Through its proprietary turbo blowers, TOHIN INDUSTRY is able to achieve a 20% reduction in energy costs for industrial wastewater and sewage facilities.
Since the end of World War II, the Japanese philosophy of monozukuri, or manufacturing, has become world renowned. Of course, now Japanese enthusiasm for monozukuri is no longer enough, and companies must consider all elements of QCD (quality, cost, and delivery) to keep up with regional competitors. In your company's case, what would you highlight as the advantages of Japanese manufacturing? What are some of the reasons why Japanese companies can outperform regional competitors?
Japan is an island nation with few natural resources. To develop and grow our economy, we need to import resources from overseas and process them to make quality products for export. That is how we have evolved and have our own history, culture and traditions.
There are approximately 3.6 million companies in Japan, 99% of which are small and medium-sized enterprises (SMEs). And 70% of employment is in SMEs. The result of those companies' diligent efforts while respecting tradition and technological succession is part of the reason and strength of our manufacturing industry's evolution since World War II.
However, with the collapse of the bubble economy in the 1990s, the outflow of talented human resources overseas became a major problem. This led to the outflow of the core technologies of Japanese companies to other Asian countries, which is why we lost our competitive advantage. However, I believe that many small and medium-sized Japanese companies will continue to support large companies and maintain their competitive advantage while valuing tradition and technology.
It is widely known that Japan has the oldest population in the world, with nearly 30% of its population over the age of 65. Nikkei recently published an article stating that Japan will need to hire 4.5 million foreign workers by 2040 to sustain economic growth. How is your company responding to these population changes? In light of the declining domestic demand for your company's products and in regards to hiring, do you hire engineers and talented people overseas?
No country can experience significant economic growth with a declining population. Of course, it is a very difficult situation for us, and in the last 20 to 30 years the demand for construction of houses and buildings has dropped dramatically. The Japanese market is mature and has installed many sewerage facilities, so there is no new demand for our products. In fact, demand for sewage tanks (septic tanks) has dropped to 1/6th of its peak level.
To cover the decline in blower sales, the company diversified its business into control panels, blower boxes, and other related equipment. We also attempted to offer our products to other industries, but could not see significant growth. Therefore, in 1994, we entered the overseas market in China. Currently, the Chinese market has achieved twice the sales of the Japanese market. We intend to continue to grow our group by aggressively entering overseas markets and producing and selling more products overseas. This is a major support against Japan's declining population and demand.
As for recruitment, of course we need to accept more foreign workers and hope that the government will introduce laws to make it easier to accept immigrant workers into Japan.
The birth rate in Japan has dropped to about 1.3. This is because the environment in Japan makes it difficult for couples to raise children. In the long run, over the next 20, 30, or 50 years, we must create an environment that makes it easier to raise children and increase the population. Until then, we will have to rely on labor from overseas.
We recently interviewed a water purification company that supplies ceramic filters. They explained to us that each country has its own water quality policy, and Japan has some of the most stringent policies in the world, so when they considered going overseas and applying the same standards to those local markets, they realized it would be very costly. Therefore, they wanted to partner and bring local players on board so that they could work together to create a solution tailored to local needs. How has your firm adapted its product to foreign markets? And are you currently looking for partners who can help you expand into new markets?
When we entered the Chinese market in 1994, a Chinese company owned 40% of our shares, but after the joint venture began, we disagreed with the Chinese side on management policy and how to proceed with the business. Therefore, the joint venture was dissolved in 1996, and the Chinese side developed its China business on its own.
In the 1980s and early 1990s, it was not possible for Japanese companies to expand into China on their own. There were many small and medium-sized Japanese companies that partnered with Chinese companies in the same industry to enter China, but they had to transfer their core technology to the Chinese market, and the parent company of the joint venture partner, a Chinese company, would use that technology to enter the market, forcing the Japanese company to withdraw from China. That was a big problem at the time.
In our case, the joint venture partner was a client who purchased and used our products and not a competitor, so the joint venture partner did not steal our technology. That was fortunate. However, there were a number of other problems. After we sold them our product, some Chinese companies would delay or fail to pay us on time. There were also a number of manufacturers who copied our products.
