Hitachi Zosen Corporation Business Information, Profile, and History

History of Hitachi Zosen Corporation

The Hitachi Zosen Corporation is a global leader in engineering and constructing heavy equipment and ships. Its predecessor, the Osaka Iron Works, was founded by British entrepreneur Edward H. Hunter on April 1, 1881. Hunter had come to Japan in 1865 and had worked in the Onohama Shipyard in Kobe before moving to Osaka. He built a modern shipyard at the junction of the Aji and Nakatsu rivers where his first vessel, the Hatsumaru, was completed in 1882. At the time Japan was in the midst of a 50-year transformation from a semi-feudal to an industrial nation initiated by the restored Meiji emperor to catch up with Western technology. The Osaka Iron Works, producing ships and other heavy equipment, was crucial to Japan's modernization. Hunter said the company should "conceive and construct everything ourselves." This philosophy continues to guide the Hitachi Zosen Corporation.

The Osaka Iron Works's first yard, a six-acre facility with a dock 72 meters long and 11.5 meters wide, could construct wooden and iron ships weighing up to 1,000 tons. The company also produced compound engines and boilers, irrigation pumps, bridges, and other equipment for the rapidly developing Japanese industrial sector there.

In 1900, Osaka Iron Works began operating a second yard, the Sakurajima works, at the mouth of the Aji River to build ships weighing over 1,000 tons. A passenger-cargo ship, the 1,568-gross-ton Taigi Maru, was the first ship launched from the new yard and the first ship weighing over 1,000 tons built by the company. In 1908, Osaka Iron Works launched the first tanker built in Japan; its 531-gross-ton Tora Maru joined the Standard Oil fleet.

Hunter married a Japanese woman and changed his name to Hanta. In 1915, his son and successor Ryutaro Hanta, successfully completed a licensing agreement to use the Isherwood method to build ships. The technique, which originated in Great Britain, significantly reduced both costs and construction time.

As Japan's industrial capacity developed, its shipping needs expanded. The Osaka Iron Works acquired other facilities to meet the demand, including the Innoshima Shipyard in 1911, the Bingo Dockyard in 1919, Harada Shipbuilding Works in 1920, and the Hikojima Dockyard in 1924.

The Osaka Iron Works also produced a number of notable engineering works outside of shipbuilding during the early decades of the 20th century. The company began providing equipment to the hydroelectric industry in 1924, when it received its first order for water gates for a dam. In 1926 the Otabashi Bridge, which is still in use, was built in Gifu Prefecture using a new cable erection method pioneered by the company.

In the 1930s militant nationalists who encouraged aggression in Asia increasingly influenced the government. Japan secretly began augmenting its navy, in violation of treaties it held with Britain and the United States. In 1931 Japan invaded Manchuria, setting up a puppet regime called Manchukuo, and by 1937 Japan was at war with China. In 1941 Japan attacked the United States, precipitating U.S. entry into World War II.

Much of Japan's military success came as a result of its powerful modern navy. A number of old merchant ships built by Osaka Iron Works, known as Hitachi Shipbuilding after 1934, were converted to naval use. While most of the large ships were built by Hitachi's competitors like Mitsubishi, Ishikawajima, Kawasaki, Mitsui, and Harima, the company did produce smaller vessels designed for military use including minesweepers, large landing craft, and Maru-Yu series transport submarines. Hitachi also built at least one aircraft transport ship with a flight deck for the army, the Kumano Maru. The 465-foot vessel was launched at Innoshima in January 1945.

In 1943, Hitachi opened the Kanagawa works and acquired Mukaishima Shipyard. The company changed its name to Hitachi Shipbuilding and Engineering that year. After the war, the U.S. occupation forces reorganized defense-related industries. Despite serious bomb damage at its shipyards during the war, Hitachi began building fishing and coastal transport ships almost immediately.

While other industries received government assistance to rebuild in the 1950s, the shipbuilding industry was left on its own. Japanese shipbuilders like Hitachi had to be flexible to survive--management sometimes put high-level engineers to work on the assembly line to fill orders on time. The industry developed extremely efficient methods to compete with European shipyards, and Japanese rock-bottom prices and top quality increased foreign orders. By 1955, Japan was the greatest shipbuilding nation in the world, and Hitachi was one of the busiest shipbuilders in Japan. Political uncertainties in the Middle East after the Suez Canal was closed temporarily in 1956 forced oil producers to seek economical means of bypassing the canal. Japanese shipbuilders were ready to meet the demand for larger oil tankers.

Meanwhile, Hitachi Shipbuilding and Engineering also entered other areas. In 1957 the company built the world's largest diesel engine with B & W Diesel of Denmark. In 1964 the company built its first full-scale turnkey plant, a chemical-fertilizer plant for the Gujarat State Fertilizer Company of India, in a record 33 months.

The Japanese shipbuilding boom continued into the 1960s. New technology allowed the construction of bigger ships. By 1966 Hitachi was capable of building ships weighing 250,000 tons, a feat unthinkable only a few years earlier. Technological developments revolutionized the shipbuilder's methods. By the early 1970s Hitachi designed huge 250,000-ton tankers entirely by computer. Ships assembled at the company's Sakai Works used automated machinery to piece together various sections.

