In a world where cheap, inferior products are flooding global markets, quality has become the cornerstone for Japanese manufacturers, and this is embodied by bearing producer FYH. Since the creation of its revolutionary Pillow Block Units in 1950, the company has been synonymous with high-performance bearings, but president Yasukazu Kobayashi knows that quality alone will not keep his company at the forefront of the market. In this interview, president, Yasukazu Kobayashi, discusses the company’s unique technologies and its plans to strengthen its foothold on the global market.
In the last decade, Japan has seen the rise of regional manufacturers, in places like South Korea, China and Taiwan, that replicate or even copy the Japanese manufacturing monozukuri process, but doing so at a lower labour cost, creating products that are generally cheaper, but also lower quality. Despite this fact, many Japanese firms manage to stay global leaders in certain niche fields. In your view, why are Japanese firms able to maintain their global leadership status in these niche segments, despite regional competition?
The biggest point, simply put, is quality. Our corporate philosophy, or mission statement, is quality. When we established our production plant in China, one of the purposes was to lower the cost of production. However, what we did was transfer 100% of our equipment that we used to use in Japan to the Chinese plant. That meant we could mirror the technology and the quality control system we were using in Japan in the Chinese plant. The only thing that changed was the location.
In addition to that, at first, we had a lot of Japanese engineers stationed at our Chinese plant so that they could provide individual training to the local workers. We found that given the differences in technology, it was important to provide individual training for them.
The Chinese manufacturers sell at a very low price to Europe and the United States. FYH INC. can maintain the domestic market, but we have to act, otherwise we will not survive. We have transferred our production lines to China, but we are trying to lower our production costs while maintaining high standards and adding value by doing integrated production in-house, from material procurement to packaging and shipping.
Something which is quite particular about bearings as you highlighted, is that there are international specifications that cannot change. As a bearing manufacturer that needs to innovate because of the price competition that you mentioned, how, what, and where can you innovate? What kind of research do you do when you cannot change the specifications?
We have to identify who the target is, my answer is the end user. When the Pillow Blocks were launched initially, the range of applications was quite narrow. When the temperature would be only as high as 80 degrees celsius, and the rotation speed was just ordinary, it was enough for our target customers. However, as time went by and technology advanced, some customers needed changes that corresponded to temperature, some customers required us to produce bearings that can survive 120 or 200 degrees celsius, some customers wanted to have a bearing that can survive very high-speed spinning or rolling and some customers wanted to have a bearing that is water resistant. All these innovations were made based on the demands from customers. If we add some value to the product, the price would be a little higher than the standard one, but unless we listen to the customers’ needs and respond accordingly, the products will not be accepted. When we look at consumer electronics like TVs, refrigerators, or washing machines, currently those that are made by South Korea are more dominant worldwide compared to those made by Japan. It is because the quality is comparable to the Japanese one, but the functionality is also streamlined. On the other hand, Japanese products, while they are of course of high quality, are so focused on functionality that they have added so many functions that they have lost touch with the real customer needs, including cost. It is very important to listen to the real voices of customers.
Japan has an international reputation for quality, but as we are talking about craftsmanship, we must talk about preserving that craftsmanship. I am sure you are well aware of Japan’s demographic situation and its population decline. This shift creates two main problems in our view: The first one is a labour crisis, as there are fewer and fewer young, talented graduates to replace seasoned workers. The second one is the shrinking of the domestic market; fewer consumers, fewer people, fewer companies. Can you please tell us about the impacts this is having on FYH and how you are going to overcome the problems associated with Japan’s demographic decline?
My answer may be from a very general perspective. As the working population decreases, we have to think about how automation can replace the reduced labour force. Japan is not the only country that is suffering from the declining population. Even in China, they have recently changed their one child policy, for example. Everyone knows that the power of the nation is boosted by the population’s growth, but it is impossible for us to stop the trend of the declining population in Japan. Extremely speaking, if you can automate the production line 100%, then you do not need any human resources, but it is not realistic, which makes it very hard to address this issue. I am sure that automation should be the one critical solution for addressing the declining population. One other aspect that we get the impact from our declining population is the issue of succession. As more seasoned engineers retire, it will be harder to pass on the technology and the know-how they had. Oftentimes, they tell the next generations to learn from them, as they look at what we are doing. It is going to be really challenging going forward to transfer the know-how accumulated by FYH INC.
One of the reasons for the shrinking domestic market, in my opinion, is that economic activities and people in Japan are not outwardly oriented. In other words, while the U.S., Europe, and China are all actively engaged in international joint research, Japanese companies seem to have fewer ties with other countries. I believe that the effect on innovation will be greater if we incorporate diverse knowledge from abroad through connections with foreign companies. Japanese people seem to be closed and inflexible towards foreign countries, but China, on the other hand, is making good use of its connections with foreign countries and is actively conducting joint research. It is not easy to change to an outward orientation, but if we can do so, I believe that the domestic market will also start to expand.
