Taking Initiative

1. 5
TakenakaKomuten
Company Ltd
Case Studies in International Management
Christopher Sawyer-Lauçanno
1989 Prentice Halll
Background
The TakenakaKomuten Company is a large Japanese general contractor noted for its excellence in the
design and construction of office, commercial, and public buildings, multi-family housing, schools, and
hotels. The family-owned company has grown rapidly since its founding in the 1930s, attaining a position
as one of the top five construction firms inJapan, with 1992 sales in excess of US$2.3 billion. This success,
in the opinion of the Takenaka family, was attributable to one main factor: the non-diversified character of
the company.
This strategy of specialization proved quite effective from the 1950s through the 1980s. The company easily
gained building contracts, both domestically and internationally, and won numerous awards for its high
quality of construction. In the 1990s, however, with the worldwide decline in building construction,
Takenaka was finding itself for the first timein a rather precarious position.
It was clear that the old course of specialization was no longer as tenable as it had been. What direction
Takenaka should pursue, though, was a matter of controversy within the company. The chairman of the
board, Mr. Kazuo Takenaka, and his son, the president, Mr. RuichiTakenaka resisted expanding the
Takenaka firm into other areas of construction.
They had serious doubts as to whether TakenakaKomuten could actually compete with more established
firms and feared that a move toward diversification would harm the reputation of excellence and
dedication to building for which Tanaka was known. Most of the directors, however, felt that
TakenakaKomuten should expand its civil engineering capacity which presently accounted for less than
four percent of its total sales.
The Takenakas resisted this idea, however, feeling that it would drain too many resources away from the main
business activity and possibly even affect Takenaka's reputation as a dedicated general contractor. After
months of discussion, but with no resolution of the dilemma, the position of the directors was strengthened by
a new development: An offer was received from a former U.S. construction partner, Atlas Engineering &
Construction, to form a joint venture company for the purpose international civil engineering and building
construction.
Dialogue
Participants:
Tom Jameson, President, Atlas Engineering & Construction
Kenji Taniguchi, Managing Director, TakenakaKomuten
RuichiTakenaka, President, TakenakaKomuten
In the Osaka head office of TakenakaKomuten the American and Japanese executives are
discussing the possibilities of forming a joint venture company.
Jameson:
By now I'm sure you've had a chance to look over some the documents I sent from
Houston. I think it should be fairly clear that a joint venture for the purpose of obtaining
1

2. Tanaka:
Jameson:
Tanaka:
Taniguchi:
Jameson:
Taniguchi:
Jameson:
Tanaka:
Jameson:
Taniguchi:
Jameson:
worldwide contracts involving both civil and building engineering is a definite
advantage for both of us.
There certainly are some positive aspects to your proposal. We still have some concerns,
though.
Of course. A number of details need to be ironed out, even explored further. What is
your main concern?
Our main concern, to be perfectly honest, has little to do with the proposal itself. In fact,
we find it rather sound. The problem is simply this: TakenakaKomuten has built a
reputation on its commitment to design and building construction. We pride ourselves on
this. It's what makes us different from our competitors.
Yes. This policy is at the core of our business philosophy.
Iunderstand that. The fact of the matter, though, is this: combining our respective
strengths, we are not diminishing our own primary commitment either to building or
civil engineering.
In one way, that's true. In another, it isn't. By forming a separate company, we do
maintain our primary enterprise as is. On the other hand, a major resource commitment,
both in capital and in manpower, cannot help but affect TakenakaKomuten as a general
contractor.
But as I see it, we already are committed to that course. When we worked together in the
Emirates, with you building the terminal and us the runways, we were doing just that.
Also, I don't see that TakenakaKomuten will be changing its emphasis at all. You will
still be in charge of design and building construction, Atlas in charge of civil engineering. What our joint venture company would do is simply make it easier to bid on
projects.
That's a good point. It would definitely make it easier for prospective clients as well.
The problem, though, is with our image. Will our existing clients see it that way, or will
they feel that TakenakaKomuten has gone the way of all major contractors?
If we make our relationship clear, do a little public relations work, I don't see any
problem.
It definitely bears consideration. There's obviously a lot to gain from a joint venture.
And little risk, really. Also, since we will not do any joint venture work in Japan, your
domestic clients will not be at all affected. And let's also face it; we need each other if
we are to start increasing our growth. There's a lot of opportunity and revenue
internationally. And with our collective experience and reputation, I really think we can
turn this joint venture into a very profitable partnership.
Exhibits
Exhibit 1: Summary of Main Points in Jameson's Proposal to TakenakaKomuten
Main Activities of the Joint Venture Company:To procure contracts internationally for
projects involving both civil engineering and building construction, e.g., the design and
construction of transportation facilities, rural factories requiring road and rail extensions, urban
and regional planning and development, harbor facilities. In addition, the joint venture company
would engage in activities related to these projects, such as material procurement, construction
design and engineering (both civil and building), structural engineering, and land-use planning.
Purpose of the Joint Venture:To consolidate civil engineering and building construction
capabilities in one single corporation. The immediate advantages of such a consolidation are:
1. Elimination of separate bid submission, thus reducing the cost factor involved in
international feasibility study preparation.
2. Assurance to the client of integrated design, engineering, construction, and quality
control.
3. Reduction in overall costs to the client.
4. Placement of TakenakaKomuten and Atlas Engineering in a competitive position in
relation to other consolidated engineering and construction firms.
2

