Mitsubishi Heavy Industries, Ltd. History

Company Perspectives:

Today, we are expanding our businesses through technological innovations stemming from a global perspective and the development of enterprises aimed at achieving harmony in the international community. Starting with the construction of various facilities which provide comfort and adhere to local culture and customs, we have in recent years been grappling with issues of common concern to all of mankind like the development of new sources of energy and environmental protection. Marching toward the 21st century, MHI will continue to challenge issues that will be confronting us in the future such as ocean development and space programs. Our determination to conduct business on a global scale is supported by, and reflected in, a fundamental philosophy: utilization of technological expertise accumulated over more than a century to assess changes that occur with the passage of time while continuously developing previously unexplored areas. Together with the trust we have earned today, our untiring effort has become the driving force for building a new tomorrow. Insuring harmony between mankind, technology and nature. Seeking a more prosperous future, MHI is moving steadily ahead. Key Dates:

Key Dates:

1875:

Yataro Iwasaki's company, Mitsubishi Shokai, becomes the largest shipping company in Japan.

1917:

Mitsubishi Shipping Company is created.

1934:

Mitsubishi Shipping Company is merged with Mitsubishi aircraft and automobile operations to form Mitsubishi Heavy Industries (MHI).

1950:

Allies divide MHI into three separate firms.

1956:

Suez Canal crisis boosts global tanker market.

1964:

MHI is reunified.

1970:

MHI spins off the Mitsubishi Motor Company.

2000:

MHI reports its first ever annual loss.

Company History:

Mitsubishi Heavy Industries, Ltd., Japan's largest shipbuilding and machinery maker, is a mammoth company involved in an array of industrial concerns. With nearly 150 subsidiaries, Mitsubishi Heavy Industries (MHI) operates in 11 key sectors--Shipbuilding, Nuclear Energy Systems, General Machinery and Components, Paper and Printing Machinery, Steel Structures and Construction, Machinery and Plants, Air-Conditioning and Refrigeration Systems, Machine Tools, Power Systems, Aerospace Systems, and Industrial Machinery--and produces everything from cruise ships and oil tankers, to construction machinery, newsprint machines, turbines, airplanes, gasoline engines, and gear cutting machines. The company also builds nuclear power plants, bridges, and sports stadiums. MHI traces its history back to the latter part of the 19th century, and has demonstrated its ability to withstand periodic downturns in the Japanese economy. These economic vagaries have prodded the company to shift its focus among various sectors over the years. Shipbuilding, for example, was once the heart of MHI, but the company has concentrated more recently on aerospace and power systems as demand for its large ships has waned. MHI's adaptive skills were looking to be tested again at the dawn of the 21st century, as the company addressed various management problems and redundancies.

MHI's Origins: The 19th Century

Since the 1880s the diversified collection of industrial manufacturers now known as MHI has constituted the heart of the vast Mitsubishi group. Essentially all of Mitsubishi's many industrial offspring were developed as adjuncts to its shipbuilding business, begun in 1884. The Mitsubishi interest in shipping and shipbuilding extends back to the group's founding in 19th-century Japan. Yataro Iwasaki, born in 1834 to a rural samurai family, early in his life became an official with the Kaiseken, the agency responsible for regulating trade in his native Tosa domain, on the island of Shikoku. By adroitly straddling the roles of public official and private entrepreneur, Iwasaki was able to start a small shipping company in the late 1860s. In 1875 the Japanese government gave Iwasaki the 13 steamships that he had operated on its behalf during a brief military engagement with Formosa, making his newly named Mitsubishi Shokai--or Three-Diamond Company, the source of the firm's logo--the dominant shipping agent in Japan.

With extensive mining interests and a talent for currency speculation, Iwasaki became so successful that the government created a rival shipping firm, the KUK, to foster competitive pricing. After a short fare war that threatened the ruin of both firms, Mitsubishi's shipping assets were merged with those of the KUK in 1885 to form a single, state-sponsored company. Mitsubishi retained a small amount of stock and exercised some control in the new firm, but its interest shifted to land-based industries, in particular mining and shipbuilding. In 1884, unable to make a go of shipbuilding, the Japanese government had loaned and then transferred outright its two leading shipyards to the private sector. Mitsubishi took control of the best of these, located in Nagasaki, and became Japan's premier builder of ships and the only one capable of competing in the international marketplace.

