Environmental consciousness for a brighter tomorrow

Japan has a strong vision for recycling and aims to become carbon-neutral and environmentally conscious. However, in our past meetings with recycling firms, there have been frustrations about the lack of a solid framework and collaboration between the government, manufacturing, and recycling firms. For instance, the Japanese Industrial Standards (JIS) products produced from recycled materials are extremely limited. What is your analysis of Japan's recycling sector, and what do you think are the main obstacles that need to be overcome for improvement?

Japan has long grappled with limited access to raw materials, particularly metals. These resources are generally divided into two categories: raw metals derived from iron ores and recycled metals, the latter being our specialty. As the broader Japanese industry increasingly pivots towards the utilization of recycled materials, such as scrap metals, current regulations in Japan are notably favorable towards international collaboration. Our primary target market is the US, a sentiment underscored by Nippon Steel's recent acquisition of US Steel. This strategic move highlights the growing interest of Japanese recycling companies in foreign markets, particularly the US.

Given Japan's geographical constraints as an island nation with limited natural resources, many companies find it imperative to seek overseas opportunities or import raw materials. While Japan has maintained robust relations with the US and Europe, the availability of resources from nearby countries remains limited. Consequently, we have strategically opted to source scrap metals from the US.

Despite challenges within the supply chain, exacerbated by disruptions caused by events such as COVID-19 and the Russia-Ukraine conflict, our options have been somewhat constrained. Nevertheless, we have chosen to invest in the US, viewing it as a necessary step to secure essential materials amidst these supply chain complexities.

Since the onset of the COVID-19 pandemic, we have witnessed significant disruptions in supply chains. While the situation has somewhat stabilized, we are now observing another form of disruption stemming from the decoupling between China and the US. Despite efforts by the Biden administration to incentivize foreign companies, including those from Japan, to establish production facilities in the US through legislations such as the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors and Science Act (Chips Act), the Japanese yen has reached an all-time low against the USD. While this presents challenges in procuring raw materials, it also offers opportunities for exporting Japanese products and services. Many experts have stated that the current circumstances make it an opportune moment for Japan to expand internationally. Do you share the sentiment that Japan is well-positioned to capitalize on these opportunities?

The current macroeconomic landscape is favorable for businesses engaged in exporting and promoting their products overseas. However, within Japan, the demand for scrap metals is on the rise due to increased production needs for metal-related final products. Major manufacturing companies like Nippon Steel are expanding their infrastructures, with new projects such as railway construction currently underway. This heightened demand is prompting recycling companies to prioritize the supply of scrap materials to meet the needs of these expanding industries.

In the next 15 years, it is projected that 1 in 3 people will be over the age of 65. This demographic shift can potentially result in labor shortages and a shrinking of the domestic market. What challenges has this demographic transition posed for your company, and how have you addressed these challenges?

The Japanese government has primarily implemented measures to address the challenges posed by our aging demographic. However, as a company, we are adopting a distinct approach from the government's strategies. We, like many other manufacturing industries, face difficulties in recruiting and retaining a sufficient workforce as the population ages, resulting in labor shortages. To navigate this issue, we have extended the retirement age within our company. While the legal retirement age is 65, we strive to cultivate a work environment that enables employees to continue their roles beyond this age if they wish to do so. Many experienced workers express a desire to remain active in the workforce and contribute to society for as long as possible. In response, we are committed to supporting our older employees by facilitating work opportunities and pushing the retirement age to 70.

The demographic decline is particularly affecting Small and Medium-sized Enterprises (SMEs), especially in regional areas where succession within family-run businesses becomes problematic as younger generations opt not to take over. This trend has catalyzed market consolidation, resulting in increased mergers and acquisitions among SMEs. Your company is no exception, having acquired three firms in 2018, including those in the metal and construction sectors. What opportunities does this market consolidation present for you, specifically in your local area of Shohoku?

The demographic decline is particularly affecting Small and Medium-sized Enterprises (SMEs), especially in regional areas where succession within family-run businesses becomes problematic as younger generations opt not to take over. This trend has catalyzed market consolidation, resulting in increased mergers and acquisitions among SMEs. Our company is no exception, having acquired three firms in 2018, including those in the metal and construction sectors.

In response to the labor shortage, we have diversified our recruitment strategies by hiring foreign workers and individuals seeking career transitions. For instance, we have onboarded an employee from Mongolia who pursued higher education in Mongolia and Ukraine. Meanwhile, Shikoku, Tokushima is well-recognized for its high rate of female employment, attributed partly to the region's comparatively lower average income. Consequently, women in Tokushima often occupy roles alongside their male counterparts, receiving equal compensation.

While labor shortages are not unique to Japan and are also prevalent in the US and Europe, these regions have been more adept at addressing the issue. However, in Asia, including Japan, there remains a significant disparity in providing equal employment opportunities for men and women, as well as for foreign workers and older, experienced individuals. Addressing these challenges and fostering a more inclusive work environment are essential steps for our company and the broader industry to remain competitive and sustainable.

