Since 1951, Nihon Kohden has engaged in the medical electronic equipment business, delivering Japanese quality to its clients from all around the world. Hirokazu Ogino, President and COO, speaks to The Worldfolio about the impact of Abenomics, the company’s expanding global presence and the business model and philosophy that have made it a worldwide leader in its field.
Despite certain hints of economic growth expected in 2016, critics have it that Abenomics has fallen short of expectation. Structural reforms aimed at tackling the aging population and decreasing workforce are meant to change Japan. The new corporate governance code is also aimed at revitalizing the economy by 2020. How has Abenomics impacted Japan, and most particularly your sector?
My personal impression is that Abenomics has been successful. Even though the numbers are not following as expected, Abenomics has stimulated the economy while transforming the Japanese mindset. Mr. Abe set up three focuses for economic growth, including revitalization of the medical industry. I believe he has focused on the medical sector because it might allow us to become global leaders in the future.
I say this because Japan is aging. The number of people over the age of 65 has continued to increase while the size of the average family and the rate of births have decreased. As we would expect, the general public is growing worried about the consequences of this. However, if we compare Japan to other countries, I believe that we are simply ahead of our time. Eventually, other countries will also start to experience the same aging trend that we see in Japan, and will face the same situation. Since we will have faced this situation first, we will be able to leverage on our experience in tackling this demographic issue.
The medical devices market was valued at $330 Billion in 2015 and is expected to reach $398 Billion by 2017, at a CAGR of 5.4%. What are the key drivers behind this growth?
According to Espicom data, the medical devices market reached $340 billion worldwide in 2014 and is expected to amount to $467 billion by 2019. There are two key drivers behind this growth. The first is linked to the growth of the worldwide population. Emerging countries, such as those in South East Asia, India, China and in Africa, are experiencing a rapid growth in population, which translates into many opportunities for expansion across the healthcare market. The second driver is the need for technical innovation. Developed countries demand more advanced technological devices that have a greater impact on clinical outcomes. If you look at the US market, for example, you will see that population growth is modest compared to emerging countries, but it is still considered a rapidly growing market because people demand superior care, and are willing to spend for the technology that can help provide better medical care.
An aging population is one of the key challenges in today’s Japan. The country is undertaking a challenge that soon other countries, such as northern Europe or the United States, will face. What can the US learn from the Japanese model?
The World Healthcare Organization once compared and analyzed the healthcare systems of different countries. According to their report, the best healthcare system in the world was in France, where medical treatment is free for all patients, and everyone has access to a similar quality of healthcare.
The Japanese system is closer to France than to the US. Whereas the US emphasizes that all people should have access to care, our main focus is to offer the same quality of care to all people. This focus developed because Japan’s healthcare system is based on social democracy. By comparison, the US is a capitalist democracy, which pledges the same fundamental rights for all, but relies on economic incentives to ensure implementation.
As for the advantage of the Japanese health care system, it provides much more comprehensive coverage for its citizens so that we can access similar quality of healthcare everywhere in the country.
Nihon Kohden is Japan’s leading manufacturer and distributor of medical equipment. With subsidiaries in the USA, EU and Asia, your products are being used in more than 120 countries, 26% of your sales come from oversea markets.
What advantages does Nihon Kohden bring to foreign markets? What geographical areas are you targeting for future growth?
We have two regional strategies. First, we are tackling the high-end markets, which include developed nations, as well as developing countries with wealthy individuals who spend more money on healthcare. These markets can be found throughout the world. In India, for example, there are high-end, prestigious hospitals that require products similar in functionality and ability to those used in the US or the EU.
Regardless of the location, we are able to offer these hospitals unique integrated solutions that help ensure the highest quality of care for patients. Each product in our portfolio provides comprehensive and integrated capabilities, so that providers can meet the needs of every patient and every medical situation they encounter. We continue to improve on the quality of our devices, on the excellence of care and on the benefits of patient safety.
Eventually, these improvements will have an impact on hospital management, directly touching the profitability of institutions. Today, we are building upon our brand image and providing integrated solutions for care providers.
Our second strategy is volume-based, targeting emerging markets. Developing countries require more medical infrastructure and less high-end technology, but as a Japanese-based global company, we do not wish to reduce the quality of our products. Our objective is to adjust our cost structure and manufacturing process to deliver high-volume, advanced products and technology to these markets. High-volume devices are designed in Japan, manufactured in China, and shipped to emerging markets. The idea is to keep our high-quality management system while lowering production costs. This allows us to deliver high-quality materials at a lower price.
In fiscal year 2016, you registered a consolidated net sales number of more than 160 billion yen. For the 7th consecutive year, your sales increased. What are the reasons behind Nihon Kohden’s sales growth?
