Makita Corporation

1915–2003

Makita Corporation is Japan's number one manufacturer and exporter of electric power tools. The company develops, manufactures, and distributes tools--more than 350 different products in all--in four areas. Makita's portable general purpose tools group, which accounted for more than 52 percent of 2003 revenues, encompasses drills, jackhammers, grinders, sanders, screwdrivers, and other construction equipment. The portable woodworking tools group includes saws, planers, routers, nailers, and other carpentry tools. It generated about 19 percent of sales in 2003. Stationary woodworking machines, including table saws, planer-joiners, and band saws, contributed just over 1 percent of sales. Though the company has traditionally targeted the professional user, Makita's distinctive turquoise tools increasingly appeal to the do-it-yourself market. Consumer tools include heavy-duty and household vacuums, chain saws, brush cutters, hedge trimmers, and blowers. These, along with industrial-use dust collectors and generators, made up around 11 percent of annual revenues. Makita's parts and repair services were another important business area, contributing more than 16 percent of revenues in 2003.

Having launched multinational operations in 1970, Makita boasted more than 100 sales offices and 39 overseas subsidiaries in the early 2000s, selling its products in more than 100 countries around the world. Although North America was its oldest market and generated 26 percent of sales in 2003, Makita's largest foreign market was Europe, constituting just under 33 percent of sales. Approximately 22 percent of revenues originated within Japan itself, while Southeast Asia contributed almost 8 percent. Aiming to make its products as close to its customers as possible, Makita manufactures its power tools and other products at plants in Japan, Brazil, Canada, China, Germany, the United Kingdom, and the United States.

20th-Century Foundation and Development

The company traces its history to 1915 and the establishment of Makita Electric Works, a repair shop for electric tools and equipment in Nagoya, Japan, midway between Tokyo and Osaka. It was incorporated in 1938 as Makita Electric Works, Ltd. In April 1945, near the end of World War II, the plant was relocated to Sumiyoshi-cho in nearby Anjo City in an attempt to avoid damage from air raids. The company has been located in Anjo ever since.

But it was not until 1958 and the administration of President Juiro Goto that the company diversified into the manufacture of electric power tools. In January of that year, Makita began selling portable electric planers, the first such product in Japan. A 1962 public stock offering raised funds for the diversification program. By 1969--just over a decade later--Makita had leapfrogged to the top of the Japanese power tool market. The company credited its success in the domestic power tool market to high quality construction, pioneering research and development, and a unique system of direct distribution. Instead of relying on wholesalers to market its tools to retailers, Makita employed its own direct sales force. The close relationships engendered by this system gave the company insights into the needs of retailers as well as the end user, thereby fueling innovation.

With their brushed metal casings, the company's earliest tools looked bulky, heavy, and primitive by today's standards. Over the years, Makita traded metal casings for shock-resistant, turquoise plastic; added multi-speed motors and electronic controls; and developed a mind-numbing variety of accessories. Makita targeted professional tool users in the carpentry, construction, timber, and masonry trades with its powerful, durable equipment that often cost two to three times as much as a typical tool made for the consumer market. Focusing on the high end of the power tool industry mitigated price competition, thereby boosting profit margins substantially.

Research and development costs averaged 1.7 percent of sales mid-decade, and totaled ¥2.7 billion ($21.4 million) in 1997.

1968–1991

Overseas Expansion Beginning in 1970s

Realizing the limitations of the domestic market, Goto sought global expansion in the 1970s. Stock offerings in 1968 and 1970 generated a "war chest" that financed Makita's overseas campaign. The company employed a multinationalist strategy, establishing a new subsidiary in each target market. Makita set up a foothold in the United States first, in 1970. Within just four years, the company had operations in France, the United Kingdom, Australia, Canada, the Netherlands, and Italy. The late 1970s and early 1980s witnessed the creation of subsidiaries in Germany, Belgium, Brazil, Austria, and Singapore.

