Makino has continued to evolve to meet new customer needs throughout its foundation in 1937.
If we could start with a short introduction to Makino. What is your main business and what are some of the advantages that Makino has over its competition?
Our customer is for the production of iPhones, and right now there is difficulty because of the change in material from stainless steel to aluminum. An EMS company is one of our customer and several thousands of our machines are in their hands. Such huge installations speak to our business style, and we have had our machines in their factories since around 2005-2006, which I believe was just before they started producing iPhones for Apple.
As I’m sure you are aware, Apple themselves have shifted their business structure and supply chain back to a tier 1, tier 2 system covering a more widespread area. This has created much stronger competition. As you can see, we have had a long-running relationship with this kind of company, and I think this is especially true with big customers in China.
Currently, the company has 16 sales locations across Japan, but our headquarters and the location where we started our business are in Tokyo. We like to think of ourselves as a very independent operation, but through mergers, we have expanded our business and expanded beyond the borders of Japan, something which is a little bit different from standard Japanese enterprises. Being this kind of individual and independent company means that we have a responsibility to the organization and to generate a profit if possible. We’ve realized that perhaps Makino has reached the limits of the capacity of Japan itself.
Production wise we serve three major countries, those being Japan, Singapore, and China. We’ve also started selling Makino machines to India recently too, as companies there have had issues buying from China. In particular, we have been supplying Apple in India. This is why I have been to India recently aside from training and education. India feels like a country that is ready to burst out at any second and we are very interested in the region. In any industry, whether that be aerospace, automotive, and EVs, supply chains are coming from India as fierce competition against European suppliers. Previously automotive companies in Europe looked to suppliers of conventional components from Italy and Germany, and to be honest it went like that for many years. Production has shifted however in recent years, and we see production being done in France and Spain now. This is also an opportunity for Makino and we see a space for our machines.
Our situation right now varies from region to region, with a focus in the United States on automotive, semiconductors, and medical. Asia right now sits very comfortably, with over 25% of our income coming in from China. We must follow the market, and we have started a second factory in Wuhan.
You mentioned in your introduction having some major contracts with some major companies like Apple, An EMS company. Can you tell us more about your uniqueness, your manufacturing philosophy, and why you believe these companies chose you?
We don’t choose the customer, and customers like to take almost completed products from us. Conventional products come with an instruction manual that will say something along the lines of “operate according to the capabilities of the machinery,” and I think customers prefer to customize according to their own usage specifications. We can only give them the tools, and honestly, we would prefer not to dictate to them how to use those tools. We are very lucky in the fact that many of our major customers clearly have the ability to upgrade our products and upgrade their businesses by themselves. We don’t believe that we can make products that will lead to any customer 100% satisfaction, that is an impossible expectation because the needs of our customer who are tracking with difficult tasks are always surpassing our level of technology, and it is my belief that no company should aim for such unrealistic goals. Our products instead make sense for them because we provide quality tools in which they can adapt, change, and upgrade to meet their specific needs, which in turn leads to customer satisfaction. Satisfaction leads to profit, not only for ourselves but also for our clients.
We feel that we should produce machines that are according to our own standards, nothing more and nothing less. Of course, some customers may want to discuss process automation and robotics, but those are secondary topics, and it really is much more important to understand the core of a product. This is something that I will often try to impart to our staff and customers alike. It is important I’m not the only one who understands our strengths, but our employees also have a good understanding of what we do that sets us apart from the competition. We provide the product, and further development in order to meet a very specific application is for the customer to explore and not for us.
This is why we have a distinct division as part of our sales that is in charge of listening and talking to the customers directly. They are based in our Customer Application Center, and this center has over 120 people, the worldwide totals over 350. They can communicate with the customers because we make sure to hire those that can speak the same language, come from the same world, and have the same vocabulary. This connection is vitally important to gather information and the requirements that customers expect.
We’ve seen very often with Japanese companies that it isn’t an issue with innovation, but rather an issue of communication. How have you played a role in helping bridge the gap between Makino and your clients overseas?
All around the world, there are tall cultural barriers that prevent communication between people. Fortunately, we have independent regional companies, and there they tackle development, sales, and production. Everyone knows what they should do by themselves. Additionally, the customers know what these companies are doing too. It works because in France we have a French guy talking in French to French customers. Same in Spain, Germany, and wherever else we need to communicate our message to our clients.
It is also important to understand that customers complain to us because customers they are trying to solve difficult challenges. That is the nature of a customer. What is more important however is to make the effort to understand their feedback, and understand to what degree we can help. At the end of the day, our job in these localities is to listen to those customers and make sure they feel heard. This customer feedback is the fuel that powers our engine of development. This is key and something I want every employee to understand fully.
How is Makino integrating digital tools and technologies into its products?
Digitalization is not an objective, but rather a tool or object. In the United States, digitalization is being pushed as a way of analyzing cost-performance, and to be completely frank while we must cater to this to some extent, I don’t necessarily appreciate this trend. Of course, we have to comply with the need for some forms of digitalization and customers do like digitalization that creates quality of life (QOL) features. I would say however that I personally feel that we are still in too early a stage for some of the more futuristic features customers might be asking for, such as voice-activated machinery. The digitalization of the United States is too advanced, and we see some service industries using digitalization as a means of addressing secondary factors rather than the core of their business. This is the opposite for us, and I think this is a fundamental misunderstanding on those companies' part.
