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INOAC supplying key global industries with high-performance polyurethane

Interview - March 15, 2023

Supporting the housing and lifestyle industries all the way to the automotive sector, INOAC has established itself as a hidden champion of polyurethane materials.

KEN MIWA, REPRESENTATIVE DIRECTOR (LEFT); SOICHI INOUE, CHAIRMAN (CENTER) AND YASUSHI NOMURA, PRESIDENT & COO (RIGHT)
KEN MIWA, REPRESENTATIVE DIRECTOR (LEFT); SOICHI INOUE, CHAIRMAN (CENTER) AND YASUSHI NOMURA, PRESIDENT & COO (RIGHT) | INOAC CORPORATION

Could you give us an overview of INOAC and how you expanded your business to become the organization it is today?

Our materials play a critical role in the housing construction sector, where we supply insulation materials to Japanese housing makers. Originally, this insulation material was imported from Jim Walter, a US company located in Florida that made special insulation material for houses made of wood. Because American people liked wooden houses, their product enjoyed strong demand.

Shortly after, US chemical giant acquired the patent. However, the US company was not interested in the project so I introduced the material in Asia myself.

I introduced this product to a large manufacturer of metal sheets and they were truly interested. They wanted to make sandwich panels in Japan because few companies offered insulation material back then. Thanks to our own technical capabilities, we added flame-retardant properties to the material. As Japanese houses are prone to fire, this extra property increased the competitiveness of our product. I went to the building minister to get approval and conducted two approval processes. One was for use on national railway, the other was for buildings. Then we made the product for building houses.

Polyurethane insulation was used  to manufacture home refrigerators. Because Japanese people began increasingly consuming fresh food items, such as fish and seafood, the demand for refrigerators grew exponentially. To this day, we are still making and supplying material to construction companies.

As for new businesses, if you take the Shinkansen from Tokyo to Nagoya, you can see many small Japanese houses. Our insulation materials are used in many of these houses and our housing business continues to grow.

We built a large factory in Tohoku, near Sendai, where we make sandwich panel insulation material. Japan has cold regions, such as Tohoku and Hokkaido, and these locations require a high-level of insulation. Because our firm was mainly a rubber company at the time, the first factory we opened outside of Nagoya was in Hokkaido. We used coal to make steel, but coal mining was coming to an end. Because coal businesses were closing in Hokkaido and Kyushu, a representative from Mitsui came to me and asked me to open a plant in Hokkaido. I then visited a city called Bibai, where coal mining was just starting to close down. The streets were full of workers who were wearing red gloves in protest against the government. One of the town’s representatives told me that if I opened a factory in Bibai, the local government would give me a grant free of charge. He also said that if I employed people from the local mining industry, I would only have to pay 20 to 30% of their salaries because the rest would be financed by the government.

I met with the workers from the coal industry to discuss the local installations and to better understand their background. I remember that they had lifts going to the bottom of the mines. Each mining team was small, so I met with several managers from the mining industry, selected one, and made him the president of our company in Hokkaido. I also remember meeting a young man who was a great accountant. I made some tests because we needed accountants, and I then selected those people and began making insulated walls. As Hokkaido was cold, locals would install heaters in the center of their houses, which was dangerous. We also developed steel products so that people could sleep through steel heating. This was the start of our business in Northern Japan. First, we made a factory in Nagoya, then a second one in Hokkaido.

Today, INOAC has many factories, from Okinawa to Hokkaido, because our material is bulky and transportation costs are high, meaning we have to make our products locally and help to develop local businesses. We currently own factories in Hokkaido, Tohoku, outside of Sendai, Kofu, Nagoya, Gifu and Hiroshima, Kyushu, as well as Okinawa.

Hakuba, located in Nagano prefecture, is a popular destination for winter skiing and attracts many tourists. On top of supplying a large amount of insulation boards, we also produce special mattresses that are utilized by local houses and establishments. We have a plan to set up a factory in Hakuba that manufactures our “Color Foam Hakuba” mattresses.



Our new brand of Color Foam Hakuba mattresses has now become like my personal hobby. The reason I started doing business in Hakuba is that there is a school, and the manager sent me a letter in which she explained that she was managing a middle and high school. We met each other, and now we are further expanding our business in Hakuba to build houses and local inns.

We are able to produce both mattresses for sleeping and insulation material in the same company thanks to the wide range of uses of polyurethane.

After starting my business in Japan, I expanded firstly to Southeast Asia - Thailand, Indonesia, Vietnam and so on. We also established a factory in China after the country opened to foreign investment. With China making many developments, we put the factory in Shanghai. We still had business in China for special applications, but we were also opening factories in ASEAN, specifically in Thailand, Indonesia and Vietnam. While Indonesia always had a big population, its industry is not as developed as Japan’s. We have a rubber factory there, as well as a plastics factory for making parts.

