For over a century, Kobe Steel Group has been leading the compressor industry by producing reliable, efficient and innovative air compressors, refrigeration systems, heat pumps and other energy solutions. In 1997, subsidiary Kobelco Compressors Corporation (KCC) was established as a total solution provider of compression technology.
What is your take on monozukuri? What is the manufacturing philosophy of your company that allows you to compete in the international market?
Our competitiveness comes from the necessity of our product. Because compressors have such a vital role, essentially functioning as the heart of a manufacturing plant, they cannot stop. If they stop then nothing else works, so in that sense they need to have a very solid amount of reliability and durability.
Quality is what matters the most, and behind quality there is trust. Our clients need to be able to trust us, and what builds that trust is providing high quality products. High reliability with quality assurance is the key. This trust is what we value most. It is the currency by which we can keep producing. To keep our product reliable, we keep high standards in our R&D and manufacturing. And we don’t compromise on it. That's our discipline.
We treat our suppliers and clients as our partners. We approach and tie-up with them at different management levels, such as top management level, middle management level and front end level. This can help our mutual intelligibility on our quality standard and policy.
After that, it's very important to ensure proper pricing so that we can strike a proper balance in terms of being able to maintain that margin in the market as well. When it comes to overseas, we've been working for over seven years in China so we understand Chinese quality and we can tell that the manufacturing quality there is improving with every passing year.
However, regardless of their price advantage, they still can't compare to Japanese levels of quality. We pay meticulous attention to the standards that are being practiced and the policies that are being implemented in various manufacturing facilities, and we have a very solid level of development standards that we constantly update and improve.
When it comes to some of those development standards and our corporate policies, we make sure that it’s all written in a document, and that document then becomes part of the corporate culture. It is then inherited and implemented so that everybody in the company is working in the same direction.
Following that, what's very important is to ensure that when we do business, we're able to maintain a solid margin. We maintain this attitude even when it comes to peripheral devices, such as the motor and the various elements and devices required to maintain a steady temperature and conditions for the devices to operate at their optimal level.
We make sure that we work with our clients from the R&D stage to ensure that we're able to hold onto a solid level of margin with regards to the motors, and make sure that when the motors are exposed to high temperatures, they don't stop. This is something we are also teaching to our Chinese suppliers. How to maintain high margins.
Also, for example, if they were only implementing one assembly line, we would teach them how to implement two. We create an environment that is going to support high levels of profitability and business.
Maybe if you have two assembly lines, the cost is that much more, but we're able to find ways in which we can absorb that cost and have it transferred or dispersed in other ways through pricing and different types of modulation done on the corporate management level.
This is something that we've also been sharing with our overseas partners and colleagues. When it comes to our partnerships, we work on different tiers - with the top tier, the middle level, as well as the lower tier. We have specific management policies that are written down and shared, and we work according to all of those different levels.
We're also taking care to ensure that when trouble arises involving our customers or clients experiencing some sort of issue, we maintain that policy, similar to Toyota, of continuing to pursue the question of why it happened, trying to understand exactly what went wrong, and then being able to provide a solution. We make sure that we are transparent and that our clients also understand what kind of solution we've been providing.
Another thing we do to ensure high levels of quality within all of our different facilities and where our products are installed, is to implement routine visits to our clients’ facilities. Regular visits, not just one-off visits. We learned this from Daikin, and the way they work in China. We learned from the methodology that they implemented and now make sure that such regular visits have become a customary habit of ours.
Due to implementing such different standards, the percentage of situations in which our motors break down due to high temperatures has seen a massive decrease in the last five to six years, down to about 5%. The other 95% continue to maintain very solid quality and don't break down.
One of the key ways in which these machines will need to improve is to be more energy efficient as we go forward. Can you provide us with a specific example of a mechanism or technology you've developed that helps your clients achieve a more sustainable manufacturing practice?
Together with being reliable, it's very important that we are able to respond with advanced technologies to ensure high levels of energy consumption and high levels of efficiency when it comes to energy solutions.
To give you an example of our advanced levels of technology when it comes to our oil-free compressor, we are able to provide the entire package, even providing the actual body and everything required within the oil free compressor. There are only three companies in the whole world that are able to roll that out, one being Atlas Corporation of Sweden. Their product is wonderful.
The second is Hitachi and the third is our company. The reason why we're able to provide such advanced levels of technology is because when it comes to a rotor of 10 to 20 microns, it has to rotate some 30,000 to 40,000 times, and these compressors need to maintain that level of performance for over 8000 hours if you consider that they need to run for 365 days a year, 24 hours a day, so actually what is required is a force even stronger than an F1 engine.
