Honda Kiko: Thriving amid demographic challenges in Japan's custom pump industry

Let’s start with Japan’s biggest issue right now, the aging population and low birth rates. In fact, the situation has become so severe that experts are now predicting the population to drop below 100 million by 2050. This obviously raises a number of issues including a labor crisis, a shrinking domestic market, and questions on technical inheritance. How do you react to these demographic shifts, and in your opinion, to what extent do you need to look to overseas markets in order to ensure long-term business success?

First of all, there is no question you are correct, and especially living in the countryside we feel it more than those living in big cities. This is exacerbated by the fact that so many young people are now moving into big cities like Tokyo and Osaka. Fukuoka interestingly is seeing an increase in population because the Kyushu Island areas of Oita, Saga, Nagasaki, Kumamoto, Kagoshima, and Miyazaki all have young people whose parents do not recommended them more to big cities. Instead, their parents will tell them that they can go to Fukuoka so that the parents can visit each other every once in a while. There are a lot of youngsters now in Fukuoka and the population is going up a little bit.

That is Fukuoka City of course, which is only about 26 km away from us in Kama-shi. If you drive around Kama-shi all you see is elderly people; there are not many youngsters. We actually moved here in 1974, but before then we were in Fukuoka City which is where the company was actually founded back in 1949 as HONDA KIKO SHOKAI. In 1951 the company was changed to HONDA KIKO CO., LTD. We had three factories; one in Yoshizuka, Takeshita, and Miyajima.

Around this time, more people moved into Fukuoka City from everywhere and started building housing near the factories.

It was getting very hard for us to keep the noise down because there was so much work being done in those factories and the founder Mr. Honda made a decision to move the company to its current location. When we came here there was enough land and enough people because the area used to be the location of an old coal mine. They were digging black diamonds here and if you look at the landscape you can see all these little mountains and those are the result of that digging (Bota-Yama; colliery slag heap). Not only did Mr. Honda move the entire company but he also moved every employee as well as built over 100 houses for those employees. This all happened about 50 years ago now, so at that point in time this was a great location.

Nowadays however things are starting to change and it is really hard for us to keep up and hire good youngsters. Of course, as a company located in Fukuoka, we are close to all universities in Kyushu, so we are often able to hire university graduates from there. And many of them were born in Kyushu, so they don't want to go to big cities outside of Kyushu.

I think the key is to remember that we are doing great global business from here. It really doesn’t matter in this day and age where you are located, because youngsters will take a look on the internet for interesting places to work and if they see your company is doing international business, they are interested in working here. We produce 100% custom-made pumps. We are always making pumps to the customer’s needs. In fact, we have customers in over 65 countries around the world, and although we aren’t a huge company, we do have our own great products.

Have you thought about hiring foreign nationals as a way to offset the labor shortage?

We have been hiring international graduate school graduates for about 10 years. At that time, I went to the university and talked to students and asked if anyone was interested in an internship or joining our company, but not a single Japanese person said yes. A professor I know mentioned one of his Tunisian students who received his Ph.D. I asked to meet him and he came to see our company He was highly impressed by HONDA KIKO and developed a strong affinity for our products, our team, and our corporate framework. Our business has customers all over the world, and he was really surprised by that.

The big thing with the Tunisian hire was that I spoke English and he spoke English, so we were able to communicate. His Japanese wasn’t that great but he spoke well enough. Many of our company executives asked why we were hiring a guy from Tunisia, so I said that he has great communication skills, a great big smile, and he doesn’t hesitate to talk to people.

All those major companies that you think about are using our pumps as part of their plant. For example, a water treatment engineering company buys our pumps, puts them into their products, and then ships them overseas. We have a guarantee on those pumps so when they expire the customers will see that they are made by HONDA KIKO and contact us directly. In the past, overseas companies would send us faxes in English requesting mechanical seals and parts, but of course, at the time no one knew what to do with them, so they passed them on to trading companies. The trading company would translate it and facilitate the quotation, taking a margin for their services with customers both domestically and overseas. This was three times more than what we considered a fair margin so at that point the business was okay, but many people thought that Honda Pumps was an expensive name to buy from. Faxes would come in asking for discounts, so eventually, a decision was made to go directly with the customers and communicate. Not only did we find out that they needed our pumps, but we also discovered that they were looking for other solutions. We received good feedback from these direct customers, which in turn meant that they continued to come back to us for more solutions. It enabled us to hire more foreign workers and build these sorts of relationships further.