Under these circumstances, we had a hard time maintaining quality in China. During the first three years of the joint venture, we exported major components from Japan to China and manufactured products in China. However, about 25 copy-cat manufacturers appeared who copied our products and sold them 20% to 30% cheaper than ours.
Therefore, we changed our management policy to "local production for local consumption" to reduce costs. However, it was difficult to procure good castings, so we set up our own foundry and established our own system. However, in order to reduce prices, parts must be mass-produced.
We exported some of our products to China and most of them to Japan to reduce costs and maintain quality.
In addition, we have developed a joint venture in China with TUTHILL, an American blower manufacturer, to produce and sell large Roots blowers, and have established a system of personnel, equipment, and partners that has enabled us to become the leading manufacturer of blowers in China today.
What I find interesting about your company is that if a company adopts your Turbo blowers, they can actually recoup their investment costs through electricity bills within 2-5 years. Can you explain a little more about the advantages of your product and how it is cost-effective despite the potentially high initial capital investment?
Our mainstay turbo blowers reduce energy use by about 20% and contribute to global CO2 emission reductions. Currently, we are focusing on sales of turbo blower products in Japan, China, and Vietnam. Most recently, we sold four TX600 (600Hp) blowers to Ho Chi Minh City in Vietnam, where they have been installed in a municipal sewage treatment system.
The method of purifying wastewater using a blower is called biological treatment. Bacteria break down the waste into water and CO2. Sewage treatment plants, as well as food and paper mills, use this method. In order for such a system to function, the bacteria need a large amount of air, so a blower is required.
There are about 2,000 sewage treatment plants in Japan, and their running cost is 3 trillion yen. Half of this 3 trillion yen is the cost of electricity. If we can reduce electricity costs by 20%, we can achieve a significant cost reduction of about 300 billion yen. We are aiming to sell our products to local governments that deal with sewage systems, but sales to local governments are struggling because initial investment and sales performance are also important. The initial cost of our product is three to five times that of other conventional equipment. However, due to the energy-saving effect, this initial cost can be recovered in 2 to 5 years, so we are convinced that our products are cost-effective and at the same time greatly benefit society by reducing CO2 emissions.
Do you agree that more developing countries, such as Southeast Asian countries, should be free to manage their wastewater for years to come as they develop? Or should they be held accountable in the same way as countries like Japan, the US, and Europe today? For strict water quality standards? What are your thoughts on the dynamics between developed and developing countries with regard to environmental awareness?
From an environmental perspective, I believe that emerging countries need to adopt strict water treatment standards because environmental problems are harmful to human health. As for China, it has experienced substantial growth over the past few years and has invested a large budget at the national level.
I think our main target and the area where we expect the most growth is in sewage treatment facilities. I believe that there is a need for such sewage treatment in every developing country, and we would like to introduce energy-saving turbo blowers to other countries as well. It is difficult to invest in facilities in countries where population and GDP are not growing, but there is potential for large markets such as China, which we have already entered, as well as ASEAN countries, India, and African countries to become large markets in the future.
Japan is very well known for its high level of spending on R&D, with up to 3.5% of annual GDP spent on this effort. Now, what is most important for Japan is that private companies like TOHIN are contributing to this effort. What kind of technology is TOHIN currently working on?
Our R&D strategy focuses on energy-saving equipment that can contribute to the environment through CO2 reduction. We have already achieved 20% energy savings with our turbo blowers compared to the Roots blowers that were the mainstream in the past, and we are currently studying the operation of other systems that adjust the air volume of the blowers according to the volume of wastewater. Sewage treatment plants and wastewater treatment tanks operate 24 hours a day, 365 days a year, and the amount of wastewater saves energy needed to operate and run the systems.
We are also working on the development of disposers. In the U.S. and Europe, disposers are very common for disposing of leftover food and other waste. In Japan, however, there are strict regulations. Many municipalities do not allow household food scraps to be crushed by disposals and discharged into the sewage system along with other domestic wastewater. Currently, garbage is collected from households by cleaning companies and taken to incineration facilities.
In fact, 40% of the energy used by the incineration facilities at the janitorial plants is used to incinerate household food waste. If Japan were to introduce disposer treatment systems and instead of incinerating food scraps, they could be biologically treated at sewage treatment plants, saving 40% of the cost of transporting them to the incineration plant and 40% of the energy used for incineration.
