In an ever-changing landscape, Shoda explores overseas expansion, product quality, and software innovation for a bright future.
It is a pivotal time for Japanese manufacturing. The past three years have seen large supply chain disruptions due to COVID as well as the US-China decoupling situation, and as a result, corporate groups are looking to diversify their suppliers for reliability reasons. Known for their reliability as well as their advanced technology, Japanese firms are in an interesting position. Combined with a weak JPY, many observers argue this is a unique opportunity. Do you agree with this sentiment, and what are the advantages of Japanese firms in this current macro environment?
Currently, we are seeing historic lows for the JPY and this is actually giving us a good push in our overseas sales, especially in the US. 50% of the products that we sell in Japan are produced in China through our factory, however, we cannot export directly from China to the US because there is still a 25% tariff imposed that was put in place by the Trump administration. Basically, not a single piece of Chinese-produced machinery is exported directly to the US, so we are now seeing machinery manufactured in Japan gaining attention from the US market, which has been further helped by this depreciation in the JPY.
Tomorrow I am visiting a Vietnamese exhibition (Vietnam Wood 2023) with the purpose of continuing to enlarge our Vietnamese presence. We have bases in China and Vietnam, and soon we are opening up in India. In a way it is fortunate for us that Vietnamese and Indians do not like Chinese products, therefore our made-in-Japan products are highly appreciated. Additionally, they are looking to purchase locally produced machinery that is made by Japanese companies which fits into our wheelhouse and is a huge opportunity we are now pursuing.
In the past, there was a time when it was thought that Chinese woodworking machinery would dominate the world, including North America and Asia, but now Chinese manufacturers have become so weak that we see new opportunities for companies like us to sell more. The loss of position is also occurring in European markets with Chinese makers losing a lot of ground in recent years. We have been present in the Chinese market for some time now but there are several cheap computer numerical control (CNC) router manufacturers that we are not able to compete with because of cost. Recently, however, customers seem to be paying more attention to quality and functionality which has allowed our firm to gain competitiveness once again. This is especially true in the fields of resin and plastic processing. This is the situation as it is now. We are trying to create new footholds in the Chinese market.
We have a factory in China, so we are capable of locally producing and providing, and I think this is a strength that local customers really appreciate. Having said that, there is always the China risk to consider. Additionally, there is aggression towards Taiwan, and although the probability is low, it is important for us to avoid and mitigate these risks in China as much as possible. Helped by the depreciation of the JPY we are now trying to shift the production base to be more centered around Japan. Domestic production is something we want to increase as well as more production in our new Indian base.
One criticism of Japanese businesses is that they tend to be quite risk-averse and pessimistic. How long do you anticipate these opportunities you have mentioned lasting and what specific measures are you putting in place in order to take advantage of them?
As you allude to, it is hard to foretell how long this depreciation will continue, but at the same time with the US-China decoupling, it is hard to imagine a time in the near future when those two nations are friends again. We must indeed seize the opportunity now before it is too late. As a non-listed company, we consider ourselves more flexible and quicker to take action with our smaller management team. Our size allows us to make changes and decisions on the fly over a short period. An example can be seen in India where production will start soon and we are planning on exhibiting our products by February 2024 (India Wood 2024).
One of the strategies you mentioned was to bring more production back to Japan. This seems to be at odds with the many social challenges Japan is facing. There is a shortage of workers and engineers are increasingly getting older. What impact has this social phenomenon had on your company and do you believe there are any silver linings to this situation?
The production strategy we have here domestically is to increase the capacity of our in-house factory and also to utilize OEM consignments with regional companies in the Tokai region. Where we are we do have regional companies like Honda, Suzuki, and Yamaha. In this area, there is a shortage of labor, but we do currently have enough resources and production capacity for OEM production of our machinery.
Recently as you might have read in the news, TSMC and Sony have created a joint venture to establish a new semiconductor fabrication plant in Kumamoto; a very regional area of Japan. Decentralizing and finding the appropriate production with the appropriate partner is important in increasing our production capacity.
You said that you are planning to showcase products at an exhibition in India next February. Can we assume that production will start very soon? What motivated you to choose India as a location?
Actual production will start soon but right now we are in the preparation phase trying to figure out the best time to start. The reason why we chose India is simply because the country now has the largest population in the world.
When Japanese firms take production overseas, they strive to maintain the same quality as in Japan, and often they take one of two approaches. One is to fly in experts from Japan to monitor and micro-manage the production to ensure high-quality standards. The other is to invest in local human resources. What strategy is Shoda employing to ensure the same level of quality as in Japan?
In every overseas operation, we partner with local companies, and in the case of India, the partner we have already has high technical capabilities. Basically, we would be delegating manufacturing responsibilities to them in order to produce our products.
In the past in China, the company we partnered up with did not have enough technical capabilities, so we dispatched engineers to the production site. We also used Zoom to instruct technicians.
How did you find this Indian partner and do you mind sharing the name of this partner company?
I am sorry but unfortunately, I would prefer not to disclose the company name. We found them by hiring a person who had been selling machine tools in India and who had several connections among companies in the region.
In China, we have a sales subsidiary with a Chinese president and he found connections between three companies. I personally visited those three companies and got to know them. A decision was made to work with one of them.
