Chapter 1 Transforming Management and Launching Spin-offs

Chapter 1

1.

New Horizons for the 101st Year

1) A New Beginning

Transforming Management andLaunching Spin-offs
1997–2006

Kawasaki celebrated its 100th anniversary in 1996. This year, in which
the company achieved its highest earnings ever (on a non-consolidated
basis), was designated as the year of "New Beginnings" and marked the
beginning of a new chapter in its history for a new century.
The Japanese economy had been in a slump since the burst of the bubble
economy, and the sharp appreciation of the yen that started in 1999, inparticular, dealt a heavy blow to Japanese exporters. The Kawasaki
Group also suffered its second consecutive loss due to a prolonged
economic slump and declining investments in public works projects.
In April 2000, the company formulated a medium-term business plan,"K21: From Heavy Industry to Flexible Enterprise," with the goal of
returning to profitability. Under this plan, the company placed anemphasis on quality over quantity and aimed to shift its business modelfrom an order-driven business model that promoted quantity with an
aim to expand the market to a solutions-driven business model that
focused on responding to actual customer needs.
In 2001, Kawasaki started transforming its business structure with afocus on selection and concentration. It adopted an internal company
system to promote the independent management of each business.
Identifying the aerospace business and the consumer products andmachinery business as core businesses and the rolling stock businessand the gas turbine and machinery business as growth businesses, thecompany invested its management resources in these operations. In
order to respond flexibly to changes in the market environment,
Kawasaki spun off the shipbuilding and precision machinery businesses
in 2002, the plant business in 2005, and the environmental business in
2006.
On top of that, the company actively worked on consolidating plants,
reducing interest-bearing debt, overhauling its personnel system, andforming alliances with other companies. As a result of these efforts, infiscal 2006, the Kawasaki Group posted its highest profit figure since
fiscal 1996.

October 1996 would mark Kawasaki’s 100th anniversary and thecompany celebrated the milestone with a host of commemorative events.
The year marked a major turning point in the company's performancerecord. It posted sales of 1,043 billion yen and recurring profit of 38
billion yen, both the highest ever in its history (on a non-consolidated
basis). This was proof that the management restructuring measures that
had been implemented over the preceding ten years since 1986 had cometo fruition.
During this period, the company encountered many challenges, including
a serious shipbuilding recession, a substantial appreciation of the yen, aslump after the bubble economy burst, and the Great Hanshin-Awaji
Earthquake. However, under the strong leadership of President Hiroshi
Ohba, the company steadily rebuilt itself, aiming to build a flexible andstrong corporate structure.
Kawasaki designated 1996 the year of "New Beginnings," signaling thestart of a new chapter in its history as it looked ahead to a bright new
century. In September of the same year, it formulated a medium-termbusiness plan running from fiscal 1996 to fiscal 2001. It is outlined
below.
[Management goals](1) Qualitative goals<Corporate image and corporate structure>• Excellent company with global operations in key industries
related to land, sea, and air• Build a flexible but strong business structure designed to weather
any storm that may lie ahead<Business areas for expansion and growth>• Land, sea, and air transportation systems• Energy solutions, including power generation• Social infrastructure development, including environmental andrecycling systems• Plants and industrial machinery• Consumer products(2) Quantitative goals (FY2001)

FY2001 targets

Non-consolidated basis
Consolidated basis
Recurring
Recurring
Net sales
Net sales
profitprofit
1.2 trillion(5%)
70 billion
1.5 trillion yen
yen
60 billion yen
yen

Advertisement featuring the 100th
anniversary logo

Pamphlet promoting Kawasaki’s 100th anniversary,"Corporate Vision for the 100th Anniversary"

President Ohba pictured with former British Prime Minister
Margaret Thatcher who spoke at the 100th anniversary event[Priority Initiatives]
Re-enforce the three management action guidelines to ensure businessquality, enhance inter-division and inter-group activities, and makescience-based decisions, while pushing forward with the following
measures

The medium-term business plan explained in the company
newsletter

44

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Part 2/The Last 25 Years (Overall History)

Chapter 1 Transforming Management and Launching Spin-offs(1) Improve product and business mix(i) Focus management resources on growth areas(ii) Strengthen international cost competitiveness(2) Expand operations globally(3) Strengthen the Group's comprehensive capabilities(4) Strengthen financial health(5) Create an efficient organization and creative corporate culture
In April 1997, when the mid-term business plan was fully launched,
Ohba urged the new employees who would carry the torch into the next
century to refine their unique skills, cultivate a flexible as well as
strong mind and body, and become internationally minded people readyto work in the global arena.

2) Inauguration of Toshio Kamei as President

President Kamei (left) and Chairman Ohba (right)

In June 1997, there was a changing of the guard with the company
president, Hiroshi Ohba, being appointed chairman, and managing
director, Toshio Kamei, being appointed president.
In his inaugural address, Kamei announced key strategies for achieving
the goals of the medium-term business plan: (1) create and develop
businesses that should be at the heart of Kawasaki’s operations over the
next one hundred years; (2) transform Kawasaki into a comprehensive
systems engineering company; (3) drastically reduce costs with the aimof halving them; (4) make further inroads across the globe; (5) shift
management’s focus to consolidated accounting and return on equity(ROE); and (6) achieve a creative corporate culture.
In closing, he said, "In order to make Kawasaki a vibrant andinnovative company as we move toward the 21st century, we must
create a positive and healthy work environment where employees arefree to openly discuss issues and unleash their full potential."

In July of the same year, the General Purpose Gas Turbine Division andthe FA and Robot Division’s robot business were incorporated into theConsumer Products & Machinery Group. The FA and Robot Division’s
FA products were, however, left with the Industrial Machinery & Steel
Structure Group to be handled by its Industrial Plant Engineering
Division.
In April 1999, as a result of the reorganization of the Machinery,
Environment and Energy Group and the Industrial Machinery & Steel
Structure Group, the EPC (Engineering, Procurement, Construction)
contractor business was newly consolidated into the Plant EngineeringGroup while integrated manufacturing and sales operations and plants
were consolidated into the Machinery & Steel Structure Group. Thischange was intended to strengthen the company’s overall engineering
capabilities and expand its business.
In April 2000, in a move to restructure the shipbuilding business, theShip & Rolling Stock Group was abolished, and the Ship Division was
set up to independently operate the shipbuilding business. In addition tothat, the rolling stock business and the construction machinery business,
which are similar in both technology and production, were integrated
into the Rolling Stock & Construction Machinery Group. The Jet Engine
Division, Machinery Division, General Purpose Gas Turbine Division,and Precision Machinery Division were all reorganized and integrated
into the newly established Gas Turbine & Machinery Group. In order tofurther strengthen the company’s technological development
capabilities, the Gas Turbine Research & Development Center was
established with an eye to bringing the gas turbine development
functions of the Akashi Technical Institute, Jet Engine Division, andGeneral Purpose Gas Turbine Division all under one roof.

Ship Division

President
Corporate Planning Office

Sales OfficeSecretariat OfficeCentral Technical Office

Auditing Department
Public Relations Department
Internal Auditing OfficeSubsidiary Company Control Office

Kobe Shipyard
Sakaide Shipyard
Kobe Office
Rolling Stock & Construction Machinery Group

Legal Department

Rolling Stock Division

Finance Department

Sales Division

Accounting Department
General Administration Department
Personnel Department
Labor Department
Procurement Department
Information & Communication Systems OfficeEnvironmental Management Department
Market Development Department

Engineering Division
Manufacturing Division
Construction Machinery Division
Aerospace Group
Planning & Control Office
Aerospace Sales Division
Aerospace Division
Gas Turbine & Machinery Group

Kansai Project Research & Development Department

Planning & Control Department

International Operations Department

Gas Turbine Research & Development Center

Branch offices/Overseas offices

Gas Turbine Division

Technology Group
Planning & Control Department
Intellectual Property Department
TQM Promoting Department

Machinery Division
Precision Machinery Division
Plant Engineering Group
Marketing & Planning Office

Akashi Technical InstituteUtility & Industrial Plant Sales Division

Gifu Technical InstituteEngineering Support Center

Kanto Technical Institute

Industrial Plant Engineering Division

Production Technology Development Center
Electronic & Control Technology Development Center

Power Plant Division
Environmental Control Plant Division
Machinery & Steel Structure Group
Planning & Control Office
Steel Structure & Industrial Equipment Division
Crushing Plant Division
Consumer Products & Machinery Group
Planning OfficeMarketing & Sales Division
Research & Development Division
Manufacturing Division
Robot Division
Akashi Works General Administration Office

Organization chart (As of Apr.1, 2000)

4) Boosting the Financial Health of the Entire Group3) Restructuring and Reorganization of BusinessGroupsPresident Kamei's inaugural address in the company
newsletter46

In order to thoroughly implement the key strategies laid out in themedium-term business plan, Kawasaki undertook an organizational
restructuring from 1997 to 2000, with a focus on reorganizing its
business groups.
In June 1997, the Machinery, Environment and Energy Group wasestablished with the goal of expanding and growing energy andenvironment-related operations. The Precision Machinery Division was
merged with the CP Group to form the Consumer Products &Machinery Group.
In April 1998, the Ship and Rolling Stock Groups were integrated toform the Ship & Rolling Stock Group. The aim was to improveengineering and production capabilities as well as efficiency throughthe integrated operation of the shipbuilding and rolling stockbusinesses.