Other issues to consider are the compressors used in many factories. Compressors produce high pressure air of about 0.7 to 1 megapascal. However, not all plants use such highly compressed air. Sometimes, compressed air at high pressure is deliberately depressurized for use, which means that energy is wasted. We would like to introduce compact turbo blowers to those plants so that they can save energy from the start.
Japan's most famous export is the automotive industry. Our research shows that numerous automotive manufacturers use the ultra-cold air generator air cooler type AC for machining engine parts, for example. Of course, this is an ICE-based (internal combustion engine) application. As the automotive industry transitions to EVs and next-generation vehicles, what opportunities do you see for your company? How can your technology help the automotive industry?
To answer your question, air coolers are not only used in cutting tools in automotive manufacturing, but also in other industries. Many production plants have heat problems and need to cool their equipment when problems occur. Air coolers can separate the air supplied from the compressor into cold and warm air, and although the air volume is reduced relative to the supply air temperature, the maximum temperature difference can be reduced to -70°C. The AC series offers a wide range of models from AC50 to AC100, allowing you to choose the best model for your application. We have delivered more than tens of thousands of units to Toyota and many other customers.
Air coolers not only extend the life of cutting tools, but also help prevent equipment breakdowns and stoppages due to overheating. For example, in the summer when the temperature inside an electrical control panel reaches over 40 degrees Celsius, the air cooler is activated to cool the equipment inside the control panel. As another interesting example, they are also used to cool freshly cooked hot rice in rice manufacturing plants. Air coolers can produce cool air using only compressor air without ozone-depleting refrigerants such as chlorofluorocarbons, and they are inexpensive, compact, profitable, and trouble-free, so they have many other applications even if automobiles are converted to EVs. We are also currently conducting joint research with Tsukuba University to develop new applications.
Suppose we return to interview you again on the last day of your presidency. What are your goals and dreams for the company by then? What do you hope to accomplish by then?
My goal is to provide a safe and comfortable living environment for as many people as possible through the growth of all group companies in Japan, China, Vietnam, Korea, etc. TOHIN's growth cannot be achieved in Japan alone, so we need to work together with other domestic companies as well as overseas group companies. In order to build win-win relationships, we need to build partnerships. Of course, when choosing a partner, we need to select a mutually trustworthy and sincere company that has not only the technological and financial capabilities, but also the ability to cooperate and grow together.
In entering the Chinese market, we decided to form a joint venture with Tut Hill, the third largest blower company in the U.S. by sales. We could not achieve significant growth with our own technology alone. Our partnership with Tut Hill has been very successful in China and we have won many major orders in the Chinese market. We are looking forward to working with our overseas group companies to expand our market and increase sales as much as possible, while also employing as many employees as possible and walking away happy together.
In the current environment in Japan, especially in the manufacturing industry, it is very difficult for small and medium-sized enterprises to survive, so we expect to see more M&As where small and medium-sized enterprises are acquired by large companies.
We have developed products based on elements such as air and water. They are indispensable elements for human life, and we intend to develop products based on this policy.
My personal goal is to get involved in agriculture as a new business venture. Currently, Japan's food self-sufficiency rate is less than 40%, but I believe it needs to be more than 100%. In times of emergency, it will be difficult to survive with a very low food self-sufficiency rate. We would like to actively engage in agricultural business. Currently, farmers are aging and leaving farming. We would like to make agriculture in Japan an industry that attracts more young people and enables them to enjoy farming. We need to commercialize Japanese agriculture by utilizing IoT and DX. I want to work on smart agriculture. That is my personal mission.
Through its blower products, TOHIN has contributed to the development of people's living environment and industry during the period of Japan's rapid economic growth and the current accelerated economic growth in China. When our company and our Chinese subsidiary (B-TOHIN) were first established, neither Japan nor China had sufficient septic tanks or sewage treatment facilities, and wastewater was discharged into nature without adequate treatment.
In the future, Southeast Asia, India, and Africa will also need to build and improve their wastewater treatment systems. At that time, just as the TOHIN GROUP has done in Japan and China, we will continue to contribute to society through manufacturing so that the quality of life of people in developing countries can be improved and industrial development and the preservation of the natural environment can be achieved and sustained at the same time.