You may not yet have heard of Tokuhatsu, but the company, led by its president, Hitoshi Kotagiri, is quickly making a name for itself as a niche leader in the spring washers arena, especially in the automotive industry where it has around 80% domestic market share. But with competition rife, Tokuhatsu has had to adapt to stay ahead of companies that imitate Japanese manufacturing. We spoke to president Hitoshi Kotagiri to learn more about the company, its plans for the future and its best-selling products such as its Ultra-Fine Texture Plate.
Please tell us about yourself and your company.
In 2006, our company became part of the NHK Spring group. I was transferred from NHK Spring in April 2014 and was appointed President and Representative Director in April 2015.
Our company is not well-known to the public, but in the bolt and washer industry, we are known as niche leaders in spring washers. Especially when it comes to the automotive sector, Tokuhatsu is known as having an approximately 80% market share. This figure was discovered by our customer, a car manufacturer, after a survey of their supply chain following the Great East Japan Earthquake in 2011. 80% is a very large figure, of course, so large that if production stops at Tokuhatsu, car manufacturers’ production lines also stop.
When I became president, I thought I had come to a very good company and at the same time, I felt the weight of the responsibility I was entrusted with.
You have an 80% market share in spring washers. What advantages does your company have in the face of intensifying price competition from companies in China and other emerging economies that are imitating Japanese monozukuri?
How do we respond to intensifying price competition from companies that imitate Japanese manufacturing? This has been Tokuhatsu’s challenge for the last decade. One answer to this challenge was the development of the Ultra-Fine Texture Plate, and another was the construction of the Sanda plant.
Tokuhatsu has always excelled at delicate manufacturing. Every single washer is made to respect not only Japanese Industrial Standards (JIS) standards, but even stricter criteria to make it easier to use in our customers’ assembly lines.
This original Tokuhatsu approach to manufacturing was first achieved with the Ultra-Fine Texture Plate and was the result of fine groove processing.
First, concerning the Ultra-Fine Texture Plate, this is a technology that can only be produced by our company and cannot be easily imitated either in Japan or overseas. The first step was to make very fine grooves. These ultra-fine grooves are made by stamping grooves with a width, depth, and tolerance in the order of micrometers. Various fundamental plastic processing technologies have been pursued meticulously one by one and have finally taken shape. Meticulous management has also been employed to ensure stable quality in mass production.
We even asked for adjustments to be made in the raw materials’ manufacturing process. Regarding the tools’ material, its hardness also needs to be adjusted: if the tools’ material is too hard, it is quickly damaged and if it is too soft, it loses its shape. However, this process is still under development as we try to obtain tools with a longer lifespan. We still struggle daily to select the best materials. It can be said that this represents modern Japanese craftsmanship with precision in the order of microns. Now, we can form not only grooves but also various patterns, these are called Ultra-Fine Texture Plates.
As for the Sanda plant, note that we established our first subsidiary in China in 1993. The aim was to reduce costs; cheap labor was attractive, as visual inspection of products by workers was required. Initially, we were able to reduce costs as planned and things went well, but after a while some Chinese workers who had acquired the necessary skills started their own company and began supplying washers at a cheaper price than Tokuhatsu. Therefore, in 2013 we decided to build a new plant in Japan, the Sanda plant, and move the production of spring washers that had previously been transferred to China back to the Sanda plant.
The Sanda plant and the methods used in it were redesigned from scratch, and we adopted a new approach and ideas, developing the production line based on the concept of being Simple & Compact. The new equipment uses sensors to detect defective products and automatically stops operations if it finds them. The flow of goods has also been reviewed using the TPS concept, resulting in a revolutionary production line with zero in-process work between processes and a lead time of just two hours (versus 30 days in China). In this way, we were able to carry out manufacturing without relying on cheap labor in China.
How are parts manufacturers being affected by the shift to electric vehicles?
First, regarding how fast electric vehicles will spread, we believe that for some time (probably a few, or even 10 years) the number of conventional vehicles equipped with combustion engines will increase. Up to that point, demand will increase so our production capacity should also increase, although we clearly know that conventional vehicles will decrease in the future. We want to make sure that more customers are aware of our technology and where and how it can be used in electric vehicles, without being hasty, however.
In this sense, the technology we most want our customers to know about is the Ultra-Fine Texture Plate. Although people believe that we are a spring washer company, in our current form we are a little different. The technology that has attracted the most attention and appreciation from our customers is our high-precision stamping. Among other things, micron-level ultra-fine texture rely on press working. Products combining ultra-fine texture technology and high-precision stamping have doubled in size in the last five years and now account for 20% of our sales.
The ultra-fine texture have excellent friction behavior and help improve vehicles’ fuel consumption. Improving efficiency is an essential issue for electric vehicles as well, so we believe our products can be used in units related to this kind of production.
