A smart business move by Hitachi Construction Machinery has helped the company rise in the ranks of the largest construction machinery manufacturers in the world. By acquiring the Kawasaki Construction Machinery Corporation (KCM) through a share buyout on October 1st of last year, Hitachi Construction Machinery has evolved to become the third largest construction machinery manufacturer in the world. Up from fourth place just last year, the buyout has helped the company edge out Volvo, with Caterpillar and Komatsu holding on to their first and second place slots.
In 2008, both KCM and Hitachi Construction Machinery were producing wheel loaders. The companies joined forces to research and develop new models of wheel loaders to meet the EPA’s new Tier IV standards. The agreement granted KCM a capital investment from Hitachi Construction Machinery in exchange for a 34 percent stake in shares, with the promise that Hitachi would be able to buy up to 100 percent of KCM’s stock after three years. Citing an increasingly competitive global market for construction machinery, Hitachi Construction Machinery opted to make KCM a wholly owned subsidiary starting October 1st, 2015.
Through its well-established network in North America, KCMA will still be marketing and maintaining the distribution of Tier 4 wheel loaders under the Kawasaki-KCM name. Latin America’s marketing will be handled by Hitachi Construction Machinery Japan under the Kawasaki-KCM brand, focusing on Tier 2 and Tier 3 models. Hitachi Construction Machinery will market Hitachi-brand wheel loaders in Europe and Russia through HCME and in Japan through HCMJ. John Deere dealerships, which market Hitachi’s heavy equipment including excavators, will continue to do so post-acquisition.
The outcome of this deal must be analyzed in light of the current global economic scenario; declining commodities’ prices, demand downtrend in China, and the increasing trend of mergers and acquisitions (M&A) witnessed this year. The current economic slump, resulting from the free fall of oil prices since June of last year, has meant that more and more companies are looking to merge to curtail the effects of the fall of demand on their bottom line figures.
This acquisition will result in cutting down the costs in the form of synergies, proving to be a great strategic decision from Hitachi. The acquisition should not only benefit both companies from the resulting cut in costs, but also allow Hitachi to double its wheel loader footprint in the global markets.
With Hitachi’s intimate understanding of how to market and distribute standardized products, the merger will result in great value for both companies enabling them to benefit from each other’s area of expertise. In addition to that, KCMA Vice President and General Manager Gary Bell says that KCM moving from a diversified company like Kawasaki Heavy Industries, which focused on locomotives, robotics and hydraulics in addition to construction machinery manufacturing, to a construction-focused company like Hitachi will only benefit KCM’s contractors and dealer network.