As the pace of internationalization picked up, it was becoming morecommon for companies to be evaluated on a consolidated basis in linewith global standards. In response to this trend toward consolidated
accounting, Kawasaki reviewed its basic policy on the management ofaffiliated companies to improve the competitiveness and profitability of
the Group as a whole. This included setting profit indices according to
the characteristics and actual conditions of each company, clarifying
personnel policies, and delegating certain authorities to the business
units in charge. The overall reorganization of the Kawasaki Group took
place from fiscal 1997 to fiscal 1999. It included some major changes as
described below. In overseas markets, the company continued to expand
its production bases in China and other Asian countries.
<Japan>• In order to strengthen the operational foundation of the entire
rolling stock business group, relevant affiliates were integrated andreorganized. Kawasaki Koki Co., Ltd. and Kawasaki
Transportation Service Co., Ltd. were merged to establish the new
Kawasaki Koki Co., Ltd. while Kawasaki Sanyo Co., Ltd.,
Kawasaki Railway Rolling Stock Engineering Co., Ltd., andKawasaki Hyogo Business Center Co., Ltd. were all merged toform Kawasaki Rolling Stock Engineering Co., Ltd. (October
1998)• In the construction machinery business, mergers were conductedwith the aim of further improving the efficiency of sales company
operations and boosting business activities tailored to local needs.

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Part 2/The Last 25 Years (Overall History)

Shanghai COSCO Kawasaki Heavy Industries Steel
Structure Co. Ltd.

Kawasaki Motors Enterprise(Thailand)Co., Ltd.

Chapter 1 Transforming Management and Launching Spin-offs

Four companies, including Kawasaki Construction Machinery,
Chubu Ltd., Kawasaki Construction Machinery, Kinki Ltd., Asahi
Construction Machinery, Ltd., and Kawasaki Construction
Machinery Sales, Ltd., merged to establish Kawasaki Machine
Systems, Naka-Nihon Ltd., while Kawasaki Construction
Machinery, Kyushu Ltd. and Kawasaki Construction Machinery,
Nishi-Nihon Ltd. merged to form Kawasaki Machine Systems NishiNihon, Ltd. (July 1999)• Kobe Crystal Tower Management Co., Ltd. and KOS Co., Ltd., acompany operating under the Environmental Control Plant Division,
were integrated to form Kobe Crystal Tower Service Co., Ltd., withan eye to centrally managing and operating office services in Kobe
Crystal Tower. (October 1999)• KGM Co., Ltd. absorbed its subsidiary, Sohara Works Co., Ltd. inorder to streamline and simplify the subsidiary’s operations.
(October 1999)
After this, Kawasaki continued to work on the integration andreorganization of its affiliates whenever necessary for the purpose of
improving their competitiveness, profitability, and efficiency.
<Overseas>• In the Chinese market, where demand for steel structure products
was growing by leaps and bounds, Kawasaki merged withCOSCO-affiliated companies, such as COSCO Industry
Company, to establish the steel structure production company,
Shanghai COSCO Kawasaki Heavy Industries Steel Structure Co.
Ltd. (October 1997)• Kawasaki merged with a Thai company to create Kawasaki
Motors Enterprise (Thailand) Co., Ltd. for the production andsales of motorcycles and general-purpose engines in a move
designed to restructure the motorcycle business in Thailand.
(December 1997)• Kawasaki then founded the gas turbine sales and service
company, Kawasaki Gas Turbine Europe GmbH, in Germany asbase for making further inroads into the general-purpose gas
turbine market. (May 1998)• Looking to get a firm foothold in the Korean robotics market, thecompany launched Kawasaki Machine Systems Korea, Ltd.,
providing robots along with customer services and after-sales
service training. (June 1999)

5) Implementing Reforms and Laying theFoundation for a New Age
Comprehensive Reform of Personnel Systems● Revised personnel system for executives
In order to create the efficient organization and a creative corporate
culture that was a key focus of the medium-term business plan
(FY1996–2001), Kawasaki revised its organizational structure andpersonnel system for executives in January 1998.
The company adopted a structure that would allow for the flexible
allocation of human resources so that it could respond quickly to issues
and challenges that were becoming more complex and diverse over
time.

48

It replaced its sections with a group system. The purpose of this was to(1) enable departments to flexibly form an organizational structure andplace personnel; (2) simplify the hierarchical structure within
departments; and (3) promote the effective use of employees regardlessof what their official qualifications were. Under the group system, thetitles for section managers, such as "shukan" and "shuji,” wereabolished, and the qualification-based titles, "sanyo" and "sanji," wereadopted for staff members and specialists both internally and externally.
In April 1998, in order to shift away from a seniority-based system to an
ability and performance-based system, the company widened the gap insalaries based on personnel evaluations. Any bonuses employees now
earned were based on their current contribution to the company. An
employee’s bonus was no longer based on their salary which normallyincreased with annual pay raises. The revised system rewarded
employees on the basis of their job qualifications and personnel
evaluations (performance assessments).

● Revised personnel system for general employees
In April 1999, Kawasaki revamped its personnel system for generalemployees on the heels of the executive personnel system overhaul. In
order to appropriately treat each employee fairly in light of his or herrole, ability, and performance, the company revised the professional
qualification and wage systems.
[New professional qualifications system]
Kawasaki introduced three categories of qualifications based on theconcept of "expected roles:" G (operations), R (planning anddevelopment), and S (supervisory capacity and specialized skills).
[New wage system]
In order to fairly assess employees according to their roles in the G, R,
and S categories, the company reduced the more seniority-oriented basesalary and introduced distinct performance-based pay for each category.
It also abolished the age-based pay for the R category in order to place
more weight on the ability and performance of each employee.
Building a Foundation for Environmental Management● Formulating the First Environmental Protection
Activities Plan
Before the enactment and enforcement of Japan’s Basic Act on theEnvironment in November 1993, Kawasaki had formulated its own
environmental management regulations in April of the same year. The
company established a new environmental management system toaddress not only conventional industrial pollution, but also urban,
household, and global environmental problems as well.
It also formulated the first stage of its Environmental Protection
Activities Plan (EPAP, FY1994–1996) to actively engage in independent
initiatives aimed at promoting environmental conservation. Moving
ahead with this plan, the company focused its environmental
management activities on implementing measures aimed at reducing theenvironmental impact of its production activities, including preventing
pollution, saving energy, conserving resources, and recycling. This
included, among other things, developing products and technologies
designed to help protect the environment and supplying environmentallyfriendly products to consumers.

Explanation of the first stage of EPAP in
the company newsletter

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Part 2/The Last 25 Years (Overall History)

Chapter 1 Transforming Management and Launching Spin-offs

Following this basic plan, business divisions formulated their own firstand annual environmental protection activities plans. This was the
beginning of Kawasaki’s new environmental management initiative toprotect the global environment.

The Precision Machinery Division became ISO 14001 certified

Environmental Charter● Becoming ISO 14001 certified
In 1997, Kawasaki began working to obtain ISO 14001 certification, anInternational Organization for Standardization (ISO) environmental
management system (EMS) standard, to facilitate its environmental
management activities. In February 1998, the Precision Machinery
Division became the first Kawasaki organization to be certified,followed by the Robot Division in October of the same year and theEnvironmental Control Plant Division I in March of the following year.
● Establishing the Environmental Management
Department and Environmental Charter
Recognizing protecting the global environment as one of its mostimportant management issues, the Kawasaki Group established theEnvironmental Management Department in April 1999. The
department’s function was to oversee the global environment-related
matters of the entire company (excluding environmental business) andplan as well as implement specific measures aimed at environmental
management for sustainability.
In August of the same year, Kawasaki established the Environmental
Charter. Outlining its basic environmental philosophy and action
guidelines for taking on the task of environmental conservation acrossthe company, the document made Kawasaki’s stance on environmental
issues clear to the entire world.
Environmental Philosophy
As a company in key industries related to land, sea and air,Kawasaki is deploying its business activities globally in pursuit ofreducing environmental impact and creating a sustainable society.
This makes us to commit ourselves to contribute to the sustainable
development of society through our environmentally conscious
business activities, technologies and products that preserve theglobal environment.
In 1999, Kawasaki published the first issue of its Environmental
Report, which highlighted the company's environmental conservation
activities. This marked a new chapter on how the company would share
information on its environmental initiatives with the public.

Environmental Report (first issue)

50

2.

