Neturen is the first company in Japan to successfully commercialize and industrialize induction heating (IH) technology, an environmentally-friendly technology that is both non-polluting and resource-saving.
Over the past 25-30 years, Japan has seen the rise of regional manufacturers who can replicate certain manufacturing processes from Japan at a cheaper cost, pushing Japan out of mass industrial markets. However, we still see that many Japanese firms are leaders when it comes to niche B2B fields. How have Japanese firms been able to maintain their leadership despite the stiff price competition?
First of all, let me try to explain my opinion about the foundational basis of monozukuri for Japanese manufacturers in general. I think the biggest aspect is their positive obsession with quality. For example, if regional competitors, as you said, in China and South Korea, are required to achieve 10 in terms of quality, they think 10 will be OK for their customers. However, in the case of Japanese manufacturers, they tend to surpass the requirements.
The second major characteristic of Japanese monozukuri, or Japanese manufacturing in general, is in terms of R&D. Japanese manufacturers think about R&D activities over the long term. They will not focus only on the immediate profits or benefits they can generate by doing so, but they try to think about R&D activities in the long run compared to competitors in China and South Korea. For example, Chinese manufacturers try to jump in to earn quick profits, but I do not think Japanese manufacturers would do that.
I think those are the major characteristics for Japanese monozukuri. On top of that, when we talk about our company itself, of course we are not a large-scale firm. However, for example, we have partnerships and collaborate with universities as well as other companies in terms of developing new materials and we have been doing research around that subject with eight universities. That is one of our strengths.
Japan is the oldest society in the world, with a rapidly shrinking population, presenting two major challenges for Japanese firms. The first is a labor crisis and the second is a shrinking domestic market. Can you tell us what are some of the challenges and opportunities this demographic shift is presenting for Neturen?
You mentioned that the domestic Japanese market has been shrinking. We fully understand that. However, we try to develop something new and invaluable to our clients, so we would like to increase our market share more and more. That is one thing.
As I said earlier, the most critical thing for us is developing and producing new products. On top of that, if people think that the Japanese domestic market has been shrinking up to now, we must focus more on overseas. That is why we already started early, ahead of others, to go to places like South Korea, China, the United States, Mexico and Indonesia, and expand our market share by doing so. That is the second point.
In addition, I can talk about two more things. Although the labor pool has been shrinking, as you said, one of the characteristics of our company is three activities. One is producing steel related products, the second is heat treatment service, and the third is establishing facilities. We try to automate our production line with the goal of labor saving, so even though the Japanese population is decreasing, we will be OK if we can achieve those aims.
In addition, we are trying to increase the working age of our staff beyond 65 years and increase the number of female workers. We hold a seminar for women's active participation. We are also trying to hire foreign workers, and through a certain system put in place at our company,
In 2021 you were researching 3D printing for certain parts on which you believe that you will be able to reduce the lead time as well as the cost. Can you tell us a bit more about the new products that you are researching? What are some of the key fields of application that you have the most growth potential to go into?
Let me talk about the Japanese market. It is already written in our IR materials. One is Double StarkⓇ for the construction industry. This is a steel bar for RC, with hard and soft sections for damage control. A strengthened part is used for the company's induction heating technology. That is why we have already developed it as a new product. We already have some customers starting to utilize it in the market.
In the future, I believe that it is going to be a useful product for constructing a building, for example, in Japan. However, there are still strict construction regulations, so our new product has limited use, but we hope it will find general use in the construction industry. We believe that we can gain more market share in the field of main reinforcement bars.
That could be one of the applications we could think about, and we would like to expand and grow that product in the market.
Another thing that is also written in our IR materials is the large-diameter high-strength spring steel wire for cold forming (coiling), the ITW®. We believe that could grow and be expanded in the future. For example, in the vehicle industry, when they tried to shift to EVs, the cars tended to be heavy. We started production and sales of the large-diameter ITWⓇ (high strength spring steel wire) for cold forming, the world’s largest diameter level, which can withstand the weight of EVs (electric vehicles). At that moment, we started to sell it in China, but we have been spending about US＄8 million to be able to put in place a dedicated facility in the United States. Not only EVs, but in the United States, as you know, there are many heavy vehicles which use big springs. With this new large-diameter version of the ITW®, we believe that we can also expand our market share not only in EVs, but also other sectors of the large car market too.
One product you offer is the ULBONⓇ, a high strength shear reinforcement steel bar with which it is possible to realize design stress of twice the allowable stress of deformed bar steel materials, and four times the allowable stress in ultimate strength equations at the primary design stage. How were you able to achieve this?
We had induced heating (IH) technology since the inception of our company. We started to have our clients outsource their work to our company. We put in place certain facilities for IH, but since we started our company in 1946, even though we spent 10 years since that point, we somehow struggled to increase our sales.