Tokuhatsu joined the NHK Spring group in 2006. Have Tokuhatsu experienced any synergies? Are Tokuhatsu targeting new markets or businesses?
In 2006, our company became a wholly owned subsidiary of NHK Spring group, the world's leading spring manufacturer. The most significant change since joining the group has been in our management methods. Our approach to safety and 5S, quality control, production control, inventory control, cost control and various other management methods has changed significantly. NHK Spring has also taught us how to adopt TPS. While at first, I think there was a lot of confusion among employees because we were changing familiar ways of doing things, these changes have clearly had a positive impact.
There have also been benefits in terms of sales. NHK Spring has a large market share in the automobile industry and is well known, so many customers know NHK Spring even if they do not know Tokuhatsu. When we participate in exhibitions, we are allowed to enter the NHK Spring group booth, which has increased the chances of NHK Spring’s customers getting to know about Tokuhatsu and contributes to expanding our sales.
In terms of corporate group governance, NHK Spring has the final say on, for example, our annual budget and directors’ appointment. However, authority is also transferred so that most of the day-to-day management and operations are decided and executed by Tokuhatsu's management committee. Basically, what the subsidiary does is left to the subsidiary. I strongly share NHK Spring’s philosophy: “Beware of Bad News Fast/First and do your best to make profits”.
Are you looking to co-develop and produce in partnership with external companies?
Of course, there are many companies with whom we could cooperate. There is a saying in Japanese, mochi wa mochiya, which literally means, “for rice cakes, go to a rice cake maker”. Each company has its own specialty, and Tokuhatsu concentrates on the areas in which it excels, while other areas are handled in cooperation with companies that specialize in those areas. This is the basis of our business.
An example is surface treatment. The Ultra-Fine Texture Plate is effective in improving the friction behavior of the plate itself compared to conventional plates that do not have ultra-fine texture, but by applying the appropriate surface treatment, durability can also be improved. In fact, we cooperate with companies that specialize in this type of surface treatment.
You have a medium-term sales target for 2025. What are you doing to achieve it? Do you have a strategy for expanding to overseas car manufacturers?
The sales target for 2025 is difficult to declare because it is affected by the external environment, including events such as the coronavirus pandemic. Currently, we are on track to doing well as we aim for 2025, as the ultra-fine texture products and washers used for sensors, as well as other products, are likely to grow more than expected.
Beyond that, the target of JPY 25 billion for 2038 is simply a goal I have set myself, and but I do not have a concrete plan to achieve it. However, I believe it is necessary to challenge overseas or non-Japanese car manufacturers. The number of cars produced in Japan will gradually decline while, on the other hand, global production is expected to increase.
However, we do not intend to sell directly to overseas car manufacturers as there are many difficulties, such as language barriers. We will support Japanese tier 1 suppliers, who will in turn deliver to overseas car manufacturers. We believe that this business model is within our reach. For the time being, we are considering this model, and as we become more competent, we hope to be able to consider undertaking direct sales.
The ultra-fine texture technology is used in automobiles, but does it have applications in other fields?
Currently, it is only used in the automotive sector. If there are other industries or products where it can be used, we would love to market it.
You have a subsidiary in China. What advantages does it bring you? Are you aiming to expand your business to other countries in the region, such as India, Thailand and Indonesia?
We believe that business expansion is our Chinese subsidiary’s mission. In 1993, the mission was to reduce costs, which had a certain effect. This is no longer our aim, and we see China as a market instead. Our Chinese subsidiary’s sales are still small, so we believe there is room to explore new possibilities. On the other hand, there are geopolitical risks, so our basic approach in China is to manufacture in China and sell to the Chinese market. As for overseas markets other than China, we need to think about this as we move towards our 100-year target of reaching JPY 25 billion.
Tokuhatsu is celebrating its 84th anniversary this year. Imaging we came back to interview you again on your 90th anniversary, what goals or dreams you would like to have achieved by then?
Companies are made of people, that is my fundamental belief. First, my immediate goal is to achieve the 2025 target. After that, we have the goal of reaching JPY 25 billion by 2038, so I want to think about the roadmap to achieving that. Of course, we will also fulfil the company’s social responsibilities, such as carbon neutrality, SDGs and BCPs. We need money to solve these issues, so we need to become a company that can seek profit.
In pursuing the goal of being a profitable company, I see there are all kinds of waste, and I think about what a good company we would be if we could eliminate this waste. The more I think about these issues, the more I feel the answer lies in people. I would like to see how many people who can boldly take on these challenges are being nurtured, and I would be happy to see such people being nurtured in our company. I want to be a company whose employees are proud to work here.