NKK Corporation History

Company Perspectives:

More than eight decades ago, NKK was established as Japan's first privately owned steelmaker. That initiative was the beginning of a continuing record of diversification and innovation. Since then, we have brought our efforts and expertise to developing technologies, ways of living and our corporate community. Today this momentum is leading us into uncharted fields and new relationships.

Company History:

NKK Corporation is one of the world's largest steelmakers and Japan's second largest. In addition to steelmaking, the company is active in engineering, urban development, and electronics. NKK's engineering sector is involved in designing and building such projects as pipelines, power plants, water supply and sewage treatment systems, bridges, ships, and offshore structures. The urban development unit designs and constructs condominiums, office buildings, amusement parks, golf courses, and other facilities. The electronics group develops automation design systems, advanced computer software, and integrated circuits, as well as computers.

Early History

In Japan, as in other areas of the world, the growth of the steelmaking industry has often been associated with the needs created by warfare. From ancient times, the Chinese had forged weapons from iron-bearing stones by heating them in charcoal fires. By the sixth century A.D., when Chinese technology and cultural influences began to be adopted in Japan, processes were being developed to prolong and heighten the heating of iron ore and to remove impurities. By medieval times, Japanese steelmaking had become a high art. Knights wore loose armor made of three- or four-inch pieces of thin steel, linked by colorful thongs. The knights took particular pride in their exquisitely designed, long, curved, laminated steel swords. The swords, reportedly the finest in the world, were in particular demand throughout east Asia, and thousands were exported.

Japan's supply of iron ore was poor. While steelmaking technology developed rapidly in the iron-rich countries of Europe and the United States, Japan's steelmaking stagnated. With the waning of knighthood, and Japan's virtual isolation from the rest of the world during the Tokugawa shogunate, little steel was made.

During the 19th century, the Tokugawa shogun gradually lost control over Japanese commercial interests. Although the surface aspects of Japanese life appeared to be as firmly in place as they had been throughout the shogun's rule, discontent with the limitations imposed by the government began to escalate.

Disenchanted with the Tokugawa shogun, many of the people began to become optimistic about their prospects under a restoration of imperial rule. The presumptive heir to the throne promised progress in "catching up" with the rest of the world--economically, technologically, and culturally. Upon assuming the throne in 1868, the new Meiji emperor proceeded to do just that. Actually, the reforms were not so much the work of the individual on the throne as they were the work of a group of young men--fewer than 100--who supported the regime as an opportunity to introduce Western-style efficiencies and power into Japan. Educated abroad, they had a vision of a stronger Japan that could result from applying Western technologies and political and cultural concepts to the economic and other problems the Japanese people faced. That vision became a reality as Japan became the first Asian nation to achieve world power status through the use of Western concepts.

Japan's economic problems had arisen through the inefficiency and corruption that had gradually crept into industries the Tokugawa shogunate owned. The supporters of a return to imperial rule under a progressive Meiji regime were sometimes referred to as an oligarchy of commercial and political interests as they gathered power to influence government decision-making. They were credited with persuading the government to sell its factories to private individuals and groups. Eventually only the manufacture of munitions remained under the government's direct ownership.

By 1881 new shipyards were operating under private ownership. Government support of the shipyards, provided through subsidies and the awarding of contracts, cushioned the early years, but strict regulation of business and industry was enforced from the start.

The need for iron and steel to support a military and naval buildup heightened as Japan waged war with China in 1894 and 1895. The shipbuilding industry, for example, was hampered by the fact that most of Japan's iron and almost all of its steel had to be imported. In 1896 the government decided to establish an iron and steel industry. The Yawata works opened in 1901. Processing plants were needed, however, to turn the Yawata works' pig-iron and steel into products that shipbuilders, engineering companies, and other heavy industries required. Pipe, for example, was in increasing demand. As conflicts with Russia and China engendered greater military buildup, and an influx of Japan's population into urban areas created new needs for private housing and public works projects, the demand for pipe, particularly strong steel pipe, grew.