I would like to move on to different types of bearings that FYH produces here. You specialise in the Pillow Block Units, but you also have stainless steel bearings, ceramic bearings, as well as the ZK model bearings. You have many business lines; not only bearing production, but also bearing related products like the setscrews, guards, and seals for bearing installation. Can you tell us in more detail about synergies you are able to create for your clients? You mentioned focusing on the end users. To that end, how do your different types of businesses benefit your end users and your clients?
You know our products very well. Speaking of the ZK series, conventionally, it utilises an adapter. The reason why we started producing ZK series is partly driven by customers’ voices, but there was also another reason. As I mentioned earlier, a lot of seasoned engineers have retired recently. The next generation of engineers are trying to replace them, however their technical expertise and skill level has not reached that of the previous generation. This is the challenge we were facing. Rather than trying to educate them one by one so that they can enhance their skills, we thought that it would be better and more efficient to come up with products that anyone will be able to use and install. We thought that we could better respond to the users’ needs and the lack of technical expertise some younger engineers may have. As a result, the ZK adapter was born. It is very important to know what the users want and need. Supplying something excellent to the market may not mean anything if the users do not want that excellence. The end users are the ones who will make the judgement on the product. It is very important to listen to the end users and that is what we are trying to achieve through our business.
I have a question about Ceraball, which is your ceramic bearing. We know that these bearings have very high anti-abrasion properties and therefore can sustain severe work environments. Can you explain to us what applications your Ceraball bearings are used for where other more conventional types cannot be used?
It is often used in glass manufacturing equipment and heat treatment furnaces. Ceraball bearings and units are also chosen for high-temperature special environments where grease filled bearings cannot function or you do not want to or can’t re-grease the bearing.
We understand that in 1984, FYH was the first company in Japan to create a fully ceramic bearing. FYH’s Bullet Point setscrew is also a great example of innovative technology that came out of this firm. It is a setscrew that secures bearings by expanding outwards past its elastic limit to secure the bearing in place. Can you tell us how you were able to develop this technology?
We saw an area of need for many of our customers. Often times setscrews are exposed to vibration in an application. If the setscrew loosens, it can damage the shaft it attaches to. Our innovative Bullet Point setscrew is a one-piece ball point set screw which is designed to expand the threads of the screw as the point of the screw contacts the surface of the shaft. The resulting force creates superior holding power especially where vibration is present. This saves money for our customers because it causes less shaft damage. We listened to an issue our customers were having and created a way to help them.
Japanese companies understand the vital importance of innovation, research and development. Per capita, compared to China and even the US, Japan spends the most percentage of its GDP on research and development. To that end, can you tell us about any new technologies or applications that you are developing, and what your research and development strategy is going forward?
Although I cannot disclose the details of the products under development at this moment, I believe that our basic policy of collecting customers' voices and requests in a timely manner and reflecting them in our products will not change going forward as well.
We know that FYH has a presence not only in the U.S. and China, but also does business with firms all around the world. Looking into the future, what markets are key for you? Where are you looking to move in the future?
Speaking of our international strategy, we are proud to say that we have already established a certain brand image in Asia, which is our main battleground, except for a few countries. At this moment, we are focusing on redeveloping the European market. We have been selling to European countries for a long time, but we have not grown our sales there as much as we would have hoped. There are many competitors there, and there is a polarization between large well-known brands and unknown, inexpensive brands made in China. We are proud of the fact that we are competitive in terms of quality, but in terms of price and brand, we are in the middle of the pack. As for other regions and countries, sales in the United States, where we have a local subsidiary FYH USA INC. are particularly strong. This local subsidiary also serves Central and South America, which is a large market, and we expect sales to continue to increase.
We know that Asia accounts for 45% of our global market, the U.S. 25%, and Europe and other regions 30%. Our actual sales composition is dominated by Asia, and we feel the need to develop markets in other regions, especially Europe. As for the U.S. market, we established the local subsidiary FYH USA INC. in the 1980s, and it continues to grow steadily. FYH USA listens to feedback from customers there to help develop products that might be used in U.S. markets that are not used elsewhere. New ideas are gathered by the U.S. marketing team and passed on to our engineering team in Japan. The engineering team gathers information from the local markets and gives input for the development of new technology. The most recent example of this is the SPHERICAL ROLLER BEARING UNITS which were introduced into the U.S. market.
The biggest challenge we are facing is how to present our products to the overseas markets. For example, the ceramic bearing is such a nice product, but if we just leave the advertisement or promotion of that product to local distributors, we are not able to achieve our goal and it will not work effectively. As a manufacturer, we believe it's quite important to be proactive in working with our distributors closely. In any case, our business would not be possible without the cooperation of our distributors, so it will be more important to create a system that makes it easy for them to promote our products.
In the distant future, when you are eventually retiring from your position as the president of FYH, there will be a new generation that comes in and takes your position. At that time, what objectives would you like to have achieved? What message would you like to leave for the next generation of your company?
Thanks to many of our customers and distributors' support, last year we celebrated the 70th anniversary of our founding. As president of FYH INC., my goal is to pass on the basic business philosophy that we have developed over the past 70 years to the next generation of successors. I believe that the basic corporate philosophy of FYH should not be changed. However, I also believe that we should change our business style and how we operate according to our age and the times. We need to be flexible in the way we do business in the future. That is the message I want to pass on to the next generation.