As a company specializing in special steel, high quality control is a requisite due to the trust gained from consistency. In this regard, Kanemitsu Corporation has built on its own quality control system since its establishment in 1957.
Can you please introduce your company to our readers?
Since our establishment in September 1957, we have been expanding our business as a company specialized in special steels. The Japanese steel industry has an annual output of about 80 million to 100 million tons. A few percent of the total output is special steel that we handle. Twenty years ago, special steel manufacturers had sophisticated manufacturing technology and quality of products responding to the needs of automotive manufacturers. Japanese automotives developed special steel that allowed the Japanese automotive industry to become prosperous in the world market. Later, South Korea and Taiwan emerged with their technologies in manufacturing special steel. Nowadays, China is our main competitor. As an example, we supplied steel for a trial product for automotive in a foreign country for two years. However, in the later stage of production, they decided to procure materials from local companies, so our business ended. Competitors are not only private companies. In some cases, the government intervenes and imposes high tariffs on both imports and exports, and in other cases, they promote preferential treatment for domestic companies through tax refunds, etc. This creates a situation where the government and private companies are in competition.
Our main clients are tier two auto parts companies that are secondary subcontractors of parts manufacturers and follow the decisions of tier one companies who directly supply component parts to finished car manufacturers. We need to secure future orders continuously, so we are trying to improve our services. In the steel industry, steel producing companies provide raw materials to steel trading companies and the manufacturers who process the steel make them ready for end users. Our company is small with about 50 people, but the feature is that we do all the processes in-house. We have a receiving center for coils from steel manufacturers called the coil center. We have the machinery and technology to process steel and directly supply it to our clients. We can also process according to each client's needs. Everything is done in-house, so the quality is controlled. Normally, coil centers cut 150 to 200 meters of steel coils per minute. Our company cut 40 to 50 meters at most per minute. It is much slower than typical processing companies. This is because the front and back of the coils are inspected by the employees who have passed the in-house inspection, therefore even small defects that cannot be detected by machines are not overlooked. Quality control helps us provide high quality material and also gain the trust of our clients.
Our role is supplying materials for component manufacturers. We only process procured steels from steel manufacturers, so our know-how is quite limited. Therefore, we want to add value to our products through quality control. Typical processing companies aim to enhance their processing speed to generate more profit. For us, we lower the processing capacity to have more time to inspect and conduct quality control. We want to ensure our client's satisfaction by enhancing the quality of our materials. Our goal is to earn our client's trust.
Japan is the third largest steel producing nation in the world. However, Japan is also known to be resource-poor, as there are no significant natural resources within the mainland. How has Japan become successful in the steel-making industry despite being resource poor?
The more advanced a country is, the higher their demand for steel. The most advanced country for a while was the US. They needed a lot of steel for their cars, construction and machinery. After the war, Japan followed with their construction boom. Japan's automotive industry grew exponentially and their need for steel also grew. Furthermore, Japan's technological strength and quality have contributed to its prosperity in the steel industry. Now, China is the largest consumer of steel. The output for steel is dictated by the demand from advanced countries. The more construction projects there are, the more need for steel there will be. About 30 years ago, steel production was at its peak in Japan. Currently, it has decreased to about 80 million tons, but there is still high demand for steel.
The special steels you handle are used in a variety of applications such as seat belt parts, springs, clutches, and even cutlery. Which applications are you currently focusing on?
The most notable is the seat belt. Our sales performance for the last fiscal year was 51,000 tons. It was calculated to be about 4,200-4,300 tons per month. About 70% of the total sales were for automotive parts and about half of the automotive parts were used for seatbelts. We are also supplying materials for other parts such as washers. We are mainly dealing with materials used for the important safety car features. The goal is to protect human life. I do not think that Japanese companies will shift away from Japanese suppliers anytime soon. However, there might be some transformation when gas-powered cars are replaced by electric cars. There might be a lot of changes in the supply chain, but because our company supplies materials for safety features, we will not be too affected by this change.
Many of your clients are Japanese companies. Are you looking to add foreign companies to the list of your clientele?
At this stage we are not considering it because as an SME, our capital is limited so we cannot take big risks. We established plants in China and Thailand due to the cost effectiveness, but it was no longer advantageous for us to have a plant in China, so we left. China used to procure their materials from Japanese companies, however they recently started procuring locally. With our company being a smaller scale business, it was too risky to continue operations there, which we stopped two years ago and last year, we completely closed our offices.
Our Thailand plant is still open and we are doing business with mostly Japanese companies. We supply materials for automotive parts such as seat belt parts and washers in Thailand. We established a delivery system to meet customers' demands. The business in Thailand is growing, but two years ago, the auto industry started to reduce production, which affected us too, but business recovered as we started accepting small orders and also component parts production was back. Supply chain problems due to the impact of the COVID-19 pandemic are also one of the reasons why we are refraining from expanding overseas. Due to the spread of the new coronavirus, some companies have closed factories and many people have lost their jobs.
There are some cases where companies transferred production overseas due to cheaper cost, but some had to stop production due to COVID-19. On the other hand, some companies were able to continue production because they did not transfer all of it overseas. I heard about a construction apartment building project being halted because the toilets and water heaters they needed were produced in foreign plants which stopped production during the pandemic. Japanese companies are now restructuring their supply chain to procure and secure supplies locally. In the past, this also happened in America, they tried to retain intangible capabilities in-house and stayed in the country while they outsourced the tangible components. Now, they are trying to keep both.
Which countries or regions have you identified for further expansion in the future and what strategies are you looking to employ? Can you please elaborate more on your international business strategy?
In recent years, it has become more difficult to come up with an international business strategy to expand in the international market because of the political situation between Russia and Ukraine, and also between China and Taiwan. Having said that, we foresee growth in certain Japanese products. We have a plan to open a new domestic plant to meet our growing processing needs. We also want to expand the processing capabilities of our plant in Thailand. The good thing about Thailand is that they do not have a lot of international political issues. It could be a gateway where we can grow our business. With the transition to electric vehicles, car manufacturers might consider shifting production to other countries even more. The actual business strategy varies greatly depending on where the major companies do their production. We expect a certain level of Japanese production in the future, so we would like to invest to meet such growing needs.
If we come back in five years to do this interview all over again, what dreams do you have for the company and what goals would you like to have accomplished by then?
Our goal for five years from now is to build a new plant which is almost the same size as what we have at head office. In addition, a plan to expand the plant in Nagoya is under consideration. We will continue to listen to our customers' needs and make proactive preparations so that we can respond to any situation.