In the compressing chamber, there is a temperature change of more than 300 degrees Celsius, and the 2 rotors expand but maintain a gap measured in microns. That is what we're able to accomplish. We are very proud of our designs (including the prediction of metal deformation), machining, and assembling techniques that allow our machines to run continuously and at such high speeds.
I think the key behind this sort of advanced level of technology is the level of precision when it comes to the mathematical calculations behind the design and engineering of the blueprints, because they don't use oil to move. The motors need to move exactly in accordance with the mathematical calculations. They have to be incredibly accurate and precise, and the level of design involved in this is what allows for such a high success rate when it comes to our product.
Engineers capable of this level of precision are very rare. There are probably only one to three people capable of it, and you need to be a genius to be able to design and implement mathematical calculations to that degree of accuracy. Atlas Copco may have a few of them. It's really just a few individuals who are able to do this.
In addition to having high levels of design, you also need to have the manufacturing technology in place. The engineering technology on the manufacturing side must be very precise in order to be able to manufacture rotors that are 10-20 microns in size. Anyone can create one rotor that is precise, because even if it were not perfect, it could be refined. It could be polished further through the spirit of craftsmanship, for example.
These days when it comes to having one rotor that is that precise, it can be done by any country, including China. Their machining centers are becoming more and more advanced to be able to do that, but to do it at scale and without defects, I think that requires large amounts of engineering manufacturing technology.
It's those two elements - the manufacturing technology, as well as the design - that enables us to maintain this top level. There's a combination required of both the design and manufacturing engineering technology.
And let me add one more thing about the technology involved. There are other countries that have tried to pursue what we've been attempting to do. The Korean manufacturers tried first, followed by Taiwan and then China also tried. When it comes to being able to provide the level of precision and accuracy required for one or two rotors, anyone can do it. They can all do it, but when it comes to producing at scale and with fewer defects, that requires a large amount of investment.
It requires large amounts of R&D, and you need to be able to continually polish up the engineering technology and the design technology required, which means that you invest a lot into trying it and when there's something that fails, you need to have the financial investment capacity to be able to then reinvest into it to continually polish it in order to provide the best level, and all this needs to be done at scale.
When it comes to that, oftentimes the ROI of our competitors doesn't match, so eventually they are not able to maintain high levels of competitiveness and stay in the market. Eventually, they end up using Hitachi’s or our company’s products. Actually there is a German company called GeHaha that was acquired by an American company, but even then, they are supplying the bodies of these rotors to various developing countries, because developing countries aren't able to produce the rotors on their own. I think that is where our strength lies.
Another reason for our strength when it comes to the oil-free compressor market, in addition to what I shared, is our management policy, and having a long-term goal. Having a solid management strategy in place and being able to maintain patience and perseverance is key. If you're always pursuing a short-term goal, you won't be able to make it.
Last year you made an announcement of a reintegrated business and capital alliance with Miura Corporation. I was curious to know more about the motivation for the alliance you've created, and how they have influenced your activities and your manufacturing technology.
Up until now in the interview, I've really discussed more of our various strengths when it comes to going deeper, pursuing depth on the vertical level when it comes to reliability and advanced technology, and maintaining that certain level of trust with our clients.
However, on the horizontal level, when it comes to this market, there are various peripheral devices, such as pumps and boilers. Basically, the business is in the utilities sector, so you're dealing with gas, water, air, steam, and different levels of heat, and the transfer of heat in these different products.
When it comes to our work with Miura, while we are very good with heat, their steam technologies are extremely efficient. By working together with them, we're able to provide a comprehensive product line and services to our clients on that horizontal level. It allows for greater levels of business growth.
Another reason for our alliance with Miura is because they had the infrastructure in place for providing management services remotely. All their machinery and boilers were connected in a way where their clients could manage the condition of the boilers through this remote technological processing. They had all of that infrastructure in place and because we are working together with them, our compressors can now also be connected in this way.
Clients can therefore remotely manage not only the boilers but also the compressors as well, so we were able to take advantage of that infrastructure that they had implemented. In a sense, as the industry starts to shift away from simply selling products towards a service based model, we were able to take advantage of that kind of synergy as well and take into consideration the associated lifestyle cost.
I believe you are referring to your remote monitoring digital service, KobeLink. Can you tell us more about KobeLink? How have you integrated digital technology into your services?
