Whilst Bond – the number-one best-selling adhesive in Japan – continues to be Konishi’s main line of business, the company is today focused on further expanding its chemical products, as well establishing a civil engineering and construction business.
The Japanese chemical industry has suffered in recent times when it comes to the production of base chemicals due to regional competitors being able to lower costs. However, Japanese manufacturers are still the leaders when it comes to highly functional and special chemicals, with firms such as Mitsubishi Chemical being an example. Furthermore, Japan can count on a variety of firms who develop their own niche chemical materials and technologies. As a trader of chemical products and a manufacturer of adhesives, what are the strengths and weaknesses of the Japanese chemical industry today?
If you ask me about the trend of the chemical industry in Japan, I cannot say that it is growing. Looking at the overseas chemical industry, we can see that major manufacturers are divesting their non-core business and acquiring new ones. Therefore, there is a lot of movement in the industry and the restructuring is underway. There are many companies in the Japanese chemical industry, from upstream to downstream. Each of these companies has been able to improve its performance by thoroughly pursuing its area of expertise and enhancing its technology.
When we consider ourselves, we are located relatively downstream of this industry. This means that we are closer to the end users, who use our Bond for general purposes, and to clients who use our Bond. We have a lot of different firms from upstream to downstream in this industry. At every point in this stream, we are very good at listening to the customers’ voices and understanding their needs. This is the reason why we try to be close to our clients and that is our strength. Japanese companies, including our own, are trying to produce the products that customers find easier to use and that is why Japanese products are chosen in overseas markets as well.
The chemical sector is the largest industrial consumer of both oil and gas, producing roughly 10% of fossil fuel emissions. Domestically, the former Suga administration has said that Japan must be a carbon neutral society by the year 2050. Can you tell us what strategies are you employing to reduce your environmental burden as well as reach carbon neutral targets?
As a manufacturer, of course we are trying to reduce the emissions that are emitted from our manufacturing process and we are trying to reduce our CO2 emissions from the use of electricity. We do not have any big project or specific initiative at this moment. However, we are reducing the CO2 emissions from our manufacturing process and trying to convert to eco-friendly energy sources too.
In addition, we have made efforts to reduce our environmental load. For example, we have been working to reduce the use of volatile organic compounds such as toluene, to replace solvent-based adhesives with water-based emulsion adhesives or solvent-free adhesives, and to comply with PRTR regulations.
With respect to the production of water-based emulsion, water soluble needs to be washed out from the pot. Wastewater after washing had previously been discharged into an industrial sewage system, but the company invested in equipment to enable treatment to a standard that would allow discharge into rivers 2 years ago.A few decades ago, there was a social issue about “sick house syndrome”. Some toxic substances were being emitted from the material used for building houses and we are trying to prevent the emission of these kinds of substances from our products.
Over the last two years, Covid has had a major effect when it comes to global shipping and logistics. Quarantine measures affecting human resources and the grounding of commercial air flights restricting shipping capacity. In addition to this, the near tripling of oil prices has led to 77% of international ports reporting delays last year. This situation has been further exacerbated by China’s zero-Covid policy. How have these disruptions in global shipping and logistics affected your business?
We recognize that there are a variety of problems, including urban lockdowns caused by Covid-19 and international port issues in the world.
As a manufacturer, the last two years created some difficulties for us as we need to procure raw materials to produce adhesives. At the beginning of the Covid-19 pandemic, we had some issues. For example, we could not get the materials that we ordered and needed to delay production plans for some time. However, I would say that the impact from Covid-19 was limited for us. Our Sales declined in FY2020, but have recovered since FY2021.
With that being said, we are seeing difficulties due to the rise in oil prices, as well as the depreciation of the Yen. These issues have led to an increase in the price of raw materials, which has affected our profit. Even though our sales are going well, our profit is under a lot of pressure.
Your business is divided into three main divisions. The Bond business, the chemical products business, and the civil engineering and construction business. Which division is your current focus and which one do you believe has the most potential for future growth?
I would like to briefly discuss our history before talking about our three divisions. We were founded in 1870, so this year is our 152nd year anniversary, and we started as a apothecary business. This area is called Semba and the street that we are located on is called the pharmaceutical street. There is an old Konishi house next to the headquarters building that is designated as an important cultural site. This road is home to many large pharmaceutical companies, while we started as an apothecary business.
Several years later, we started manufacturing and marketing of alcohol i.e. Beer, Wine and food. The founder of the company Suntory, Mr. Torii, actually worked for us for around three years. He later went on to found Suntory. Up until World War II, we used to deal with alcohol both for drinking and for non-drinking, such as sterilizers for example, while also dealing with chemical products. We grew a lot through trading those products.
After World War II, for further growth of the company, we were able to develop the synthetic adhesive “Bond” in 1952. As a trading company, we deal with a lot of different raw materials and chemical products, so we became interested in adhesives.
