Komatsu Ltd. is operating in challenging market conditions that are made more complicated by the centralized production and operations strategy and the variability of the currency markets, particularly the value of the Japanese Yen. To combat these challenges, Komatsu has replaced CEOs, changed their corporate focus from “Beat Cat” to the three “G”s – “Growth, Global, Groupwide”. Key issues identified in the case are Komatsu’s approach to international expansion, organizational structure and localizing management, and product diversification. Komatsu was at crossroads on how to most efficiently and effectively leverage cost savings and expertise in local markets, from production to sales & marketing, and still maintain their reputation of product quality. They were in need of an organizational restructuring that would support this new international business model, which also included ensuring key management would be heavily involved in this new expansion. At the center of all of this, Komatsu was also diversifying its product lines and growing revenue from non-construction/mining businesses. How can Komatsu achieve its Three “G”s focus given these challenges?
Our proposal covers three possible strategies that Komatsu could leverage to improve operations and business performance, in light of the aforementioned challenges. First, to better control its international expansion, Komatsu can shift its expansion strategy from joint ventures to mergers & acquisitions. This will help achieve management control that is currently struggling, but will be an expensive and time-intensive option. Second, to protect its core business and take advantage of innovation and new products, Komatsu could execute separate and different international strategies for its core business and its new business – acquisitions for its core business and joint ventures for its new business. This would be effective in managing risk and protecting legacy business units, though it would require a new way of thinking and new management, particularly on the new business side. Third, to maintain control and direction over international expansion, Komatsu could establish global representatives for each of the profit centers of the business, regardless if it is made up largely of subsidiaries or joint ventures. This is a “quick fix” approach that may help with profitability in the short term, but isn’t conducive to expansion into new products or markets.
Our recommendation is to establish separate and different international strategies for its core business and new business. We believe this approach will give the flexibility necessary to expand into new products and markets, while protecting the core business that makes up much of Komatsu’s global revenue. We also believe that this structure will enable management to focus on profitability in the core business, while still being able to manage risk associated with investing in new products and markets.
The 2 decades following WWII were exciting times for the Japanese manufacturing company. Massive domestic construction efforts, along with rising foreign demand (fueled largely by the Korean War) resulted in substantial growth for Komatsu. That was all threatened, however, in 1963 when the Japanese government opened the industry to foreign competition. Komatsu knew it was lagging behind international competitors in quality, technology and efficiency of operations, and would have to catch up to the pack quickly if they wanted to stay in business.
When Ryoichi Kawai assumed the role of president of Komatsu in 1964 he wasted no time in addressing these main concerns. In fact, the previous president had recognized the shortfalls in quality and had initiated a Total Quality Control program 3 years earlier. This was already having some positive results and in 1964 Komatsu was awarded...