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Innovation with a human touch

Interview - November 16, 2023

D.Nagata has defied the trends of corporate consolidation, preserving the company’s independence while achieving remarkable success in the international market.

YOSUKE NAGATA, PRESIDENT OF D.NAGATA CO., LTD.
YOSUKE NAGATA | PRESIDENT OF D.NAGATA CO., LTD.

Recently investment companies such as Goldman Sachs and American investment banks such as Merrill Lynch have been investing in Japanese trading companies. The large Japanese trading companies are already in the investment stage, primarily focusing on commodities like oil, metals, flour etc.,. However, there seems to be a lack of movement between different sectors. How did you remain independent and successful when all of your peers are being swallowed up?

In the 1980s our company handled between 100 and 200 items. I then decided to concentrate on specific areas and discontinue our business in others. Right now, our specialized area is related to the engine industry. We hired engineers to support this decision and received contracts from several American companies to manufacture specialized engine components. We do not move large quantities of products. These companies make engines, and we produce the key components for engines. We also jointly develop engine parts with American companies. Concentrating on this niche area has been a pivotal factor in our company’s success.

We are an unusual company in Japan for making high performance engine components. We have been supplying several companies in the U.S. who make high performance 2-cycle engines, and we have been working with them for almost 30 years. 

During that time, we also distributed our own product lines such as portable generators, construction equipment, engine pumps, etc., nationwide in the US, similar to other Japanese manufacturers such as Honda and Yamaha at the time. We have a large inventory, and at one stage, our warehouses held a lot of inventory. Over the years, I visited 49 states to set up dealers in the US.

 

How did you get connected? How did that relationship come about?

They approached me and expressed their interest in working together. I met with the owner of the company at that time.  Now, they are one of the largest companies in the industry. However, back then, they were not as large as they are today.

 

It is interesting to hear you say that before you had a very wide range of products, and now you have specialized in an area, but you still have a high inventory just in that area. You also talked about engines for high performance and other vehicles. How is the switch to EV impacting your business? We are seeing more and more EVs for not just cars but also construction machinery, snowmobiles, and agriculture machinery. How is that impacting your business?

When EVs first emerged, I was sceptical about their global adoption since charging them uses commercial electricity rather than saving it. Engines are still needed. This belief led us to focus on developing two-cycle engines, as we understood that some people still prefer the sound and experience of traditional engines. Our partner is an unusual company which makes 1000cc two-cycle engines. They are used for pleasure, and they are fun. EVs do not produce the loud engine noise that many American people enjoy. Engine sound is an important factor to consider.

Moreover, I believe that the shift to EVs originated in China, where producing combustion engines posed significant challenges. EVs are more straightforward to manufacture. China’s operations are very large. They informed the European automotive companies that they wanted to buy large numbers of EV automobiles, and this resulted in companies such as Volkswagen, for example, moving to China to start producing EVs.

In the US, on the other hand, they are very calm. I know many American people who do not care about EVs, and new engines are currently being developed. I respect this approach which aligns with their culture and preferences.

 

In terms of your international business growth, are there any other markets that you have identified in the world that have a similar frontier spirit or culture, and do you think would be a good fit to branch into in the future?

We have expanded to Europe and the Middle East countries.  In the past, we had an office in Paris, Cairo, Athens, and we still have representatives there today. Additionally, we previously had a joint venture with an automobile manufacturer in Greece in the 1960s and 1970s. We went there with a Japanese auto manufacturer. We used to make automobiles by CKD or SKD. That kind of business always happens with large Japanese trading companies. However, as our company is small, we had to find a specialized area to focus on.

Fortunately, I have great staff at our company in Chicago. We used to have between 30 and 40 people working in sales and distribution. We currently have ten employees working at our office there. The president of our Chicago company worked with us for almost 25 years, while the former president worked with us for 35 years. I worked in the US office from 1976 to 1985.  I am very lucky to meet very nice people in the United States and we have been working together and still developing new projects.