3. Investment Capital:Subject to negotiation and eventual scope of business. Probable minimum
investment is US$500,000 each.
Equity:Equal participation; hence, equal equity.
Distribution of Profit and Loss:Subject to negotiation and eventual structure of the
company. On most projects, however, equal sharing is desirable. On some projects requiring
additional resources provided by the respective parent companies, a percentage of invested
capital, materials, and manpower resources will be returned to or borne by the parent company.
Immediate Prospects for Joint Venture Bids:
Singapore: MarinaCity
apartments and roads
Brazil:
Porto Alegre-Sâo Paulo
rail and terminal improvements
Exhibit 2: Status of Projects Undertaken by TakenakaKomuten(in billions of US$)
Pending
Contracted
Completed
1990
2.416
2.352
2.320
1991
2.452
2.592
2.368
Net actual change
.036
.24
.048
Percent change
.015
.102
.0207
Exhibit 3: Ten-Year Growth Summary of TakenakaKomuten's Gross Sales (in billions of US$)
Ten Year Grow t h of Gross Sales
Tanaka Komut en
2,4
2,3
b illion s of U S $
2,2
2,1
2
1,9
1,8
1,7
1,6
1,5
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
Year
Exhibit 4: Contracts Awarded to Takenaka Directly and Through Negotiation
1989
1990
% No
Negotiation
75.7
72.6
%
Negotiation
24.3
27.4
3

4. Exhibit 5: Breakdown of the Types of Construction Undertaken by Takenaka
(percentages by sales)
1989
Offices
Stores
Hotels
Theaters
Factories
Housing
Schools
Hospitals
Gov’t buildings
Transport facilities
Other
1990
22.7
13.1
4.8
0.5
12.2
13.4
9.6
5.6
1.6
2.3
14.2
20.3
6.4
7.5
0.6
14.1
14.6
10.6
3.6
1.4
2.2
18.7
Exhibit 6: Financial and Statistical Summary of Atlas Engineering & Construction (in
millions of US$ except per share information)
1987 1988 1989
Consolidated
Worldwide Sales
Earnings after tax
Earnings per share
Overseas sales
Percent of total sales
742
24
2.17
298
40.2
1990 1991
754 1,051 1,274 1,889
28
38
44
45
2.50 3.30 3.37 3.40
301 337
371
378
39.9 32.1 29.1 20.0
Exhibit 7: Breakdown of the Types of Construction Undertaken by Atlas
(percentages by sales)
1989
Dams
Bridges
Highways
Energy plants
Runways
Harbor facilities
Offshore platforms
Other
1990
13.7
23.5
4.0
8.7
25.6
7.4
5.7
11.4
11.8
26.4
5.4
6.2
28.7
9.3
6.1
6.1
Exhibit 8: Projects in Which Atlas Was the Sole Contractor (Percentages)
1985 1986 1987 1988 1989 1990 1991
21.5 23.1 28.4 26.5 25.9 23.2 22.8
4