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Kanematsu targets sustainable growth as key for their “future 135” midterm strategy

Interview - October 27, 2022

Kanematsu continues to provide stable and comprehensive trading services and add value on behalf of clients and partners throughout the uncertainty of the coronavirus pandemic.


Can you give us an overview of your operation and explain what role do you play in communicating the expertise of Japanese makers to the international community?

I'm sure you're already well aware of the historical role that traders have played and the roots of the trading business here in Japan, with traders primarily working to export and import quality goods from abroad into Japan and vice versa.

That was the role of the trader back when the main communication tool was telex, and that was how we were able to communicate with clients and businesses abroad. However, slowly with the changing times, we saw the rise of various different communication devices and tools such as fax machines and the internet.

With that, the communications environment became more and more open, and the business environment continued to open up and become more of a level playing field. Many different types of players could enter and open up businesses, so in a sense the traditional role of traders began to see a decline and with that we saw the role of the sogo shosha - the large trading houses in Japan such as Mitsui or Mitsubishi - starting to expand as their portfolios diversified into other types of businesses in order to sustain themselves and survive.

We saw them going into commodity goods, real estate, a number of different investment opportunities, and generally changing from the traditional role as a trading house to a more investment based operation, allocating their funds into certain businesses.

We tried at one point to adopt the same style as these larger sogo shosha but we noticed that it's a high risk industry and a volatile environment for business, so 20 years ago we decided to reorganize our company in a big way, and find a way to really leverage our strengths.

Through that reorganization we were able to really focus on the four segments where we conduct trading today, which cover Electronics & Devices as well as Foods, Meat & Grain, also Steel, Materials & Plant, and finally Motor Vehicles & Aerospace.

In the meantime, apart from the larger companies, we also saw the rise of many specialized trading companies in Japanese business who were traders in specific technologies or specific electronic components. Traders like us who are still dealing with a wide range of fields have started to become quite rare on the scene and we have been able to take advantage of that unique role that we now play.

We want to continue leveraging our strengths in these different segments that we are involved in and as you know, the emergence of several competing business models and their continual call for change is hard to predict and disruptive, making it very difficult to enter the industry or to maintain a specialized business. We're doing a number of different things, and we actually have close networking and contacts within various specific industries.

Actually one of the greatest strengths of trading houses is the fact that we're able to adapt to change. We're quite resilient when it comes to being able to continually change with the times, because in a sense we have nothing to protect or lose. We're not specifically invested in one product or technology, and from our perspective having that great strength of being able to adapt to change has enabled us to really make use of our rich client network with experience of these various fields.

Making use of that, we've continued to see how we can grow as a company. For example, 10 years ago we started to partner up with various global startups because many of these startups have very interesting products and technologies, as well as good business models.

However, sometimes what they're lacking is the know-how to actually conduct business, find clients, and sell the products they're looking to go big with. We therefore partnered with them, not simply invested in them, but rather really collaborated with them to help them find clients and gain the experience of how to conduct business.

That is something that took off, and we started this by looking for startups to collaborate and partner with, but then what happened was that the venture capitalists discovered our interesting way of growing, and they started to approach us with interesting options and companies that they themselves backed because they said that there are a number of various companies that are looking to invest in startups, but it's rare that you find companies that are looking to support these startups to find clients. That was something that caught the attention of these venture capitalists, who then started to help us to promote our business model and collaborate further.

This is a field of our business that's actively growing and a good example of how we've been able to really make use of our strengths - this rich client network and our wisdom and expertise accumulated over the years - and see how it can benefit and open up new frontiers.


What has been your BCP for managing the ongoing disruptions to global logistics?

The disruption caused by covid and the war in Ukraine has necessitated the restructuring of supply chains and this represents a great opportunity for us.  I believe that it's always been an important aspect of our business to be able to be responsive to changes in global supply chains and logistics at any time. Precisely now is when people are looking for us to step up and take a larger supporting role.

Let me give you an example. We're involved in the trading and import of beef into Japan, and the beef coming into Japan is primarily from the US or Australia. Those were the main sources, and we were actually the largest importers of US chilled beef into Japan.

