Know-how, innovation and forward-looking thinking are three concepts at the core of the Nittoku Engineering business philosophy. "Thanks to the know-how we’ve been accumulating over the last 44 years, we are in a strong position to provide tailored solutions,” President Nobushige Kondo tells The Worldfolio. Mr. Kondo, a veteran in winding technology, predicts great opportunities coming from the U.S. market thanks to Nittoku’s R&D investment in improved winding methods of motors for electric vehicles.
Japan is not only the sogo shosha, the well-known global brands. We are aware that the great wealth of the country is generated by the chuken kigyo, namely medium-sized companies that have been able to gather large shares of the global market in their niche sector by continuously investing in R&D. In this context, could you give us an overview of Nittoku Engineering winding technology and how it can be applied in different industries?
Nittoku’s activity is based on a long history and corporate culture based on innovation. Therefore, our winding technology benefits from the accumulation of our experience developing even minuscule-yet-essential adjustments to our machines for the customization of our clients’ products. This is how we have built our internal know-how over the years and I think that this is what has brought us success. We always come up with optimized technology to match the needs and wants of our customers, which are becoming more and more customized. Thanks to the know-how we’ve been accumulating over the last 44 years, we are in a strong position to provide such tailored solutions.
In terms of global expansion, Nittoku has launched overseas subsidiaries where we hire local people from different backgrounds, which form a very large number of employees. We transmit to them our corporate and brand culture, but we also allow them to develop and differentiate their skills according to the local market requirements. For instance, out of our 17 overseas branches and factories, there are only 3 locations, Singapore, Thailand, and Suzhou, where the head of the facility is Japanese; everywhere else the management team is local.
The majority of people who manage these locations are foreigners who speak Japanese.
Our business model revolves around local customers that provide us with specific requests for machinery. Local engineers then come to Japan to help develop and adjust the machinery and then install it locally. The most interesting thing is that even though we have many subsidiaries, our corporate culture is based on our employees’ self-development. We strongly believe that the company’s success is linked with our human capital retention.
It is interesting that you point out know-how as a core value for your success and the customization of the transforming needs in the industry. In this perspective, what is your personal interpretation of monozukuri and hitozukuri? And how do you apply these traditional Japanese values at Nittoku Engineering?
Regarding hitozukuri and monozukuri, we hire persons locally for their skills and know-how but also to support their livelihood. If they believe that our company, Nittoku, can provide a stage for them to live a happy life and further develop themselves, our goal is to do so. This is why our per capita sales per employee, 33,000,000 JPY, is so high. More importantly, if an employee would like to live elsewhere or try to seek a higher position and self-development we are happy to support this process of empowerment in which we strongly believe. This concept of support applies to monozukuri, as developing cutting-edge technology requires a combination of different skill sets.
In the Japanese vision, the world revolves around people relationships; the more positive relationship you have with others, the bigger chance you get to become a cohesive group with which you can provide a more enhanced technology and better skill set. This serves hitozukuri but most of all results in a higher quality of monozukuri.
Another transformative trend in the global manufacturing industry is the emergence of IoT (internet of things) and also, directly connected to this trend are smart cities. M2M (machine to machine) interaction is blurring the lines between different industries, such as energy, transportation and manufacturing. There are growing synergies in order to provide new connected products and services. How are you leveraging IoT to provide customers with new innovative products and also anticipate global market trends?
What many refer to as the 4th Industrial Revolution is actually more related to the automation of factories in the production process. While this is related to IoT, these growing trends require different technologies. We have a million-dollar research program, supported by the Japanese local government and universities. What we are trying to do at Nittoku is to find ways to integrate IoT and M2M by creating a platform where all the different machines can communicate and then to connect the data to the sensors and software. However, this platform doesn’t exist yet so this is what we are trying to develop, in order to control and administrate production processes, inventory, and traceability of the products and processes. This platform’s initial development structure is planned to be completed by the end of March, 2017.
Our platform will allow each of these custom made machines to be connected together in order to better handle all the data, information, and standardize the different production processes. It will also give the opportunity to upload data to cloud applications and to software that will be available for companies. We will act as the bridge between automated factories and the IoT for smart companies.
Regarding factory automation, the latest 2016 Accenture’s report points out that the greatest barrier to the adoption of advanced automation technology is the lack of understanding about the expected advantages and the implementation cost. How would you describe the cost-benefit relation of adopting Nittoku Engineering’s technology?
You are right. Often top-level decision makers do not really grasp the advantages of investing in automation equipment. However, there are companies successfully embracing the automation shift. For instance, Amazon is very successful in Japan, and has allocated great resources into capital infrastructure to make sure they increase their logistics speed and accuracy. Amazon employs hundreds of people while they should be employing thousands and this shows how efficient their factory and logistics automation is. When you think about the leader of a manufacturing conglomerate or of a plant, the question is whether they have the ability to make strategic capital investment or not and unfortunately since they don’t have the experience of the field they might not.
At the end of the day, our business model is based on our customers’ growth, as we receive payment as a dividend on their growth because they buy more products from us. Acquiring our technology means being able to save resources and reduce costly workforce and product deficiency. The most important thing for us to acknowledge is that technology has to be advanced but in the platform we are building, everything needs go through modules.
Even with the new-age manufacturing process, production losses in terms of deficiencies of final products force companies to throw away important quantities of their products. However, now production processes are modular, so even though there is a deficiency in a specific product that has a semi-conductor chip in it and that is half way through production you would have to throw the product away. This, of course, represents a very important cost. Automation in terms of investment efficiency is the most secure and visionary; by the time humans realize a problem in the production line, the machinery itself, if properly designed, would probably have self-corrected. Human labor force participation in manufacturing is probably going to disappear little by little and I am concerned for the younger generations.
