With its unique business strategy across three distinct business segments – cardboard manufacturing, housebuilding, and logistics – TOMOKU is a company with diverse operations and interests. Thinking outside of the box, therefore, comes naturally to the organization, particularly when you consider one of its main product lines is the humble box itself; a product which has engendered a surprising amount of innovation over the years. In this interview, president Mitsuo Nakahashi explains more on how TOMOKU has innovated its manufacturing process and expanded overseas to meet growing global demand as e-commerce rises and more sustainable packaging is required.
Your company was founded in 1940 and you began manufacturing wooden boxes for cans. Since then, your company’s development has coincided with a time in Japan known as the “post-industrial miracle”, which was characterised by three strengths: the first was a system of parts procurement, which reduced inventories for manufacturers, second was a total quality control system, which improved the standards of manufacturing, and thirdly, was a very close relationship between manufacturers and suppliers. These three strengths have since been replicated by Korean, Chinese and Taiwanese manufacturers, but what still separates Japan is the monozukuri philosophy. Can you explain your thoughts on monozukuri and how it applies to packaging manufacturing?
I think that the cardboard box is a product that, looking at it, you can’t really tell in what country in the world it is made, or which company makes it. We are really sophisticated with our manufacturing process that we have designed, and it’s very different from other parts of the world. If you look at the factors that affect the cost of the product, for example, the labour or energy, then Japan is not in a cutting-edge position, as we are not cheap compared to other nations. However, we will say that we have designed our manufacturing process so that it is unique to us, and we bring the ideas that we have developed in Japan to other parts of the world. We can manufacture at a reasonable cost, as well as with good quality.
It has been 110 years since corrugated cardboard came into Japan, and about 70 years since we started manufacturing it. We have been focusing on how to make it efficiently and with good quality, not about whether it is expensive to have it made in Japan. Of course, if you bring machinery from Japan directly to other countries, you can also produce as normal, but I will say that the concept of manufacturing is different. We have already been to Vietnam to expand our business, and we started from scratch with the least amount of labour possible because we were aware that the labour cost was going to increase. We’ve already been looking into the future, including trying to automize while increasing productivity and the product quality. As a result, whenever we decide to set up new factories, we try to step up our unique processes so we can assure our productivity and quality.
When you look at the prices of cardboard boxes being manufactured in Japan, I would say that it’s the cheapest globally. If you compare it to the US, or even Southeast Asian manufacturers, it’s a lot cheaper, because our idea is to make a durable product as thin as possible. I would say it is due to the current environment of Japan, which could change quickly, such as the fluctuation, fuel costs and paper costs, which could make Japan become very expensive. I think we are trying to keep our competitive edge, which is why we set up all the offices and channels globally. We cultivate domestic competitiveness by collecting a lot of information, regarding paper, energy, adhesives, and so on, including from overseas. Our bases are in the United States, Southeast Asia, and Europe.
When you are launching a product or business, packaging is a key thing to consider, and clients often think of durability. Corrugated cardboard is very durable, as it has an excellent strength to weight ratio, but it’s also not as durable as other materials that can be waterproofed. This is also a renewable material which can be used again, but on plastic, it cannot. Can you explain your service and how you make different considerations for your clients and adapt to their needs?
If you think of paper, it can be made from either Southern or Northern Wood. And as long as you are able to handle it properly, you can recycle it, making it a very handy and convenient material. I don’t think any existing material would be able to overtake it. On the other hand, there are other materials, like plastics, which are derived from fossil fuels. Since we have environmental issues that we must tackle, like reducing CO2 emissions, our faith in paper is a solution to it. That’s why we are trying to dip our hands into businesses that use plastic products and try converting them to paper products. As you know, our strength is in three layered cardboard, but we are also trying to strengthen our business for one and two layered cardboard.