Today, our international business is growing faster than our Japanese operation, and the USA is our largest overseas market. We started in Canada and then opened a factory in Kentucky. Because of the positive relationship between the USA and Mexico, we opened a large factory in Mexico and moved a large part of our business there. While the USA has more protection against imported materials coming from Asia, the tariffs and laws are more relaxed when it comes to Mexican exports, allowing us to be competitive in the North American market.

This is the present situation. Nowadays, we are conducting more business outside of Japan than in Japan. The Japanese chemical industry is no longer growing, so we depend more on America. China is also a big market, but again, we do not know the future of the country, so we adopt a careful attitude. In the beginning, we built many factories in China, but now, we have reduced the number of factories and moved some to Vietnam. We make many products there, which we ship to the US. We also built a factory in Korea many years ago. We 100% owned that factory, but from the beginning, I asked the locals to manage that business. Last year, our Korean company had its 50th anniversary. I am proud to say that our Korean venture is one of the most successful Japanese companies present in Korea.

Our factory is just on the opposite side of Japan, near Busan, so we benefit from special economic zone status to make products that are then shipped to the US. The Korean chemical industry is currently strong and robust, and many of our raw materials come from Korea. We also ship our products from Korea to Vietnam and to other countries, so Korea is an important location for our company. I often visit Korea. Sometimes Korean nationals can have strong anti-Japanese demonstrations, but in the case of INOAC, we have established strong relationships with local people and our factory is important to our business. Many years ago, I helped to establish a system that helped foreign students study in Japan. I brought many talents from foreign countries such as Korea, China and Vietnam. After they finished their training in Japan, they returned to their own countries to become the managers of INOAC’s local branches and factories.

When opening oversea locations, I often tell our managers: “Do not bring the Japanese flag and do not have morning meetings! Become a local company!” When venturing overseas, we always employ local managers. That is our policy. It is the same in the US where our managers are all American.

We also have a lot of international Joint Ventures (JVs) with business partners that we consider to be more family than partners. For example, we have friends in Ohio who make diapers using our PU and water absorbent materials. The JV in Ohio also allowed us to swiftly move to Detroit. As both locations are close to each other, we were able to utilize our Ohio operation and workforce to swiftly deploy our new factory. JVs are efficient because they allow us to do things that we could not do by ourselves, especially in the current economic climate. Furthermore, collaborating with foreign firms allows us to share business responsibilities and to concentrate on R&D.

We also have a joint factory with a French company that supplies products to most European nations. As the French technology is different from ours, it is a great opportunity to learn from each other and to engage in technical exchanges.

 

As new environmental policies and vehicle electrification advance, the materials and components utilized by automotive manufacturers are rapidly changing, forcing suppliers to re-think their business. How is INOAC adapting to the changes occurring in the automotive field?

While gasoline cars are increasingly changing to EVs, many people in the USA drive long distances, so electric motors do not yet fit their lifestyle as there is a lack of charging stations across America. Therefore, gasoline cars still dominate in the USA, with the exception of California and the West Coast where EV adoption is rising quickly. Under this current situation, I think the car industry will still use gasoline engines. In Japan, Toyota also makes EVs, but they have not developed a large business yet.

EVs must be lighter than their gasoline-powered counterparts, which represents an opportunity for us. INOAC makes products that can reduce the weight of vehicles. For example, every car needs a seat and headliner. These devices are mostly made using our material, PU, which is non-flammable. The automotive industry is requesting lighter weight vehicles with increased safety and better insulation. By virtue of our experience and track record, INOAC can supply rubber, plastic and PU materials with the functionalities required by automotive makers. Furthermore, automotive makers and Tier 1 suppliers rarely develop new materials, meaning we can take care of that development for them.

While EVs require less mechanical and engine-related parts, the demand a greater diversity of materials. For example, for batteries to be safe, protective, heat insulation and sound insulation materials are required. Even tires require more insulation. To answer these new market demands, we are developing more and more items for the EV market. Vehicle electrification is an opportunity for INOAC. If we find a technology to make seat cushions that are 50% lighter, automotive makers would be delighted. As such, we must continue to develop innovative solutions.

At the moment, about 40% of our business comes from the automotive industry and 60% is construction as well as living goods, such as mattresses. The car industry has become more international, and the US is the biggest market for us.

Our PU technology originally came from Germany, a country that dominates the European chemical sector. As such, we strive to maintain a strong relationship with the German market. We received approval from the local government to open an office in Dusseldorf, but the opening is currently on-hold to the conflict in Ukraine.

INOAC has developed CALMFLEX material, a sound absorption and damping material utilized in various applications. How is CALMFLEX superior to more conventional sound absorbing and damping materials?

Polyurethane has a unique sound-absorbing function. This material has a long history of more than 50 years. To give you a good example of CALMFLEX’s superior performance: in European and American houses, kitchens often have noisy disposal units. As consumers stayed at home due to the COVID-19 pandemic, people demanded noise reduction properties. To answer this demand, we surrounded disposal units with a special polyresin based on CALMFLEX. This product was a real success.

