Hitachi Zosen Corporation Business Information, Profile, and History

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History of Hitachi Zosen Corporation

Hitachi Zosen Corporation operates as one of Japan's largest heavy industrial machinery firms. The company got its start as a shipbuilder during the 1880s in Japan. A devastating industry slump during the 1970s and 1980s forced Hitachi to diversify--its key business segments are now related to environmental equipment, energy, industrial, and precision machinery, electronics and information systems, steel construction, and marine and disaster prevention systems. In 2002, the company and NKK Corporation merged their shipbuilding businesses together and spun off the venture as Universal Shipbuilding Corp. During that year Hitachi Zosen created a new corporate brand image under the name Hitz. The firm plans to eventually adopt this as a corporate name once recognition is established.

Early History: 1880s-1920s

Hitachi Zosen's 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 has guided the Hitachi Zosen Corporation through much of its history.

The Osaka Iron Works' 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.

The War Years

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 Zosen Corporation 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.

Postwar Growth

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 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 percent revaluation of the yen in 1971. Prices for Japanese ships had gone up substantially in recent months, however, and the industry remained optimistic.

Hitachi Zosen 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.

Problems Arise: 1970s

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 percent 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 percent decrease in earnings despite a 28 percent 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 percent 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 ten percent below cost in 1980, an improvement over quotes 40 percent below cost that shipbuilders made to keep the docks from falling idle in preceding years.

Hitachi continued to slim down its work force in the 1980s and to increase non-shipbuilding 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 also opened a branch office in Beijing that year.

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

Restructuring Begins: 1986

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 percent reduction in excess industry capacity in addition to the 35 percent 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 percent industry-wide, 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 non-shipbuilding 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. Management hoped that this diversity, combined with greater global demand for ships, would provide opportunities for growth in the 1990s.

Opportunities for Growth: 1990s and Beyond

Diversification, in fact, played a huge role in Hitachi's strategy throughout the 1990s. During 1991, the company began to focus on four major business areas: production and transport systems; environmental protection; resources and energy; and infrastructure and information services. As the firm continued to cut its reliance on shipbuilding, profits began an upward climb. That year unconsolidated net profits grew by 98.5 percent over the previous year. In 1992, the company's shipbuilding subsidiary in Singapore went public. It also sold Hitachi Zosen Clearing--the U.S. subsidiary it had purchased in the 1980s--due to faltering sales.

Hitachi's profits continued to show promise, signaling that the firm's strategy was paying off. As a November 1993 Nikkei Weekly article claimed, "That Hitachi Zosen managed to stay afloat and prosper during the worst business conditions to hit Japan's shipbuilders since the end of World War II is largely due to the decision to turn the company into an 'all weather' entity by diversifying." Part of this diversification that bode particularly well for Hitachi was its involvement with household and industrial waste disposal. In 1996, the company opened a refuse incinerator in the eastern district of Saitama Prefecture and established Japan's first super refuse-fired power generation facility. The firm also entered the electric power supply business.

Hitachi's financial position began to falter during the late 1990s as management continued to revamp business operations. Unprofitable businesses were sold and the firm launched a series of job cuts. Hitachi's boldest move, however, came in 2002 as it merged its shipbuilding operations with those of NKK Corp. The joint venture, Universal Shipbuilding Corp. operated as Japan's second-largest shipbuilding concern and was spun off in October 2002.

The company also launched a new five-year management plan in April of that year. Entitled Hitz-Advance, the new initiative called for a major restructuring with a new focus on environmental systems, industrial and precision machinery, energy, electronics and information systems, and marine and disaster prevention. Hitz, a new corporate brand launched during 2002, was expected to eventually become the official corporate name of the company once it became more well known in Hitachi's markets.

This five-year plan pointed to the company's ultimate goal--to transform from a heavy-industrial concern to a value-added integrated products and services firm. As Hitachi worked to realign its businesses, global economies remained weak and the company battled intense competition, fluctuating prices, and lackluster demand caused by a fall in capital spending. Nevertheless, management remained hopeful that its efforts would pay off in the years to come. Whether or not Hitachi Zosen would excel along its new path, however, remained to be seen.

Principal Subsidiaries: Hitachi Zosen Singapore Pte. Ltd.; Hitachi Zosen Services Sdn Bhd. (Malaysia); Hitachi Zosen Europe Ltd. (UK); Hitachi Zosen U.S.A. Ltd.; Hitachi Zosen Engineering U.S.A. Ltd.; Dalian Dali Steel Works Co. Ltd. (China); Zhenjiang Zhengmao Hitachi Zosen Machinery Co. Ltd. (China).

Principal Divisions: Environmental Systems; Industrial and Precision Machinery; Energy; Electronics and Information Systems; Marine and Disaster Prevention.

Principal Competitors: Chiyoda Corporation; Kawasaki Heavy Industries Ltd.; Mitsubishi Heavy Industries Ltd.

Chronology

• Key Dates:
• 1881: Osaka Iron Works is founded by Edward H. Hunter.
• 1900: The Sakurajima Works is established to build ships weighing over 1,000 tons.
• 1943: The company adopts the Hitachi Zosen Corporation name.
• 1957: Hitachi and B&W Diesel of Denmark build the world's largest diesel engine.
• 1964: The firm builds a full-scale turnkey plant for India's Gujarat State Fertilizer Company.
• 1971: Maizuru Heavy Industries is acquired.
• 1974: An oil crisis forces the company to realign production capabilities.
• 1986: The firm launches a major restructuring effort.
• 1991: Diversification efforts begin in four major business areas.
• 2002: Hitachi and NKK Corp. merge their shipbuilding operations together to form Universal Shipbuilding Corp.