Aiming to Return to a Sustainable
Growth Path
—Establishment of Spin-off Companies

1) Inauguration of Masamoto Tazaki as President
In June 2000, Kawasaki’s president, Toshio Kamei, became its
chairman, and Masamoto Tazaki, its senior managing director, becamepresident.
At the time, due to the prolonged economic stagnation and lack ofgovernment spending on public projects, Kawasaki found itself between
a rock and a hard place. It posted losses for two consecutive fiscal years,
1999 and 2000, with many of its business units beset with structuralproblems, such as slumping orders and falling prices due to fierce
competition.
Tazaki zeroed-in on achieving profitability in fiscal 2001, announcing hewould steer the company through this rocky business environment with afocus on implementing a selection and concentration strategy, making
the most of available management resources across the organization,
shifting from a quantity-first approach to a quality over quantity
approach, and cultivating a corporate culture that would be open to teamreorganization. He reassured employees that Kawasaki could evolvefrom a heavy industry company into a flexible enterprise if everyone put
their heads together and moved toward the same goal despite any
obstacles and conflicts that might arise along the way.
He impressed upon employees he was absolutely determined to make theyear 2001, the dawn of the 21st century, a new beginning for a company
poised to make a turnaround.

President Kamei and Senior Managing Director Tazaki at
a press conference

Message from the new president, Masamoto Tazaki, in thecompany newsletter

2) Formulation of the K21 Medium-Term Business
PlanUnder the new direction of Masamoto Tazaki, Kawasaki implemented
various measures to improve its financial position and ensure that it was
selective about the orders they accepted, with the goal of returning to
profitability by fiscal 2001. At the same time, the company formulated a
medium-term business plan, "K21: From Heavy Industry to Flexible
Enterprise" (FY2000–2004), with an eye to new growth in the 21st
century (see Table I).
This medium-term business plan aimed to increase enterprise value, via
the following four strategies with an emphasis on quality over quantityand an aim of achieving an ROIC* of 5% or more (after tax).
(1) Selection and concentration
Core businesses: Aerospace and Consumer Products & Machinery
Growth businesses: Rolling Stock and Gas Turbine & Machinery
Businesses to be reorganized: Shipbuilding, Plant Engineering, and Steel
Structure(2) Business model overhaul (measures to improve profitability)(i) Shift from being order-driven to solutions-driven: Increase added
value through repeated production(ii) Shift to a business model that delivers customer satisfaction overthe entire life of a product[Table I] Quantitative Targets under K21 Medium-TermBusiness Plan (FY2004)

Before-tax ROIC
After-tax ROICInterest-bearing debt
Net sales
For
Recurring profit
reference Domestic
workforce

Before-tax ROIC
After-tax ROICInterest-bearing debt
Net sales
For
Recurring profit
reference Domestic
workforce

Consolidated basis
FY20009% or more
5% or more
420 billion yen
500 billion yen
1.25 trillion yen 1.08 trillion yen
50 billion yen-16 billion yen
22,000 people

24,000 people

Non-consolidated basis
FY20009% or more
5% or more
320 billion yen
400 billion yen
1 trillion yen
870 billion yen
40 billion yen-18 billion yen
13,000 people

14,900 people*ROIC: Return on invested capital (earnings before interest expense divided
by invested capital).
An after-tax ROIC of 5% corresponds to a pre-tax ROIC of 9%.

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Part 2/The Last 25 Years (Overall History)

Chapter 1 Transforming Management and Launching Spin-offs

The K21 medium-term business plan explained in thecompany newsletter(iii) Invest management resources across the organization(iv) Strengthen product and service differentiation strategies(3) Change in management style(i) Shift to an internal company system(ii) Introduce an executive officer system(iii) Restructure the headquarters organization(4) Reform of the corporate culture(i) Increase employees' sense of participation in company
management by reflecting company performance in theircompensation(ii) Develop education and personnel programs that instill the
motivation needed to be innovative and take on new
challenges(iii) Establish a personnel transfer and compensation system inorder to swiftly promote spin-offs and alliances with othercompanies(iv) Develop human resources capable of responding to changes
through active rotations involving affiliated companies

3) Introduction of Internal Company and Executive
Officer Systems
Internal Company System

Corporate Planning Department
Public Relations Department
Auditing Department

Shipbuilding Company
Former Ship Division
Rolling Stock, Construction Machinery & Crushing Plant Company

Finance & Accounting Department
Personnel & Labor Administration Department
General Administration Department
Environmental Management Department

Former Rolling Stock Division
Construction Machinery Division
Crushing Plant Division

Legal Department

Aerospace Company
Former Aerospace Division

PresidentIntellectual Property Department
Procurement Department

Gas Turbine & Machinery Company

Information & Communication Systems Department
Business Development Department

Former Gas Turbine Division
Machinery Division

Kansai Project Research & Development Department

New Business Promotion Department
Corporate Technology Division

Precision Machinery Division
Plant & Infrastructure Engineering Company

System Technology Development Center

Former Industrial Plant Engineering Division
Power Plant Division
Environmental Control Plant Division
Steel Structure & Industrial Equipment Division

Branch offices/Overseas offices

Consumer Products & Machinery Company

Planning & Control Department
Technical Institute

Former Consumer Products & Machinery Group
Organization chart (As of Apr.1, 2001)

52

In April 2001, Kawasaki introduced the internal company system,taking the previous business division and group system to new heights.
The new system would enable each internal company to make its own
decisions via delegated authorities and responsibilities and conduct its
business operations with greater agility than ever, including businessalliances and M&As with other companies. Based on the previous
business group structure, the 13 business divisions were reorganized
into six companies, i.e., the Shipbuilding Company, Rolling Stock,
Construction Machinery & Crushing Plant Company, Aerospace
Company, Gas Turbine & Machinery Company, Plant & Infrastructure
Engineering Company, and Consumer Products & Machinery
Company.
Each internal company set up its own management committee headed
by a company president to operate its business. Business centers (BCs)were also established when it was necessary to create independent
business segments for certain markets, products, etc.
The Technology Group, which served as the research and development
department for the entire company, transferred specific R&D functions
to relevant internal companies where appropriate. It integrated
laboratories to enhance its capabilities to more efficiently develop basic
technologies that could be used in common, as well as new products
and technologies.

Executive Officer System
Kawasaki introduced an executive officer system in April 2001 toeffectively conduct the diverse range of businesses it operated indifferent markets.

The new system was designed to enable professionals in respective areasof business to make the optimal decisions and execute business
operations promptly. At the same time, the number of directors was
reduced from 26 to 11 to invigorate discussions at the Board of Directors
meetings, speed up strategic decision-making on matters discussed by
the board, and enhance management oversight.

4) Strengthening Financial Health
Raising Funds through Capital Increases at Market Valueand the Issuance of Convertible Bonds
Despite everything it did to boost profitability, all Kawasaki had to show
for its efforts was a low equity ratio of 12% at the end of fiscal 1995 anda need to increase shareholders' equity as well as improve the equity
ratio. In July 1996, the company issued 30 million shares (worth
approximately 15 billion yen) at market value overseas and 40 billion
yen in convertible bonds (CB) domestically. Since the company had
been conducting annual investor relations activities in Europe and the
U.S. since the beginning of the 1990s, it took advantage of these
activities to sell shares to overseas institutional investors. This was thefirst step the company took toward raising funds with a view to global
capital markets as it was expanding its operations across the world. The
successful completion of the capital increase also reaffirmed theimportance of overseas investor relations. The 15 billion yen raised
through new shares issued at market value were immediately capitalized,
contributing to the expansion of shareholders' equity.

Issuance of Euro-yen Convertible Bonds with Stock
Acquisition Rights
As the company sought to further strengthen its financial position, amajor challenge was to meet its funding needs without increasing
interest-bearing debt. Accordingly, the company decided to issue euroyen convertible bonds in light of the overall benefits. They would enable
the company to enhance its equity ratio at an early stage while securing
immediate funds. On top of that the favorable market environment
would allow the company to issue the bonds under favorable terms.
Specifically, the company issued euro-yen denominated convertible
bonds worth a total of 25 billion yen on December 8, 2003, and again on
September 21, 2004 for a total worth 22 billion yen. As the company
progressed with restructuring, its stock price rose, and that wasconverted into equity, which greatly helped strengthen its financial
position.

5) Reforming Every Business Division with an Eye
to Spinning Them Off into Independent Entities
Following the introduction of the internal company and executive officer
systems, Kawasaki moved into the second phase of its management stylereform as it worked to restructure its business with a view to spinning off
all of its business divisions and forming alliances with other companies.

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Chapter 1 Transforming Management and Launching Spin-offs

Establishing Kawasaki Shipbuilding Corporation

Shipbuilding cranes at Kawasaki Shipbuilding

Message from the Kawasaki Shipbuilding
president in the company newsletter

Kawasaki spun off its ship division and established Kawasaki
Shipbuilding Corporation as a wholly owned subsidiary on October 1,
2002.
The company's shipbuilding division was expected to easily stay well
afloat for the foreseeable future as it focused on meeting the mounting
demand for submarines and gas carriers. On the other hand,competition in the overcrowded global construction market was
growing more intense in an ever rocky business environment where
financial performance was susceptible to exchange rate fluctuations.
Working to establish a lasting stable profit structure that could weather
any storm, Kawasaki decided to spin off its shipbuilding operations
into an independent entity. The move would enable Kawasaki totransform itself into a company that could flexibly respond to changes
in the business environment and conduct business operations in anagile and efficient manner.
The new company would concentrate more of its resources on highvalue-added products, with a focus on its submarine, LNG and LPG
carrier technologies that customers were clamoring for. At the sametime it was implementing various cost reduction measures in order tocreate the kind of lean structure that could outpace the competition andadapt to changes in the business environment.
Kawasaki’s shipbuilding business, the anchor upon which the company
was founded more than 100 years before, was readying to launch itself
into the 21st century with a big splash.
<Outline of the new company>
Name: Kawasaki Shipbuilding Corporation
Head Office: Chuo Ward, Kobe City
Capital: 10 billion yen
Operations: Design, manufacture, sale, and repair of ships, naval
vessels, marine equipment, and other transportationequipment, as well as other related businesses

Establishing Kawasaki Precision Machinery, Ltd.

