Japan’s hoist market has witnessed a number of changes over the past decade as the transfer of high cost labour intensive manufacturing industries to cheaper locations elsewhere in Asia has produced a profound change in the country’s economic base. Domestic hoist sales have stabilised during the past few years forcing Japanese hoist manufacturers to increase their focus on overseas sales to revitalize long term business prospects.
Kito Corporation is Japan’s largest producer of electric chain hoists, manual chain hoists and ratchet lever hoists.
For the moment the Japanese domestic market remains the company’s largest sales outlet, accounting for 60% of total global sales worth Yen 22 billion ($207 million) in the year ending March 31, 2004, (FY2003) and buying 50% of the total hoist units supplied worldwide. But it has identified that since the domestic market is unlikely to grow much, it must expand its exports.
“In the past most of our business was domestic, but now 50% is export so we must be more responsive to exports and shift more sales resources to exporting,” Yoshio Kito said. Last year, the company carried out a financial restructuring programme to bolster its financial position which had been weakened by Japan’s poor economic performance since the early 1990s.
Previously a listed company with 75% of its equity publicly traded while the remaining shareholding was held by the Kito family, Kito Corporation delisted at the end of 2003 to allow the Carlisle Group of Washington DC, a private equity group, to acquire a shareholding in the company. The current Kito shareholding structure has not been announced.
“Carlisle is providing us with the environment to concentrate on business expansion. That is why we accepted their participation,” Yoshio Kito commented, “The Carlisle Group is a private equity house – a financial player expecting a return; but different to other US financial players. We have had a lot of discussions with them over what value Carlisle can create for us and what we can provide them. They are friendly owners as long as we can reach our targets.”
Various factors prompted Kito Corporation to invite Carlisle on board. Japan’s economic performance has been sluggish for the past decade following the burst of the Japanese bubble economy burst in the early 1990s. Kito’s resulting weakened balance sheet and the company’s high debt ratio led to strong pressure from financial institutions for the level of debt to be reduced.
One result was that Kito’s management had to spend more time than previously with shareholders and financial institutions, reducing the amount of time senior managers could spend concentrating on marketing and sales.
One change that has followed Carlisle’s arrival as a shareholder has been Kito’s disposal of its longstanding automated warehousing business that has been operation for about 40 years. The business has been sold to Daifuku, previously Kito’s major competitor in Japan.
“The original automated warehousing equipment used chain hoists but modern equipment is totally different,” Yoshio Kito said, “We considered doing something with this business segment several years ago. Daifuku contacted us after Carlisle announced they had taken a shareholding in July 2003. This was not Carlisle’s decision. It was by mutual agreement. We will concentrate on our hoist and crane business.”
The products
Established in 1932, Kito Corporation’s first products were manual chain hoists. The company eventually introduced a second product line in the late 1950s when the first electric chain hoist was launched.
Today Kito manufactures three major products in Japan – manual chain hoists, electric chain hoists and rachet lever hoists. Although the company does not make electric wire hoists, Kito instead buys electric wire hoists from Mitsubishi Hoist of Japan which it then sells under its own Kito brand label in Japan.
“We are strong in the small to medium capacity hoist business,” Yoshio Kito said, “We have 50 tonne to 100 tonne experience but most of our business is below 20 tonnes, while the majority of the hoist business is below 3 tonnes.”
Kito’s hoist factory is located in Yamanashi Prefecture near Mount Fuji, about 150km west of Tokyo. The 200,000 square metre factory site includes 70,000 square metres of covered buildings. Some 250 workers are employed at the plant working a single shift, five day week.
Kito received ISO9001 accreditation in 1998. The company was awarded the ISO14001 certificate in 2001.
In addition to simply supplying hoists, Kito also designs and installs hoist systems for industrial clients. Kito’s process crane solution system business serves clients including Japan Airlines for whom the company designed and installed a hoist system to handle aircraft engines at the airline’s aircraft engine maintenance centre.
In South Korea Kito recently has contracted to design and install a clean room hoist system for Samsung at its LCD glass panel plant factory where LCD panels for computers and TV sets are made.
Other hoist systems installed for clients have included hoist systems for paper rolls in paper mills and hoist systems for printing companies to move around gravure printing cylinders. Hoist systems also have been supplied to chemical plants to move bulk materials around.
Since shipping its first export order in the 1960s, Kito now exports to more than 50 countries worldwide.
“Exports are 40% of our global sales in value, but 50% in unit terms as prices are more expensive in Japan,” explained Kito Corp’s senior managing director, Yoshio Kito, “Also, we have a hoist system solution value added business in Japan that can involve multiple hoist unit sales.”
North America is the company’s largest overseas market taking 50% of exports through two Kito subsidiaries – Harrington Hoists of the US and Kito Canada. The other major export markets are Europe, Africa, the Middle East and Southeast Asia.
Kito produces about 30,000 electric chain hoists annually. Production was up about 7% in FY2003 compared with the previous year.
Most of the electric chain hoists are supplied to manufacturing industries where they are used in fixed locations. According to Yoshio Kito, half the electric chain hoists are sold in Japan and the other 50% exported. The increase in sales last year was equally divided between the domestic market and exports.
