President Hiromasa Watanabe outlines To-conne’s ongoing collaboration with Mitsubishi Materials to develop lead free connectors.
We would like to use your company as an example to challenge the misperception that Japanese manufacturers have somehow lost their innovative or quality edge from the point of view of the Western audience. With that in mind, can you please share with us your take on monozukuri? What separates your company from your regional manufacturing competitors?
As a manufacturer it is important to aim for perfection in quality. However, the speed and cost are also very important. Our monozukuri concept is QCDS, which stands for quality, cost, delivery and service. Each of these aspects need to be balanced. Recently, we have been strengthening the service aspect of our business to increase the popularity of our company.
I believe that the reason why Japanese craftsmanship has recently been deteriorating is due to its focus on over-quality, and its inability to adapt to the rapid market changes that have been occurring. What is important to our company is to continue our craftsmanship, but at the same time focus on the cost, delivery and service aspects of our business.
In order to achieve QCDS, our company is putting emphasis on hitozukuri and increasing the capacity of our human resources. There is no specific program to nurture our employees. Rather, through everyday practice, our employees learn and understand the values, which helps them to develop a higher mindset towards achieving our QCDS targets.
You talked about over-engineering being a problem in the past for Japanese manufacturers, and how your strategy has been focusing more recently on the service aspect of your business. What value-added services are you adding, and how are you creating a different product offering for your clients?
One example of the services and values that we add for our customers is, if the customer registers to our website as a member, they gain access to all sorts of information such as CAD files and 3D data. They can see how to integrate our products into their existing systems. This service has been very well received by our customers, and they have said that To-Conne is providing a well-rounded service. This is one example of the many services that we provide.
Another point that you touched on was hitozukuri, or fostering good human resources and really investing in your employees. This leads back to perhaps the prevailing social issue facing Japan in the last 20 to 30 years, which has been the decline of the population and the aging of Japanese society. As an SME in Japan, what has been the impact of this issue on your company?
With the declining population, there is a shrinkage of the domestic market, so we are now looking towards international markets. However, the coaxial connector market domestically is comparatively small, and with this shrinkage, major companies are disconnecting their business from the market. Even the smaller sized companies are going out of business. Therefore, there is a big business opportunity for us to enlarge our share of the market, and that is what is actually happening now.
In order to address the labor force shortage, we have extended the retirement age at our company frome 65 years old to 70 years. Right now, we actually have two employees working after retiring at 65.
Increasing efficiency is also very important for our business operations. This was triggered by Covid-19, and the promotion of DX is a crucial part of this. Before, we only had desktop computers, but we have now introduced notebooks, which allows people to work remotely, and increases the overall efficiency of our business. The speed of the changes taking place at our company is faster when compared to other companies in this industry. Of course, it is incomparable to the IT industry, but we have been fast in our implementation of DX.
You mentioned that you are focusing on the international market. Oftentimes we found in our investigation that for Japanese manufacturers, it is less a problem of innovation and more a problem of communication. Both communicating their products and technologies to perspective clients overseas and being able to understand the needs from overseas and then address them at home. As someone with an international background, how have you acted as a bridge connecting your company to the international market?
That is our current challenge. Exporting to overseas and communicating with companies in overseas markets is what we need to focus on going forward. We have exporting experience to eight countries. However, the sales in terms of percentage for overseas is actually only 1% of our total turnover. That does not mean that our products have not gone overseas. Rather, we mostly provide our products to domestic companies, but as an assembled piece, our product is exported overseas.
We have established a new project team to increase our direct sales overseas. In the past, we were quite passive. We would receive an introduction from our existing customers to new overseas customers, or we would wait until overseas customers contacted us through our website. Now we are discussing with JETRO, the Japanese agency for overseas exports, and it has not been consolidated yet, but we are excited to move forward with our overseas projects.
We are actively pursuing this project. It is not only due to the shrinkage of the domestic market that we are looking to overseas. There is also a positive aspect when it comes to the depreciation of the Japanese Yen, as well as a surging Chinese and Taiwanese risk when it comes to economy security. We are looking for new opportunities to enlarge our market share.
Considering delivery is such an important part oof your QCDS system, can you tell us about the impact Covid-19 has had on your company in terms of logistics disruptions in the last two years, and how you have been able to compensate for these disruptions?
The impact of Covid-19 on our company was actually very minimal. That is due to us having diversified our supply chain before the pandemic to domestic Taiwanese and Chinese companies. If China is not doing well, we can switch our supply chain to other channels. Before Covid-19, our company had a surge in growth, so we had compiled an extensive inventory, meaning we had plenty of stock which allowed us to operate during the pandemic.
In the connector industry, once you decide on a company, it is very hard to switch to others. However, during Covid-19, many of our competitors were unable to deliver their products on time, but we were capable to do so. In this regard, we were the driving force for companies to switch their connectors to our company’s. As a result, our annual income and profit increased by over 20 to 25%.
Your company develops lead-free connectors using GloBrass material from Mitsubishi Materials. What are some of the distinguishing features of the lead-free connector itself, and what other initiatives do you have to create sustainable products?
