Komatsu
... emerged around the world, insurgent movements sought to overthrow existing governments, established countries grew to become economic powerhouses that rivaled the United States, and economic relationships came to predominate in a world that increasingly recognized military might could not be the only means of growth and expansion. President John F. Kennedy (1961-1963) ushered in a more activist approach to governing. During his 1960 presidential campaign, Kennedy said he would ask Americans to meet the challenges of the "New Frontier." As president, he sought to accelerate economic growth by increasing government spending and cutting taxes, and he pressed for medical help for the elderly, aid for inner cities, and increased funds for education. Many of these proposals were not enacted, although Kennedy's vision of sending Americans abroad to help developing nations did materialize with the creation of the Peace Corps. Kennedy also stepped up American space exploration. After his death, the American space program surpassed Soviet achievements and culminated in the landing of American astronauts on the moon in July 1969. Kennedy's assassination in 1963 spurred Congress to enact much of his legislative agenda. His successor, Lyndon Baines Johnson (1963-1969), sought to build a "Great Society" by spreading benefits of America's successful economy to more citizens. Federal spending increased dramatically, as the government launched such new programs as Medicare (health care for the elderly), Food Stamps (food assistance for the poor), and numerous education initiatives (assistance to students as well as grants to schools and colleges). Military spending also increased as American's presence in Vietnam grew. What had started as a small military action under Kennedy mushroomed into a major military initiative during Johnson's presidency. Ironically, spending on both wars -- the war on poverty and the fighting war in Vietnam -- contributed to prosperity in the short term. But by the end of the 1960s, the government's failure to raise taxes to pay for these efforts led to accelerating inflation, which eroded this prosperity. The Early 1970s The 1973-1974 oil embargo by members of the Organization of Petroleum Exporting Countries (OPEC) pushed energy prices rapidly higher and created shortages. Even after the embargo ended, energy prices stayed high, adding to inflation and eventually causing rising rates of unemployment. Federal budget deficits grew, foreign competition intensified, and the stock market sagged. The Vietnam War dragged on until 1975, President Richard Nixon (1969-1973) resigned under a cloud of impeachment charges, and a group of Americans were taken hostage at the U.S. embassy in Teheran and held for more than a year. The nation seemed unable to control events, including economic affairs. America's trade deficit swelled as low-priced and frequently high-quality imports of everything from automobiles to steel to semiconductors flooded into the United States. The term "stagflation" -- an economic condition of both continuing inflation and stagnant business activity, together with an increasing unemployment rate -- described the new economic malaise. Inflation seemed to feed on itself. People began to expect continuous increases in the price of goods, so they bought more. This increased demand pushed up prices, leading to demands for higher wages, which pushed prices higher still in a continuing upward spiral. Labor contracts increasingly came to include automatic cost-of-living clauses, and the government began to peg some payments, such as those for Social Security, to the Consumer Price Index, the best-known gauge of inflation. While these practices helped workers and retirees cope with inflation, they perpetuated inflation. The government's ever-rising need for funds swelled the budget deficit and led to greater government borrowing, which in turn pushed up interest rates and increased costs for businesses and consumers even further. With energy costs and interest rates high, business investment languished and unemployment rose to uncomfortable levels. The Late 1970s In desperation, President Jimmy Carter (1977-1981) tried to combat economic weakness and unemployment by increasing government spending, and he established voluntary wage and price guidelines to control inflation. Both were largely unsuccessful. A perhaps more successful but less dramatic attack on inflation involved the "deregulation" of numerous industries, including airlines, trucking, and railroads. These industries had been tightly regulated, with government controlling routes and fares. Support for deregulation continued beyond the Carter administration. In the 1980s, the government relaxed controls on bank interest rates and long-distance telephone service, and in the 1990s it moved to ease regulation of local telephone service. But the most important element in the war against inflation was the Federal Reserve Board, which clamped down hard on the money supply beginning in 1979. By refusing to supply all the money an inflation-ravaged economy wanted, the Fed caused interest rates to rise. As a result, consumer spending and business borrowing slowed abruptly. The economy soon fell into a deep recession. 