However, China recently surpassed this and it might happen that in near future there's a lack of beef coming from the USA, and in order to find a way to respond to the issue of China buying up all the US beef, we procured a new supplier in Uruguay, South America, and now we're the largest suppliers of Uruguayan beef into Japan. At this time, when there is huge demand for the rebuilding of supply chains, we have been able to support that effort in various fields, whether it's beef, grain or electronic components.


There is a need for global supply chains to be greener, more efficient and more resilient. Digital technologies have been touted as a great solution to tackle all three of these areas. What role do you think that digital technologies can play in creating a more efficient supply chain?

I believe that the role of digitalization provides lots of opportunities to enhance the field, whether it is in terms of utilizing digitalization and documentation, or incorporating fintech on the payment side.

Visualization is something that's being rolled out in all the different spheres of business, not only in trading. This wave of digitalization is bringing great opportunities, and there are many things that we can do.

We are strong in the electronics sector, and there is a committee that is promoting digitization especially within certain sectors such as electronic devices and components, and we are actually part of that, working together with other firms in that industry to push for greater digitalization in the field, and we've been able to make use of our engineers and their know-how, especially when it comes to data processing and how to work with large amounts of data. Digitization actually represents a great opportunity for growth at our company.


Can you tell us a little more about your initiatives for sustainability?

When it comes to really supporting the fight against climate change and its related challenges, we've been supporting that aim since our founding in 1889 based on our corporate principle of sowing and nurturing the seeds of global prosperity. It's a long-term corporate principle that was established at that time, but we always strive for the happiness of people and to take responsibility for being able to contribute to a better society in a better world.

We’ve expanded our business based on that credo, so we've always been considering how we can support lessening the environmental burden of businesses and be such a company ourselves. We haven't actually been involved in those areas which most contribute to that burden, such as power plants or the coal business, so in a sense our CO2 emissions of 30,000 tons per year are quite low relative to other companies. We actually have a relatively lighter carbon footprint than many of our counterparts.

Furthermore, for a long period of time we’ve been involved in forest conservation and that has been a business that has grown together with the JCM (Joint Crediting Mechanism).With that, we've been able to continue our forest conservation efforts and keep pushing to further reduce our carbon footprint, and expanding that credit as well.

Our goal is to be carbon neutral ourselves by 2025, and then by 2030 actually be 150,000 tons carbon negative, and then by 2050, we’d like to be 1,000,000 tons carbon negative. These are the kind of targets that we have in play.

In addition to that, when it comes to how our investments are allocated and the kind of partnerships that we go on to have, all of our resources and how the acquisition of our various assets takes place, all these areas of corporate governance are undertaken with an effort to reduce environmental destruction and degradation, so we're really looking to become a very green company in terms of how we operate across the board.

What's very interesting is that in Indonesia, for example, we have a data technology business which installs a sensor into trucks that is able to record data and help enhance the life cycle of the truck.

By recording the data and providing the ability to remotely control and manage that data, it not only provides recording capacity, but has a unique safe driving algorithm that actually provides instructions on how to reduce accidents. This is something that has been rolled out domestically, and the numbers have shown that it's actually been able to reduce traffic accidents by approximately 40% and actually enhance the life cycle of the vehicle. It's also able to improve fuel consumption to make it more energy efficient by approximately 10% here in Japan, and that is something that we are expanding into Indonesia.

We actually acquired a company, Datatec Co., Ltd., two years ago. It was very interesting, and through acquiring this company, the sensor is being installed in various trucks in Japan and data is being accumulated on a daily basis.

By utilizing AI and machine learning processes, we're working to analyze and process that data. Through processing that data, we’ve been able to find out more about which paths or situations actually lead to higher levels of traffic accidents and how to create driving routes that minimize the risk of accidents using a risk management map. This is very interesting considering the fact that there's a huge push towards autonomous driving right now that requires the installation of various sensors within the vehicle’s body, coupled with software and services that can suggest which routes would actually avoid accidents. I think it is quite a powerful contribution that we should make, and it would also help to enhance the efficiency of logistics.

By analyzing this kind of data, you can get some insight and be able to forecast which road at what time will have less traffic, and that is something that we are being able to provide for convenience store clients who require ways to enhance their logistical capacity.


Do you have any plans to offer this service, or create a similar kind of data set, for other countries as well?

Why Indonesia you might ask? Well, we happen to have acquired a logistics company there so we just decided that we would experiment by installing it in trucks used within our company. It was from there that other companies got interested and said, “Hey we would like to have that as well”.