Hitachi opened several overseas offices during this period--in New York and London in 1956, Hong Kong in 1960, and Düsseldorf in 1961. With many of its orders for new ships and equipment coming from foreign countries, the Japanese shipbuilding industry was caught by surprise by the 16.9% revaluation of the yen in 1971. Prices for Japanese ships had gone up substantially in recent months, however, and the industry remained optimistic.

Hitachi Shipbuilding and Engineering acquired Maizuru Heavy Industries in 1971, and the Maizuru works became Hitachi's principal naval vessel and equipment production site. A year later, Hitachi opened a branch office in Singapore. In 1973 Hitachi began production at its new Ariake works in Kyushu. The Ariake works had two docks, 630 meters and 360 meters, respectively, and was equipped with state-of-the-art shipbuilding machinery. The facility was capable of producing ships weighing up to 600,000 tons.

The oil crunch of 1973 to 1974 soon crimped Hitachi's growth plans. Reduction in oil shipments eliminated demand for new supertankers and put many ships in mothballs. The glut in shipping capacity precipitated a depression in the industry that would last almost 15 years. Although the new Ariake works had enough large ships on order to keep it active through 1977, new supertanker orders dropped off and Hitachi had to realign its production capabilities. The Ariake works accepted orders to build oil rigs, oil storage tanks, and natural gas storage tanks, and in 1974 the Mukaishima works began specializing in steel structures like bridges, water gates, steel stacks, and pipes.

With about 50% of its turnover continuing to come from shipbuilding, Hitachi was hit hard by declining orders and canceled orders for supertankers as the 1970s went on. Further trouble came when rising material costs reduced the company's profit margin. Hitachi had continued to enter into fixed-price contracts long after European shipbuilders had gone over to flexible contracts. The company recorded a 25% decrease in earnings despite a 28% increase in turnover in 1975. In 1979 the company lost almost ¥11 billion. The industry as a whole addressed declining profits by petitioning the Ministry of Transport (MOT) to subsidize scrapping of redundant facilities. The MOT authorized scrapping 35% of the industry's capacity. In addition, the 39 largest Japanese shipbuilders formed a cartel to voluntarily limit production. Demand hovered under even this limit, and cartel members accepted orders at about 10% below cost in 1980, an improvement over quotes 40% below cost that shipbuilders made to keep the docks from falling idle in preceding years.

Hitachi Shipbuilding and Engineering continued to slim down its work force in the 1980s and to increase nonshipbuilding activities. In 1982 Hitachi's plants and machinery and offshore structures groups accounted for more than half of the company's turnover for the first time. The company changed its name in English to Hitachi Zosen Corporation that year and opened a branch office in Beijing.

In 1986, Hitachi Zosen purchased the Chicago-based Clearing Inc., a company it had licensing agreements with since 1955, for $64 million. Hitachi Clearing produces automotive stamping presses at its facility in Chicago.

Hitachi Zosen undertook a major restructuring in 1986, organizing its units along product lines. At the same time, new pressures on Hitachi Zosen came from the lower prices developing nations offered on heavy equipment and ships. Manufacturers in Korea and Taiwan, paying their workers less, could drastically undercut Hitachi Zosen's bids. The appreciation of the yen against the dollar also hindered growth.

The Japanese Ministry of Transport called for another 20% reduction in excess industry capacity in addition to the 35% cut of 1979, and after reporting a loss of ¥70 billion in 1986, Hitachi Zosen announced plans to eliminate more jobs over the next two years. By 1988 the company employed only 5,596 workers, down from 24,660 ten years earlier. The shipbuilding industry received governmental permission once again to organize a "depression cartel" to set production ceilings and force prices up.

In 1989 the shipbuilding industry finally began to show signs of a real recovery in demand. As a result of increased oil imports to industrialized countries and the gradual aging of the world's oil tankers in general, orders for new ships increased 54% industrywide, and Hitachi Zosen's leaner shipyards were booked solid for two years. The company actually turned some orders away. Even better, analysts expected the demand to remain strong throughout the 1990s.

Historically more marine-dependent than its Japanese competitors, Hitachi Zosen Corporation increased its nonshipbuilding activities in the late 1980s, placing greater emphasis on lines such as steel structures, construction machinery, environmental protection facilities, nuclear power equipment, industrial machinery, prime movers, and plants. This diversity, combined with greater global demand for ships, should provide opportunities for growth to the Hitachi Zosen Corporation.

Principal Subsidiaries: Hitachi Zosen Singapore (Pte.) Ltd.; Hitachi Zosen Engineering Singapore (Pte.) Ltd.; Hitachi Zosen Co. (HK) Ltd. (Hong Kong); Hitachi Zosen Clearing Inc. (U.S.A.); Hitachi Zosen International S.A. (U.K.); Hitachi Zosen U.S.A., Ltd.; P.T. Petrindo Hitachi Zosen (Indonesia); Hitachi Zosen Engineering & Construction Co., Ltd.; Hitachi Zosen Information Systems Co., Ltd.; Ataka Construction & Engineering Co., Ltd.; Toyo Umpanki Co., Ltd.; Hi-System Control Corp.; Naikai Shipbuilding & Engineering Co., Ltd.