Established in 1944, Toa Koki is a Japanese company whose business activities span the shipbuilding, insurance and power generation industries. Its president, Mr. Wataru Mitsutake, sat down with The Worldfolio to give us his view on the impact of Abenomics, the history and milestones of Toa Koki, and the unique competitive advantages of Japanese manufacturers
Despite certain hints of economic growth expected in 2016, critics maintain that Abenomics has fallen short of expectations. Structural reforms aimed at tackling the aging population and decreasing workforce are meant to transform Japan. Faced with an aging population, experts have claimed that automatization can be the answer to Japan's problems. How has Abenomics impacted Japan, and most particularly your sector? How can the fourth industrial revolution contribute to a solution to Japan's decreasing workforce?
When the Democratic Party of Japan (DPJ) was the ruling party from 2009 to 2012, there was a prevailing negative mindset and uncertainty about the future. We did not have confidence in the DPJ's ability to communicate with the bureaucracy or in their understanding of the real economic situation. The most important asset for SMEs like Toa Koki are human resources, but the DPJ government discontinued the awards programs for craftsmen of excellence without realizing the importance of the program.
In order to cope with this situation, Toa Koki launched an in-house manufacturing skills training center called “Dojo”, similar to a Judo training facility, which was a program to evaluate and award excellent craftsmanship as a way to encourage true experts on our own.
When the Abe administration took power (December 2012) and Abenomics was announced, we had high expectations for the future, especially in developing new businesses and energy-saving strategies. With the Abenomics policy, the government has backed businesses, with a particular focus on environmentally friendly sources of energies. After the earthquake in 2011, we shifted our focus toward environmentally friendly energies and started to supply parts for gas-powered generation to large companies such as Kawasaki H.I.
In 2014, when we went into partnership with an Italian company that builds diesel and gas engines, we had already acquired expertise in diesel and gas engines for power generation and our expertise in the ship building market contributed to facilitating this agreement negotiation. The generated sales in this new field achieved since 2014 has reached 580 million yen.
The government under the Abe administration backs new businesses and provides subsidies. We took advantage of this, and as a result, 50% of our investment in new businesses was covered by government subsidies. This enabled us to develop the kind of high precision facilities required for the very high-grade quality assurance that is required in this sector. The Abe administration supports women in the workforce, and we have four women who work in our foundries and additional female staff members also work on the cylinder head assembly line. They are very good at coordination for a more efficient work process with their ability to manage a household.
Regarding IoT, we have already started discussions with a major Japanese ship operator on a manufacturer and end-user collaboration to utilize IoT, which is being promoted in the marine industries of Japan.
What does Japanese manufacturing have that its competitors, China and Korea, do not?
The president and senior management of Toyota and Suzuki visit factories so that they know how they operate and what is actually taking place on site. This does not happen in other countries. Senior management-level officers in Japan have probably worked in the same company for twenty or thirty years from the time they were on the assembly line up to the time they took on their current position, and they acquired a wealth of knowledge during that period which places them in an excellent position when conducting their business and improving the manufacturing process. We have the same mindset as those companies and monitor both their operations as well as those in our own factories in order to improve them. This is one of our competitive advantages in Japan.
Another is the culture of integrity and honesty in Japanese companies which has contributed to our success over the long term. We take good care of our employees, especially our highly skilled employees and those with expert knowledge. Most Japanese SMEs do not lay off their employees, even when the economy is doing poorly; however, companies in other countries engage in restructuring and redundancies during economic downturns, and this even includes those with a great deal of knowledge and high-level skills. As a consequence, they lose a portion of the talent in their workforces that could be utilized to improve their companies’ overall skills and knowledges. We consider this to be one of their disadvantages.
For example, every year the “WorldSkills Competition” is held. This is a major international event for industrial manufacturing skills that is also referred to as the “Manufacturing Skills Olympics”. We enter our staff members to compete in the Japanese Manual Machining Competition and we also enter them into the International Computer Controlled Machining competition.
At present, companies in South Korea have excellent computer skills for Computer Controlled Machining and they are stronger than the Japanese in this field. But we still utilize a time-consuming method of training our employees who join this competition. In the first stage they learn Manual Machining and then they learn programing for computer controlled machining in order to attain the highest level of quality, because manual machining performed by a true expert still has higher accuracy and quality than computer controlled machining. We also think young workers should learn the real basics at first. Therefore, we take the long way with a higher target in mind, and we take good care for our employees under a permanent employment system.
Although the declining population presents us with challenges, there are still a lot of younger people who are studying really hard for this competition and other aspects of this industry. Therefore, education and training are very important and we prefer to train our employees at as young an age as possible to create real experts. This is the unique way in which we ensure that the manufacturing industries prosper.
In Japan, we focus on manufacturing businesses and on educating people at companies, government, and schools in order to improve their skills. Oher countries, however, are restructuring their workers a lot, and so this is a major difference of our industry in Japan.