Message from the Kawasaki Precision
Machinery president in the company newsletter

54

Kawasaki spun off its precision machinery division at the same time it
spun off the ship division. The division, which had grown significantlywith the addition of mechanical and electrical products as well as
control systems to its core lineup of hydraulic equipment and devices,
had put the Kawasaki hydraulics brand squarely on the map.
Unfortunately the domestic hydraulics market had been shrinking since
fiscal 1998, with no significant recovery in sight.
In order to ensure that the precision machinery division would survive
and grow steadily in this business environment, it was necessary tobolster the foundation of the division’s operations, including services,and make it a more agile organization. That’s why Kawasaki went
ahead and spun off the division.
The new company merged with Kawasaki Hydraulic Co., Ltd., a
Kawasaki subsidiary engaged in servicing hydraulic products, with theaim of strengthening and expanding its highly profitable service
business while rebuilding an integrated business structure for hydraulicproducts and services. It focused on further differentiating itself withhighly functional, high-performance products, as it took aim at
becoming the world leader in hydraulic components.

The launch of Kawasaki Precision Machinery, Ltd. on October 1, 2002
marked the first step to firmly establishing itself as a top global
company.
<Outline of the new company>
Name: Kawasaki Precision Machinery, Ltd.
Head Office: Nishi Ward, Kobe City
Capital: 3 billion yen
Operations: Design, manufacture, sale, after-sales service, andmaintenance of hydraulic components and devices,
electrical equipment, and control systems

Establishing Kawasaki Plant Systems, Ltd.
The performance of the plant business, which had been one of
Kawasaki’s core businesses since the 1960s, had been lackluster since
the latter half of the 1990s due to fierce price competition within Japanand overseas.
It was against this backdrop that the company decided to spin off thebusiness. Moving ahead with an eye to develop operations centered onstand-alone equipment and plants, Kawasaki established a wholly owned
subsidiary, Kawasaki Plant Systems, Ltd. on April 1, 2005. The newsubsidiary would provide valuable products at reasonable prices in thefields of energy, social infrastructure, and environmental conservation toestablish a unique position in the domestic and international plant
industry.
<Outline of the new company>
Name: Kawasaki Plant Systems, Ltd.
Location: Chuo Ward, Kobe City
Capital: 5 billion yen
Operations: Design, manufacture, installation, repair and sale ofvarious plants

Message from the Kawasaki Plant
Systems president in the company
newsletter

Establishing Kawasaki Environmental Engineering, Ltd.
Kawasaki had expanded its environmental business by actively
developing technologies for facilities and equipment related to thetreatment and recycling of municipal and industrial waste. In the 2000s,
however, the company faced tough times as orders fell off and thecompetition slashed prices.
On the other hand, demand for waste treatment and water treatment
facilities that are so vital to public health was expected to remain stable
over the medium-to-long-term as communities looked to revitalize theiraging infrastructure.
Therefore, the company decided to aim for further growth anddevelopment through the spin-off of its environmental business, and on
October 1, 2006, it established Kawasaki Environmental Engineering,
Ltd. as a wholly owned subsidiary.

Message from the Kawasaki
Environmental Engineering president in
the company newsletter

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Part 2/The Last 25 Years (Overall History)

Chapter 1 Transforming Management and Launching Spin-offs<Outline of the new company>
Name: Kawasaki Environmental Engineering, Ltd.
Head Office: Chuo Ward, Kobe City
Capital: 3.5 billion yen
Operations: Design, manufacture, sale, and repair of municipal
waste incineration plants, industrial waste treatment
plants, resource recycling facilities, water treatment
facilities, etc.
Subsequently, Kawasaki formulated a medium-term business plan,
Global K (FY2006–2010), laying out a policy to develop the energy
and environmental engineering business into a new pillar of group
operations. On April 1, 2007, Kawasaki Plant Systems was mergedwith Kawasaki Environmental Engineering since both of these spin-off
companies were operating businesses that could be core energy andenvironmental engineering businesses, and the surviving entity,
Kawasaki Environmental Engineering, was renamed Kawasaki Plant
Systems.
The newly launched Kawasaki Plant Systems (capitalized at 8.5 billion
yen) aimed to become a top engineering company in the fields ofenergy and global environmental conservation.

Establishing EarthTechnica Co., Ltd.

The signing ceremony for the establishment ofEarthTechnica

EarthTechnica

56

Kawasaki’s crushing equipment business had been seeing its primarymarket, the domestic construction aggregate market, continue to shrink
due to a decrease in public works projects, with little prospect for arecovery. In light of market conditions, the company formed analliance with Kobe Steel, Ltd., a leading company in the industry, andestablished EarthTechnica Co., Ltd. on April 1, 2003 to engage in thedesign and sales of crushing equipment.
Parallel to the commencement of EarthTechnica’s operations in July of
the same year, the two companies looked into fully integrating
manufacturing and sales functions and decided to transfer theircrushing equipment manufacturing divisions to EarthTechnica on April
1, 2005.
The new EarthTechnica, a 50-50 venture between Kawasaki and Kobe
Steel, hit the ground running as the industry's largest integrated crusher
sales and manufacturing company.
<Outline of the new company>
Name: EarthTechnica Co., Ltd.
Head Office: Chuo Ward, Tokyo
Capital: 1.2 billion yen
Operations: Design, manufacture, and sale of crushers, grinding
mills, separators, waste recycling equipment, and wear
and heat-resistant cast parts for crushers

Consolidation and Reorganization of Affiliates
Kawasaki reviewed the functions of affiliated companies and worked on
improving efficiency through reorganization, mergers, and businessalliances in order to strengthen the business structure and costcompetitiveness of its corporate group as a whole. Major reorganizations
and consolidations carried out between fiscal 2000 and fiscal 2004 wereas follows.

● Establishment of Kawasaki Machine Systems, Ltd.
Kawasaki Machine Systems, Naka-Nihon Ltd., Kawasaki Machine
Systems, Nishi-Nihon Ltd., Kanto Kawasaki Construction MachineryCo., Ltd., and Tohoku Kawasaki Construction Machinery Co., Ltd.,
which were sales companies related to construction machinery operating
across Japan, were all merged into one. At the same time, Kawasaki’s
sales division for general-purpose gas turbines was transferred to the
newly merged entity that, on July 1, 2000, would become Kawasaki
Machine Systems, Ltd., specializing in the sales and servicing of
construction machinery and general-purpose gas turbines.
On April 1, 2001, the new company incorporated Kawasaki's domestic
robot sales division, and absorbed Kawasaki Robotics Co., Ltd., which
provided after-sales services for robots in Japan, as well as Kawasaki
Turbine Technos Co., Ltd., which provided after-sales services forgeneral-purpose gas turbines in Japan. As a result, Kawasaki Machine
Systems became the sales company for Kawasaki’s general-purpose
products offering a wide range of services, including system engineeringsolutions, user training, and after-sales services.
<Outline of the new company (as of April 1, 2001)>
Name: Kawasaki Machine Systems, Ltd.
Head Office: Kita Ward, Osaka City
Capital: 343.8 million yen
Operations: Sale of construction equipment, general-purpose gas
turbines, robots, and related products, systems, and parts,
as well as after-sales services, on-site construction, andother related operations● Reorganization of the Steel Structure & Industrial
Equipment Division’s affiliates
On October 1, 2000, Kawasaki merged the three companies, Kawasaki
Construction Co., Ltd., Kawasaki Bridge Maintenance Co., Ltd., andKawasaki Construction Equipment Co., Ltd., into Kawasaki
Construction. Having added bridge repair and maintenance as well as
on-site equipment management functions to its Steel Structure &Industrial Equipment Division’s on-site construction work business,
Kawasaki Construction was now able to handle everything fromengineering to construction for various building projects.
At the same time, Kawaju Harima Tech Inc., Kawaju Noda Tech Inc.,
Toban Business Center Co., Ltd., and Tokatsu Business Center Co., Ltd.
were integrated into Kawaju Harima Tech Inc., which was then renamed
Kawaju Equipment Tech, Co., Ltd. (Harima-cho, Kako-gun, Hyogo
Prefecture).

Kawasaki Machine Systems

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Chapter 1 Transforming Management and Launching Spin-offs

Kawaju Equipment Tech was now equipped with the capability toprovide advanced technology and customized services in a wide rangeof areas, including maintenance of cargo handling machinery, sluicegates, and movable structures; design, fabrication, and installation offactory machinery and equipment; painting and transportation work forsteel structures; and various services such as design contracting,copying services, as well as sales and leasing of office equipment.
As a result of these reorganizations and consolidations, the Steel
Structure & Industrial Equipment Division along with its affiliatedcompanies as a whole reinforced their business foundations andexpanded operations with the capability to handle everything fromengineering to maintenance for a wide range of products.

