Kawasaki Heavy Industries, Ltd. Business Information, Profile, and History

History of Kawasaki Heavy Industries, Ltd.

Kawasaki Heavy Industries, which for much of the 20th century was one of the world's leading shipbuilders, today sells more motorcycles and lawn mower engines than it does ships. Long a diversified company, Kawasaki was able to survive the drastic and apparently permanent slump which overtook the shipbuilding industry after the 1973 oil embargo by continuing its evolution into a multi-faceted manufacturer of rolling stock, aircraft, and industrial plants,

Kawasaki was one of the handful of firms that helped propel Japan into the modern industrial world, with early efforts in the automobile, aircraft, power-plant, and heavy-machinery industries as well as in shipbuilding. From its 19 worldwide plants, Kawasaki participates in a wide array of large-scale construction and engineering projects, with shipbuilding reduced to 8% of overall sales and continuing to dwindle in importance.

Shipbuilding gave Kawasaki its start in the world of heavy industry. When Japan emerged from two centuries of isolation in the mid-1800s, its first need as an island nation was to develop a modern shipbuilding industry. The Meiji government at first attempted to run its own shipping lines, but when that effort failed, the government offered considerable subsidies and favorable leasing terms to anyone who cared to try to imitate the sleek Western steamship designs. Shozo Kawasaki was only too eager to accept the challenge. Born in 1836, Kawasaki had survived two maritime disasters as a young man. He attributed his survival to the technical superiority of Western ships in which he had been sailing, and decided to devote his life to bringing such innovations to Japanese shipping. In April 1878, he accordingly borrowed ¥30,000 and leased harbor land in Tokyo from the Japanese government to begin his own shipbuilding company. Kawasaki hired a bright young engineer and opened for business, but he soon discovered that Japanese shipping lines were reluctant to abandon their ancient sailing vessels and traditional style of doing business. After a long wait the new firm finally received its first order, for the 80-ton Hokkai Maru, and Kawasaki invited thousands of business and government leaders to view its christening. This early venture succeeded in announcing the company's arrival in the burgeoning Japanese industrial sector.

Before long Kawasaki had as much work as he could handle. When the Meiji government began divesting major shipbuilding facilities, it offered one to Kawasaki, who happily moved his operations from Tokyo to Hyogo in 1886 and named the company Kawasaki Dockyard. With the Sino-Japanese War of 1894 spurring demand for ships, Kawasaki went public in 1896 as Kawasaki Dockyard Co., Ltd. Its first president was 31-year-old Kojiro Matsukata, and Kawasaki himself remained with the company only as an advisor. Matsukata immediately ordered the construction of a new, vastly larger dry dock which, upon completion in 1902, solidified Kawasaki's position as one of Japan's leading shipbuilders. At the same time, Matsukata bought up adjacent land and began a series of larger construction slips, increasing the company's building capacity from 6,000 to 31,000 gross tons. Both moves enabled Kawasaki to take advantage of various state subsidies with which the Japanese government encouraged industrial growth, but in a country lacking an industrial economy, it remained difficult for Kawasaki to get materials and parts. In most cases company engineers had to manufacture whatever they needed themselves, an inefficient but educational method of building modern steamships.

In 1906 Kawasaki opened a new factory to produce a variety of rolling stock--railroad cars, locomotives, and related parts. This was only the first of a series of such diversifications. The firm was soon not only building ships and railroad cars but also supplying its own steel plates and castings, as well as taking orders for large civil-engineering projects such as bridges. By the end of World War I, Kawasaki had, in addition, established itself as a maker of airplanes and automobiles, as it sought to keep pace with its heavy-industry rival, Mitsubishi. Kawasaki turned the relative backwardness of the Japanese economy to its advantage: it used the government's enforced education in the industrial arts to expand into new technologies as they found their way to Japan. This process accounts for the breadth of Kawasaki's current interests, and is similar to the development of other Japanese heavy-industry giants.

In the meantime, Kawasaki's shipbuilding business flourished. In 1907 the company introduced its first marine turbine engine, and shortly thereafter adopted German diesel technology. A chunk of the company's business involved naval contracts, like the 1905 construction of Japan's first submarine and the 1910 delivery of a 5,000-ton cruiser. These projects solidified Kawasaki's relationship with the Japanese navy, and in particular its role as a leading builder of submarines and anti-submarine aircraft. After weathering a brief recession, Kawasaki and Japanese shipbuilding a whole enjoyed a boom during World War I, when the Allies turned with increasing frequency to the Japanese for their shipping requirements. The jump in orders raised production to 12 times the prewar high, with Kawasaki finishing 35 ships in 1918 alone and creating an entirely new class of standardized freighters weighing between 6,000 and 9,000 tons each. These stock boats were highly successful.

The postwar recession in shipbuilding proved to be unusually harsh. In addition to the natural decline in orders, an Allied-sponsored arms-limitation agreement of 1921 forced the cancellation of several large warships still in Kawasaki docks. Perhaps worst of all was the company's failure to cut production of stock boats quickly enough. The excess boats were unsold, and despite rapidly expanding business in its steel, aircraft, and civil-engineering divisions Kawasaki was soon in serious financial trouble. A 1927 bank run left the company without working capital and forced a major restructuring: the rolling stock division was spun off as a separate entity; about 20% of the company's 16,000 employees were permanently laid off, and longtime-president Matsukata retired to be replaced by Fusanosuke Kojima. These decisions had no sooner been reached than the Depression struck in 1929, necessitating a second round of bank negotiations and corporate reductions.

