May 12, 2010
Kobelco Construction Machinery Group: Fiscal 2010-2012 Medium-Term Management

The Kobelco Construction Machinery Group has formulated its Fiscal 2010-2012 Medium-Term Management Plan. Under the Plan, Kobelco will strive to enhance profitability for the entire Group by concentrating management resources on APAC markets such as China, Southeast Asia and India, while enhancing the profitability of its domestic business. It intends to strengthen the KOBELCO brand and continue product development based on differentiated technologies. Kobelco aims to improve quality, conduct procurement, and deploy its production technologies throughout the world.

Kobelco plans to carry out business activities in the five years to fiscal 2015 to achieve its vision of generating consolidated net sales of 400 billion yen and ordinary income of more than 40 billion yen.

Kobelco’s Corporate Directions

The main goals of the Medium-Term Management Plan are to:

• Further grow business in China.
• Establish a foundation for business in India, which will become the second pillar after China.
• Increase profits in Southeast Asia.
• Deploy globally the business model established in Japan.

In particular, Kobelco plans to focus its management resources on the APAC markets and strengthen the competitiveness of the Group as a whole.

Business Position (Kobelco’s Goals)

Kobelco aims to increase its global presence as a specialized manufacturer of hydraulic excavators, the fastest growing type of construction equipment and highly versatile machines with a wide range of applications. Kobelco intends to maintain its position in this field.

It will focus its management resources on China and rapidly growing emerging markets, in particular, the APAC region (including India), through which it can increase its presence.

Management Goals

Medium-Term Management Plan: Management Goals (on a consolidated basis)

Medium-Term Basic Strategies:

Enhancing profitability in Japan and shifting toward a global structure

Although major growth cannot be expected in the immediate future for the Japanese market, Kobelco values its home market. Demand is high and Kobelco will make every effort to maintain its share of this market. To this end, it will review its sales bases, promote proposal-based services utilizing IT systems, enhance profitability from parts and maintenance services, and strengthen its profitability by thoroughly improving productivity at manufacturing locations.

In addition, Kobelco will continue to maintain and improve its “monozukuri-ryoku” or manufacturing capabilities, and domestic R&D capabilities; further pursue “Q” (product competitiveness and quality), “C” (cost and productivity) and “D” (lead-time); and have these efforts reflected in in global manufacturing.

Domestic plants will be geared for more efficient manufacturing suitable for high-mix, low-volume production. Also, the surplus capacity from the improved efficiency can be used to add value, by manufacturing in-house some of the parts that are currently outsourced. Kobelco will be able to enhance its profit structure and improve its functions in managing its global manufacturing system.

Injecting resources into growing emerging markets, enhancing the parts and other downstream businesses

In China, where growth is remarkable, business is growing steadily in terms of both sales and production. However, competition is expected to become fierce in the future due to the rapid growth of Chinese manufacturers and other factors. Kobelco plans to maintain and strengthen its dealer network and enhance its downstream businesses (parts, repair, purchase and sales of used equipment, etc.) in order to respond to diverse customer needs. Also, it will work on expanding its product menu (e.g. large machines and environmental recycling equipment).

Furthermore, in order to enhance its services, Kobelco will focus on improving its flagship service centers and setting up and growing its 4S dealers (sales, spare parts, service and survey).

In India, which has the potential to become a market comparable to China, mass production will start at Kobelco’s new plant from January 2011. Kobelco will strive to establish a competitive manufacturing system by increasing local procurement and expanding the number of local parts manufacturers. It will also work toward increasing brand power and expanding distribution and service networks.

As a proactive measure in the steadily growing Southeast Asian market, Kobelco plans to enhance its sales and service structure. In Indonesia, in particular, which is the largest market in the region, Kobelco will continue its efforts to expand and develop its service network, service personnel and improve its parts storage. Also, in Vietnam and Myanmar, which are the next growth markets, Kobelco plans to improve its sales structure.

As a common effort in all regions, Kobelco will focus on expanding its downstream businesses. In the parts business, it will endeavor to undertake the “secondary genuine parts” business in order to improve the profit base for not only itself, but also its dealers. Kobelco also intends to expand its service and maintenance businesses by expanding its parts business.

Further enhancement of capabilities in product development, quality, procurement and production technology

Kobelco has achieved unparalleded technological innovation in fuel consumption and noise reduction. Anticipating further competition from other equipment manufacturers, Kobelco will focus on taking technological development to a higher level and carry out activities to promote the brand image of Kobelco as a supplier of machines with excellent mileage. For the hybrid machines launched in January this year, further cost reduction technology will be established. Kobelco will continue to focus on promoting product development that will convince the market.

Kobelco will take a strong stance on developing optimal models for the growing Asian market and offer them on a timely basis.

It will also respond to the globalization of business, aim at global optimization of its procurement system, and take a lead in globalizing its manufacturing capabilities.

In terms of quality assurance, Kobelco will promote “Made by Kobelco” throughout the world, as well as pursue global quality.