● Comprehensive business alliance and capital tie-up
between Kawasaki Safety Service Industries, Ltd. and
Air Water Inc.
In July 2003, Kawasaki Safety Service Industries, Ltd. (KSSI), and its
parent company, Kawasaki Heavy Industries, reached a basic
agreement with Air Water Inc. to bolster their partnership with an eye
to expanding their healthcare-related businesses. KSSI possessed a
wealth of experience in medical equipment, such as medical gas
systems as well as breathing apparatuses used in firefighting andlifesaving activities, while Air Water had long been engaged in medical
equipment sales and medical services with a focus on supplying
medical and other gases.
On October 1 of the same year, Kawasaki transferred 33% of its sharesin KSSI to Air Water, after which KSSI and Air Water inked acomprehensive business alliance agreement. In August 2006, KSSI was
renamed Air Water Safety Service Inc., and in August 2007, all KSSI
shares were transferred to Air Water, making it a wholly owned
subsidiary of Air Water.
● Establishment of Kawasaki Life Corporation
Kawasaki Life Corporation was established on April 1, 2004 throughan integration and reorganization of three companies engaged inservices related to asset management and employee welfare for the
Kawasaki Group, including Kawaju Real Estate Co., Ltd. (specializing
in asset management, real estate sales, and brokering), Kawasaki
Kosan Co., Ltd. (specializing in insurance sales, leasing, and real estate
management), and Kawaju Tomakomai Kanko Kaihatsu Co., Ltd.
(specializing in golf course management).

Kawasaki Life Corporation

58<Outline of the new company>
Name: Kawasaki Life Corporation
Head Office: Chuo Ward, Kobe City
Capital: 400 million yen
Operations: Real estate sales, purchases, leasing, management andoperation, lot sales and development, contracting ofcivil engineering and construction work, design andsupervision of construction work, insurance agency
business, general leasing business, etc.

● Establishment of Benic Solution Corporation
With the rapid development of information technology, the role of theinformation systems department and the nature of its operations changed
dramatically. In response to this change, Kawasaki looked for thesmartest way to handle its information systems in the 21st century. At
the end of the day it decided it would be best to set apart the division
responsible for building and operating information systems for thecompany and group as well as the division that sold technologies andknow-how cultivated in those operations. In January 1999, the separated
divisions were merged to form the Information Systems Division at
Kawaju Techno Service Corporation.
After carefully looking into the feasibility of turning the division into abusiness, Kawasaki finally decided to make it an independent company,
and on February 9, 2001, established Benic Solution Corporation, which
opened its doors for business on April 1.
<Outline of the new company>
Name: Benic Solution Corporation
Head Office: Akashi City, Hyogo Prefecture
Capital: 50 million yen
Operations: • Construction, operation, and maintenance ofInformation processing systems and information
communication network systems• Software and hardware sales• IT solutions

Benic Solution

6) Selection and Concentration of Production
Divisions
Chiba and Noda Works Consolidated into Harima Works
Kawasaki’s Steel Structure & Industrial Equipment Division had been
hard at work building bridges and floodgates for public works projects,
LNG tanks and penstocks for public utilities such as electric power andgas companies, and building structures (mainly steel frames) for theprivate sector. However, a prolonged economic slump and changing
societal needs after the collapse of the bubble economy had created astark business environment. Price competition among manufacturers inthe boiler business across the globe was also heating up.
In order to keep its steel structure and boiler businesses from goingunder in this harsh business environment, Kawasaki would have toreorganize its production divisions in Harima, Noda, Sodegaura, andChiba so it could improve its operational foundation and get
performance back on track.
The company eventually moved forward with the relocation andconsolidation of its factories, integrated the Chiba Works’ boiler division
into the Harima Works, and transferred the Sodegaura Works’ bridge
product manufacturing operations to the Noda Works. It also relocatedthe Noda Works’ production lines for pipes, tanks, and equipment to theHarima Works.

Noda Works

Sodegaura Works

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Chapter 1 Transforming Management and Launching Spin-offs

In fiscal 2000, the four plants in Harima, Noda, Chiba, and Sodegaura
were consolidated into two, the Harima and Noda Works. The
following fiscal year, production management at the Harima and Noda
Works was centralized, but since capacity utilization at the Noda
Works had declined significantly, its operations were folded into theHarima Works. The Noda Works was closed in the final days of
September 2003 after its production lines were shut down at the end of
March, leaving Kawasaki with only the Harima Works.

Chiba Works

Yachiyo Works

Closure of the Yachiyo Works and Opening of the
Kakogawa Works
Kawasaki's Yachiyo Works, which had been responsible for the
manufacture of crushers, grinding mills, environment-related
equipment, etc., became the production base for EarthTechnica when
the company was established in 2003. As a result, Kawasaki ceased its
operations at the Yachiyo Works on March 31, 2005.
In April of the following year the company opened the Kakogawa
Works. Serving as a factory for the Consumer Products & Machinery
Company, which had transferred part of its production operations to theformer Kakogawa rolling stock plant in 1989, the new facility started
manufacturing crankcase materials for V-engines using its first-ever
newly installed 1,650 ton die casting machine.

7) Establishing Overseas Representative Offices

Delhi Office (2007)

Moscow Office (2011)

As the market was becoming more and more globalized, Kawasaki
started setting up overseas representative offices. Following the
restructuring of overseas operations, involving the opening two new
offices and consolidation of four locations, the company moved to a
new organizational structure in January 2007.
The two new offices included one in Delhi, India that was opened in
January and another in Moscow, Russia, that opened in March. In theSoutheast Asian market, where Kawasaki’s operating divisions had
already secured a foothold, the functions of the local offices in
Bangkok, Kuala Lumpur, and Jakarta were transferred andconsolidated into Kawasaki Heavy Industries (Singapore) Pte. Ltd., thelocal subsidiary in Singapore. In China, the Shanghai Office wasreorganized as a locally incorporated company, Kawasaki Heavy
Industries Consulting & Service (Shanghai) Company, Ltd. (capitalized
at US$250,000, and wholly owned by Kawasaki), in January 2007, toprovide services and assistance to Kawasaki's group companies
operating in China.
This shuffle was designed to strengthen the trailblazing role overseas
offices were playing in new markets. Kawasaki also aimed to build on
its regional bases as well as enhance the functions and efficiency of its
overseas operations by dividing the global market into the four
strategic blocks of America, Europe, China, and Asia.
In Russia and India, two BRIC countries that were enjoying remarkableeconomic growth, the two new offices worked on conducting market
research, cultivating business opportunities, collecting project
information, and assisting business travelers.

After restructuring its overseas operations, Kawasaki now had four
overseas offices and eight local subsidiary locations from where it could
cultivate overseas markets and boost its brand power. It was perfectly
poised to enhance management efficiency and achieve its corporate
vision of "Global Kawasaki."8) Implementing a Brand Strategy
Kawasaki overhauled its visual identity (VI) in September 2001,
employing visual elements that enabled it to communicate its corporate
image more accurately and effectively, and take its brand power to newheights. Since the need for digital data has grown with the digitization ofdesign and printing of catalogs as well as other materials, the company
also introduced a new brand name, brand logo, revised logotype for thecompany name and trademark. Aligned with the corporate VI, theelements were more distinct and easier to use than ever before.

Visual identity (new brand logo)

9) The “Big Bang” in Accounting
As corporate globalization accelerated, more and more companies
adopted internationally accepted accounting standards. Beginning in
1999, new standards were sequentially established in Japan forconsolidated accounting, tax effect accounting, financial instruments
accounting, retirement benefit accounting, and business combinationaccounting.
Since Kawasaki had long been focusing on investor relations (IR)activities overseas and had lots of opportunities to hear what was on its
investors’ minds, it had already taken proactive steps, such as opting forconsolidated business management, ahead of the internationalization of
accounting standards. In fiscal 1998, the company implemented interim
consolidated accounting and introduced tax-effect accounting. In thefollowing fiscal year, the company included all subsidiaries in the scopeof consolidation, laying the groundwork for full-fledged consolidated
business management.
In the 2000s, the entire Kawasaki Group streamlined its management
and was ready to become a corporate group that would be highly
regarded in capital markets in light of the new accounting standards.

Kawasaki Heavy Industries (Singapore) Pte. Ltd. (2013)60

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3.

Chapter 1 Transforming Management and Launching Spin-offs

Cultivating New Growth in the 21stCentury
1) Formulating the K21 Medium-Term Business
Plan
The K21 medium-term business plan formulated in 2000 laid out a planfor boosting the marginal profit rate by cutting fixed costs andtransforming business models based on the basic policies of “quality
followed by quantity” and “selectivity and concentration.” Inparticular, Kawasaki positioned the Shipbuilding and Plant &Infrastructure Engineering as businesses requiring structural reforms,
since their markets had matured in Japan and did not expect to see an
improvement in the supply-demand balance anytime soon. Kawasaki
planned various reforms, including spin-offs, alliances, andconsolidation of factories, and completed most of them. During thistime, the company worked on reducing interest-bearing debt andstrengthened its financial position.
However, a combination of significant changes in the businessenvironment, including a prolonged economic slowdown in Japan anda slump in aviation demand triggered by the terrorist attacks in the
U.S., as well as deferrals of large-scale rolling stock and other projects,
caused a two-year delay in achieving the ROIC target. Kawasaki thendecided to make fiscal 2005 the final year for the K21 and formulate a
new medium-term business plan in light of the current operating
environment.