In the past, you needed to use string to make books, however adhesives replaced the string for making books and the same goes for the attachment of wood. The market for adhesives grew rapidly as a result of these changes. In 1952, when we developed Bond, the volume for sales of adhesives was 10 tonnes. Five years later, it grew to 1,300 tonnes, and in 1960, it grew to 3,300 tonnes. The development of Bond was a big milestone for us. Still today, it accounts for 56% of our total sales.
After that, we developed a lot of different types of adhesives that are now used by general consumers, as well as for the assembly lines in factories and for construction sites. It is also even used for the maintenance of roads, bridges, and tunnels too. Japan has many earthquakes so our adhesives are used for the reinforcement of buildings and anti-seismic construction.
About 21 years ago, we established the Bond Engineering Company. That was not acquired through M&A, rather we established that company so that we could use our adhesive for the construction, repair, and reinforcement of buildings. Beforehand, we just sold our adhesives to this market, but we wanted to enter that industry ourselves, and use our own products. The adhesive and construction businesses are closely tied.
To answer your question, it is difficult for me to explain the business we are focusing on because there are growth opportunities for these three divisions. The bond business is developing higher-performance products and trying to enter markets in industries where we are not very strong. The civil engineering and construction business aims to further improve its position in Japan’s repair and reinforcement market. Regarding the chemical products business, which is a trading company division, we set up a research institute in 2017, aiming to be a trading company that also has a manufacturer function and can deliver value-added products.
You first developed Bond in 1952, and you have gone on to produce general adhesives, sealing materials, and industrial adhesives. How do you plan to further grow the Bond brand in the future? Are there any specific international markets that you would like to introduce it to?
Bond will celebrate its 70th anniversary in 2022, and is today the No. 1 overall adhesive manufacturer in Japan. We are now focusing on the industrial use for adhesives. We think that the electronic components and electronic devices sectors, as well as the automotive sector, are going to grow going forward. The industrial use for adhesives used to be a disadvantage and we were not very strong when it came to it. When it comes to its use in smartphones, it is not used as an adhesive. Rather, it is used to fill out the space between the components in order to insulate the heat. Adhesives can be used for different purposes rather than just as an adhesive. There are many applications with an example being the agricultural machines. The purpose of our product is not just as an adhesive, but it can be used for any kind of application such as electronic components. It can be used to insulate heat, reduce vibrations, or reduce the burden on the environment. We are currently trying to add more functionality to our products. That is something that we would like to expand on in overseas markets. Even though we have already brought our general purpose adhesive to overseas markets, our competitors in other countries, such as China, will be strong in terms of low pricing>. We want to bring unique function-added products overseas to stay ahead of the competition.
Which countries do you see as having potential for these products?
First of all, we need to try these products in the Japanese market. Then we plan to go to overseas markets. At this moment in time, we have a presence mostly in Southeast Asia, so that will be the first market where we will look to launch these products.
Not only have you developed your Bond series, but you have created other innovations such as the functional polymer. Can you tell us more about your R&D strategy? Are there any products that you are currently working on right now that you would like to showcase to our international readers?
As I have mentioned, we would like to grow the industrial use of our products. We are relatively closer to the end users. It is possible to directly hear the required performance and problems from the customer and connect them to the development. Our R&D staff will accompany the sales staff to visit the end user. We believe that our products can contribute to the improvement of customer's production efficiency. We listen to what our customers want and make it happen. The accumulation of these efforts leads to the advancement of our technology. "Bond SL / FB series", which uses our original polymer, is a typical example. This series does not use tin compounds (except for some products), shows good adhesion to various materials, and has the characteristics of resistance for both shock and thermal cycles.
Many companies have used partnerships as a means to penetrate new markets and develop new products. When we spoke to Okitsumo, they explained how working with partners in the United States was key to unlocking that entire regional market. What role do partnerships play in your business model, and are you looking for any overseas partners in the future?
Overseas market penetration is quite limited for us and our overseas sales account for only 8% of our total sales. If we are to expand our sales in overseas markets, I am sure that we will need to establish a partnership with a local company.
While we do not have a strong presence overseas yet, we want to expand our products to overseas markets in the future. At this moment, we have factories in China, Vietnam and Indonesia. Our Indonesian factory was established through an M&A last year. Our trading division deals with other countries. In the future, we would like to expand to overseas markets with our products which have unique technology for electric components, devices and automotive modules.
However, when it comes to a specific strategy to do that, we have not yet decided. This is due to many issues such as Covid-19, the war in Ukraine, and logistic disruptions.
Imagine that we come back in three years and have this interview all over again. What would you like to tell us? What are your dreams for this company and what goals would you like to have accomplished by then?
Currently, we have three axes: Chemical product trading business, adhesives/ Bond business, and construction business. In order to grow our total profit, I would like to establish one more axis to offset the good and bad trends of these and would like to achieve a stable profit growth going forward.
Our trading division is visiting many different industries to find the best one for establishing our next axis. We want to find an industry that will grow going forward. For example, the automotive industry is facing big changes with the move from gasoline to electricity. When there is such a big change, there must be business opportunities.
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