Through their two pillars of electronic devices and technology solutions Hagiwara Electric Holdings, a comprehensive trading company is supporting manufacturers around the world through their product development and research capabilities.
In the 1980s, sogo shoshas made up 50% of Japan’s total exports. However, when the bubble economy burst in the 1990s, trading firms were seen as superfluous. Yet today, over 9,000 trading firms operate here in Japan. What is your assessment of the role played by Japanese trading companies in the world economy today, and how are you able to set yourself apart from your competitors?
It is true that the large trading conglomerates such as those that you mentioned are losing their power in the world economy. This is due to the stiff price competitiveness in the market, as well as the emergence of key local players with their own specific features. When it comes to our company, we act as a trading firm and manufacturing company. Hagiwara Electric is not only capable of producing electrical supplies such as semiconductors and other electrical components, but we also offer better solutions to our customers by incorporating our parts into full packages. We integrate our solutions into the systems that our customers are using at their premises. Embedded platforms and devices create the overall package that we provide, and it is our goal to help our customers develop easier and faster. This is the value of our company, and it underlines the strengths that we possess.
Covid-19 has had a huge effect on the global shipping and logistics sectors. This situation has been further exacerbated by China’s zero-Covid policy. How have these disruptions to global shipping and logistics affected your business?
The current situation is not very good, due to many factors caused by the Covid-19 pandemic. The factors closely related to the automobile industry in particular affect us, as a large amount of our products and solutions are oriented to that industry. Covid-19 has had a drastic effect on logistical procurement chains. This has caused disruptive changes to the whole process of delivery, such as extending the wait times for semi-conductors and other parts. A result of this disruption is the current shortage of semiconductors. This has had a negative effect on our operations as a trading company. For the past two years, the situation has been as I have described. While there have been slight improvements recently, this is still a big issue for our industry.
The Just-in-Time (JIT) system has been applied to help alleviate these issues. Companies must fulfil the promises made to their end users by providing parts on time. This is very important, especially when it comes to running production lines. The automobile industry is very keen on that. Key to this is the delivery of raw materials on time, as this shortens the overall delays and makes the process more efficient.
A lot of your clients are in the automotive sector, which is undergoing a major transformation with the switch to EV. However, when it comes to CASE vehicles, cars are becoming more like computers on wheels. The cost share of electronic components in relation to the value of the car will grow by 35% by the year 2035. How are you adapting to this shift in the automotive industry, and what opportunities does this emphasis on electronics and software present for Hagiwara?
The volume of purchases is going to increase, and more preference will be given to the electronic components, rather than the conventional components of cars. We are very optimistic about the expansion of CASE vehicles, as these are areas that we are strong in. We believe this change will be lucrative for our company in the years to come, as the introduction of more Electrical Control Units (ECUs) will lead to further sales growth for our company. Another aspect of this, which is very positive for the company, is that the introduction of more EVs into the industry will lead to the transformation of the production sites. Automation will need to be introduced to the whole production site, and this is something that Hagiwara is looking forward to as well.
We also expect new business opportunities to be introduced into this segment of the market. New generations of batteries will need to be introduced for EVs in the years to come, so a recycling system will also be needed. In a circular economy, traceability is a key factor. The different stages of production for these batteries, their lifespans, and their recycling will be a new area not only for Hagiwara, but for all companies that are related to the automobile industry. We will definitely be stepping into new fields in the future.
Japan is a leader in the field of factory automation (FA) and process automation. However, when it comes to the adoption of digital technologies, Japan still lags behind. This is beginning to slowly change. In your case, Hagiwara has the AI Human Detection System, which is a safety assist device that utilizes stereo cameras. What other digital solutions are you offering to your customers?
I agree that although there are many Japanese companies that have introduced specific IT systems, especially FA solutions to the industry, Japan is lagging behind in the global rankings. However recently, there has been a buzz in the Japanese media in relation to DX activities. There have been many DX related articles published by the Japanese media. Many companies in different industries are looking closely at this transformation. We are excited to introduce more and more DX solutions when it comes to hardware, software and data analysis. This will allow us to provide our customers with better value and better services. We want our service to be more efficient, more lucrative and more pleasant for our customers.
Your business can be divided into two divisions: the electronic device business and the technology solutions business. Which division is your current focus, and which one has the most potential for future growth?
Our sales are higher when it comes to electronic devices, however, our revenue is higher when it comes to our technology solutions business. We are not a regular electronic device company or a regular technology solutions company. We are a combination of the two.
What synergies are you able to create between these two businesses?
Synergy is very important. In our company, for important components such as semiconductors (SoC, MCU), we work with customers at a very early stage of the development process. During these works, we can gather information on what kind of business plan they have and what kind of functions they will focus on and so on. These are very advantageous for us as we can make proposals for things like the development environment and production line control along with the customers’ concern. And those activities also acquire a wide range of information related to production technology and manufacturing that cannot be entered by semiconductor development opportunities alone.
As a result, we are in a position to understand the entire process from the required functions of a single device to mass production. Our proposal does not miss any customer requirements.
We believe and hope synergy of Hagiwara Electronics and Hagiwara Techno Solutions bring our clients to operate with greater ease, speed, and accuracy.
When we spoke to the president of Tokyo Electron, Mr. Kawai, in 2020, he predicted that the semiconductor market would grow to USD 1 trillion by the year 2030. However, since 2020, many things have happened. We have had Covid-19, and there have been chip shortages for semiconductors. As a result, many regional leaders are pushing to expand domestic production capacity so they do not have to rely on pure-play foundries. What opportunities do these regional pushes present for your firm?