With production becoming more modular, the people involved in the production process need to have a lot of experience over different segments of the whole process and not in only one single part. People involved in the production need to have at least 10 to 15 years of experience not with a specific technology but also with materials and molds.
From a business strategy perspective, many companies today are trying to diversify in order to tap into new market segments. What are the sectors or the areas where you see the highest growth potential for Nittoku Engineering? Could you give us some key financial highlights for the company in 2016?
From a financial standpoint, Nittoku is in a very healthy position. Our capital ratio is 75.7% and we are a debt free company. Further, our net profit rate for the second quarter was 8.3%.
Regarding the future, I think we can evolve in any kind of business. As a mechatronics company, we have a lot of in-house experience in terms of mechanical operations and we are able to support those kind of more and more modular production process. I believe we can fulfill any innovative requirement our clients or new ones propose to us. The question, however, is whether in the future we will have the necessary human resources as we currently do in order to provide the services that our customers need.
One of the top priorities for the company right now is R&D of improved winding methods of motors for electric vehicles. Until now our machinery for motor winding and assembly has been focused on small to mid-sized components, from cell phone vibration motors to vehicle EPS and larger servo motors/generators. However, we have seen a demand in the market for improvements on the existing EV motor insertion technology. Leveraging our unique winding knowhow, Nittoku is in the later stages of development of a number of new never-before-seen technologies.
We are ready to have different companies around the world evaluate what is coming out of this R&D and once it is done we will be able to sell the machines based on their specifications. The timeline for a first sell would roughly be around the second quarter of 2017, as we need to validate the samples and then redesign the equipment to our customers’ specifications. Our goal is to allow our customers to produce more powerful and efficient motors, or smaller but equal specifications to larger ones. This will lead to smaller, more powerful and efficient motors and a more consumer friendly electric vehicle.
Prime Minister Shinzo Abe has been pushing for more integration of the Japanese economy with the global market. Many companies have followed this path of international expansion through M&A or strategic alliances. When it comes to Nittoku Engineering, what is its position in the Japanese market and globally?
Our R&D is mainly focused on working with universities and niche technology companies, both domestic and overseas. For overseas, I also believe that there are key similarities between Europe and Japan.. For example, German manufacturers create the macro blueprint and then they have different people involved for all the specific modules that need to be created. In Japan, we are very detail-oriented, which ensures that the macro system works effectively. This similarity in engineering culture is one reason why our newest research and production center is based in Europe, notably in Austria.
Many small enterprises with high-end technology don’t really have the motivation to go overseas; they may be scared that their technology can be stolen or to team up with the wrong partners. Now that we have the overseas subsidiaries and the overseas network a lot of these companies are coming to us in that regard, so we tell them to keep making the products and enhanced technology and that we will organize sales, integration, and after service. From my point of view, once we do the sales, Japanese companies will benefit from a good reputation and become stronger so that they will be willing to expand overseas and we will be very happy to let them do so. If we can be of some sort of support to that, I think that is a great thing to do. Many companies in Japan are still too conservative about expanding to international markets even though that is their only path to success, so we are getting our subsidiaries to help them when possible.
In the Japanese domestic market, there are many small companies with interesting technology but they don’t have the network to get it into the global market. They may not have the budget, marketing or communication skills to even sign an NDA (non-disclosure agreement). Our policy of open innovation aims at working with these companies and integrating their technology into our manufacturing platform so we can sell that to the end user, as added value. We can also provide maintenance and support from our branches around the world, so when we are helping them getting their technology outside of Japan, they are not completely left on the hook for meeting with clients, contracts and everything that goes with it; they just have to deal with us. We handle relationships with customers; we work hand in hand with them should there be an issue. Therefore, these companies won’t have to interact directly with the end user. In this respect, one can consider Nittoku as a factory automation integrator.
If we look at the American market, the U.S. is still the largest investor in Japan, with 30% share of investment. The U.S. is the second largest trade partner in terms of both export and import right after China. What would you say is the role of the American market in the long-term growth strategy of Nittoku Engineering?
In the Americas, we have sales and administration in Maryland and sales and service in Mexico and Brazil. We sell indirectly to other automotive Japanese industries who buy components from us to supply their factories in the United States, while Europeans customers buy from us directly. The percentage of our revenue from sales in the US is rather small but we hope that this will change. With the arrival of Donald Trump we expect a portion of American manufacturing companies operating in the Chinese market to migrate back to North America, especially in the heavy machinery industry that makes more sense to be produced domestically even with higher labor cost. If the production heads back to the United States, I believe our products will experience an increase in demand.
For America, we are focusing on expanding EV motors. We would also like to focus on R&D for ventures with start-ups and I also believe the medical field offers significant growth opportunities. There is quite a large number of companies doing medical R&D and selling in America on the West coast and mid-west. This is an area we have not actively targeted until now, but we have started to see an increase in requests from the medical field so this is one of the largest areas for us to expand.
You have dedicated a large part of your professional career to the growth of this company. You joined in 1978, became president in 1998, and next year Nittoku will celebrate its 45th anniversary. What is your personal vision about the future of Nittoku Engineering and what would you like to achieve during your mandate as President?
Our job is first to increase our customers’ value. By doing that, they will provide us with more project opportunities. This way of thinking is very important for our future growth. Second, our corporate culture is essential, especially considering the speed of change in manufacturing. It is therefore crucial for the people we hire to be able to adapt to these changes and not to be left behind. I hope our corporate culture will be preserved by the current and next generation of Nittoku staff and that they will be able to keep on leading such important changes and developments.
0 COMMENTS