Nippon Kokan K.K. Established in 1912

Conscious of the growing market for pipe, Ganjiro Shiraishi, an independent businessman, began in 1911 to gather the financial support and Western-developed technical expertise to produce what would become an innovation--Japan's first seamless steel pipe. After more than a year of initial research and organizational development, Nippon Kokan K.K. began operations in mid-1912 with ¥2 million in capital. During its first few years, the company was occupied with the complex process of setting up an open-hearth furnace for refining steel scrap and pig iron. The first steel was tapped from that furnace in 1914.

The seamless steel pipe that Nippon Kokan produced proved to be stronger, longer-wearing, and easier to install than pipe parts that had to be fitted and welded together. The market for it grew larger as Japan prepared to enter World War I in 1916, and naval vessels and military installations created new demands. The success of Nippon Kokan's first years led to the opening of a subsidiary in 1917--Electric Iron and Steel.

Along with the other Allied nations that joined forces to defeat Germany in World War I, Japan emerged from the conflict as a victorious world power. This created ties that encouraged international trade. Japan's militarists, who favored future expansion through military aggression and colonialism, began to meet strong opposition from the merchants and manufacturers who favored maintaining peaceful relations and fostering expansion through international trade.

For about a decade, those who favored expansion through international markets prevailed. Both the import and export businesses flourished, as Western fashions, sports, and other novelties captured the public fancy in Japan, and Japanese products became widely sought by other nations.

The domestic market for pipe underwent a sudden surge through a national disaster. The Great Kanto Earthquake, September 1, 1923, leveled half the buildings in Tokyo and most of those in Yokohama. Rebuilding factories and office buildings, private residences, and public buildings took several years--and many miles of pipe. The new buildings, incorporating some of the world's most advanced designs and products, reflected the Western influences popularized through the postwar years.

In 1929, however, a worldwide depression began that brought an abrupt halt to much of the international trade activity that Japan had enjoyed. Japan's militarists began to look toward colonizing areas rich in natural resources as a way of renewing expansion efforts. The nation's population had grown beyond the means of its own resources to provide adequate food and housing.

Manchuria, a disputed territory, became a target, and was annexed to Japan in 1931. Steel products were again in increased demand as plans for further military action called for the buildup of new installations and vessels. To smelt iron directly from ore, Nippon Kokan built a 400-ton blast furnace, completing it in 1937. A 600-ton blast furnace was completed in 1938. Even the fact that Japan was poor in iron ore operated to Nippon Kokan's advantage. Because there was no need to situate its plants near a mountainous source of ore, the plants were located close to Tokyo's waterfront, convenient both for receiving ore from other countries and for efficient shipping of steel products to customers.

Entered Shipbuilding in 1940

Through a merger, Nippon Kokan went into the shipbuilding business in 1940, acquiring the Tsurumi Steelmaking and Shipbuilding Company. As Japan went to war with the United States the following year, plans for a 5,000-ton capacity shipbuilding berth at the company's Shimizu shipyard went forward; the project was completed in 1943. At that time, Ryozo Asano had been in office as Nippon Kokan's president for six months. Until 1945 when bombing raids and the consequent fires destroyed many of Tokyo's buildings and caused the populace to flee, Nippon Kokan's plants were in full operation, supplying many steel products needed in the war effort. Japan's defeat was a shock to many of its citizens who had been told only of its victories; it demoralized many such as Asano, who saw the results of years of concerted effort go up in smoke. He resigned.

Although business was at a standstill for many months as the Supreme Council of the Allied Forces (SCAP) took over governing the country and preparing it for future self-government, Nippon Kokan survived. In April 1946 a new president, Masato Watanabe, began the task of rebuilding the company's facilities and customer base. The constitutional reforms and financial support that SCAP introduced created a new climate for business recovery and growth that helped Nippon Kokan and other businesses progress rapidly.

