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A global company that produces locally

Interview - August 1, 2017

INOAC Corporation has grown from a manufacturer of bicycle tires and tubes to an international force to be reckoned with in the area of polyurethane, rubber, plastic and new materials. Soichi Inoue, the company’s chairman and CEO, outlined the future growth of Japan’s industrial segment and shared his vision of international expansion.


The size of the global polyurethane market is expected to reach $72 billion by 2020. Plastic and rubber are among Japan’s leading exports, but they have slowed down in recent years. What are the challenges Japan faces in the export sector, especially in the polyurethane market?

The biggest product we make from polyurethane materials is foam. However, foam is very bulky, so we cannot export it to the US or other countries. This is the reason why we have built many factories overseas. Another merit of doing this is that we can meet local demand by making the product locally. For example, one of the applications of polyurethane foam is bedding, mattresses, pillows and other sleeping articles. Those products are mostly produced in every country, but they are different everywhere. In Southeast Asia, people don’t sleep in big beds for instance. Before installing plants overseas, we used to export from Japan, but we decided to produce locally in order to cut export costs and meet with local demand and market preferences.

Our first business overseas was in North America with bicycles and motorcycles. We started the business with the US selling bicycle and motorcycles tires since our original company was a rubber company, Inoue Rubber Co., which is still operating under the brand IRC. Around 40 years ago, rubber products were made from natural rubber but currently most of them are synthetic. Since Malaysia and Indonesia are countries rich in natural rubber, we use their resources to make bicycle tires, motorcycle tires and other products. We are exporting bicycle and motorcycle tires to overseas markets including North America nowadays; this segment has a big market.

After WWII, we started making polyurethane foam thanks to German company, Bayer. They had a patent in Japan, and we had to get licenses. After that we established another company, MTP Kasei Co., Ltd., a subsidiary of our original company, Inoue Rubber Co. At first, we produced kitchen cleaner and mattresses with polyurethane. This is the beginning of our polyurethane story. We started from there and began producing automobile car parts, which we still do to this day. We also develop and make automotive parts to meet American safety standards. Japanese cars like Toyota and Nissan had to meet with those standards and at that time there weren’t many companies producing car parts so we saw that as an opportunity. We produce parts not only for Toyota and Nissan, but also Matsuda and other Japanese car makers. At the same time, we have built a factory in Kentucky, US because to ship car parts from Japan to US is expensive and takes too much time. We have manufactured for American companies such as General Motors and Ford, and also other European and Japanese automotive makers.


Inoac is a global company that produces locally. Could we get your perspective regarding your process of internationalization?

Since we have many plants in various countries, what I always instruct our managers when going to these countries is that we have to be aware we are going to build a factory in their garden. Thirty years ago, if a Japanese company went to Thailand they would start “mowing the lawn”. They would have a ceremony, put out a Japanese flag and claim that territory as theirs without reservation. I prohibited that.

We are building our company in someone else’s garden so we should have a low profile. That is why I appoint local people as managers. The Japanese are only advisors in this case. This is a principle I always keep. In the US we have American chairmen and presidents with Japanese advisors, since the Japanese cannot manage American companies. Also the customers are Americans and not Japanese, so my strong request for overseas managers is to leave the Japanese as advisors only.


What is Inoac’s strategy in the face of growing global competition? What is your outlook for the future?

We have special technology that allows us to customize our products and meet demand in local markets. And we don’t follow volume, but an increased value of products. If you just follow volume, you end up producing a very common product that everybody can produce. In Southeast Asia there are many companies that don’t use big machines. They can work with raw materials making foam very easily and in large volumes. We don’t dare to compete with those companies in terms of volume, so we make higher quality products instead. For example, we provide special mattresses with air circulation to keep them cooler for countries with very hot weather. This is our speciality; we don’t compete with cheap materials or products. This means we don’t focus on producing volume or sales. Our goal is to establish a good brand and customer relationship.


Companies such as INOAC have acquired larger shares of niches globally thanks to their continuous investment in R&D and innovation. What can you tell us about your R&D investments, and in what segments are you planning to expand?

