Yamamoto Trading: Pioneering colorful solutions in the global chemical industry

It is our view that Japan is at a very exciting time for manufacturing. On one hand, we have had major supply chain disruptions in the last three years, caused by the COVID-19 pandemic as well as tension from the China-US decoupling situation. As a result, we are seeing many multinational groups try to diversify their supply chains with a focus on reliability. This is where Japan can enter; a country known for decades of high reliability, trustworthiness, and short lead times when it comes to production. Now, with a depreciated JPY, it is our view that there’s never been a more opportune moment for Japanese manufacturers to meet the pressing needs of this macroeconomic environment. Do you agree with this premise, and why or why not?

I think it might be best if I first explain my company briefly to you before jumping into your question as it might give better context. Yamamoto Trading Company (YTC) was established in 1918 and was incorporated in 1953. 2022’s sales accounted for JPY 24.3 billion and we have 114 members of staff as of April 2023. Our headquarters are in located in Osaka but we also have 2 offices in Tokyo and Nagoya. We have a number of offices overseas as well, with the first being Yamamoto Trading Company Thailand in 1997. Since 1997 we have also established offices in China, Taiwan, Malaysia, Korea, Hong Kong, and Vietnam. In 2009 we established our latest overseas venture located in Vietnam. Last year a decision was made to incorporate the company in Vietnam into the fold, so this year has actually been the first year of YTC Vietnam.

COVID-19 was a tough time for all I think, and I think Vietnam in particular suffered. Recovery hasn’t been as smooth as people thought it would be. We have a number of different divisions that allow our company to operate as a trader; from procurement to export. Being a trader, the staff we have in our offices is very important, and we pride ourselves on meeting certain requirements from customers for support. As a trader of chemicals, safety is of paramount concern for us and in order to secure the safety of our staff and customers we have very strict management as well as comprehensive training. As we handle so many products it is important to us that we check the chemicals and learn what we can, despite the documentation provided by the suppliers.

For sales functions we have 3 divisions, the first being the coatings, the second being chemicals, and the third being digital imaging. We have structured our sales operations into three distinct divisions: coatings, chemicals, and digital imaging. Each division is tailored to serve specific customer needs. For instance, our digital imaging division manages customers related to Non-Impact Printing and LCD Color Filter applications. Our primary clientele comprises ink makers and pigment dispersion manufacturers, who then supply to the end market.

Around 2 years ago we began our market development department. This young department is not only in charge of developing existing businesses but also looking for new and exciting opportunities domestically and abroad. There are no borders for this department. Another aspect I consider very important to YTC is our color creation center. Even though we are a chemical trading company we actually hired color designers. This creation center can handle color proposals from customers. We can handle many different materials here and combine them with our color proposals. This creation center is operating at the center of our corporate structure, which means it can support divisions 1,2, and 3. This also enables the center to have direct contact with customers and allows for clear and concise communication during the proposal stage of any project.

What was the reason behind creating your color proposal department specifically?

We actually purchase information from a French company, and they also offer what we call Trend Colors. Basically, they are able to study trends, see where the market is moving, and offer us those colors that have been on trend or are predicted to be on trend in the near future. We are then able to take these colors and bring them to life.

Sales in general account for 40% of sales for coatings, 25% of sales for inks and Plastics, 15% of sales for chemicals, and 20% of sales for digital imaging.

This color proposal division of yours allows you to experiment because you’re handling so many different clients, putting your company in a unique spot. Are these proposals only based on the esthetic of the color or are you also giving proposals based on the function of some of the different materials and pigments you offer?

Sometimes function is included. At our creation center, our designers first provide designs before meeting with the customer’s brand owner. The sales division also needs to join those discussions. Of course, if the customer requests some sort of function, then we are happy to comply with their needs.

In the past, we have had dealings with a big European chemical company as an example. They offered the transfer of information to our firm. These days our work tends to be with smaller organizations as well as organic pigments which poses a difficulty to other firms in terms of matching the correct color.

Big firms in Japan like Toyota or Panasonic employ large design teams but when you look at smaller firms it is true that they have a design team but that tends to only be for graphic design. This is the kind of firm we contact with our color proposals.

Can you tell us a little about your YTC brand concept?

Our brand concept encompasses a number of keywords. The first is “Colorful,” meaning we aim to energize our customers and society by proposing colors and light. The next keyword is “Vision,” meaning we aim to be a company that creates a colorful society. “Value,” is next, basically creating a future with teamwork. “Personality,” is the final keyword, and for this word we have broken it down into tones as we call them. Bright tone is the expertise that creates innovation, Pale tone is the responsiveness that fosters a sense of security, and vivid tone is speedy action.

