Having accumulated rubber compounding technology and production know-how since its founding 50 years ago, Yamato Chemical is today expandinto new fields such as healthcare, energy and electric vehicles as
Over the recent decades, Japanese firms have faced stiff price competition from manufacturers located in areas benefitting from cheaper labor forces. How are companies such your own, able to remain competitive despite this intense price competition?
When we talk about the rubber industry that we operate in, we do have some benefits and advantages, in comparison to other countries that are located across Southeast Asia and China. There are many local players in those areas, and their technical level has also improved in recent years. In Japan, companies have access to data, which has been accumulated over many years since their establishment. We have experience through trial and error over the recent decades. Anyone can come up with ideas to introduce raw materials to create rubber products from. However, our accumulated knowledge and data give us advantages over companies in other areas such as Southeast Asia, when it comes to blending rubber with greater functions and greater resistance, to create better final products. Our company has been doing this since our establishment, 50 years ago. Back data and accumulated knowledge give our company and other Japanese companies an edge over our competitors. That is the great strength of Japanese monozukuri from our point of view here at Yamato Chemical.
There is regional competition between Japanese firms and the firms in China, Korea and Taiwan. What would you say is the differentiating factor between Japanese companies and these regional competitors? How do Japanese firms, despite having higher product costs, still remain competitive on a global scale?
Price competitiveness is one of the big obstacles for any Japanese company that enters the global market. It is impossible to introduce anything original from Japan, as manufacturing in Japan is not cheap. This has pushed some of the large Japanese companies to localize their production outside of Japan. Japanese SME companies are following suit and localizing their production in the ASEAN region. The cornerstone of this strategy is price competitiveness. You have to introduce a suitable price in order to find new clients, and to achieve a good profit margin for the company. It becomes inevitable in many ways, with many companies successfully localizing their production outside of Japan. We are not any different.
We were struggling to introduce better prices. However, we found that it was possible to introduce the same level of high-quality expectations found in Japan, to overseas markets. To produce rubber, you need high-quality dies and molding equipment. Our equipment is still used in Japan, and we export this high-quality production equipment to our local production sites in Thailand and Vietnam. Those areas also respond to highly strict quality methods like in Japan. Furthermore, the procurement of raw materials can come either from local companies, or from Japan. This method allows us to penetrate overseas markets, and it ensures our price competitiveness.
You talked about the need to regionalize and to open factories abroad. Your company has two plants located in Thailand, and a third plant located in Vietnam. How do you ensure that the level of quality remains standardized and equal across your production sites in Thailand, Vietnam, and here in Japan?
First of all, it relates to our company’s philosophy rather than business. In Japan, there are many authentic companies that are very traditional, and date back in some cases, to over a hundred years ago. These companies have a very strong presence and focused mindset when it comes to their company philosophy. This philosophy is transferred when production is located outside of Japan. No matter how advanced your technology, and how great your products are, you must have the same set of values, as if operating in Japan. The local companies must have the same vision and goals as the mother company in Japan. This is the core foundation when a company starts local production outside of Japan. If a company makes good money throughout the years of their existence, they accumulate a cash flow, which can be used to penetrate other markets. On the other hand, if a company is not successful, and is operating at a deficit, then of course they run the risk of going bankrupt. Therefore, expanding overseas is not an option.
You explained that the reasons for going overseas were to remain cost competitive, as local production reduces costs. With regards to your customer base, we know that here in Japan the population is declining and with a fertility rate f 1.37, by 2060 there is expected to be less than 100 million people living in Japan. As a chusho kigyo, with the domestic market shrinking every day, what steps are you taking to offset this population change?
In order to address this social issue, we have taken measures both domestically, and overseas. The low fertility rate, and shrinking domestic market certainly do not paint a nice picture for the future. To overcome this, in the domestic market, the Ministry of Economy, Trade and Industry (METI) prescribed principles for companies to follow, which are aimed at boosting and prolonging the age of their employees. This includes a later retirement age, and the introduction of a better working environment for elderly employees. Our company has a number of employees over 70 years of age. To keep them healthy both mentally and physically, we closely follow the key steps of health and productivity management that were prescribed by METI.
Our company has been certified as a "Bright 500", which is the top 500 among 30,000 participating companies in the "health and productivity management excellent company 2022 in chusho kigyo category" promoted by MITI.
