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Bespoke services for SMEs in the semiconductor sector

Interview - March 9, 2023

Going beyond the role of a supplier, as a distribution agency of semiconductors and electronic components, CoreStaff exceeds expectations by passing useful information to its customers.

MASAKI TOZAWA, PRESIDENT OF CORESTAFF CO., LTD.
MASAKI TOZAWA | PRESIDENT OF CORESTAFF CO., LTD.

In the 70s and 80s, Japanese firms dominated the production of semiconductor products. Around the 90s and 2000s we saw a change in the market, bigger demand for LSI like microprocessors and microcontrollers, and we also saw new business models like Taiwan's TSMC and their pureplay foundry model that really revolutionized the market. Japan’s market share in terms of fab capacity declined steeply. Nevertheless, today we still find that for some niche applications, Japanese firms have remained leaders in semiconductor materials, in equipment, and in certain analog devices. What is your analysis of the rise and fall of the Japanese semiconductor sector, and what do you think is the role that Japan plays today in the semiconductor industry?

There are a number of reasons for the decline of Japanese semiconductors. As you know Japanese companies have many divisions, not only semiconductors but also a consumer aspect as an industrial area, so maybe they didn't take a risk on the semiconductor sector, but rivals such as Samsung specialized in semiconductors. It's a big aspect.

Japanese nature is to not take risks. As you know, there are many downtrends and uptrends. Samsung took a risk during a downtrend but Japanese companies didn't take that risk, and that changed the balance of power in semiconductors.

 

For the past two years, we've seen major chip shortages that were caused at the beginning by the advent of coronavirus. We saw many manufacturers reduce production. What is the role of your company in such a special moment for this semiconductor industry? How did you live through those two years of shortages?

That's why we launched our subsidiaries or branches in the global market, for example, in Germany, China, Thailand, Hong Kong and the USA, so there are many stocking distributors in these areas but Japanese customers don't reach those suppliers, so we can arrange that because we’ve got stock and price information from that supplier.

There are many, many small stocking companies, so we can check the information and put it into our database, our server, and connect to it using APIs so the customer can check stocks and prices in real time. It's a very big advantage for us and a big benefit for our customers. Our role is to pass useful information to our customers.

 

You were founded in 2000, just 22 years ago, which is quite young in comparison to other Japanese electronic traders or manufacturers, and you've had explosive growth on your way to becoming the business that you are today in just 20 years. Could you run us through the history of your business, and give us an overview of the various business activities that you have today?

Formerly, I worked at a very traditional Japanese company named MARUBUN which is 2-300 years old. The semiconductor industry is actually not new and very old men managed those companies, so they weren’t flexible and had very fixed processes.

I thought 20 years ago, therefore, that perhaps I had a chance to make some progress in this area, as MARUBUN only sold semiconductors to customers one way, but the customers liked to sell their excess stock to me. They liked an interactive connection, but MARUBUN couldn’t respond.

That was our chance, so after working for three years, at the age of 26 I quit that company with my wife. We both worked there. She was my colleague. We created this company over the past 20 years. From December 2000, we started with a very narrow mansion - a Japanese mansion is a small apartment. The start was not easy.

Mass production service is for traditional semiconductor distributors who handle large amounts, so it’s good for Japanese trading traditionally, but Japanese customers, as you know, like small portions and short lead times, so there were many, many requests but big companies didn't respond so we handled them one by one.

Now, we offer this service for the broader market. Broader market means smaller customers. Customers from many different areas of Japanese industry. So we are committed not to big customers, but small to medium-sized customers.

 

It’s very hard at the moment for SMEs in Japan that are looking for very particular products for their niche applications because they don't meet the minimum order quantity requirement. There are hundreds of companies like that around the world. How does your firm help microbusinesses and SMEsI procure these very small prototypes or small lot orders?

We handle many suppliers, and not only big ones, and buy from many distributors so if I sell just one or two items to the customer, we have many other items to offer as a supplier, and that's one of our strengths.

That's why we can respond to those small orders and the needs of those SMEs that you were talking about. Also, in those situations, being the catalog distributor will become a strength, so that's why we are also able to supply those types of smaller orders from smaller companies.

 

How does your company provide help in terms of cost efficiency to clients looking for small lots?

Some orders are of no benefit to the customer, but there is some room to recover that loss. We have customers with big orders and small orders. Sometimes we have to ignore the small orders which are of no benefit, but sometimes we’ll be able to get a big order from them so it’s OK.

 

What do you do with excess supply? What solutions do you offer for that?

In Japan, excess stock had to be thrown away at a cost, so customers are very pleased with our service. Our strongest service is the consignment service. Our customers’ excess stock is sent to our logistics center, and we keep that for sale. If I catch an order from a customer, I will send a notification to our supplier.

There are many suppliers at Catalog Distributors, their information is very good, very useful, but many people can know that information, but as for our customers’ excess stock, only I can know that information. It's very useful information.



Over the past two years because of semiconductor shortages, we've seen various traders or companies like yours offering services, trying to match a certain supplier with a client. Within that, we've seen a big rise in counterfeit products and products that don't meet quality standards, or companies that were lying about the capabilities that they could offer. What measures do you offer, in order to fight these counterfeit products?

It's a very big issue in Japan too. Our customers like to have the parts they need, but they don’t like counterfeits. It's a very big problem. We have an analytical institution which does safety inspections on the opening, so we have that institution on our end. We check if it’s counterfeit, so that service is our strong point.

