80 years of innovative electrical contacts

In the contacts business reducing the cost of raw materials is one of the key things for your clients in order for them to pass this on in prices for their customers. How are you offering these cheaper alternatives?

In our electrical contact products, silver cost constitutes more than 85% of our total price. Sometimes gold plating is also required and naturally cost reduction of silver and gold material is very crucial in determining its final price to our customers. Since our customers are always expecting a price reduction and since silver prices are mainly determined by the market, over time, there is little room for adjusting the final price of our product. The only way to reduce prices further is to reduce the weight of silver used in the electrical components. We have developed a new manufacturing process to reduce the cost of silver by reducing the total volume of silver material in an electrical contact and replacing it with copper material. This in turn allows us to pass on a reduction in cost to our customers. We replicate this solution on how to minimize the usage of precious metals in our similar products.

You developed this kind of gold and silver-plating process to reduce your prices. Could you tell us more about this technology?

We developed specialized techniques for using silver and gold plates in particular with rivet contacts. As a result, we have improved the scratch resistance of the contact surfaces while the plate layer remains stable, this has allowed us to reduce the cost for our customers. From the conventional plating process, we developed our very own Chugai Plating to address the needs for cost reduction. Other companies similar to ours cannot do what we have developed. In other words, we can meet the demands of our customers because of our unique technology. We have never been afraid of failures and we are always challenging ourselves.

You are celebrating your 80th anniversary this year. What are the technical milestones that your company has had in its eighty years of existence?

Our company’s founder decided to do this business because one time when he turned the switch off the light was still on, what he did was he cut the line just to turn off the light. My grandfather, the founder, foresaw a reliability need to ensure the safety of electrical switching devices from that experience. That began the story of how the company was first founded by focusing on the reliability of contact materials in 1941.

Chugai pioneered the mass production of electrical contact by introducing the horizontal rivet heading technology in the early 1940’s. Through our innovation and engineering efforts, in 1963 Chugai introduced the production of Bimetalic Contacts which help to reduce the price of electrical contacts by more than 30%

From our R&D effort, we broke away from the traditional powder metallurgy method and introduced the production of Silver Cadmium Oxides material (an essential material for the production of contacts) by way of internal oxidation to the world. Due to the harmful effects of Cadmium on the human body, in 1973, once again, Chugai through our R&D efforts introduced Silver Tin Oxide materials which is a substitution material to Silver Cadmium Oxide material. The material enjoyed patent rights in the USA and subsequently in Japan too.

In early 2000, Chugai once again pioneered the production of Trimetalic Contacts and NBT Contacts which has a great potential to further reduce the use of Silver volume in electric contact products. Today, we are still the leading producer of these innovative products. Moving forward, Chugai will continue to innovate and to add value to our customers following our Japanese monozukuri process.

The materials that you use are very precious – gold, silver, and palladium – which are very conductive but not very durable. If you look at other materials such as graphite or nickel they are much more durable and at the same time they can be conductive. What are the types of materials you are using in order to serve customers in different sectors?

While materials such as graphite are much durable, it lacks ductility and hence has difficulties to be processed into electrical contacts in a most economical way. In the past, German Bronze was the core material used for electrical contacts in the world but was gradually replaced with silver. The necessity to use silver materials came about due to the increased production of electronic devices which then led to the customers asking more for electrical contacts. This is the reason why the demand for silver has increased. Japanese and German companies have started combining silver with other elements as part of the solutions to address the increasing demand in the market.

Chugai is constantly paying attention to the technological advancements of Japanese and other developed countries, such as Germany, to come up with better ideas. As a company we look at not only the latest electrical components but also electronic devices as well, this helps us establish a direction for this kind of business. The difference in electrical systems was also a problem that Japanese companies had to address. Japan uses about 100V at 50/60 hertz while the rest of the world is 220-240V at 50 hertz, which implies that the electronic devices brought to Japan cannot be used. Hence we are constantly innovating new materials to meet these changing needs and demands.

Research and Development (R&D) is very crucial for a company such as yours to provide customers with the products that they need. Japan spends around 3% of annual GDP on R&D. Can you tell us more about your R&D strategies and do you have any particular products that you would like to share with our international audience?

Traditionally, Chugai puts more than 30% of our annual earnings into R&D. Through our R&D efforts, we have developed and patented our materials, Neosilcon (AgSnO2In2O3) in 1973 in the US and Japan. In Europe the contact material is made from a metal-forming process called powder metallurgy. In Japan, being a low-voltage country, there is no need to use metallurgical materials, instead we use the internal-oxidation materials. We melt the materials, they become an alloy and then they oxidize. Before we deliver our materials to our customers, we listen to them first because it is very important that our materials satisfy their demands. We have a long history together with major Japanese manufacturers, our R&D strategy is to co-create with these companies.

The silver market price trend is on the rise and this has added a lot of rising cost pressure on our customers. There is an urgent need to reduce or to maintain the cost of electrical contacts, and as I mentioned earlier, the most effective way is to reduce the total volume of silver in the electrical contacts while not sacrificing on the quality and reliability of their products.

Chugai has developed a new manufacturing NBT-process to produce special bimetallic, trimetallic and mushroom contacts which enables our customers to achieve this purpose with a potential to save as much as 30% off their current electrical contact purchase price.
 

How important is co-creation to your R&D strategy? Are you looking for co-creation partners recently?

