The Toshiba Mitsubishi-Electric Industrial Systems Corporation (TMEIC) develops and produces power electronics and electric motors and drivers. It is also the world’s top photovoltaic (PV) inverter supplier and was able to raise its production level for the key US market six-fold last year. TMEIC's former president Kiyotaka Machida explains what drives the innovative company and its dedication to advancing commercially viable green energy options.
2015 was a transformational year for TMEIC. You opened your first motor manufacturing plant in India, and expanded to Europe, China, and America. Can you outline your priorities for further international expansion and your strategies to entering new markets?
At this point in time, in terms of scale, TMEIC is generating consolidated net sales of approximately $2 billion. Although we plan to grow to the level of sales of approximately $3 billion in the near future, unlike industry giants such as our parent companies, GE and Siemens, we will operate based on the assumption of limited resources. From that perspective, it is a disadvantage for us in the sense that it is difficult for us to expand our markets all at once worldwide.
However, it is also our advantage of being able to concentrate and quickly capture markets by identifying potential markets where we are able to leverage our capabilities. In this regard, North America, China and India have become the three countries for TMEIC to focus on investing its resources for the time being.
Something that separates you from your competitors is your focus on eco-friendly business practices. How are you working to capitalize on this trend, especially in the US, because it could add a lot of value to your brand?
TMEIC currently promotes 3E (Triple-E) as a catch phrase. The three Es referring to Energy, Efficiency and Ecology signify our idea of contributing to the environment by making efficient use of energy. The basic concept of CO2 reduction and energy saving is to use renewable energy to the extent possible while not wasting electricity.
In this respect, I believe our time has truly come as a company that contributes to promoting widespread use of renewable energy with its PV inverters, while also offering power sources, motors and systems that are the basic elements for converting electricity into physical energy.
We are very unique in the world in a way that we are a specialized manufacturer possessing motors, power electronics and system solutions as core technologies. We will leverage these three core technologies as we strive to contribute to solving various environmental and energy issues.
In terms of having sustainable and environmentally friendly products, this has an enormous benefit on your bottom line, but this is also a core part of your corporate philosophy. Can you outline why contributing to society is so important to TMEIC, which is behind your ‘We Drive Industry’ slogan?
We initially have contributed to the manufacturing industry by producing manufacturing equipment. However, due to an over-supply of equipment globally in recent years, we are paying close attention to identifying manufacturers’ needs. Rather than installing new equipment, customers are seeking ways to lower costs. Consequently, in response, our basic idea has been to benefit our customers through energy savings and the reduction of raw materials.
At the same time, we then began to discern the environmental issues concerned with reducing energy use. We realized that profits for our customers were on a par with dealing with environmental issues. While fully addressing these issues along with enhancing our brand image got underway last year, we came to understand that we can also deliver social value instead of merely delivering equipment to customers, and accordingly, shifted our direction to delivering products with this in mind.
Can you tell outline your company’ s original concept of “genba shugi” and why it’s important to TMEIC’s future?
As an example, last year we became the global leader in terms of PV inverter market share. There are two factors that have enabled us to achieve this. One is our development capabilities, in which we managed to propose the right ideas and deliver the right products to match market needs. We not only succeeded in doing so, but also exceeded market demand. Second, we rapidly increased our production capacity to meet the expanding market. We were able to grow production of our PV inverters for the US market from 20 units per month to 180 units in a six-month period. Of particular note, this idea came from our employees who worked on-site, whereby they were also able to realize further innovation by reducing lead time from five days to two days.
Additionally, we increased our production line for this product from two to 18 lines while maintaining the same high quality as when we were producing 20 units per month. It ordinarily would take more than a year to achieve this kind of innovation. At TMEIC, merely giving orders and instructions are not an option. Everyone must get out there and do what needs to be done. That’s what genba shugi is all about. You have to get ideas and the necessary actions to take from the people who are actually doing the work.
We were able to make inroads into the North American market by expanding production to 180 units a month, which enabled us to realize a much bigger market share if we had had to limit our exports to when we were only producing 20 units per month.
TMEIC begun production of PV inverters and medium-voltage drives at a new factory in Texas in 2014. At the time, the company expected to bring in $20 million in revenue from its US in 2015 and upwards of $50 million by 2017. Can you outline your ambitions and strategies for the US Market?
The US market is the most important market in order for us to remain the world’s top PV inverter supplier. In fact, our fiscal 2016 plan calls for the North American market to comprise approximately 40% of overseas sales. At the same time, sales of our new factory in the US that you have mentioned are not the most current. According to our latest forecast, demand for PV inverters is stronger than what we anticipated. Sales are expected to expand and jump significantly to approximately $140 million in fiscal 2016.
