The Worldfolio sat down with President Endo to learn about his company’s development and his vision for the future of factory automation
Over the last decades, we have seen Japanese makers face stiff price competition from regional manufacturers located in countries with a lower cost of production. Nevertheless, when we look at certain niche B2B fields and processes, we see that Japan still dominates. How are companies like yours able to remain competitive despite this stiff price competition from your regional competitors?
I would like to explain this by looking back at our history. We consider ourselves a typical Japanese SME, so by tracing back our history, I will be able to explain to you how we evolved. Our company was founded by my father who used to be an employee of Fuji Electric. He became independent and then worked as a subcontractor for Fuji Electric. He was an engineer of measurement devices, particularly the coil. He developed and produced the coils for the equipment that was manufactured by Fuji Electric. At that time, there were no semiconductors. Analog was being used, as you had to combine multiple components. My father was producing transformers, motors, and resistance cords, as well as the coils to move the meter. Fluid measurement devices were also produced by our company. Fuji Electric incorporated our products into their products.
Our company was providing products for Fuji Electric’s Tokyo factory, which was located nearby. Fuji Electric are comprehensive manufacturers of home appliances as well as other types of industrial appliances. We provided the components for the measurement devices in products that were used in paper making, steel making, and other types of heavy-duty industries. As an SME, we were catering to the high-mix low-volume demand of Fuji Electric by providing multiple items that were needed in their products.
Our company was established in the year 1964, the year of the Tokyo Olympics. After that, there was a big evolution throughout Japan in the electronics industry as orders from the US continued to increase. However, with the advent of the semiconductor, our products began to be slowly replaced. Like many Japanese SMEs, we struggled in the years from the 1970s onwards. First, the Japanese Yen which used to have a fixed rate of JPY 360 suddenly began to fluctuate, with the price of the Yen soaring to around JPY 200. That hit our company hard. Also, there were multiple Oil Shocks in the 70s and we struggled so much during this period, that we actually thought of closing the company. However, we were persistent, and after the oil shocks, we began to look into new fields where we could provide our expertise. We realized that it was important to be independent and not work as a subcontractor. We established a new company, Hino Engineering, which was based on the older company that my father founded. Our first job was to develop an 8-bit microcomputer, which we started from scratch. We also started to work together with new potential customers.
We first started producing microcomputers. However, this was more of a one-off thing, as we felt it was not strong enough to make it into a pillar of our business. Instead, we began to focus on OS panel computers. We developed our own brand, which was the MultiFlex. We have the trademark on that. At that time, SMEs oftentimes gathered together to discuss issues they were having. We discussed how it was hard for SMEs to survive through these multiple crises. Many press companies and molding companies, for example, began to go overseas to decrease the cost of production. The focus mainly moved to Taiwan and Korea.
While many Japanese companies are expanding to Taiwan and Korea, we decided to expand our business to Vietnam because of its young human resources. We believed that many young, talented people in Vietnam can compete with Japan's current aging population and shrinking population. Now we have our factory in Vietnam. Due to the reduction in the population of Japan, we are trying to strengthen our manufacturing capabilities in Vietnam, where there is a large young population. The Vietnamese people are also very diligent and hardworking. We established our base in Vietnam so that we could penetrate the Asian market.
What are some of the challenges and opportunities that Japan’s changing demographic situation is presenting for your company?
The labor force shortage is something that we have been experiencing for the past twenty years. Japanese young people are less attracted to manufacturing or working as blue-collar workers. This issue has gotten worse with the decline of the population and the increase of the aging population.
We have been recruiting new employees in Vietnam for the past twenty years. Our factory currently has 15 trainees from Vietnam. Also, we have recently started hiring engineers from universities. A friend of mine owns a PCB layout company and through him, we were able to start our direct hiring of engineers. We currently have four of them stationed in Vietnam and three in Japan. Therefore, we have a strong labor force thanks to our connections with Vietnam.
In terms of the shrinking domestic Japanese market, our focus now is not solely on the Japanese market. Rather, we are focusing on the Asian market as a whole. Before WWII, the Japanese government had the idea to create a similar European Union style system in Asia. Unfortunately, however, militarism went in the wrong direction, and this resulted in WWII. However, I believe that the basic concept is ideal for realizing a peaceful economic sphere based on the idea of collaboration amongst the peoples of Asia. I would like to further pursue this idea of creating a unique and united market in the Asia region. That may sound like a big goal, but that is the dream that I envision for the future.
