Komatsu

Question: What is Komatsu doing wrong?

 

Answer: Komatsu’s vulnerability in the face of Caterpillar is its weak foreign distribution.

 

Supporting Case Observations:

  1. Strong domestic distribution
    1. Most effective and efficient sales network in Japan (p. 10, ¶ 5)
    2. 1985: around 60% market share in Japan (p. 10, ¶ 5)
    3. Highly centralized production system
      1. “Economics of shipping heavy equipment around the world became a burden” (p. 11, ¶ 7)
      2. Having a centralized production system may not be attractive to less developed countries who want contracts that will promote jobs in their countries (p. 11, ¶ 7). Caterpillar has an advantage here because they have production facilities across the globe[1]
      3. It may make sense that Komatsu prefers a highly centralized system because Japan has a past of thousands of years of isolationism[2]; even if Kawai may be western-leaning, his management staff may not be.
  1. Developing foreign distribution
    1. Working with USSR
      1. Expected to overtake Caterpillar sales soon (p. 10, ¶ 6)
      2. The Siberian natural resources project bought tons of equipment (p. 10, ¶ 6)
      3. Because the United States and the USSR are having a Cold War at this point, this may be a spot where Komatsu can exploit the fact that Caterpillar is American and may not be able to trade with the USSR soon
    2. Marketing well-received in Australia (p. 10, ¶ 7)
    3. Very little production abroad due to highly centralized production (mentioned above)
      1. Only two assembly operations in foreign countries (Brazil and Mexico) (p. 11, ¶ 7).
      2. It would make sense to have manufacturing facilities in many countries, mostly in the Far East, due to growing sales in the region (Exhibit 4)
      3. In the future, it would be prudent of Komatsu to establish manufacturing facilities in the United States to compete head-to-head with Caterpillar and other American EME companies[3]
        1. As the services industry grows and the agriculture and manufacturing industries shrink, those with manufacturing skills are still available and not employed. [4]
        2. There is a large manufacturing labor pool in the United States; see Graph 1[5]
        3. If Komatsu were to use this local labor and then sell through local dealers, they could establish a stronger US customer base
      4. It is much cheaper to hire local labor in foreign countries to assemble machines than it is to build everything in Japan and then ship it
    4. Komatsu recognizes that they “have some gaps” in their overseas sales network. (p. 11, ¶ 5). Komatsu had a tiny market share in the United States, which led to poor dealership confidence in the ability to sell Komatsu equipment; Komatsu was unable to convince many dealers to sell their equipment (p. 4, ¶ 1)

 

Graph 1

 

Weaknesses

  1. Komatsu has started using a body-on-frame system[6] for producing different models built for different environments and applications. This makes production cheaper and faster, especially if they can find a way to produce several models on the same assembly line. This would help them expand their foreign distribution.
  2. Komatsu has good labor relations (p. 13, ¶ 2), which puts them at an advantage against Caterpillar in this aspect because Caterpillar had poor labor relations (they suffered from a 204-day strike that ended in May 1983) (p. 3, ¶ 2)
  3. Komatsu devotes around 5.8% of their sales to R&D department (p. 9, ¶ 7), and they focus on innovative technologies that put them ahead of the curve of the EME industry that could help shield them from Caterpillar’s backlash
  4. Komatsu management focused on detecting and responding to problems in the field[7], which would help them improve the quality of their equipment, therefore making the equipment more attractive to buyers.

[1] Caterpillar Case Study

[2] Tasca, Diane. U.S.-Japan Economic Relations: Cooperation, Competition, and Confrontation. Burlington: Elsevier Science, 2013. Print. https://books.google.com/books?id=AhuLBQAAQBAJ&lpg=PA3&ots=9f33RnPJ5u&dq=japanese%20isolationist%20culture&pg=PA3#v=onepage&q=japanese%20isolationist%20culture&f=false

[3] Komatsu Company History, http://www.komatsu.com/CompanyInfo/profile/outline/history.html#c04

[4] History Lessons: Understanding the decline in manufacturing, https://www.minnpost.com/macro-micro-minnesota/2012/02/history-lessons-understanding-decline-manufacturing

[5] Same source as footnote 4

[6] Clayton M. Christensen, The Past and Future of Competitive Advantage, http://media.wiley.com/product_data/excerpt/84/07879584/0787958484.pdf

[7] Hasegawa, Yozo and Kimm, Anthony. Japanese Business Leadership: 15 Japanese Managers and the Companies They’re Leading To New Growth