Along with the legislative and economic aids to recovery of business and industrial facilities and markets came new ideas for improving organization and product quality. In 1950, 45 leading industrialists in Tokyo met with W. Edwards Deming, a U.S. statistician who taught a quality-centered approach to manufacturing involving all employees in decision-making, for continuous improvement and responsiveness to consumer needs. An annual Deming Prize was awarded to the company best exemplifying the success of these methods. Nippon Kokan was the winner in 1958.

Postwar International Expansion

International expansion was already underway. The company acquired an interest in the Ujiminas Steel Works in Brazil in 1957 and, the following year, opened offices in New York. In 1959 Düsseldorf, Germany, became Nippon Kokan's European headquarters. The company was on an ascendant growth curve that was to extend well into the next quarter-century. Offices were opened in Singapore, Los Angeles, and London between 1961 and 1963.

Nippon Kokan K.K. also worked to expand the number of operations within its mills to include the full range of activities from handling ore to production and distribution of a complete product line, in other words to become an integrated steel manufacturing company. The company consolidated a group of works it had acquired in the Mizue area to form the Mizue steel works. In 1963 its engineering and construction division began the first of five successive stages of work at Fukuyama to build the world's largest integrated steel mill. The project was completed in 1973. Another large-scale operation was created in 1968 by consolidating the company's Kawasaki, Tsurumi, and Mizue plants into one entity: the Keihin steel works.

The company continued to expand abroad, acquiring a 62.7 percent interest in the Sermani steel finishing business in Indonesia in 1970, and opening offices in Rio de Janeiro, Brazil, in 1975. A Houston, Texas, office was opened one year later.

At home, the Keihin steel works was expanded between 1975 and 1979 by constructing the world's most modern steelmaking facilities on a man-made island, Ohgishima. Upon completion of the first stage of this project, the Japan Society of Civil Engineering awarded Nippon Kokan K.K. its 1975 Technology Prize.

The company reorganized its divisions in 1979. Initially, the shipbuilding division, including the ten-year-old Tsu shipyard, was combined with the engineering and construction division. The following year, however, a further reorganization of the heavy industries division resulted in a three-division system: energy, heavy industries, and shipbuilding.

Steelmakers in Japan, like those in the United States, faced the problem of maintaining plant efficiency while keeping overhead to a minimum, and using resources effectively to make a profit while meeting worker and consumer expectations. In general, U.S. steelmakers, with older plants to maintain, neglected maintenance needs and the development of new technologies, while the Japanese, though equally cost-conscious, did not. As a result, Japanese steelmakers, such as Nippon Kokan K.K., moved ahead in productivity product quality. Market demand for high-quality raw steel and for steel products was high. By the 1980s, it was evident that Nippon Kokan K.K., among other Japanese steelmakers, held the competitive edge.

Nippon Kokan K.K. had formed joint ventures with companies throughout the world--in the United States and Canada; in Indonesia, Thailand, and Singapore; and in Belgium, Brazil, Saudi Arabia, Nigeria, and Australia. Sachio Hatori, the company's executive vice-president, opposed such

Purchased Interest in National Steel in 1984

Instead, in 1984, Nippon Kokan K.K. purchased a 50 percent interest in National Steel Corporation, the sixth largest steel works in the United States. This purchase provided the opportunity to exert a positive influence on product quality. Although Nippon Kokan sent managerial talent to National Steel's site near Detroit, the company resisted any attempt to diminish the independence of National Steel's operations. The immediate result of the purchase was to double National Steel's annual capital investment to $200 million and to infuse new and advanced technology into the U.S. firm. By 1990 Nippon Kokan K.K. owned 70 percent of National Steel. Although productivity increased, National Steel's profits continued to decline. Nippon Kokan entered into a joint venture with another U.S. company, Martin Marietta Corporation, in 1984, forming the International Light Metals Corporation.

Yoshinari Yamashiro became president of Nippon Kokan K.K. in 1985, a time when fluctuations in the value of the yen and other factors were beginning to flatten the 25-year upward curve of prosperity and profits for many Japanese companies. He introduced a new note of informality and desire for closeness to company operations as he asked employees to address him as they would one another&mdash mister, rather than to use his title.

