Managing Asia

Managing Asia

Hitachi CEO: I always imagine how life will be in 5 years

Reporting by Christine Tan | Written by See Kit Tang
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Hitachi's turnaround story: In CEO Nakanishi's own words
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Hitachi's turnaround story: In CEO Nakanishi's own words

Known as the man who reversed the fortunes of Hitachi, Hiroaki Nakanishi is now preparing the Japanese conglomerate, which makes everything from elevators to nuclear plants, for its next challenge.

For fiscal 2014, Hitachi delivered an operating profit of 600.4 billion yen ($4.89 billion), its second year of record-breaking profit, on the back of cost-cutting, alongside strong demand for its lifts in China, as well as robust sales of auto parts and electronics products.

But it was a vastly different sight four years ago when Nakanishi was named the company's 10th president. The household name had logged four consecutive years of consolidated net losses, punished by the global financial crisis in 2008 and losses in its consumer product divisions such as the flat-panel TV units.

Nakanishi, an engineer who joined Hitachi in 1970 and worked his way up the ladder, proceeded to sell the company's hard disk drive business and consumer-related operations, opting to concentrate on sales of big-ticket power plants, rail lines and water treatment facilities. Having pulled off one of most remarkable turnarounds in Japanese corporate history, Nakanishi became chairman and chief executive of Hitachi in April 2014.

For his achievements, the 69-year-old was named the region's Business Leader of the Year at CNBC's 14th Asia Business Leaders Award last month.

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But Nakanishi hasn't finished the transformation of Hitachi. He is steering the conglomerate away from the domestic market, which has dwindling business potential due to a shrinking population.

To accelerate its plans for global expansion, in February Hitachi splurged nearly 260 billion yen on the railway and signaling units of Italian defense and aviation company Finmeccanica, marking one of the company's priciest-ever acquisitions. The takeover should more than double Hitachi's rail business revenue to around 400 billion yen a year, according to an article by Japan Times, giving the company a better footing in the European market.

Currently, the global railway market is dominated by Canada's Bombardier, Germany's Siemens and France'sAlstom, which are known as the "Big Three."

"Railway business is getting more global, with competition getting more severe so in this case, we need different arms. Finmeccanica has two companies; the signaling companies are profitable, simple as that, and for the locomotive companies, we needed the capacity for locomotive manufacturing," Nakanishi said.

Hiroaki Nakanishi, chairman and chief executive officer of Hitachi.
Akio Kon | Bloomberg via | Getty Images

"Europe is a very important market but Alstom and Siemens are two big giants; it's not easy. We need to set up a base in other countries so it's quite a natural decision to purchase Finmeccanica," he added.

Hitachi is also betting on the acquisition to ready it for battles with formidable Chinese rivals such as the $130-billion behemoth CRRC Corp that was created earlier this year from the merger of mainland state-owned train manufacturers CSR and CNR. The union was designed to allow China to compete more aggressively for overseas rail deals on the basis of economies of scale, but Nakanishi believes that Hitachi still has an edge.

"In the case of the railway business, our cost is competitive. China may have very aggressive pricing to tackle some of the emerging countries, but we still have technical advantage" he said.

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The nuclear power industry, another area on which Hitachi has set its sights, is still recovering from the March 2011 Fukushima Daiichi nuclear disaster that was triggered by the massive Tohoku earthquake and tsunami.

"The Fukushima disaster affected the domestic market very seriously and also, for two to three years, affected the global nuclear business environment," Nakanishi told CNBC. "But I believe nuclear power is a key technology with environmental considerations; there's no carbon dioxide emissions and [a nuclear reactor's plant] might last for 60 to 100 years."

Despite these challenges, Nakanishi is confident of surpassing last year's earnings result, noting that the direction the company is heading remains "very appropriate." When asked about his longer-term strategy for Hitachi, the chief executive said: "Listen to all of the people's opinions, not only internal but also external opinions [and] imagine [how things will be like] five years later. Maybe this sounds like an abstract expression but I'm thinking, how can we make Hitachi simpler?"