This is done at our Nagano logistics center. We have some equipment to check it. Do you know how to make counterfeit parts? Semiconductors have many pins. PC’s have PC boards that when recycled yield many parts of various sizes. These are used to refurbish the pins and make counterfeit items.

If this process is done, we can't identify it by sight alone, so we must use an inspection tool. This is Re-Mark style, very familiar. Maybe 80 or 90% is Re-Mark style. It’s not easy, but we have a technique to find it, and that’s our strong point.

 

Corestaff also created CorEMS, which is a unique system to match EMS services with demand. Can you tell us a bit more about CorEMS, and what are some of the solutions that it offers?

Actually, we shrank the EMS service to focus on substitute procurement. Not manufacturer, but only product procurement, not one by one, but by Bill of Materials (BOM). Due to covid 19, there are many tasks for the buyers, for example, managing lead times. As you know, it's a very long lead time, so they have much more work.

They always have some complaints from customers and buyers sometimes stop working because of physical and mental issues. The company therefore put a new person into the position, but as you know, semiconductor workers require knowledge and experience. Our customers like to use our procurement service.

 

Can you tell us what the impact of coronavirus was on your business? What are some of the opportunities that it created?

Maybe it makes us have a very big opportunity, because of covid 19, our buyer didn’t go to the company, so they worked in-house, so our rival distributor salesperson didn’t meet the buyer. The buyer had to have some procurement, but it was not easy to communicate with the supplier.

The buyer didn’t have any channel. Of course, private homes have, but they didn’t have official company forms because the buyer worked at the office, not the salesperson. There was very limited communication, maybe only email. They thought it was a very difficult situation.

Many big Japanese companies didn’t use online for many reasons. Company policy and cultural reasons got in the way, but due to covid 19 they started to use online and they found that ordering parts was easy, so there was a very big opportunity for us.

 

Are you expanding your services to non-Japanese companies overseas, and if you are, what is the competitive advantage that you’re offering those clients?

Few companies are competitive like us. It may be an original style. Some companies resemble our style, but maybe only one. There are many traditional distributors, and they are for mass production, but of course broad customers do mass production so maybe in a year or two the field will close up. I think our rivals are very traditional distributors.

We are looking to expand beyond our Japanese customer base but at first we are focusing on the Japanese market because Japan is changing very quickly due to covid 19, and it’s a big chance for us. Of course, I'm interested in the global market because we have started some catalog distribution, so as you said, for the thirty to forty brands we offer, many people have contacted Japanese or other semiconductor component suppliers.

We have two aspects - catalog distribution and the customer-basis service provider. Very traditional companies are only with analog, so we have two aspects – digital and analogue, and our hybrid support is a unique style.

 

You mentioned that one of the strengths of your company is to be in touch with both catalog-based distributors and with more customer-based distributors. Looking at the future, are you looking to further grow your network of partnerships and if so, what type of companies are you right now looking to add to your platform?

Maybe the hybrid type leads to total support for the broad customer. As I said, there are many issues. Buyers of small quantities end up with excess stock. If they can buy one or two very small parts, it will not create excess stock. The quantities they like to buy are what provides us with a strong point.

There’s a lot of demand from customers, and we respond to those demands on a case by case basis, so after several years we can match their own needs and style of service with ours by analyzing and reacting to the data we gather.

 

You started this company in your apartment with your wife as a kind of distributing platform, and today you’ve grown and now you offer inspection services, analytical services and CorEMS also, to match suppliers with buyers. What's the next step? In five years from now, how would you like the company to have changed?

It's a very difficult question. We have some aspects, so catalog distribution is launched in, as you know, DigiKey and Mouser is a very big catalog distributor. Of course, many, many businesses landed in Japan but I'd like to supply them rather than compete with them. I’d like to supply new values – our own values - to the market not just in Japan but globally. That's why we will build a bigger distribution and logistics center in the near future for both the digital and analog aspects and content.

Maybe big catalog distributors just sell their stock to the customer. In this shortage situation, if they have a large quantity, for example 1,000,000 pieces, but some customer buys the whole stock, another customer can’t just purchase it, so DigiKey and Mouser is OK, it’s a very good amount but many customers didn't solve the problem, so we have to solve many customers’ individual issues. It’s much easier said than done!

It takes a lot of time. Our next goal is to solve the problem of many Japanese companies that complain that they just want to make things but can’t because of the shortages. There are many problems, so our goal is to solve those problems.

 

Looking at the future, is there a particular region that you are going to focus on?

Actually, we launched in Taiwan this month. There are many suppliers there, but we couldn’t reach them, so that's why we launched there. So far, we have six companies, but the next step is very difficult. I'm interested in Thailand, Vietnam and Southeast Asia because there are many Japanese customers there, so it's very easy to contact them.

In Thailand, Japanese customers always complain to me that they have situations, they have many difficult problems. In Thailand there are maybe only one or two Japanese workers and many local people so it's not easy to manage and the responsibility is very big. If they have some problems, they have to contact headquarters, but headquarters are quite bossy. They like to solve things in their own ways.

That's why we launched in Thailand and have contact with each other to address this specific problem related to Thailand. The customers were very pleased with that. I believe there are many situations like that around the world, so we want to expand those.

 

Let's say we come back to interview you again on the last day of your presidency. What would you like to tell us about your goals and dreams for the company by that time, and what would you like to have achieved by then?

As you know, Japan is not easy to change. We lost 20 years on some issues, but we have to try to change. I like to remind my colleagues and young people that in Japan we can try and fail, but the process of trial and error is a very interesting thing to try, and it’s OK to fail sometimes.

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