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Moving Japan-U.S. relationship forward

Interview - September 22, 2015

Globus Vision sits down with Mr. Kunio Noji, CEO of Japan’s Komatsu Ltd. Industry, who offers his insight into his company’s current situation and the opportunities for international expansion and growth


Japan is truly going through an exciting time at the moment. In a period of global economic uncertainty, Prime Minister Shinzo Abe has launched several interesting reforms, known as Abenomics, which are jump-starting the economy. I would like to know how you feel this is affecting the private sector, specifically the construction machinery sector and your company Komatsu.

Mr. Abe is introducing deregulation and a number of financial reforms, and also in terms of promoting global competitiveness there has been quite a lot of change in the exchange rate. Hence, I think that even though 20% of our sales are focused on the domestic front, Abenomics has had quite a strong influence on us. I think that right now, in the construction machinery sectors, mostly Japan and the US are benefiting from the effects of Abenomics and unfortunately, countries in Asia, like China, are not seeing the reverberation here as much. However, other sectors in Japan, not just the construction industry but sectors such as the automotive industry, are benefiting from Abenomics.

United States President Barack Obama recently got the fast-track approval to move forward with the Trans-Pacific Partnership (TPP). The 12 countries that will be signing it will comprise up to 40% of the world’s GDP and a third of the world’s trade. What opportunities do you see in this new environment for Komatsu, not only in the US, where you have a lot of business, but also with the rest of the Asia-Pacific region?

We do a lot of business in Chile and in Asia as well, so I think there are going to be big opportunities for us and I would like them underway. For example, we are working closely with GE on a variety of fronts in mines in Australia. Also, we develop Autonomous Haulage System (AHS) for mining, and in terms of developments like this, I think Japan is a technological leader in this field but we are working in the US, which also has a strong development. We are working closely together with two other subsidiaries to move forward with this technology for AHS. Komatsu is involved in many projects in other parts of the world as well.

The US is far ahead in terms of ICT so we are using some of the US technology, but we are stronger in the mechanical aspect so together we are developing new products and we are creating business models that will draw new customers. I think that we already have a fairly borderless global economy, but that under the TPP there are going to be even more collaborative projects and that it is going to open up things worldwide. 

Regarding this, Komatsu has been developing this kind of business model for years, consisting on a collaborative approach and the exchange of expertise, technology and know-how. Do you think that the role that companies such as yours play in the Japanese economy has somehow promoted reforms such as the TPP, Abenomics or this kind of national and international boosts that we are seeing right now? Do you see yourself as the spearhead of that?

I do think that we have played a strong role in innovation. We were among the first to promote open innovation, so I think that our role has been to facilitate the TPP and collaborative development. For example, in the dump trucks that we are supplying in Australia, we worked with an Australian company to develop those collaboratively.

I think that the TPP will promote free trade, and also help to solve issues like intellectual property. I think that through our business approach we have played a strong role in moving the TPP forward. We are in an age now that is quite different from other times. Before, products were manufactured in Japan and then exported overseas. We are now shifting much more to local production, where we make the products in the country where they are going to be sold, and companies worldwide are working much more together on a collaborative basis than they used to. 

For instance, your work with the Adani Mining Company and numerous projects that you are beginning throughout the world, like the excavator plant in India. What is attracting these firms to Komatsu and what separates Komatsu from your competitors?

Our thinking is that if we are going to sell something in India, we should make it in India and that if we are going to sell it in the US, we should make in the US. Therefore, we should have plants in the local area where we are going to market the products and it will generate a lot of employment in this area as a result. It has to be a win-win situation for both sides. However, we do take some of the crucial parts from Japan, such as the engines. If we want to get the Komatsu brand name really known and we want to keep it going in the long term, I think we have to create a win-win situation with the people in other countries. It is not our policy to do something just because it is good for Japan. We have a formal policy at Komatsu and we operate within that framework.

In addition to your work at Komatsu, you also sit on the board of the Japan-US Business Council. Regarding our discussion on the relationships between these countries, I would like to know what future you see for collaboration in this area between Japan and the United States. 

I think that it is going to be different in each time period, but what I see is that taking the strong areas of the US and the strong areas of Japan and putting them together to create new value is going to push economic growth. Regarding the current issues, we expect and also boost TPP to solve the problems by addressing such as deregulation. 