In regard to Thailand and Vietnam, where we have localized our production, the average age is lower than here in Japan. People in those areas are young and healthy, and willing to work. Also, as I mentioned earlier, the production costs there are cheap, and the market in that region is strong. These were the reasons why we decided to go there. Localizing production outside of Japan and prolonging the age of our employees here in Japan, have both been successful strategies so far.
Could you tell us a little about the history of your company, and what are some of the key milestones since its inception?
My father was the founder of our company, alongside his business partner. Before founding our company, they were both working for an automobile parts manufacturing company. They decided to leave that company at the age of 24 and establish a company of their own. They were the only two people at the inception of our company back in 1972. They worked very hard to make our company successful. At that time, the Japanese economy was booming, and it was a very good time to start a business. They worked around the clock every day. However, tragedy struck, and my father’s business partner died in a car accident on the way home from work.
My father travelled to Niigata to show his respects and offer his condolences to the family of his business partner. My father was in shock at that time and was losing his motivation for continuing their business. However, the family praised my father for the work he was doing with their son and encouraged him to continue their son’s dreams. This motivated my father to make this company successful.
After that, my father met my mother, and she joined the company. It then became a family business. Some of my father’s old co-workers from the company he previously worked at, actually quit their jobs and joined my father’s company, Yamato Chemical. Gradually over the next 20 years, we expanded and became more successful.
The next big milestone was our expansion overseas. That occurred with the establishment of our first plant in Thailand. One of our customers actually started to consider localizing their production in Thailand. This customer encouraged my father, and told him that Thailand would be a useful country to localize our production in. At that time, 20 years ago, Japanese companies were not really interested in Thailand, China, or Korea. However, the situation rapidly began to change. My father travelled to Thailand to see how the companies were doing there, and he saw the quality of the production site, and the energy of the people that were working there. Labor costs were also an incentive, as at that time, 20 years ago, the labor costs were one-tenth that of the labor costs in Japan. Nine months after my father returned to Japan, he accumulated the capital needed, and established a plant in Thailand.
As Thailand was rapidly developing, we decided to increase our production there. At that time, there were more and more overseas companies localizing their production there. Many companies in the automobile sector for example, established production sites, and expanded their business in the ASEAN countries. To meet the rapidly increasing demands at our plant, we established a second plant in Thailand. Originally, we produced in Thailand and then shipped our products abroad. However, local demand and local procurement began to increase, so many of our products produced at our Thailand plants were sold in the Thai domestic market.
At this point, our sales were increasing year on year. Our company had a lot of momentum at that time, and we began to consider other countries for overseas production. We considered the nearby countries of Cambodia, Laos, and Myanmar due to their geographical proximity to Thailand. However, we then began to consider Vietnam, which was not a country on the radar of many companies at that time. We saw the localized production of one Japanese company in Vietnam, who were actually leaving Vietnam and returning to Japan. They had equipment and other assets in Vietnam. My father and I travelled to Vietnam, just as my father had travelled to Thailand 20 years previously, and we saw that the local Vietnamese people were very energetic and hardworking. The operators there exhibited a high level of expertise. We quickly made a decision, and one month later we decided to localize our production in Vietnam.
Today, we are seeing automotive manufacturers trying to lessen the weight of their cars, as such, the construction of heavy metals like steel and iron is decreasing in favor of lighter-weight materials. We know that your company manufactures a series of parts for automotives including gaskets and O-rings, for example. Firstly, what impact are the changes in the automotive industry having for your business, and secondly, when looking to the future, how will you serve to cater for these trends for lightweight vehicles?
We have been closely monitoring the changes that are occurring in the automotive industry, as we produce many products for that sector. Switching to lightweight vehicles is one factor that we are adjusting our production for, by making more applicable products. Two basic features are related to rubber materials in the automotive sector. The first is that it serves as a natural sealant that is waterproof and used throughout the body of the car itself. The other feature is more to do with aesthetics. From the outside body structure of the car, rubber is used to fill in the gaps between the steel frames or aluminium plates that give the body of the car its structure. The second feature is not as widely used these days due to the high-quality of the steel structure and other materials used, which don’t require any junctions. Therefore, the tendency for the use of rubber is increasing more so for the first sealing and water repellent feature, rather than the aesthetic feature. Quantitatively, we can see that there is a decrease in the amount of rubber being purchased by the automotive industry, as rubber is considered as being a very conventional material itself, and it is not lightweight. Qualitatively, going forward, we have to be flexible enough to introduce different kinds of rubber materials which can meet the expectations of the automotive manufacturing industry.