2) Inauguration of Tadaharu Ohashi as President

President Ohashi (right) is named the new president

Message from President Ohashi in the company newsletter

In June 2005 Kawasaki president, Masamoto Tazaki, became thechairman, and Tadaharu Ohashi, the senior executive vice president,
became the president. Ohashi had built his career in the rolling stockbusiness and had abundant overseas experience. Tazaki noted that oneof the reasons for handing over the reins to Ohashi was that, as a leader
who could compete with the world's most powerful companies, he had
a wealth of overseas experience, resilience to adversity, and the ability
to adapt to changes in the environment.
In order to complete the series of structural reforms implemented by
Tazaki, Ohashi aimed to make Kawasaki a powerful earning engine
while building trust for the Kawasaki brand. He also made thecompany’s basic management policies about boosting earning powerby focusing more than ever on the profitability of businesses andproducts; giving priority to compliance in all aspects over everythingelse; and contributing to solving global environmental problems with
Kawasaki’s advanced technology and superior products.
He called on employees to start working together to create a "Global
Kawasaki" that would survive and steadily grow in the 21st century, an
era where there was full-fledged international division of labor freefrom economic borders.

3) Strengthening Compliance Management

As a result, in 1999, the Japan Fair Trade Commission (JFTC) issued acease-and-desist order under the Japanese competition law. While thefive companies appealed to the Supreme Court, it decided against themand upheld the JFTC ruling in 2009.
In fiscal 2005, a number of companies in the industry, including
Kawasaki, were brought up on charges of violating the competition law
in connection with steel bridge construction contracts and were
penalized by the JFTC. In fiscal 2006, the JFTC ordered Kawasaki to
pay a surcharge for violating the competition law in connection withtunnel ventilation and sluice gate construction.
The company pledged to make group-wide efforts to prevent any suchoccurrence from ever happening again and placed an even greater
emphasis on compliance throughout its operations. In fact, the company
made ensuring thorough compliance a bedrock corporate policy. It did
everything possible to ensure no employee would ever commit an illegal
act again, recognizing that such illicit actions could jeopardize the very
existence of the company itself. In addition to that, the company started
holding regular meetings of its Corporate Ethics Committee, chaired by
the president, and set up the Compliance Committee under the Corporate
Ethics Committee.
Compliance committees were also established at internal companies andmajor subsidiaries to build an organizational structure needed to support
the implementation of systematic internal control and compliancemeasures across the Kawasaki Group.
The company implemented a Compliance Reporting and Consultation
System (a whistle-blower system) in June 2003 that is still in place andprovides all employees with a copy of its Compliance Guidebook.
Since 2006, the Board of Directors has passed a resolution every year, at
its annual meeting held immediately after the ordinary general meetingof shareholders, stating that Kawasaki would steadfastly comply withcompetition laws and strive to build on the company's enterprise value
and worth to society.

4) Formulation of the Global K Medium-TermBusiness Plan
Following the K21 medium-term business plan, Kawasaki formulated
Global K “Global Kawasaki”—The Next Exciting Stage (FY2006–2010), This was a business plan beginning in fiscal 2006 that would
guide the company during the first five years of working toward the
Kawasaki Group’s ten-year vision. Building on the structural reforms
and business stabilization measures implemented under K21, Kawasaki
aimed to take the company to new heights with an eye to achieving its
corporate vision for the coming decade. The outline of Global K is asfollows.
[Corporate Vision]
Enriching lifestyles and helping safeguard the environment: Global
KawasakiCompliance Guidebook

Explanation of the Global K medium-term business planin the company newsletter

Kawasaki, along with four other companies, was subjected to an onsite inspection in 1998 in connection with a bid for the construction ofa municipal waste incinerator.

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Strengthen
management

10 years in the
future (FY2015)(FY2006-FY2010)
Boost profitability
Execute growth strategies

Restructure businesses with poor profitability

Become a highly
profitable, globally
recognizedenterprise
Realize
corporatevisionAll segments profitable from FY2007

Concentrate resources in highly profitable/growth fields

Accelerate global business expansion

Provide high-performance, high-quality products and services
The plan will be reviewed at its halfway point

Positioning of the Global K Medium-term Business Plan

[Quantitative Targets] (Fiscal 2010, on aconsolidated basis)
Net sales

1.56 trillion yen

Operating income

100 billion yen

Recurring profit

90 billion yen

Before-tax ROIC

14%

Ratio of recurring profit to sales

5.8%

Kawasaki aims to become a leading global enterprise that enriches
lifestyles and helps safeguard the environment through its corebusinesses, which encompass land, sea and air transportation
systems, and the energy and environmental engineering sectors.
[Basic Objectives]
The company should leap forward to become a highly profitable,
globally recognized enterprise during the period of the Global K
plan by implementing the principal management policies of “Quality
Followed by Quantity,” selectivity and concentration, and stronger
non-price competitiveness.
[Gist of the Plan](1) What Each Business Should be 10 Years in the Future:
Work toward achieving the ten-year vision for businesssegments including Rolling Stock, Aerospace, Gas Turbines &Machinery, Consumer Products & Machinery, Energy &Environmental Engineering, Industrial Robots, Shipbuilding,and Industrial Hydraulic Products.
(2) Selectivity and Concentration: Positioning of the Businesses
Four Core Businesses: Rolling Stock, Aerospace, Gas Turbines& Machinery, and Consumer Products & Machinery
Developing Business: Energy & Environmental Engineering
Self-sufficient Businesses: Industrial Robots, Shipbuilding, andIndustrial Hydraulic Products[Priority Initiatives](i) Strengthen technological capabilities(ii) Encourage market-oriented thinking and action(iii) Accelerate global business development(iv) Create and cultivate new products and businesses(v) Strengthen Group management capabilities(vi) Promote CSR
When kicking off Global K, Ohashi asserted the new medium-termbusiness plan, which picked up where the K21 medium-term businessplan launched in fiscal 2000 left off, would take the entire Group to“the Next Exciting Stage.” He assured everyone that Kawasaki was“determined to put all its might and energy into aggressively moving
forward to achieve its goals.”

In 2004, the Kawasaki Group introduced an emergency safety
confirmation system dubbed the K-Emergency Communication System.
The system allows employees and their families in disaster-stricken
areas to voluntarily report on their safety status using a personal
computer, mobile phone, public phone, etc. in the event of a large-scaledisaster. It will not only help confirm their safety but also facilitaterescue operations and business recovery.
The Kawasaki Group is strengthening its crisis management system toensure the safety of employees and their families in the event of natural
disasters and terrorist attacks not only in Japan but also overseas.

Aiding Victims and Areas Hit by Natural Disasters
The Kawasaki Group has been actively providing assistance to areas andpeople affected by large-scale natural disasters that frequently occur inJapan and overseas, including the donation of funds and Kawasaki
products to help recovery efforts (see Table II).

Month/year decision toprovide assistance was made5) Ten Years after the Great Hanshin-Awaji
Earthquake

64

Japan

Disasters and affected areas

Assistance provided

February 2004

Bam earthquake (Iran)Donated 80 portable generators

January 2005

2004 Indian Ocean earthquake and tsunami

Donated a total of approximately ¥20 million

September 2005

Hurricane
Katrina (USA)Donated US$200,000 and Kawasaki multi-purpose vehicles (equivalent to
US$100,000)

May 2006

2006 Yogyakarta earthquake (Indonesia)

Donated ¥10 million and 20 motorcycles (mopeds)

May 2008

Cyclone Nargis (Myanmar)

Donated ¥5 million

May 2008

2008 Sichuan earthquake (China)

Donated ¥20 million

January 20102010 Haiti earthquake

Donated US$50,000

October 2011

2011 Thailand floods

Donated money and Kawasaki multipurpose vehicles totaling ¥30 million

November 2013

Typhoon Haiyan (Philippines)

Donated ¥10 million and 20 Kawasaki motorcycles (equivalent to ¥3.8
million)April 2015

2015 Nepal earthquake

Donated an equivalent of ¥10 million

September 2017

Hurricanes
Harvey and Irma (USA)Donated US$100,000 and 10 Kawasaki multipurpose vehicles, plus
donations from local subsidiaries and employees

November 2004

Niigata Chuetsu earthquake

Donated ¥10 million and a piece of Kawasaki construction machinery(equivalent to ¥22 million in total) to Niigata Prefecture

November 2004

Typhoon Tokage 2004 (disaster victim
assistance and reconstruction)

Donated ¥5 million to Hyogo Prefecture

March 2011

Great East Japan Earthquake*Detailed in Chapter 2, Section 2-5

August 2014

Heavy rain in northern Hiroshima City

Donated an equivalent of ¥10 million

April 2016

Kumamoto earthquake

Donated ¥10 million

August 20172017 Northern Kyushu torrential rainfall

Donated ¥2 million

July 2018

Torrential rainfall in July 2018

Donated ¥10 million

Strengthening the Group's Crisis Management System
The Great Hanshin-Awaji Earthquake that occurred in the early hours
of January 17, 1995 took many lives, paralyzed urban functions, andcaused unprecedented damage. In the wake of the disaster, every
Kawasaki plant drafted guidelines on what to do in the event of a major
earthquake or other disasters. The guidelines cover everything fromstockpiling emergency supplies to working with local governments andneighborhood associations on various projects, so that Kawasaki plants
can play a positive role in the local communities they are a part of.

