It’s sometimes said that in Japanese manufacturing, tradition meets innovation, and Hatsuta Kakusanki, part of the Hatsuta Group, has been crafting excellence for over a century, and acknowledges how supply chain diversification is vital.
Right now is a pivotal time for Japanese manufacturing. In the past three years, severe supply chain disruptions have occurred due to COVID-19 and the US and China decoupling situation. As a result, corporate groups are looking to diversify their supply to ensure reliability. Known for reliability and highly advanced technology, Japanese firms are in an interesting position due to the weakened Japanese yen, and many argue that this is a unique opportunity. Do you agree with this sentiment, and what are the advantages of Japanese firms in this current macro environment?
Post-COVID, all industries, including ours, began manufacturing our products due to shortages of parts and components. Both Japanese companies and major US companies faced challenges in parts procurement. Although we are doing our best to procure parts, our biggest hurdle lies in our heavy reliance on US-provided engines, causing delays in our deliveries. This situation is mirrored by US rival companies. Once we can acquire the engine parts and related components, we can promptly resume production and fulfill the numerous orders from our customers.
We do not source materials from the Chinese market, so the decoupling of the US and China has had no significant impact on us. Since last spring, the JPY has depreciated by approximately JPY 150 per USD. This year, the average exchange rate is between JPY 130 to 140, which remains weak and favorable for exports to the US due to its affordability. Conversely, the procurement of parts and components from overseas, upon which we heavily depend, is becoming more expensive, adversely affecting our business. The ideal and optimal exchange rate we aim for to maintain stable operations is around JPY 130 per dollar.
Another challenge that Japanese firms currently face is the demographic situation. Japan is the oldest society in the world with a rapidly shrinking population. Even Prime Minister Kishida stressed the severity of this situation earlier this year. There are issues of labor crisis with a smaller pool of graduates to replace older workers. There is also a shrinking domestic market. What challenges has this demographic shift presented to your firm, and how have you been reacting to it?
The aging Japanese population presents a significant challenge for us. Approximately 15 years ago, we faced difficulties in securing human resources for our LAF department, which is used for manufacturing. Three Japanese workers had to discontinue their work due to aging, prompting us to welcome Vietnamese workers to provide support. The key to this transition is knowledge transfer. It is crucial to articulate the knowledge held by experienced engineers and leverage IT to facilitate the utilization and sharing of this information.
In terms of employing younger generations, we recognize that the younger workforce places a higher value on having more days off rather than their salary. Consequently, we must enhance our welfare programs and create a comfortable working environment. As part of a group company with approximately 1,500 employees, we are considering implementing a human personnel exchange program to mutually support each other.
As part of the Hatsuta Group, could you go into more detail about some of the synergies you were able to leverage as a member of the Hatsuta Group?
About 30% of the Group is involved in the manufacturing or provision of services related to pest control equipment. Product exchanges and the buying and selling of products occur within the Group. Although we do not have a direct business relationship with the other companies in the Group, we maintain a strong connection and foster a collaborative environment within the Group. Every three months, all the company Presidents convene to exchange their concerns and financial statements.
Your company originally started as a pest control machinery institute and also provided fire extinguishers before transitioning to golf-based machinery. Could you please explain how your expertise in pest control machinery has assisted in addressing challenges related to your golf-based products?
Our company began as the manufacturing division of Hatsuta Industry, which celebrated its 120th anniversary last year. Our company was established to manufacture large-scale pest control machinery. The initial technology utilized a pump, motor, and engine for operations in rice and vegetable fields. Presently, this technology has been adapted for golf maintenance machinery, such as sprayers. This golf course sprayer showcases our know-how and experience. Golf courses are highly sensitive environments, requiring precise application of pesticides and chemical fertilizers. Using either too much or too little can lead to undesirable outcomes, underscoring the importance of our experience in determining the precise amount needed.
Japan is the second-largest golf market globally, following the United States. Nevertheless, we are witnessing a surge in the sport's popularity across the Asian region, including countries like Korea, Singapore, and India. In the case of China alone, the number of golf courses has tripled in less than a decade. How is your firm strategizing to capitalize on this golf boom in Asia we are seeing now?