Our marketing and sales division is currently focusing our efforts into rolling out this service and providing it for our clients in an integrated way. Actually, Miura has been a trailblazer when it comes to being able to provide such remote managing services since the 1980s, when it comes to their boilers.
That is why they're able to fully connect with their roughly 60,000 clients through this remote system. Now they're really challenging to expand that to their clients in China as well. We're therefore looking to get our compressors on the same infrastructure and be connected in this way.
For Miura, what they get out of this partnership is that in an industry where standards are changing with the climate crisis and various other issues, boilers which eat up a lot of coal and are not eco-friendly are now being replaced by heat pumps. More and more companies are doing this.
You also have the issue with Russia and energy challenges, with Europe also relying less and less on gas and shifting towards the use of heat pumps. We have heat pumps within our array of products, so Miura is able to combine our heat pumps with their boilers and continue to maintain steady margins within the industry. We created this partnership with long term trends and changes in the market in mind.
You've talked about the source of your technological strength. In many ways, this has come from your willingness to cooperate and collaborate both internally within the Kobe Steel group, and also externally, like with Miura for example. I'm very curious to know if you're seeking any new types of partnerships, or if you're interested in collaborating with foreign firms.
That's a very difficult question to answer. Yes, of course we have the idea of foreign partners within our line of vision, particularly Asian partners. Especially when it comes to packaging facilities and distribution networks, and partners who can provide that support.
When it comes to technology, we have our solid levels of technology that we can provide, but that's not enough. How to turn that technology into products with added value is a very important question to ask within the business, and those are elements that benefit from partners.
Especially when it comes to Japanese companies, they have a very specific and conservative management style, where they really take things step by step. They're quite cautious. Compared to that, you see our foreign competitors, our counterparts in China, Taiwan and Korea. They’re ambitious. They take risks, and that is the kind of management style required to catch up to the speed at which the market is moving today.
From that perspective, we're always looking for viable Asian partners. Our Chinese and Indian clients really move at a rapid pace, and they're constantly changing and shifting their strategies, so we need to be able to adapt to that accelerated pace of business.
In contrast, we are part of a major conglomerate, Kobe Steel, Ltd., and could lose business opportunities while waiting on a chain of approvals. We are trying to speed up the process by integrating with Miura. Kobelco Compressor Corporation's partnership with Miura Industries will allow for speedy decision making and will be a strong advantage for our management.
What specific types of companies are you looking to partner with?
Companies that have a solid client base. A base from which they've created very long-term relationships. In comparison, oftentimes when you do business in China, they just have a bunch of one-off clients but no long-term relationships with them, so they're just selling their products, but a good partner would have a solid database of their long-term clients.
When it comes to answering your question about what kind of partners we would be interested in working with, I believe that that is something we need to consider while beginning to make shifts in our business portfolio, meaning our product line.
We want to focus on clientele who identify our strengths and have evaluated our products highly. We want to create a solid base of clients who can both understand our technology as well as our marketing power.
I think what we want to do right now is shift our business portfolio so that we are more focused and streamlined, and only take on markets that are in exact accordance with what we can really provide in terms of our strengths when it comes to technological and marketing capacity.
Up until now, all of these many decades, we've been going about our business producing or selling whatever our clients might want, and taking a more broad approach when it comes to business.
Now, however, we want to take a more targeted approach where we really focus on one exact market or one specific set of requirements. When you're doing business like that, you don't need to be in situations where you’re asked to produce things you don't really want to produce, which is the type of situation we sometimes had to deal with.
At the same time, what's important to understand about the compressor industry is that up until now we were selling general usage compressors. That's the difference. Up until now, compressors were for general usage, whereas now we want to focus and provide more accurate, more tailored compressors. However, being in the business of compressors, you also need to ensure that you can have compressors for general usage. We want to be able to have that diversified product lineup, so that if that is required, we do have it in our toolbox, so to speak.
If I'm correct, your company has 107 years of history, so let's imagine that we come back three years from now for the 110th anniversary as a company 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?
I was thinking about what I could accomplish in three years. I think we want to have been able to sow seeds for being able to expand our business into providing solutions for the environment, incorporating recycling. That kind of technology. We can begin to invest in R&D to provide compressors that may be recycled or reused, or somehow provide our clients with lifecycle solutions that are considerate of the environment.
Up until now, I think we've had a strong foothold when it comes to quality assurance and reliability, and that will be further solidified in three years’ time, but at that time I also want to have a route for us to be able to begin playing a greater role when it comes to environmental solutions and compressors.