Forging innovation, gearing up for the EV future

In Japan we see that craftsmen have this relentless quest for perfection with the products that they make. This phenomenon is described by the Japanese word, monozukuri. Can you give us your take on monozukuri? What is the essence of monozukuri for you?

In terms of price, it is very difficult to compete with China, Korea and other Asian countries. To be honest the level of their production has improved dramatically, it is very difficult to differentiate their products from our products in Japan. What we are trying to do is to add more value to the products that we are providing and of course the basic baseline is high quality, that is the basic demand of our customers. We have to add something more on top of that in order to compete with those other countries. Also, what we are conscious of is to pursue the cost, the quality and the service. Speaking of service, we have our direct sales offices in the US, China, and Germany. The reason why we have direct offices there is to quickly respond to the needs of the customers and provide services.

If we look at the auto industry, we know that there is a huge trend taking place in terms of material, we are seeing a shift taking place from ferrous metals such as steel and iron towards lighter metals such as magnesium, titanium and even composites such as carbon fibre reinforced polymer (CFRP). We know that this is driven by the demand for lighter weight cars in order to reduce their CO2 emissions. As a company that is involved in the auto industry, how are you adapting to this trend towards new materials that is taking place?

There is a high demand for making the cars lightweight and we are making efforts in that direction too, but in terms of production what we produce is the gear for the drive. In terms of the cost and durability we cannot replace the material iron with something else. If we were to replace it with titanium that would exceed the basic cost of production for such products. We are not thinking of changing the material itself, what we are doing is with our forging technology we are trying to make the iron thinner and to make holes by forging so it would be more lightweight.

Another major trend taking place is the electrification of the auto industry. Last October the Japanese government announced that by 2035 all cars must be either EV or hybrid form. As a cold-forging precision gear manufacturer, you are obviously catering to traditional combustion engines. Can you tell us what efforts you are making to adapt to this new EV revolution that is taking place?

Let me explain about our current status. We mainly produce components for manual transmissions and DCTs. These are quite popular in the European market, whereas the Japanese market started to use more automatic transmissions (AT). Since the manual transmission is still prevalent in Europe, we were able to increase our sales there. At the same time there was a big wave for fuel efficiency and the gear speed shifted from five to seven to eight speed; that increased our sales even more. By having multiple speeds more gears are being used, that is why we were able to increase our sales, but with the EV transformation there will probably be only one or two gears required. Changing to EV is quite a challenge for our company.

Actually, we have already begun penetrating the EV market. We have been working together with the European car manufacturers and our EV gear is already incorporated in that market. The reason we started working at an early stage is that we foresaw the future and felt the advantage of entering into the market. But to be honest, in terms of profits, the number of orders was too small and not sufficient for us, but by working together we could understand the needs of the industry as well as have a good relationship with the EV automotive companies. That has been a success up to this point, but we were not expecting the move towards EV to be this quick. With the government announcing that last year the automotive companies are going towards EV, we still feel threatened that the situation is changing much faster than we expected.

Four years ago, we spoke with Nakatsuka-san of JATCO, which has developed industry leading Continuous Variable Transmissions (CVT). He was very hopeful for this type of transmission as it was seen to be very fuel efficient. What is your take for these traditional types of transmission and what would their applications be even when 2035 comes?

To be honest I do not know if there would still be a need for CVT even when 2035 comes because CVT is a transmission that controls the speed and torque conversions for ICE. Talking about EV, it basically only requires the decelerator not a transmission. Since conventional cars have different speeds which require each gear, the number of gears needed for the transmission was much more than the EVs. What we are planning is not only to develop a gear that is appropriate for EV but find a new business or component that we could produce, or else we will not be able to cover all the losses that we have by replacing it with the EV gears.

Looking at your company we can split your business into three categories at the moment; you have your manual transmissions, automatic transmissions, and your engine parts. If we look at some of your most prominent products you have your clutch gear or Mçmonoblock gear of which you produce more than 30 million parts per year. Could you give us an overview of the products you are offering and which of your products are the best-selling or most popular?

In terms of the share the Monoblock is the best selling item. Since we specialize in one specific component which is the speed gear, we have a lot of synergistic effect because basically, the shape of the component is somewhat similar. When we receive a drawing from a new client, we basically can apply the knowledge that we have utilized in the past and make the new dies needed and then manufacture that part for the client. This accumulation of knowledge and know-how that we have when we work with other companies has been applied when working with new customers in making a new speed gear.