K-Emergency Communication System safety confirmation app[Table II] Aid to Victims and Areas Hit by Natural Disasters

Overseas(FY2000-FY2006)

Chapter 1 Transforming Management and Launching Spin-offs

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6) Contributing to Local Communities
Corporate Museum, Kawasaki Good Times World, Opens

PR magazine announcing the opening of Kawasaki Good
Times WorldOn May 17, 2006, Kawasaki opened the Kawasaki Good Times Worldin the Kobe Maritime Museum (Chuo Ward, Kobe City). This
interactive museum allows visitors to experience the wonders oftechnology and the importance of craftsmanship while interacting with
Kawasaki products in fun and informative ways.
The museum is divided into the History Area, outlining the history of
the Kawasaki Group; the Motorcycle Gallery showcasing lines ofKawasaki motorbikes, both old and new; the Sea Zone, where visitors
can watch how ships are built and launched at the Kobe Works on a
triple-screen audiovisual system; the Land Zone, featuring an actual
Shinkansen cab; and the Air Zone, where an actual model of a large
twin-engine helicopter that can hold up to 27 people is displayed. Also
on display are Kawasaki's high-performance small industrial robots
that are widely used in factories These continue to be a magnet of
attraction for kids.
In October 2015, nine years after its opening, the museum welcomed
its two millionth visitor and presented them with a certificate ofrecognition, a bouquet of flowers, and memorabilia to mark theoccasion. The total number of visitors reached three million in
September 2020.
The Kawasaki Good Times World changes exhibits from time to timeand underwent a major overhaul in 2016 and 2018.

Promoting Strategic Industry-University Collaboration
Kawasaki Good Times World opening ceremony

66

On October 23, 2006, Kawasaki and Kobe University signed anagreement on industrial-academic cooperation.
Under the agreement, the two parties were to build a strategic industryacademia partnership leveraging each other’s wealth of research andtechnological expertise in pursuit of mutually beneficial ends. It was
based on a shared philosophy of contributing to society by creating
new value and business opportunities through Kobe University's
knowledge and Kawasaki’s manufacturing.
The partnership would enable Kobe University to further its basic
research and enhance the education of students, through internships
and more. It would allow Kawasaki to complement and reinforce awide range of technologies and knowledge, strengthen its coretechnologies and basic technological capabilities necessary for new
product development, and promote the development of newtechnologies and businesses in the areas of energy and theenvironment.
Through these activities, Kobe University and Kawasaki aimed toreinforce priority areas, strengthen basic and elemental technology
capabilities, explore new business areas to accelerate and streamline
research and development, and create new value and businesses, withan eye to making the world a better place.

7) Structural Reform of the Personnel System
As part of the structural reforms aimed at achieving the goals set in theK21 medium-term business plan (FY2000–2006), Kawasaki initiated adrastic overhaul of its personnel system in fiscal 2002.

Introduction of Term-end Allowance Linked to the
Performance of Internal Companies
Moving in line with the introduction of the internal company system,
Kawasaki introduced a performance linked system in fiscal 2003 thatbased year-end bonuses on how well each internal company performed
financially. The company designed this system to be the driving force
that would propel performance at internal companies. Kawasaki believed
it would foster a sense of ownership as well as a sense of unity among
employees at each internal company, all with an aim of firmly
establishing the internal company system and strengthening the entire
business foundation.

New Executive Compensation Plan
In fiscal 2002, Kawasaki introduced a new executive compensation plan.
It introduced an annual salary, abolished automatic pay increases (theregular pay raise), and implemented a system linking internal company
performance to year-end bonus amounts while adding greater weight toindividual performance when determining bonuses. Under the new plan,
the annual income of individual executives was determined on the basisof their ability and performance.
This revision to the executive compensation plan was a precursor to thestructural reform of the personnel system (TAR-GET), which is outlined
below.

Pamphlet on the new executive compensation plan

Implementation of Seven TAR-GET Initiatives
Moving forward with the reform of the personnel system, which had
been ongoing since fiscal 2000, Kawasaki implemented the second phaseof the structural reform dubbed TAR-GET. It was an acronym for "Total
and Aggressive Reformation for Gaining Excellent Tomorrow," whichmeant making drastic and ambitious changes that would pave the way toa bright new future. In order to overcome the hurdles facing thecompany, it was necessary to comprehensively and aggressively change
the personnel system, with a focus on performance, actual costs, andself-help efforts.
Seven initiatives were implemented under TAR-GET starting in April
2004 (see Table III).

Extension of the Retirement Age (for General Employees)
and Introduction of the Re-employment System
In the early 2000s, Kawasaki was saddled with a major labor challenge
as a large number of skilled workers reached retirement age.

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Moreover, since Kawasaki was expecting a steady flow of large orders,
it became a company-wide challenge to fulfill them without a hitch.
The real trick was using a skilled labor force to maintain and improve
quality while seamlessly passing on the technology and skills it
possessed to the next generation that would take the torch and bear it
into the future. In a greying Japanese society, the prolonged pension
gap resulting from the reform of the public pension system had also
become a major social problem.
Anticipating the social problems looming on the horizon, Kawasaki
revised its mandatory retirement age with an eye to ensuring job
security. Stabilizing employment was one of the principles of TARGET, which would relieve employees' concerns about retirement andrevitalize the workplace. Under the new system, the mandatory
retirement age for general employees was gradually raised from 61 to
63 between fiscal 2005 and 2007. In fiscal 2006, the company made it
possible for general employees and executives who reached the
mandatory retirement age to be rehired and continue working until theyreached the age of 65.
Subsequently, due to the need to secure and utilize an even older
workforce, the retirement age for general employees and partners wasraised to 65 in fiscal 2019.

Japan adopted the Kyoto Protocol Target Achievement Plan.
The plan outlined a multipronged environmental and economic strategy
for reaching Japan’s 6% CO2 reduction commitment that included
promoting technological innovation; ensuring participation andcollaboration by all stakeholders (national and local governments,
businesses, etc.), transparency and information sharing; utilizing various
policy measures; and ensuring international collaboration.
Against the backdrop of growing awareness of all the environmental
problems affecting the planet, the Kawasaki Group developed
environmentally friendly products (a.k.a. eco products) and introduced
them to the global market in order to achieve its 2010 Environmental
Vision (see Table IV).

Achieving Zero Emissions at All Plants
The third stage of EPAP (FY2000–2002) set a goal of achieving zerowaste emissions and a recycling rate of 100% at all plants by the end of
fiscal 2004.
[Table IV] Environmentally Conscious Products and Environmental Protection Products and Technologies
Environmentally Conscious Products

8) Environmental Management for Sustainability
Promoting Environmental Management for Sustainability
Promoting the 2nd three-year stage of EPAP
the 3rd stage of EPAP
(FY2000–2002)
Public Relations, ecoEducation, Social Activities• Disseminate the environmental
information to all Kawasaki
employees, stakeholders andsociety.
• Planning environmental training for
all Kawasaki employees.

Promoting Resource Recycling• Setting numerical targets forrecycling.
Reducing CO2 emissions• Promoting Energy Conservation
activities.
• Setting numerical targets for
reducing emissions.

Environmental
Charterthe 2nd stage of EPAP
(FY1997–1999)• Research and develop
new technologies andproducts for positiveenvironmental impacts.
• Observe environmental
laws/regulations.
• Pursue the creation ofa recycling-oriented
society.
• Implementation ofEnvironmental
Management System(EMS) and gain
ISO14001 certification.

Preventing Public Nuisance

Establishment of recycleoriented management
Environmental Contributions throughTechnologies and Products• Energy conservation.
• Air, water and groundenvironmental improvement.
• Waste disposal and recycling.
• Countermeasure of CO2
emissions.

Reducing Industrial Waste• Setting numerical targets forrecycling.
Energy Conservation• Reducing consumption in electricity, fueland water for production.
• Setting numerical targets for reduction.

Establishing EMS based on
ISO14001• Compliance with environmental
legislation.
• Zero instruction by government,
zero complaint from residents.

