An alternative to plastics and metal, Daio Paper is confident its ELLEX-branded cellulose nanofibers (CNF) can be as revolutionary as carbon fiber, and expects its widespread use in various industries – from automotives and aerospace, to construction and healthcare – within the next 25 years.
In the last 25 years, Japan has seen the rise of regional competitors who have replicated Japanese monozukuri but at lower labor costs, providing the world with cheaper, but often inferior products. At the same time, Japanese firms have maintained high global market shares. How has Japan maintained these market shares despite stiff competition from regional competitors?
As a manufacturer, what we are really putting our focus on is being able to conduct our business based on the user’s perspectives. We are constantly seeking out the needs of our customers. We are prioritizing marketing that helps us to understand and cater to the needs and wants of our customers. Therefore, we will be able to produce best-selling products with added value.
When you take facial tissue, for example, you have different grades and products from low to high prices. Low quality to high quality. It is important that if you are trying to target that high-level, you create the kinds of products that have added value. One of our products has lotion on the tissue, creating a little bit of moisture and is very soft. During springtime in Japan, people suffer from hay fever, making you have to blow your nose much more often and people suffer from chapped noses. We wanted to make the kind of paper that would reduce the swelling from a situation like this. That is what I mean by understanding and catering to the needs of customers. Another example might be in toilet paper. Obviously toilet paper has a very simple function, but what we do is try to add some value to the product itself. We have incorporated a fragrance, an aromatic chemical function, and odor eliminating function to the toilet paper.
Customers are moving their spending habits from physical retail stores to more online digital platforms. In 2021, online sales jumped by 13%, making Japan the fourth largest e-commerce market in the world. How has your business adapted to take advantage of the growth in e-commerce?
As soon as COVID-19 hit, we were already shifting gears to prioritize e-commerce. While there are strengths and benefits to e-commerce, there are weaknesses too. Price can become such a huge factor. A big emphasis is on the importance of brand identity. What we decided to do was to create a specific brand catering to e-commerce sales. That was one of our strategies and we created a lineup of products that were allocated to online sales only.
One of the big problems COVID-19 has created is logistics disruptions. A lot of factors resulted in delayed shipping times, including surging oil prices and China’s zero-COVID policy. This must be complicated for a paper business such as yourselves, having to source materials from around the world. How have these logistics disruptions affected your company?
For instance, we use wood chips as a source material and we have them coming in from Australia, the USA, and Vietnam. Furthermore, we have our own forested land in Chile to obtain and import these wood chips and in order to import them, we utilize our own ships. From that perspective, we do not necessarily have such logistical issues and are not influenced much by the situation. When it comes to oil and the issues happening in Ukraine, we are definitely feeling a slight impact from that.
When it comes to the environmental effects of paper production, there is deforestation, large amounts of energy and water use and the landfill requirements. In fact, paper accounts for roughly 26% of global landfills. Daio Paper was the first company in Japan to make available a range of fully recyclable Kraft paper, in addition to being the first manufacturer to sell newsprint made from 100% recovered paper. Can you elaborate more on your recycling technologies and how else you are reducing your environmental burden?
Our company has its roots in Shikoku, established in 1943, and at that time, we were dealing specifically in newspapers, as well as recovered paper. We worked with newspaper, cardboard and the raw materials that came from recycled paper. Ever since our beginnings, we have always invested our R&D into how to best utilize recycled paper and optimize the process to create the most efficient types of products as a result of utilizing recycled paper. That is why even today, we are able to pride ourselves on dealing with 100% recovered paper. For these reasons, we are able to fully expand and have the highest recycling rates within the industry.
Compared to our competitors, the amount of recycled paper in our products is much higher. This is even more so the case when you think about the impact of more difficult to recycle products - those that use a mix of paper and other types of waste. Oftentimes, snacks and sweet wrappings are laminated with film on one side. That film is supposed to be burnable garbage; however, we have been working to make it recyclable by separating paper from other materials. We have also been working on making plaster boards recyclable too. Traditionally, both the plaster and the laminated film contain elements that do not lend themselves to recycling, but we have managed to make such products recyclable. Often we see that if the material has a higher percentage of products that are not made of paper, it is burned, but what we do is make it a point that even if there is a low percentage of paper within the product, we can extract and reuse it.