Japan's shipbuilding industry was still relatively primitive, however, and remained so until the 1896 Shipbuilding Promotion Law combined with the Sino-Japanese War to spur domestic demand. Mitsubishi, by this time known as Mitsubishi Goshi Kaisha, became the favorite supplier of large oceangoing vessels to the state shipping company NYK, building 43 percent of all ships ordered between 1896 and World War I. Despite the close ties between the two companies, it appears that Mitsubishi did not receive preferential treatment. Indeed, although Mitsubishi gained fame in 1898 as the supplier of Japan's first oceangoing steamship--the 6,000-ton Hitachi Maru--its delivery was so tardy that the NYK awarded a second, similar contract to a British firm.

From 1896 through 1904, the eight years between Japan's wars with China and Russia, Mitsubishi's shipbuilding business increased by nearly 300 percent. In 1905 it acquired a second dockyard, in Kobe, and by 1911 employed some 11,000 workers at Nagasaki alone. Mitsubishi's shipbuilding division was not yet especially profitable--a disproportionate amount of the parent company's profits still came from mining and stock dividends--but it soon gave rise to a panoply of subordinate industries that supplied the yards with raw materials and parts. For example, in 1905 the Kobe yard spawned what would eventually become Mitsubishi Electric Corporation, a leading manufacturer of generators and electric appliances. Other shipbuilding divisions grew into power plants and independent producers of airplanes, automobiles, and heavy equipment. Bolstered by its highly profitable mining interests, Mitsubishi was able to afford the vast sums of money and years of work required to transform its subsidiaries into world leaders.

The Early 20th Century and World War I

When World War I began in 1914, Japanese shipping lines were unable to procure a sufficient number of foreign ships to maintain their booming business, and so turned to local manufacturers such as Mitsubishi. Japanese production increased more than tenfold between 1914 and 1919, with Mitsubishi leading the field. So great was the surge in business that the Iwasaki family, still in control of Mitsubishi Goshi Kaisha--the group's holding company--decided to spin off a number of its leading divisions into separate, publicly held companies, thereby gaining access to outside capital without substantially weakening the company's dominant position. In 1917 the Mitsubishi Shipbuilding Company (MSC) was created, along with Mitsubishi Bank, Ltd., Mitsubishi Iron Works, and a trading company for the entire group, now called Mitsubishi Corporation. The major components of the Mitsubishi zaibatsu, or conglomerate, were thus in place by 1920, although the ensuing years would bring many modifications to its structure.

As is generally the case, the wartime buildup in ship orders was followed by a severe depression. As business declined below prewar levels many shipbuilders were bankrupted and all were forced to impose drastic layoffs. The slump continued throughout the 1920s, merging into the Great Depression. Mitsubishi's lack of shipbuilding contracts continued until the beginning of World War II. In the meantime, however, MSC was actively pursuing a number of other technological developments, most notably the airplane and the automobile. Having made its first airplane in 1916 and first automobile in the following year, MSC grouped these products under the name Mitsubishi Internal Combustion Engine Manufacturing Company in 1920. This offshoot went through several changes before taking the name of Mitsubishi Aircraft Company in 1928, at which time it was already one of Japan's leading manufacturers of military aircraft. After six years of independence, however, the aircraft and automobile facilities were once again united with MSC to form Mitsubishi Heavy Industries in 1934. It is not clear why this strategy was adopted, but the imminent prospect of war with China may have suggested the need for a more unified industrial force.

World War II

To stimulate the moribund shipping industry, the Japanese government instituted the Scrap and Build Scheme in 1932. This policy called for shipowners, aided by government subsidies, to replace their older vessels with a smaller number of new, more efficient ships. In this way Japan's excess capacity could be reduced while simultaneously modernizing its fleet and promoting new shipbuilding technology. As the leading Japanese builder, Mitsubishi Heavy Industries (MHI) greatly benefited from this program, and even more so from the program's successor, the 1937 Superior Shipbuilding Promotion Scheme. This campaign was clearly prompted by Japan's preparations for war, as it subsidized the construction of large cargo ships with an eye to their eventual use for the transportation of troops and supplies. In the years following, government intervention in shipbuilding escalated to outright control, as the Imperial Navy placed all dockyard facilities under its direct command in 1942. The MHI yards at Nagasaki and Kobe produced a wide range of government warships, including the world's largest battleship, the Musashi. In addition, MHI used its aircraft experience to build 4,000 bombers and some 14,000 of the famous Zero fighters, widely recognized as the finest flying machine in the Pacific during the war's early years. The Zero provided an early example of the cost efficiency and quality that marked Japanese industrial design. A lightweight machine, the Zero could be produced quickly and economically, yet it boasted superior aerobatic abilities and heavy firing power. The Zero made Mitsubishi infamous in the West, discouraging postwar marketers of other Mitsubishi products from highlighting the company name in advertising.