We have hired international students studying at Kyushu universities from all over the world, including Tunisia, China, Germany, Spain, the United States, Thailand, South Korea, and Indonesia.  To answer your question, because we couldn’t hire Japanese staff we did start hiring foreign workers, and in turn that has become a sort of bridge to better relationships abroad. It has enabled us to gain a reputation overseas as a company that really cares about the production sites and the customers who use the products.

If we take a look at an impeller for example, it has to handle a lot of liquids of different viscosities. We need to think about the best solutions for all of those liquids, not only the shape of the impeller but also the material. There are many different use cases we design for and we must use different materials for each. Selling specialized pumps like this overseas is very hard, especially when explaining this by e-mail or telephone. The critical part is to understand the site and understand the customer’s requests exactly.

How important is your global business to your overall operations at this point?

At one point we reached all the way up to 40% overseas sales, but of course, sales like the economy have ups and downs. Fortunately, the pump business is pretty much stable, and that is because if there is a factory out there is a liquid that needs a pump, no matter what the economy is doing. Additionally, even if that factory isn’t buying pumps, it is buying parts, so that means our business is stable.

When we talk about your international competitors you have rivals in China, who can make similar products to yours but at a much cheaper cost. In the long run, does a customer benefit from choosing yours despite being a little bit more premium and expensive?

There are 5 companies that produce copies of our pumps already, three in China and two in Korea. The reason is that they can make almost the same pump for cheaper, but the key here is that we have 75 years of experience and have learned from so many mistakes in the past. Money can’t buy you the knowledge to navigate those pitfalls, only time and hard work. The reason why our pumps are so great is because of all of those discussions and adjustments with customers. The engagement between the parts and the machine is vital and you have to keep it tight. If you take a look at our production site you will see that everyone has to make a final adjustment in order to ensure precise engagement.

Every now and then we receive a call from someone in Korea for example and they will say that they are having trouble with our pumps so could we send one of our guys to look? We’ll then get a call from the engineer saying that there is a name tag showing Honda Pumps, but the actual pump itself doesn’t look like ours. Therefore, we had to inform them that they are copy products and totally different from what we were selling. If it is not our pump we simply cannot guarantee, so we deliver our original pumps and this solves the whole problem. Those customers will always ask what exactly the difference is and that is such a hard question to answer. We cannot tell the difference because we don’t know anything about these copies. In this particular case the Korean company we were dealing with decided to go back to the copies because they were three times less in cost. Three years later they called us up and said that they had made a big mistake. They lost tons of liquid which is their product and it cost them more than USD 1 million so they made a decision to use our original products once again. This was a major Korean company learning the hard way that our products are the only ones they can really trust. We know that there are firms out there in China and Korea that are copying our products but we know that they are just copies and not the originals. We are the only ones that can make these pumps the right way.

For this reason, we are not applying for any new patents at this time. Applying for a patent opens our ideas up to everyone and this could be disastrous for us by exposing what some of the secrets behind our products are. All we can say to international companies trying to copy our products is "Go ahead, good luck to you". Our customers are always looking for new features, so our stance is that if our competitors can’t really get our past products correct, they don’t stand a chance of copying our future products.

Take a product like tires for example. Companies in those industries nowadays are putting out normal and eco-friendly versions of their tires. People might look at those products and think they are practically identical, and while that might be true, they are made from totally different liquids. They need specific pumps for each of those specific liquids. They will give us the specifications and then our design department can get to work finding a solution that fits the requirements. Our validation of our work comes from when customers praise the fact that our pumps perfectly fit their needs.

From our interviews with key players in the industry, we’ve come to understand that partnerships are key in order to invest and penetrate new markets overseas as well as develop new products. We know that your firm has set up technical partnerships in the US and Germany, and you also have many sales partnerships in Europe and across Asia. What role do partnerships play in your business model and are you actively searching for any partnerships in overseas markets?

You mentioned some of our partnerships and those companies are concentrating on growing their businesses in Asia. Companies in the US and Germany are looking at the Asian market as their next goal. We are located in Asia and to them we are essentially a neighbor to their target market. With the population shrinking in Japan, it makes sense for us to concentrate our efforts in Asia also. A decision was to get together with these partners and go after a common goal.

Agents are a necessity to get our pumps out to over 65 countries around the world.

So, we have expanded our sales network by having distributors in various Asian countries.