Makita used its comparatively low-cost production base to advantage in Europe and the United States. By the end of the 1970s, the company had captured almost one-fifth of the global professional tool market, nearly matching Black & Decker Corporation's market share. As an unidentified analyst told Fortune's Bill Sapirito in 1984, "Basically, Makita had them by the you-know-whats and just said, 'Cough.'"

By this time, competition between Makita and U.S. industry leader Black & Decker had saturated that country's market for power tools to the point that sales growth appeared limited to replacements, parts, and trade-ups. In fact, manufacturer's sales slid 16 percent from 1980 to 1983. Fortunately, the development of cordless rechargeable power tools established a whole new avenue of growth. After ten years of research and development, Makita launched its first cordless tool, a drill, in 1978. Eliminating the cord freed the worker from the power source, but early cordless models had several limitations. They were often heavier and less powerful than their corded forebears, had very limited running time, and required long periods to recharge. Though these factors kept cordless tools out of many professionals' tool chests, they did appeal to the home handyman whose projects were less demanding. Improvements in battery technology throughout the late 20th century boosted power and running time while reducing recharging time. By the late 1980s, Makita's 9.6-volt family of cordless tools was beginning to find their way onto construction sites.

Establishment of Overseas Factories: 1980s

A variety of factors encouraged Makita to begin to establish manufacturing operations outside Japan during this period. Rising labor and production costs at home combined with a desire to minimize the effect of currency fluctuations and circumvent many trade restrictions while simultaneously reducing shipping expenses. Makita set up production facilities--dubbed "transplants" in business jargon--in Canada in 1980, Brazil in 1981, the United States in 1985, and the United Kingdom in 1991.

1984–1997

Makita also continued to expand its global presence throughout the late 1980s and 1990s, establishing sales, distribution, and service operations in Spain, Taiwan, Hong Kong, China, New Zealand, Poland, Mexico, the Czech Republic, Hungary, and Korea. The company augmented its manufacturing capabilities with the creation of plants in the United Kingdom (1989) and China (1993). By the end of 1997, the company's Chinese factory was churning out over 100,000 power tools each month. Makita also created the U.K.-based Makita International Europe Ltd. as a holding company for its burgeoning European operations.

New Products Driving Power Tool Market in 1990s

Makita pursued new product development in the 1990s, focusing on ergonomics as well as dust, sound, and vibration control. In 1991 the company bought into the market for gasoline-powered tools such as chainsaws via the acquisition of Germany's Sachs-Dolmar G.m.b.H., which was subsequently renamed Dolmar GmbH. Research and development costs averaged 1.7 percent of sales mid-decade, and totaled ¥2.7 billion ($21.4 million) in 1997. By that time, Makita held more than 150 patents worldwide and applications for hundreds more were pending. Some of the company's discoveries applied Makita's power tool know-how to home and garden appliances including cordless vacuum cleaners, rechargeable electric lawnmowers, remote-controlled drapery openers, and hedge trimmers. As Makita reached out to the consumer market, however, it had to take special care not to alienate its core constituency of professional tool buyers. The company launched two new lines of cordless tools powered by 12-volt and 14-volt battery systems in 1997 as well.

By the early 1990s, Makita had captured over 50 percent of the $400 million U.S. market for professional tools, far surpassing American power tool maker Black & Decker (B&D). But B&D moved to reclaim the segment in 1992, when it relaunched the DeWalt brand as its pro-tool standard-bearer. The construction-yellow competitor to Makita soon took the segment by storm. Such industry observers as Fortune's Patricia Sellers characterized Makita as "complacent" in the face of this renewed competition.

In fact, Makita's strategy remained unchanged as the turn of the 21st century approached. Masahiko Goto, who had succeeded Juiro Goto as president in 1984, continued to lead Makita into the late 1990s. In his annual message for 1997, Goto expressed Makita's "aim to become a 'Strong Company'" by "developing products that accurately meet the needs of the market, increasing overseas production and further rationalizing production processes at its domestic production facilities, and strengthening its sales and distribution bases." This rather unimaginative plan did not serve Makita well in the 1990s.