• Implementation of EMS in all divisions.
• Making foundation to gain ISO14001
certification.

the 1st stage of EPAP
(FY1994–1996)

Promoting the 2nd three-year stage of EPAP

In the first stage of the Environmental Protection Activities Plan
(EPAP), which started in fiscal 1994, Kawasaki invested in equipment
to prevent pollution and concentrated on the purification of factoryexhaust and wastewater. In the second stage (FY1997–1999), thecompany tackled various environmental issues such as energy andresource conservation as well as waste reduction, with the aim ofbuilding an ISO 14001-based environmental management system. In
the third stage (FY2000–2002), efforts were made to enhance
information disclosure by introducing green procurement, life cycle
assessment (LCA), product assessment (environmentally conscious
design), and environmental accounting.
Since many Kawasaki products are energy-intensive, the company
focused on saving energy and resources as well as recycling, not onlyat the manufacturing stage but also at the operation and disposal stagesof these products. This was done in order to contribute to achieving a
recycling-based sustainable society.
In 2003, the company formulated its Environmental Vision 2010:"What Kawasaki Should Be in the Year 2010," to step up efforts onenvironmental management.

Employing Green Manufacturing Technologies
In February 2005, the Kyoto Protocol, mandating that developed
countries cut carbon dioxide (CO2) and other greenhouse gas
emissions, went into effect.

Aircraft

Products and technologies that protect the environment

Boeing 787, a next-generation environmentally friendly
aircraft

Winning ACEJ Chairman's Award

Fitted with a lighter fuselage, the Boeing 787 is expected to save a hugeCo., Ltd. was highly rated by the Advanced Cogeneration and Energy

amount fuel. Kawasaki worked on the development and manufacture of the

Utilization Center Japan (ACEJ) for its energy saving, environmentally

forward fuselage and other components, utilizing its carbon fiber composite

friendly, and innovative features, earning it the Chairman's Award, which isprocessing technology.

given to only the most outstanding equipment.

Trent 1000, eco-friendly jet engine

Combined cycle power plant (CCPP)

Kawasaki’s cogeneration system delivered to Fuji Electric Device Technology

Kawasaki also participated in the development of a new eco-friendly jet

Ships

Kawasaki employs its high-efficiency L20A gas turbine for combined cycle

engine from the British manufacturer, Rolls-Royce. It featured improved fuel

Energy facilities power plants (CCPPs) that use both gas and steam turbines. The turbine

efficiency contributing to a significant reduction of CO2 and NOx emissions.

improves energy efficiency and cut CO2 emissions at power generation

The completed engine was used to power the Boeing 787.

facilities where they are employed.

Environmentally conscious large oil tanker (Katsuragisan)
The vessel’s fuel oil tank has a double-hull structure similar to that of a cargo

Woody biomass power generation system (fixed bed
gasification/gas engine system)tanker to prevent polluting the water in the event of an accident. It’s equipped

This system gasifies lumber residue, timber from forest thinning, clippings,

with an energy saving device called the RBS-F* to reduce energy

etc., and generates electricity via a gas engine. These wood resources are

consumption. *RBS-F: Rudder Bulb System with Fins

called woody biomass, and since they grow by absorbing atmospheric CO 2,

Environmentally friendly electronically controlled marine
diesel engine

they can be said to be renewable energy sources that do not increase CO2.

Low NOx gas turbine power generation systems

Electronically controlled diesel engines improve fuel efficiency, lower

Improvement ofcylinder lubricant consumption, and reduce NOx and dust emissions.

the air quality

Environmental measures for China’s EMU* (adoption ofheavy metal-free paints)

The advanced stoker system, which dramatically improves the performance ofstoker incinerators, achieves high-efficiency power generation and reduced

paints that do not contain these substances as an environmental measure andTransfer Register (PRTR). *EMU: Electric multiple unit (trains)

Energy conservation via friction spot joining (FSJ) robots
Plant andindustrial
machinery

environmental impact. In addition to this, ash is made into slag in a smelter andWaste treatment

can be used in asphalt and concrete products.

and recycling

Soda recovery boiler
A soda recovery boiler uses waste liquor (black liquor) generated during pulp

An FSJ robot performs spot welding of light alloys such as aluminum andproduction in paper mills as fuel. It recovers soda used as a solvent whilemagnesium. It uses frictional heat to soften and fuse the sections ofutilizing the heat from burning the pulp residue in the black liquor all with anworkpieces to be joined. The FSJ process consumes a 20th or less of theeye to conserving the environment.

power consumed by conventional resistance spot welding, in which

Landfill leachate treatment system (Sado)

workpieces are melted and joined using a high current.

Effective use of resources by reusing built-in parts on shieldmachines
SocialKawasaki worked with Araigumi to develop the DSR technique that allows

infrastructure

for extracting the internal shell of a shield machine, most of which had beenamount is less than a tenth of the emissions (2.5 ppm or less) from

Waste incinerators (stoker incinerators)

chromium and lead, but Kawasaki is promoting the use of heavy metal-free
has also reduced the number of substances listed on the Pollutant Release andturbine cogeneration systems, which already feature low NOx emissions. The
conventional gas turbine cogeneration systems.

Paints for rolling stock used to contain heavy metals such as hexavalent
Rolling stock

The use of catalytic combustion further reduces NOx emissions from gas

Improvement of

The leachate treatment system removes organic substances and heavy metals

water and soil

from landfill leachates. Its stable treatment capacity and outstanding water
purification performance help protect the environment.

buried underground after construction, and reusing approximately 90% of theparts. This achieved a better use of resources.

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Part 2/The Last 25 Years (Overall History)

Chapter 1 Transforming Management and Launching Spin-offs

In December 2000, the Harima Works began full-scale efforts towardachieving zero waste emissions. After identifying challenges lying
ahead and exploring ways to recycle waste, it achieved zero emissions
in September 2001. The factory achieved a recycling rate of 100% forwaste it generated annually while successfully slashing waste
management costs.
Subsequently all Kawasaki plants worked on zero waste initiatives andachieved a zero emissions status in March 2005 as initially planned,
with the Gifu Works, Nagoya Works 1, Nagoya Works 2, and YachiyoWorks all reaching their zero emission targets.
In 2011, Kawasaki redefined zero emissions as a final disposal rate of
1% or less in light of prevailing trends, and has maintained a zero
emission status since then.

Shuttering In-house Industrial Waste Treatment Facilities

Solar power plant at the former landfill site

[Table VI] ISO 14001-certified Kawasaki Locations
Month/year
certifiedInternal companies andbusiness centers
Precision Machinery
February 1998
Business Center
October 1998

Robot Business Center

March 1999

Environmental BusinessCenterNovember
1999

Steel Business CenterFebruary 2000
March 2000
May 2000
July 2000
August 2000
August 2000

Group companies, etc.

Consumer Products &Machinery Company
Jet Engine Division, Gas
Turbine Business Center
Construction Machinery
Business CenterIndustrial Machinery
Business Center
Crushing Plant BusinessCenter
Shipbuilding Company(Sakaide Works)

November
2000

Machinery Business Center

March 2001

Power Plant Business CenterMay 2001

Gas Turbine Business Center& Gas Turbine Research &Development Center

Kawaju Gifu Service Co.,
Ltd., Kawaju Gifu
Engineering Co., Ltd.,
Kawasaki Helicopter System
Co., Ltd., and KGM Co., Ltd.
Kawasaki Rolling Stock
Rolling Stock, Construction
Engineering Co., Ltd.
February 2002 Machinery & Crushing Plant(Kawasaki Heavy Industries
Company (Hyogo Works)
Hyogo Works)
Shipbuilding Company
August 2002
(Kobe Works)
February 2002 Aerospace Company

The Japanese government mandated that companies take responsibility
for disposing of their own industrial waste due to the shortage of public
landfill sites. Kawasaki turned its eye to Iwaoka, a town located in
Tarumi Ward, Kobe City, Hyogo Prefecture (now Iwaoka, Nishi Ward,Kobe). It’s there that it established a landfill site in 1973 and then the
Industrial Waste Disposal Center (IWDC) in 1979, which was designed
to reduce the volume of waste through incineration. In response to thegovernment mandate, the company ceased operation of the IWDC’s
incineration facility in 2001 (which was followed by its demolition anddismantlement in 2003, and the closing of the IWDC in 2007). It
ceased operations at the landfill site in 2003 (and shut it down
permanently in 2005). After serving their purpose, there was no room
for these facilities in a future where recycling and zero waste emissions
were the order of the day. The site is currently being used effectively as
an in-house distribution warehouse (completed in 2012) and a 1,500
kW solar power plant (opened in 2014).

Establishment of Environmental Management System(EMS)
Kawasaki is working to acquire ISO 14001 certification at all its
locations. The Shipbuilding Company’s Kobe Works acquired
certification in August 2002, making all six internal companies ISO
14001-certified (see Table VI).

9) Celebrating the 110th Anniversary
On October 12, 2006, Kawasaki held its 110th anniversary celebration
at Kobe Meriken Park Oriental Hotel’s Zuiten no Ma banquet hall. The
event was attended by Kawasaki executives, former executives,presidents of major domestic affiliates, labor union officials andmembers of Hyogo prefecture and Kobe city assemblies (who wereformer Kawasaki employees). A reception was held following acommemorative lecture entitled "The Milestones Made by the
Cosmopolitan Kojiro Matsukata," given by Masanori Aoyagi, Directorof the National Museum of Western Art.
The Kawasaki Group had been enjoying steady financial progress as itreached this milestone moment. It had seen sales and profits increase
for the three consecutive fiscal years from 2004 to 2006, and was about
to kick off fiscal 2007 with a bang.

*Company and division names are as of 2002.

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