With COVID, golf has been focused on as a sport that could be done outdoors with less COVID-19 transmission due to fewer congregations. However, I cannot consider global movement as a golf boom resurgence since, globally speaking, only 100 courses are newly built annually. There may be more golf courses that are annulled every year. In the US, golf courses are closing down and decreasing in number. Similarly, there used to be 2,400 in Japan, but now it has decreased to about 2,151.
Domestically, we have the share, but we do not globally. We need to expand overseas to countries like the US, Australia, and Southeast Asian markets, to increase our global presence. When Xi Jinping took power, he closed down the golf courses, so we did not think China was a good potential market for us.
A big part of Japanese manufacturing is the monozukuri spirit ingrained in Japanese manufacturing culture, especially in the post-war period. What is the monozukuri philosophy of Hatsuta Kakusanki that separates you from your competitors in locations such as the United States?
An example is our product, HS806, which was originally developed and launched approximately 20 years ago. The conventional model featured air tires, but we replaced them with urethane sponge-type tires, significantly reducing damage to the greens and enhancing the appeal of this product. It has sold well domestically. However, due to certain restrictions and safety regulations, we couldn't obtain approval for sales in markets like the US. We made improvements and revamped the product about four years ago, so it is now suitable for the US market.
That is a wonderful example of the role your R&D plays in your company. You also patented the spinner design of the HDS1 in 2018. Can you tell us more about this spinner design you patented and your R&D strategy targeting in general?
The uniqueness of our patented technology lies in the presence of blades both at the top and bottom, whereas typically, there is only one at the top. Having two blades enables the even dispersion of sand in a more effective manner. It also allows us to extend the range of sand spread and maintain the direction, orientation, and straightness of the spread by employing this double-blade design.
Are there any new products you are working on that you would like to showcase to our international readers?
We are not expecting the Japanese market to grow, so our current focus is on overseas markets, particularly Southeast Asia and Europe. However, we have to adhere to the safety standards specific to each market, such as SCE (European Cooperative Society) for Europe. Therefore, we are actively engaged in ongoing research and development efforts to adapt our products for use in these overseas markets.
Are you looking for more partners in the United States, Southeast Asia, and Australia to help with your overseas expansion?
Around 30 years ago, our attempts to enter the Chinese market were unsuccessful. We collaborated with a Japanese trading firm to sell our products, but they lacked any maintenance or technical support system, resulting in one-time product sales. If the machinery broke down, it was simply discarded. This limitation prevented us from establishing a presence in the Chinese market. Having learned from this experience, we changed our approach and began partnering with local companies capable of providing technical support. We now have partners in Korea, Southeast Asia, the US, New Zealand, and Australia. Our policy is to only sell our products in regions where a local company can offer technical and maintenance support. At present, we do not have a presence in the European market due to our products not yet receiving approval from SCE standards. However, once our products gain SCE certification, our plan is to locate a partner in Europe and initiate the distribution of our machinery.
Apart from establishing these technical support partnerships, is your firm considering the possibility of expanding into the market through physical presence, especially given Japan's declining demographic and market? Is the prospect of opening offices or physical locations in regions like Europe or other parts of the world of interest to your company?
Establishing local branches ourselves would require human resources, which is not a viable option for us.
Do you have a particular favorite golf course in Japan, and if so, why?
My favorite course is the Hirono Golf Course, which is recognized as one of the top 100 golf courses worldwide and has a history of over 100 years. Originally designed by Alison, this golf course underwent renovations three years ago and was rebuilt according to the original plans. It's truly an incredible golf course, and it's hard to imagine that someone from a hundred years ago created it. I visit it once or twice a year, and it consistently remains one of my favorite golf courses. I’m always excited to go there.
If we were to interview you again on the last day of your presidency, do you have any specific goals or personal ambitions you would like to have achieved by that date?
We are part of the Hatsuta Group, which was established 120 years ago. Our company has been passed down from four generations ago to our current generation. It is important to us to continue this legacy to the next generations. Given our extensive history, we believe it's important to pass on our traditions, technology, and spirit of embracing challenges to the generations that will follow.