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Custom-made products for a global audience

Interview - April 12, 2023

Japanese firm Yashima Denko has built its success on manufacturing and supplying custom-made iron steel parts and related products for electrical wiring work – delivering to customers on time and following the strictest quality standards.

YOSHITSUGU YAMAMOTO, PRESIDENT, YASHIMA DENKO CO., LTD.
YOSHITSUGU YAMAMOTO | PRESIDENT, YASHIMA DENKO CO., LTD.

In the last 30 years, Japan has seen the rise of regional manufacturing competitors who have replicated the Japanese monozukuri process but have taken advantage of a cheap labor force. However, we still see many Japanese firms maintain leadership in niche B2B fields. How have Japanese firms been able to maintain leadership despite the stiff price competition?

In terms of mass production, the level of quality in products produced from China, Vietnam, Taiwan and South Korea has been elevated and it has become the global standard. However, it does not cater to the specific needs of each industry. The strength of Japanese companies is catering to specific needs and requests by producing custom-made products. Our company produces products for mass production from overseas and imports them back to Japan. However, our high-mix low-volume production that is specifically required by each industry is produced locally in Japan. This is the strength of Japanese companies like ours that have allowed us to compete globally. Another reason that Japanese companies are highly accepted in the global market is that we are able to meet deadlines and have high standards for quality assurance. Standard mass production usually has long time frames, whereas custom-made products have specific requests and strict deadlines. Japanese companies like ours are very strict about meeting deadlines while maintaining high-quality control. This means that customers will choose Japanese companies like ours due to the support, trust and service that we give our customers.

 

In the next 15 years, one in three Japanese people will be over the age of 65. This presents two major challenges for Japanese firms. The first challenge is a labor crisis and the second is a shrinking domestic market. What challenges and opportunities has the demographic shift presented to Yashima Denko?

Japan’s population is aging and it is estimated that it will decrease by 30% or more within a few decades. We foresee our business and the market likewise shrinking by 30%. However, we are sure that the electric and construction fields that we provide products for will remain because they are supporting Japan's infrastructure. We are diversifying our employee base due to the shortage of manpower within Japan. The manufacturing field is traditionally known as 3K, which means it is dirty, dangerous, and demanding. We are changing this in order to hire younger, talented staff members, including women. We are trying to change the work environment so that it can be more comfortable for the workers. We are also marketing ourselves in newspapers and employment sites to attract a more diversified audience. After hiring new employees, our HR department will provide consulting services so that they can follow up if the employees have any concerns or if they have skills, they would like to develop in their unique career path goals. We are trying to make the 3K space more appealing, cleaner and safer to work in, by doing this will attract a more diverse work force and ensure no shortage in labor and production output.

Traditionally, Japan has had a moderate employment rate for women to enter the manufacturing sector, however this mindset is changing. We feel that women are more efficient when it comes to producing our custom products due to their attention to detail. An example of such is the protection of electric wiring - we want to enter new markets with these diversified products. Also, we see growth potential in this custom OE product market.

Traditionally, Japanese companies have relied on small local companies with roughly only 10 or 20 employees who cater to custom manufacturing one piece at a time. But these small factories have been reduced with the decline in population. We feel that the demand for custom production is growing, but the supply is not catching up due to these smaller factories closing down, so we hope that we can step in and fill that role for custom manufacturing in this market. We are fortifying our production capabilities and increasing the variety of our custom-made products. Currently, we are hiring, training and educating our engineers so that they can respond to the specific needs of our customers.

M&A is another option in our growth strategy. We have been and will continue to do M&As domestically in order to enter new business fields. In addition, we are putting emphasis on international expansion to compensate for the diminishing Japanese market. In the 2010s, we established our base and factory in Vietnam, which was solely producing products for the Japanese market, but we want to diversify our sales network. Before COVID, we were actively trying to sell our metal processing products to other ASEAN countries. We are currently in discussions with potential clients in U.S.A and EU markets. With the depreciation of the Japanese yen, there may be opportunities for us to receive custom-made orders from overseas countries.