Sales declined from ¥178.9 billion ($1.4 billion) in 1993 to less than ¥160 billion ($1.3 billion) in 1996 before recovering to ¥186.2 billion ($1.5 billion) in 1997. Net income fared worse, falling by more than 30 percent from ¥9.8 billion ($79 million) in 1993 to ¥6.7 billion ($54.4 million) in 1995, then rebounding somewhat to ¥8.1 billion ($65.4 million) by 1997.

1997–2004

Makita continued its struggles during the late 1990s, its difficulties compounded by the still stagnant Japanese economy, the economic turmoil that followed the Asian currency crises of 1997, and the sharp appreciation of the yen against both the dollar and the euro, which eroded the value of overseas sales in these regions. The company closed out the 1990s with rather dismal 2000 profits of ¥4.19 billion ($40.7 million) on revenues of ¥174.55 billion ($1.69 billion). Makita continued to expand its global network during this period, establishing subsidiaries in the United Arab Emirates, Argentina, Chile, Greece, and Romania. On the product development front, the company introduced the world's first cordless miter saw and also launched a line of 18-volt cordless power tools during 1999. Among the new products debuting the following year was a circular saw with an attached dust collector and also the world's first line of cordless tools powered by nickel-metal hydride batteries. The latter were more environmentally friendly than the previously ubiquitous nickel-cadmium batteries, which contained cadmium, a heavy metal. By this time, the company had developed a recycling program that enabled customers to return their used batteries--both types--to any retailer within Makita's huge worldwide network.

Early 2000s: Struggling to Overcome Economic Turmoil and Heightened Competition

The uncertain economic and geopolitical situation that prevailed worldwide in the early 2000s made for a difficult operating environment for Makita. Net income dipped to a low of ¥133 million ($1 million) during 2002, a plunge of 94 percent from the previous year; part of the blame rested with weakness in global stock markets, which led to ¥2.74 billion ($20.6 million) in losses from securities held by Makita. The company also had to contend with an extremely competitive situation in the United States, where the aggressive entrance of low-priced products from China had cut its market share from 17 percent at the beginning of the 1990s to less than 10 percent a little more than a decade later. As a result, Makita's U.S. subsidiaries were operating in the red, and the company's North American subsidiaries reported operating losses of $16.5 million and $27.5 million in 2001 and 2002, respectively, before managing to eke out an operating profit of $2.3 million the next year.

Responding to these trends, Makita moved aggressively to cut manufacturing costs. In November 2000 a second manufacturing subsidiary was set up in China, and production began at this company in June 2002. Yet another Chinese subsidiary was established in March 2001 to handle the export of Chinese-made low-cost components to Makita's manufacturing plants around the world. By 2002, 28 percent of the company's production was being conducted in China. In a related development again aimed at countering the growing threat of Chinese power tool makers, Makita in the spring of 2002 began selling within Asian markets outside of Japan a new line of low-cost power tools under the brand name Maktec.

Elsewhere, Makita took further steps to enhance its global network of sales subsidiaries. In January 2001 a Miami, Florida-based subsidiary was created to handle sales to Central and South America as well as the Caribbean region. Two months later, Makita Oy was set up in Finland to facilitate sales in northern Europe, Russia, and the three Baltic nations.

While continuing to contend with the economic doldrums that were enduring in its home market, as well as the extremely competitive situation that existed in the power tools markets of North America, Europe, and Asia, Makita was taking aggressive action to cut fixed costs through restructuring efforts. The U.S. manufacturing and marketing operations were a prime target for action. During 2004 Makita reduced its U.S. warehouses from seven to four, and it also closed 20 of the 46 repair centers that it operated in that country, shifting the affected repair services to retail outlets. In the uncertain economic times of the new century, it was difficult to determine whether initiatives such as these would be enough to return Makita's profits to the levels achieved in the early to mid-1990s.