Diversification remains a cornerstone of our company's strategy. Additionally, we recognize the importance of integrating Digital Transformation (DX) technologies into our operations to mitigate the challenges posed by our limited labor force, particularly in specialized technical areas. By focusing on recruiting skilled professionals, we aim to facilitate our company's transition towards a more technology-driven approach. To this end, our recent mergers and acquisitions have targeted firms with expertise in these areas, thereby expanding our capabilities and creating new business opportunities.

Our approach goes beyond merely acquiring raw materials; we are committed to delivering high-quality products to our customers. Through strategic mergers and acquisitions, we not only diversify our offerings but also broaden our client base, positioning our company for sustainable growth and success in the evolving marketplace.

Are you considering pursuing more M&As in the future?

We are actively exploring opportunities for collaboration and expansion. Currently, we are in preliminary discussions with several local Chinese companies to explore potential collaborations, whether through outsourcing or M&A. We are open to forming partnerships with foreign firms as part of our growth strategy.

In today's global landscape, many Japanese companies recognize the importance of having a broader, international perspective, especially given the growing emphasis on environmental sustainability and CO2 reduction. We are interested in partnering with companies that share our vision and values, particularly within the recycling sector, which offers a stable business environment.

However, we do face challenges, notably the fluctuating prices of raw materials, which can impact our profit margins. The domestic market in Japan presents its own set of challenges, including a declining population and diminishing demand for metal products. While we are a prominent player in Tokushima, our reach is not yet nationwide. As the industry landscape evolves, there is potential for collaboration among companies in the metal recycling sector to collectively meet the country's needs. The key question for us is determining the most effective way to restructure and optimize our business operations to navigate these challenges successfully.

In many interviews conducted with recycling companies, specifically in metal and resin recycling, one significant challenge highlighted was the prevailing misconception that when they sold their recycled raw materials, there is a misperception that because the material is recycled, the quality was somehow lower than that of virgin material. On top of that, for certain sectors, there is a cost issue, where the difference in cost between a recycled metal and a virgin metal is very, very close. This leads companies to wonder why they would need to invest more in a product that is supposedly of lesser quality. How do you overcome these two objections? How do you ensure a stable supply of quality materials and cost-efficiency in the materials that you recycle?

Maintaining a thriving business poses a delicate challenge, especially in the face of escalating costs for daily living necessities. Presently, our company is performing well, benefitting from historically high prices for both precious and non-precious metals. This allows us to sell our products at favorable prices and generate profits. However, the rising costs of procuring raw materials present a significant challenge. Global inflation impacts our ability to secure an adequate supply of raw materials, subsequently raising their costs. Additionally, we are contending with increased expenses in labor, transportation, and importation.

Despite these cost escalations, we remain committed to delivering high-quality products, a cornerstone of our company's identity. Our emphasis on maintaining stringent quality standards in the manufacturing process differentiates us from competitors. Quality is paramount in our business, and any compromise could jeopardize client relationships. To address concerns about the re-manufactured origin of our products, we actively engage with customers, persuading them that our re-manufactured products match the quality of raw materials.

Building reliability as business partners is another aspect of our strategy. By consistently meeting and exceeding customer expectations, we aim to solidify our relationships and demonstrate our commitment to quality. Moreover, to secure a stable supply of raw materials, we engage in M&As both within Japan and overseas, strategically positioning ourselves for sustained success in the competitive marketplace.

Within the metal recycling business, it's crucial to focus on process efficiency. Ensuring the proper separation and purification of various metals is essential for maintaining the quality of recycled materials. This is vital for meeting industry standards and maximizing the environmental and economic benefits of recycling operations. How does your metal recycling process ensure efficient separation and purification of different types of metals, including ferrous and non-ferrous, to meet industry quality standards?

Ensuring the production of high-quality recycled materials from scrap metals is a top priority for us, and this is largely facilitated by the strong relationships we maintain with our suppliers. We are particularly fortunate to have a collaborative partnership with JTEKT, a subsidiary of the Toyota Group that specializes in bearing manufacturing. Approximately 40% of our scrap materials are sourced from them. It's noteworthy that bearing manufacturing companies like JTEKT typically produce scrap materials with minimal impurities, thereby aligning with our quality standards.

However, not all scrap materials we handle meet such high purity standards. We also process materials sourced from domestic electronic appliance and car manufacturing plants, which may have quality issues. To address this, we leverage our state-of-the-art Miki Group shredder system, automated sorting systems, and advanced material handling equipment, along with cutting-edge recycling technologies, to optimize the quality of these lower-grade scrap materials. By implementing these advanced processes, we can refine and repurpose these materials, making them suitable for alternative markets that may not require the premium quality of our primary products.

Apart from your relationship with JTEKT, you also export your products. You mentioned earlier that Japan is looking to supply scrap materials to countries like the USA, and you attended an expo in Germany. Looking ahead, could you tell us more about where you are looking to mainly export? Are you planning to expand your network to overseas markets?