Your company was created in 1944. Today it has over 295 employees, billions in sales and activities that range from ship building to stationary power generation, with 30% of the global market-share in cylinder liners. What are the key milestones that you would emphasize?
When we entered the market to engage in ship building, we looked for where there was a demand for parts which would have to be replaced in ten years or so. We identified “cylinder liners”, which are both high quality and necessary products with a low exchange cycle.
One of our milestones was producing a unique product which is strong enough to meet the continuous and demanding operation of ships. The carbon phase in this material is a bit like a pencil tip, but is very hard and is constantly lubricated to reduce friction. This was originally developed for racing cars and therefore was used for much smaller products. As a result, we expended a great deal of energy to apply it to very large cylinder liners for large ocean going vessels and finally succeeded in the 1970s.
Originally, we sold our products through an agent. When they went into bankruptcy in 1978, we started to sell to our customers directly. This was another milestone for us, as it opened up a variety of good opportunities such as the ability to receive direct feedback from our customers. This is when we started trading on an international level.
In 1992, we built new factories and expanded production capacity. The factories we built were casting factories where we melt the iron, called ¨foundry shops¨, and in general, these shops used to have a reputation of being dirty, hard, and dangerous, and as a result young people did not want to work in this type of environment. However, we successfully did away with those negatives from our new foundry shops and made them far cleaner and safer than other companies.
Skilled staff members are required to produce our products at a high level of quality and we now have a good balance in terms of the age groups of employees. Twenty-seven percent of the workforce is under the age of 29, 26% is between 30 and 39, 22% is between 40 and 49, 13% is aged 50 to 59 and finally 12% is over 60. This balance enables the older generation to transfer their skills to the generation below them, allowing the manufacturing mindset, or “culture”, to continue being passed to the younger generation on a long-term basis.
In 2002, we developed a production line similar to Toyota which enabled us to make our products at lower cost and in less time. Previously, our lead time was 90 days, but we were able to shorten this to 40 days with the new production line, which was a great advantage. And this was just in time for the well-known major shipbuilding boom between 2003 and 2008.
Your company is also famous for its "technical skill certification holders," such as Shinichiro Ide, who in July 2009 won the 3rd Prime Minister's "Monozukuri Japan Grand Prix". From a managerial point of view, how do you maintain this culture of excellence?
The winner of the Prime Minister's Grand Prix, Mr. Ide, has been teaching young workers in our skills training center, known as the “Dojo”, and now other excellent skilled workers under this great master are also teaching the younger generation. Therefore, we have many excellent young workers in our factories.
Since we originally did not have any workers skilled in hand finishing, we hired highly skilled retired senior employees from Panasonic to teach hand finishing skills. It is extremely important that the top-level skill workers teach the younger generation. The top-level workers in this category are now 72 and 68 years old, and their successor is approximately 52 years old, followed by the one who is 28 years old.
Under this training system, twenty-year-old employees were ranked 8th at the Monozukuri Championship in Japan this year. Now we have a very high level of manufacturing skills in all categories, including casting and machining.
All of the employees that work in the factories regularly have training courses in the “Dojo”, and the government has sponsored a skills test, starting from third grade, through second, then on to first grade, which is the highest. One hundred Toa Koki employees are certified at the first grade of the skills test.
We are addressing the American audience and as such, it is important for us to know what your business position is towards the American customer and as to whether you have any plans to expand or increase your sales in the American market.
We have a thirty-year partnership with a customer in the US. Based on this partnership, I would like to examine the next steps we can take to expand our business to customers who are in need of our products. There are a lot of railway locomotives in the US that use diesel engines to cross the American continent. One of the high-quality products that we produce for our US counterpart is a very thin and complicated part, the level of which few other companies can achieve, and we wish to focus on obtaining new customers for these products.
We have three factories that produce parts for ships. The workforce for these factories is approximately 200 employees, and 60 are working on power generation parts. It is essential that we know our customers' needs and expectations, and we prepare new machines and facilities in our factories accordingly, because we expect shale gas will promote much more gas engine power generation in many fields in the future.
After listening to how you structure your company, I have learned that successors are put in place for department managers. In order to learn more about yourself and your legacy, what is the main message you would like your employees to remember you for after you have completed your time in the company as one of the leaders?
I wish to protect our company legacies and culture so that I can hand them down to future generations. I have a great affection for our company buildings, for example, and I would like the history of the company to be developed and displayed. I also hope that I have contributed to the company by establishing a corporate culture in which the necessity to monitor international trends is highly regarded. As a company, our mission is to supply reliable high quality parts, and in doing so, satisfying our customers’ expectations. We do not have an inside agency or trading company. Our policy is to tailor our services to respond to our customers’ requirements and to create a credible brand for our customers.
My messages to the next generation are the following;
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