Here in Japan, digitalization feels like it is a tool to collect new customers, rather than improve the efficiency of cost-to-performance. This is our vision too, and that customer should be the first priority before anything else. For two years we have been promoting this model during the COVID-19 pandemic, and we have good digitalization and could survive off of this model. Despite this, this is not the objective that I would advise others. Our objective with digitalization is not only to gain new customers for our portfolio but also to increase those new customers’ profitability. This is what customers appreciate and what we should think of more as our true objective.
We have provided routers for connectivity between our machinery and our IoT center, and we have built these IoT centers to work 24 hours a day, 7 days a week. The IoT centers collect information for the customers automatically.
This very clearly demonstrates your company’s philosophy, and clearly, you see your machines as tools to make your customers manufacturing activities more efficient, and more successful. The new model of LUMINIZER, the LF400 was released last summer, which is a laser-processing machine that has been used in semiconductor-related businesses and applications. Can you tell us more about how you are diversifying the type of products you are making in order to appeal to new sectors?
Our Japanese name translates to Makino Milling Machine, and that means that our specialty is in these milling machines. Since then, however, we have spread out much further than just milling machines, and the simple answer as to why comes down to the customers, meaning that what we were providing was not enough. So we moved on developing EDM(Electric Discharge Machine ) . At that time we were spending around 5-10 years on development, and as the customers' requests became more and more specialized, they also required more and more from us too.
Our customers then approached us asking why we don’t tackle lasers next. I told them that if they give us the needed development time then of course we can learn how to do it. We conducted the investigation and were approached by a Swiss company.
We went ahead with this collaboration before a large electronics company approached us with the idea of doing it by ourselves.
This resulted in us changing our direction and no longer providing the laser machine under OEM, and instead providing by ourselves. This is the starting point of the LF400, which was around 5 years ago now.
You mentioned earlier that COVID-19 had a strong impact on your operation and your sales. We read that you had a very strong rebound with a 59% increase year to year in terms of sales. What do you think are the key reasons for such a strong rebound in sales?
This went far beyond our expectations. The biggest issue we thought long and hard about was how to increase turnover because the first 6 months of the financial year did not look promising in terms of turnover. Unfortunately, I cannot go into too many details on the turnover for the company, but a large portion of the current turnover is in the backlog created by the pandemic. That backlog goes from 7-8 months all the way to 1 year right now. While it looks good on paper in terms of turnover, this isn’t so great for customers and shareholders. As a result our first priority right now is to increase production capacity in order to tackle that backlog. This is way easier said than done, and the world has so many problems right now that make that task monumentally more difficult. I think one of the biggest problems we are tackling is space, and we just don’t have it right now.
In fact, the problem is so prevalent that we are looking into a new factory in Japan that would enable us to increase our production capacity. Of course, the downside to this is that it takes time, so it means we are not in such an easy situation right now. We are trying our best to challenge this backlog and looking for additional solutions that will enable us to increase our production capacity, and thus reduce lead times for our customers. Our customers are aware and they know we are doing all we can to tackle this issue.
To be quite frank too, this backlog is not only a result of our own production capacity. As you might be aware, logistical issues are happening all over the world right now, especially due to the war in Ukraine. Shipments are stopping, and starting, and not only are prices soaring, but shipping services are unreliable at best. I think we will need to find another channel, but worldwide companies are scrambling to do the same. Honestly with the logistics issues and the oil prices, 2022 has been brutal, and it feels like every month there is a new problem.
Your international business has long been a strong point of Makino. Can you tell us more about your international strategy. Is there a particular region that you are focusing on?
We have distribution centers spread across the globe, and we like to call them technical centers. Through these technical centers, we have been able to spread our business.
Around 1980, we were penetrated into Europe and the United States, and we were able
to spread our customer base. That strategy has changed these days, and as I mentioned they work more independently in order to acquire customers and sales. I believe in the US alone we have around 10 of these technical centers, and in Europe, it is the same setup with 5 locations. In 2000 we started a technical center in Singapore, and then Shanghai and Shenzhen quickly followed. India had a technical center setup, along with a number of other locations.
This is the Makino strategy, and any area we are interested in will have a technical center where we can talk to customers, and drum up business. Every time our customers will mention how we don’t provide enough services we create a new technical center to address this complaint.
For the future, we believe that Europe and Asia are settled, with plenty of technical centers there to cater to the customers. The United States has brought up the idea of more sales. Brazil is also a location for a sales office, as well as the sister company we have in Mexico. In China, we just finished a factory, and we are confident they will increase their output by themselves. China also has its own R&D, and they have not only the capabilities to provide designs, but also the supply chain needed to completely produce in China by itself. India is also in a similar situation to China with R&D and production.
The elephant in the room right now however is the JPY. It has become extremely weak over the past year, we have sifted the production site to Asian counties over long period. It is a little awkward that we can enjoy the benefits of a falling JPY in fully. We meet and discuss every three months how we can support each other in order to survive this harsh economic climate.
This year will mark Makino’s 85th anniversary, so imagine that we come back in 5 years and interview you all over again. What are your goals or dreams for the next 5 years?
One of our business challenges is to achieve a profitability rate of over 10%.
This is something we are approaching over the mid-long term.
Now we are considering mid-long term business plan for disclose.
Though it is difficult to disclose because the premise for quantify changes frequently amid the industry which changes a lot, we would disclose it right after completed.