Kobe Steel, Ltd. History

Company Perspectives:

"Societies throughout the world are confronted every day with a number of escalating problems regarding the compatibility of continued economic growth and the need to preserve the natural environment. Accordingly, businesses must take on added responsibilities to promote industrial and other development that is in harmony with the natural environment and to reduce the negative impact of such development. Kobe Steel, Ltd., a diverse and technologically advanced corporation, is well positioned to meet the challenges posed by the new era. Our goal is to produce a stream of high-quality products that accurately meet customer needs while, at the same time, improve the compatibility of our products and operations with the environment."

Company History:

Kobe Steel, Ltd., is Japan's 5th-largest and the world's 15th-largest steelmaker. The company markets a wide variety of iron and steel products and is the Japanese leader in welding rods and titanium products. It is a strong competitor in rolled aluminum and copper. Kobe Steel has consistently shown a progressive edge. The company entered specialty steel markets early in its development and was one of the first steelmakers to diversify into related markets such as machinery and plant engineering. Kobe has also shown a keen interest in developing foreign markets; it established offices in New York and Düsseldorf as early as 1960.

Kobe has focused on higher value-added steel products and has expanded into such high-technology industries as computer components and bioengineering. Kobe leads its Japanese competitors in establishing U.S. subsidiaries and joint ventures. In 1989 it incorporated Kobe Steel Co. to administer more efficiently its growing number of U.S. enterprises. Lower demand for steel products, as well as cheaper production costs from competitors in developing countries like Brazil and Korea, have threatened steelmakers in Japan. Kobe seeks to diversify further into related fields where the company's existing expertise can be applied.

Company Origins

Kobe Steel was established as the Kobe Steel Works (Kobe Seikosho) in 1905 by the Japanese trading firm Suzuki and Company. In 1911 the company was incorporated as Kobe Steel Works, Ltd., with capital of ¥1.4 million. Kobe Steel Works grew over the next 15 years as Japan's main industry, textiles, was replaced by heavier manufacturing. Although Kobe was relatively small among Japanese steelmakers, the company successfully carved a niche in the growing markets. Four new plants were added between 1917 and 1921. Capital had increased to ¥20 million.

The Great Depression struck Japan in the late 1920s, causing Kobe Steel Works to experience some difficult times. In 1928 ¥10 million was written off against accumulated losses, and then another ¥10 million in capital was raised to reduce debt. These measures helped the company survive the crisis. A year later Kobe established a shipbuilding subsidiary, Harima Zosenjo, Limited.

The 1930s brought substantial changes to Japan's government and industry. A militant group of nationalists dominated Japanese politics, and the country geared up for war. In 1931 Japan invaded Manchuria in the first of its military adventures. By 1937 the country was embroiled in an all-out war with China. The Japanese government encouraged rapid development of heavy industry and began to coordinate distribution of raw materials. Kobe Steel Works's production capabilities expanded over the next few years. Eight new plants opened, and two were acquired from other companies between 1937 and the end of the war in 1945. Although World War II had stimulated Japanese heavy industrial development, it also left the nation considerably weakened.

Postwar Rebuilding

After the war Allied forces wrote a new constitution for Japan. The old family-run zaibatsu, or trusts, were broken up, and Japanese industry began to rebuild. In 1949 Kobe Steel Works was restructured. Its Moji and Chofu plants were spun off into a separate company, Shinko Kinzoku Kogyo Ltd., while its Toba, Yamada, Matsuzaka, and Tokyo plants formed yet another company, Shinko Electric Company, Ltd. The remaining nine plants continued to operate as Kobe Steel Works, Ltd.

During the 1950s Japanese industry pursued rebuilding at a furious pace. The Japanese government instituted two five-year plans aimed at boosting steel production levels. Like other Japanese steelmakers, Kobe Steel Works embarked on a program of expanded production. Kobe supplied materials to Japan's peacetime industries, which was producing television sets, refrigerators, and washing machines for eager consumers. A new plant was brought on line in 1951, while another was acquired from the Japanese Ministry of Finance in 1953. Several of Kobe's divisions were turned into subsidiaries to foster their own growth. In 1954 the Amagasaki plant became the Shinko Wire Company, Ltd., and the enameled products department became the Shinko Pfaudler Company, Ltd., then called Shinko Pantec Company Limited. In 1957 the construction department became Shinko Koji K.K. In 1959 the steel works in the Nadahama area of the city of Kobe was upgraded and named the Kobe works, making the company a fully integrated steel manufacturer. By that year Kobe Steel Works had capital of ¥12 billion.