To cope with problems arising as markets matured and consumer demands changed, the new president initiated a restructuring of the corporation. In 1988 the company name was changed to NKK Corporation, a name that had often been used informally. Divisions were created to reflect the increased diversity of company interests, products, and services. Steelmaking, still the core of the company's business, was strengthened by adding facilities to produce materials and parts for special needs. For example, a continuous galvanizing line at the Keihin and Fukuyama works helped meet high domestic demand for a number of steel products. The reorganization also resulted in converting some of NKK's operating units into subsidiaries.

In 1992 Yamashiro was named chairman of NKK, with Shunkichi Miyoshi promoted from executive vice-president to president. Shunkichi, a metallurgist by training, was the first technical person in the presidential post in company history.

Having already entered the field of electronics in the areas of computer hardware and software, minisupercomputers, and communications network systems, NKK in 1992 began making microchips at a new factory outside Tokyo. NKK thus followed in the footsteps of fellow Japanese steelmakers Kawasaki Steel and Kobe Steel into the world of semiconductors.

1990s Difficulties

Throughout the 1990s NKK was beset by numerous difficulties. Following the collapse of the Japanese financial bubble of the 1980s the Japanese economy entered into a prolonged state of stagnation, at the same time that a strong yen made Japanese imports less desirable. Simultaneously, Japanese steelmakers, like their counterparts in North America, were facing increasing competition from upstart operators of minimills, whose state-of-the-art equipment and minimal workforce requirements resulted in a lower-cost operation. Compounding the situation was falling demand for steel.

To make matters worse, NKK's entrance into the U.S. steel market through National Steel turned nearly disastrous. NKK had poured $2 billion into National Steel by the mid-1990s to modernize the steelmakers outdated facilities, but management difficulties, poor relations with labor, a bloated workforce, and a product line consisting mainly of cheaper steels all contributed to a consistently unprofitable operation. National Steel's losses led in turn to losses at NKK, including net losses of ¥26.79 billion in 1994 and ¥35.37 billion in 1995.

To stem the red ink, NKK aggressively restructured its operations, making a number of moves more typical of a U.S. company rather than one located in Japan. The company steadily cut its workforce, mainly through an early retirement plan, reducing the number of employees from 22,214 in 1994 to 15,613 in 1998. It consolidated its facilities, most notably by combining two of its large-scale steel mills, the Keihin Works and the Fukuyama Works. NKK also sold off some of its noncore assets and reduced its capital spending by one-third. Through these efforts the company returned to profitability from 1996 through 1998.

In mid-1997 Miyoshi became chairman of NKK, while Yoichi Shimogaichi was appointed president, having joined the company in 1958. Shimogaichi almost immediately faced additional difficulties. The Asian financial crisis, which began in 1997, and the subsequent fall of the Japanese economy into recession combined to collapse demand for steel from the automobile and construction sectors to a 30-year low. Japanese steelmakers were also hurt when their export markets were further curtailed following the filing of dumping charges against them by U.S. steelmakers in September 1998 and by the February 1999 U.S. Department of Commerce preliminary ruling that imposed antidumping duties on them. In addition, NKK had to contend with the failure of its minimill affiliate, Toa Steel. With Toa expected to post a pretax loss for the fiscal 1999 year of about ¥25.5 billion (US$184.8 million), the company was forced to liquidate with its assets being taken over by NKK. In late 1998 NKK announced additional workforce cuts of 3,300, or more than 20 percent, which would reduce its workforce to about 12,000. With NKK, as well as other Japanese steelmakers, expected to post a huge loss for the 1999 fiscal year, speculation was rife about possible consolidation among the big five integrated steelmakers.

