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Japan-Update

Komatsu bolstering US operations under pressure from Trump

Acquisition of Joy Global is a first step, but maintaining payroll looms large

Komatsu President Tetsuji Ohashi, left, and Wisconsin Gov. Scott Walker hold up the Wisconsin state flag at a ceremony marking the launch of Komatsu Mining, formerly known as Joy Global, at its headquarters in Milwaukee.

MILWAUKEE, U.S. -- A ceremony held in this Midwestern city on Monday marked the formal start of operations of a consolidated subsidiary of Komatsu after the Japanese company acquired a major U.S. mining equipment maker in April. 

The plan is to have Komatsu Mining, formerly known as Joy Global, play a complementary role with its parent in a bid to reduce the group's reliance on Chinese customers and construction equipment sales. 

The move comes after Komatsu was called out by U.S. President Donald Trump during his election campaign as a symbol of what he saw as a trade problem between Japan and the U.S. 

Komatsu made the decision to acquire a major U.S. company and dive headfirst into that market, where it faces pressure from Trump to hire more people locally. 

During Monday's ceremony at the Komatsu Mining headquarters, which was attended by Wisconsin Gov. Scott Walker, Komatsu President Tetsuji Ohashi spoke in English to the over 700 employees and asked them to adapt to the company's way of doing business. 

"The Japanese word you will come to know and understand well in our journey is dantotsu, which means 'unrivaled,'" Ohashi said. "It is our goal to become indispensable to our customers."

Spurred on

Komatsu announced last July the plan to acquire Joy Global for about $2.9 billion. After the acquisition was finalized on April 5, Komatsu moved quickly to integrate the company into its operations. It appointed Jeffrey Dawes, the then-head of Komatsu's Chile operation, as the new subsidiary's CEO and announced the Komatsu Mining name. 

Investors have regarded Komatsu's stock as susceptible to Trump's rhetoric after the then-presidential candidate asserted a cheaper yen made it difficult for U.S. construction equipment leader Caterpillar to compete with Komatsu. 

At the time, Ohashi jokingly said in response, "I'm grateful that it gave us better name recognition." Yet he did go ahead and bolster U.S. operations by acquiring Joy Global. After Trump became president and pledged a $1 trillion infrastructure investment plan, investors started to see an even stronger association between Komatsu shares and Trump. 

Ohashi told The Nikkei on Monday that the marriage between the two companies was "perfectly complementary." Joy Global's product portfolio includes items not in the Komatsu catalog, such as ultralarge wheel loaders and underground mining equipment. With combined sales of over $700 billion and a comprehensive product range, Komatsu now rivals Caterpillar. 

After the global financial crisis seriously dented its earnings in 2008, Komatsu achieved a V-shaped recovery by capturing growing Chinese demand for construction equipment. However, reliance on China's growth backfired after the country entered a period of slower growth and fiscal tightening. Komatsu now aims to boost sales of mining equipment, which remains less than 30% of its total sales, to further rectify the balance. 

But the Joy Global acquisition has some issues, not the least of which is how the parent can eliminate redundant operations between the two companies -- and maintain payrolls under the ever-watchful eye of Trump. 

Joy Global was in need of rehabilitation even before joining Komatsu. The company's balance sheet was in tatters, suffering operating losses in its last two fiscal years. Komatsu admits there is room to make the company leaner. 

Local employees are nervous about potential layoffs, but Monday's ceremony had its upbeat moments. The crowd cheered loudly, for example, when Dawes announced: "These kinds of mergers always produce some anxiety and concern going forward, but we didn't buy this company to close it up. We couldn't be more pleased to commit to keeping the headquarters of Komatsu Mining right here in Milwaukee." 
 

The remark was also welcomed by Wisconsin Gov. Walker, who said, "The company's decision to expand here is more proof Wisconsin is working."

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