Hitachi Ltd. Business Information, Profile, and History

History of Hitachi Ltd.

Hitachi Ltd. is Japan's largest manufacturer of electrical machinery and a leading producer of semiconductors. According to Business Week, the company contributed two percent of Japan's gross national product in the early 1990s. The conglomerate's roster of over 20,000 products runs the gamut from the smallest, most powerful computer memory chips to massive nuclear and hydroelectric power plants, but its most familiar lines are consumer electronics. Often called the General Electric of Japan, Hitachi is one of the world's 30 largest conglomerates. Although the company's annual revenues were relatively stable in the early 1990s, its profits declined by over 71 percent from 1991 to 1994, as competition and weakening demand in the semiconductor market and consistent losses in consumer products prompted ongoing restructuring.

Hitachi's historical foundations can be traced back to 1910, when Namihei Odaira took his first engineering job with Kuhara Mining. The recent graduate of the Tokyo Institute of Science soon became frustrated with his company's reliance on technology imported from Europe and the United States. Odaira used his engineering skills to build small five-horsepower electric motors that rivaled the imports in quality and durability. His employer soon became his first, and--for a few years--only customer.

While Odaira's motors worked efficiently for the copper mine he had trouble selling them to other Japanese firms. It was not until the outbreak of World War I that he was able to gain some large customers. A major power company found that, because of the war, it could not obtain the three large turbines it had ordered from Germany and was forced to turn to Hitachi in the absence of a better alternative. Odaira made the most of his opportunity, delivering the 10,000 h.p. generators in five months. Impressed with his work, the power company soon ordered more equipment. Soon other corporations came to Odaira for help in improving their industrial capabilities.

Odaira incorporated his company in 1920 and named it for the town of Hitachi, where he had made his first sale. True to the company name, which means "rising sun," Odaira's success increased rapidly in the interwar era. In the 1920s Hitachi expanded its operations to meet the growing demand of Japan's burgeoning industrial economy. Through the acquisition of other companies, Hitachi became the nation's largest manufacturer of pumps, blowers, and other mechanical equipment. The company also became involved in metal working and began manufacturing copper cable and rolling stock. These developments served to consolidate Hitachi's ability to build and supply a major manufacturer without outside help. In 1924 it also built Japan's first electric locomotive.

The ascendancy of the Japanese military government in the 1930s forced some changes at Hitachi. Although Odaira struggled to maintain corporate independence, his company was nonetheless pressured into manufacturing war material, including radar and sonar equipment for the Imperial Navy. Odaira, however, was successful in preventing Hitachi from manufacturing actual weapons.

The Second World War and its aftermath devastated the company. Many of its factories were destroyed by Allied bombing raids, and after the war, American occupational forces tried to disband Hitachi altogether. Founder Odaira was removed from the company. Nevertheless, as a result of three years of negotiations, Hitachi was permitted to maintain all but 19 of its manufacturing plants. The cost of such a production shutdown proved prohibitive, but was compounded by a three month labor strike in 1950, which severely hindered Hitachi's reconstruction efforts. Only the Korean War saved the company from complete collapse. Hitachi and many other struggling Japanese industrial firms benefitted from defense contracts offered by the American military.

During the 1950s Chikara Kurata, who had succeeded Odaira as president of Hitachi, directed the company into an era of market expansion. Anticipating the future of electronic engineering, he established technology exchanges with General Electric and RCA. He also initiated a number of licensing agreements which allowed Hitachi to compete, through affiliates, in the worldwide market. In the 1960s the firm also began marketing consumer goods, introducing its own brand of household appliances and entertainment equipment.

Perhaps Hitachi's most important decision, however, was investing in computer research. In 1957 Hitachi built its first computer and entered into the high-tech age. During the 1960s Hitachi developed Japan's first on-line computer system, and emerged as the world's largest producer of analog computers, which are used in scientific research to compile complex statistical data.

Despite its technical advances, Hitachi and most other Japanese electronics companies still lagged behind U.S.-based International Business Machines Corporation (IBM). The Japanese Ministry of International Trade and Industry took direct action to narrow the gap and make Japan competitive. It funded a cooperative research and development effort which involved most of Japan's major technical firms. Hitachi benefitted greatly from this program, and ended its overseas policy of non-confrontation. From that point forward, the high-tech competition between America and Japan, and between IBM and Hitachi in particular, was under way. In the 1970s Hitachi developed and launched what were then known as "plug compatible mainframes." These "clones" cost less than but were compatible with IBM's machines, which set the industry standard.

