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A company of indomitable spirit & innovative mind

Interview - September 13, 2016

The story of Fujikura is intimately related to Japan’s history. Throughout over a century the company survived world wars, earthquakes and floods; then recovered and thrived again together with the land of the rising sun. Fujikura’s President Masahiko Ito tells Fujikura’s story in detail, its diversification strategy, future new products to come, and why they’re looking to the European and North American markets.

MASAHIKO ITO, PRESIDENT, CEO & REPRESENTATIVE DIRECTOR OF FUJIKURA LTD.
MASAHIKO ITO | PRESIDENT, CEO & REPRESENTATIVE DIRECTOR OF FUJIKURA LTD.

Originally established in 1885, Fujikura has become a genuine global corporation involved in a variety of fast moving markets, ranging from energy, telecoms, electronics and automotive components. Could you give us an overview of your company today, what makes it unique, and what are the fundamental principles and philosophies behind the company that have taken it through the test of time?

Our corporate philosophy is based on the principle of “Tsunagu”, which in Japanese means “connection”. Fujikura’s main businesses is in the communication sector, and as a company we manufacture electric cables that connect power generators to households and client companies, so that the term “Tsunagu” also represents our main business of connectivity, and the transmission of communication.

Our new business in flexible printed circuits, and our automotive business, where we are involved in the creation of wire harnesses used to transport electricity from one component to another, both relate to the word “Tsunagu”, which reflects the flow of electricity within a single component. So, throughout all our businesses, our focus is on being able to connect the electricity and information flowing between areas or components. That’s why we have chosen “Tsunagu” as our mission statement.

We have organized and regrouped our main business segments into four different divisions. The first division, the electric communication system, is the one that was here since the inception of Fujikura, making optical fiber products. The second division is our electronics business division, which manufactures flexible printed circuits and connectors. The third division is our automotive products division, which manufactures wiring harnesses used for cars. The fourth division is a real estate business division, which is not related to manufacturing itself.

Fujikura’s annual sales hit a record of ¥678 billion in 2015. Of this, 53% comes from power and telecommunications systems, 24% from electronics, and 20% from automotive products with around ¥135 billion. Our income comes 48% from power and communication systems and 37% from the electronic business. With regards to our real estate business, it is a constant and stable source of revenue. Yet to be honest, this four-pillar structure that we have is very recent.

 

Can you tell us more about the origins of Fujikura? How has the company grown over the years and how has Fujikura started to expand into international markets?

Fujikura is a company with a long history. It was established in 1885 by our founder Zenpachi Fujikura, whom the company was named after. The first product that our founder made was a hairband for Japanese women, a traditional handicraft. In order to make this hairband, he first needed to come up with a machine that could actually make the product. This was just when Japan introduced electricity. As electricity started to become more popular in the country, Fujikura-san thought that electricity could become more and more popular so he decided to use the same machinery to make electricity cables.

The original factory was built in Tokyo, in a different location than today. Our big manufacturing facility was built here but, unfortunately, in 1923 it was lost because of the Kanto earthquake. After overcoming this struggle, the company started focusing on technology development. But, then again, in 1945, during the Tokyo fire raids, the factory burnt to the ground.

A period of high economic growth came after the war, and Fujikura rode the wave. The government launched nation-rebuilding efforts, with a focus on electricity and communications infrastructure, and Fujikura started to receive long-term contracts to provide that work. That growth period was punctuated by more economic and political shocks like the oil shock and fluctuating markets in the 70s and 80s. Then, from 1991, we started to focus more on our globalization and diversification into international markets. We expanded first into Thailand, with the first product we made in our factory there being curl cord. Thailand has always been a symbolic country because it was our first important market where we expanded.

During the period from 1885 to 1945, which marks the first 60-year period for our company, we established our electricity power generation business. From 1945 to 2005, which marks our second 60-year period, Fujikura put its infrastructure services and expertise to serve Japan’s revitalization. Now, when you look at Japan, there aren’t areas without electricity or telecommunications. The market is entirely covered – that’s why our third 60-year period is dedicated to international diversification and expansion.

 

What are your priorities and focus areas today, when it comes to your international expansion?

As we look at our international potential, we are moving from just power, electric generation and telecommunications to a more diversified product range including electronic and automotive products business.

Now, looking at our operations, the financial crisis that started with the Lehman shock had a very big impact. It was followed by the Eastern earthquake in Japan in the Tohoku region in 2011, and by the terrible floods in Thailand in 2011. During that time we had 9 out of 11 factories completely devastated by the floods. The sales that were derived from other business dropped and this impacted our income. But again, as I mentioned before in our company history, we overcame the loss of our factories during the war, and the Kanto earthquake before. So overcoming such events is embedded in our DNA. Fortunately, it wasn’t a sudden flood, so the actual level of water increased very gradually, and there was no damage like loss of life or damage to the facility, although the offices became unusable with machinery inoperable. We were fully insured, so the insurance brought us the funding to get the facilities to the same state they were in before. Without that insurance we would have had no choice but to leave the Thailand market.

After the flood of 2011, our operating income sales increased very rapidly: we were able to reach profitability by 2014, and by 2015 we had exceeded our sales from 2011. We now have 142 affiliated companies across the world, and two companies were recently added: one in Japan and one in the EMEA (Europe, Middle East & Africa) area. So we have a total of 144 companies altogether. The total number of employees is 54,114, with 2,053 in our headquarters here.

