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Competing for the Future: Komatsu and Home Depot
Komatsu is now one of the leading earth moving equipment manufacturers in the world, however, it wasn't always so. Komatsu began in 1921, as a specialized manufacturer of mining equipment. Yet, even in those early years, before information technology began to eliminate geographical and cultural borders, Mr. Takeuchi, Komatsu's founder, had a globalized and customer-centric vision. He knew it was important for his management team to have "an 'overseas orientation' and a 'user orientation'" (Hamal & Prahalad 3) if they were to compete against much larger corporations.
Komatsu has managed to grow from these very modest beginnings to a multi-billion dollar industry-leading competitor, in only two generations.
It this success has been fraught with challenges. From intensified local competition when American companies were allowed to partner with Japanese companies for joint ventures in Japan, to technological weaknesses in their product line, to recessive economies and a mature local marketplace, Komatsu has weathered many storms. However, perhaps this is the source of Komatsu's success.
Despite what challenges Komatsu is presented with, they have been able to overcome them, taking threats and turning them into opportunities. In the late 1950s, a young Komatsu organization was profiting from the reconstruction of postwar Japan. They thrived in a tariff-sheltered market, despite the poor quality of their machinery and customer unhappiness. It would be in 1963, when the Japanese Ministry of International Trade and Investment made the decision to open up the earth moving equipment industry to foreign capital investment that Komatsu realized they could no longer due business as they had for the previous 40 years (Hamal & Prahalad 4).
With the threat of a Mitsubishi-Cat joint venture entering into Komatsu's homeland territory, Komatsu's president, Yashinari Kawai, knew he had to make changes and make them quickly. A two-year delay allowed for Komatsu to change their operations from status quo to operation critical. Komatsu began to acquire the technology necessary to compete with international companies, in addition to improving product quality. Quality and competitiveness would be the driving force in the company from that point forward.
It is this type of response to adversity that has made Komatsu successful. Even during economic recessions, Komatsu has been able to utilize this threat to their advantage. During the early 1980s, a time when many companies were experiencing cash flow shortages, Komatsu used this to their advantage and bought back the half percent interest International Harvester had in its business, eliminating one of the final restrictions that was holding them back from competing fully in the American market (Hamal & Prahalad 8)
Turning negatives into positives, concentrating on product quality and production efficiency, and industry foresight have all allowed Komatsu to challenge Caterpillar for industry leadership when so many other companies have failed, some of which were much larger than Komatsu. Caterpillar earned their industry leadership position. They have consistently provided a high quality product backed with levels of customer service that were unmatched in the industry. This powerful combination, coupled with a strategic global network of support centers, allowed Caterpillar to control the earth moving equipment industry for decades. Yet, they failed to have the foresight necessary to ward off the emerging Komatsu threat.
Caterpillar did not respond effectively to the external environment changes that were taking place after the boom of the 1970s. "The substantial capacity built during the more prosperous years of the late 1970s far exceeded industry demand" (Hamal & Prahalad 2). The decreased demand meant increased competition for Caterpillar, competition that began to become more dependent on pricing then reputation. Komatsu held the advantage of offering a high quality product, but because of reduced labor costs, reduced material costs and production efficiencies, were able to offer it at a reduced price point.
Internal challenges added to Caterpillar's weakening state. Their labor relations were crumbling in the face of needed cutbacks. Strong-armed by the UAW, Caterpillar was unable to make the cuts necessary to remain profitable in the early 1980s and instead was forced to shut down several plants and lay off thousands of workers (Hamal & Prahalad 3). Again, Komatsu was able to capitalize on their lower labor costs plus employee dedication to the company to produce a more competitive product.
Product line, customer service, and reputation were the only three areas holding Komatsu back from garnering the coveted spot of industry leader. It was their strides to strengthen these areas of their business that perhaps the final aspect of why Komatsu has succeeded in challenging Caterpillar where others have not. Komatsu has spent sizeable portions of their budget on R&D, developing their product line to become a full service equipment manufacturer. They have instituted service policies and partnered with local businesses to make certain that should a customer have a problem with a piece of machinery, that it will be repaired as quickly as possible. And, Komatsu actively marketed their product line through trade magazines and by offering free consultative services to clients, enhancing their reputation.
However, Komatsu is still subject to changing environmental forces and industry changes when it comes to competing with Caterpillar. From economic instability to political upheaval, Komatsu must be prepared for worst-case scenarios.
The centralization of their operations in Japan is especially susceptible to these external forces, along with material pricing and competition from new organizations entering the marketplace. In addition, internal forces, such as labor demands, will continue to figure into their competitiveness.
Komatsu has several options available to it for the future. It could simply continue to do business as it has been for the last several decades. This has the advantage of utilizing current systems that are in place and appears to be working for them at the moment. However, this is typically an ineffective strategy. "When pushed on the point, managers will readily concede that success today doesn't guarantee success tomorrow; yet their behavior often seems to rest on an implicit assumption that the future will be, more or less, a replay of the past" (Hamal & Prahalad 84). Komatsu must not fall into this trap.
Komatsu could completely leave the earth moving equipment industry, selling off its business to one of the other large corporations, perhaps even Caterpillar. This would allow Komatsu to enter another industry, or divert funds to one they have already entered, in which there is more growth potential. However, given there success and considerable market share, it may not be appropriate to leave the cash cow that is the earth moving equipment industry for them.
The final strategy is for Komatsu to continue to analyze the industry and utilize industry foresight to determine the most competitive strategies in the future, and is recommended. Komatsu must continue their track record of seeing opportunities that other organizations have not seen and then exploit these opportunities, "by virtue of preemptive and consistent capability-building, that other companies can't" (Hamal & Prahalad 85). This includes analyzing consumer trends, advancements in technology, global demographics, and geopolitics (89).
Innovation must continue to be a part of Komatsu's repertoire, however it will not come solely from their R&D department. "What is needed are not just skunk works and intrapreneurs, but senior managers who can escape the orthodoxies of the corporation's current 'concept of self'" (Hamal & Prahalad 87). Komatsu's management must be fully committed to innovation, just as they are to quality improvement. With this philosophy in place, they are certain to continue to garner valuable market share in an industry that is fiercely competitive.
Home Depot is an example of an organization that has been able to successfully implement corporate strategies to foster growth. They know that complacent is not something an industry leader can be.
For 2004, Home Depot planned on investing $3.4 billion in store renovations, technology improvements, and new store construction to further…[continue]
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