History
Komatsu limited came to existence in 1984 when Takeuchi Mining Company was founded. The company’s ironworks established to manufacture mining equipment and machine tool during the World War I in 1917 led to the company’s major expansion. Later, the ironworks were separated from mining leading to the formation of the name Komatsu Ltd. There was another expansion during the WWII as the company was set to supply the navy with shells, bulldozers, and antiaircraft. International activities increased from 1955 through the 1960s. More critical strategies were taken to make the company competitive and surpass Caterpillar. The 1970s and 1980s are the years where Komatsu experienced global expansion. The first direct investment in America was made in 1970 and in 1981 Komatsu was awarded the Japan Quality Control Prize. From early to mid-1990s, the company set goals to expand further into new markets. During these times, the company had increased annual sales. Unfortunately, fortunes began declining in the late 1990s and thus the company took restructuring measures to make the company perform well.
Key Management
The main factor that contributed to the company’s success over the years is the type of management. When Ryoichi Kawai took over the presidency after his father (1964-1982), the market share was increased from 50% to 65% (International Council of Sustainable Development, 2010). He used total quality management strategies that upgraded the company from middle-sized bulldozers to CAT level. During the Nogawa era (1982-1987), the company increased the production of non-construction industrial machinery due to cost-cutting and aggressive sales tactics. New markets were established during the Tanaka era (1987-1989) who ended price discounting but established autonomous bases with headquarters in Europe, America, and Japan. Katada (the 1990s) introduced a new culture and new direction that encouraged stakeholder to be committed to the company. As a result, the company saw continuous growth till the mid-1990s. Standard features were used in the 2000s and smart constructions were implemented in 2015.
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Competitive Situation
Komatsu is the second largest company after Caterpillar Inc. in the production of mining and construction equipment. The company specializes in the production of an evergreen lineup of big equipment. The company implemented strategies that enabled it to survive competition. The company’s greatest competitor is Caterpillar Inc. Komatsu forged its own global strategy that focused on exporting high-quality products from centralized facilities and it took advantage of labor and cost as wells. As a result, the company gained 15% of the world construction-equipment market (Hout, Porter, & Rudden, 1982). Another strategy well employed by Komatsu in 1970s and 1980s is capital spending on each employee that encourages commitment by employees. Caterpillar in partnership with Mitsubishi entered the Japanese market to counter the rising competition from Komatsu. For this reason, the company adjusted their exclusive export trade to set up assembly plants in Mexico and Brazil. Further investments in research and development sustained the growth of Komatsu.
Business Environment
Komatsu survived the fluctuations in global economic performance. The changing demand for lighter equipment led to ups and downs in the demand for products worldwide. The United States recession in the 1980s had a ripple effect on other countries and the industry faced overcapacity and low demand (International Council on Sustainable Development, 2010). However, management focused on measures that ensured future growth such as total quality control, vertical integrations, and consumer satisfaction among others. Also, the UAW strike affected the company as it made workers in Cat’s union dissatisfied. For this, Lee emphasized the subordination of personal wishes for the best of the company. Otherwise, most parts of the past decades were favorable for the success of the company.
Positioning and Distribution
The company established itself as a leader in innovative quality control which has since helped to fight competition from the joint venture between Caterpillar and Mitsubishi. The measure advocated for TQC systems as well as the use of best-advanced technology from overseas. Licensing arrangement and research and development initiatives also facilitated the establishment of Komatsu in the global market. According to Mühlbacher, Helmuth, and Lee (2006), Komatsu boasts of cost advantages which add up to 40% in some product lines and excellent products. The company works with each customer to meet all of the criteria for body capacity and distribution. Thus, distributions are made only when equipment meets the needs of the customers.
Conclusion and Challenge Facing the Company
First, it is prudent to acknowledge that Komatsu is a well-performing company. It has been able to maintain its global position for decades even with intense competition. Leadership and decision made by presidents are the major determinants of the successes and failures of the company. The leaders have influenced the company positively; however, there are inevitable external challenges. While Komatsu enjoys 63% of market share in Japan, Caterpillar enjoys 53% of market share in the United States (Singh, 2015). Still, sales from Caterpillar are higher compared to Komatsu. The company thus faces the challenge of global pricing dynamics which are difficult to gauge even for insiders in the industry. However, there are challenges undermining the performance of the company. It is challenging for the company to incorporate different needs of customers working in different locations into a single model. Additionally, there is the challenge of timely delivery of machines produced. Besides, distribution means at Komatsu are not as effective as they should.
Recommendations
To improve sales and profits, Komatsu’s leadership need to take policies that will help increase prices every year irrespective of currency movement. Importantly, critical research needs to be done to ensure that the increase in prices to make the company lose customers.
Further, the company needs to further improve their distribution systems and product support as well as foster close customer relationships. Assembly plants across the globe will facilitate distribution of the products. This way, the company may be able to beat caterpillar; the largest manufacturer of construction and mining equipment, industrial gas turbines, and natural gas engines (Mühlbacher, Helmuth, and Lee, 2006).
Finally, management needs to set up a strong foot fold in not only in Japan but also in the international market. For this reason, the company needs to further diversify products and its portfolio of assets.
References
Hout, T., Porter, E. M., & Rudden, E., (1982). How Global Companies Win Out. Havard Business Review.
International Directory of Company Hisoties, Vol. 52. St. James Press, 2003
Mühlbacher, H., Leihs, H., & Dahringer, L. (2006). International marketing: A global perspective . Cengage Learning EMEA.
Singh, D. S., (2015). Caterpillar faces aggressive challenge from Komatsu. Bloomberg.