We have an energy problem too and we have the carbon dioxide emissions, which are causing severe environmental problems. There exists the determination to reduce those as much as possible, so I think that worldwide it is going to take cutting-edge technology to achieve those reduction goals and that is an urgent issue that we need to address quickly. The US and Japan already have quite a lot of  state-of-the-art technology in the energy field and I think that through the TPP, we will be able to get our technology out to the other countries signing the agreement quickly so that we can start working with them on these issues.

The TPP is also addressing agriculture, which is an area where Japan is not rated as being terribly competitive. However, the Abe administration has been initiating a number of agricultural reforms and I think that the TPP is going to provide a chance for us. Furthermore, in reacting to external pressure we are going to see our agricultural field changing quite a lot. I consider that pressure from external sources is very important in driving our progress. Komatsu was involved in this kind of pressure a long time ago when our competitor Caterpillar entered Japanese market, before I was at the company, and even now we have this competitor who drives us to produce better technology, so external pressure is very important in our experience because by being pushed through competition both sides move forward. 

In an interview with Mr. Ishihara, from the Japan-US Business Council, he said that the TPP is like a board game where each player decides how much he wants to bet, and in terms of communication, it is similar as well. Japan has been going through a stagnation period that has created a negative perception about the Japanese business sector. The general perception is that the private sector is closing itself to internationalization, to modernization, to going abroad and closing new partnerships. Do you believe that this is affecting your company in particular or just the economy in general?

A big portion of our sales has come from overseas; as I said now 80% of sales come from our overseas operations. Hence, we have always been strongly involved in the overseas operations and in open innovation in terms of technology, and for the last ten years we have been promoting open innovation. Then, I do not really see our company as being closed.

However, unfortunately, there are some companies who have a large market in and they have been very successful in Japan, so they have been reluctant to develop overseas. Nevertheless, I think that in the last three or four years we have seen big changes, as those companies are moving in the direction of overseas development. From the construction machinery sector, the market in Japan has been shrinking steadily so we had to go overseas to survive, but there are companies that have a very large market in Japan so they can afford to take a more closed stance.

As I said before, competition really forces you and forces the engineers and the companies into new growth, so I think that through free trade and the TPP, we are going to see a lot of new growth opening up. Until ten years ago, Komatsu was very self-focused too and we wanted to do everything on our own, but that has been changing a lot during the last ten years as we have been moving very strongly in the direction of open innovation. 

As you move in this open innovation worldwide, do you see yourself and your company as a representation of Japan itself and Japanese innovation and creativity?

In terms of open innovation, I do not want to break my arm patting myself on the back but I do think that we are a step ahead. Last year, in October, I was in Silicon Valley and I met John Roos, who was US ambassador to Japan before Caroline Kennedy, I had dinner with him and he was talking about the drones from Sky Catch INC. That kind of technology, which was just coming in at the time, it is now taking off. As president of Sky Catch INC., Christian Sanz often comes to Japan and he has been a very strong supporter until now. That was just last October, so in just 7 or 8 months the speed at which we have taken this and developed it has been amazing. 

With some of our interviewees, what we have discovered is that they are worried about their country. Even if all these developments are real, somehow the investors, the international community and the consumers are approaching different markets that are working more in terms of marketing their achievements in technology and innovation, such as South Korea or China. Do you believe that Japan is working at his best on marketing all these strengths as much as South Korea or China are doing in order to attract the eyes of investors?

Yes, it is true that Japan is weak in the marketing area. However, marketing approach in Komatsu, we do marketing through the local people, so in terms of marketing in Asia, we have a team in Asia that handles marketing. In China, it is done by Chinese and in the US it is done by Americans, and that goes for every country or region. Chile, the president of the affiliated company is getting involved in our. He was an engineer in the mining industry in Chile who has now become a president of our company and is doing everything he can. Then, there is nothing left for the Japanese to do marketing. 

What about Komatsu's Japanese identity? How are you developing that? How do you export the Japanese virtues and what they can offer to the world and align it to your corporate philosophy?

