CASE 3 KOMATSU

1921—Komatsu established-- two important perspectives- and “overseas orientation”

and a “ user Orientation”
1922—acquired electric furnace to produce steel castings
1931—product differentiation
War time—Komatsu was a major producer of bulldozers and tanks for Japan
Post war, the company went into industrial EME market.

Komatsu set up its own distribution network with branch sales offices and small
repair shops as service agents. Due to this their service was poor compared to other
firms in the market.
1985- Komatsu eating up Cats market share
Cat will obviously fight back and defend its share against Komatsu’s offensive.
Changes in the mining industry – shift to developed countries because of the
instability in developing countries. This was compounded by the discovery of new
sources of minerals in developed countries.
Market share of Komatsu has grown from 10.3% in 1971 to 25% in 1984

Komatsu went into a drive to improve it’s products with a Total Quality Control
programme.
In 1964, Project A was initiated to upgrade the smaller and mid sized bulldozers
This was done with a view to take on the products of Cat-Mitsubishi ( Komatsu
increased its market share by15%), as well as to improve the operations of its
products. This move resulted in a drastic decrease in warranty claims.

Strategy:

The domestic construction industry was leveling off in the 1970a. Komatsu
recognized this trend in the market and decided to aggressively expand abroad. The
expansion started in Argentina, and then targeted Eastern European nations. Komatsu
used its ties with other Japanese firms to discover upcoming projects in foreign
markets.

Price:
Komatsu had products that were priced 30-40% below corresponding Cat products.
This enabled it to compete with Cat in its own backyard. This also lead to Komatsu
increasing its market share very rapidly.

Product Development:
Project A helped upgrade small and medium sized bulldozers.
In the 1970s greater attention was given to basic research and product development.
The product line offered by Komatsu was increased to compete more effectively with
Cat which had more than 120 different products.
Customised product lined were launched with focus on particular markets that had
needs that were very different from those in the home market( Japan)
By 1982, Komatsu had 4 separate labs that specialized in product design, engineering
and electronic applications.
A joint research agreement with Cummins Engine led to sharing of information on
diesel equipment including heat pumps.

Distribution:
Komatsu had a marketing subsidiary in Europe to handle its distribution and provision
of field service. This was part of its Geocentric strategy.
Komatsu had no well established sales and service system, so it signed up dealers and
maintained an extensive parts inventory with them. This increased the inventory that
Komatsu had to maintain. Any upgrades in a product or a spare part would require
larger reverse logistics operations which would be more expensive for Komatsu.
Komatsu handled its service and sales itself till it could sign up dealers.
The firm also started developing its exclusive dealer network in some large LDCs
where it saw possibilities of future expansion.

Promotion
Komatsu implemented a system of presales service that provided assistance to its
clients especially in LDCs. This system offered free of cost services to potential
customers
Apart from this , Komatsu indulged in extensive advertising campaigns in specialist
trade magazines stressing on its product reliability and its full-line capability.
Management by policy system:
The plan is created , executed, results are checked and new actions are planned
Basic policy and target is specified so the staff know what is expected

Increased labour productivity to 15.2% compared to 10.6% at Cat.

Yet the wages earned by Komatsu employees is only 55% of that earned by Cat
employees. This low cost, highly productive work force was one of Komatsu’s key
assets.

Other Strategy:

Komatsu also had a programme called EPOCHS that encouraged the spirit of TQC
and emphasized the link between user needs which were known to the marketing
department, and product development which was carried out by the R&D department.

Alliances:
1. Alliance with the Russians
2. Cummins- for product innovation

Buyout of IH

Reccomendations:

Komatsu is competing with a giant in the EME industry, that is Caterpillar.

Cat has an extensive dealer network and can provide better service to its clients. If
Komatsu wants to compete with Cat, there is a great need for it to improve its
distribution and service network.

Problems:

Legal case- Dumping in Europe

Possibility of Countervailing Duty imposition by the EEC
High cost of shipping heavy equipment around the world
Licensing agreements curtailed export efforts in some new product areas. Hence
Komatsu focused its R&D efforts in the domestic market.