 oil shock caused petroleum and chemical companies—Yokogawa Electric's primary customers—to suspend capital investments in succession. The impact was severe for Yokogawa Electric, where petroleum industry-related products accounted for 83% of revenue, making the development of new businesses an urgent priority. In 1976, Yokogawa Electric signed a domestic distributorship agreement with GE of the United States for X-ray CT equipment, entering the medical device business.

In the domestic X-ray CT market, Toshiba Medical held the top position with a 39.6% share, followed by Yokogawa Electric (GE) at 21.2% and Hitachi Medico at 10.5%. For GE, strengthening its domestic sales capability in Japan was a challenge in order to prevail against Toshiba Medical. For Yokogawa Electric, it represented an opportunity to develop a new market by leveraging GE's product strength, and the interests of both companies were aligned.

CT sales progressed favorably, reaching annual sales of 13.6 billion yen for the fiscal year ending March 1981. Riding this momentum, GE and Yokogawa Electric established the joint venture 'Yokogawa Medical Systems' in 1982. The ownership split was GE 51% and Yokogawa Electric 49%, and field engineers engaged in sales, repair, and maintenance through more than 40 nationwide offices.

In 1986, the ownership ratio was changed to GE 75% and Yokogawa Electric 25%, strengthening the character of the venture as GE's domestic sales subsidiary. Yokogawa Electric positioned itself as a minority investor with the company classified as an equity-method affiliate, continuing to receive dividend income and technical knowledge from the joint venture. The contrast with the HP joint venture—where Yokogawa Electric secured 51% and maintained leadership—reflected the difference in which partner held product development leadership.

The joint venture changed its name to GE Yokogawa Medical Systems in 1994 and was renamed GE Healthcare Japan in 2009. Yokogawa Electric's ownership ratio was maintained at 25%, but the removal of 'Yokogawa' from the company name indicated that the joint venture was substantively a GE subsidiary in Japan.

For Yokogawa Electric, the medical device business had been initiated in the context of post-oil-shock business diversification, but ultimately converged into a role of supporting GE's domestic expansion. Rather than handling product development and manufacturing, Yokogawa Electric settled into a position as a partner providing distribution channels and maintenance networks. Unlike the measurement and control businesses built on the company's own core technologies, a business centered on domestic sales of another company's products could not become part of Yokogawa Electric's mainstream.

In the early 1980s, global competition in the industrial instrument industry was intensifying. While Honeywell and Foxboro of the United States led the global market, domestically Yokogawa Electric held the top position, followed by Yamatake-Honeywell in second and Hokushin Electric in third. As digitalization of control systems advanced and R&D cost burdens increased, Hokushin Electric, ranked third, was beginning to sense the limits of long-term independent survival.

Hokushin Electric's President Masahiro Shimizu recognized the company's insufficient capability for overseas market expansion as a key challenge. Industrial instruments are products for process industries such as petroleum refining and chemical plants, and winning overseas large-scale plant projects required a global sales network and technical support infrastructure. While Hokushin Electric had secured a certain position in the domestic market, it significantly lagged behind Yokogawa Electric in overseas expansion.

The presidents of both Yokogawa Electric and Hokushin Electric had a relationship dating back to their fathers' generation and held the positions of chairman (Yokogawa) and vice-chairman (Hokushin) at the industry association. It is said that Hokushin Electric's President Shimizu approached Yokogawa Electric's President Shozo Yokogawa with the merger proposal, and despite being rival companies, the trust relationship between the top executives formed the basis for merger negotiations.

In April 1983, Yokogawa Electric and Hokushin Electric merged, and the company name was changed to Yokogawa-Hokushin Electric. The merger made Yokogawa Electric the world's third-largest industrial instrument manufacturer after Honeywell and Foxboro of the United States, widening the gap with domestic second-place Yamatake-Honeywell.

Although publicly presented as a 'merger of equals,' the share exchange ratio was 1.0 shares of Yokogawa Electric to 0.35 shares of Hokushin Electric, a level favorable to Yokogawa Electric. For Yokogawa Electric, the benefit lay in being able to absorb product lines in which Hokushin Electric had historical strengths, such as aviation instruments. President Shozo Yokogawa was said to have shown such consideration for Hokushin Electric's side that he faced pushback from within his own company, and this conciliatory approach contributed to the smooth progression of the merger.

In undertaking the merger, Yokogawa Electric committed to not carrying out workforce reductions. This policy was maintained through the early 1990s, and Yokogawa Electric attracted attention as a company 'that does not reduce headcount.' Surplus personnel were handled through secondment to subsidiaries.

After the merger, Yokogawa Electric executed a production site consolidation plan over approximately three years. The former Hokushin Electric headquarters factory in Shimomaruko, Tokyo (approximately 48,000 sq.m) was closed, and approximately 1,000 personnel were transferred to Yokogawa Electric's Musashino headquarters and the Kofu Factory. The former headquarters site was sold to neighboring Canon, and the proceeds were allocated to capital investment at the consolidated facilities.

The drastic decision to close and sell the former headquarters was aimed at accelerating post-merger organizational integration. Had sites remained dispersed, there was a risk that former Hokushin Electric personnel would maintain a sense of separate identity, impeding unification. By physically eliminating the former site, the measure was expected to foster a sense of belonging to Yokogawa Electric.

In 1986, the company name was changed to Yokogawa Electric, removing 'Hokushin.' Within three years of the merger, site consolidation was completed, and the name change signaled organizational unity both internally and externally. Completing the merger without workforce reductions was recognized within the industry, though this 'no workforce reduction' policy would be reversed in 2003.