TOKYO -- Komatsu has discontinued development of new light armored vehicles for Japan's Ground Self-Defense Force, citing low demand and meager profits, Nikkei has learned.
The Tokyo-based construction equipment maker has notified the Ministry of Defense that it will no longer develop new light armored vehicles, which the military has used in Iraq and for U.N. peacekeeping activities.
The move highlights the difficulty the Japanese private sector faces in supporting the country's armed forces, even though it is government policy to maintain the country's defense industry.
Japan's defense spending is on the rise, but much of the fresh money is earmarked for buying U.S. equipment, limiting the orders given to Japanese suppliers. Many companies in Japan's defense industry serve a small market dedicated just to the Self-Defense Forces, and investors in the sector are increasingly critical of low profitability.
Komatsu is a key Japanese manufacturer of vehicles used in SDF missions overseas. After receiving orders for nearly 200 light armored vehicles in the early 2000s, demand fell off sharply. "Currently we only receive a few orders a year, or none at all," said a Komatsu representative.
The Ministry of Defense had approached Komatsu about developing new light armored vehicles. But the company responded that it would be difficult to move forward on development given the low volume of orders.
Komatsu supplies the SDF with armored personnel carriers, light armored vehicles, reconnaissance vehicles and high explosives. Its contracts with the ministry -- including those for aircraft and ships -- totaled about 28 billion yen ($250 million) in fiscal 2017.
With the SDF as their sole customer, costs are high for defense businesses, which require specialized technologies that take time and resources to develop. Mitsubishi Heavy Industries, which makes F-2 fighter planes, and Kawasaki Heavy Industries, which builds the P-1 marine patrol aircraft, share the same challenge.
"Profitability is low, but we do it out of a sense of duty and don't completely see it as a business," said Takeshi Yamada, managing executive officer at IHI, which produces engines for defense aircraft.
The defense business is "hard to explain to investors," an official with a major heavy industry company said. Komatsu boasts an overall operating profit margin above 15%. It would surprise no one if it views its defense business as a burden.
The administration of U.S. President Donald Trump has demanded that allies step up defense spending, and Japan is ramping up outlays in areas that do not benefit domestic suppliers. The industry's prospects of improved profitability and growth are dim.