One key point is how we bring ourselves to the end user and how we can fit their needs. As you know, most of the shopping is done online and those businesses are growing, so we are thinking about making some proposals to fit their needs. Often when online shopping, you receive a huge box, but the contents of it are small, and that’s just a waste of paper. Thus, we are thinking of solutions to this problem, like using the optimal amount and suitable shape of packaging for each delivery. Given the high recycle rate of cardboard in Japan, it can be recycled even if the paper fibres become shorter and thinner. This technology will bring high-cost effectiveness and is environmentally friendly, and it will become an alternative to many other kinds of containers. We have a 95% recycle rate for our cardboard.
Your company has three distinct business divisions: corrugated containers, paper containers and transportation, and finally, your housing divisions. What kinds of synergies have you been able to create between these divisions and how does it benefit your business?
First, we have very close connections between our corrugated boxes and logistics businesses because we ship our product directly to our customer’s factories. Like a B2B business, where they will fill up the boxes and we ship them off to the next location. What we are doing is enhanced with our customers’ needs. For example, one of our subsidiaries was founded by investing with one of our customers, and the warehouse we constructed in Gunma, as well as the one under construction in Hokkaido, are done by the request of our customers.
We started the housing business in the early days of the company back in 1949, but because there were times where we couldn’t make profits out of it, we didn’t have a very competitive sales network. Hence, we distanced ourselves from housing for some time. But in 1986, we decided to try again and because our founder had a strong vision trying to build comprehensive towns, including houses, in Hokkaido. They thought the Swedish houses would be a great model. Our founder wanted everything, including a hospital, golf course, and so on, close to Sapporo. We have bigger sales and demands for the cardboard and paper container business in summer, but in the winter, Swedish style homes do better, so they complement each other and have a good balance. We invested in the housing and transportation business through M&A this year, but we are not neglecting our corrugated paper business. Regardless of whether it is in the U.S. or Vietnam, if there is good information from overseas, I think that we will actively work on it, including M&A.
Corrugated cardboard and paper containers are the largest part of your business, accounting for 55% of your sales. Can you tell us what is the best-selling product domestically, and what is the most in demand internationally?
Corrugated cardboard boxes are the best-selling product domestically, especially the ones that are used for beverage manufacturing. That is because we work closely with our customers, manufacturing products that fit their needs, as well as supporting them logistically.
The same applies for overseas sales: corrugated cardboard is our strongest product. However, we are doing very little housing activities abroad, only in a small location near Sweden. We produce cardboard boxes in the United States and Vietnam, but we would like to do more box businesses in the US, and we want to expand into Southeast Asia near Vietnam through M&A. We insist on trying to go outside of Japan, just as a company. We know that many other businesses will try to merge or do joint ventures with a local company, but we want to build everything from scratch, including the factory, which will be based on our philosophy and manufacturing procedures. The idea is the same when it comes to M&As and joint ventures.
Within about a five-minute walk from our head office, we have a development department in one building. If you bring in something you like, we can quickly design a box for it. There are about six designers now. It can be commercialized in a short period of time, and many sample cases can be made, so you can see the image by exhibiting it. We have installed an inkjet printer that can print on the spot and automatically cut 24 hours a day. We are developing products with our customers here.
If you expand into overseas markets, like the US, what competitive advantages do you bring? What separates you from other corrugated cardboard packaging manufacturers?
We are really the only 100% Japanese company in the US corrugated cardboard box market, as many other companies would be working on joint ventures, we would be unique. Again, our strength lies in the high-quality standards we set ourselves and our manufacturing processes. This can apply to Vietnam too, as we provide boxes to one of the big sports shoe manufacturers. Even under the COVID pandemic, we have been able to build three new machinery lines this year and we are planning to further expand once things go back to normal.
In your letter to your shareholders, you discussed using reserves to make new investments and new technologies, while still adding continued value to the corporation. Can you tell us what those investments will be and what will be the pillars of your mid-term strategy?
We are really trying to provide solutions to cater to the e-commerce market’s needs, thinking outside the box and not sticking to boxes as the only solution. We also are thinking about what the most appropriate approach is to provide deliveries for particular needs. In terms of R&D investment, we are already trying to get ahead of trends and think about the future.