 

After more than 50 years of international business, what would you say are the key lessons or takeaways that you have learned on how to succeed as a Japanese company in the international market?

I believe the key to successful international business lies in finding reliable partners in overseas markets. You need to find a person to work with that you can trust. 

This approach allowed us to cater to the specific needs of each region, building trust and successful relationships.

In my opinion, Japan is more like the 51st state of the US, as we share a similar mentality, which makes it easier for us to align with their opinions. I frequently have discussions with our American members. Moving forward, we aim to concentrate more on the software business while continuing our specialization in engine technology.

Let me give you an example of one of our collaborations.  In the US, there are lots of oil wells.  In 1983 or 1984, we started making the single cylinder engine for oil well pumps. The engine for this pump is very strange. The oil wells have oil and natural gas, and the engine is operated by the natural gas well while the pump runs as far as you can control it. We worked together with an American engineer from our partner company to develop the engine for an oil well pump. The owner of the partner company was a very nice person whom I could trust. I decided to jointly invest in a Japanese engine company to make a special engine for oil wells. That was a very interesting story at that time as there was only one company in the US that made the engine. We decided to enter that market.

We wanted to communicate with each oil well very carefully to investigate how much natural gas there was and how much sulfuric acid there was. This involved checking the oil wells that control each area. To do so, we needed good communication using satellite systems. During that time we supplied a satellite system to the US, which we had done since the 1980s. During that time, the US partner company was buying transponders, low noise converters and receivers from us and made large parabolic antennas for watching TV in remote areas. We manufactured those components in Japan together with a company from Nagoya. We established a factory with an American partner in Northern Minnesota to assemble the parabolic antennas. That was a very enjoyable business for me, as we were surrounded by the countryside. The owner of the company was the vice president of the high-performance engine manufacturer.  I met with him when he was working there. He established a company to make a satellite TV system. One day he approached me to develop the electric system in Japan.

I wanted to combine the electric transponder from the satellite to control the system for each oil well. That was something new I would like for us to try.  It was too early for us to combine old fashioned oil well engines with new satellite technology at the time. I like to do that type of challenging business.



That is a very good example of an interesting transformation. Starting with wholesaling on a massive scale, and then specializing. It seems like the current step is more software-oriented and design-oriented. If not this oil well communication system, what would you say is the current focus of your R&D and product development?

We are still specialized in engine technology and expect that to be the case for the next four or five years. The oil well control system is similar to engine control systems, as the engines that are used in the oil wells are old-fashioned and operate at a slow rpm. Personally, I enjoyed developing engines and visiting oil wells in Nebraska, Kansas, and Texas.

I always encourage our younger staff to be innovative and think outside the box. Innovation is a fundamental value that I have instilled in the company’s culture. Japanese people usually prefer to do things in the same way they were always done. However, innovation is key for our company. While our Tokyo office may maintain a more traditional approach and at our Kobe office, everyone offers something different. 

We do business with the Japanese Ministry of Defence (MODJ). We buy special parts from the US for defence equipment. To do so, we need government approval from the US as well as Japan. This business has been growing rapidly in the last couple of years. Large companies such as Itochu and Mitsubishi are handling airplanes and helicopters which cost a huge amount of money. However, the components business amount is small in comparison with the prime line but very important and that is an area we are interested in.

 

Could you speak a little about why Japan is best positioned to supply those components, especially internationally? Why should an American defence company choose your services?

Regarding the MODJ business, they only deal with Japan, western Europe, and some Middle Eastern countries, as the US only supplies prime components such as F-14, F-15, or F-16 fighter jets, Patriots, etc. to their allies.  Fortunately, Japan is a trusted ally of the US. We went to the US government with our staff in Chicago to tell them that we were interested in doing business. After one year, they approved. They sent representatives to visit us here in Japan. I am very happy that they trusted us. Our staff used to do that business very quietly. However, now it is known that we do business with the military airplane parts to protect Japan and support the US military. It is our responsibility, and we are very proud to do so.