Electric chain hoist sales in the United States have improved recently with orders up 1% in 2003 compared with an 11% increase the previous year. The recent gain was made in spite of the general downturn in the US market.
Kito produces about 50,000 manual chain hoists a year. These are supplied mainly to the construction industry, civil engineering companies and to power plant operators. In FY 2003 Kito supplied about 50,000 manual chain hoist units, a fall of 17% compared with 60,000 units the previous year.
“There were several reasons for the decline. The domestic market was slow as civil engineering and construction were slow,” Yoshio Kito said, “Also, we are adjusting our inventory level in North America. We reduced our shipments to the US even though our American sales increased. We will continue to decrease our North American inventory this year with more just in time deliveries.”
Manual chain hoists previously were used for lifting and lowering items when electrical hoists were not available. Nowadays manual chain hoists are used more for short distance applications, for tie down and fixing applications.
“Our biggest manual chain hoist market is the mining industry for gold, platinum, diamonds and coal in South Africa,” Yoshio Kito said, “The mines use thousands of manual chain hoists.”
Kito expects manual chain hoist sales to remain stable at about 50,000 units in FY 2004 while sales of electric chain hoists are expected to grow slightly to about 33,000 units.
Meanwhile, Kito launched several lever hoist products in 2002 introducing the LX mini lever and L4 models in Japan initially. Kito began to export in 2003 when the L5 model was introduced to replace the L4. However, no plans for any new models have been made for 2004.
According to Kito, some 130,000 lever hoist units were sold in FY 2003, up 8.3% on the 120,000 units shipped in 2002. The increase in sales was due to stronger exports last year following the launch of new products while domestic sales remained flat. The company is forecasting another year of sales growth and estimates that about 140,000 lever hoists will be sold in FY 2004
Apart from producing lever hoists in Japan, Kito recently has started to make some lever hoist products in the Philippines. The Manila plant originally was set up to make hoist parts for Kito’s main plant in Japan to use for final assembly. Recently, however, the Philippines plant has begun to assemble mini lever hoists in 250kg and 500 kg sizes for local sale and export.
Elsewhere in Asia, Kito’s Siam Kito joint venture in Thailand builds cranes for the local market using hoists and end carriages supplied from Kito in Japan.
In China, Kito operates a trading office in Shanghai, while in Jiangsu province Kito has set up a joint venture company called Jiangyin Kito Crane in Jiangyin near Wuxi that makes electric wire hoists for local sale. It sold 18,000 electric wire rope hoists in 2003, a 38.5% increase compared with the 13,000 units sold in 2002. About 96% of the plant’s hoist production is sold in China.
“We have started wire rope hoist production in China but not in Japan,” Yoshio Kito noted, “The hoist we are making is a Chinese national standard product which we have upgraded; but the appearance is still the same. If we imported it into Japan our Japanese customers would hesitate because of the appearance. But recently we have been selling the model to Japanese, Taiwanese, South Korean and American investors in China and they are satisfied. Most of our customers in China still are local companies.”
Kito plans to expand its Chinese factory by moving from the existing site to a larger location in an industrial development zone outside Jiangyin city. Construction work on the new plant began in March 2004 and is due for completion in March 2005. The new premises will allow a 50% increase in production capacity to 30,000 units a year.
“The total Chinese market is 120,000 to 130,000 units a year and we have our market share already, so 30,000 units capacity is a realistic amount,” Yoshio Kito said, “We have enough space there to expand, but now there is no plan to increase from 30,000 units a year capacity.”
In fact, Kito is considering producing chain hoists in China but has not made any final decision. One possibility would involve moving some chain hoist manufacturing operations from the company’s plant in Japan to China to reduce production costs.
R&D
Kito’s existing R&D facility employing 50 staff is located at the Yamanashi factory site. The R&D team is involved in developing new hoist products, upgrading existing models and researching new technology. In addition evaluation reports are produced on competitors’ products.
When asked about technological developments Yoshio Kito replied, “A lot of upgrading is going on. We are expanding special hoist applications solutions for the domestic market and neighbouring countries. For example, twin hook applications in paper mill plants; also, a climbing trolley for tunnel construction and various hoist products for industrial clean room applications.”
Although upgrades and product improvement are important, the hoist industry is unlike more mass market consumer technology industries such as the mobile phone industry. The product life of most hoists far exceeds the product life of most newly launched mobile phones.
“The product life cycle in the hoist industry is quite long – usually 10 to 15 years,” Yoshio Kito said, “Of course we make some modifications and do some upgrading every few years, but 10 to 15 years is usual for a model change.”
“Our production is not that big to change the jig and dies every few years unlike a consumer product. However, we are getting to be more careful about customer specific requirements and needs which requires more frequent upgrades with the same basic unit.”
With the change in shareholding structure now complete and Kito’s debt problems resolved, the company appears confident in entering the next stage of its development.
“We are quite comfortable with the current situation. Our overseas operations are quite healthy – the US business still has growth potential, China has huge potential and we are ready to expand there,” Yoshio Kito said, “We have been conservative and pessimistic about the domestic market situation but now there are some signals for future growth. The majority of our business growth will come from overseas including a slight increase in the US and Europe.”