Since the financial crash in 2008-2009, our sales have grown every consecutive year. In 2000, we started heavily investing in global markets, creating our international business branches and enhancing our product portfolio. Throughout the years, we enhanced and diversified our portfolio which allowed us to tap into a multitude of new markets. Looking ahead, the local expertise we have acquired in the markets we operate in will allow us to systematically improve our product portfolio. Our product and service portfolios are broader and better every year.
The medical equipment market is highly competitive, with companies such as GE Healthcare and Siemens AG. What are the competitive advantages of Nihon Kohden?
We have built our reputation on the quality and reliability of our products and services. And in the medical world, reliability does not simply refer to life span of a machine. Instead, it is also linked to the precision of our data and to the accuracy of our measures. Since our inception, we have earned the respect of the worldwide healthcare markets, especially for our neurology devices. We were the first to invent the 8-channel EEG with AC power, and Nihon Kohden has become the number one global brand for EEG. In addition to the reputation of our products, we put a great emphasis on the quality of our services. We are meticulous in how we work with clients, which is innate to the Japanese culture. While important, sales volume is not our primary consideration. What matters most to us is identifying what people need, whether we are working with doctors or nurses or caregivers and patients. Once we have identified a need, we diligently work to satisfy it.
This approach has served us well. Throughout the years, we haven’t merely conquered a large part of the market share, we have built long-lasting relationships with all our stakeholders. Our focus on services is highly appreciated by our customers.
Can you tell us more about the culture of omotenashi?
Omotenashi is a true customer service differentiator for the Japanese. It is based upon the philosophy that one should anticipate what other people require and provide services to satisfy those needs. The idea is not to analyze our position first, but rather to investigate theirs, and identify how we can cater to their needs.
The president of JETRO told us that while Japanese companies excel in terms of innovative manufacturing, they are not as good at communicating their products. Why is that?
The problem was that we tended to think about the customers’ needs inside of Japan, not outside. We would, therefore, create a domestic business model while refusing to adapt our services to the needs of other countries. Since then, we have learned that just as we must base our products on our clients’ needs. We must also adjust our business approach. Some may perceive this commitment to customization as a limitation. After all, when one looks at American or Chinese companies, their successes are based on the ability to standardize the products they offer. We believe to be successful on the international arena, though, we must be committed to customize our products to the needs of the locals.
What was your expansion strategy based upon until now?
At first, our understanding of consumers’ needs outside of Japan was limited. We tried to export our domestic business model to the world, limiting our success. After years of expansion, we realized that true internationalization could only be achieved by understanding our customer’s needs and adapting our products to the demand.
Of course, our Japanese origins give us strength. To overcome our shortcomings, we decided to install a diverse business committee, enhancing local knowledge. This was not easy to implement, since in 2000, 80% to 90% of our business was in Japan. Since then, our top management has realized that future success would only come by crossing the national border, and we started operations to drastically change the culture and inner structure of Nihon Kohden to adapt to the world.
In 2008, Frost & Sullivan recognized Nihon Kohden with the Market Share Advancement Award. Nihon Kohden has made tremendous advances in sub-sectors, such as “patient monitors”, but it is still behind the market leaders, such as Philips or GE. What is lacking for Nihon Kohden to become a global leader?
As I said it, Nihon Kohden is based on the quality of its products and on the quality of its services. However, there is a third point I have yet to mention: innovation. We have very strong core competencies in Human Machine Interface Technology. Interface is the essence of medical devices. The sensors that detect the signals of the body and the algorithm that transforms these signals in a meaningful way to the caregivers and doctors are crucial to medical devices. Eventually, these sensors release vital sign information to monitor the real-time conditions of the patient. Because Nihon Kohden has focused on this core technology since it first began, we have an advantage when it comes to providing higher clinical outcomes.
Throughout the years, we have developed innovative technologies that make us unique. Innovation is what allows us to compete with other companies. For example, we developed the cap-ONE sensor, the world’s smallest and lightest mainstream CO₂ sensor. Conventionally, a product like this requires intubation, which is very invasive for the patient. With this unique sensor technology, we can monitor mainstream CO₂ in a non-invasive manner. For sedated patients, it is an incredible advancement and it allows us to create breakthrough applications. You can also see our iNIBP technology. We invented this new technology to measure blood pressure by limiting the traditional squeeze that is applied on the cuff around the arm, making the process a gentler and faster procedure.
