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Further overseas expansion for Exedy Group

Interview - April 27, 2016

Through its 42 affiliates in 24 countries, the Exedy Group is a leading force in the automotive parts industry, and its President and CEO Hidehito Hisakawa explains what is driving its remarkable success and growth, as well as what lies ahead in terms of overseas expansion.

 

HIDEHITO HISAKAWA, PRESIDENT & CEO OF THE EXEDY GROUP
HIDEHITO HISAKAWA | PRESIDENT & CEO OF THE EXEDY GROUP

What would you say has been the impact of Abenomics on the manufacturing sector or specifically the Exedy Group?

In 2008, we had the Lehman Shock, you call it the Lehman Brothers Shock, and we had a big earthquake in eastern Japan in 2011. The exchange rate of the yen to the dollar was adjusted, but I don’t think the yen has depreciated. I think it’s at a very good level at a value of 120, from an industrial point of view. It’s suitable in the sense that we are able to either localize or export. If the value of yen is 80, there is no way to export from Japan.

I think Prime Minister Abe did a very good job stimulating the economy of Japan, because now we have very good sales and profit. That is Mr Abe’s Japanese economic policy, but as a company, we have to do things ourselves, such as getting a competitive edge in engineering and production engineering. Those are the most important things. We have to cultivate and we have to develop our business.

 

What opportunities do you see with the imminent ratification of the Trans-Pacific Partnership (TPP)?

This is generally very good for Japanese auto parts manufacturers because they’re exporting I believe about 800 billion yen per month. I can't remember exactly but a substantial amount of parts go to the United States. It’s great because you can import parts without import duties and it’s also good for the customer from the standpoint of cost. So, I think the TPP is very good for stimulating the economy. For American automotive manufacturers, they can get the most competitive automobile parts.

 

2015 marked the fifth consecutive year that you've posted record net sales, 256 billion yen. What would you contribute this impressive growth to?

One thing is, we have very good customers. We are accepted because we put a lot of effort into adapting to customers’ needs and secure future orders. We fortunately have a very good customer base.

 

There is a lot of competition out there, why do you think these top companies pick Exedy?

Realistically speaking, sometimes we win, sometimes we lose. The competition is like the Olympic games. Once we have an opportunity, we have to focus everything towards that main project. All of the specifications and the requirements are coming from our customers, such as transmission manufacturers, unit manufacturers etc., so we have to make our design exceed their requirements and expectations. Even if you exceed them, you have to win the price competition too. So that is a very important area. In order to win, customer communication is very important, to get definite and detailed requirements. You either have to meet or to exceed their expectations anyway.

 

What are your priorities for global expansion?

At the moment, our priorities are China, Mexico, and India, since their economies are growing. They say China’s economic growth is slowing down, but even if it’s slowing down, it’s still up around 7% and increasing every year. It’s a big market and a big population, unlike Japan. We have to look for opportunities overseas because Japan’s population is shrinking annually. Population is key to the market, so you have to go to China, India, or Mexico. In Mexico, they're always exporting to the United States, so if the US stays very strong then we are okay, and I believe that the US market is going to be one of the main factors. The US economy, except for 2008, has been quite stable. The US has a big market and it is increasing because its population is increasing due to incoming immigrants etc. Unfortunately, Japan is not like that country.

 

Last year Exedy started upgrading its facilities in order to have state-of-the-art manufacturing capabilities. Why is this important to maintaining your competitive advantage?

Capex (capital expenditure), is a very huge amount, around 30 billion yen this year. We have production needs, like I said, for China, Mexico, and India, and you have to invest there in order to make automobile parts, and in order to grow. To make your company grow, you have to always invest. Otherwise, there is no growth at all. But you have to be very careful of what you invest in, so that you can recuperate your expenses.

 

How difficult are you finding it entering into new markets like China and India?

At first when you get into a new market, you need a reliable local partner, a person who understands. For example, in China, we formed a manual clutch joint venture 30 years ago in Chongqing, and the partner was very nice and we learned a lot about China. From that base we formed a new company in Shanghai, which is a 100% subsidiary of Exedy. We had a very nice local person in the industrial area, and the senior management there was very helpful as well. So communication and supporting each other is very important.

 

Exedy enjoys a very strong brand in Japan, and internationally. What would you say are the keys to building a strong brand, and how have you been able to build this over the last 65 years?

I think you have to build up step by step, and you have to thank your predecessors, since they built up everything. You cannot disappoint your market, so quality and the speed are very important, but at the top is safety. At Exedy, safety is first, then quality, followed by donpisha (just in time), and cost. We always focus on the safety and quality of automobile parts.