1980s While Reagan and his successor, George Bush (1989-1992) presided as communist regimes collapsed in the Soviet Union and Eastern Europe, the 1980s did not entirely erase the economic malaise that had gripped the country during the 1970s. The United States posted trade deficits in seven of the 10 years of the 1970s, and the trade deficit swelled throughout the 1980s. Rapidly growing economies in Asia appeared to be challenging America as economic powerhouses; Japan, in particular, with its emphasis on long-term planning and close coordination among corporations, banks, and government, seemed to offer an alternative model for economic growth. In the United States, meanwhile, "corporate raiders" bought various corporations whose stock prices were depressed and then restructured them, either by selling off some of their operations or by dismantling them piece by piece. In some cases, companies spent enormous sums to buy up their own stock or pay off raiders. Critics watched such battles with dismay, arguing that raiders were destroying good companies and causing grief for workers, many of whom lost their jobs in corporate restructuring moves. But others said the raiders made a meaningful contribution to the economy, either by taking over poorly managed companies, slimming them down, and making them profitable again, or by selling them off so that investors could take their profits and reinvest them in more productive companies. 5. IDENTIFY THE PROBLEM OR PROBLEMS FACING THE COMPANY IN THE CASE GOING FORWARD. I AM LOOKING FOR YOUR ABILITY TO IDENTIFY THE ISSUES THAT REMAIN UNANSWERED BY THE CASE MATERIAL. Lack of a strong distribution, sales, and service network One of Komatsu¡¦s weaknesses lies in the operations department. This is due to a lack of a strong distribution channel, a dedicated and experience external sales force, and a strong service and support network. Komatsu¡¦s strength is evident in the quality and cost reduction projects that enabled Komatsu to develop a product line where their quality is as good, if not better than Caterpillar¡¦s for less cost to the consumer. Caterpillar¡¦s distribution channels and sales and service areas obstructed Komatsu¡¦s ability to compete with them. Komatsu¡¦s market share will continue to lag to Caterpillar until they can match or surpass their strong distribution, sales, and service network Centralized Production The centralized production concept have proven to be a strong factor for Komatsu in terms of controlling quality and reducing costs, but with all business decisions there are invariably trade-offs that occur. Due to the nature of these trade-offs, there is a threat to Komatsu regarding the future of the transportation cost when shipping their equipment overseas, and the possibility of losing contracts in the developing nations. Until this time, Komatsu rejected any suggestions to expand or move any manufacturing plants to overseas locations. Yen Fluctuation Throughout Komatsu¡¦s history, the Yen has been extremely volatile. The fluctuation of the Yen has threatened Komatsu¡¦s ability to grow. For example, if the Yen increases in value against the dollar, and no actions are being accomplished to mitigate the affects, this can cause a net affect of causing Komatsu¡¦s price of their products to increase. Although the reverse affect could prove to be beneficial to Komatsu. 6. IDENTIFY THE POSSIBLE OPTIONS AVAILABLE TO THE COMPANY TO RESOLVE EACH OF THE PROBLEMS THAT WERE IDENTIFIED IN NUMBER 5. PROVIDE A DETAILED DISCUSSION OF THE STRENGTHS/WEAKNESSES AND RISKS/BENEFITS OF EACH PROPOSED OPTION. Lack of a strong distribution, sales, and service network ƒæ Acquire a larger network ƒæ Attracting more dealers ƒæ Strengthen the service and sales network The lack of a strong distribution, sales, and service network has long been a disadvantage in Komatsu¡¦s ability to compete with Caterpillar. Komatsu has focused on these problems and as a result implemented several projects to address the lack of a strong distribution, sales, and service network by increasing the size of their product line. As a result, Komatsu is hoping to attract more dealers and persuade them to become exclusive dealers for their company. This also ties into their distribution channel problems and the lack of a service network problem. One option for Komatsu is to continue down the path of attracting more dealers, acquiring a larger network, and strengthening their service network. Another option for Komatsu is to attempt to set up limited partnerships with companies with strong existing distribution channels, sales, and service networks. Centralize Production ƒæ Relocate plants needing expansion to developing nations ƒæ Maintaining current operations as is ƒæ Combination of both The concept of centralized production was to gain high degrees of quality in Komatsu¡¦s products, and reduce component costs. As a result, this has become a great strength for Komatsu. One option available to Komatsu would be to move any plants needing expansion to a developing nation. This option would allow Komatsu to create jobs and help strengthen the developing nation economy. The second option availa...