Chugai is one of the pioneers in the manufacturing of electrical contact and through our R&D initiatives, we have been able to introduce various new innovative materials and new manufacturing processes. Today, some of our latest innovative ideas are still being sought after and from time to time we do receive invitations for co-creation partnership. However, we are unable to explore deeper into it as we are currently very committed in advancing many of our own existing innovations which are generally quite unique to Chugai.

The automobile industry is gradually switching to the electrification of cars alongside another major trend, the CASE Technology, where cars would no longer be just a machine but mobility solutions with vehicles becoming completely autonomous. These changes will bring a huge demand for electrical components, please tell us how you are adapting to this trend. What section of your business is made up of automotive and how important is the automotive sector to your business?

Chugai is a very established company, having been one of the pioneers in the industry worldwide. Our markets are very well diversified and we are not concentrated only in one specific sector and automotive is one of it although the automotive industry is a huge and growing global market of which we have already had many experiences and interest in. To us, this kind of business is not really something new and our business is well developed and prepared already to cater to these new changes and developments in the automotive industry. Many of the components used by automobiles that use electrical contacts in their system are already in place and for this reason our products can still be used even if the automobile sector shifts to the electrification of cars. Therefore, we welcome those changes as they present a bigger business opportunity for our business.

Could you tell us more about your international strategy? What other markets are you looking to further expand your operations to?

In general, electrical contacts is a very unique business and it is difficult to classify it under any specific industry. Although their consumption is huge and their applications are very diverse and worldwide, due to the silver material content they can be either in the electrical industry or electronics industry or even either in the precious metal products industry or heavy metal industry for manufacturing processes. It is also a very niche product due to the complexity and exclusiveness of making its raw material and due to its high safety standards & requirements.

The size of the product is relatively small which doesn’t require high shipping cost and thus can be manufactured anywhere in the world. Thus, many of our factories outside of Japan started as a result of our strong business networking & partnership. Today we have factories in Malaysia and Taiwan. My grandfather had a good businessman-friend in Taiwan and they agreed to have our factory there. To honor the friendly relationship that they had I maintained our factory there. We used to have factories in the US and in China, but I closed them already due to complexity in administrative & logistical reasons. With Malaysia, we went there during the time when Japanese industries were booming globally. A number of our customers have established business partnerships in Malaysia, and they requested for Chugai to support their ‘Kanban’ inventory system, which is one of the key components of the Japanese monozukuri process.

Currently we are planning to penetrate the European market even further, we had been paying visits to our customers there quite regularly before the Covid-19 situation. In fact, our customers there have been telling us to establish an office or factory, but due to Europe’s regulations this might not happen soon. I feel the European market would be good for us because of the people’s culture where they want to take their own initiative and do things on their own within the Union. Nonetheless our customers are a little afraid of the possible results if the Union breaks.
 

How do you plan to strengthen your foothold in Europe? Are you going to put a factory there or do an M&A or establish partnerships?

We are looking into different possibilities on how we could penetrate the European market, we could open a new factory or establish partnerships. We are closely monitoring the electrical contacts market there and we found that many companies in the same industry there have already closed down due to their inability to move away from their conventional and old fashion ways in their manufacturing process. Hence, growing opportunities are there and we believe we have the solution and the ability to play a bigger role there in Europe.

The European market is also interesting for us because here in Japan our electricity system is quite energy efficient and hence our products are very economical, and Europe is showing interest in how to adopt this system. In fact, they use Chugai’s products for their low current voltage devices, and they could save some money because our products are cheaper. As we speak, we are exporting a huge volume of our products there and our customers there have started discussion with us and that it would be advantageous for us to build a warehouse there - we could benefit from avoiding having to pay unnecessary taxes.
 

You are the third-generation president of Chugai Electric Industrial. In the long future you will retire and hand over the company to the next generation. When that happens is there a particular goal that you would like to have achieved by then?

One message that I would like to leave is to preserve the Japanese identity. The soul of the Japanese monozukuri is the Japanese culture itself and we must be strong, brave and proud to preserve it, and not to become someone else who you are not. We do not have to be especially concerned about the ways of our competitors either with our immediate neighbors in China and Korea or with other regional and worldwide competitors elsewhere.

Japanese management is based on consensus due to our high regards and respect for each other and often it is misperceived and misconstrued as a weakness, slowing down the decision making process. On the contrary, it is this consensus which binds us together collaboratively as a cohesive, effective and efficient team. Our ‘do or die’ or ‘never give up’ spirit pushes us to complete all the tasks which we have started or have been entrusted to us until their final conclusion. The spirit of personal accountability is very strong in our Japanese culture and we feel very strongly that we must clean-up our own mess. This leads us to a sense of loyalty to one another and to the company which we serve and hence resulting in continuity and consistency in our united efforts.

Japanese monozukuri is more than just a process, it is a way of life and our future generations should keep to this tradition and remain focused on creating products of the highest quality and be innovative and strive to create something new for meeting the growing needs of an advancing society. Overcoming all the challenges is a very important mindset. Be multifunctional and give the younger generation a chance to showcase their talents. Our resources are limited, and our population is aging, but we have talented Japanese who could innovate and lead and produce highly reliable products. We have already laid the foundation; all you need to do is to continue what we have started. Do not be afraid of making mistakes or failures and be open to new ideas. Be honest with your customers because it builds trust.

Finally, stick to your Japanese culture and tradition and be passionate about it and apply it to anything which you do. You will be successful.