Hitachi has long been recognized for its ability to adapt to changing economic conditions. Its flexibility was especially evident during the 1974 OPEC oil crisis that devastated Japan (which imports nearly 95 percent of its energy) and its industrial sector. Drastic cost-cutting measures were taken to keep the firm financially solvent, and company executives voluntarily took 15 percent pay-cuts. Following 1975, when the company had its first disappointing fiscal year, sales and profits at Hitachi began to increase dramatically.

Hitachi was working hard--many would say too hard&mdashø transform itself into the IBM of Asia in the 1980s. In July of 1982, Hitachi and 11 of its employees were indicted on charges of commercial bribery and theft. Apparently some employees at Hitachi had been stealing confidential design secrets from IBM so as not to lose ground in the intense race for technological superiority. The FBI and the U.S. Justice Department arranged an operation which caught Hitachi employees paying for IBM documents.

Penalties for the offense were, on the surface, quite light. Hitachi was fined US$24,000 and only two employees were given jail sentences. The negative publicity caused by the scandal damaged Hitachi considerably, however. News of the trial appeared just as the company was beginning a full-scale marketing campaign for its products in the United States. Many American companies canceled their orders or refused to receive shipments. A civil suit brought by IBM won the American company at least US$24 million in annual royalty payments over the ensuing eight years and the right to examine Hitachi's new software releases for five of those years.

Hitachi recovered from this unfortunate set of circumstances, but soon faced other problems. Marketing had always been the company's weakest department, seriously hampering its competitiveness abroad. For many years, Hitachi's products were sold under competitors' names, thereby undermining the company's brand recognition. In 1986, profits dropped for the first time in a decade, down 29 percent from 1985 to US$884 million. Part of the decline could be attributed to external market factors: the strong yen made Hitachi's products comparatively more expensive; a global decline in semiconductor sales hamstrung that industry; and competition from low-cost manufacturers in Korea and Taiwan put a squeeze on profit margins. But Hitachi's sliding profits were also attributable to its concentration in mature and slow-growth markets. Its two largest sectors, industrial equipment and consumer products, were not all that promising: the conglomerate's large industrial customers had cut back on orders, and lackluster marketing efforts made Hitachi virtually indiscernible from the plethora of consumer electronics brands. The company was simply not positioned to enter into fast-growing markets.

To deal with these problems, Hitachi president Katsushige Mita sought to change the company's approach to its business. "We cannot live with tradition alone," he said. "I have to make Hitachi a more modern company." To this end, Mita reorganized Hitachi's operations and instituted new business strategies in the mid-1980s. Cost-cutting measures like increased automation helped reduce labor expenses and helped the corporation compete more effectively with its rivals in Southeast Asia. The transfer of production to other countries helped diffuse fluctuations in the exchange rate. The 1989 purchase of a controlling interest in National Advanced Systems (NAS), an American distributor of mainframe computers, helped shore up Hitachi's sales efforts in that important market. The subsidiary, renamed Hitachi Data Systems, hoped to challenge segment leaders IBM and Amdahl Corp. with machines that ran 20 percent faster than their competitors.

Increased investments in research and development helped the company stay in the technological vanguard, especially in semiconductors, consumer electronics, and computers. With the support of the Japanese government, Hitachi and its domestic competitors formed a research and development alliance known as the Very Large Scale Integration (VLSI) Project. The joint effort proved very fruitful, enabling Hitachi to stay one technological step ahead of its overseas competitors, continuously developing semiconductors with ever-higher memory capacity. By the early 1990s, Hitachi's R&D expenditures amounted to six percent of all corporate R&D spending in Japan. It also ranked as that country's top patent holder, and was even a contender for that standing in the United States.

However, technical superiority proved insufficient for the company; it also sought market share dominance. A 1985 memo leaked to the public revealed what American competitors had suspected: Hitachi was "dumping" its semiconductors on overseas markets. Dumping, selling goods in foreign markets at significantly lower prices than those set in domestic markets, is an anti-competitive practice. Once again, the company faced the wrath of the U.S. government.

An apparently contrite Hitachi charted a new, more cooperative course in the late 1980s. In 1988, it formed a trend-setting venture with Texas Instruments to jointly develop a 16-megabyte dynamic random access memory (DRAM) chip. In the early 1990s, Hitachi formed alliances with Hewlett-Packard, TRW, and even long-time rival IBM.

