Our goal is to transition into a value chain creation company

The global economy has shown unexpected resilience in 2023, with a solid momentum in the Asia region despite severe disruptions. Japan, one of the most mature economies, is expected to record a 1.3% real GDP growth for 2023. From your perspective, what factors contribute to this resilience amid significant economic challenges?

There needs to be a distinction between the growth trajectories of Japan and ASEAN nations, excluding China and India. ASEAN countries boast a population exceeding 700 million, with an average age of 30 years. This demographic profile indicates a significant potential for growth, particularly as the middle class expands, leading to increased consumption. These nations hold promising prospects for substantial growth.

Japan is navigating a different path at present. Despite concerted efforts by the government to bolster industries, the country isn't experiencing substantial growth. Challenges like an aging population and a decline in overall numbers have impacted businesses. This demographic shift has led to weaker consumption trends and a shrinking labor force.

Pre-globalization, Japan's innovative technologies and the kaizen philosophy made it an attractive investment hub. However, as globalization took root, competitive labor costs in China and other Asian countries combined with a strong yen prompted Japanese industrial firms to establish production facilities outside of Japan.

Today, yet again, the landscape is changing. Geopolitical shifts like the decoupling between China and the USA, as well as Russia-Ukraine conflict, have thoroughly reshaped global economic dynamics.

The current global supply chain heavily centers around China. However, there is a growing need to deconstruct and redirect this global supply chain. The United States in particular is exploring alternative supply chain sources. This presents a significant opportunity for Japan to thrive, leveraging its technological expertise and robust security measures. Politically, the stability of the Jiminto Liberal Party, as well as moderate inflation rates and minimal interest rates supported by the BOJ Monetary Policy create a favorable environment for investors. Additionally, the current exchange rate (1 USD = 142 JPY at time of writing) further enhances these favorable conditions for investment.

Despite these positive factors, one of Japan’s main challenges remains energy security. Right now, the rate of primary energy self-sufficiency stands at 12.6% for 2022, the lowest among OECD nations. The Fukushima incident made it really tough to get public support for restarting nuclear energy. This poses a disadvantage for us as the industrial sector requires competitive energy sources.

While the Japanese government has had significant success in convincing companies like TSMC and Rapidus to onshore semiconductor production, semiconductor manufacturing requires a substantial amount of power. Additionally, generic AI consumes a vast amount of energy. This is why Japan needs to prioritize the safe and secure restart of nuclear energy as soon as possible. Without this, competing in the global semiconductor market will be challenging.

Semiconductors are often likened to the "rice of industries." If we extend that analogy, then electricity would then be the "water of industries" – both essential necessities. While efforts can be made to re-establish semiconductor industry, securing a stable energy supply isn't as easily achieved.

Japan’s energetic situation faces a unique trio of challenges: a lack of natural resources, heavy dependence on imports, and high costs to reduce GHG emissions. Faced by these challenges, the government unveiled an ambitious energy plan focusing on nuclear power and renewables. Given your company's extensive experience in the energy sector what do you believe would constitute an ideal transitional phase for Japan? Furthermore, what, in your view, would be the optimal energy mix for the country in the next decade?

Over the next decade, it will be difficult to realize the optimal energy mix as the reactivation of nuclear energy will likely progress slowly. Renewable energy sources pose challenges too. While solar power offers limited unit capacity, offshore wind provides the largest capacity among renewable sources. That's why we acquired Eneco for 4.1 billion euros in 2020. Eneco is a prominent renewable energy firm in Europe and has been instrumental in our plans to broaden our offshore wind endeavors. In 2021, we were successfully awarded three offshore wind projects as part of this expansion.

In 2010, Japan started promoting initiated solar PVs, but the guaranteed tariff  was set at the very high level, starting from 42 Japanese yen per kilowatt hour despite the presence of numerous manufacturers. This generous price hindered innovation in the sector. Presently, as we compete in European offshore wind market, we've learned the importance of price competitiveness and its impact on innovation.

This year has seen significant foreign investor interest in Japanese stocks, reflected in the Nikkei 225 outpacing the TSE. Warren Buffet’s investments in Japan’s Sogo Shoshas (traders), including Mitsubishi Corporation, has generated considerable attention. In your perspective, what are the fundamental reasons driving this investor attraction?

I had the chance to converse with Warren Buffett, and he shares the belief that Japan holds significant potential for growth. In my perspective, the next 5 years will be very important to attract investors to Japan as significant changes in the market may happen in less than 10 years. We fully understand that GX (Green Transformation) and DX (Digital Transformation) are pivotal elements to drive this growth.

