AGC Si-Tech Sets Sights on Wide Variety of Industries with its Silica Products

Over the last decades, we have seen Japanese chemical makers facing stiff price competition from countries with a lower cost of production, especially for base chemical products. That being said, Japan has been very successful at protecting its market share in specialty chemicals and high added-value products with examples spanning from cosmetics to semiconductors. The world is currently in a unique situation. We’re seeing geopolitical tensions between the US and China, which are forcing companies to redesign their supplier network and supply chains. What do you believe to be the strength of Japan’s chemical industry to date, and what are some challenges that the Japanese chemical industry faces?

I feel that the strength of the Japanese chemical industry is its high quality and high functionality, which leads to the reliability of the products and the producers. The challenge for the Japanese chemical industry is price competition with the so-called emerging countries. Sometimes Japanese products are over-specified and thus the price is quite high, so in terms of price competitiveness, it is hard to compete sometimes with Taiwanese, Korean and Chinese products. As a countermeasure, what’s important is for Japanese companies to find niche markets that require high-quality products. These niche areas are often blue ocean and not red ocean, where price competition prevails, so fully leveraging on the strength of the Japanese chemicals, which are more high-end and high-quality, purpose-specific usage, is important.

I’d like to follow up on the point that you make about Japanese products being over-specified. I think this has been a historical criticism of the Japanese chemical industry and the global manufacturing sector as well. It was true that over-specified meant overpriced in previous years. Today, however, we see that the Japanese yen is at a historical low against the US dollar. That’s making exports much cheaper, but it’s also making imports of raw materials much more expensive. On the other hand, because of the tensions between China and the US, we’re seeing corporations try to diversify their supplier networks, trying to find new suppliers for their entire supply chain. This has led many journalists to argue that today there is an opportunity for Japan to boost exports and regain market share. Do you agree with that argument? Do you think that today presents an interesting opportunity?

As for the exchange rate fluctuation, now it’s a depreciation for the yen, but it’s constantly changing and we don’t change the direction or the policy of our business with the fluctuation of the yen’s value. As for the over-spec, emerging countries such as China are becoming more advanced. What was considered over-spec ten years ago is now appropriate for the global market, including those emerging countries’ markets, so we feel that we now have more opportunity to export our products in a variety of areas.

One of the big challenges that you find in further exporting products and scaling production is that of human labor. Japan has the oldest population in the world and it’s also losing about 1 million individuals every other year. This creates a big challenge for domestic revenue because it means fewer people and therefore fewer consumers. It also creates a big challenge in terms of the labor force, especially in recruiting graduates for factory jobs that are still manual. Could you explain to us the challenges that Japan’s changing demographics are creating for your company and how you’re looking to overcome these obstacles?

As for the shortage of manpower due to the aging and diminishing of the Japanese population, we are trying to increase productivity in the factory by implementing multitasking for employees. In the past, we had one employee doing one job. Now, we are training employees to carry out multiple functions so we can operate the factory with fewer people. Digital transformation (DX), automation technology and the use of foreign workers will also be important to strengthening our factory operations.

I’d like to talk about silica, which is the third most widely used element in the world, after water and air. One of its big contributions is in the construction field where 75% is made from it. However, through the years, we’ve seen the material used across other industries as well, including electronics and cosmetics. Experts believe that the market will grow approximately 11% annually until the end of the decade. Where do you think growth in the market will come from in the next two to three years?

For the upcoming two or three years, we expect an increased demand in the cosmetic industry for silica. The attention to health has been increasing globally and now not only for makeup but also for skincare and sunscreen applications, cosmetics makers are actively using silica as ingredients. Additionally, silica is increasingly being incorporated as an alternative to microplastic beads, especially since the European Union has decided to ban the use of microplastics.

