Komatsu and the Farm and Construction Machinery Industry

1. Komatsuand the Farm and Construction Machinery Industry Mods 1 & 2 John Rojo

2. The Industry • Manufacturing of vehicles and machinery for construction, mining, and agriculture • Includes excavators, backhoes, skid loaders, forest machines, forklifts, cutting lasers.. • There is no specific farm equipment but many duel use products

3. Porter’s Five Forces • Industry Competition • Construction and Mining – high competition and increasing • Farming and Agricultural Machinery – low competition • Top two companies account for 50% of market share • Buyer Power • Mature industries that are low to medium concentrated • High buyer power

4. Porter’s Five Forces (cont.) • Supplier Power • Medium – commodity pricing on a number of inputs, purchasing of finished products like engines give power to supplier • Product Substitutes • Low – substitutes like shovels and manual labor do not compete with machinery

5. Porter’s Five Forces (cont.) • Threat of Entry • Medium – capital intensive industry with fragmented competition • Little government regulation aside from environmental regulations • Incumbent firms have solidified supply chain relationships

6. 2012 Industry Financial Performance

7. Industry Life Cycle and Cash Flows • Comparing an industry’s stage in its life cycle to the cash flow signs of the companies within it can be useful in forecasting • Komatsu is 97 years old which demonstrates that it would likely be in the mature • The cash flow on the other hand does not reflect that because this industry has a very high revenue volatility

8. Strengths • Strong presence in many developing markets with a 64% of their revenue coming from Asia • Diversified product range that is used in several industries • They are converging with their distribution network to increase customer satisfaction • A strong sense of Corporate Social Responsibility which is earning them awards

9. Weaknesses • A very poor performance in 2012/13 could be a sign of the next few years • They are heavily involved with the mining industry which has not grown at the expected rate • They have developed most of their income in Asia which is good if they continue to grow but they are not major players in developed markets that could help make their income more stable • This can also be seen in the political stability of some of the countries that they developed into as they may become less inviting of foreign companies

10. Opportunities • Infrastructure development and improvement is an ongoing process in emerging markets and all over the world • They have a strong presence in developing markets • Increase in availability of natural gas creates a market for companies utilizing it • Recovering construction industry • Which not only leads to an increased demand in equipment but they are betting on an increased demand in cement • Capitalize on historically low interest rates

11. Threats • As emerging markets grow, so does competition especially from companies local to these economies • Product demand is reliant on economy • Financial performance can be affected by government action, commodity and component pricing, international instability, financial service risks, etc.

12. Komatsu • Started in 1917 in Japan in the mining industry • 1955 after recovering from the war started expanding internationally • 1970 expanded into the US • Now 89% of their revenue comes from Construction, Mining, and Utility Equipment • 64% if revenue is from Asia, 22% is from the Americas

13. Komatsu(cont.) • Low demand for construction equipment in China and mining in Indonesia among other things led to a decrease of 17.5% in operating income • Total net income $1,458,883,000

14. Recent News • They are expanding operations on the expectation of a jump in cement prices • They were within Moody’s expectation for the most recent quarter and expect to be able to maintain and eventually improve their margin with new cost cutting measures • Their stock has been climbing with an improved Japanese economy

15. Sources • Carrol, Dan. "Is Japan's Surge Bringing Top Profits for Manufacturers?" (^NI225, CAT, KMTUY, KUBTY). N.p., 17 May 2013. Web. 15 Jan. 2014. • "Central Authentication Service (CAS)." Central Authentication Service // University of Notre Dame. N.p., n.d. Web. 15 Jan. 2014. • "Construction & Agricultural Machinery Industry Snapshot."NYTimes.com. N.p., 2014. Web. 14 Jan. 2014. • "Fortune 500 2012: Industry: Construction and Farm Machinery." CNNMoney. Cable News Network, 21 May 2012. Web. 14 Jan. 2014. • IBISWorld Reports: December 2013 Construction and Mining Equipment Wholesaling in the US, October 2013 Tractors and Agricultural Machinery Manufacturing in the US • "KOMATSU : KOMATSU GLOBAL." KOMATSU : KOMATSU GLOBAL. N.p., n.d. Web. 15 Jan. 2014. • "Moody's: Komatsu's H1 Results Were Weak but within Expectations." Moodys.com. N.p., 29 Oct. 2013. Web. 15 Jan. 2014. • Sharf, Samantha. "Caterpillar Bulldozed By Weak Earnings, Poor Outlook." Forbes. Forbes Magazine, 23 Oct. 2013. Web. 14 Jan. 2014. • Suga, Masumi. "Komatsu Bets on Japanese Concrete Boom as Sales to Miners Slump." Bloomberg.com. Bloomberg, 31 Dec. 2013. Web. 15 Jan. 2014.