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Hitachi Zosen Corp. and NKK Corp. said Friday they will merge their shipbuilding operations into a fifty-fifty joint venture to be established Oct. 1, 2002, as the global industry becomes increasingly competitive.

The two companies will set up a preparation committee to work out the details of the merger, they said.

“There is a limit to what we can do if we compete independently against South Korean shipbuilders,” Hitachi Zosen President Iso Minami said at a news conference, attributing the merger to price-cutting competition from South Korean shipbuilders.

NKK President Yoichi Shimogaichi said his company hopes to create a system that will constantly supply ships that are in demand.

“Although our shipbuilding operations are in the black, we are hitting a plateau,” Shimogaichi said.

With regard to Hiachi Zosen’s cooperation with Mitsui Engineering & Shipbuilding Co. in production of naval vessels, Minami said the alliance will continue.

Combining their shipbuilding operations, the joint venture will have 150 billion yen in sales with about 3,000 employees and six plants across Japan, the companies said in a statement.

On a sales basis, the new company will be the second largest shipbuilder in Japan, after Mitsubishi Heavy Industries Ltd.

Hitachi Zosen is expected to spin off its shipbuilding operation in fiscal 2001, beginning April 1, to prepare for the merger.

By separating its own shipbuilding operation, NKK is apparently aiming to pave the way for an outright merger with Kawasaki Steel Corp., with which it already has a broad-based alliance in its mainline steelmaking operations.

Hitachi Zosen and NKK have been pursuing the merger plan since last May, when they announced their intent to enter into discussions aimed at forming an alliance of their shipbuilding operations in a bid to cut costs in the areas of marketing, design, procurement and manufacturing.

The two companies said they expect the merger will help them rationalize operations and strengthen their competitive edge in the tough international market through lower costs and speedier development of new technologies and products.

Japanese shipbuilders have recently seen an increase in orders but remain under pressure to slash costs and improve profitability to compete with other players, especially South Korean makers.

South Korean shipbuilders have recently lowered their prices by taking advantage of the decline in the value of the won.

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