YTC isn’t that big of a company, with 114 staff members in Japan and 160 staff in total including 8 offices in 7 countries throughout Asia, as mentioned earlier. Of course, many big Japanese trading companies have many offices throughout Asia as well as many employees, but their focus isn’t on color, which is our main focus. Additionally, many big European distributors also have big sales offices in Asia that don’t focus on color. Seeing as YTC’s main focus is color, I believe that in terms of our USP, we are the biggest trading firm of our time in Asia.

It seems your company is following a small team built out of experts concept. How is Japan’s lack of human resources impacting the sustainability of that business concept?

Our company doesn’t handle specifications necessarily. Clients will send us a sample of the color and we check that color ourselves, so with our current business model I believe that face-to-face meetings are still a must.

It is becoming a tough situation, with many European suppliers pulling out of the market, and in turn, many Chinese or Indian suppliers entering. Many of these suppliers are quite reputable, but we are now observing an increase in the traditionally low prices from Chinese vendors. This is why many Japanese distributors are focusing on reducing their staff. YTC on the other hand is making concerted efforts to maintain our staff. In order to maintain our sales department we have to look for profit from other products. This is why we’ve placed a focus on business development.

You mentioned that high-quality competitors in China and India are increasing in the market, but also we have a power vacuum from major EU chemical makers suspending their chemical businesses. For Japanese suppliers and trading companies do you think this situation is more of a plus or a minus?

Honestly, it is both, but of course, in Japan, our area of business doesn’t really have that many big companies. In the market, the majority of companies are SMEs, with only a few exceptions being large corporations. Of course, you have a language barrier, and many Japanese SMEs struggle to communicate with European customers.

I think Japanese companies do have a chance, however, as we are known worldwide for producing good quality products. Niche products tend to be where Japanese companies shine, but at the end of the day, I think that Japanese companies really need to change the way they approach sales and marketing. The tendency is to make a good product and then sell that product at a low price. Nowadays the population is decreasing and the business practices of yesteryears won’t necessarily work. I think these days if you have a good product you need to consider how you can sell that product at a higher price. There needs to be a paradigm shift and I think that many Japanese companies don’t consider this.

In recent years there has been huge investment in Japan by the international community. Warren Buffett is the most famous example of this, and there is a lot of attention being drawn to Japanese trading firms. Why do you think this is the case? What is the attractiveness at this current moment that is drawing such big investment into Japanese trading firms?

Right now, a lot of Japanese companies are focusing on battery applications as well as the semiconductor industry. These applications are very closely linked to politics, in almost every country.

You mentioned the old way of if the product is good and the price is reasonable then that is enough. You also said that there needs to be a paradigm shift, and nowadays even in B2B niche fields there is a necessity for some degree of marketing or branding. What role can a trader like yourself play in helping suppliers shift their mindset and adopt these new kinds of tools?

This mindset is not easy to explain to Japanese companies. I’m 69 this year, so back when I was 10 years old it was 1964. During that time I was living in Tokyo and only rich families could buy color TV sets. This was the year that Toyota launched the Corolla, and believe it or not a color TV cost around the same as the Toyota Corolla; JPY 600,000. Nowadays you can pick up a good TV with a fantastic OLED display for under JPY 100,000, whereas a new Toyota Corolla could cost JPY 3,000,000.

I think over the past 50 years TV manufacturers have considered that if they decrease the price of their products then the volume will increase. Unfortunately, however, in 2023 Korean and Chinese manufacturers have captured this market pretty well.

It seems like this new market development division is designed to find new areas to compensate for the very low-profit margins that exist in your color business. What do you consider to be the most exciting applications or new markets that this division has explored since its establishment two years ago?

I think batteries are going to be a big market moving forward. We’ve also explored several cosmetic applications. We already have a small business for cosmetic containers, but the actual cosmetic material is something new that we are exploring, however, this market is not easy to crack. Our main markets right now are industrial applications, not food or cosmetics, so this market is completely new for YTC.

In terms of the LCD business, this has already moved from Korea to China as well as from Taiwan to China. In China, the number of new dispersion houses is on the rise. In terms of Japanese dispersion houses, they are still exporting to China. For these kinds of products, I think Japanese companies are capable of producing very good products, on top of having very good production management systems. The downside is of course the fact that they have to export because the market doesn’t really exist anymore domestically. I think that Taiwan still has some interesting applications and distinct products, but Korea has moved all of its production to China already.

