(Plan Period: April 1, 2008 to March 31, 2011)

Keywords for Growth and Specific Initiatives

The SHI Group launched the “Global 21” three-year plan in fiscal 2008. Under this plan, we have worked hard to grow in the global market and take a leap forward toward making SHI a world-leading brand. During the term of the plan, the domestic market continued to mature, while the ongoing rapid market expansion in China and other emerging countries provided many business opportunities. In this environment, the quick establishment of the Group’s competitive advantages in the global market became a priority issue.

The SHI Group abided by its keywords for growth—namely, “globalization” and “innovation”—under “Global 21,” implementing initiatives aimed at securing continuous expansion. Specifically, we worked to create first-class products and services that are competitive on the global level while using these products and services to selectively target overseas markets.

We also established and adhered to three-year investment policies aimed at ensuring growth on a global scale. These policies included facility investments totaling ¥100.0 billion and R&D investments totaling ¥50.0 billion. Based on these policies, we promoted investments in global business network expansion and the creation of first-class, competitive products and services.

Financial Performance

For fiscal 2010, the final year of “Global 21,” SHI set the targets of achieving net sales totaling ¥850.0 billion and operating income totaling ¥100.0 billion. Unfortunately, due to the global recession during much of the plan’s period, the SHI Group was unable to meet these targets. As the recession eased, operating conditions remained severe, and the entire Group strove to reduce fixed and other costs while promoting business restructuring, prioritizing certain operations to secure a viable level of profitability. Simultaneously, by accurately capturing business opportunities that arose along with the rising demand accompanying rapid economic development in China and other emerging countries, we were able to shift back into expansion mode. This strategic shift proved effective, enabling the Group to embark on a course of recovery in the second half of fiscal 2009.

With the easing of the global recession, SHI placed priority on ensuring financial soundness and, accordingly, slowed down investments temporarily. However, once it had been confirmed that economic recovery centered on emerging countries was under way, we resumed growth-focused investments and laid out steppingstones on the path toward achieving global growth.

Steppingstones for Future Global Growth

In addition to creating first-class competitive products and services, the SHI Group promoted the “Global 21” plan to strengthen its sales network and marketing activities, reinforce its production network and bolster its global supply chain. Meanwhile, the Group undertook M&A activities aimed at generating synergies that enhance the efficiency and profitability of its established businesses. The following illustrates major projects undertaken by the Group under “Global 21.”

• Construction of a New Hydraulic Excavator Plant in Indonesia

In May 2010, the SHI Group decided to construct a new hydraulic excavator plant in Indonesia. The total investment is estimated at around ¥2.3 billion, and the planned initial capacity is set at 1,000 units a year. The new plant is scheduled to begin operations in September 2011. This Indonesian plant will be the Group’s third hydraulic excavator production and supply base after the Chiba Works in Japan and the Tangshan Plant in China. Indonesia is the largest market in Southeast Asia, accounting for the majority of construction machinery demand in the region. Supported by increasing demand for natural resources and the quickening pace of social infrastructure development, the country is expected to show an even greater rise in construction machinery demand. Along with the Indonesian plant, we have decided to establish a local sales and servicing subsidiary. Through these business bases, we aim to expand our construction machinery business in the entire Southeast Asian market.

• Construction of a New Gearbox Manufacturing Plant in Brazil

In May 2010, the SHI Group decided to build a new plant in Brazil for the production of medium- and large-sized gearboxes. The Group will invest approximately ¥5.2 billion and plans to commence operations at this new plant by the end of 2011. The gearboxes to be manufactured at this new plant have various applications, such as in cranes, cement and coal mills, power generation systems and elevators. Infrastructure investments are anticipated to further accelerate in Brazil due to increased demand for iron ore and other natural resources as well as because of preparations in anticipation of the 2014 FIFA World Cup Brazil and the 2016 Summer Olympics. To maintain stable supplies and increase sales of its products, the SHI Group plans to establish a local subsidiary, thereby expanding its business in Brazil and South America.

• Expansion of the Tangshan Plant to Increase Gearbox and Hydraulic Excavator Output

In August 2010, the SHI Group decided to invest about ¥10.0 billion to more than double the production capacity of its Tangshan Plant, which manufactures gearboxes and hydraulic excavators. The Tangshan Plant commenced production in 2009 and has steadily expanded its operations since. Falling into the category of medium- and large-sized gearboxes, these products are used in a wide range of industrial machinery for mining and steelmaking and in a variety of infrastructure facilities for water treatment and other purposes. Markets for such machinery and facilities are slated to expand further. Regarding hydraulic excavators, robust demand in China has caused supply to constantly fall short, and such short supplies are expected to prevail over the medium term. In response, the SHI Group resolved to enhance capacity. Backed by the expansion of the Tangshan Plant, the Group will step up sales in China—a country with strong potential for additional growth—and otherwise develop its Chinese operations further.