The high cost of raw materials, which to a great degree had to be imported to Japan, forced Kobe--along with other Japanese steel producers&mdashø find new ways to streamline production costs. Japanese steelmakers developed techniques to reduce the amount of coke used in production, thereby diminishing the impact of high-priced imported coal. Emphasis was also placed on exporting steel to balance the cost of importing raw materials. Relatively low labor costs, new plants, and the technological superiority dictated by necessity catapulted Japan's steel industry to the top of the world steel manufacturing league. By 1960 Japan had pushed past the United Kingdom and France to become the fourth-largest producer of steel in the world behind the United States, the Soviet Union, and West Germany. In 1964 Japanese steel production surpassed that of West Germany.

Kobe Steel Works found a unique position among Japanese steelmakers. In 1961 it was the sixth-largest steel manufacturer in Japan. Yet Kobe was the only one of the leading eight manufacturers that did not supply steel in sheets or plate, instead focusing on steel pipes and tubing, wire rods, and specialty steels. In addition, Kobe's steel bars gained an uncommon reputation for quality over the years.

The engineering division of Kobe Steel Works, first licensed in 1950, was thriving. Kobe received its first order to build a complete plant in 1958. The ¥19 billion fertilizer plant in Bangladesh was the first of dozens of plants that the engineering division would build. Kobe's machinery operations also expanded in the 1950s and 1960s. Machinery production began in the late 1930s, when a demand for cutting tools and welding supplies combined with Kobe's steel stockpile to create a natural diversification.

Export Growth: 1960s and 1970s

In 1960 Kobe Steel Works, Ltd., opened liaison offices in New York and Düsseldorf to help coordinate the company's sales efforts overseas. Japanese steelmakers had the most up-to-date manufacturing facilities, low labor costs, and a desire to increase exports. China and Australia proved to be good markets for Japanese steel, but the United States became the biggest importer of steel from Japan, actually accounting for one-third of the country's steel exports. By the mid-1960s U.S. steel manufacturers began to charge Japanese exporters with dumping--selling below cost to gain market share. These charges persisted for years, but no antidumping legislation was introduced because evidence that Japanese domestic prices were higher and that U.S. producers were injured by the low-priced imports was difficult to substantiate. U.S. construction contractors and other manufacturers, meanwhile, enjoyed high-quality Japanese steel at relatively low prices.

Three new plants were opened between 1961 and 1962 and an older plant was closed. In 1965 Kobe Steel Works, Ltd., merged with the Amagasaki Steel Company, Ltd., bringing three more plants into the Kobe family. One of these, the Sakai plant, was sold to Nisshin Steel a year later. Between 1966 and 1970 five more plants, including a steel-plate facility, were brought on line. By the 1970s Kobe Steel operated some of the most efficient steelmaking factories in the world.

In 1968 the two largest Japanese steelmakers, Yawata Iron & Steel and Fuji Iron & Steel, combined to form Nippon Steel, making it the largest Japanese steel manufacturer. Kobe Steel Works was then the fifth-largest producer in the country, and competition for Japanese automobile and appliance makers' accounts remained fierce, keeping the price of domestic steel low in Japan.

The oil crisis of 1973 caused a worldwide recession that severely affected heavy manufacturing. Kobe Steel streamlined its iron and steel division and expanded its machinery division. The engineering division received two large orders for plants in 1974, cushioning the impact of the recession. Kobe's engineering division played a crucial role throughout the later 1970s and the 1980s. Basic steel production was not ignored, however; in 1975 the new Fukuchiyama plant was opened.

Kobe Steel continued to fare well with exports. Liaison offices were opened in Singapore and Los Angeles in 1976, in Sharjah in 1977, and in London in 1978. The company's success in the United States continued to disturb U.S. manufacturers, and charges of unfair trade practices increased. In October 1977 Kobe Steel Works and the four other top Japanese steel manufacturers were accused of dumping carbon steel plate at a loss of up to $50 per ton--32 percent below fair value. The Treasury Department investigated and found dumping margins of 5.4 percent to 18.5 percent. In January 1978 it was established that Kobe was selling steel at about 13.9 percent below fair value. The worst offender, Sumitomo Metal Industries, was found to be dumping carbon steel at 18.5 percent below fair value. At these percentages actual damage to U.S. producers was not clearly evident.

Continued protests from U.S. manufacturers led to the institution of a trigger price system for steel imports. If a foreign company attempted to sell below a stipulated trigger price, an investigation could begin automatically without the formality of a suit being filed by a U.S. company. Companies caught dumping would have to pay penalties. The system resulted in the voluntary reduction of exports of certain steel products by Japanese companies.