Driven by both technological innovation and geopolitical factors, we are currently witnessing a substantial realignment of global supply chains. As countries attempt to onshore the production of critical industries, supply-chains are becoming more regionalized. What role do you envision Sogo Shoshas playing in facilitating and navigating this complex supply chain realignment?

Sogo Shoshas are traditionally classified as wholesalers, but our operations go beyond mere wholesaling. Mitsubishi Corporation initiated its business model with trading, and that ethos remains ingrained in our DNA, emphasizing investment and strategic management. While sogo shoshas are presently structured vertically, I envision the future of our business as being more horizontal, emphasizing collaboration among different business sectors. Since assuming the role of CEO last year, I unveiled a mid-term corporate strategy for 2024, where the key concept is "MC Shared Values." By connecting strong business group, we can create new value. To achieve this objective, close communication is imperative. By engaging in closer communication with both internal and external stakeholders, our goal is to transition into a “value chain creation” company.

The technology landscape has evolved significantly due to innovation and to the incorporation of AI. Given the uncertainties of the future, our potential for growth is substantial, driven by our diverse resources and extensive portfolio.

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As Japan continues to expand its industry across the Asia region, what challenges do you foresee?

One major concern revolves around the competition with Chinese suppliers and OEMs.

Japan's economic ties are closely linked with ASEAN nations. China's aggressive entry into the ASEAN markets, particularly in the EV sector, raises apprehensions. Japan's automotive sector dominates the ASEAN market. So if Chinese EV manufacturers were to expand their market share, it could significantly impact Japanese OEMs and the broader Japanese society. Implementing robust strategies is crucial to maintain a competitive edge in this market.

Your DX strategy involves a significant investment of JPY 0.8 trillion to create a cross-industry digital ecosystem. How will DX affect Mitsubishi?

Historically, the Japanese industry has relied on wholesalers. As a wholesaler, our role was to act as a middleman between the seller and the buyer, and without wholesalers, the system wasn't complete. Today however, digitalization is increasingly taking over the role of the middleman, acting as the direct link between suppliers and buyers.

There's excessive waste in the wholesale process. For example, because of demand estimations and forecasts, producers, middlemen, and retailers tend to stock more than needed, resulting in the creation of surplus and waste.

The emergence of new technologies is optimizing this process. AI can predict stock requirements more accurately, reduce unnecessary surplus and consequently cut costs. Logistics, specifically concerning truck drivers, will face new regulations on overtime hours in 2024. This will impact the workforce, so optimizing logistics becomes crucial. The shift from internal combustion to EV trucks is on the horizon, necessitating the identification of optimal routes and the installation of charging stations.

The creation of a digital ecosystem will revolutionize logistics.

What goals do you seek to achieve through the utilization of these new technologies?

Our forte lies in generating green power. To achieve decarbonization, we must power EVs and AI with green energy.

Looking ahead, AI can play a role in predicting inventory needs and influencing logistics. Moreover, AI can assist in pinpointing the most strategic warehouse locations. Maximizing logistics volume is pivotal for cost reduction and overall optimization. We're currently exploring optimal solutions and seeking suitable partners to enhance our logistics operations.

Mitsubishi boasts a diverse international profile, with subsidiaries spread across more than 90 countries globally. Looking ahead, which regions do you consider most strategically important for Mitsubishi, and what factors influence their significance?

We've strategically invested resources across Europe, the ASEAN region, Japan, the US, and South America, where we have a specific focus on mining operations.  Looking ahead, we're emphasizing electrification, which demands an expansion in EV parts production, prompting investment.

The US also presents a significant growth opportunity due to its self-sustaining energy resources, advanced technology and population increase.

You mentioned your desire to evolve into a “value-chain creator.” Where specifically are you looking to establish this model?

Our value chain is well-established in Japan; however, we must exercise caution. The next 5 years will be a key period for Japan to grow its presence in the global market. Our interest also lies in expanding in the US market, where we've already made investments.

When it comes to Asia, Japan has the potential to serve as a gateway to the ASEAN region, holding significant importance for us. Japan can position itself as reliable partner for outside companies willing to do business in the ASEAN region.

As the president of Mitsubishi Corporation, what specific goals or accomplishments would you like to achieve before transitioning to the next generation of leadership?

We operate with ten distinct business groups, each led by its own CEO. These group CEOs are actively working to expand the business within their respective units. In my role as the company CEO, I focus on understanding how to foster the growth of new business models. Moving forward, I aim to enhance collaboration between group CEOs to fortify our overall business strategy.