Last year, we invested in improving our already existing machinery for production, so we can manufacture cardboard envelope-type packages in large quantities, and I would say this isn’t the final form of these products, as we are still trying to improve them.
We have been partnering with paper manufacturers for the last year and a half, so that we can manufacture innovative types of new paper with materials such as liners or containerboard, in addition to having fire-proof and water-proof qualities. We are in the process of exchanging staff for training with the paper manufacturers, as well as developing products and materials for each other.
Unfortunately, no spectators were allowed for the Olympics, but we had designed megaphones so fans could use them for cheering at the games. We also made cardboard trash cans, so people could collect the whole thing. We didn’t use them, but we tried to provide them as a sponsor. Furthermore, we have made cardboard beds for disasters, with them intended to be delivered anywhere in the country that has been hit by a disaster. We can provide these to people who are temporary residents. We are trying to form partnerships with local governments and municipalities to provide these, and we have seen this as a mission for the entire industry. What is good about our original bed is that there are draws under it, which are not just for support, but you can also fold it and put your clothes, or other items inside.
Manufacturers are looking to meet a carbon neutral target set by Prime Minister Suga, who has stated that Japan must be carbon-neutral by 2050. Could you tell us more about the sustainability of the materials that you are using?
There is a growing need in the online shopping industry to reduce packaging, so you need something that is flexible, which is why we are providing Ranpack’s technology to measure and adjust the height of the box that is being created. You can adjust the height, which will already tremendously save cost of transportation and storage. It also saves a lot of labour, if the machine does all the work, rather than manually changing the size of the box.
We also contribute to our client’s sustainability because we can help them improve their transportation efficiency by loading big amounts at a time. On our end, it has helped us achieve this universal size because we can adjust the height and not have to develop various sizes. This greatly improves our productivity, and we don’t have to have an inventory of a whole range of different sized cardboard boxes.
You successfully worked with Ranpack to provide the e3 neo, and a common theme that we are seeing is international co-creation. What role does co-creation play for you and are you looking for partners in your business now?
I really prefer co-creation, to us, it’s not a new concept at all; the first machines we had were in collaboration with Mitsubishi Heavy Industries and Asahi Machineries. We don’t want to buy ready-made machines. We want to be able to discuss them with companies, so they understand our manufacturing philosophy and how we want things to work. In that way, they then can tailor make them for us. For example, we have machines that are made to produce corrugated sheets with a steady rate of 450 meters/minute (TM450), automatically correct positions and die-cut the cardboard sheets, as well as transporting our materials. In short, we will do what we can alone, but if another company has cutting-edge technology, we’d very much like to co-create with them, as they have expertise. Whenever we build a new factory, we try to add new machines and technologies to them. We get ideas from everyone in order to make new innovations.
In the manufacturing process of corrugated cardboard boxes, we use as little energy as possible, which is associated with CO2 emissions. We have been making progress on that matter, such as switching from heavy oils to natural gas, in addition to switching to alternative energy sources, like renewables, for electricity. For papers, we are using FSC, which is forest certified paper, and it supports regrowing the forests. Even though former Prime Minister Mr. Suga has set the carbon-neutral target for 2050, we are aiming for reducing our emissions by 50% by 2030.
Imagine that we come back in five years and have this interview all over again. What would you like to tell us? What goals and what dreams would you like to have accomplished for the company by then?
I can imagine in five years that I would have established two new plants for our domestic business here in Japan. Internationally, we hope the full-scale expansion in the US would be completed and it should be a large factory with high profitability. In Vietnam, we introduced three new lines of machinery this year, so I expect to be running out of space in five years. We might have to build another site in Vietnam. If everything goes to plan, that is what I’m visualising. In Europe, I’ve already sent our staff to learn about the packaging industry there because we are sensitive about the fact that they have quickly adapted to environmental needs within the packaging industry, so we’d like to thoroughly learn about that.
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