You mentioned that 2022 was the formal formation of your Vietnamese company, but you also mentioned that it has been very challenging. Out of all of the markets that you are conducting international business in, which do you think are the most compelling or exciting going forward in terms of your own growth?

I visited Vietnam at the beginning of April and was very surprised. The export business in Vietnam has several sections. One is for textiles, particularly shirts and shoes to the United States for brands such as Nike and Adidas. This year the production volume of Nike in Vietnam dropped 50%. Currently, it seems like markets such as the United States, Europe, and China don’t want to purchase shoes from brands such as Nike and Adidas. Demand has fallen dramatically, leading to significant challenges for the industry.   

Currently, we are focusing on the Southeast Asian countries, and of course, China is a huge market so we would be fools not to focus on that region too. However, I would say that the priority right now is Southeast Asia. At the moment we don’t actually have a target project but I think we also need to think about the United States and Europe.

Your company has had partnerships throughout its history. Are you still looking for new partners in markets such as Europe or the United States?

Recently there have been a number of chemical companies that have spun-off from larger international firms. We have relationships with various people and European companies because of our experience throughout the years. The focus would be on new suppliers from Europe or from the United States. I think we also have to consider the sales aspect because we don’t have any sales in the United States right now.

When do you think that sales aspect will get going?

Personally, I’m aiming for around 2025, or within two years of 2025.

When we talk about color, a parable or synonymous word is water. We use water in dyeing and processing, and there has been a major demand from final clients to help them reach sustainability targets by using existing types of dyes and pigments. As you view yourself as this proposal-type trading company, what kind of solutions or services can you offer to your clients who are trying to reach carbon neutrality?

European countries have very strict environmental regulations and safety regulations for the chemical industry. They have certain criteria for safety, but when we supply those chemicals to Japanese clients we try to give them advice on how to use them. For example, some companies have their own water management facility, so in those cases, we propose the types of chemicals that are water-based. For other companies that don’t have such a large capacity, we propose they use solvents without using water, which has a lower burden on the environment.

Basically, we take and absorb a lot of knowledge from European countries about sustainability and the environment. Once we have that knowledge we can use it to provide advice and propose better solutions to our clients, particularly proposals that are better for the environment.

Compared to European countries, countries like China or India don’t have a lot of expertise about the environment. For those countries, we require higher standards for the environment so that we can raise safety standards for these countries as well.

We also need to repack imported goods to cater to our customers' unique requirements. This often means breaking down the bulk packaging into more manageable sizes, like one-kilogram or five-kilogram portions. Fortunately, with our in-house dispensing facilities, we can handle this process internally, mitigating potential risks. This ensures that we can reliably offer these smaller quantity packages to our customers.

When you mentioned raising the standards in countries like China, obviously you are a foreign company working overseas, and perhaps the way of doing business there is much different than how it is traditionally done here in Japan. Could you give us a little insight into how you’re able to oil the cogs and make the machines of countries like China function more smoothly?

The first step is visiting the factory there, and by that, I mean the factory of the supplier. Our major suppliers are from Europe and the United States, but we do also import some products from China and India. I lived in China for nine years and my colleague lived in Thailand and Malaysia for six years. At that time I visited many Chinese suppliers; I would say more than 60. I discussed the aspects of quality control and environmental issues. When talking about this some of the suppliers are instantly uninterested, but some of them are very clever and honest about the way things are. We ended up choosing about 10 suppliers in China and about 7 suppliers in India. We then visited each factory and discussed the conditions that were required. I think that now we have some very powerful suppliers in China and India. Of course, the search is not over and we are looking for new suppliers all the time.

Are you hiring local staff there to bridge the local culture gap?

Yes, and we are also hiring some local advisors

Imagine that we come back on the very last day of your presidency and have this interview all over again. What goals or dreams do you hope to achieve by the time you are ready to hand the company over to the next generation of Yamamoto Trading executives?

Up until now, Yamamoto Trading has been a distributor for European and American suppliers to Japanese customers, but over the past ten years, we have tried to increase our Asian business. We have tried to handle not only European and American products but also Chinese and Indian products. Gradually our product range is increasing. Additionally, our customer portfolio is also expanding beyond just Japanese customers. That is why I describe Yamamoto Trading as an Asian color distribution company.