At the end of the war in 1945, an estimated 80 percent of Japan's shipyards were still in usable condition. Mitsubishi's main yard at Nagasaki, however, did not escape the effects of the world's second atomic explosion. At war's end the occupying Allied forces halted all shipbuilding activity, restricting the heart of Japan's industrial economy. During the two years in which this ban remained in effect, MHI kept busy by repairing damaged vessels and even using its massive plants for the manufacture of furniture and kitchen utensils.

Challenges After World War II

With the growing realization that Japan could be a strategic asset in the postwar battle against Asian communism, the Allies relaxed the more stringent limitations, and many Japanese companies resumed production. For MHI, occupation forces waited until 1950 to chop its mighty assets into three distinct and geographically separated firms: West Japan Heavy Industries, Central Japan Heavy Industries, and East Japan Heavy Industries. Part of an effort to destroy the Mitsubishi zaibatsu as a recognizable entity, the division of MHI was intended to force the three companies to compete against each other for contracts, thus hindering their growth.

The rest of the Mitsubishi group was similarly fragmented, and although it gradually reassumed its former shape, the Iwasaki family no longer controlled the various subsidiaries by means of a single holding company. Instead, each of the major Mitsubishi companies acquired stock in its fellow companies, and a triumvirate composed of the former MHI companies, Mitsubishi Bank, and the group's trading company became the unofficial head of what remained a voluntary economic entity. It is remarkable that this loosely connected portfolio of war-ravaged corporations should then have proceeded to outperform its global competitors over the next few decades. The three heavy-industry companies, in particular, faced an almost impossible situation. Forced to compete with one another, forbidden from pursuing the military contracts that had formerly provided a huge portion of its business, and confronted by international competitors whose technological progress had not been interrupted by the war, the new MHI trio appeared destined for failure.

Several factors combined to help MHI get past this critical period. The 1947 Programmed Shipbuilding Scheme provided low-interest government loans to the shipping companies that needed but could not afford new vessels. In effect, the government decided which ships should be built and helped pay for them, injecting the capital needed to restart a business cycle that had nearly ground to a halt. Secondly, the three companies were able to use some of their idle aircraft facilities in the manufacture of motor scooters and automobiles. Under the direction of the head designer of the Zero, Kubo Tomyo, the rejuvenated auto division sold about 500,000 scooters before the government asked it to resume making small autos in 1959. Thirdly, Japan's shipbuilders realized that the Japanese economy depended on ships and their manufacture, and that if Japanese ship producers could not compete in the postwar international market the entire nation would suffer.

Driven by such a threat to its existence, the former MHI companies hired an increasing number of highly competent engineering graduates from Japan's leading universities and set them to work emulating the advanced technology of the United States and Western European countries. Able to rely on trade unions that were loyal and flexible in the extreme, they were soon producing oceangoing vessels equal in quality to but less expensive than anything made in the West. The Korean War of 1951-53 triggered a huge increase in orders and, after surviving the short depression following the war, the companies were able to exploit the rapidly developing worldwide demand for oil tankers. The tanker market was in turn given a tremendous jolt by the Suez Canal crisis of 1956, since the canal closing sparked a surge of orders for larger, more efficient ships able to complete the long journey around Africa. Between 1954 and 1956 total orders at Japanese builders more than tripled to 2.9 million gross tons, of which at least two-thirds were placed by foreign shipping companies.

Growth in the 1960s and 1970s

The post-Suez depression in shipbuilding was severe enough to prompt fresh diversification at MHI. Increased research financing was devoted to civil engineering, plant construction, and automobiles, all of which MHI's years of experience in heavy industry had well prepared it to undertake. In 1958, in cooperation with 23 other Mitsubishi Group corporations, Mitsubishi Heavy Industries created Mitsubishi Atomic Power Industries. Since then, MHI continued to dominate contemporary Japanese production of atomic power. Automobile production rose steadily, if not as quickly as at rivals Toyota and Nissan, and by 1964 the Nagoya plants were manufacturing 4,000 cars per month. Even aircraft production had been resumed by the early 1960s.

With the world increasingly dependent on imported oil and Japan's construction skills honed to perfection, Mitsubishi was hit by an avalanche of orders for tankers during the 1960s and early 1970s. To accommodate this extraordinary boom, the three parts of MHI were once again united, resulting in the 1964 rebirth of Mitsubishi Heavy Industries. This giant's 77,000 employees and $700 million in sales were spread among a handful of the most important heavy industries, but shipbuilding commanded the bulk of MHI's resources. A new dock with 300,000-gross-ton capacity was built at Nagasaki in 1965, followed by the 1972 completion of a mammoth 1-million-gross-ton supertanker facility at the same yard. This ultra-efficient dock enjoyed only a short life, however--the oil crisis of 1973 and 1974 soon brought tanker orders to a near standstill, permanently crippling the entire Japanese shipbuilding industry.