The reason why we developed this product was for sustainability. We wanted to convey the message that we are a company that values the environment. We knew that sooner or later an environmentally friendly product would be the major stream in the industry. We wanted to be the pioneer in developing an environmentally friendly product and this product was the outcome of our efforts.
We are making many attempts to be an environmentally friendly company. For example, by promoting DX we are mitigating the use of paper. We also use recyclable and reusable packaging materials, and are active in the recycling of scrap pieces. Our target for the next five years is to make our company carbon neutral. To do so, we are planning to introduce solar panels on our warehouses and change to EV automotives.
Was there any kind of relationship with Mitsubishi Material in terms of creating the product? Or did they just supply the material?
GloBrass is a lead-free free-cutting brass developed by Mitsubishi Materials Corporation. We have always kept a close watch on the RoHS Directive trend and have been selecting materials in anticipation of the growing demand for lead-free connectors in the future.
At that time, we were introduced to GloBrass by Mitsubishi Materials Corporation and found that it was just the material we were looking for. We then worked together to realize the product, with Mitsubishi Materials Corporation providing us with GloBrass sample materials. The development of lead-free connectors can be described as a collaboration between the two companies.
GloBrass had never been used for coaxial connectors, and we had no experience using lead-free materials, yet it was a resounding success. We believe that a synergistic effect was generated the two companies' overlapping objectives.
Both companies are still cooperating and have high expectations for this new market.
The development of lead-free connectors is excellent marketing for both companies.
Through this collaboration, we hope to open new avenues for overseas expansion.
Before, you talked about having a new project team to increase direct sales overseas. Is collaboration part of that strategy to grow your overseas presence? Are you interested in finding international collaborative partners?
We are at the very early stages of international expansion, and are currently in discussions with JETRO on the topic of collaborations and seeking assistance. As an SME, we have limited resources, so we need to find the most efficient way for us to penetrate new markets.
There has actually been a synergetic effect by using Mitsubishi Materials’ GloBrass. They wanted to take their product overseas, but did not have the past experience of using this material for connectors. We are currently working together and have high expectations for this new market. Using lead-free material for our connector is good marketing not only for us but for Mitsubishi Materials as well. We are hopeful that by working together, a new path will open up for our overseas expansion.
Are there any particular locations that you have in mind to build up your direct sales volume, and if so, what is your strategy going to be?
In terms of international expansion, we are still in the research phase. Having a wide perspective is important. Doing the correct research is needed to find an adequate market. On the other hand, we are very flexible in meeting customers’ demands in any market. We do have some past experience in exporting to the US and Canada, and we are trying to promote ourselves in those markets first.
We also have business connections with American, German and other European connector companies. However, sometimes companies are not flexible enough in meeting the needs or the delivery times. Since we have extensive incorporation in many industries in Japan, we have accumulated our experience and know-how. We want to apply that to the international market, and provide new values to the market. Nevertheless, we are still at the research phase in determining which market would be appropriate for us to prioritize.
Your lead-free connector is already a great example, but is there another particular product or technology that you are developing or have recently released that you would like to share with our international readers?
We have a wide range of products in our line-up, but the area that we are strongest in is custom made products. Around 50% of our products that we sell domestically are custom made, catering specifically to the needs of our clients. Since we are very flexible in providing custom made products in small quantities, it adds value to our company and to the customers. We believe that this is a uniqueness of To-Conne, when compared to overseas companies.
We have over 1,000 products in our standard product line-up. On top of this, customization is our strength, with over 72 years of history in providing custom-made products. It is part of our tradition and culture, which has allowed us to accumulate our know-how and technology over the years. We work hand-in-hand to meet the needs of every specific customer.
Our regional competitors in China and Taiwan do not possess this strength. They focus more on providing standardized products, and that is where the price competition comes from. We are more focused on the uniqueness of each product we make, and want to continue providing new solutions to our customers.
Imagine we come back on the very last day of your presidency and we interview you all over again. What dreams and goals would you like to have achieved for the company by then that you would like to tell us about in that new interview?
I have several objectives that I would like to accomplish during my presidency. We are currently in our 73rd year, so I want to be able to pass the company down to the next generation for our 100th year anniversary. Making the company sustainable is my first objective.
Secondly, we currently have an annual turnover of around JPY 2 billion. It is my goal to make that JPY 10 billion. In order to do that, I believe M&As will be a viable option, as many Japanese SMEs are struggling right now to find a next generation president. By working together with other SMEs, we want to increase our business capabilities.
Thirdly, when I was at school, I travelled around the world twice as a backpacker, and as a result, I have a strong affiliation with overseas people, and want to make contributions to the growth of local areas. My third objective is for our company to provide our products to over 100 countries through our exports. It is a big mission, but those are the three main objectives I have for my presidency of the company.
I have a nine-year old girl and a five-year old boy. Every year we welcome second graders from a nearby elementary school to do a study of our company and contribute to the locality. Through these opportunities, I want my children to grow as the next generation of this company. I want them to learn about the company and be affiliated as managers in the future. That is a personal dream of mine.