We had an experience introducing mixed metal in China, but the inclusion of plastic parts from automotive materials hindered our ability to offer pure recycled materials in that market. Regulatory challenges further complicated the landscape for recycling companies attempting to introduce imported products to China, leading to the decision to halt that particular business venture. Currently, to some extent, we sell used car parts in Thailand, marking the only product we currently export to foreign countries.

In the realm of shredded metal products, we are actively engaged in negotiations with Taiwan, Vietnam, and South Korea to explore the possibility of exporting these products to these markets. However, our export volumes are relatively limited due to the robust demand within our growing domestic market. Local manufacturing companies in Japan exhibit a high demand for metals, driven by the need to secure sufficient raw materials for production and to maintain ample stock levels as a precautionary measure. The thriving demand domestically has led to a strategic focus on catering to local manufacturing needs.

Recycling companies often have different visions when it comes to exporting products, and in our case, the decision is influenced by the substantial presence of steel manufacturing companies in our local area. With numerous steel manufacturing companies located in Okayama, Hiroshima, Kobe, Wakayama, Fukuyama, Shikoku, Honshu, and Kyushu, we currently do not see the need to export our products overseas. The robust demand from these local companies allows us to cater to domestic needs without the necessity of venturing abroad.

On the contrary, in Hokkaido, where the presence of local steel manufacturing companies is not as prevalent, recycling companies find themselves compelled to ship their scrap materials to foreign countries. The decision to stay or move overseas is often dictated by factors such as the regional landscape, the availability of domestic manufacturing companies, and the volume of scrap materials or resources in a given region.

While, at present, exporting is not a necessity for our company, the landscape might change in the future. If there is an increase in demand from foreign countries or other factors shift, we may reconsider the option of exporting our products. The decision will ultimately be influenced by evolving market dynamics and the needs of the recycling industry.

We are currently witnessing significant changes in the automotive industry. Many discussions revolve around the transition from combustion engines to hybrid or lithium-ion batteries. Another transformation that is often overlooked is the shift in materials. Previously, cars predominantly comprised heavy ferrous metals like steel or iron. However, with the advancement of hybrid and lithium-ion batteries, automotive manufacturers are striving to reduce vehicle weight. Consequently, the use of aluminum has surged. Additionally, there is a growing demand for certain resins, such as CFRP, and other functional plastics. How have these material changes impacted your recycling business?

The global shortage of semiconductor chips resulted in an unprecedented halt in automotive production, particularly in Japan, where new car manufacturing failed to align with market demand. This situation led to an increased reliance on used cars, thereby extending their life cycle. As a consequence, the influx of materials from scrapped used cars diminished, affecting our supply chain.

The dynamics of the used car market have evolved into a comprehensive business encompassing not only car parts but also entire vehicles. While our focus has predominantly been on local markets, it's essential to recognize the demand for used Japanese cars in distant regions such as Dubai, Malaysia, Australia, Chile, and Brazil. This global demand further influences the volume of used scrap materials available for recycling.

Amidst these market shifts, we are also witnessing a transition from Internal Combustion Engine (ICE) vehicles to Electric Vehicles (EVs) and hybrid cars. These changes underscore the importance of establishing sustainable supply channels and securing adequate materials to meet the evolving demands of our customers. Analyzing market trends and adapting to these shifts will be crucial in navigating the challenges and opportunities presented by these industry dynamics.

In 2027, as you approach your 100th anniversary, what goals and objectives would you like to have achieved by that milestone?

Miki-Shigen is a family business that I inherited as the 4th generation, having tragically lost both my father and grandfather at a young age. Taking the reins of the company at just 23, I have been committed to transitioning away from a traditional family enterprise model. My vision is to foster a culture where responsibilities are shared and work is distributed equitably among all employees, both in management and on the ground.

The challenges facing the Japanese economy over the past decade have been significant, and they necessitate a collaborative effort for survival and growth. I firmly believe that the future lies in unity and cooperation within our company and with our affiliate companies, as we strive for a better tomorrow.

In terms of business expansion, I envision two key avenues. Firstly, there is potential for growth in material recycling and a more comprehensive commitment to industrial waste management. Secondly, I see an opportunity to evolve into a socially responsible company that actively contributes to society's well-being. To achieve these goals and expand our footprint beyond Tokushima, it is imperative to forge partnerships based on trust and collaboration. By working together with other entities, we can collectively navigate the challenges ahead and seize opportunities for growth and innovation.

In Tokushima, the absence of lithium-ion battery manufacturers presents a challenge for us in terms of obtaining direct access to these materials for recycling. As a local recycling company, we must establish synergies with affiliated parties, including government entities. This is particularly crucial given that lithium-ion battery recycling is now subject to regulations due to their classification as ignitable and reactive hazardous wastes.

To effectively address this complex landscape, collaboration among companies involved in manufacturing, logistics, and procurement is essential. By creating a synergistic operational structure that enables these entities to operate cohesively, we can navigate the challenges associated with recycling hazardous materials. While we have yet to fully achieve this integrated approach, it remains a goal we are actively working towards for the future.

For more details, explore their website at https://www.sansi.co.jp/company/