Economic Downturn: 1975-85

The economic downturn was devastating. By 1975, the last of the peak tanker years, 40 percent of MHI sales and one-third of its workers were involved in shipbuilding. By 1985 those numbers had plummeted to 15 percent and 17 percent, respectively. But MHI managed to shift its assets quickly enough to survive. Having already spun off its automobile division to form Mitsubishi Motors Corporation in 1970, MHI aggressively pursued clients in the power-plant and factory-design fields. It also reclaimed its position as the top supplier of military hardware to Japan's growing defense force. At the same time, MHI streamlined its production facilities by shifting employees from older industries such as shipbuilding to newer ones such as machinery and power-plant production, and simultaneously allowed natural attrition to shrink its overall labor bill. Thanks in no small part to this diversification, MHI emerged successfully from the disastrous downturn of the shipbuilding industry, and became an industrial leader in other areas as well.

The 1990s

The early 1990s brought a fresh set of challenges to MHI. A weakening of the global economy and the post-Gulf War oil shock caused a downturn in the company's sales. Moreover, the strength of the Japanese Yen made it difficult for MHI's ships and heavy equipment to compete in the global market against equipment produced in countries--especially South Korea--with weaker currencies. To compensate, MHI's shipbuilding division embarked on a program of heavy cost-cutting in 1992. But the situation took a toll, and the company's other division continued to account for greater percentages of MHI's total sales.

By the mid-1990s it looked as though MHI had weathered the storm to become an even stronger force. Its construction and power sectors flourished as the company won a number of lucrative contracts. In February 1996, for example, MHI was selected to build six gas turbine thermal power plants for Dubai Electricity and Water Authority in the United Arab Emirates. Two months later, MHI received an order to construct a fertilizer plant for R.P. G. Industries of India, and also teamed up with two Chinese companies (Baoshan Iron & Steel Corp. and Changzhou Metallurgical Equipment Corp.) to produce steelmaking parts and equipment in China.

The resurgence of Japan's shipbuilding industry in the mid-1990s seemed to complete MHI's revival. The yen had at last begun to weaken, making it easier for Japanese companies such as MHI to compete effectively against their Korean rivals. In addition, global demand for tankers and ships boomed, since the world's commercial fleets had aged. By 1996, in fact, roughly 41 percent of all tankers were more than 20 years old and approaching the end of their useful life span. In this new environment, MHI's shipbuilding division benefited from the company's cost-cutting measures of the early 1990s, as well as from more recent advances in computer-aided design that maximized efficiency.

Prudently, MHI did not abandon its efforts to emphasize its other divisions despite the renaissance in the shipbuilding sector. In fact, MHI not only looked to new sectors in Japan to drive its recovery, it also sought out new markets abroad for its equipment and services. Southeast Asia and the Middle East sorely needed new power sources, and as the global economy boomed, the private and public sector undertook major construction projects--which drove demand for MHI's equipment. Late in 1996, MHI won a $1.1 billion contract to install a 2,400 megawatt power plant for the Saudi Consolidated Electric Co., as well as a contract worth about $127.8 million to supply generators for Taiwan Power Co.'s new nuclear power plant. MHI continued to boom in 1997. After winning a contract to build a fertilizer ammonia plant for Indonesia's PT Kaltim Pasifik Amoniak, MHI was selected by Saudi Yanbu Petrochemical Co. to build polyethylene and ethylene glycol plants.

The year 1998, however, saw a dramatic reversal of this positive trend. Dragged down by the repercussions of the currency crisis that rocked Thailand and other developing countries, Japan's economy slumped along with the rest of Asia. MHI's sales slowed as its key customers cut back on construction and infrastructure projects in response to the growing 'Asian economic crisis.' By October 1998, though, it was clear that MHI could not blame its problems entirely on outside economic forces. MHI had counted on foreign markets to make up for sluggish sales at home through the first part of the 1990s. In an effort to boost its profits even more, MHI had outsourced much of its foreign production to subcontractors--without ensuring appropriate supervision. The result was that some of the massive construction and power projects MHI had undertaken in Southeast Asia and the Middle East were hindered by poor quality. As the Asian Wall Street Journal reported, these quality control issues severely undercut the profitability of MHI's foreign operations. In fact, the company eventually had to redo some of the work itself--hurting its earnings.