For years, microbeads were used in a lot of washable cosmetics, mainly because they have good abrasion and other properties useful to the skin. However, because they’re washable cosmetics, consumers would wash them off, they would go into the sink, and eventually, they would end up in the oceans, endangering marine life. From 2020 to 2022, we saw Europe take active steps to ban these microplastics. When that happened, a lot of cosmetic companies looked for alternatives. Silica was one option. Other options included almond shells, oats, pearls, and other alternative products. What are the advantages of silica over these alternatives, and beyond its use as an alternative to microbeads, what other sectors could silica potentially disrupt in the upcoming years?

There are multiple alternatives to microplastics and silica is one of them, but the uniqueness of our silica, which we have been providing to cosmetics companies for over 30 years, is that there is a track record of high quality and product safety, so the safety, assurance, and trust has been already established. Also, silica is very price-competitive with other products.

As for other segments, I feel there is a huge potential for silica to expand since it derives from the natural sand and thus it is environmentally friendly and sustainable, and the global trend is moving towards sustainability. For example, in the pharmaceutical, film, paint, or other sectors, silica could work as an alternative.

Bowl-shaped silica, FB-82

SUNSPHERE

scaled silica, SUNLOVELY

Hollow silica

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In 2022, you rebranded some of your silica products under the name of RESIFA. Why did you do this and what are the advantages of the RESIFA brand?

Before, we had individual products like SUNSPHERE and SUNLOVELY, but we did not have a comprehensive brand to convey the company image of environmental and human friendliness, so in order to strengthen our branding image, we have introduced this brand. RESIFA stands for recycling silica to facilitate and what this means is not so much conventional recycling but the natural recycling of silica in the ecosystem. What we are trying to create through this RESIFA branding is an environmental and human-friendly image that is contributing to the businesses of our customers. In addition, we have a 30-year track record of supplying a stable, high-quality product, and that has been helping us to be recognized and evaluated by the market.

A big part of the ethos of the RESIFA brand is the eco-friendly recycling nature of silica in the ecosystem. This has become a hot topic in the media because it turns out that the world is slowly running out of sand. Silica is extracted from natural sand, usually found underwater. The problem is that the demand for silica, specifically in construction, has seen entire ecosystems get disrupted. In Indonesia, for example, in 2019, two islands disappeared because of Singaporean and Chinese corporations taking the sand that was underneath them. If you look at India, there’s the sand mafia, which is the biggest criminal organization that specializes in trading silica on the black market. It’s crazy to think that the world is running out of sand, but considering the eco-friendly focus of your RESIFA brand, how do you ensure that the supply of silica and the transformation that you do as well, is as eco-friendly as possible throughout the supply chain?

It is a very good question that you are asking. RESIFA has recycling in the concept and when used in cosmetics, it is washed out at the end of the day and that washed-out silica goes back to nature, so that leads to the renewal of the silica, but to be very honest, we haven’t been able to follow up completely and learn about the complete cycle of how the used silica is converted back to its form. What we are now trying to do is develop a new technology to create silica from materials other than sand. Our focus is extracting silica from rice husks, which would open up more channels of silica production, and it’s also a natural material, so it’s environmentally friendly as well.

That would be a big change in the market. Usually, with new technologies, the cost is higher, so realistically, when do you think the technology can be commercialized?

We have already created silica out of rice husks in small lots. However, at this moment there hasn’t been a huge demand from the cosmetics industry because cosmetic manufacturers combine multiple ingredients into a formula, so even if our silica is natural and environmentally friendly, that does not let the cosmetics companies claim environmental friendliness. They need all the ingredients to be environmentally friendly, so at this moment, there hasn’t been a demand, but soon we expect the cosmetics industry to move more towards sustainability, and this type of new, environmentally friendly technology would be widely appreciated.

The cosmetics industry is often dictated by certain trends that are taking place over time, and one trend that we have seen is the concept of clean beauty, the idea that the formulas that you use on your body do not contain certain ingredients that could be harmful to nature or the human body itself. Silica is promoted as an alternative to many of those complex ingredients that are currently in our pharmaceutical and cosmetic products. How does your product match that trend of the cosmetics industry? How are you ensuring that it’s an alternative to those more complex synthetic materials?