War pulled Japan out of the Depression in 1931, when that country invaded Manchuria. Along with plentiful government subsidies, the growing need for warships quickly reinvigorated Kawasaki. Between 1937, when China was invaded, and the 1945 Japanese surrender, Kawasaki's employees produced 109 warships, including four aircraft carriers and 35 submarines. Midway through the war the Japanese government essentially took control of the shipbuilding industry, establishing a set of six standard warships to be built under their direction as needed. It was a period of intense productivity at Kawasaki, which also supplied the war effort with aircraft from the newly founded Kawasaki Aircraft Company. Merchant shipping picked up as well. Japan's need for oil spurred the introduction of what would later grow into the supertanker. Kawasaki had built 21 of these by the end of the war in August 1945.

Losses suffered by Kawasaki at war's end amounted to more than ¥1.7 billion, and the company once again required a major restructuring. It shed its steel division--which, as Kawasaki Steel Corporation, remains one of the country's foremost steel producers--and wrote off much of its debt. At this juncture Kawasaki was composed only of the shipbuilding, engine, and electrical-machinery divisions of the original entity, with rolling stock, aircraft, and steel all operating as separate companies.

Employment at Kawasaki had immediately dropped to less than 25% of its wartime peak, and the company was saddled with unpaid-for ships. The Kawasaki docks were still largely in one piece and functioning, however, and the company achieved prodigious postwar growth. For the first few years little was built, but with the growing perception of Communist China as a threat, the Allies encouraged Japan to rebuild its economy.

In August 1947 the Japanese government adopted the Programmed Shipbuilding Scheme, by which it directed the construction of new ships as needed while providing funds to the shipping lines to help them cover the purchase price. The scheme, which remains in effect, gave the shipbuilding industry the capital needed to restore productivity.

Thus fortified, Kawasaki resumed operations at all of its plants. Japan's shattered infrastructure promised work for a company with Kawasaki's construction capabilities, and its machinery, steel, and engine divisions were soon operating at full throttle. In particular, the Kawasaki steel division opened three new works and took the lead in Japanese sheet-steel production. The shipbuilding business was flooded with more orders than it could handle.

Beginning with the Korean war in 1950 and continuing through to the oil embargo of 1973, Kawasaki and the rest of Japan's shipbuilders enjoyed nearly unbroken success. By the mid-1950s Japan had become the world's leading shipbuilder--a remarkable achievement for a country broken by war only ten years earlier--and as the national economy surged toward eventual world leadership, Kawasaki flexed its muscle in several fields. Growing oil dependence of industrialized countries created a lucrative market for supertankers, and Kawasaki was soon expert in building these largest of all ships. At the same time, Kawasaki was also filling construction orders for everything from a cement plant in Malaysia to a baseball stadium in Koshien, Japan, while improving its technical expertise in engine and machinery design. Many of the latter improvements were the results of working agreements with leading European and U.S. firms, as Kawasaki pursued its policy of international cooperation. The company early formed alliances with Escher Wyss of Switzerland and IMO Ltd. of Sweden, and later worked with aeronautical giants Lockheed, Boeing, Hughes, and Messerschmidt on a wide variety of civil and military projects.

In 1969 the present Kawasaki Aircraft Heavy Industries was created by the reintegration of Kawasaki Aircraft and Kawasaki Rolling Stock with the original parent, Kawasaki Dockyard. The newly formed conglomerate suffered a blow in 1973 when the Arab oil embargo brought supertanker orders to an abrupt halt. Since that date the Japanese have steadily withdrawn from the shipbuilding field, and Kawasaki and the other big makers have turned their energy to more promising, and less competitive, endeavors. The diversity of Kawasaki's current portfolio is one result of this massive shift. Shipping now accounts for less than 10% of the company's revenue, less even than sales of leisure products like motorcycles and jet skis. Its shipbuilding business now tends to involve military and more exotic varieties of commercial vessels, as Kawasaki seeks to avoid direct competition with Korea, the new price leader in merchant shipping.

In contrast, Kawasaki's machinery and construction division has grown into the company's largest. Here Kawasaki builds everything from factory robots to an ethylene plant in Bulgaria, and also offers bridges, tunnel-boring machines, and breeder-reactor research. Almost as large is the aircraft division, doing a significant amount of work for the Japanese Defense Agency and the national space program. In rolling stock, Kawasaki supplied the New York subway system with a set of stainless steel, graffiti-proof cars, and has continued to deliver some of Japan's fastest railroad trains. Add to these three divisions the company's old standby and its newest addition--ships and leisure products--and one has a corporation capable of supplying modern civilization with most of its industrial needs.

Principal Subsidiaries: Kawasaki Heavy Industries (U.S.A.) Inc.; Kawasaki Rail Car, Inc. (U.S.A.); Kawasaki Loaders Manufacturing Corp. (U.S.A.); Kawasaki Motors Corp.(U.S.A.); Kawasaki Motors Manufacturing Corp. (U.S.A.); Canadian Kawasaki Motors Inc. (Canada); Kawasaki do Brazil Industria e Comercio Ltda.; Kawasaki Motors (UK) Ltd.; Kawasaki Heavy Industries (Europe) B.V. (Netherlands); Kawasaki Motors N.V. (Netherlands); Kawasaki Jet Ski Europe N.V. (Netherlands); Kawasaki Motoren G.m.b.H. (Germany); Kawasaki Heavy Industries (H.K.) Ltd. (Hong Kong); Kawasaki Motors Pty. Ltd. (Australia).