To reduce the noise of EVs, we surround the engine, the motor, and the tires with a functional foam. We use polyurethane, compared with other materials, because of its sound absorption properties.

CALMFLEX has two unique properties: one is to absorb sound; the other is to cut sound transmission. CALMFLEX is mostly used for making houses and buildings. In Japan, building large houses similar to those in America is impossible due to space limitations. As such, Japanese apartments require strong sound barriers. Nowadays, pianos are not so popular, but 20 years ago, every family had one, and they made a lot of noise. As such, I previously made a company that manufactured sound insulation materials for rooms with pianos in them. When they put a piano in a room, we would also put some insulation material on the wall. Children and young adults could then play the piano with a sound barrier, and without bothering their neighbors!

PU material uses a chemical called polyisocyanate along with many additives. To differentiate ourselves and offer total solutions, we supply those materials as a “system.” Not only are we able to make the final material, but we can also make each component required to make the final material. This allows our clients to use insulation technology without necessarily recruiting chemists, so we call this business “system supply”.

This business model was originally developed by BASF. We previously made a Japanese joint venture with them to supply those materials to many industries. For example, refrigerator companies use PU for insulation, but the material is also commonly utilized in the construction sector. To be competitive in both markets, we supply different systems tailored to the demand of each client.

These chemical processes are conducted at our special factory located near Tohoku, where we import raw materials from overseas, especially from Korea.

 

Can you tell us more about your R&D efforts?

Our R&D activities are conducted on a global level. We employ young chemists and dispatch them to the US and Germany so that then they can study new technologies. As the Japanese market is much smaller than the US one, we send many employees to America and also recruit local talents.

As I mentioned earlier, our managers overseas are mostly locals, not Japanese. The Japanese work only as assistants. This approach is the reason why our company has been successful in its oversea expansion. Today, the US market drives one billion dollar worth of revenue for INOAC. Our Chinese and ASEAN operations each bring in a billion dollars and our Japanese one brings in two billion. While we predict slow growth from Japan, Southeast Asia still has room for expansion. Furthermore, we have been in North America for over 40 years and in Mexico for 30 years. Looking at the future, we will continue to invest in North America.

In Japan, we conduct advanced R&D. However, if we were to only conduct R&D in Japan, we would be unable to catch the needs of oversea markets. Consequently, we also conduct R&D in New Jersey and China, as well as in Singapore and in other Southeast Asian countries, especially Thailand where we recently built a plant.

During the COVID-19 pandemic, global trade and international supply chains were destroyed. To react to this disruption, creating a standardize process for production is of paramount importance. While standardizing chemical production is an expensive endeavor, it must be done. Standardization allows us to be more flexible and to enhance our BCP capabilities. For example, if something is wrong in our Chinese plant, we can switch production to Vietnam or Thailand. This allows us to support our clients despite supply-chain disruptions.

 

What development areas are you currently focusing on?

The creation of environmentally-friendly products and production processes is a key focus of our R&D. We actively conduct chemical recycling operations and have signed various partnerships to develop eco-friendly products, such as eco-sponges. For example, we successfully developed a bio-foam that is now being used for sponges. While inconspicuous, foam is a material utilized across many applications, including in women’s bras and underwear. As brands become more eco-friendly, the demand for our product increases. For example, a famous fashion brand utilizes our technology. To a large extent, one could say that while INOAC is not visible, it is playing an important role from behind the scenes.

When I was young, we went to the USA to make plastic bottles for cosmetics. At the time, cosmetic companies wanted to find an alternative material to glass. Glass is heavy, which leads to high transportation costs, and it easily brakes. As such, cosmetic manufacturers were looking for an alternative that was lightweight but that looked similar glass. At the time, we were the only company in Japan that could make a plastic-alternative to glass. Convinced by our offering, the director of a large cosmetics company came to us and we began providing our material to them. In the early 1980’s, the JPY was weak relative to the USD, so we shipped our bottles to the US on a daily basis. In 1985, the JPY became stronger and INOAC began making these containers in North America directly, which led to the opening of our American plant.

 

Are you currently looking for more joint venture or M&A opportunities in overseas markets?

Yes. My policy is that in every country, be it the US, China or Southeast Asia, we always make partnerships with local people. This has been my policy for many years.

In previous times, when Japanese companies went to Southeast Asia they would bring with them Japanese customs, such as rising the Japanese flag and conducting early-morning meetings. I was one of the first to oppose this practice. At INOAC, we create a work environment that is suited to the location at hand. In Indonesia for example, our employees need a place to pray, so we installed a place for worship on cite. My policy is to respect local culture and to we respect local people.

 

Imagine we come back to interview you again in 2026, for the 100th anniversary of the company. What would you like to have achieved by then?

INOAC’s policy is to create a business environment that benefit employees, clients and the areas where we conduct business. In Japan, we have factories from Hokkaido to Okinawa and in every location we aim to contribute to the local society.

No matter the location, no matter the country, growing with the local region and the local people is our policy.

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