Looking to the future, where do you expect the demand for your products to come from? We saw in our research that you began creating products for the medical field. In the next five years, what new applications will you be targeting?
There are two industries that we are targeting. The first is the medical field, as there have been a lot of things happening in this sector recently. However, these are not specifically related to the coronavirus. Innovation and advances in technology are increasing due to the aging society here in Japan, as the burden of the medical personnel needs to be reduced. In this regard, we see a positive outcome due to this necessity. Silicon rubber can be used for many of these products, as it is disposable after use. We are seeing an increase in demand for these types of products. Therefore, we see the medical industry as the most promising industry for us going forward, and we are very optimistic about the possibilities in this field.
The second industry that we are targeting is energy business related products, which is more stable than the automotive industry. There have been changes in that industry too, however, those changes have not happened as quickly as those in the automotive industry. An example of this would be the shift from 4G to 5G. This change has to be connected to infrastructural support, and therefore takes a longer time. New antennas need to be built around the country. This is a good business for our company, as we manufacture the materials for energy infrastructure which are used in Japan. We are very optimistic about these two industries going forward.
Are you looking for partners that could help you to further develop products to cater to the medical field, which has many regulations, or cater to the transportation, energy infrastructure field?
Yes, this is a good question, especially when we consider safety parts that are required for the automobile industry. We want to produce essential safety parts which could save people’s lives on the roads. This same principle applies to the medical field. The parts that we produce for the medical field need to meet the stiff regulations and criteria of the medical field regulators. Just like the medical field, the transportation and energy infrastructure fields require a high degree of safety. We have developed our own product "Laminated Protector" to protect steel posts such as guardrails used on highways and general roads from corrosion and collapse, and are also currently used for highways and road signs in Japan. We would like to continue to supply products that help save lives by making use of the know-how we have cultivated in the automotive and medical fields.
We challenge ourselves, as there are so many things that rubber can be applied to. In the automobile industry there are so many changes that have been happening, and the amount of rubber being used has been decreasing. Therefore, we have been looking at other industries and markets that we have never operated in before. For example, we are trying to introduce our rubber to the entertainment industry with regards to plastic toys. We are still making a lot when it comes to automotive products, however, with the introduction of EVs to the automobile industry, and the changes taking place, we are challenging ourselves by targeting new markets, such as the medical field and the energy business.
We spoke earlier about your operations in Thailand and in Vietnam, and how over time they became not just simply manufacturing based, but also markets for your products. Looking to the future, are there any particular regions that you would like to expand to, and what role will international expansion play in your midterm strategy?
When it comes to our mid-term strategy plan, we do not prioritize our expansion with regards to sales. Rather it is related to the human aspect, and the heart-warming feelings created, whether at our Japanese production sites, or likewise at our sites in Thailand and Vietnam. Any attempt to go to a new country, localize production there, and penetrate new markets would have to share the same values of our company, and our current operations. The philosophy that my father introduced at the foundation of our company, is still at the core of our company today, and everyone that works for our company shares those same values. Those values include being friendly, being openhearted, being willing to contribute to society, being considerate to our colleagues, and promoting teamwork. These are the core values of our company, and they resemble our mid-term strategy plan in many ways. Further expansion to other countries and regions would require these principles and values at its core.
Your company was established in 1972 and is this year celebrating its 50th year anniversary. Imagine that we came back in ten years for your 60th anniversary and have this interview all over again. What goals would you like to have achieved, and what would you like to have accomplished by then?
Ten years is a long time. However, we do have a midterm strategy plan that is segmented by three years. I am 47 years of age, and I will eventually retire around the age of 65. When I retire, I will pass the baton to my successor. One of my goals is related to factory automation (FA). I would like to introduce more automation equipment to our production process, due to the changes in the Japanese labor market that we discussed earlier. Due to the shrinking of the labor force, FA will be a necessity in the future. We currently have a clean room being installed in a nearby facility here in Japan with one automatic visual inspection machine and one automatic assembly machine. The aim of this is to replace the employees who do the visual checks and assembly work manually. We also installed one device at our plant in Thailand, which performs the same function. Also, in Thailand and Vietnam, labor fees have been increasing, and this has been happening for the past several years. We therefore need to come up with more FA solutions that can be introduced to our production sites both in Japan and overseas. At this present time, these are my goals for the years to come.