We have a book that describes our philosophy and our values, it is called The Komatsu Way, which we present to top management worldwide and we explain what our values and what our philosophy is. We emphasize to them that they need to observe our philosophy. Let me give you just one example; about five years ago, there was a big earthquake in Chile and at the time the president of our affiliated company telephoned me and said that we needed to help the people there, so he asked if we could contribute with 1 or 2 million dollars to help people. We obviously agreed with him, as we state in our Komatsu Way that our sales and our profits are strongly tied to playing a role in society and to all stake holders. Our president in Chile understood the Komatsu Way and he was able to come to me and said that we needed to act.

We also teach management personnel that, for example, when we are manufacturing in another country, we should try to procure parts locally and it has to be a situation in which both us and the supplier profit, so we teach our management people that it has to be a win-win situation for both sides. We have a number of other values like those, and we make sure that we communicate them to our top managerial people overseas and that they absolutely observe them.

You also take a great part in supporting your own community as well through CSR initiatives. You have helped in earthquake-relief in Japan and you were involved in helping the development of the Sciences among the Japanese youth. Why are such CSR campaigns not only important to your corporate culture but also for the virtues of Japanese giving back to society?

We believe that our corporate value is the sum total of the trust given to us by all our stakeholders and society, and if we do not have the trust of our stakeholders, we cannot move forward. Having the trust of our stakeholders is what gives our company its value. Apart from obviously contributing when there is an earthquake or a disaster in Japan, right now we are hoping that we can play even a small role in making agriculture and forestry more competitive. Or, with the problem of demographics and the fall in the birth rate in Japan, we believe that more local communities outside of Tokyo are better places to raise children. Then, we have a plant in Ishikawa prefecture, where the birth rate is close to 2 among our female married employees, while in Tokyo the rate is close to 0.7. Then, we are trying to have more of our employees shift out of Tokyo and go to these regional communities where it is easier to raise children. 

What message would you like most to communicate to international businesses and the political community?

I think that in terms of economics or any other field, if we have this borderless society that we are evolving towards, a key is going to be sustainable growth as we are not going to make people happy by just looking at the short term. For example, right now, only 3% to 5% of our sales are in Africa but that is absolutely going to increase in the future to around 10%.  Our strategy right now for Africa is to be independent and to achieve growth by themselves, so we are working hard in terms of educating human resources, so that Africa will become self-sustaining and will be able to achieve that kind of growth.

To have sustainable growth, each side has to be satisfied with the business. We cannot just look at the short-term profits. We have to make sure that we are looking at the long run in order to create sustainable growth. Globally as well, when you look at each individual country, Top management need to come up with ways that will create win-win situations for both sides, so we are trying to train our regional Top management to see both sides and make sure that the business is profitable for both of them.

For everything we are selling in the US right now, we produce in the US plants. We have American and Japanese engineers working together and that has helped the Komatsu brand take route in the US. If you do that, you can get sustainability. I think that if you concentrate only on the short-term profits or on what is going be good for the Japanese side, it is not going to work. You have to be willing to give up a certain amount and to stick with it to make it work. Like I said earlier, in Africa the most important thing for us right now is to educate service engineers. We are now building a new service training center for them; we are focusing on educating service engineers in Africa because those service engineers are going to grow and they may work for Komatsu or may buy Komatsu products in the future, so making this kind of investments feeds back into the business. We consider that crucial and I cannot emphasize how important that is.

When China was in the period of high growth, we focused on universities, and we created Komatsu courses there and we cultivated service engineers who may get a job in our distributors in the future, creating thousands of them. Right now, we are working with people in emerging countries to get to forge business-academia collaboration for example in Indonesia. By doing things like that, we get the Komatsu brand to take route in those countries. Similarly, other countries have good resources and good ideas, so throughout our collaborative work we have access to them.

In addition, companies obviously have to compete. We are always competing with Caterpillar, and in that sense Caterpillar is a very good partner for us. By good partners with us, I mean that they are good competitors as they drive us to improve. Caterpillar is not just out for profits, they have a very reasonably oriented sales strategy, which is one thing that makes them such a good partner for us. That is why I met with the Top management in the US companies twice or three times a year, to understand what US management is doing and by doing that we get to know each other and I have learnt so much from them. If we just shut ourselves off in Japan we will not understand how Americans think. We talked about values and we got to understand each other, so it gives us a new depth in our direction. I gained better understanding of how Americans think, and not just Americans but whatever country it happens to be.