Challenges in the 1980s

By the late 1970s it was clear that global production capacity for steel was much greater than anticipated demand; the steel industry was maturing. At the same time, developing countries like Korea were producing more and more steel with the most modern plants and lower labor costs than in Japan, putting pressure on Japanese steel manufacturers, much as U.S. and European manufacturers had been pressured by the Japanese 15 years earlier. Kobe Steel Works, while maintaining its efforts in machinery and engineering, reduced its emphasis on basic steel products and began to focus on higher value-added steel products.

Kobe began to streamline its facilities and increase spending on energy-saving equipment in 1980. The appreciation of the yen against the dollar in the mid-1980s had a serious effect on revenues. Kobe Steel showed a net loss of $36.7 million in 1984. Five steel plants were closed between 1984 and 1987. In December 1986 Kobe announced plans to reduce its labor force by 6,000 workers--21 percent of its entire staff--over a three-year period. The measures were considered drastic in a country that traditionally guaranteed workers employment until retirement.

At the same time that Kobe Steel was encountering flattening demand for basic steel products, it was preparing for the future by expanding into new but related fields. In 1981 the company became the largest shareholder in a Wisconsin-based construction equipment manufacturer, the Harnischfeger Corporation. In 1983 Kobe took over the U.S. engineering company Midrex Corporation and its Japanese affiliate, Yutani Heavy Industries, Ltd. In 1987 Kobe began construction on a metal powders plant in the United States. Steel powders had growing use in the automotive industry. In 1988 Kobe Precision Incorporated began producing aluminum substrates for magnetic computer discs. Kobe Copper Products, a U.S. subsidiary, made copper tubing for cooling systems, and in 1989 Stewart Bolling Company, a U.S. rubber and plastics firm, was acquired.

In the late 1980s Kobe Steel entered a number of joint ventures with U.S. firms. In 1989 USX, the largest U.S. steelmaker, formed a 50-50 partnership with Kobe to produce steel bars for Japanese automakers, who were now locating their plants inside the United States. In 1990 a major joint venture with Texas Instruments was undertaken to produce application-specific integrated circuits. Later in 1990 the Aluminum Company of America entered a 50-50 joint venture with Kobe to produce aluminum can stock in Japan.

In spite of difficult times in basic products during the mid-1980s, research and development in new areas remained a priority. In 1985 Kobe opened a Biotechnology Research Laboratory in the city of Kobe. In 1987 the first phase of another major research facility, the Seishin Laboratories in Kobe, was completed. In 1988 the Kobe Steel Europe Research Laboratory in Surrey, England, was opened. In 1989 the Kobe Steel Research Laboratories USA-Electronics Materials Center was opened in Research Triangle Park, North Carolina, and an Applied Electronics Center was opened in 1990 in Palo Alto, California. The Palo Alto facility was soon expanded to include artificial intelligence research.

Kobe's overseas expansion had reached fever pitch in the 1980s. A new office was opened in Mexico City in 1981, and the New York City and Los Angeles offices were incorporated as Kobe Steel America Inc., later combined to form Kobe Steel USA. An office was opened in Melbourne in 1983. In 1984 the London office became the subsidiary Kobe Steel Europe, Ltd., and the Sharjah office was moved to Bahrain and incorporated as Gulf Engineering Company Ltd., later renamed Kobelco Middle East.

In 1988 Kobe Steel America was reorganized into a holding company, Kobe Steel USA Inc., to manage Kobe's growing number of diversified U.S. holdings, which now numbered 15 companies. By placing the company's U.S. subsidiaries under one corporate roof, a quicker response to changing market conditions was made possible. Kobe was the first Japanese steelmaker to reorganize itself in this way.

Kobe entered markets previously considered impenetrable. A liaison office was established in Beijing in 1986 and in Moscow in 1989. In 1990 the Singapore office was incorporated as Kobe Steel Asia Pte Ltd. Also in 1990 Kobe Steel Australia Pty. Ltd., based in Sydney, absorbed the Melbourne office. By the early 1990s, under President Sokichi Kametaka, Kobe Steel was well diversified both geographically and by industry and ready for growth in new areas.

Diversification and Expansion during the 1990s

Throughout the early 1990s Kobe Steel formed many new ventures in conjunction with Aluminum Company of America (Alcoa). In January 1991 they created KSL Alcoa Aluminum Company, Ltd., to produce and market aluminum can stock. The following December they formed Alcoa Kobe Tube Specialties Ltd. for the manufacture of drawn aluminum tubes. In June 1992 they created Kobe Alcoa Transportation Products Ltd. and Kobe Alcoa Transportation Products Inc. to produce and market transportation-industry aluminum sheet products in Japan and the United States, respectively. They established KAAL in July 1993 to manufacture aluminum can stock in Japan.

