Agriculture is arguably one of the most important industries on the planet, as it supports societies food requirements, allowing it to thrive. However, at a time where there are less farmers, Mitsubishi Mahindra Agricultural Machinery offers solutions to ensure that farmers can still be efficient despite labour accessibility challenges. In this interview, president & CEO, Toru Saito, delves into Mitsubishi Mahindra Agricultural Machinery’s unique products and how they are being utilised in global markets, in addition to discussing his plans to further grow his firm.
In recent decades, Japanese firms have faced criticism from international media as having lost their innovative edge or spark that fueled the monozukuri miracle of the 70s and the 80s, with many deeming Japan's business structure too rigid and inflexible to compete globally. Yet we still see many Japanese firms in B2B and niche fields continuing to excel and innovate. As an integrated agricultural engineering company and agricultural machinery manufacturer, what is your take on this line of criticism? Where do you believe the competitiveness of Japan's industry comes from today?
From a macroeconomic perspective, it is good to hear that some of the Japanese companies, even smaller businesses, remain very competitive in technologies, which is also true about Japan's GDP. Generally, the productivity of Japanese companies is not as good as that of other nations. Hence, globally, I think Japan is at a crossroads. We have experienced the “Lost Decades” where our GDP did not show any noticeable growth, and people's income stayed the same. Meanwhile, European and American economies grew by 50% or more.
Japan is facing the advanced nations' syndrome and we cannot enjoy a population boom as a result. Due to the more lenient immigration policies in European countries and the United States, their population is still increasing, which is advantageous to economic growth. Meanwhile, Japan's sakoku is very strict in accepting immigrants, hence, our stagnant population. It is in the local areas of Japan like Shimane, where we are based, and even Tokyo, where the population is starting to decrease since the pandemic. We lost competitiveness to China and other Asian countries, so Japan's strategy should be to focus on high value-added businesses.
Also, we lost the opportunity to grow our business in the IT field. GAFA (Google, Apple, Facebook, Amazon) is now dominating that area, and I do not think we or any of the Japanese IT companies can catch up with GAFA in the foreseeable future. In all respects, we are caught at a crossroads. While Japan`s industrial policies are not necessarily clear, however, we, as private companies, are clearly aware of our need to do something to regain our strong economic position. There is no straightforward solution, but it may be a combination of various actions and options. Old habits must be replaced. For example, there is not much traffic between jobs in the labor market, and as such, we often are not putting the right talent in the right place. The right place is where there is promising growth. We are gradually shifting to adapt to that situation as we already see other complexities in industrial nations. I joined this company last year in May because my shareholders in Mitsubishi Heavy Industries and Mahindra & Mahindra believe that I have the experience to be able to elevate this company to another level by leveraging my global experiences. I am now trying to shift this very local company to a more globally recognized one while remaining in Shimane.
Our business is affected by the drastic drop in the number of farmers. The number of people to feed is decreasing. Meanwhile, the consolidation of farmland is taking place, as a result of farmers ceasing farming because of the challenge of finding successors for their businesses. In fact, many farmers' source of income is not farming; they have other jobs as salaried employees. Some of our employees are farming rice with the piece of land they have inherited as a side business and hobby. Likewise, the majority of farmers consider farming as a side business or a hobby, so it is easy for them to stop. Consequently, larger farming organizations purchase abandoned farmlands or fields to try and take advantage of economies of scale. While the number of farmers is decreasing, the fields are larger in size, which means that the demand for agricultural machinery is changing. The new farmers prefer larger machines with high productivity, but the number of machines demanded is still lower than before. We have to get used to that market shift, and it is challenging. We have been selling many smaller-sized tractors, rice transplanters, combine harvesters and so forth; however, we should try to focus more on machines of a larger size. Machines have to be equipped with IoT to enhance productivity and ease the burden of labor and load.
Your company's labor-saving techniques and technologies in rice cultivation include the rice transplanter that eliminates the need to weed, which uses a paper mulch sheet laid over the paddy field preventing weeds from growing and promoting organic farming practices. Can you tell us more about these methods and more generally about how your company is combating problems of labor accessibility?
