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8.2 Hitachi Construction Machinery (China) Co., Ltd

8.2.1 Background

Since the latter half of the 1980s, HCM has implemented a global strategy of expansion by creating sales and manufacturing bases in North America, Europe, and Asia. The construction machinery market in the 1980s was dominated by Chinese-made hydraulic excavators that sold for CNY 400,000 apiece. By comparison, HCM's hydraulic excavators were CNY 800,000. However, Chinese excavators did not meet customer requirements in China; therefore, second hand excavators by Japanese manufacturers are imported and mainly used in China. In the beginning in the 1990s, HCM was attracted to China not for its factories, but for its markets, because it anticipated strong Chinese economic development. After evaluating manufacturing sites in China, HCM established a list of candidates in several regions. Around this time, China was coming off Deng Xiaoping's Southern Tour Speech, which for the city of Hefei meant pressure to bring in foreign capital. Hefei was searching for a JV partner for the local powerhouse, Hefei Mining. Hitachi was already well known in China at the time and its brand name was the source of government incentive for the JV.

The head of the Anhui Province, Hui Liangyu, as well as Hefei's mayor, Zhong Yongsan, played key roles in the initial stage of HCM's into China. Former Deputy General Manager of HCMC, Norio Hirota, noted the fervent invitations of Mayor Zhong to HCM (Japan Association for the Promotion of International Trade 2004):

As China began to attract foreign capital, Mayor Zhong approached Qiu Yonghan, known for being highly knowledgeable about Japan, serving as an economic advisor to the city of Hefei, while he was on a trip down the Three Gorges, and repeatedly informed to him about the level of urgency with which China wanted to bring in foreign capital into Hefei. Because of an introduction from Qiu Yonghan's company, Hefei was included in a feasibility study that listed strong equipment manufacturers. Therefore, a relationship with Hefei began, and Mayor Zhong invited all involved parties to visit our company's factory. Interactions of company executives and the parties associated at the factory, resulted in clearing of any doubts about Mayor Zhong's fervency toward the introduction of foreign capital; it was just as Qiu Yonghan had described. (Interviews with Norio Hirota, July–October 2009)

On witnessing the mayor's zeal and the support system put in place by the city government, Hirota reflected that “the support system of the mayor's city government and its strong leadership was an important factor in our decision to enter into the JV at Hefei, and this became a key to resolving issues that arose later.” (Interviews with Norio Hirota, July–October 2009)

For HCMC, the city of Hefei was attractive for reasons other than the mayor's warm invitation. Hefei Mining, a worthy partner for HCM, was located there. In addition, Hefei is the capital of the Anhui Province and government organizations are concentrated there, making it easier to gain necessary approvals to operate a business. Additionally, Hefei has the China University of Science and Technology, a well-respected school, providing not only a readily available quality workforce, but also cheap labor because of Hefei's location toward the interior. Other factors included the ease of distribution due to the presence of a port, proximity to areas in need of construction machinery, and the ease in securing a vast site of 360,000 square meters.

 
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