Restructuring of Global Production System

Integration of Production Facilities in China and Enhancement of Production Capacity in India

June 24, 2022

Kobe Steel, Ltd.
Kobelco Construction Machinery Co., Ltd.

Kobelco Construction Machinery Co., Ltd. (or KCM), headquartered in Tokyo and a wholly owned subsidiary of Kobe Steel, Ltd., has decided to integrate its Chinese production subsidiary Hangzhou Kobelco Construction Machinery Co., Ltd. (or HKCM) into its manufacturing and sales subsidiary Kobelco Construction Machinery (China) Co., Ltd. (or KCMC).

KCM has also decided to enhance the production capacity for fabricated products at the plant of Kobelco Construction Equipment India Pvt. Ltd. (or KCEI) in India.

Implementation of the above decisions will mark the completion of a series of measures undertaken to reorganize and enhance the KCM’s global production system of excavators, which includes the “Transfer of the North American Hydraulic Excavator Plant”*1 and “Production Capacity Expansion of the Ogaki Plant: Efforts toward Global Strategy Enhancement,”*2 as previously announced in the news releases.

1. Current business environment

In terms of worldwide demand for hydraulic excavators, demand in developed countries has generally remained stable despite a decline due to the COVID-19 pandemic, and demand in developing countries excluding China is expected to grow steadily although there are highs and lows depending on the area. KCM plans to steadily increase sales of its hydraulic excavators in terms of number of units by strengthening its local sales networks and expanding product models and specifications to meet market needs.

China, on the other hand, presents a different picture. The Chinese market of hydraulic excavators, which in recent years has accounted for approximately 50% of worldwide demand, has been on a declining trend, and competition from Chinese domestic manufacturers is becoming fiercer. The current market share of foreign-capital manufacturers has fallen to some 20% (it was roughly 50% in 2018). In addition, sales prices have fallen sharply, which will inevitably have a negative impact on the KOBELCO Group’s construction machinery business that relies on China as a major source of earnings.

2. Outline of restructuring of the production and supply system and capital investments

The aim of the measures to restructure KCM’s worldwide production and supply system is to stabilize earnings and lower production costs by optimizing the supply system from a global perspective in light of changes in the market environment in China.

3. Related expenses and schedule for completion

Business measures Related expenses Completion date
(Start of regular operations)
(1) Integration of production facilities into KCMC Costs related to the integration About 6.0 billion yen* January 2023 (planned)
(2) Production capacity enhancement at KCEI Capital expenditure About 1.2 billion yen April 2024 (planned)
(3) Transfer of KCMU’s North American Plant Transfer price (About 4.0 billion yen) April 15, 2022
(transfer completed)
(4) Production Capacity expansion of the Ogaki Plant Capital expenditure About 3.4 billion yen August 2023 (planned)
*Most of the costs related to the integration of production facilities into KCMC that amount to about 6.0 billion yen will be the disposal costs of equipment at HKCM

4. Expected effects of the restructuring of the global production system

Through the implementation of the series of measures aimed at steadily optimizing the business operations in China, enhancing production capacity in areas of high demand, and strengthening the earnings structure of business operations in India, KCM anticipates the company’s annual earnings to be around 10.0 billion yen (in fiscal 2024 and beyond, after all related investments are completed).

Under the corporate philosophy of "user hands-on approach", KCM will continue to strive toward further development of technologies, toward provision of products with better value, and toward an improvement of the quality and stability of its business operations in which its manufacture and sales sectors coordinate seamlessly. As members of the KOBELCO Group, we will continue to provide solutions to the needs of society by making the best use of the talents of our employees and our technologies in order to realize a world in which people, now and in the future, can fulfill their hopes and dreams while enjoying safe, secure, and prosperous lives.

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