The rice cultivation machinery you have mentioned is one great example of reducing the burden and reliance on the farmers in maintaining the fields and paddies. I would like to mention the gyro-MAC system, an integrated feature of Mitsubishi tractors that allows high precision cultivation to deliver superior land-leveling performance. It is a system that allows a tractor equipped with gyro sensors to control the speed of the rotary incline in accordance with the speed at which the tractor is tilting. To put it simply, it is a system that promotes efficiency and makes life easier for everyone, including those who do not have experience in farming. Considering that the Japanese market has recently experienced an influx of people who are doing farming as a side business, this system is very useful.
The challenge in that regard is, unlike in the car business that welcomes affluent customers, our customers are farmers. In many cases, farmers are very cost conscious because the income from farming is rather modest, even with the consolidation taking place. Therefore, the technologies we offer have to be inexpensive. The new farmers are companies or enterprises that are very demanding with cost control, so we are even more conscious of the cost of our technologies. It may be easy to develop autonomous agricultural machines, but they will not be practical if they are too expensive. There should be a balance between the cost and having meaningful technology or a productive solution. It is really a challenge that I see, especially for someone like me who came from the automotive sector. In the automotive business, the scale is there with financially prosperous clients. On the contrary, the agricultural sector, by and large, does not have that kind of charm, and we need to be more prudent in that regard. Agriculture is a subsidized business in which the farmers receive support from the Japanese government because they cannot generate enough income to be sustainable.
Your New GS series tractor, the Eagle Design, exemplifies the balance between cost, efficiency and adding value. Can you elaborate on how your tractors help more inexperienced farmers use their time and land more efficiently?
The Eagle design was introduced in 2017, a model inspired by this mighty bird, which garnered the Good Design Award. All the tractors that we have released have been based on this concept. It has also been incorporated in many of our products. Besides the gyro-MAC, our EZ drive allows gear shifting without a clutch. Its specifications are easy for anyone to handle and allow the optimal tractor speed to be instantly accessed. It is highly efficient.
We try to maintain the same price, but simultaneously, add better features by reducing the cost of the rest of the machines. Through that, we can leverage our partnership with Mahindra & Mahindra because they are very good at making things at a low cost. That is one of the important synergies created from working with them. We are working diligently to shift some of our production parts from Japan to India as it is a robust country.
Mahindra & Mahindra is a huge farming company with a very strong supply base and network. We source as many parts as possible from India to keep producing low-price machines. Agricultural machines are functional products, which do not necessarily evoke feelings. Nevertheless, farmers want to be seen and perceived as smart, fashionable and trendy; therefore, they are willing to pay more for the design elements of the machines. Our Eagle Design offers a sharp and modern look that won the Good Design Award, an award that adds more attractiveness to this product. We cannot ignore this design element. GS is a relatively low-end model, but it is more than JPY 2 million, which is more expensive than a K-car. Farmers make significant investments in machines that are functional and aesthetically appealing.
Mr. Suzuki of Yanmar talked about how finding local partners and collaborating with them in Indonesia to help promote their Smart Assist Remote Agricultural ICT Technology was key to spreading that system throughout many Southeast Asian countries. What is the importance of co-creation and collaboration for your business? Are you currently looking for new partners in overseas markets?
One of the main reasons Mahindra & Mahindra is interested in our company is because of the growing population in India. The demand for food is simultaneously growing with its population, so there is pressure to provide machines with high productivity to the market. Mechanization is taking off in India. Our rice transplanters, tractors, and combine harvesters contain technologies that Mahindra & Mahindra seek to possess. We provide these technologies as well as the design and know-how. Because we cannot bring the Japanese specifications of the machines as they are to India, we localize the production and customize the machines to some degree to fit local needs. Some parts are produced in Japan, but the rest of the production, or even the designing of the machine parts, are localized. They produce the complete machines at their factory to be distributed to their network. That is a crucial process as it creates a synergy and allows us to enter the Indian market, which has a vast agricultural market. We want to establish our foothold in that market. Our ambition is to take that further to other Asian countries, rice-producing countries, like Thailand, or Bangladesh. In addition, we design and produce small ride-on tractors. Last fiscal year, we sold nearly 10,000 units of ride-on tractors to the United States. Mahindra & Mahindra wants to protect and grow their business in the United States, where we come in to provide the tractors for that market.