Could you explain to us, how this increase and acceleration of automation technologies and digital technologies such as AI and IoT on factory floors impact your business? What products are you releasing to respond to these trends?
We are still in the early stage of creating a record of utilizing our camera technology with automation machinery. However, we are focusing on enlarging our status in this field. Our strength is our high-mix low-volume production. This allows us to cater to different needs through our AI camera-sensing technology. We are now trying to open up new market channels so that we can start commercializing more of our products.
Yes, it is very exciting, but at the same time, there are many challenges. One of the big challenges that Japanese SMEs are facing is that they do not have a successor. I however have a very good son. We are very lucky in terms of being able to pass down our management to the next generation. I believe that after Covid, many Japanese SMEs will cease to continue due to a lack of successors.
What are some of the services that you offer to companies such as those that might be uncertain about the final quantity of products that they have to order?
We have our core technologies, as well as our own factory and outsourcing factories. Our core technologies are computer cameras and manufacturing abilities. We do not focus on mass production. Rather, we focus on comprehensive services and developing prototypes for commercialization. We work together with clients who are interested in developing a new type of product. We offer extensive services including our technology and the utilization of our network technologies centered around Taiwan and Vietnam. We also have a network in China, around Shenzhen. By utilizing our partners’ technologies, we try to provide the optimal outcome and realize what the customers want to do. We hope that these collaborations will lead to the next batch of orders.
You mentioned that you have your own organic network. We also saw in our research that your company acts as a Japanese agent for various Chinese manufacturers including companies such as GalaxyCore. First of all, why do you think these firms entrust you to be their partner here in the Japanese market, secondly, are you looking for similar types of partnerships in overseas markets?
Yes, we are open to new products, and we have not only embedded CPU development technology but also embedded camera development technology and image quality design technology I believe that GalaxyCore has recognized these aspects of our work. Moreover, we feel that by combining their technology with ours and proposing this potential combination to our customers, we will be able to enlarge our share in the market. Therefore, if other partner companies match our direction, we would like to form a partnership with them.
How do you ensure that the quality of your products and your manufacturing capabilities remain the same whether production occurs here in Japan or at your Vietnam factory? How do you ensure a standardized level?
That is a difficult question to answer. We do not accept orders that are only focused on mass production. We prefer to do our manufacturing at our Japanese plant. However, if the lot becomes big enough, or the customer requests for us to produce in Vietnam to cut the costs, then we will relocate our production to Vietnam and carry out the mass production there. It is a learning process for us. Through the training of our engineers, we are elevating the technical capabilities of our site in Vietnam. That is how we ensure high-quality production. We are also trying to diversify the product line-up that is produced at our Vietnam factory.
We would like to know a little more about your international operations. In addition to your factory in Vietnam, we know that you have an office located in Taiwan. Looking to the future, are there any particular countries or regions in which you are seeking to strengthen your international presence?
Southeast Asia is our focus, namely the Philippines. However, it is very difficult as we still feel that as an SME, we have limited resources as well as limited capital. Therefore, we will have to find the right partner and the right time to enter the market there. There is some political unrest in the Philippines at the moment, and also the national characteristics of the Philippines are different from the Taiwanese, the Japanese, or the Vietnamese. Looking at how well some Korean companies are doing right now in Luzon in the Philippines; I am quite amazed that Japanese companies have not been able to be successful there.
Why do you think that is?
This is not only the case in the Philippines. It is also the case in Vietnam as well. Korean companies are investing more and carrying out more operations in these locations. They are the ones that are making the most investments in Vietnam. Next comes Taiwanese companies, and then Japanese companies. I feel that Koreans are very active, and are not afraid to take bold actions overseas. Therefore, a Japanese SME needs to learn from the overseas investments of other countries. At the same time, we need to keep consolidating our footing in Japan.
Your company was founded in 1964 as you mentioned. Next year you will celebrate your 60th anniversary. If we were to fast forward to your 70th anniversary in 2034, and have this interview all over again, is there a goal or personal ambition that you would like to have achieved by then that you would like to share with us in that interview?
In ten years, my generation will have passed the company down to my son’s generation. My son and his generation have a lot of skills, knowledge, and information. He has so many capabilities that I would like for him to fully utilize. I want him to leverage these abilities to advance Asia as a whole. If Asia could be like the EU, in terms of having many small SMEs throughout the region working in partnerships and creating a flourishing environment, that would be ideal. If our company could take part in this advancement, that would be my utmost pleasure.