Our R&D base is to develop new materials. For example, we started making polyurethane foam many years ago, but polyurethane chemistry still has a lot of potential; we can make many new materials from it including elastomer or adhesive. Adhesives are essential for many sectors because without them we can’t put different materials together. Metals are weldable, you can weld metal with metal, but if we are going to use carbon fibre, plastic, wood or foam materials, we will need adhesives. We are focusing on developing new special adhesives.


Could you share with us some highlights of 2016 and future strategies for the coming years?

Last year we made greater investment into R&D. Our company is operating two big divisions as of now: one is the automotive parts and the other is the industrial material. We are putting more effort to develop materials which can be used for many industrial applications.


Prime Minister Abe is actively promoting opening the Japanese economy to take advantage of international opportunities. What does the American market stand for in this context for the future of INOAC?

The US market represents a big market for our growth. Not only for its size, but also for its many basic raw materials, especially based on oil produced in the US. If you look at the chemical industry, there are many chemical applications over there. America is a very big and important market for us.


For IRC, what are the strategies to gain larger shares of the market?

We are constantly growing. Regarding strategies, we’d like to keep a good brand. Since most bicycle tires are coming from China or Taiwan and Vietnam, we know we can’t compete with them because the cost is very cheap. Of course, we have a factory in Vietnam. We make IRC brand bicycle tires in Vietnam to ship to US. Also, some motorcycle tires are made in Indonesia then shipped to the US as well.


The Trump Administration appears to have Japanese car manufacturers such as Toyota in its sights as it attempts to bring back production to the US. In this context, what is your outlook for the automotive parts sector?

We don’t have any exports for car parts directly from Japan to the US. We mainly make automotive parts in the US and only some through Mexico. We built a plant in Mexico almost 25 years ago. We are making some non-automotive parts to ship to US and Asia. But regarding automotive parts, we do not export them from Japan because those products are very bulky and the transport costs cannot be covered by sales price.

We have plants in Kentucky, Ohio and Michigan and Canada as well, and we hire local engineers to work in our plants, this means contributing to their market economy and also to developing local industry.


To what extent can INOAC partner with American firms trying to penetrate Japan and the Asian market?

We already have a joint venture with an American company, Rogers, a public company. This joint venture is operating very well in Japan to this day, and we also cover the Southeast Asia region with it. It is a 50/50 joint venture called RogersInoac Corporation. We provide the factory and human resources in Japan and we are working on many new developments together. For example, iPhone has many cushions inside its package to prevent it from breaking. Those products are made by our joint venture.

We are producing not only for the automotive industry but also for the building industry because many companies now make those product parts in-house. We supply raw materials for many industries as a compounded system; making formulations and selling components for customers. This business system is growing in Asia.


What are the strengths that distinguish you from market competitors?

Our biggest strength is localization, our ability to meet local market demands, and to use local manpower. We not only understand the importance of producing locally, but we also take advantage of the unique Japanese high-quality technology. In other words, what sets us apart is our capability to deliver local products backed by Japanese and global technology. If we go to Indonesia, we must employ Indonesians as managers. On top of that, they know their market; even if we do speak English we cannot speak their language. If we go to Thailand, many people understand English and Japanese, but we still need local people to conduct business. When dealing with a company in other country, I always say that we are invading their garden and thus we must respect them in every sense.


As a concluding remark, how would like Americans to perceive INOAC and what is your strategy to build a global brand around the name of INOAC?

First, we are looking to supply our unique products to global customers. In the case of the automotive sector, we want to supply to global automotive companies in America, Europe and elsewhere.

America has a big chemical industry and many leading companies to use our products so we are really interested in doing more R&D activities to meet our customers’ needs and to keep a good relationship with chemical companies. This could potentially benefit both parties, considering we have the capability to make high-quality parts and products, including our fine foams for mattresses. Other than that, building partnerships in sales channels would be really helpful because America is a big country. Sales channels are changing from TV to internet and others. Many orders are coming through the internet these days, so we are looking into ways to adapt to the new trends.