Once we succeed in Indonesia, we're looking to see if we can expand into India or Vietnam, or perhaps maybe even North America. We're looking to first see how much progress is made in Indonesia. I think that if you are able to enhance fuel consumption and reduce car traffic accidents, there's no better way to really contribute to SDGs than that.


In the recent release of your second quarter financial results, there were very positive numbers across the board in terms of overall sales and operating profit. Can you give us a quick comment on these numbers, and what you see as the key reasons for the results?

The recent global challenges presented by covid and Ukraine have really pushed rising commodity prices and the rising price of grain and so on. This has actually been pushing our profit increased in almost all business with recovering economy from the COVID-19.

We also have an oil pipeline business in the US and even when US oil prices are relatively stable and not so high I think even they rely on oil imports rather than digging for shale domestically. However, with the current skyrocketing price of oil, they've had to focus on the digging of shale, which has been good for our oil pipeline business. This is also compounded by the fact that the US is currently not importing any oil from Russia. They've really pushed for their own domestic policy, and that is also contributing to growth in our business.

When it comes to semiconductors, and the large scale chip shortage that everyone is dealing with, our business dealing in the supply of various components and equipment within the semiconductor supply chain is doing well.

The global economy is taking a downturn in the short-term, but in the long term I don't believe that things will continue this way. The reality is that in order to be able to prepare for when times are hard we must continue to rebuild the supply chain and give rise to new businesses through innovation. That's where we are putting our focus.

I believe that we have a midterm strategy in play and the key words for us are not only DX - the digital transformation - but also GX - the green transformation. I would also add to that the word ‘innovation’ because I think innovation is a hot topic for any company. I believe innovation is a strength of the trader and is an area where we can play an even greater role.

Currently, companies in Japan in particular, are facing what they call the ‘innovation dilemma’ where they want to continue to innovate but have their own technologies and their own plans which they also need to protect. It poses a dilemma for them when it comes to wanting to incorporate new types of technologies and technological models, because oftentimes it would require them to shift gears completely and sometimes let go of their main technology.

That is something that trading companies like ours don't have to worry about. We have the ability to take on more and more innovative technologies and business models, and play a large role when it comes to serving as an innovation hub.

Currently, consulting firms have embraced that position within the economy, playing the role of being an innovation hub, since they have many clients who they service so they have a rich source of knowledge and experience in handling the needs of their clients. They can make use of their vast knowledge to serve as innovation hubs.

However, we believe that that role can also be played by traders like us. We can actually serve as an even better innovation hub, since whereas consultants gain experience from their clients, we get actual experience from doing business on the ground.  Our knowledge and expertise comes from direct experience, which I believe could serve an innovation hub even better.

Innovation is a key phrase in your mid-term plan. What do you anticipate will be the key technologies or partners that will allow you to reach the targets you've set for yourself in your mid-term strategy?

I think the companies that are going to stand out are the ones that will accumulate and utilize data. Within our group there are 100-plus companies and we also have a great IT environment, with various data alliances that are possible between companies in our group. One example is Kanematsu Sustech Corporation, which is a civil engineering based company that is looking at how to improve housing construction based on soil data. The data they use is accumulated across Japan and analyzed in order to improve that business and create new potential in their field. In this way, I think that having data and being able to analyze it and make use of it is going to be key.


What specific regions of the world do you think show the most growth potential?

Being a trading company, we’re ready to go anywhere in the world if there’s a great new business opportunity for us. We're looking worldwide for wherever there's an opportunity, whether it's Africa or South America.


Each generation of president in a family company is usually remembered for something or achieves a certain objective. What would you like to achieve during your time as president of Kanematsu? Is there a particular goal or ambition that you would like to succeed in?

In our rich 130 year history there have been many different presidents over the years, but one thing for sure is that we have a solid corporate philosophy, which is our corporate DNA, and that is to always strive to be of service and make a positive contribution to people and really support the prosperity and happiness of people.

I want to be the kind of president that embodies this and transmits it to my successor and the next generation. I really take pride in our company. I think it has a really positive impact on the world because it has continued to conduct itself based on this solid corporate philosophy. It's key to be able to stand upon a sense of enduring values, a value system that is always going to be endure, for no matter how long.