Growth and sales in Japan is stagnant so we focus on the EMEA region, where you can see a big increase. We also focus on America as well. The sales ratio of those shares finally went over 60%. As a company, we need to survive, and in order to do this we have to look at new profit opportunities based on our current business, and grow into new areas where we can diversify and find new business opportunities so we can generate the profit necessary for the business to exist in the future.

 

What kind of new businesses is Fujikura currently considering diversifying into?

Looking at diversifying into new businesses is something that is not that easy, and something we are paying a lot of attention to. I will give you two examples of businesses that we are considering going into.

The first example is the FTTx business; the concept behind it is “fiber to the X”, where “X” could become your home or building, any place. In Japan, this market is already mature: all these optic fiber cables are already installed but in Europe or North America, a lot of these cables are based on metal cables from the past, and these fiber-optic cables need to be redistributed and re-applied to all these areas. All of these areas will need fiber-optic cables to be laid down. There are five big global companies that manufacture preform: three in Japan, one in the US and one in China, so the number of competitors is low. Of these five, we would like to be the leading company based on our technological expertise. Our business strategy is to continue to provide promising products in this area.

The other example is the area of Wrapping Tube Cable using Spider Web Ribbon. We consider this product to be a very important part of our business strategy. Each of the fray lines meet in our optic fiber cable, and they are joined together in a spider web fashion. In our fiber-optic cable, you can see some lines are touching at some points and at others they are not. Even though we still call this a ribbon, the actual size can be pressed down because they are not connected. With our spider ribbon technology, we managed to make the cable 37% thinner and 70% lighter. In order to be able to compress the cable, the outside part has to be very strong. We were able to develop a high performance fiber that was very strong while also having a very minimal loss in transmission. Because we were able to develop such product we were able to provide this new technology. We are the only company that can provide this type of product at a reasonable cost.

As I mentioned, the Japanese market is very mature and doesn’t offer us many opportunities any more. There will be opportunities when fiber-optic cables need to be laid down again because of age. Many entities have already adopted our Spider Ribbon product for this new ongoing optic fiber work. Now we are looking actively into entering the North American or European markets with this product.

Another strategy that we have is going into the industrial equipment industry. We developed new industrial fiber lasers. We use our technology and our understanding of the fiber-optic business to be able to create this new fiber laser that is known for output stability and resistance. The big changes in optical fiber recently have been related to telecommunications and transmission of information, but the fiber laser also has the capability of transmitting energy.

The third sector that we also focus on is medical solutions. On the medical products business, we are very focused on what is called the blood vessel endoscope, with very small parts that enable this endoscope to go into your blood vessels or into your lungs or esophagus.

 

Environmental protection and global warming prevention are also some key focus areas at the moment. What is Fujikura doing in this regard to actively contribute?

We are very concerned about our contribution to the environment and society, and we have a number of products we consider to be environmentally sustainable like our low energy usage products. We also created a biome where we tried to recreate the Japanese environment that would have been here 200 years ago using traditional species. We opened this to the public.

As a result of our contribution and our sustainability efforts we were selected to be included on the FTSE4Good Global Index (which was established by the UK Financial Times and London Stock Exchange to measure the performance of firms utilizing globally recognized environmental, social and governance standards and to facilitate investment in those companies.)

 

How are you creating synergies between your various business segments like automotive and electronics for instance?

The synergies between our businesses are high. Looking at the new electric vehicles, or even the driverless vehicles, these cars are going to have lots of sensors, and when you have a sensor you need electric printed circuits and wiring harnesses. All of our products are very much suited for the development of this new technology.

All of the business units we have will be working together to provide this new kind of technology which will provide significant growth for our company. The central focus will be our clients in the automotive industry. For example, we are now working to deploy our engineers as guest engineers in these automotive companies to get the information necessary to grasp new trends in the industry by getting them involved in the development process.

 

There’s a clearly high demand for your products inside the US market. Can you tell us what the US market represents to Fujikura? How much growth do you anticipate for your products within the US?

The revolution of driverless cars and electric vehicles will influence our growth. The increase in population in the North American region will also always provide opportunities for growth. When we look at the automotive business growth in a global basis, growth will come from markets like China and India. We believe that in the next 20 to 30 years we will have the necessary components to generate growth and success for our company as we move forward.

 

Your ambitious mid-term strategy sees massive growth in overseas sales. What would be a key metric for success for you? How will you determine in five years whether you succeed or whether there are things you need to revisit and improve?

First, we want to increase our investments in optical fibers and electronics business. Over the next five years, we will be deploying 60% of our investment budget into these two areas. Our plan is, from the third year, to begin to start recouping our investment.

 

To conclude this interview, would you provide a final message?

Fujikura needs to create stable profitability. In order to do this, we need to keep looking into new businesses, and continue to evolve as a company. In order to increase shareholder returns, we need to make sure that we can increase earnings per share. We promote CSR activities proactively to fulfill social responsibility as a business entity. We are very interested in electric vehicles and driverless car technology for instance – especially with companies developing those technologies on the West coast – and we are actively looking into investing. We are also very interested in the advanced technologies provided by the North American medical device component industry.

We would also like to invest. So we would like to communicate that we are actively looking for partnerships and possibilities in this area. 

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