At the time, a former executive team considered what kind of new products they could develop using free treatment. Then they started to work on developing a steel bar with shear reinforcement for PC together with a formerly nationalized Japanese railway company. That was the starting point. After the shinkansen bullet train started to utilize these kinds of products, we expected to increase our market share. However, after some time, it is not going as well as expected because the market started to shrink. We started to consider what we were going to do next.
We had developed the steel bars in our company. However, when we tried to attach or adhere the steel bars to concrete, it was difficult because of adhesiveness issues, and at the time, our steel bars had a round shape that was slippery when we tried to adhere it to concrete. Then we decided to create a groove in the rounded surface of the bars. That is a processing technology we developed. Using that technology, we were successful in fully adhering the steel bar to concrete material. The product we developed is called ULBON®.
We started to consider what kind of applications we could expand into using this processing method. The product would most likely be used for concrete pile and concrete pole reinforcement.. As a result, we decided to expand the application of the product further, and we were successful in doing so. Next, we looked at utilizing materials for buildings too. Again, we worked together with several universities, and reached the conclusion that the product could also be utilized for shear reinforcement steel. Then we ended up developing ULBON® 1275.
On top of that, when we started that activity, a large earthquake occurred in Japan, and only the buildings using our steel material did not collapse. That was proof that we could achieve our aims, and we were successful in expanding our market share ourselves.
One of the biggest changes in the automotive industry is the change of materials to make cars lighter. We see aluminum being increasingly used, as well as types of resins such as CFRP. How are these changes in the automotive field impacting your business, and are there any other products or techniques that you are developing for these new demands?
With regard to the weight, we have ITW® springs. On top of that, with regards to steering, we have hollow rack bars as well. Normally, we have round shaped steel bars which have been processed by our technology, but in this case, we are using a pipe to develop the hollow rack bar. We changed from solid type to hollow type , and by doing so, we achieved a weight reduction of 40% .
You have collaborated with Nihon Parkerizing to develop the PALNIP®, a composite heat treatment technology that does not degrade the nitrogen compound layer of parts. Can you tell us a little bit more about this collaborative effort, and are you looking for similar opportunities in overseas markets?
We have already established a joint venture in South Korea as well as China, and also started working together with certain local companies in Indonesia . Basically, I can say only half of our overseas business at the moment has been done by our company itself. We work together with local firms because they know more than us about the local market. We are essentially trying to expand our business by working together and partnering with local companies. On the other hand, we are trying to improve the technology and quality further for them to be able to help us expand together. As for the future, we believe that we need to expand our market further and that is one of the tasks that the business development team has been working on now.
In terms of technology, our main business at the moment is the IH. We also started working on different types of heat treatment processes. We have also embarked on some activities around vacuum carburization together with IH. It is a type of composite, or hybrid, heat treatment. I cannot specify the name, but with a certain company, we have already started working together for our future R&D and have had discussions about technological challenges and issues already.
Moving forward, are there any countries or regions you have identified for further expansion into, and what strategies will you employ to do so?
I cannot specify a specific country or region that we are thinking about expanding into at the moment, but of course, in locations where we do not have any business offices we can work with, we can target areas like Latin America, India, Africa and other European countries, for example. That is the kind of scope that we have been considering for our future business expansion. However, of course, we need to fully understand the markets when we try to enter. Particularly since we are not trying to do it by ourselves, we naturally need to look for a partner in the local market as well.
Typically, our basic feeling is that we should do everything by ourselves, but I am considering collaborating or partnering with local companies, for example certain partnerships based on technology. I would say that another option we can think about are M&As too. We are trying to consider our overseas market expansion, and we have a dedicated team able to take activities from that.
Induction heating is seen as environmentally friendly, as it uses less electricity than current alternatives. Today, we are seeing big changes in global industry as companies try to cater to more environmentally friendly needs. What do you think is the potential of induction heating? Do you believe that the technique will become more widely used in the future thanks to this eco-component?
Yes, we have been talking about our company vision to others around IH at the moment. When we can achieve expansion of our IH technology to the world, we believe that the specific areas we enter into can be more eco-friendly, and actually, our IH technology requires only electricity. So in the future, when electricity supplies have all been switched to renewables, at the end of the day we can achieve zero CO2 emissions. Therefore, we want to expand that technology further rather than utilizing, for example, furnace heating, and others. We believe that there is big potential in IH.
Let's say we come back to interview you again in four years' time. What would you like to have achieved by then?
By 2026, we would already have created and published our 16th midterm business plan. Now we have the 15th midterm business plan for fiscal year 2023, so when you talk about 2026, ITW® would be the final year of the 16th midterm business plan.
In our current 15th midterm plan, we said that we would like to expand in overseas markets by using the existing bases we already established overseas. Using that foundation, we established the 16th midterm business plan. We would say that we will try to go into new markets overseas. In 2026, when you come back, I hope that I can talk with you about specific areas or countries we have already entered into.