There are two things to consider when we talk about this situation. First, I agree with what Mr. Kawai from Tokyo Electron was saying to you. We are very optimistic about the semiconductor industry. Once the coronavirus situation settles down, we will get back on track. However, at the same time, nobody knows how long this shortage of semiconductors will continue. That situation is being keenly analyzed by all companies linked to semiconductors. That being said, while we currently have a shortage of them, a lot of customers are switching to DX and the automatization of our industry is growing. I believe that the increase in domestic production capacity will definitely shift to good situation. Once we find a solution to the shortage of semiconductors, things will be in even better shape than they were before the coronavirus situation.
We know that with the evolution of advanced driver-assistance systems (ADAS), the computerization of car controls is rapidly accelerating. You have developed an image processing technology for electronic mirroring which allows for viewing and detection of obstacles in vehicle blind spots. What are the advantages that this software can bring to your clients?
This is definitely a great business opportunity in an increasingly connected and changing society. The whole structure of the car is changing, with more computers and more electronical devices being introduced. Our company is certainly benefitting from this, and our image processing technology is an example of how we are contributing to this computerization of cars. Software is getting more important for vehicle control so that it is an area that we will focus on. Unfortunately, however, while this transformation of cars is great for our business, it is creating a lot of competition, as many companies are solely focusing on the automobile industry right now. While companies may come up with great solutions, the competitiveness of the industry is becoming an issue. We need to come up with efforts collaborate with our suppliers and partners that combine software and hardware, as well as data processing to ensure that we can grow our client base. Using these technologies, we have developed and started supplying finished products for construction machinery which called Stereo camera and Surround view monitor. This strategy has created new business opportunities for us, as we are deploying our human assets to introduce our solutions to new areas, in this case, the construction sector. Applying similar solutions to different industries gives us an advantage.
When we spoke to Elematec, the president Mr. Yokode explained how having a distribution partner in the United States was crucial to unlocking the entire North American market. What role do partnerships play in your business model, and are you currently looking for any partnerships in overseas markets?
Talking about overseas markets, our company is currently not prioritizing strategical collaborations or M&As. We believe that the business of semiconductors or electronics components designed in Japan will be still expanding. However, expansion to overseas markets is definitely something that we are looking forward to. We are making plans to transfer our products and our technologies overseas. This will further escalate in the near future. This is organic growth and something that inevitably happens. A lot of our domestic customers are expanding to overseas markets and localizing their production outside of Japan. While the design may still be carried out in Japan, overseas production sites are increasing. We are keeping an eye on this situation, as we want to make our production process more efficient. This is a key factor for overseas expansion.
Which market do you believe has the most growth potential?
We believe that India has a lot of potential, so we are focusing on the Indian market. The United States is the other market that we believe has potential for us. China is also a focus for us, but the situation there is quite complicated right now.
Most of your clients are Japanese. Are you also looking to diversify and provide your unique technological solutions to new customers? In which industry, besides automotive, are you looking for new customers?
Currently, our overseas business is centered on supply of devices, but we are thinking of acquiring a business that is closer to production like the development environment, manufacturing line control that we are doing in Japan. DX will be promoted quickly at the production division, and DX will help to improve production efficiency and maintain in factories that are connected globally, so we intend to bring out our solutions globally.
Leveraging our unique technology, we will open up our business to construction machinery, agricultural machinery, and autonomous transfer robots.
We have been research and development on image recognition technology by Hagiwara Electronics and now is the time to bring it to the market.
Furthermore, investment activity is something that our company is looking forward to, especially on the West Coast of the United States. We intend to diversify the depth of this alliance (business alliance, capital alliance, M&A ) in the future. We are also looking forward to investing in start-ups there, as well as start-ups in the Japanese market. We are very optimistic about this.
Your mid-term strategy, “Make New Value 2023”, has three goals: a mobility society, promoting SDGs, and most interestingly, taking on challenges in new businesses and fields. In what new business domains and fields are you aiming to diversify in, and what strategies will you employ to do so?
We will continue to focus on the manufacturing industry centered on the automobile industry, machine tool industry and material handling area. We want to contribute customers’ DX success in the entire business process such as design process through mass production process.
Again, bring customer our value of H/W, S/W and date entire customer process.
We believe the value of automobiles is not only transportation from A to B, but also has new value in the near future such as to provide a service, provide energy, provide commerce etc., which we called MaaS. We will shift our value to new values that go beyond the current automobile industry. In other words, these new our values develop new markets.
New business field will be in the construction area and agriculture area. These new fields will be open approached by our unique technology as I mentioned last question.
Also, energy sources are now changing across the world, with new energy being introduced. New energy sources and solutions are also an area that we want to focus on in the future.
Imagine that we came back six years from now and have this interview all over again: what would you like to tell us? What are your dreams for this company, and what goals would you have accomplished by then?
Our integrated global solutions mid-term strategy is what we must focus on when it comes to the automotive industry. However, we do not want to focus all our efforts on only one industry. As an integrated solutions provider, we want to diversify to other industries, as that is something that we are capable of doing. We want to combine our hardware, software and data to provide our customers with the best possible solutions, which will help them to develop easier and faster. Our company is both a total solution provider and a manufacturer. I would like to put more weight on the manufacturing side of our company. Personally, I like to provide a finished product because the value provided is clear. For example, the emerging recognition technology or AI solution that we have been researching was initially supply only for engineering services in the automobile industry, before being later applied to the construction industry. I would like to see more of this as we expand our manufacturing in the future.
We will create a clear position where the Hagiwara Electric Group can contribute to Japanese manufacturing by utilizing hardware, software, and all data. These are my goals for the future.