Manufacturing a large majority of Shiseido’s lipstick containers, Hidan aims to reach new heights in order to suit developing market needs.
In the last 25-30 years, Japan has seen the rise of regional manufacturing competitors who have replicated Japanese monozukuri processes, but at a much cheaper labor cost, pushing Japan out of mass production markets. Yet, we still see Japanese firms as leaders when it comes to niche fields. How have Japanese firms been able to maintain their lead despite the stiff price competition?
This aspect of price competition, especially global price competition, is not new to us. We were one of the first to enter the Chinese market and pioneered it 30 years ago compared to other companies in our industry, because of the fierce price competition in Japan. Thus, we look to the future and anticipate competition coming from Japan’s neighbors in the years to come.
With the intention of expanding our business worldwide, our strategy was to lower the overall price of our products in order to meet global costs, by localizing the production in China, where labor costs are low. Our products are available not only in Japan and Asia, but also in European countries and the United States. In this respect, the current situation is not new for us, and we are well prepared to respond to interregional competition.
Local production overseas, not just in China, has its own risks and whether it is a Japanese company or not, you must consider them when expanding to a local market and operating a factory there. It is difficult to predict what will happen, especially from a social and political perspective. More or less, we have been doing business in China for 30 years. It has not been smooth sailing during this time. We sometimes feel that it is full of unpredictable changes, especially when it comes to laws and regulations. If you are considering setting up a production base in China, you have to consider all aspects of the situation, like the current exchange rate risk.
One thing we can say is that you need to maintain good relationships with your local employees, not just sharply analyze the business. Communication is the key to understanding local needs, and to build trustful relationships with locally hired employees. Success is impossible without this communication.
Japan has the oldest society in the world with a rapidly shrinking population, which presents major challenges for Japanese firms. The first is a labor crisis and the second challenge is that with fewer people, the domestic market will continue to shrink. What are some of the challenges and opportunities this demographic shift presents for your firm?
This social problem that currently exists in the domestic market is very fragile. Of course, there are many problems stemming from lack of population, and it is not good for any business. You also mentioned labor shortages, which is also a big problem. The People working in manufacturing are getting fewer. However, this is not a problem that only we are facing. Many Japanese companies are suffering from this demographic problem.
Automation of machinery is one of the things we introduced at our internal production facilities. Hidan improved the production flow, so that we only need one person for an operation that used to be done by about 10 people. We are working every day to achieve both semi-automation, and full automation. Full automation is ideal, but it is difficult and expensive. Also, there is a difference between Japanese automation and Western automation, and I think it is the “Handmade” feeling that remains in Japanese manufacturing. This “Handmade” feeling can only be achieved by skilled workers who have accumulated know-how on the production site over many years. Machines cannot easily replace the work of such excellent human resources that we have nurtured over the years.
Generally, manufacturing equipment is purchased and some production processes are outsourced, but we have all of our production in-house and built an integrated production system. This strength of our company enables us to achieve low cost, quick delivery, and stable quality, which sets us apart from our competitors. Moreover, because Hidan manufactures in-house, we are able to provide simple yet tailor-made solutions to our customers.
Customers' needs are changing on a daily basis. For example, lipstick containers come in a variety of shapes, such as round and square and the types of containers change seasonally, so the needs change as well. We must respond quickly to these changes, and Hidan is a company that has the ability to meet the needs of our customers. This is one of our veritable strengths. Only a company with an integrated system like Hidan, can always think from the customer's perspective and respond flexibly to ever-changing needs.
Lipstick containers are one of the two main product lines that you produce, as well as other containers for creams and atomizers. Are you looking to further expand your containers to other cosmetic products such as foundations?
We have quite a wide range of products and variants. Essentially, we satisfy the needs of various cosmetic and perfume manufacturers. The products we offer include some of the best-selling products that you all know and love. We supply containers for almost all national and international lipstick manufacturers. We use two main materials in the manufacture of our containers: metal and resin.
Our containers come in many shapes and sizes. One of our well-known products is the atomizer, an atomizing container used for fragrances and perfumes. We also have experience in other containers besides lipsticks, such as metal compacts for foundations, jars, bottle caps and other products. These are the major pillars of Hidan, and it is our core business. A large majority of Shiseido's lipstick containers are manufactured by us.