Kobe Steel also formed a joint venture company with Texas Instruments. The new company, called KTI Semiconductor, Ltd., was formed in May 1990 to manufacture semiconductor products in Japan. By 1994 KTI had one facility in operation to build 4-megabit and 16-megabit DRAM (dynamic random access memory) chips and another facility planned to manufacture 64-megabit DRAM chips.

On April 1, 1995, Kobelco America Inc. (KAI) and Kobelco Construction Machinery (U.S.A.) Inc. (KCM), two of Kobe Steel's construction subsidiaries based in the United States, merged to form Kobelco America Inc. The reorganization was intended to integrate the company's U.S. functions--research and development, engineering, manufacturing, sales, marketing, and product support--in order to better service the North American and world markets. KCM produced engineering and construction machinery in Calhoun, Georgia, and KAI, based in Houston, Texas, was involved in sales, marketing, and product support for construction machinery. All 220 employees were retained in the merger, and the new company's headquarters were established in Calhoun. Kobelco America Inc. was created with an 82.3 percent ownership by the Kobe Steel Group and a 17.7 percent ownership by the Nissho Iwai Group.

In 1995 Kobe Steel suffered a loss of more than ¥100 billion in the Great Hanshin Earthquake. The company set its sights on completely recovering from the loss within two years, and most of its goals were, in fact, met by the beginning of 1997.

Also in 1995 Kobe Steel began its venture into the electricity business. With deregulation of Japan's electric power industry, Kobe Steel revised the company's articles of incorporation to include "supply of electricity" as one of its products. Supplying electricity was one way Kobe Steel was attempting to adjust to changing market conditions. Its sales in Japan were being reduced by cheap imports, and the growing economic strength of China and Southeast Asia had led to stiff competition in its overseas markets.

Principal Subsidiaries: Shinko Kenzai, Ltd.; Nippon Koshuha Steel Co., Ltd.; Sun Aluminium Industries, Ltd.; Shinko Electric Co., Ltd.; Shinko Pantec Co., Ltd.; NABCO Ltd.; Kobelco Construction Machinery Co., Ltd.; Shinsho Corporation; Yutani Heavy Industries, Ltd.; KTI Semiconductor, Ltd.; Shinko Lease Co., Ltd.; Kobelco Construction Machinery Co., Ltd.; Kobelco Research Institute Inc.; Kobelco Systems Corporation; Kobelco Telecommunications Technology Co., Ltd.; LED Corporation (80 %); Yutani Heavy Industries, Ltd. (99.1 %); Kobe Development Corporation (U.S.A.); Kobe Precision, Inc. (U.S.A.); Kobe Steel International Inc. (U.S.A.); Kobe Steel USA Holdings Inc.; Kobe Steel USA Inc.; Kobelco Compressors (America) Inc. (U.S.A., 90%); Kobelco Construction Machinery, Inc. (U.S.A.); Kobelco Metal Powder of America, Inc. (U.S.A., 70%); Kobelco Stewart Bolling, Inc. (U.S.A.); Kobelco Welding of America Inc. (U.S.A.); Midrex Corporation (U.S.A.); Kobe Steel Europe, Ltd. (U.K.); Kobelco Middle East (Bahrain); Midrex International B.V.; Earth Development Pte. Ltd. (Singapore); Kobe Copper Sdn. Bhd. (Malaysia, 70%); Kobe International Co., Pte. Ltd. (Singapore); Kobe Precision Parts (Malaysia) Sdn. Bhd.; Kobe Steel Asia Pte Ltd. (Singapore); Kobe Steel Australia Pty. Ltd.

Further Reading:

• "Anatomy of an Oriental Giant," Steel, December 24, 1962.
• Furukawa, Tsukasa, "Japan's Electric Power Attracts Kobe Steel, Others," American Metal Martet, March 22, 1996, p. 3.
• Furukawa, Tsukasa, "Kobe Combines US Subsidiaries," American Metal Market, April 17, 1995, p. 3.
• Furukawa, Tsukasa, "Kobe Steel Diversifies into Electronics," American Metal Market, December 26, 1994, p. 3.
• "Kobe Steel Controls 15 U.S. Firms," Purchasing, December 15, 1988.
• "Little Industry, Big War," Fortune, April 1944.
• Petry, Corinna C., "New Kobe President Looks to Future Plans," American Metal Market, March 18, 1996, p. 3.
• Yoder, Stephen Kreider, "Japan's Smokestack Industries Pin Hope on Research," The Wall Street Journal, March 25, 1987.

Source: International Directory of Company Histories, Vol. 19. St. James Press, 1998.

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