We are very particular about producing safe and reliable silica that is harmless to human bodies, and we have a strict manufacturing process and quality control. We not only adhere to international ISO standards, but we have also acquired a food safety certificate since some of our clients use silica as food additives. This shows how safe these silica products are that we produce and originate from natural ingredients.

One of the interesting things about your business is the number of industries and applications that your products cater to, from construction to electronics components to cosmetics to chromatography for the biotech industry. Of all these applications, which do you believe have the highest growth potential and which will you be focusing on for the upcoming years?

There is a wide range of applications for silica and we need to diversify ourselves so we won’t be too dependent on any specific industry’s ups and downs. The major industries that we cater to are cosmetics, chromatography, and industrial usage, and cosmetics is actually a surging industry for us thanks to the increased interest in more healthy or clean beauty and the need for an alternative to microplastics. Silica manufacturing differs by its application, so we want to continuously strengthen the pillar industries that we cater to, including cosmetics, while continuing our research. We will also try to enhance customer satisfaction and diversify our products.

Integrated Control Center (ICC)

You launched RESIFA as a new branding exercise, but while you sell SUNSPHERE RESIFA, you also sell a basic version of SUNSPHERE, if I’m not mistaken. Is there a reason you still have the two different options for your clients?

We have multiple silica products, based on attributes. For example, porous vs. non-porous silica, with or without surface treatment, and spherical vs. non-spherical shape. Customers can choose according to their wishes and their formulation.

Talking about your manufacturing and production capacity, you recently announced an expansion of your Wakamatsu factory, which will increase the total volume production capacity of RESIFA™ SUNSPHERE™ by approximately 1.5 times. Why do you think it’s a good moment to expand this capacity and what goals do you have for that expansion?

The factory expansion which is now under construction will be completed in November this year. The reason we are trying to strengthen our production capacity is there’s been a huge uptake in the skin care demand and also a rising demand for microplastic alternatives. COVID acted as a hindrance, but the demand is now returning, so it’s the perfect time for us to strengthen our production capacity.

I’d like to talk about your international business and exports. On the one hand, you are part of AGC, giving you access to a very wide international network. On the other hand, you have developed certain solutions specific to changing regulations; for example, microbeads in the European market. Looking at the future, how important will international business be for your company, and what markets or regions do you foresee the most growth potential?

International business is critical, and we are now focusing on Asia, especially in China, Southeast Asia and India, where the population is growing and the standard of living is increasing, which is leading to more people using cosmetics, so these emerging markets are the focus we have.

When you talk about the Asia and ASEAN regions, each market can be very different. China, for example, has nothing to do with a market such as Korea. As you expand internationally, are you looking for partnerships, either in terms of distribution or in terms of co-development, in order to better understand the demands of local corporations, and if so, what does a partner of choice look like?

We already have an established network of distributors that have a strength in the cosmetics industry, so we have created partnerships to distribute our products throughout Asia.

Your team was recently at a cosmetics exhibition in Paris showcasing some of your newest products. What other kinds of marketing activity do you have prepared for the year, and in those, are there any announcements that you will make? Are there any new products, or new solutions that you will release to the market, that you can talk to us about?

It may not be a big scoop, but we provide a variety of silica products and microplastic bead alternatives are now growing in demand, so we are now trying to develop new products with improved feel and optical properties to replace specific types of microplastic beads. We will be able to launch it on the market shortly.

Your business was founded in 1948. If we fast forward to 2028, your business will be 80 years old. If we were to return on that 80th anniversary to interview you for a second time, what would you like to have accomplished as president by that date?

We are now expanding the Wakamatsu factory, trying to increase the production capability by 1.5 times,  so we would like to continuously enlarge our production capacity and reliably provide high-quality silica products to our customers. Also, stakeholder satisfaction is very important. And the stakeholders include not only the shareholders but also the employees. Their happiness really is important, so in four years when you come back, I hope to have created a more comfortable working environment for our employees.