What are some of the benefits of these technical partnerships?

The one key benefit is that we share customer information between the network. I think the most important thing we can do to benefit each other is to update that information with the latest news on clients. There is so much information these days that collecting it as a solo effort is literally an impossible task.

We know thanks to the network that companies are looking to set up new factories or plants, so we can get in early with a proposal. Obviously, this information also has a danger factor when you consider how freely it moves, so helping each other is a key part of our business.

You mentioned Asia as a key target for future international expansion. What kind of strategy will you look to employ in order to achieve said expansion?

Before COVID-19 there was a real push for globalization with companies moving around everywhere. But now, in a post-COVID world, we are seeing this idea regress a little. Japan seems content with Japan and we are seeing more and more that globalized Japanese companies are deciding not to do business with certain areas or countries. It is really hard to read these days about who is deciding to go with which countries. It isn’t down to industry either, it is more based on economic factors. With our partners in Europe and the US, it is interesting to see where everyone is standing in the business field. As wages change around the world those companies are then moving too.

Although Japan shines with its automated manufacturing capabilities, it is in fact very slow at adopting digital tools. In the latest digital competitiveness rankings from IMD Japan ranked 29th out of 63, falling one place from the 2021 rankings. The government is trying to reverse this trend by implementing new technologies using a newly established digital agency. There are even incentives being provided by the digital agency to promote the adoption of cloud and IoT solutions. How do digital tools benefit your business operations and are you interested in implementing new DX technologies?

A Taiwanese company decided to use many of our pumps when establishing a new factory in Japan. Each of those pumps is tailored to the customer and therefore different.

Imagine that we are at a sushi bar and you placed an order. Each order will be made by hand. If you go to one of my factories you will see a machining center with new technologies such as 3D scanners, and each of the machines has a specific role. Just as at the sushi bar, there are many orders coming in but not everything is the same. We make hand-made and custom-made pumps to the needs of customers. This makes copying our products very difficult to do. As a company, we want to keep this hand-made quality to our products just like a sushi bar caters to clients that like hand-made sushi. We are not looking to switch over to a sushi-making machine. Of course, we don’t want to miss out on new technologies that could help our production, but at the same time, we are content to stick with more traditional methods. Basically, we are applying traditional techniques to modern machinery.

I believe that our strength lies in these hand-made pumps, which allow us to deliver the same quality time and time again. Customers trust us and appreciate our dedication to quality.

Data analysis could be used by your clients to make improvements to your products. Is this something that would interest you?

With a massive order, it might make sense, but honestly, we don’t receive big orders like that very often.

We know that you cater your products to the petrochemical, electric power, semiconductor, and automotive industries. Out of all of these industries which do you believe has the most potential for future growth and are there any new businesses or fields you would like to offer your products to?  

Honestly, we provide our pumps to so many different applications. Things like onsens, factories, and even deep-sea exploration or telescopes. When you think about all of those customers, none of them are ordering hundreds of pumps at a time, they are ordering three or four maximums. 

We recently delivered over 120 pumps to a chemical company in China. It was bigger than the pump size we delivered to a Japanese chemical company for the same application, whereas in China they’re ordering big pumps and requests are growing so we are putting more energy into the region and trying to make bigger pumps. 

Another key industry is in the semiconductor field which is growing so much right now all across the world. Japan is a little bit behind in this segment. There are a lot of needs for our pumps when you consider the essential nature of Ultra-Pure-Water in semiconductor manufacturing. Companies are choosing our company for their pump needs whether that be domestically or internationally.

In order to capture a wide range of industries with your products your firm needs to adapt itself to different sets of materials in order to support the liquids being manipulated by your clients. Some of them can be toxic, flammable, thick, corrosive, explosive, or highly acidic. As such there are a variety of different safety standards that depend on the product and the country of sale. How are you adapting your products to make them the most reliable they can be, and how are you able to comply with so many different safety standards?

We manufacture pumps to order, so when we receive an order, we need to have discussions with the client and make good drawings. We have the ability to adjust to all the needs of our customers. As a result, it also meets the required safety standards. I think the number one thing to figure out first is exactly what the customer’s needs are. Nowadays there are fewer technicians on the customer side so sometimes it can be quite hard for them to describe to our design department what kinds of liquids they are using.　What we have to do in these cases is deliver a product based on the limited information we have and discussions with the client. We can then make adjustments from there if the first iteration doesn’t work out.

