The OEM partner for servers in Japan

Now is a pivotal time for Japanese manufacturing. Over the past three years, we have seen severe supply chain disruptions due to COVID-19 and well as the US-China decoupling situation. As a result, corporate groups are looking to diversify their suppliers to ensure reliability. Consequently, Japanese firms, renowned for their high-quality products and reliability, find themselves in an interesting position. Many observers argue that the weak Japanese yen presents a highly unique opportunity. Do you agree with this sentiment? Furthermore, what are the advantages of Japanese companies in this current economic macro environment?

Despite operating within the same manufacturing industry, it is worth noting that the rack or container-related industry is different. In the last 20 to 30 years, the Japanese market has remained impenetrable to products from China, Taiwan or Korea in this specific domain. This resilience is attributed to two primary factors. Firstly, the substantial dimensions of the racks—standing at two meters in height and weighing 100 kilograms—render the cost of importing to Japan exceedingly high, thus eroding profitability. Secondly, due to Japan's seismic activity, the development of earthquake-resistant racks requires expertise and experience.

However, that situation has recently changed because of the proliferation of international conglomerate data centers across Japan, such as Google’s Mega Cloud data centers in Chiba Prefecture. These centers have adopted a global procurement strategy, sourcing racks from overseas vendors, thereby creating barriers for local vendors to access these international data centers. The depreciation of the Japanese yen is not giving us any advantages or disadvantages. At this point, we are devising strategies to penetrate new overseas markets while leveraging the strategic potential presented by the weakened yen.

Within the next 10 years, billions of devices will be connected to IoT devices. As a result, we are going to see an exponential increase in the size and capacity of data centers. How does the increase of these IoT and data centers impact your firm, and what strategies do you have to take advantage of this growth going forward?

I am aware of the new data centers built across China. However, overseas companies are more focused on leaving China due to the US-China decoupling situation. Singapore initially emerged as a focal point, yet the constraints of available landmass prompted a shift in focus toward Japan. As far as I know, Japan presently stands out as a hotspot for international data centers within the Asian region.

In our case, while we lack a direct sales channel to overseas companies, we can try to do an OEM for overseas rack manufacturers. They can leverage our products as earthquake-resistant racks suitable for the Japanese market and sell them to international data center operators attempting to create new businesses in Japan.

There are two types of data center ownership. The first involves big companies: telecommunication companies and banks, all of whom maintain and operate their individual private data centers. The second type is collaboration services, where a private space is leased out to a customer, and the leasing company provides cooling, power, network and other services. Which form of ownership do you believe will become the dominant form?

I believe there is a conventional data center and a hyper-scale data center. While hyper-scale data centers operated by international conglomerates are experiencing a surge in demand, the demand for the conventional type of data center is about the same.

Do you think edge computing, where companies have their own localized servers, is why the conventional format is not increasing?

Edge computing has seen increasing implementation, primarily at production sites, often utilizing microscale local servers. This points to two distinct emerging trends: the expansion of hyper-scale mega data centers and a growing emphasis on localized processing through edge computing. Hence, the conventional data center is left in the air with less demand. Offices used to have local data centers, but they have shifted toward embracing hyper-scale mega data centers, which has led to a decline in demand for local server racks.

You specialize in the manufacturing of storage products for electronic equipment, racks, trunks, etc. Given that modern electronic devices generate substantial heat, effective heat dissipation measures are crucial to ensure optimal electronic performance. How is Settsu Metal creating products that address this?

Each product is designed with a unique approach to tackling heat-related issues. Various methods are employed to manage heat, with fan-based cooling being a basic solution. Air conditioning and aisle containment are also other ways of cooling. While Settsu Metal does not presently offer its own line of water-cooling racks, we are actively collaborating with an overseas vendor, to develop a new product that incorporates water-cooling technology. This innovative approach is being tailored to suit the requirements of the Japanese market.

Are you still looking for more partnerships in overseas markets for distribution or co-creation developments?

We are looking for new partners, but the stake is quite high because we are only looking for a box or case company that shares our core values and philosophy. In my generation, we have partnered with companies. Should there be potential collaborations that align with our criteria, I am open to exploring those opportunities. I regularly participate in exhibitions and various industry events to find new partners.

What next exhibition will you attend, and what do you plan to showcase?

We primarily showcase our products within the domestic market. To actively expand our horizons and seek new partners on an international scale, I personally attend prominent exhibitions such as Electronica in Germany, along with other relevant industry events.

The need for EMC shielding for electronics is also becoming prevalent, especially for sensitive storage housing devices. EMC shielding is crucial to prevent EMI and RFI problems, which can negatively impact the performance of the electronic devices. How are you able to adapt your products to prevent EMI and RFI?  

As a catalog product, we provide an off-the-shelf EMC shielding server rack. We are the only company in Japan that provides this unique product. However, it is worth mentioning that the capability of this rack in shielding against EMC is somewhat limited. This limitation arises from the necessity to incorporate ventilation holes to facilitate heat dissipation. Interestingly, our customers do not often demand racks that shield against EMC. Instead, their primary focus centers around the product itself and strategies to manage EMC concerns in product management.

You conduct some OEM products for overseas manufacturers coming to Japan. Can you give us any other examples of a specific product that you made for a client that utilized this service?

While I a= unable to provide extensive details due to ongoing negotiations and pending contract signing, I can share a general example. At present, we are engaged in discussions to conduct an OEM arrangement for an overseas client who plans to introduce our OEM earthquake-resistant racks to mega data centers that will soon be established in Japan. We will finalize our agreement next week.

Japan has a rapidly shrinking and aging population. Prime Minister Kishida stressed the severity of the situation earlier this year, as this is creating issues like a labor crisis. What have been some of the challenges this demographic shift has presented to your firm, and how have you been reacting to it?

To address the challenges arising from the labor force shortage, I am committed to taking every available opportunity to personally attend hiring events. These occasions allow me to connect with young university graduates and individuals actively seeking job opportunities. One thing that has helped us to recruit more new employees is diligently explaining the company's mission and vision.

Given our factory's location in Okayama, which is situated inland with a relatively lower population, we have encountered several difficulties in recruitment. In response, we have welcomed seven Vietnamese trainees as part of our team of 100 employees. Additionally, two Vietnamese university students studying in Japan are providing crucial support. By diversifying our workforce and facilitating international exchanges, we create a working environment that makes international cooperation much more attainable.

Due to the demographic decline, the domestic market is also shrinking. One way companies are starting to mitigate this is by going overseas and establishing a foothold in different countries. Is going overseas an area of interest for your firm?

At this moment, we do not have any definite overseas strategies. The substantial weight and size of the racks pose challenges for cost-effective transportation, making international expansion less viable in the immediate term. While establishing factories in Southeast Asia could be a possibility, we do not currently have any concrete plans in that direction. I dream that one day, our Vietnamese workers at the factory will eventually return to their country and establish a rack manufacturing company there.

Imagine we come back in two years to have this interview all over again: Do you have a personal goal or an ambition by that date that you would like to achieve with the company?

It is hard to tell because two years is such a short time. Nevertheless, an overall goal I always emphasize to our employees is to become a 100-year company and even beyond a century of existence. In order to do so, we are diligently strengthening our domestic sales efforts. As part of this strategic approach, we have established a new factory in the Kanto area this year to fortify our presence within the Kanto market. Each progressive step we make takes us even closer to our aim of becoming a 100-year-old company.

Interview conducted by Karune Walker & Paul Mannion