You have also branched out into home and personal care. What synergies are you able to generate with your history as a paper manufacturer and your home and personal care products? Which one do you believe has the most potential for future growth?
Early on in our company management history, we were already foreseeing that Japan was going to go through a population decline. We saw that in terms of the paper products market in Japan, our business was going to shrink as a result. We decided that in order to continue to grow and sustain ourselves as a company, we needed to venture out and diversify our portfolio. This expansion was inevitably going to branch out past the domestic market towards the overseas business. Within Asia, we have already expanded out to China and in recent years, we have moved into the Middle East, Turkey, South America, and Brazil.
When it comes to the products you make, other countries might not have the same sensitivity and tastes as Japan. How do you market these products in regions with different needs and cultures?
All of our business activities are based on the philosophy of understanding the user’s perspective. Even when it comes to our overseas businesses, we are looking to continually identify the specific requirements and sensibilities of our clients in the specific regions where we operate. Furthermore, while we might know that our products are of superior quality, that kind of awareness takes time to spread and penetrate. As far as our market strategy goes, it really is based on the concept of regional manufacturing for the regional clientele. Once that kind of brand solidifies and penetrates the local market, we can establish a real presence, create loyalty and expand to find new products. When we went into China, we started selling baby diapers, then once that became solidified, we were able to introduce more products such as toilet tissues and feminine hygiene products.
Many in the industry are calling cellulose nanofibers (CNF) the next generation material due to its lightweight and high strength. Daio Paper has developed five kinds of CNF, one being the ELLEX-M, a high-performance molded CNF material which exhibits mechanical and physical properties that exceed that of general plastic materials. What are some of the applications of the ELLEX-M and what are your expectations for it?
The ELLEX-M material has a wide range of applications, from the bodies of racing sports cars all the way to components in electronic devices. Most recently, the material was utilized by table tennis players in their ping pong paddles at the Olympics. We believe that it could be utilized widely in the medical, healthcare and paint sectors.
It is clear that R&D plays a key role at Daio Paper. You are working on various paper-based materials with oil, water and heat resistance. What is your current R&D strategy and do you have any products you would like to showcase?
When it comes to R&D, it is very important not only to look at the short-term perspective, but also to look at things from a mid- and long-term view as well. I think that it is vitally important to consider the level at which we can contribute to society with our products. This is something that also connects to our management philosophy and principles, and that we actually prioritize and make an effort to make sure that our products and our contributions are sustainable and environmentally friendly. Our R&D is looking at activities that enable us to reduce plastic used worldwide and to develop more and more recyclable products.
We are also looking to ensure that our R&D strategy is one that is as fast as possible in terms of reducing any sort of lead times within the process, as well as ensuring that it is responsive to the global market. One way we are doing this is by making CNF one of the three core pillars of our portfolio moving forward. It is said that CNF will boast a JPY 1 trillion market in the near future. With that in mind, we would like to have a sizable share of the industry.
We saw that from 2019 to 2020, your sales within the global market doubled from JPY 30 billion to JPY 60 billion due to a series of joint ventures, especially in Central America and Eastern Europe. We also saw that you plan to have global revenue accounting for 30% of total sales within the group by 2026. Are you looking for similar mergers and acquisitions in the future? What are the key markets for growth that you have identified?
In terms of our revenue targets, by the fiscal year 2026, we are looking to grow from JPY 800 billion to JPY 1 trillion. Right now, we sit at around JPY 600 billion, so we need to expand by another 400 billion. We hope to achieve this not only through showing growth within our existing operations, but also through targeting specific M&As if there is a good one. To that end, two years ago, we conducted an M&A in Brazil and Turkey, and are looking to continue to do so to reach our targets. The ideal areas for us are markets that are going to enjoy population and GDP growth. Considering that perspective, I think we would love to penetrate the African region next. Based on our market research in Brazil, we are looking to utilize that wisdom and experience to expand into Africa.
Apart from M&As, what other strategies are you employing to ensure that you can further expand internationally?
I believe that one strategy that we are about to take is the expansion of our product lineup in areas where we already have a presence. Thereby increasing the number of products and the types of products within each of the markets.
Imagine that we come back to do this interview again on the last day of your presidency: what would you like to tell us? What are your goals for the future?
Our management philosophy is shaping an abundant and affable future for the world. I hope that by the final day of my presidency, we can pride ourselves in having become a globally known company, on the same level as some of our global competitors.