To what extent is the increasing globalization of your business allowing you to compensate for the shrinking business here in Japan? What strategy are you looking to adopt internationally, and which specific markets are you targeting?
In comparison to our competitors in the industry, like Kubota, we are relatively small. We, therefore, need to be selective in approaching the overseas market. Our three major focus markets are the United States or North America, Europe and Asia. The first two regions have a growing population and an appreciation for high-value products. Meanwhile, the Asian and Indian markets' major grain is rice. Since we are not completely satisfied with the present level of our business activity in these regions, we have been reviewing ways on how we can further increase our footprint in these markets.
Working with Mahindra & Mahindra gives us a unique competitive edge because it creates synergy with a robust country; it is a complementary relationship between two companies. Our ride-on tractors are not being used for farming in the United States. Many American families and individuals own a large piece of land, and they use our products for their gardening. They do not use much of our combined harvesters and rice transplanters because they do not grow rice except for maybe California. Some companies in Germany, the UK and even Spain want to work with us because of our small-sized and quality products. They want our products mainly for their hobbies, not for farming. The pandemic has opened a new type of demand that will seem to continue even after Covid has passed. We want to capture that demand as much as possible. We are not selling our products to the US under our brand but through an OEM supply with Mahindra & Mahindra; the same goes for India. It is more realistic as we do not have to invest in a brand. Although we sell our products under the Mahindra brand, customers know that the products are by Mitsubishi and are made in Japan. They pay more for the high quality and high functionality of the products. We put “Powered by Mitsubishi” on the side of the tractor.
Mitsubishi Heavy Industries has about 250 group companies, but unfortunately, their core business is not agricultural machinery. They supply us with industrial engines, so we have numerous transactions with them. Because their focus is different, we cannot work with them in the same capacity as we do with Mahindra & Mahindra. We have opted to work with our competitors as early last year, we entered into a business alliance with Kubota. Since then, we have set up joint company projects in different areas for the Japanese market. Considering Japan's shrinking market, we decided to work together to save resources but still bring about the same result. Both sides benefit because we provide our machines to each other in the segments where we do not have a product. It does not make sense to design and put all the resources in such a small segment. We also do that with other companies like Yanmar and Iseki. It is a resource-saving strategy to address the shrinking market. As long as we can protect our proprietary technologies, why would we hold back from this cooperation between rivals?
Imagine we were to come back on the last day of your presidency. What would you like to tell us? What dreams or goals would you like to have achieved by then?
On my last day, I want to be able to tell my people, "do not worry, I am leaving you with a successor who is as capable as I am. You have to give the best support to the new president of the company."
On the business side, our company is not yet on the financial level where it should be. I really want the company to achieve sustainable and profitable growth despite some turbulence and unforeseeable events we face, such as the pandemic. I want our company to be resilient enough to cope with unexpected events. Also, I hope to have employees who are flexible and have an open and global mindset.
Many Japanese companies are struggling to change. Old habits, old elites, and excessive governance have to be eradicated to make Japanese firms truly competitive globally. The challenge goes well beyond investing in new machines. It is about transforming people’s mindset and culture, which are deeply rooted in the country’s history. We have to keep fighting to attain that, and our company is not an exception. The old habit and attitude of not taking risks must change as well. I want to be able to confidently proclaim on my last day that this company has indeed changed, and a competitive culture has been established in every corner of the company. Becoming a global company based in Shimane is a challenge, but why not? Audi is based in Ingolstadt, a small city in the suburb of Munich with a population of 130,000. Their factory, design center, everything is located there, but they are a global company. It is an interesting challenge. Perhaps the pandemic has made it happen because of the prevalence of remote work. People can work anywhere and anytime and do not have to physically be based in Shimane.
We are facing a lack of workforce because of the population decline in Shimane. We struggle each day to promote young talents, and we want to promote diversity by hiring employees regardless of their nationality, gender or age. I want to create an environment where everybody can enjoy working and feel comfortable and safe, no matter what opinions they hold or express. Google conducted a famous survey called Project Aristotle, and they found that people have to be able to say anything without pressure. This concept of psychological safety is a very trendy business term. Japanese companies are trying to create psychological safety in offices, and we are no exception.