With the reduction of construction costs and improvements in power generation efficiency, we believe that, in addition to the perspective of being a clean energy, solar power generation is attaining a position as one of the feasible power sources that can be generated at a moderate price over a short period of time. Up to now, it was expected that demand in the US would soon reach a peak as well. However, the market is changing so quickly that certain types of research cannot keep up with the latest developments. We are capturing this trend and considering making further investments as well.
As president, how hard is it to balance the relatively short-term interests of shareholders with revenue and profitability with the long-term interests of the company in terms of making investments for the future?
It’s probably less of a burden for me compared with the presidents of listed companies in the sense that we only need to convince our two shareholders. Both our parent companies understand and support making the necessary investments. As a spin-off company, we have also fulfilled our role of supplying products to our parent companies while generating profits through direct sales. In this regard, I believe we have also been able to satisfy our parent companies for more than 10 years after our establishment.
While TMEIC enjoys a strong brand in Japan, how are you working to grow and communicate this brand as you grow internationally? Are you using your Japanese roots as a brand in itself for quality and excellence?
Inheriting more than a century of the histories of both Mitsubishi Electric and Toshiba, 12 years ago TMEIC was born to be the leader in the Japanese market, which is our home field, and was also destined to represent Japan in the global arena. Our most powerful strengths enabling us to realize this are the technologies accumulated by these two major and well-renowned companies.
Another strong point is that we are able to use technologies and products possessed by both parent companies. For example, Toshiba and Mitsubishi Electric are both the world’s leading manufacturer of power electronics devices. We can offer the most powerful products in the world through combining the world’s leading-edge power electronics devices of our parent companies and TMEIC’s ability to optimally develop products tailored to particular product applications that are suited to customers’ specific requirements.
What would you say is the new brand of Japan as it leaves behind two decades of poor economic growth and deflation?
Although it has typically been said, I think it’s important to maintain Japanese quality and Japanese craftsmanship in supporting such a level to do so. My hope is for other countries to recognize Japan in terms of its culture and values, which include technology, or even as “Cool Japan.” These can all be considered as integral to the brand of Japan as a nation, and I would like people who come to the G7 summit to experience Japan and not just to read about and get information about our country, but to truly understand what Japan is all about.
What would you say has been the impact of Abenomics on the manufacturing sector and indeed on TMEIC specifically?
I believe one of the most significant achievements of Abenomics, or the Abe administration, is that it brought back a sense of “stability” and “calm” to Japan. Although we experienced the Lehman Shock and the Great East Japan Earthquake, I feel that the negative impact of the political turmoil after the Koizumi administration on the Japanese people’s mindset and the Japanese economy was significant. So in that sense, I feel this sense of “stability” has truly brought a positive effect. Looking from the perspective of manufacturers, our customers in the manufacturing sector, Abenomics can also be regarded as supporting the recent Japanese economy in terms of stable stock prices and the weak yen.
From a long-term perspective, however, I think it’s difficult to imagine that the manufacturing sector will augment its production capacity in Japan while the population is basically expected to decrease in the future. This is not a matter of government policy. Many executives, including myself, are already making decisions from a “global consolidated management” standpoint, with the emphasis placed on investments and M&A overseas. In that sense, I feel there is a gap between the perspective of private-sector management, which is focused on global consolidated management, and the Japanese government, which is oriented toward the growth of Japan’s GDP.
What opportunities do you see for TMEIC in the Trans-Pacific-Partnership (TPP) considering that you have significant operations in America and the Asia-Pacific region?
Many companies, including TMEIC, already have basic strategies to localize regionally. As a matter of course, since our aim is to conduct operations without exporting from Japan, we don’t expect much effect from the elimination of tariffs. At the same time, we have high expectations for the reduction of non-tariff barriers. When regulations or rules become standardized, a single overseas base will be able to cover broad regions in addition to its own domestic market. This will allow us to make flexible decisions when making investments in overseas bases. For example, unlike the EU, regulations and situations in Southeast Asia vary depending on each country and the respective markets are limited, compared with large countries such as North America, China and India. Although our subsidiary overseeing the Southeast Asian region is primarily based in Singapore, we are actually in the process of setting up subsidiaries separately in Indonesia, Thailand and other locations.
I think the interest and desire to invest will increase further when Southeast Asia further develops into an integrated economic bloc through deregulation and the standardization of rules through the TPP.