The company's sales and profits dropped further in 1999, as Japan remained mired in the Asian economic crisis. Nobuyuki Masuda stepped down as MHI's president to become chairman of the board. In his place Takashi Nishioka was appointed president. Nishioka had won the admiration of shareholders during his tenure as head of MHI's aerospace operations, playing an essential role in moving that division away from its longstanding reliance on defense contracts. Instead, Nishioka had looked to the private sector for business, focusing particularly on bolstering MHI's business ties with Boeing.

Upon taking the helm, Nishioka announced a massive restructuring program, involving 7,000 job cuts, a reorganization of the company's engine and motor operations, and an expansion of its aerospace division. Perhaps more importantly, Nishioka promised to end MHI's policy of 'matrix management,' in which the company's branch offices competed among themselves and with the division headquarters. In place of this inefficient system, Nishioka pledged to unify management functions.

These changes would take time to implement, though. In 2000, with Japan's domestic economy still in the doldrums, MHI reported its first net loss since the company had been reunified in 1964. Despite this significant setback, Nishioka remained optimistic that MHI would recover from its latest problems. He predicted that the company would return to profitability by 2003.

Principal Subsidiaries: Mitsubishi Heavy Industries America, Inc. (U.S.A.); MHI Corrugating Machinery Company (U.S.A.); Mitsubishi Engine North America, Inc. (U.S.A.); MHI Forklift America, Inc. (U.S.A.); Bocar-MHI S.A. de C.V. (Mexico); Mitsubishi Brasileira de Industria Pesada Ltda. (Brazil); CBC Indústrias Pesadas S.A. (Brazil); ATA Combustao Tecnica S.A. (Brazil); Mitsubishi Heavy Industries Europe, Ltd. (U.K.); MHI Equipment Europe B.V. (Netherlands); Saudi Factory for Electrical Appliances Company, Ltd. (Saudi Arabia); Bohai & MHI Platform Engineering Co., Ltd. (China); Mitsubishi Heavy Industries (Hong Kong) Ltd.; MHI-Mahajak Air-Conditioners Co., Ltd. (Thailand); Thai Compressor Manufacturing Co., Ltd. (Thailand); Highway Toll Systems Sdn. Bhd. (Malaysia); MHI South East Asia Pte. Ltd. (Singapore).

Principal Competitors: Ishikawajima-Harima Heavy Industries Co., Ltd.; Kawasaki Heavy Industries, Ltd.; Mitsui Group; NKK Corporation.

Further Reading:

• 'Airbus and the Japanese,' New York Times, November 21, 1991.
• Bates, Daniel, 'Systems Modeling in Distribution Pact with Tokyo Goliath,' Pittsburgh Business Times & Journal, March 9, 1991.
• Blustein, Paul, 'High-Tech's Global Links: Industry's Huge Costs Unite Former Rivals,' Washington Post, July 16, 1992.
• Chida, Tomohei, and Peter N. Davies, The Japanese Shipping and Shipbuilding Industries: A History of Their Modern Growth, London: Athlone Press, 1990.
• Kanabayashi, Masayoshi, 'Ship Firms That Diversify Win Favor of Analysts,' Asian Wall Street Journal, June 6, 1995.
• Lamke, Kenneth, 'Miller Park Is Just One of Mitsubishi's Problems,' Milwaukee Journal Sentinel, October 30, 1999.
• Lubar, Robert, 'The Japanese Giant That Wouldn't Stay Dead,' Fortune, November 1964.
• 'Mitsubishi: A Japanese Giant's Plans for Growth in the U.S.,' Business Week, July 20, 1981.
• 'Mitsubishi Heavy Industries Ltd.,' Oil and Gas Journal, November 23, 1992.
• 'Mitsubishi Heavy Industries Pact,' Wall Street Journal, November 2, 1992.
• 'Mitsubishi Heavy Now Expects Deeper FY Group Net Loss,' Dow Jones International News, March 28, 2001.
• 'Mitsubishi: The Diamonds Lose Their Sparkle,' Economist, May 9, 1998.
• 'Nishioka Named President of Mitsubishi Heavy Industries,' Japan Weekly Monitor, April 5, 1999.
• Smith, Maurice, 'A Touch of the Mitsubishis (Mitsubishi Heavy Industries),'
  Accountant's Magazine, January, 1991.
• Tindall, Robert E., 'Mitsubishi Group: World's Largest Multinational Enterprise?,' MSU Business Topics, Spring 1974.
• 'Westinghouse Electric Corp.,' Wall Street Journal, March 24, 1992.
• Wray, William D., Mitsubishi and the N.Y.K., 1870-1914: Business Strategy in the Japanese Shipping Industry, Cambridge: Harvard University Press, 1984.

Source: International Directory of Company Histories, Vol. 40. St. James Press, 2001.