Still, Hitachi was unable to parlay its technological leadership into earnings growth: while the conglomerate's sales were essentially flat at around ¥7 trillion from 1991 to 1994, its profits dropped over 71 percent, from ¥230 billion to ¥65 billion. In 1990, President Mita announced a reorganization that focused, in part, on transforming the conservative corporate culture that some observers blamed for Hitachi's declining earnings. The leader shifted the company's primary emphasis from heavy industrial equipment to information systems. Organizational changes focused on the dismantling of a "plant profit center" scheme. Sometimes known as just "pc," this system integrated production, quality, and cost control as well as product design and planning within each factory. The new plan reorganized some divisions into autonomous operations and hoped thereby to emphasize consumer demands over production requirements. Pay freezes and cuts of up to 15 percent for white-collar workers were also instituted.

Although these efforts had yet to bear fruit, Mita (who had advanced to chairman) expressed his confidence that Hitachi would be well-prepared to capitalize on Japan's economic recovery and reverse its downward profits spiral in the middle and late 1990s.

Principal Subsidiaries: Babcock-Hitachi K.K.; Chuo Shoji, Ltd.; Hitachi Air Conditioning & Refrigeration Co., Ltd.; Hitachi America Ltd.; Hitachi Asia Pte. Ltd.; Hitachi Australia Ltd.; Hitachi Auto Systems Co., Ltd.; Hitachi Automotive Products (U.S.), Inc.; Hitachi Building Systems Engineering and Service Co., Ltd.; Hitachi Building Systems Sales (East) Co., Ltd.; Hitachi Cable, Ltd.; Hitachi Chemical Co., Ltd.; Hitachi Computer Products (Europe) S.A.; Hitachi Construction Machinery Co., Ltd.; Hitachi Consumer Products (America), Inc.; Hitachi Consumer Products (U.K.) Ltd.; Hitachi Consumer Products (S) Pte. Ltd.; Hitachi Credit Corporation; Hitachi Data Systems Holding Corp.; Hitachi Denshi, Ltd.; Hitachi Electronic Components Sales Co., Ltd.; Hitachi Electronic Devices (USA), Inc.; Hitachi Electronic Devices (Singapore) Pte. Ltd.; Hitachi Electronic Products (Malaysia) Sdn. Bhd.; Hitachi Electronics Engineering Co., Ltd.; Hitachi Electronics Service Co., Ltd.; Hitachi Engineering & Services Co., Ltd.; Hitachi Engineering Co., Ltd.; Hitachi Europe Ltd.; Hitachi Hokkai Semiconductor, Ltd.; Hitachi Home Electronics (America), Inc.; Hitachi Hometec, Ltd.; Hitachi Information Systems, Ltd.; Hitachi Keisho, Ltd.; Hitachi Kiden Kogyo, Ltd.; Hitachi Life Corporation; Hitachi Micro Devices, Ltd.; Hitachi Lighting, Ltd.; Hitachi Maxell, Ltd.; Hitachi Medical Corporation; Hitachi Metals, Ltd.; Hitachi Mizusawa Electronics Co., Ltd.; Hitachi Plant Engineering & Construction Co., Ltd.; Hitachi Printing Co., Ltd.; Hitachi Sales Corporation; Hitachi Seiko, Ltd.; Hitachi Semiconductor (America), Inc.; Hitachi Semiconductor (Europe) GmbH; Hitachi Semiconductor (Malaysia) Sdn Bhd.; Hitachi Service & Engineering (East) Ltd.; Hitachi Service & Engineering (West) Ltd.; Hitachi Setsubi Engineering Co., Ltd.; Hitachi Software Engineering Co., Ltd.; Hitachi Techno Engineering Co., Ltd.; Hitachi Telecom Technologies, Ltd.; Hitachi Tohbu Semiconductor, Ltd.; Hitachi Tokyo Electronics Co., Ltd.; Hitachi Transport System, Ltd.; Japan Servo Co., Ltd.; Nissei Sangyo Co., Ltd.; Taiwan Hitachi Co., Ltd. The company also lists operations in: Argentina, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Costa Rica, Cura&ccedil, Denmark, Finland, France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Luxembourg, Mexico, Morocco, Netherlands, Norway, Panama, Philippines, Singapore, Spain, Switzerland, Thailand, and Venezuela.