Boasting nearly 130 years of experience, the Japanese company Yagi & Co. is a fiber trader and manufacturer that caters to clients in both the domestic and international markets, with a network of branches and subsidiaries spanning several countries.
Japanese firms have come under increasing pressure in the last 10-15 years from regional manufacturers in China, Taiwan, and Korea who have replicated Japanese monozukuri, but at a much cheaper labor cost and often by taking advantage of economies of scale. Yet despite this, we are still seeing Japanese firms retaining leadership in niche fields often characterized by high-mix-low-volume production. Could you give us your take as to why that is the case? What is the advantage of Japanese manufacturing that allows it to continue to achieve in such a competitive global market?
There are two parts to my answer, the first is our R&D, which when compared to Chinese, Korean or Taiwanese manufacturers, I believe that Japanese manufacturers are much superior in terms of quality. These three countries may be good at recreating something that already exists, but they are not as good at creating something new, which by the way is something that Japanese firms excel at. Having said that, I do believe that it is only a matter of time before they catch up with Japan.
I also believe that Japan is superior in terms of trust, inheritance and credibility compared to these three countries. Japanese people are very earnest in their work and Japanese like to follow the kaizen philosophy of continual improvement. In terms of quality and sustainability, these three countries cannot hope to match Japan. In fact, I find it hard to believe that Chinese firms can gain any form of trust inheritance, especially when compared to Japanese firms.
It is well known that the Japanese population is declining on account of the low fertility rate, and now that has been further exacerbated by the aging population as well. This will result in a smaller domestic market to sell products to, and secondly, recruitment will become much more difficult now that there are fewer fresh graduates joining companies to replace older, more seasoned workers. In the case of Yagi, what steps are you taking to offset these population challenges?
I do feel that this population decline is resulting in reduced numbers of new staff joining my company. Trading companies are said to reflect their people, so talent acquisition is very important to us.
This gives me the perfect opportunity to talk about the training and the changes to the company’s structure since remote work became more prevalent. In terms of training and recruitment, we have leveraged the power of IT and we have outsourced and recruited external experts for our human resource department. In the past year and a half, we have focused on strengthening our management. We have developed management training and we are focusing on educating the next generation of our leaders and executives. We are recommending remote work for our employees and also having a second job.
Even with all of this effort, the revenues from the domestic market have stagnated. For this reason, we have looked into international operations and new businesses to increase our profit.
With the COVID-19 pandemic and Russia’s invasion of Ukraine, supply chains have become headline news. Through this, we have seen not only how vulnerable but also how long some supply chains can be. Yagi plays a very important coordinating role as a textile trading specialist; linking material makers with production sites in a globalized setting. Could you tell us what was the impact of the COVID-19 pandemic on your business?
The lockdown in China had a huge impact of course, but we also have sites in Vietnam and Bangladesh, and we didn’t let the Japanese staff there return to Japan. We made do with what we already had with our existing supply chain. It came to our attention that a lot of Chinese people already speak Japanese and before we used to send a lot of staff on business trips to China. It was discovered that this wasn’t needed and was a bit of a waste of company resources.
At its core, your company is a trader of certain raw materials and textiles, however over time you have started developing your own brands of raw materials such as Unito Organic and Forethica. Why did you decide to have your own original cotton brands?
The goal was to differentiate ourselves from other companies, so by creating all of these brands we can play on our strengths and stand out from the crowd. Standard yarn by itself doesn’t have any additional value, in order to add additional value, we have to do something special that no other company is doing. Twisting the yarn or using organic cotton are all ways in which we can add the kind of additional value that customers are looking for. By adding value and developing the brands we are able to push ourselves ahead and gain a sort of brand recognition in the process.
As a trading company, we are interested to hear your take on fast fashion. Brands such as Zara, Forever21, and H&M have become synonymous with every big city in the world. These fast fashion outlets however are having a severe environmental impact, and a recent study found that 10% of all CO2 emissions are coming from textile production. What is your take on how the textile industry can be more environmentally friendly?
I think there are two ways of going about this, and the first is to create products that don’t have such a heavy impact on the environment and distribute those products to mass markets. The second is to create a system to mitigate the environmental impact, such as eliminating waste in the supply chain.
Huge companies like Zara are more focused on the end game and profits. Maybe a step that they can take is to change the products or the materials they use. They have the power to order their suppliers to provide them with such materials. Companies like ours can either change the material or tweak the supply chain system so that there is not such a heavy burden on the environment.
One example can be seen with Yagi Hong Kong, which has a textile brand called Recycolor. They use all of the leftover materials and upcycle that into new products. There are plenty of global sports brands out there that are interested in more sustainable materials and products.