Most of our clients know that we are the type of company that is always stand by clients. That is why they order from us again and again, and it is why they like to challenge us to come up with new solutions. We are well known as a great troubleshooter for those more difficult to deal with customers.

We want to be a global leader, pursue diversity, persist with innovations, and keep the company running for over 100 years.

Is there a particular client or pump that you found particularly challenging and the solution is something you are proud of?

I would say I’m most proud of the partner global network. This is something that I worked very hard on personally collecting up all of those international partners. There is one particular German company that I mentioned earlier, and that is a family business. I am very good friends with the son of the owner inside and outside of business activities. I believe that we can open up the Asian market together through this network of trust.

Japan is known as one of the most innovative countries in the world and because of that invests heavily in R&D. We know that your company has been responsible for the development of a wide range of different pumps from small pumps all the way to large pumps that can manage 55 square meters of liquid per minute. With that in mind, in terms of R&D, what is your current focus? Are there any new products or developments that you would like to showcase for us today?

Every day is an opportunity to challenge ourselves by designing or developing new pumps. There are so many pumps that it would be difficult to give you a specific focus right now. Basically, we have about 50 base pumps, and from there development could go in many different directions depending on the customer's needs. As I mentioned earlier, the Chinese markets are always asking for bigger pumps, whereas the rest of the world differs on this. Things like vertical ten-meter pumps or old-style pumps are things we are capable of developing along with the customer requirements.

We are a niche market so we want to ensure that customers get the solutions that fit their problems. Although today I can’t say a specific pump that is in development you can rest assured that we are always trying to focus on new technologies and new techniques relating to pump manufacture.

With the switch to EVs happening in the automotive market, there is a need for next-generation solutions, which in turn will give us new needs and requirements for pump technology. Customers are looking for all sorts of solutions for the management of liquids, and Honda Pumps will be the ones to answer those calls. We can stand next to our customers and give them the answers they need together. We like to think of ourselves as magicians creating magic.

After WWII, there was really nothing left for the Japanese people. Those living at the time had to stand up, import all of the materials, and build something in order for the country to survive. Actually, we are facing the same situation right now with the population decline. We have to import materials, build something, and then sell it to other markets outside of Japan. I think this is where the lessons of the past, the lessons of our ancestors, can really teach us the direction we need to go in the future.

My son is 33 years old right now and he is one of the managing directors of this company. His grandfather, my wife’s father, founded this company. With his position in the family, I want to be able to pass on HONDA KIKO to him. The next generation of HONDA KIKO that he will inherit is totally different from that I’m running right now. The market keeps changing and people really have to be able to adapt. Although none of us really knows what the future holds, we should get ourselves ready to embrace whatever that future is.

Imagine that we come back on the very last day of your presidency and have this interview all over again. What goals or dreams would you like to have achieved by the time you are ready to pass the baton onto your son, the next president of HONDA KIKO?

This is a question I’ve never really thought about before. I personally was born in Tokyo and grew up here. I spent a little bit of time in the US when I was at school, and interestingly I was washing dishes at a Japanese restaurant to earn my tuition fees. This restaurant was very small, but it was growing in popularity. I worked my way up to becoming a yakitori chef and a sukiyaki chef before finally becoming a sushi chef. During my time as a sushi chef, I learned that by interacting directly with customers and knowing their preferences, I could serve the best sushi they wanted and could make them smile.

A key point I learned was that if the customer liked the sushi and service then they would come back again.

When I took over this position I thought about my time working at the restaurant. Our factories are full of workers that have little to no connection with the customers. They don’t really know who will use the pumps they make. It is hard to explain to those workers the issues when a pump comes back due to a defect. They don’t care, and I can’t really blame them either, they are just doing their job. I wanted to impart my experience at the sushi restaurant to change the mindset in the factory. I told each person in the factory to imagine that the customer is just behind the shutter of the factory and you are preparing the product, especially for them. This idea lets those workers understand the connection between the products they produce and the customers.

When Mr. Honda started this business, he told all of his employees that the pump business was stable and that each worker could make a decent living there. You can eat three meals a day if you are a member of the pump business, and although it may not be a king’s feast, you’ll never get hungry.

What I told the employees is that like a restaurant, customers will come back to us if we all do our jobs correctly. If we want to last more than 100 years the most important thing is that customers are happy with the services we provide. Appreciate the customer and think about who is using our pumps; this was the advice I gave. I’m proud of this change that I started at our company.