Kennametal Hertel

Our American expatriate running Asia Pacific Region first met TMT in January of 1995. There were a number of issues we had. Among them were to increase our share in our joint venture with Kobelco (Kobe Steel) from 49% to 51%, and then up beyond that.

Kennametal is a world leader in manufacturing a broad range of tools (total tooling) for Metalworking, mining and construction industries. We are a leading producer of cemented carbides and other materials.

Tom Nevins tells me that before he first met me in May 1995, TMT had also been asked to find someone to be President of the new more fully owned Kennametal in Japan. Within a month after the contract was signed with TMT’s executive search division, I apparently surfaced as a candidate for the President’s position I now hold. TMT’s search was basically put on hold, and instead an internal candidate, me, got the job.

I am in many ways the reverse of Tom Nevins. I have spent about the same number of years in the U.S., and also have been working for Kennametal for 11 years. I was a local hire in the U.S., pretty much working like any American, but with a bit of an accent. I was brought up in Japan, much like Mr. Nevins was raised in the U.S. At that age, when exposed to a new language it is hard to get completely over the accent.

Actually, Tom tells me there was a question even among my American compatriots who knew Japan, if I might be too westernized or Americanized for the Japanese here. Mr. Nevins tells me his answer was, “That’s nonsense. It all depends on the person. If you are happy with him in North Carolina, he should work out in Japan. However, it may be unavoidable that some people use such statements against someone for political purposes, but that’s about all it is.”

My own reservations were whether or not a marketing and sales type, like myself, could handle CEO of a growing organization. It has been over six years, however, and things are going quite well.

In February, March, and April Tom had been doing a good job of interfacing with people from the J.V. partner, Kobelco, or Kobe Steel, Ltd. Kobelco had the majority share, and as in most J.V.’s was controlling and running the J.V. mostly with the Rules of Employment (ROE) and salary systems that such a large Japanese company is familiar with.

Mr. Nevins and his TMT human resource systems had a high enough degree of acceptance with Kobelco, because the TMT personnel and pay systems have basically a Japanese flavor, but with the required flexibility, a smaller foreign capitalized company needs.

Also in 1995, Kennametal had acquired a company called Hertel Japan Ltd. The two operations had to be merged. Mr. Nevins began meeting with Hertel people, and bridging the gap between their H. R. systems, pay, and ROE, etc. over to the new primarily TMT influenced Kennametal models. I think in his way, TMT also reassured the Hertel people about the up-coming merger.

There had been talk of, and an opinion that it was necessary to carry-out a staff reduction as Kennametal became more directly owned and would merge with Hertel. A number of the Kobe Steel people who were still on seconded/employee loan status would go back to Kobe Steel anyway. Beyond that, I was opposed to reducing staff, at least until I became more familiar with everyone after working together with them. Also, I believed I should give any chances to people and manage to create new business to support people. Maybe this reluctance to cut people was my Japanese side showing.

Tom says he very much respects me and my decision to make a commitment to all my people. He also says he respects me because I tried so hard to save company resources, when it came to my pay and benefits on my reentry back into living in Japan. It’s surprising what makes an impression on people! Not reducing staff did make it harder to achieve the numbers I would be pressured to make.

Another reason Mr. Nevins is asking me, and helping me write-up this “mini-case study testimonial,” is that our client relationship has a special significance for him, and for TMT.

In October 1995, after I was settled into my new job, we were getting ready to physically merge Hertel and Kennametal into one single location. On October 14 there was an all day seminar at TMT’s seminar room. It included remarks by a number of key managers, including myself. Mr. Nevins also delivered in Japanese his “Marketing Strategy…” and “Time Management” seminars.

The thing that was rewarding for Tom was that it was in the TMT seminar room where the Hertel people first met with the Kennametal people. Tom Nevins is aware of the impact of a first impression and a good start. He made sure a Kennametal person had his or her bento lunch with a Hertel person. Little touches like that, and making sure as many of us exchanged cards, and got to know each other during breaks helped.

Mr. Nevins really did his best to try and get our merger off to the best start possible. I doubt he will ever go back to the States to work, the way I returned to Japan. I still miss the States. However, this has been a great opportunity for me and my company in Japan.

It is not easy to merge two different companies. It takes a long time to mix up two different cultures. We understand it. Luckily, we have a relationship with TMT, as a partner. We are happy with it. Our sales performance has been growing since our merger though the economy is stagnant. Although Japan’s GDP is falling, we estimate that our sales as of June 2002 will be four times comparing to 1995. We’d say nobody has been fired so far. One key factor for foreign companies to be successful in Japan is good personnel who can understand foreign business cultures. We could gain profits in the first year just after our merger. After six years, we continue growing. In terms of increase in wages, welfare, and benefits, we are confident that we are trying to become the first place among our industries. We can tell that our teamwork’s victory has led to our current position. Our victory results from our employees’ loyalty to this company and a relationship of mutual trust between the management and them.

Companies are persons. Persons are properties of companies. Real management means increase in sales by creating new business; therefore, it is essential to obtain profits. Management doesn’t mean dismissals, lockouts, and improvement of companies by paying off their assets.

Lastly, we greatly appreciate Mr. Nevins’ assistance and support.

Toshiyuki (Tony) Funabashi
Kennametal Hertel Japan Ltd.
January 2001