In terms of changing the system itself, we are looking into digital technologies like 3D computer graphics (CGs), and as a company, we are investing capital into this technology. There is a company in the US called Swatchbook, which describes itself as the new material marketplace for designers. What happens in the textile industry is that we produce a lot of prototypes and samples, and all of those get thrown away. Using digital technologies we can forgo that entire stage and go directly from design to digital without any need for prototyping. We are able to migrate our entire color inventory onto the platform. Brands such as Adidas or New Balance can pick and choose colors and then produce their product digitally, once they are happy then they can then go straight to order without having to waste on prototypes and samples. Change cannot come with one company's effort, and instead, the entire textile industry must come together in order to make significant changes that can contribute towards saving our planet.
You’ve mentioned how your investment in 3D digital technologies could allow you to create a shortcut from design to production. In 2018 you acquired Dream Box, which at its core is a digital company aiming to create a health platform that can centralize data on users' health. Why did you decide to acquire Dream Box and what is your digital strategy for the company?
Our sales team are always going about looking for new opportunities what might bring in business, and they came across Dream Box. The reason I picked them up was that I always thought that digital and IT would come after OEM. I sat down with Dream Box and I was very interested in what they had to say. Right then and there I decided to partner with them.
Another reason is that health has always been a keyword for us and the products we supply always seemed to be health-related. I’ve always been aware of digital platforms.
What are the advantages of having your background as a trader when it comes to developing your own brands, and what are some of the challenges you have faced bringing those brands to market?
One advantage we have is that we can handle the entire process, from material to production. One big disadvantage however is that we are still learning the B2C business, and that kind of mindset is still not with us.
Uniqlo is known for its Heattech line which it developed with a company called Toray, a company that has developed an excellent reputation in a number of fields such as aerospace and of course textiles. In terms of Yagi, are you interested in gathering people in your group so that you can engage in such open innovation to create new products?
Just to give you some background, we actually have a long-standing relationship with some world-famous Japanese material manufacturers, and we actually have been providing them with different technologies and patterns. It isn’t widely known however because we are a trading company and that is not something we usually disclose. We have a lot of different customers, it's just that we are not that open about them. This is just the nature of a trading company.
Historically speaking, we do have a lot of partnerships with different manufacturers or companies like Nihon Puff, one of our group companies, that was created in relation to Toray. When Toray first developed its nylon yarn, they came to us and asked us what they could do with it. Our history with Toray goes back 50 years now. We have all sorts of different partners, and we look for different channels to sell our products.
Looking towards the future, how do you imagine the diversification of your group going, and are there any new applications or sectors that you are looking to enter?
We are focused on the idea of sustainability brands leading our expansion globally. The idea is to move away from the domestic market and head more toward global sales.
Back in the 1980s and 1990s trendsetting in the fashion industry was all created by magazines and television; it was a very top-down approach that influenced the populace. Nowadays it is bottom-up with influencers and TikTokers dictating what clothes we should wear. In the last 10-20 years what trends have you witnessed and how have you adapted your business model to cater to those trends?
The 1980s and the 1990s were really the eras of mass production and mass consumption. During that time we had what we referred to as the mass division in our company. After that, we developed a division that sells products to department stores. That department also handled e-commerce, and TV shopping and those efforts have been quite constant. Right now there is a lot of focus on sports. The point is that we have so many different departments, and when one is doing really well it can balance out the others that are not. This enables the company to play to its strengths whilst remaining flexible. This flexibility has enabled Yagi to survive the past 10 years and facilitate many combinations between departments and divisions.
Our company’s sales are around JPY 100 billion, but when we look at each of our customers, our highest-selling customer might be around 5% or less share. This means that as a company we are not dependent on any one customer.
Your company is celebrating 130 years of operation next year having been founded in 1893. Financially, what targets would you like to hit, and in order to do so what countries or regions will you be focusing on?
We are actually not really chasing sales anymore. To be honest it is no longer the era of growth and expansion. We already have a very clear vision set for the company. We are not looking into stretching our financial goals necessarily because our path is quite clear. Our focus is on the material apparel brands and lifestyle; more specifically, how to innovate those key areas. What is more important for us is our legacy, and how much we can contribute to society.
In terms of locations, our satellite locations have primarily been production bases, for which we have decided to switch gears and expand our sales spaces that we already have in Milan, the US, China, and Vietnam. We are in the middle of formulating our mid-term and long-term goals, so we’re still deliberating where to focus on among these regions, so I can’t really say where right now.
Is there a goal or a personal ambition that you would like to achieve during your time as president?
My goal is to work hard for the next 20 years and contribute to the company’s performance. For the next 10 years, I would like to focus on steering the direction of the company, with the following 10 years as easy sailing. The company’s M&A history is actually quite interesting, with many of the companies acquired by the group having worked with Yagi in the past. The pattern we have seen with all the acquisitions has been that they trust us because of our trading history. My goal is to continue to cultivate these kinds of relationships in order to contribute to the group. At the end of the day, Yagi is making the clothes we all wear, so we want to just create a world where we have fun wearing clothes.