Hitachi History – The Making Of Japan’s Largest Electronics Manufacturer

By | April 4, 10

Hitachi History – The Making Of Japan’s Largest Electronics Manufacturer

Hitachi began in 1910 out of the frustration of a young engineering graduate. Namihei Odaira had just completed his engineering training with the Tokyo Institute of Science and had gotten a job with the Kuhara Mining Company. But soon, Namihei got dissatisfied with his job from seeing the huge dependence his company was having for imported technologies from Europe and the United States.

Confident of his engineering skill to create solutions that can compete favorably with anyone from anywhere, Namihei set out to create small five-horsepower electric motors that stood shoulder-to-shoulder with imported types in both quality and durability.

However, due to the heavy dependence on imports by the Japanese economy at the time, Namihei, for a number of years, couldn’t find another customer for his product except his former employer, but this did not discourage him. Then his breakthrough came during World War I when movement of imported items into Japan was hindered.

A large power company was forced to approach Hitachi when it could not get the three large turbines it had ordered from Germany because of the raging War. Realizing this was the opportunity he had been waiting for to prove his company’s capacity to deliver, Namihei went to work, and in five months produced and delivered the 10,000 horsepower generators requested.

Satisfied with his work, the power company ordered more equipment. Seeing this, other companies followed suit.

In 1920, Namihei incorporated his company and named it after Hitachi, the town where he had made his first sale. Hitachi, which means “rising sun”, grew fast in the midst of the War as the demand for its products increased through the 1920s. To meet the rising demand, the company expanded its operations swiftly by acquiring other companies.

Soon, Hitachi had become Japan’s largest manufacturer of pumps, blowers, and other mechanical equipment. It also got into the metal industry, manufacturing copper cable and rolling stock. And with its building of Japan’s first electric locomotive in 1924, the company ability to help large scale manufacturers meet their equipment needs without foreign reliance was not in doubt.

In the 1950s Chikara Kurata, who replaced Odaira as Hitachi president expanded the company. In anticipation of the coming of electronics he instituted a technology exchange program with General Electric and RCA, and invested heavily on computer research. This saw the company building its own computer and getting into the high tech industry in 1957.

Going stronger, Hitachi produced Japan’s first online computer system in the 1960s, and became the world’s largest producer of analog computers that were used in scientific research to compile complex statistical data. During this era, the company signed licensing agreements with a number of companies to act as their affiliates. By this, Hitachi was able to compete in the global market. Also, in this era, the company started marketing consumer goods, including its own brands of household appliances and entertainment equipment.

Hitachi’s flexibility and ability to adjust to changing economy was seriously tested during the OPEC oil crises of 1974. Japan, which imported close to 95 percent of its energy needs, was heavily affected – its industrial sector, which included Hitachi, was particularly affected.

To surmount the huge challenge, Hitachi embarked on a number of cut-cutting measures, including the company’s executives voluntarily reducing their pay by 15 percent. Except for 1975 when the company recorded a poor financial performance, Hitachi’s sales and profits rose steadily in the following years.

However, for the first time in a decade Hitachi’s profit plummeted in 1986 by 29 percent. This was due to some factors, including the strong Yen at the time, which made its products comparatively more expensive than those from its competitors from Taiwan and Korea, which were already manufacturing at low cost. Other important factors that affected its profits drastically were the decreasing demand for semiconductors, which reduced its sales in that market, and its heavy concentration in mature and low-growth markets.

The two largest markets it was operating – industrial equipment and consumer products – were not yielding much as before. Its big time industrial customers had reduced their purchase as a result of economic recession, and there were now lots of consumer electronic brands in the market backed with superior marketing strategies than Hitachi’s, making the company’s product less choice to customers.

To redress the situation, Hitachi’s new president, Katsushige Mita, in line with his declaration, “We cannot live with tradition alone, I have to make Hitachi a more modern company,” reorganized the company’s operations and business strategies in the mid-80s to be in tune with modern demands and trends.

A number of changes he implemented that brought back Hitachi to the fore of competition included:

Increasing the company’s automation process, which helped to reduce overhead cost significantly, and so enabled the company compete favorably with companies from South-East Asia.

Transfer of production to other countries. This helped the company to escape negative effects arising from the fluctuation in the Yen exchange rate.

Purchase of an American distributor of mainframe computers – National Advanced System (NAS). This helped Hitachi to remarkably increase its share in that market in the U.S.

Increase in the company’s investment in research and development. This enabled Hitachi to remain abreast with current developments in the technological world, and to be creative and innovative in its major business of semiconductors, household electronics, and computers. By the early 1990s, Hitachi had the highest patents in Japan, and created products that were ahead of those of oversea competitors.

But the company’s technological superiority was not reflecting in its earnings growth and profitability throughout the 1990s. In fact, while its profits dropped from ¥230 billion to ¥65 billion from 1991 to 1994, it recorded a net lose of ¥336.92 billion ($3.33 billion) in the 1999 fiscal year.

The reason for this dismal performance was not far-fetched. The company was encumbered with lots of slow-growth, low-margin product lines that were carried over for many decades in its history. With more than 860 subsidiaries, and over 330,000 workers, the company needed massive restructuring by way of huge labor cut, divestment from non performing ventures, and focus only on major profit yielding businesses to remain standing.

And this, Etsuhiko Shoyama, was set out to achieve when he was named the company’s president in April 1999. The company was reorganized into ten divisions, each with its own president whose pay was based on performance; the size of the company’s board of directors was reduced to make decision making faster; a non-performing semiconductor plant in Texas was closed, with 650 people laid off; and some product lines which were no longer much demanded, including mainframe computers, were dropped.

To prevent the continual development of products without appreciable demand, the company’s product developers were mandated to get feedback from its marketing personnel before developing products.

Hitachi also broke its long-held tradition of creating products solely by itself by partnering on specific projects with several of its competitors, such as NEC, United Microelectronics Corporation of Taiwan, Fujitsu, Computer Sciences Corporation of El Segundo, California, Clarity Group, and Fuji Electric Co. Ltd.

It also started acquiring certain well established companies to gain a sizeable portion of the high-tech market in the United States and Japan. One of such companies it bought was the US based e-Business Consulting Group, which it renamed Experio Solutions Corporation.

No doubt, Hitachi’s restructuring efforts have saved the company from dwindling profitability, and drifting into irrelevance with the changes that have transformed its industry. Today, it is more focused on businesses it had competitive advantage, as well as on market-oriented approach, which enables the company to continue to meet the needs of its customers and the society in this age of information.

The Keys and Strategies Responsible for Hitachi’s Success



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