Can you give us a brief overview on how your one-stop service works where customers can think of any design and you provide them with prototypes all the way to the full production?

Usually, these types of gears are made by a cutting process with machines, but our company uses forging technology to make gears. The advantage of using forging technology is that you can make the items stronger and save on costs, though it depends on the shape, but usually it is lower. Also, we can have a higher quality since we are using the die which is well-maintained for mass production. You can have exactly the same quality for all the products. Typically, the drawing we get is for a cutting method, but we talk with our customers and convert that into a forging method and turn it into a die.

Our strength is we can provide from designing the die to the final production state of the process. Usually, we start with making the die, followed by the hot forging process then to cold forging and then we also do some machining. Depending on the request of the customers we do the heat treatment and grind gears to meet more precise quality required. We can cater to any needs of the customer, if they want to have the finished product, we can finish it and make it complete. For example, this gear closer to you is unfinished because the customer wants to have it finished by themselves, but this one (see picture below) is finished. In order to satisfy the customer needs, we have several machines to finish gears: outer-gear honing, outer-gear and inner-gear grinding.

When we spoke to the president of gear maker Benda Kogyo, he told us that now is a really important time, and he wants to diversify away from producing parts that are not just for automobiles. He wants to diversify and make gears for construction machinery, trucking, shipping, and agriculture; he was really looking to open up to other markets. Is that something you are looking to do, to offer your gears to other sectors or applications?

We are interested in expanding into other markets as well, but frankly speaking the automotive industry is the most attractive for us because the number of orders we get are constant and large too. We are also working in making construction machinery, hydraulic, lift, and shutter gears, but the number of products that we make are very small compared to our automotive products. However, we are also working on lower volume production, prototypes, and any other new components, like shafts, not only for the automotive market but also other markets as a potential business.

When we think of Japan as a country that manufactures, we know that a huge percentage of GDP is spent on R&D. According to the World Bank 3% of Japan’s GDP goes to R&D. Can you tell us about your R&D strategy? What products would you like to share with our international audience?

For our company, as a management target, we planned to put 5% of revenue into our R&D but that was not realized, usually it is only between 2% to 3%. In order for us to be sustainable and to be able to create new parts we hope to eventually invest 5% of our returns. We traditionally have been good at making manual transmission parts and we had big sales in Europe. We started to target the US market, which is more for automatic transmission, and we engaged in R&D for that and as a result we do have an increase in our market share. At the same time, we have been working on producing EV parts and we are now able to work together with a European automobile company and our products are already incorporated in their mass-produced cars. That is a big result that we have had.

Speaking of EV cars, they require highly precise parts because as the gear turns, they make noise. With the conventional cars that noise was masked, but with EV you can directly feel and hear it. Each part has to be very precise in order to reduce the noise. We have gone through R&D to create a new facility that is solely dedicated to making high precision EV parts. We have introduced new machinery to grind the gears, the outside and inside one, in order to cater to any high requirement of the customers as regards to noise reduction.

 

We saw that you worked very closely in a co-creation effort with steel manufacturers here in Japan and also in another project with Aachen University in Germany. Can you please tell us more about these co-creation experiences and are you looking for more co-creation experiences moving forward?

We are currently working with Nippon Steel, the biggest steel company in Japan. Eight years ago, we established a new factory on their premises in Hokkaido. We are working together in developing reinforced steel and finding ways to reduce the cost. We will continue working with them in terms of R&D.

Furthermore, we have done co-research with Aachen University in Germany. As I mentioned above, gears usually are made through a cutting process, but since we are using a forging technology to make the gears, we have undertaken research to compare their strengths relatively. The results stated that the forged gears have 50% more strength than the gears made by the cutting process under certain conditions. At this point we are not doing any co-research with any university.

Could you tell us more about the co-creation experience with your European partner to create a solution for noise reduction in gears? How is that working with this foreign co-creation experience? Is this something that you are interested in in the future?

As regards working together with a European automobile company, they were looking for a gear company that could meet their specs at a specific cost and we “raised” our hand. We then continued our research and development in order to meet their need for noise reduction. Through conversation, providing prototypes and going through each step, we realized that we have to have a high level of precision and processing ability at each stage of the production process, including grinding. That is how we have been working with that European company. It is not so much about co-creation; it is more like we received the order, and then we did the research ourselves to accommodate their request. Although our customer’s request may seem very difficult, we managed to overcome that challenge and that is how we have been able to accomplish making EV parts. That would be the direction we will be taking in the future as well. Whenever our potential or current customer gives us challenging requests, we will raise our hands and we will definitely meet their demands no matter how difficult it may be.