 

In PR you're also very active. You sponsor Moto GP races and football teams – can you maybe explain this branding that you do internationally?

Actually, our PR is not for the sake of increasing our brand image. It is all for our employees. We call this ‘I Love Exedy’ activities. When we had our 60-year anniversary and we visited Southeast Asia, we interviewed a lot of employees there. They loved their company, even more so than our Japanese employees. We listened to them, because they are 100% committed to the company,

They asked us to do more: spread group unity, create opportunities for them to come to Japan, and make the company better known. So we increased group unity, created education programs for them to come to Japan, and made ourselves more well-known through motorsports and sports sponsorship. These three elements are what make up ‘I Love Exedy’ activities.

We actually have a global quality circle competition, which we started to create opportunities for overseas employees to come to Japan. The champion of the competitions from our companies all over the world, like in the US and Europe, come to Japan. Various people come and participate in the challenge. For example, five or six people get together and they try to find out problems in the workplace and then try to figure out a solution. They tackle one theme every two months, solving problems and making presentations on them.

 

So actually you are putting customers and employees before profits, which is leading you to gain more profits. How have you led your company towards this remarkable quality, and how is this giving you results?

This comes from a long company history. We have a prioritization standard of safety, quality, donpisha (just in time), and cost. Although things like cutting costs are also important, safety is always a priority for us: workplace safety, office safety, and the safety of others. So if something happens in the workplace you have to fix it immediately because that is a safety issue. You don't have to think about cost, you don't have to think about the project. You fix it first. Then quality. Then donpisha. If you work like that, cost will come as a result. It is a chain to succeed. We like having our employees arrive in the morning and go back home safe with no injuries.

 

Your stated business purpose is not about profits, but to contribute to environmentally and socially responsible business practices, such as your commitment to reduce CO2 emissions for example. Why are these elements so important to your corporate culture and your overall growth?

People understand this is very important, and it is also important to the customer. If something happened, like a very severe accident in the workplace, then the police and firemen have to come in, and our operations get stopped. Safety is important for the employees, for the company, and also for the customers. Customers always choose companies by safety and quality, but of course they would like good cost as well.

 

What would you say to the international community who may still be hesitant about Japan, or partnering with a leading Japanese company such as Exedy? Why is now the time to join and look for growth in this part of the world?

Well, it’s a very difficult question. Investment in Japan or investment in a certain company? When we discuss with investors, they always look at the company itself, not Japan. If the company is doing well, why not invest? If Exedy is doing well, why not invest?

We are a Japanese company, but we have domestic and overseas markets. They look at us, see we are doing well, and then decide to buy more shares and invest in us. The investors that I meet always emphasize what the company is doing. The company's strengths, the company's portfolio, capital expenditure, etc. So I don't know what they are thinking about Japan itself.

 

What advice would you give to other CEOs and chairpersons who want to follow in Exedy’s footsteps and build global companies?

There are a lot of companies, our size, of bigger sizes, and of smaller sizes. Japan has a lot of small-sized companies, and I don't think they can go overseas, because you have to invest money and get the personnel to go there for operations. So limiting my response to companies of certain size in the automotive sector, they should go because their customers are going overseas to get more opportunities; so you're kind of forced to go, otherwise you eventually shrink.

Japan's market is shrinking anyways, so unless you have business overseas and the opportunity to expand, your company will shrink. If a company is shrinking, you may maintain profit by cutting some workforce. I don't like this method because I want to keep our employees and we really like to grow. This thought is in our policy “the Exedy Way”, with growth at the top. We like to grow, otherwise the company is shrinking day by day, or year by year. So in order to grow, you have to create fulfillment for society, customers, and employees.

The bottom line of the Exedy Way is focus on basics: safety, quality, donpisha, and cost. This means when you are at work, you always have standards and rules when making parts. You have to follow them. Otherwise, you make defective parts.

We follow the rules. There is another rule, the 5S5T, which comes from Japanese words such as seiri and seiton, which mean organization and tidiness respectively, and teiji and teishi, which mean designated time and expected appearance. These are typical Japanese words. The key is to always put the parts in their designated place, always make them at the same quality level, and make the parts come regularly. Pika Pika, means to make the workplace clean and shiny. By making the workplace shine, you can make good products.

Lastly is 2-2-2 for speed. We always say ‘immediately’, or ‘ASAP’. However they are not usually quantified, but 2-2-2 quantifies the lead time using the number 2, be it two hours, two days, two weeks, etc. Anyways, this is a sense of urgency, which is much better than ‘do it quickly’. So in order to promote this concept we had all company vehicles change their license plates to 2-2-2. 

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