Principal Subsidiaries: Tokyo Shearing Co., Ltd.; Nippon Kokan Light Steel Kabushiki Kaisha; Kokan Drum Company, Ltd.; Kokan Kenzai K.K.; Kawasaki Kokan Co., Ltd.; NKK Marine & Logistics Corporation; Nissan Senpaku Ltd.; Kokan Mining Company, Ltd.; Galvatex Corporation; Kokan Kikai Kogyo K.K.; Fukuyama Kyodo Power Co., Ltd.; Fukuyama Kyodokiko Corporation; NKK Trading Inc.; Nichiei Unyu Soko K.K.; Fuji Kako Co., Ltd.; NK. Coal Center Co., Ltd.; Nippon Kokan Pipe Fitting Mfg. Co., Ltd.; Japan Casting Co., Ltd.; Nippon Chutetsukan K.K.; NK Forge Co., Ltd.; IROX-NKK Co., Ltd.; Ishibashi Kosan Co., Ltd.; Nippon Kokan Koji K.K.; NKK Plant Engineering Corporation; Nippon Rotary Nozzle Co., Ltd.; NKK Design & Engineering Corporation; Kokan Densetsu Kogyo K.K.; NK Home Co., Ltd.; Kokan Construction Corporation; NKK Credit Corporation; Adchemco Corporation; NK Techno Service Co., Ltd.; NK Management Center Co., Ltd.; Japan Adcoating Co., Ltd.; NKF Corporation; NK-EXA Corporation; NKK Europe Ltd. (U.K.; Germany); NKK Netherlands B.V.; NKK America Inc. (U.S.A.); National Steel Corporation; NKK Titanium U.S.A.; NKK-Steel Engineering, Inc.; NKK Corporation de Mexico, S.A.

Principal Divisions: Steel Division; Engineering Division (Energy Industries Engineering Division; Environmental Industries Engineering Division; Plant Engineering Division; Steel Structure, Machinery, and Construction Division; Shipbuilding and Offshore Structure Division; Concept Engineering Center); Urban Development Division; LSI Division; Information Processing System Department.

Further Reading:

• Awanohara, Susumu, "Nerves of Steel," Far Eastern Economic Review, November 11, 1993, pp. 56-59.
• Baker, Stephen, "Down and Dirty in the Steel Belt," Business Week, June 20, 1994, p. 44.
• Baker, Stephen, and Nancy Pieters, "How National Steel Got So Bent out of Shape," Business Week, September 2, 1996, p. 42.
• Cramb, Gordon, "NKK Sheds 1,300 Jobs by Transferring Staff," Financial Times, August 9, 1994, p. 4.
• Dawkins, William, "Steelmaker That Re-invented Itself," Financial Times, March 29, 1995, p. 5.
• Furukawa, Tsukasa, "Business As Usual for Japan's Toa Steel--Until March," American Metal Market, September 18, 1998, p. 3.
• ----, "NKK Restructures to Improve Steel Earnings," American Metal Market, March 25, 1994, p. 3.
• Glain, Steve, "NKK Breaks Some of Japan Inc.'s Rules: Steelmaker's Aggressive Restructuring Pays Off," Wall Street Journal, April 10, 1996, p. A9.
• Harney, Alexandra, "NKK Warns of Further Fall in Profit," Financial Times, February 10, 1999, p. 35.
• Johnstone, Bob, "Crucibles for Chips," Far Eastern Economic Review, July 23, 1992, p. 58.
• Klamann, Edmund, "NKK Still Seeking Payoff for U.S. Venture," Japan Economic Journal, September 8, 1990.
• Milbank, Dana, "Changing Industry: Big Steel Is Threatened by Low-Cost Rivals, Even in Japan, Korea," Wall Street Journal, February 2, 1993, pp. A1+.
• "NKK Today," Tokyo: NKK Corporation, 1989.
• Norton, Erle, "National Steel's Dream Team Dissolves: Ex-President, an Assistant Chosen by NKK, Seemed to Be Well-Matched," Wall Street Journal, August 22, 1996, p. B4.
• ----, "National Steel's President Steps Down After NKK Takes Away His CEO Title," Wall Street Journal, August 21, 1996, p. B4.

Source: International Directory of Company Histories, Vol. 28. St. James Press, 1999.

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