• Acquisition of Belgium-Based Hansen Industrial Transmissions NV

In March 2011, SHI acquired equity in Belgium-based Hansen Industrial Transmissions NV (HIT), making the company a wholly owned subsidiary. Total acquisition costs amounted to approximately ¥10.0 billion.

The SHI Group has continued to strengthen its speed reducer business, one of its core businesses. With speed reducer demand expected to increase along with stable economic growth in emerging countries, the market for industrial gearboxes is anticipated to expand, buoyed by robust capital investments in China, South America, South Africa, Australia, India and other resource-rich countries. With its production base near Antwerp serving as its center of operations, HIT operates six assembly bases worldwide. Through these bases, HIT boasts powerful sales channels not only in Europe but also in South Africa and Australia, both of which are major resource-producing countries boasting markets with significant growth potential. SHI has received gearbox-related technological support from Hansen Transmissions International NV—the former parent company of HIT—since 1973. Building on this relationship, we expect to quickly generate synergies by working with HIT in product development. Through this new subsidiary, SHI aims to expand its sales channels and increase sales of its industrial gearboxes in overseas markets.

(Plan Period: April 1, 2011 to March 31, 2014)

Basic Policy

The SHI Group launched a new medium-term management plan, “Innovation 21” in April 2011. Under this new plan, the SHI Group aims to realize a “Strong and Powerful SHI.” This “Strong and Powerful SHI” must be capable of sustaining growth by reinforcing its competitive advantages and flexibly adjusting to changes in operating conditions.

Under the previous “Global 21” plan, the SHI Group promoted various initiatives, such as structural reforms, growth-focused investments and aggressive product development. Through these activities, we have identified certain issues needing addressing, including the weak growth potential, poor profitability and stagnation of domestic operations. In response we formulated the “Innovation 21” plan, which is in line with the basic principles under the “Global 21” plan but places particular emphasis on solving the issues that have been identified in order to realize additional corporate growth. Through the promotion of “Innovation 21,” the SHI Group will further expand its global network and build a strong corporate structure underpinned by product and process innovation.

Concerning quantitative targets for fiscal 2013, ending March 31, 2014, the SHI Group is aiming for net sales totaling ¥730.0 billion, operating income totaling ¥73.0 billion and return on invested capital (ROIC) of 10% or more. As a long-term target, the Group is working toward achieving ¥1 trillion in annual net sales. We have set out an investment policy that earmarks a total of ¥150.0 billion for use in facilities enhancement and R&D to secure future growth.

Strategies and Targets by Segment

In Machinery Components and Construction Machinery, the SHI Group will leverage its global business network to selectively target emerging countries and expand sales. In Precision Machinery, the Group will work to expand its scope of operations particularly in medical equipment and other cutting-edge fields. In heavy machinery and environmental facilities and plants, the Group will concentrate on its fields of expertise while expanding the global operations of certain businesses.

Specific “Innovation 21” Initiatives

To achieve the quantitative targets of the “Innovation 21” plan, the SHI Group must establish a strong corporate structure underpinned by product and process innovation. Accordingly, the SHI Group will implement the following initiatives to expand its global network and realize product and process innovation.

1. Enhancing and Effectively Employing the Global Network

SHI will continue to enhance its global network of manufacturing, sales and service bases, recognizing that this is essential to the Group’s further growth. Under “Global 21,” the SHI Group concentrated on strengthening its production bases in emerging countries. Also, we focused on establishing bases to facilitate our global expansion, such as the acquisition of HIT in Belgium. Through “Innovation 21,” we will work to bolster these new overseas bases’ functions while promoting both their autonomy and collaboration with each other. In addition, SHI plans to set up regional headquarters throughout the world and develop a structure for local operations to enable speedier management that more flexibly reflects real-time conditions in each region and market.

2. Promotion of Product Innovation

SHI will strengthen collaborative product development among the Corporate Technology Operations Group and business units, thereby ensuring the consistent delivery of first-class products and services to the market. Through the launch of competitive, innovative products in priority markets, the SHI Group aims to accelerate its sustainable growth and improve its earnings power on a global scale. Our Corporate Technology Operations Group will channel the constituent and fundamental technologies it develops into the development of components, equipment and systems. Moreover, it will incorporate those technologies into SHI Group products. In this way, SHI will speed up the development of innovative products.

3. Promotion of Process Innovation

Mainly in Japan, the SHI Group has introduced process innovation to enhance its business execution capabilities in development, design, manufacturing, sales, services and other areas. A major example of this is the Toyota Production System, which we implemented in our tanker building processes in the shipbuilding business, resulting in the halving of our lead times. Looking ahead, SHI plans to introduce similar process innovation and other expertise to Group companies on a global scale.