In the cosmetics industry, a majority of containers are made from plastics, a material of which only 9% is recycled worldwide. As such, we are seeing a push towards more environmentally friendly materials such as recyclable aluminum. What are the effects of this change in materials on your business?
Regarding lipstick containers, most container manufacturers use a mixture of metal and resin, but Hidan specializes in metal processing, so the percentage of metal is high.
Of course, our ultimate goal is to use 100% recyclable materials, which means that the next generation of lipstick containers will be made of 100% aluminum. We want to create a product that allows consumers to reuse their containers once they use up the lipstick. We are already attempting this, and have developed a mechanical part made of 100% aluminum. This theme is a common issue in the industry.
Behind the demand for environmental responsiveness, is a social situation that requires materials and production that are adaptable with environmental and energy standards with minimal impact. Hidan is developing 100% metal containers and recycled resin to meet this demand.
COVID-19 negatively impacted the cosmetics industry on a global scale, with 30% of the industry shutting down during this period. However, it is recovering to pre-pandemic levels, and is expected to be worth USD 415 billion by the year 2028. Can you tell us what strategies you are employing in order to capitalize on this market growth?
We are implementing our best measures, and working hard to get back to where we were before the pandemic began. It is clear that the COVID-19 pandemic has had a negative impact on our business, and at the peak of the pandemic, our sales were down to 50%. You can imagine how painful this situation was. We are now slowly recovering to pre-pandemic levels.
The impact of COVID-19 on Hidan has come in many forms, like the decrease in sales due to a review of new product planning, logistics stagnation, and so on. For example, raw materials are procured from various sources, but COVID-19 is now causing problems in procurement, and making it difficult to transport them on time.
The president of Shiseido said "2023 is the year of complete recovery from COVID-19" and I feel that it will be a difficult year in many ways. We are preparing for next year with lineups, and to be clear, we will diversify that lineup by introducing new products that transcend the image we have had in the past.
What role does collaboration and co-creation play in your business model, and are you currently looking for any co-creation partners in overseas markets?
Hidan has a culture of doing everything in-house, like development, and manufacturing the production equipment. However, this does not mean we refuse to cooperate with outside parties. We have an open system in terms of cooperation. We welcome co-creation in the sense of cooperating with our clients in development and other activities. But if co-creation partners mean M&A, Hidan does not consider that as a strategy.
Moving forward, what other countries or regions have you identified for further expansion into, and what strategies will you employ to do so?
We are considering expansion into overseas markets and local production, outside of Japan and China. Southeast Asia seems like a good option, as it is geographically close and many countries are beginning to increase their economical presence in the global market. However, in doing so, we need to consider two major points. First, Japanese "Monozukuri" is unique, and frankly speaking, many countries find it difficult to understand. In order to conduct local production overseas, it is necessary to educate local people and raise their knowledge about Japanese “Monozukuri”. It is important for local production sites to understand the customer’s expectations for Hidan, and meeting those expectations is the driving force behind our business. Thus, we need to carefully consider hiring overseas, and hire talented people locally.
With all of this expansion will you also be looking to diversify your customer portfolio?
We do not think much of it, and Hidan's customer portfolio is already quite extensive. Name any major cosmetic company, and there is a good chance that Hidan delivers to them. The cosmetics industry itself is opened, and all major customers can be identified. Even if we do not supply directly to a major company, there are always opportunities for indirect business. The whole industry is connected, and this is a huge advantage for companies like us.
One market that is currently booming since COVID-19 is men’s cosmetics. Are you looking to enter that market to diversify your product range?
I do not know how much demand there is for products targeting only men, but regardless of gender, we will continue what we have been doing for many years.
Imagine that we come back in five years and have this interview all over again. What are your goals and dreams?
Hidan is currently building a mid-term strategic plan. It includes sales, production capacity, and development of new containers. These are plans that will be carried out by the next generation of young Hidan employees. In fact, in the near future I may be retired, but I’m currently leading the company with a firm grasp of the situation. We need to remain flexible and adapt to changes in the business environment. I believe that the accumulation of these efforts will make the company more profitable in the long run.