 

The thesis for our report is that this is a very exciting time for Japan and Japanese manufacturers due to supply chain disruptions from Covid and US-China tensions. We are seeing companies all around the world looking for a reliable supply chain and reliable suppliers. Japan has been historically known for its high-quality and advanced technology. They have high trustworthiness and reliability and combined with the weak JPY; it is our view that this is a unique chance for Japan. Do you agree with this premise? If so, how is your company taking advantage of the current macroeconomic situation?

Absolutely, there are significant challenges in worldwide supply chains, providing us with an excellent opportunity to reorganize and strengthen ties with the US and European countries. China’s independent actions are beneficial for us, and Japan should focus on developing robust relationships with various countries who have the same philosophy and a same sense of value.

Human relations play a vital role in business.  For example, last month the vice president of our engineering partner called us and asked for our help. The next morning, our engineering executive manager flew to the U.S.  to meet with them. That is our responsibility and our role. When they ask for our help, we must try our best.  This does mean more work for our people.  On the other hand, our people do not work overtime, and once the working hours are finished, they go home.

We believe in rewarding hard work and providing incentives based on performance, similar to American companies. When our staff is doing well, we pay them higher, like a baseball player for example. We have discussions each year, where I give my opinion. This approach has been embraced by our staff and I am delighted to see their dedication and motivation.

 

As a trading company, what impact is that aging population phenomenon having on you? How are you serving as a bridge for Japan’s industry to potential overseas clients for expanding their business?

Building strong connections and sharing the same philosophy regardless of cultural differences are key aspects of successful international business. If we share the same philosophy as companies from the US or other countries for example, we can both buy from them and sell to them. Trust is also very important in business. If we share the same philosophy, we can trust each other. 

 

Are you actively seeking new business partners and new opportunities to make these kinds of connections?

I first went to the US in 1976. As I mentioned earlier, I visited 49 of the 50 states in the US and met with many people at dealers and distributors to develop our network for our products. I found that companies there expected us to adjust our products to fit their needs. For example, they expected our products to be adjusted to fit their engines and generators. That was the American way. However, my way was different. I wanted them to adjust and make different products, as this would be better for Japanese products.

As a small company, we can adjust them easily, and we make different engines for each of our customers. The cost of engines also varies. While large companies make cheaper engines that cost for example around USD 50.00 and some of the engines that we make cost close to $80.00 We provide more customer-oriented products. This allows us to provide something different to each of our customers, and we encourage our staff to continue to develop unique products.

I have many friends all over the USA.  As we are a small trading company, establishing relationships with American companies during my time there was very important for our success. We received lots of information and questions to consider, and I was able to build strong relationships during my time there.  For example, I met with the president of a company in Kansas City to make a generator.  He informed me that he would like to do some business with me. He was a Jewish guy. There are a lot of Jewish people involved in the oil industry. I learned that Jewish culture and Japanese culture are very close. We became friends and he invited me to visit his house and attend some Jewish parties. It was a very interesting time for me. He also came to Japan, and he visited my house and some Japanese shrines with me. We found that there were many similarities between our cultures. Unfortunately, he passed away. He was a very nice person and a good friend of mine. It was with him that I started the natural gas engines business for an oil well that I mentioned earlier.

Regarding our high-performance engines business, one of the dealers I met in the US started doing business with the owners of the company. He called me and asked for us to develop with his company. That was how we started our business with the high-performance engine company. A small company such as ours can do many different things that large trading companies cannot. While we may not have as much money as them, we can provide the customers with something different. We are an escape from the ordinary.

 

You mentioned earlier that you are 74. When you do decide to retire one day and pass the baton to the next generation, is there a personal goal or ambition that you would like to have achieved by that day when you say goodbye to the company?

My primary goal is for our company to preserve the same philosophy we hold today. D.Nagata stands out as a unique company that shares similar values with American and European firms. I want this distinctive approach to continue in the future. Additionally, it is my vision for our business with the Japanese Ministry of Defence. That would be a unique initiative for our business. My aim is for our company to remain different and innovative.

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