Tracing back to what we have done from the EV to the AT cars, whenever we are making new parts, it is always a big challenge for us and our employees. However, by overcoming these challenges we are able to open up new paths and opportunities. For this reason, we would like to continue to be fierce.

I would like to ask you about your international experience because we know that you have not been shy in that respect. Since 2001 you have opened up in Germany, China in 2012 and then in the US the following year. Can you tell us more about this integrated production and sales approach that your company has adopted and what benefits this brings to your business?

What is very important in our international strategy is to have an office close to our customers. The reason why we started our international business in Germany was because we had an increasing number of European customers. If we were to travel from Japan it would require numerous visits and each one a long trip, thus the services we could offer would be severely reduced. We established an office there to overcome these obstacles. We have the most sales in Europe followed by China and then the US. In those offices in Europe, China and the US, we employ local staff - along with our Japanese staff - because they understand the local culture and language.
 

By producing a value-added product many customers all over the world will have satisfaction and we know that as the Japanese companies expand, they adopt various methods in order to take advantage of local knowledge like you just said, whether it is M&A or an overseas sales office or even local company acquisitions. As your company looks to expand internationally, what methods will you be adopting and what strategy will you use to go to new territories?

Currently we are thinking of having a factory outside Japan if that would be advantageous for us and to our customers. In order to have a factory overseas, M&A and joint ventures could be an option. Speaking of joint ventures, there is always this discussion on who is going to have how much percentage and who is going to have a bigger voice. We want to keep our principles and quality, probably M&A or having our own factory would be a better option.

Since Abenomics took off in 2012 the car industry here in Japan has been a steady rise in production, barring the covid induced downturn we had last year. For Japanese automakers, the American market is a very important one because 35% of all cars made in Japan or by Japanese makers overseas end up in the US. Can you tell us how you are perceived by the tier-1 suppliers to American car makers such as GM, Chrysler and Ford? How important is America in your globalization efforts?

In terms of our company, 85% of our total production is exported, half of that 85% is sent to the European market and the rest for the Chinese market, and then the North and South American markets. We do have dealings with GM, Ford and Chrysler in the US, but percentage wise it is still low compared to what we export to Europe. There have been big changes in the automobile industry, we see that many European companies are working together with American companies. For instance, GM used to be with Opel and now Fiat is together with Chrysler. We have a good relationship with Fiat, and we can utilize that network to access the US Chrysler side, taking into consideration the changes in the automotive industry, that is becoming a big opportunity for us.
 

We spoke with a company called Nagata Auto Parts recently and they were heavily focused on India. We know that Southeast Asia as a whole is booming in terms of consumerism and cars are a big part of that. Are the Indian or Southeast Asian markets the kinds of territories on your radar in terms of international expansion?

India is also a very interesting market for us. Before covid I had visited India many times. We have direct dealings with Fiat which has a factory in India. Suzuki is very strong in India. Indirectly, our products that are delivered to Suzuki are sent to India for assembling. However, there is one big disadvantage with the Indian market, that is they have very high import taxes. If we were to send our products from Japan, we could never compete with the low prices and low labor costs of Indian products. That is a challenge we are facing, but since there are many Indian companies which make dies and also machines, we do visit them often and try to find new business opportunities. 

Imagine we come back to interview you again in three or four years, what would you like to tell us? What are your dreams for the company and most importantly what legacy would you like to leave for the next generation in the long term?

When you come back in two or three years, I would like to tell you that we have a new special product that is highly competitive in the market. My grandfather started this company by manufacturing parts for the trains and that was a big hit at that time. But no matter how popular a product is, after some years it could lose its popularity due to the changes in the market. I succeeded the company about eight years ago from my father. It is my mission to find new products that would be a hit in the market, products that would be popular for twenty or thirty years and would sustain the company. Especially with the EV trend coming much faster than I have expected, I have much more pressure on my shoulders.

There is one very good thing about the government’s push towards EVs, that is because the automotive companies and the media are paying so much attention to this, our employees are quite aware and feel threatened that if we continue with our ‘business as usual approach,’ we will not be able to survive. There have been big changes in the mindset of our employees, they are now becoming more active in trying to develop new products.