It is very clear that custom-made products play an important role in your business. In fact, you manufacture more than 400,000 annually. Since customers have very specific needs, how are you able to adapt to them?

Providing custom-made products is our strength. Our products are used in electrical work in building construction. We have standard products like pull boxes and custom-made products as requested by the customers. Electrical work is normally done in the latter stages of building construction. In building projects, there is usually a target date or completion date, but the construction work falls behind often. As a result, the time allotted for electrical work, probably around two months, needs to be shortened to one month or less. Not only that, but sometimes the construction is not done according to the original designs and things are changed on site, so when the electrical companies do their work, it is different from what they planned for. We make specific custom-made products and provide various options that could cater to these kinds of short period installations. We are particular about providing quick service. From taking the customer’s order to manufacturing and delivery usually takes us three days or less.

 

What role does collaboration and co-creation play in your business model and are you currently looking for overseas partners?

Collaboration plays a vital role in our production, particularly in Vietnam where our production is done in partnership with many local entities. The most important thing we need to oversee is quality assurance. We have to let the local companies understand the high quality that the Japanese market demands. The role of our Vietnamese factory and our Japanese base is to monitor and train workers in elevating and maintaining high quality products. The main issue on imported products is the inconsistency when it comes to the quality of the products. Our Japanese headquarters takes responsibility for the quality assurance for our Japanese clients. When clients have quality issues, they can directly talk to us so we can address the issue and try to resolve it.

 

Can you tell us more about your R&D strategy? Are there any products that you are currently working on that you would like to showcase?

Our R&D is focused on two things: one is on upgrading existing products. With the shortage of manpower in the construction sector, we are trying to add labor saving elements to increase value to our existing products. We are now introducing IoT and DX in our production lines to make it more efficient. Since we make a lot of custom-made products, it is hard to foresee the upcoming demand. However, if we understand how the machines work, we can see how we can effectively combine different machinery and produce it. Based on our accumulated data, we need 70% of the company being operable to have a steady income. We just implemented a new system to monitor machinery capacity as well as the production capacity. We already know the full capacity of the factory, but we do not know about the individual capacity of the line and the machineries.

 

You talked about diversifying sales towards ASEAN countries. Is there a specific country in the ASEAN region that you think is the key to your growth?

We have had many discussions before having our overseas factories in Vietnam. Chinese infrastructure is well established, there are many related companies present, and the industry is strong there. We considered China, but the labor cost is increasing and there are political risks, so we did not pursue it. In saying that, we are currently doing business with China, importing and exporting with our agents and partners there. We also considered Laos and Cambodia, but they still do not have the infrastructure and their electricity is unstable, so we decided to go to Vietnam. We have a factory and sales office on the outskirts of Ho Chi Minh City. As a production site, it is a good location for gathering workers. As a sales site, it is an inconvenient location, so we might relocate our sales office to the center of the city and use it as a base to expand to other ASEAN countries. We are not thinking of opening other factories since we perform our own quality assurance. We need to work together with local companies and it takes a lot of effort to manage overseas firms. It is also more cost effective for us to focus on only one factory then expand it when the demand grows. Facing the extraordinary devaluation of Japanese Yen, we are keen to start sales of our products such as custom-made steel parts and their peripheral products for electric wirings from our own production inside Japan (and also in Vietnam) and export to worldwide markets.

 

If we come back in seven years and have this interview all over again, what goals would you like to have accomplished by then?

In seven years, we would like to have diversified the portfolio of our products. Through M&As, we have acquired a company that produces electric distribution boards. Five years ago, we also established a frame company. We want to double our current business by diversifying and fortifying our product line up. By strengthening our turnover, increasing employee salaries, providing a comfortable working environment, and establishing welfare, we want to contribute to the well-being of our employees and in so doing grow our business by double.

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