Furthermore, one of our engineers, Dr. Aoyagi invented the principle of pulse oximetry to noninvasively measure saturation of blood oxygen. Dr. Aoyagi received the 2015 IEEE Medal for Innovations in Healthcare Technology for inventing the first pulse oximeter in 1974. To make the oximeter clinically applicable, it took another 10 to 15 years. All our new medical technologies take about 10 years of research and verification before commercialization. For innovation to happen, we must think long-term.
You also started making software for these applications. What future products do you have in the pipeline?
Our product portfolio has grown extensive and is very diversified. For the future, we want to create care-cycle solutions because patients are not segregated by health concerns. When someone goes to the hospital for an ailment, be it a heart attack or a serious injury, the first stop is often in the ER, going to diagnosis and operations, before heading back home. At Nihon Kohden, our vision is to offer complete care-cycle solutions through technological platforms. Because of our unique sensing technology, we can maximize the efficiency of work flow, ultimately influencing the final outcome. While we have many competitors in this segment, nobody is able to offer continuous care-taking solutions like Nihon Kohden does.
However, these hardware advancements would become useless if they were not attached to the appropriate software. To be successful, we must be able to interpret the patient’s signals in a timely and effective manner. Having the hardware next to the patient is key, but for the future, we want to create a healthcare information platform by using the vital signs of the patient. This will allow us to keep clear monitoring capabilities while ameliorating our ability to predict and prevent illness. For instance, it is said that, with today’s medical science, we can anticipate what might happen to the patient for the next 8 hours.
In 2009, you acquired 100% share of Neurotronics USA. In 2012, Nihon Kohden Corporation acquired Defibtech through Nihon Kohden’s U.S. subsidiary. How important are these acquisitions for growth?
These acquisitions were very successful for us. The original purpose of acquiring Defibtech was to enter the US resuscitation market. Even though we had a firm hand put in Japan and all around Asia, for the US, we had to adapt to strict regulations. That is the reason why we initially didn't enter the US market for our resuscitation devices.
However, the demand for these products has been soaring in America. We benefited from these alliances because it allowed us to expand our product portfolio and meet regulations. The quality of Defibtech’s products was the main reason for our partnership. Furthermore, Defibtech’s corporate culture was a very good fit with our own.
The company focuses, in part, on developing new technologies, something we are very interested in. For example, they recently came out with the auto chest compression technology, and it has yielded positive results. For the future, we want to follow the market’s trend. The US is the biggest geographical market in the world, and it is the center for innovative technologies and healthcare solutions. We want to establish strong R&D capabilities in the US to seize more opportunities in America, ultimately expanding our sales ration and product portfolio.
For the 10th year in a row, Nihon Kohden America has achieved the number 1 ranking in customer satisfaction for patient monitoring systems. How do you maintain this culture of excellence?
These ranking are issued every quarter, and we have been always ranked number one. We are very proud of this distinction.
A large part of the credit goes to the US team, who realized that we needed to differentiate Nihon Kohden from the regional competitors. We found that hospitals were dissatisfied with the quality of equipment and service from other companies, so we decided to become the number one in terms of client satisfaction. We knew that our focus on customer needs, clinical application support and service would set us apart, so we established extremely strong customer support teams that continue to this day.
Of course, 10 years ago, our customer base was smaller, and it was easier to satisfy our clients’ needs. The true accomplishment is having kept the same satisfaction, even as our customer base has grown.
Your corporate motto is: “Curing diseases through advanced technology.” Can you tell us more about your corporate philosophy?
The origins of Nihon Kohden can be traced back to the late 1940s, when Dr. Yoshio Ogino observed an experiment performed on a small bird’s wings. The experiment inspired Dr. Ogino, who started imagining what could be achieved if he could bring the power of electrical engineering to medicine.
This drove Dr. Ogino to found Nihon Kohden in 1951 with the goal of developing sophisticated electronic advancements that would revolutionize the way healthcare professionals fought disease.
We continue to build upon this goal to this day, focusing our efforts on making our corporate motto a reality. Our employees completely embrace the vision and mission. Over the years, I realized that people truly appreciated the history and philosophy of our company. The great thing about this philosophy is that it knows no border; it touches every part of the human being.
What does “Made in Japan” stand for?
That was also my question when I worked outside of Japan. Everybody asked me, “What does Made in Japan mean?” When I stayed in Japan, no one thought about what makes us different or what sets us apart. When you go out and communicate with people outside of Japan, you realize what your strength truly is. I discovered that our country stands for high quality in service and products throughout the entire value chain.
The US also wants to make the best products with the highest quality. However, the difference between Japan and America is that we put quality in front of everything else. Our perseverance to achieve the best products is what sets us apart. Once we set a qualitative goal or target, we pursue until we attain complete satisfaction. We ask all our employees to share the same philosophy. This approach is essential, and it has to be embraced by all employees.