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A true hidden champion of Japanese manufacturing

Interview - March 12, 2023

With over half a century of experience, Nakayama Seimitsu technology and parts can be found in anything from Apple iPhones and mini-LEDs to electric cars.

SHINICHI NAKAYAMA, PRESIDENT OF NAKAYAMA SEIMITSU CO., LTD.
SHINICHI NAKAYAMA | PRESIDENT OF NAKAYAMA SEIMITSU CO., LTD.

Over the last 25 to 30 years, Japan has seen the rise of regional manufacturing competitors, who have replicated the Japanese monozukuri process but doing so at a cheaper labor cost, pushing Japan out of mass industrial markets. However, we still see that many Japanese firms are leaders when it comes to niche B2B fields. How have Japanese firms been able to maintain this leadership despite the stiff price competition?

For the past 20-30 years, Chinese, Korean, Taiwanese and many Southeast Asian countries have been replacing Japanese manufacturers, especially in the field of mass production. Actually, that is just history repeating itself. Japanese manufacturing evolved by learning and copying products from the US and European nations. Now, Japan needs to focus on its uniqueness.

One unique thing about the Japanese business structure is that major companies and many SMEs support the industry with high and unique technologies. I believe that such a structure is rare, looking at the global business structure. Nakayama Precision is one of those SMEs with unique technologies that support the industry. We are particular about keeping our production in our domestic factory so that we can maintain high quality. In the present global trend, many companies, including major ones, which have taken their production site overseas are coming back to Japan. We want to fully capitalize on our strength as a company that has kept its production capability domestically.

We purchase cemented carbide material from companies such as Sanalloy and Kyoritsu Gokin, and we utilize machinery from Sodick, Makino and other machining centers to produce our products. Our products are also used in iPhones. Moreover, we provide our die bonding tool for Sony's image-sensing technology for cameras.

We have dealings with Nichia Kagaku, a manufacturer of micro and mini-LEDs in which our technologies are used. Mini or micro-LED panels are now replacing LCDs, and their color vividness is much brighter than LCDs. Our discussions of pursuing a business with Apple are underway.

When we interviewed the president of Sodick, they explained the four key elements in parts manufacturing are the latest and most advanced machinery, advanced CAD/CAM software, controlled production environment and the best raw materials. This means that there is a decreasing need for workers in this setup due to IoT and big data. In your opinion, in such an automated and controlled environment, what is the role of the engineer?

The engineer plays a vital role in the development of new machinery as well as in the development and application of cutting-edge technologies. Recently, we have introduced Sodick's latest machine, an Electrical Discharge Machining for cutting wires that can work with 10 microns. We purchased one of the only two pieces of that machinery that exist in the world. Our engineers have intensely worked with Sodick's to develop and customize this machinery to be perfectly suited and tuned for our use, especially for nano-processing.

Fine-tuning on-site is extremely important. Insulation, operation and maintenance, and setting all the important conditions to achieve fast, reliable and high-quality production are key in manufacturing. If the completion level of mass-produced machinery is 80%, that is good enough. However, specific, high-end machinery has to be precise for it to work at a nano level. On that note, the collaboration of engineers amongst companies is crucial. I have high expectations of the R&D department of machinery manufacturers, including Sodick and Makino, because they have an excellent team in developing new technologies and finding new ways of making machinery. We provided the applications, our technologies and know-how. We want to continue to work cooperatively and keep developing globally competitive Japanese products and machinery.

You apply nano processing to products such as lenses, molds or precision parts for fuel cells. What were some of the challenges that you had to overcome in ensuring high quality in your nano processing?

In order to achieve extremely precise or nano-level manufacturing, as Mr. Kaneko from Sodick says, it is important to control the environment. For us, we maintain the room temperature to be at plus and minus 0.5 °C because even with a one-degree temperature change, the machinery can contract or shrink. Thus, we must maintain the same temperature to have consistent production. It is also crucial for us to utilize high-level precision machinery. We worked with machinery at the submicron level before. However, we have moved on to machinery that can work at a nano-micron level. That upgrade will enable us to produce precise products at a stable quality. At the same time, we have to focus on our manufacturing. By reducing the speed in the production of an item, we can put less burden on the material as well as the machinery. Furthermore, by having an experienced engineer operate the machine, we can surely produce nano-level, high-quality products.

Japan is the oldest society in the world and has a rapidly shrinking population which presents challenges such as a smaller labor pool and a shrinking domestic market. What are some of the challenges and opportunities this demographic shift is having on Nakayama Precision?

It is unfortunate that the Japanese employment mindset has been recently changing. It used to be a lifetime employment, where people who have worked for a company for 20-40 years eventually pass down their knowledge and technology to the next generation. I am deeply attached to the traditional way, and we want our company to continue with this lifetime employment. Since the working style of the US and European is not necessarily adaptable to Japan, going back to Japan's traditional lifetime employment might be one of the solutions for the lack of human resources.