Planet Blue is your premier CNC router that was launched in 2014. It is the world’s first dust-free CNC router. We know that worker on-site health and safety is a huge concern nowadays, and the idea of breathing in these very small particles can have a cumulative effect over many years of working on a site. Could you tell us the story behind why you developed Planet Blue and how you can ensure such an efficient dust-collecting system?
Tracing back Planet Blue’s development throughout history we were actually the first Japanese company to develop a CNC router back in 1968. In Wikipedia, CNC routers are defined as cutting machinery that can cut things that are lighter than steel. I was actually the one who created this definition on Wikipedia. A CNC router is something that we defined as a company because at the time there was no name.
CNC routers do not use oil or water during the cutting process, so there is always dust being emitted during the cutting process. At first tools such as vacuums were employed to swallow up the dust, but they simply were not effective enough. Eventually, all CNC router manufacturers in the world including SHODA began giving up on dust collection.
For over 50 years the dust problem remained unaddressed. CNC routers were originally developed for woodwork but over time the materials utilized have diversified, with only 30% of our machines now being used for woodwork, and 70% being used for other materials. Before, although dust gathered in the lungs, since it was wood it was seen as not that harmful, but now with the use of carbon, plastics, and ceramics, the dust is becoming more and more harmful to human beings.
This is a bit of a side story, but China did make stringent laws on the factory standards for woodworking. This has resulted in Chinese factories shifting their production to Vietnam. With that flow, our machinery also shifted to Vietnam to cater to the changing demands of the industry. Tariffs are involved and the tariff amount to the US from Vietnam is much lower.
I personally visited the Vietnamese factory and I was shocked to see how much dust was flying around because of how lenient the laws and air standards were. They were using our CNC routers but dust was being emitted freely. If this was in Japan this would never happen, and I felt that this working environment should be improved. I felt that the only way to change the situation was to develop a CNC router that could be completely dust-free.
It is clear that your firm has a history of creation and innovation, especially when it comes to CNC routers. In many industries today we are seeing a shift away from heavy ferrous metals such as steel to more lightweight materials such as aluminium and Carbon Fiber Reinforced Plastics (CFRP). As such, your products are being used in a wide range of new industries including aerospace, medical, and automotive. Which of these new fields do you believe to be the most exciting or promising for Shoda?
CNC routers are cutting machines used for material that is lighter than steel, and it is the amount of variety for applications. Recently I did some research and I was astonished by the number and variety of different applications. In your daily life, at least one thing you touch every day is made by using a CNC router. With an increased awareness of the environment, lighter materials are becoming more required, and one big example is in the EV field. The usage of CNC routers has been very active in this field in particular. Even applications like high-end wooden interiors for cars require the usage of a CNC router.
Machinery and equipment all require components that in turn require the usage of a CNC router in order to achieve accurate results. An example can be seen in semiconductor manufacturing equipment that uses a lot of resin-based parts. Food machinery and medical equipment also tend to use more resin-based parts due to the risk of metals like steel rusting. Industries like these will certainly see an increase in the usage of CNC routers.
One aspect we are very excited about is not necessarily the applications but the new developments we are currently conducting. Conventionally you have to have a cord attached to the controller to control the CNC router, so we are now developing a wireless remote so that operators can control the machinery from anywhere close by.
We have also developed in-house software we are calling SHODA CNC Protocol. And we have also developed a new CNC router: the iCNC router, and the reason it is called this is that we borrowed the i from the iPhone. The intention is to promote similar functionality to iPhones. In the CNC router manufacturers tend to only be focused on hardware, with specialist software firms developing the software end. I realized that Apple is a strong company, and I think the reason why is because it has closed systems for both hardware and software. They are able to keep users within their ecosystem and users of iPhones tend to never change to Android. We feel that Shoda’s strength now lies in this combination of both software and hardware, making us essentially the Apple Corporation of CNC routers.
The vision we have is to make this software free of charge so anybody in the world can use it to operate their CNC routers. We are attempting to create the Microsoft Windows of CNC routers while making our company the most dominant company in the CNC routers industry.
The building (SHODA Digital Twin Laboratory) we are sitting in today is actually our newest project that we just finished. The idea behind the building is to develop and support our customers in their research into new applications. I like to think of this building as the Amazon of CNC routers, and the reason is that using our iCNC routers we could share our software through the cloud to customers in a similar way to how Amazon has their Amazon Web Services (AWS) system for their customers. Basically, we see it as a way to bridge designs with customers who have iCNC routers, allowing businesses to flow with new applications and ideas.
Your firm was established in 1926, which means that your 100th anniversary is only three years away. Imagine that we come back in three years and have this interview all over again. What goals or ambitions do you have for those three years?
The number one goal of Shoda is to become the number one CNC router manufacturer in the world, and that is in terms of both hardware and software. As I mentioned earlier, we want to be the Apple of CNC routers. In terms of service, we want to become the Amazon of CNC routers.
The Hamamatsu area where we are now is synonymous with Honda, Suzuki, and Yamaha. We feel it is important for our company to be held in the same regard as a firm that emerged from rural Japan as a leader in its particular field. We want to show the world the resurgence of Japanese manufacturing and the fact that Japanese firms are back, ready to take on the rest of the world.
Interview conducted by Neale Oghigian & Paul Mannion