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8.2.4 Post-joint Venture Management

HCMC worked on product quality control, developing their resellers, and understanding market needs while expanding their business in China. Because it provided thorough direction on technical and quality issues from the time its subsidiary was created, currently, from a technical perspective, the welding, assembly, and other areas in its Chinese products are indistinguishable from its Japanese counterparts.

Because of briskness of demand and a skyrocketing used-vehicle market, work previously done with smalland mid-sized hydraulic excavators was accomplished through the use of mini excavators, making HCMC's operating environment extremely difficult; Japanese-style excavators did not fit the needs of the Chinese market, and so, with the cooperation of its distributors, HCMC researched on how customers were using their equipment. The result of this research was the development of the ZAXIS60 mini excavator, specifically designed for the Chinese market. The ZAXIS60 has the durability of a mid-sized excavator, increased horsepower, a faster front arm, and other features that reflect the needs of Chinese operators more closely. This Chinese model has been received well, resulting in the company being able to increase its market share in the mini excavator market, which was previously an oligopoly by Korean manufacturers.

Although the company had huge operating losses at the outset of its establishment, as a result of the above efforts, HCMC realized an annualized profit within 3 years (1998). In the decade between 1998 and 2008, revenues grew dramatically. Even in the initial stages when the company's revenues were small, its market share stood at 30 %. The company sold only 30 units in 1996, growing to more than 5,000 in 2003. However, due to tighter auto loan policies, including loans for construction machinery implemented by the People's Bank of China in 2004 and 2005, the number of units subsequently sold dropped to around 3,500. Yet, sales figures recovered after 2006, and the company sold more than 10,000 units in 2008. HCMC expanded production in 2008 due to a lack of capacity; however, with the impact of the economic crisis in the fall of 2008 and the wearing off of the Chinese government's measures to bolster the economy, production of equipment in recent times has been sluggish.

HCMC succeeded in producing low cost machinery at the same level of quality expected in Japan; this has been a source of strength for HCMC overall. In 2007, HCMC began exporting products to other countries, and has made many innovations toward technological improvement and personnel development, such as creating a school for technical development and sponsoring a skills competition. The Hitachi Technical School is a joint collaboration with a local vocational training school that provides training for secondand third-year students. In their first year, students learn the basics, such as reading design drawings and welding in theory, while in the second year they are taught to weld (lean practice) and other work. In 2008 the school received more than 1,000 applications, out of which it accepted 200. Graduates are given priority placements at HCMC. In addition, since 2007, HCM has sponsored an annual international skills competition that includes all factories in HCM group companies worldwide. In 2008, measuring and painting events were included.

When running a JV in the Chinese market, companies often use the sales channels of their JV partner. However, because HCMC became a wholly owned subsidiary, it had no sales network, and therefore the process of creating resellers was cumbersome. Customer service creates future demand, however, because Chinese resellers were unaware of the concept of customer service that exists in other countries, HCMC needed to exhaustively teach its resellers that service was something that was directly tied to revenue. In the early stages, 80 % of its resellers were stateowned businesses that thought of customer servicing as incomprehensible and subsequently, but they are dropped out from HCMC partners. In 1998, HCMC split its manufacturing and sales functions, creating HCM Shanghai (HCMS), which manages 28 resellers. As an incentive, HCMS has 1-year agreements with each reseller. Operating times for hydraulic excavators in China have increased to 20 h daily, including weekends, a figure much higher than in Japan. The company has placed service personnel at each reseller, sending these personnel to repair broken down machinery, a system that was set up to meet the needs of customers requiring immediate repairs. In 2008, for the first time, HCMC invested in a Shandong reseller, Qingdao Chengri Construction Machinery Co., Ltd., and is in the planning stages of creating a direct sales structure. Elle Construction Machinery (Tianjin) Int'l Trade Co., Ltd. imports HCM machinery to China, catering to those customers who insist on having “Made in Japan” products. As a means of further expanding its sales channels and retaining customers, HCMC created the Hitachi Construction Machinery Leasing (China) Co., Ltd. Direct purchases are currently the most common way to purchase machinery in China, and leases make up only 10 % of sales. In Japan, however, the reverse is true, with 70 % of acquisitions made via leasing. Late lease payments are increasing due to the economic crisis, and bad debt prevention is a concern.

As of October 2012, HCMC had almost ten subsidiaries and affiliated companies in China, each of which is managed by the China division at HCM's headquarters (Fig. 8.2).

 
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