Your products are utilized in a variety of industries, such as semiconductors, electronics, automobiles and medicine. Could you elaborate more on which industry you are currently focusing on? Are there any new industries that you are looking to further expand into?

We are mainly focusing on the semiconductor industry and automotive electronic components. Both of these will continue to be the pillars of our business in the near future. We have been providing parts for gasoline or ICE cars, but we are now trying to shift to EVs and FCVs. In line with the environmental trend toward carbon neutrality, there is a call to completely shift out of fossil fuels. I think that is going too extreme. It is important to have a balanced energy mix, so cutting it out completely is not the solution and is something that could not be easily realized. There has always been a paradox in this society. For example, we were told not to use too much paper due to deforestation, and we are supposed to use more paper than plastic bags, which is so awkward. Suddenly, fossil fuels have become the evil culprit. I am sure that the same situation will happen with fossil fuels in the automotive sector. Therefore, we are closely observing the future path for automotive.

We are trying to diversify into medical components. Humans and animals often get sick and suffer many kinds of diseases. Small and precise components and materials like titanium and stainless steel will be more in demand in surgeries, especially with the aging population. We were contacted by an American company to start a medical component business together, and we are still discussing that.

Another field that we are interested in is the aviation sector. During COVID, there has been a demand for smaller-size aircraft. However, once the pandemic settled, the requirement for mass transportation again surged, and the demand for a new type of aircraft will surely rise. Therefore, we want to enter that market and provide our precision components.

The automotive industry is undergoing a massive transformation from gasoline vehicles to EVs, but there is a large trend when it comes to CASE. Cars are becoming more like computers on wheels and the cost share of electronic components in relation to the value of the car will grow to about 35% by 2035, which is up by 16% from today. How are you adapting to this shift in the automotive industry as electronics and software become more prevalent in the manufacturing of cars?

Conventionally, we have been providing mechanical parts to ICE vehicles, but with the shift to EVs, more electronic components will be in vehicles. Therefore, we want to utilize our strength by providing our components for products that use semiconductors which include cameras, sensors or ultrasound sensors. Major car manufacturers such as Toyota, Nissan, Honda and Suzuki are all shifting to EVs, but there are also emerging companies in the EV field. Even Sony is thinking about entering this sector. I am sure that there will be a big boost of EV-related companies in China, but the situation will be a survival of the fittest. We are trying to observe what we can do and whom we can work with in the electrification of cars.

When we recently spoke to the president of Tokyo Electron, he predicted that the semiconductor market would grow to be worth USD 1 trillion by 2030. However, over the last two years, there have been major chip shortages worldwide. As a result, regional leaders are pushing to expand their domestic production capacity so that they are not reliant on overseas manufacturers. For example, Sony and TSMC are opening a fab in Kumamoto. What opportunities do these regional pushes present for your firm?

Our factory is right next to Sony and TSMC's fab in Kumamoto, so we are in the same industrial area. As of now, we do not have direct dealings with them. Since we are near them, we are looking forward to creating a new channel. IBM has also just announced its collaboration with a Japanese company. It is evident that there is a revitalization of semiconductor manufacturing in Japan. Although we experienced lows in the last 20 years, Japanese companies have great diligence and exert extra effort in producing new types of products. I am sure Japan will be able to consolidate new and efficient ways of semiconductor manufacturing soon.

What role do collaborations or partnerships play in your business model? Are you currently looking for any partnerships in overseas markets?

In relation to our overseas expansion strategy, we once had a base in Thailand, and we did not pursue our plans to go to China. Currently, we do not have any overseas operations. If we get contacted or receive any order from overseas companies, we are willing to provide our manufacturing technologies. However, we are not actively seeking to go overseas or partner with overseas companies since we feel that we do not have a substantial background to communicate well with foreigners. The reason why we are persistent in remaining in Japan is for the sake of our employees. Even though the company needs to develop, assuring security and a stable life for our employees and their families is crucial. Therefore, it is important for us to keep our bases and foundation in Japan for a safe and secure environment for all our employees.

Imagine we come back for your 55th anniversary and have this interview all over again. What goals would you like to have accomplished by then?

Considering our proximity to the fab of TSMC and Sony in Kumamoto, including Tokyo Electron, we will establish a new factory next year. In two years, our new factory in Kumamoto will be completed and in operation. We have been making attempts in new industries like the medical field. As the second-generation president, I will be passing down the company to the third-generation in five years. The credo of Japanese companies is always to create sustainable company operations for them to continue for 50, 60 or even 100 years. With that in mind, passing the baton to the next generation is important.

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