Strengthening Total Support Capabilities by Asking, “How Far Can We Go With the Construction Machinery in Operation Around the World?”
Hitachi Construction Machinery Co., Ltd.
Representative Executive Officer, President, Executive Officer and Director, CEO
Amidst the turmoil caused by the COVID-19 pandemic, the invasion of Ukraine by Russia has only added to the complexity of the world. The effects of the Russian-Ukrainian crisis have had a major impact not only on the countries concerned, but also on our business, with repercussions spilling over into a variety of other areas, including energy price hikes, financial market instability and food insecurity.
Looking at these changes from the short- medium-, and long-term perspectives, we must carefully consider and execute our next moves. In other words, we must operate our businesses with agility. Agility, however, requires a ell-balanced combination of brains, heart, and physical strength. To lack any of these elements, means we will be swallowed up in the great whirlpool of social change. We feel a strong sense of urgency.
And we have a long history of overcoming such difficulties. For example, looking back to the 1990s, when our group was focused on the domestic business, we were impacted negatively by the Asian economic crisis. However, driven by the desire to be proactive in controlling the damage caused by the economic crisis, we expanded our business overseas, building a network of distributors and factories across Asia.
I am proud to say that the spirit of taking on challenges, turning adversity into opportunity, has taken root in our organizational culture.
One of the major changes in our group is the start of full-scale independent expansion into the North, Central, and South American markets in fiscal 2021. As is well known, the North, Central, and South America market is the world’s largest for construction machinery, accounting for about 40% of global demand. This market is also the world’s largest for mining machinery in operation. For example, the European market is dominated by construction and small construction machinery used in public works projects, as well as in the construction of buildings, homes and other structures. The region only has a limited number of mining machines in operation. Australia, on the contrary, is a market for large mining machines used in resource mining and other applications. In comparison, North, Central, and South America rep-resents a large-scale market active for all types of construction and mining machinery.
However, we have not performed well in North, Central, and South America historically. Under our business alliance with major U.S. agricultural machinery manufacturer Deere & Company (Deere) in 1988, we were responsible for roduct development and production. Deere was responsible for sales and service, which prevented us from providing our own sales and service operations. In the beginning, customers were satisfied as long as their equipment performed well and was of good quality. But as customer needs shifted dramatically from products to services, we were faced with the increasing requirement to identify customer needs on our own, providing products, technologies and services directly and in a timely manner using machine operating information. After repeated discussions with Deere, we decided to dissolve the joint venture agreement.
We began the full-scale expansion of our own business into North and South America in March 2022. This independent expansion has been a long-held dream of ours. We opened a new door, but now the real work begins. It will be important for us to listen to customer issues and work as a team to find solutions. But I believe that Hitachi Construction Machinery employees can meet this task.
The Kenkijin Spirit is a value standard and code of conduct shared by the Hitachi Construction Machinery Group. The Kenkijin Spirit was born in 2004, when overseas sales began to rise, as did the ratio of foreign nationals among our employees. When Japan was our main market and our group consisted mostly of Japanese employees, we relied on tacit communication in which details were understood without being spoken. But as overseas sales exceeded half of total sales, and the ratio of overseas employees also increased, we found it difficult to achieve consensus in meetings and other occasions based solely on the Japanese approach. We felt the need for a common key phrase that would overcome the language barrier and serve as a grounding point to improve strained relationships.
Many employees in Japan and overseas discussed their opinions over a period of months, after which we came up with a clear statement of a shared global mindset in the form of the Kenkijin Spirit. The three Cs of the Kenkijin Spirit are defined as:“Challenge (pioneering spirit),” “Customer (being individual cus-tomer oriented)”, and “Communication (openness)”. Just as there are 100 different issues faced by 100 different customers, we must listen carefully to what our customers want, communicate and take on the challenge of solving their problems. As you see, the three Cs do not exist in isolation. Rather, the Kenkijin Spirit exists as the interrelation of these elements.
Each employee must always ask whether they are truly putting themselves in the customer’s shoes, putting the three Cs into concrete actions. Without practicing this idea on a daily basis, it would be a challenge to achieve a Kenkijin Spirit organizational culture. For example, we sponsor an activity called the Kenkijin Seminar. An employee once mentioned to me that they worked in procurement, so they never spoke directly with customers. My response was that the end customer is not the only customer. All the people we interact with on a daily basis are also customers. I believe it is important to communicate this message through opportunities like this.
Another major development in fiscal 2021 was a change in our capital structure. Much like our progress in North, Central, and South America business, this is a story we have been working on in parallel for about three years. Naturally, we talked with Hitachi, Ltd. about taking control of our own sales and services in North, Central, and South America. But to make this plan a reality would require a considerable amount of capital. A certain amount of inventory is required to build sales volume, so financing is also important. We also had to consider building a factory. We exchanged opinions with Hitachi, Ltd. about the best capital structure to facilitate quick decision-making to meet the expectations of our distributors and customers.
After these discussions, Hitachi, Ltd. announced its intention to sell 26% of its 51% stake in our company to HCJI Holdings G.K., a joint venture company between ITOCHU Corporation and Japan Industrial Partners, Inc. One of the main reasons HCJI Holdings expressed interest in Hitachi Construction Machinery was our ambition to independently tackle the North, Central, and South America businesses. The picture that Hitachi Construction Machinery is painting on a blank canvas is what drew so much interest. For the Hitachi Construction Machinery Group, the ability to collaborate with ITOCHU in North America and other regions in areas such as finance will be a major advantage. Finance plays an important role in growing sales of construction and mining equipment. We see this change in capital structure as a positive development as we aim to increase our presence in the North, Central, and South American markets.
The dissolution of the alliance with Deere and the change in capital structure are two separate events that happened to coincide, but in my mind, they have always been linked. And behind this series of changes has been our goal to transform our business model to one focused on the value chain business, which includes not only new equipment sales, but also service, rental, used equipment, refurbishing and financing. And the reason we aim to strengthen our value chain business is to solve the problems faced by our customers. Everything is connected to this goal.
We have never changed our basic recognition that our Hitachi Construction Machinery Group businesses are essential businesses*. Customers who use our construction and mining machinery are also involved in essential businesses. Therefore, it is of utmost importance for us to be diligent in selling, renting and repairing customer equipment to ensure smooth business operations for our customers.
Our banner mission is to watch over construction machinery. But the more a machine is used, the more likely it is to break down. The older a machine, the more likely mechanical issues arise. To maintain a close watch on these machines, we must develop systems to obtain information, to train people and to build a support mechanism — all treated as a comprehensive set of services. This is a big challenge. But we have no intention to quit and will continue to pursue this ideal. Because this is our mission.
We must go even further in strengthening our total support capabilities, asking, “how far can we go with the construction and mining machinery in operation around the world?” To this end, we will communicate with customers and take on the challenge of working together to create sustainable societies. And, through trial and error, we will continue to make steady progress.
*Businesses that are indispensable to daily living