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IT & AI: new frontiers for bearings industry

Interview - April 5, 2016

Founded in 1916 and the first company to produce ball bearings in Japan, NSK has spearheaded the development of the bearings industry and has impacted greatly on the growth of many other industries, and to the advancement of mechanical technology. NSK’s President Toshihiro Uchiyama reveals the extent of the company’s influence on a wide range of products, from automobiles and trains to fridges and VCRs, and where the next challenges lie as it aims to double in size over the next 10 years. 

TOSHIHIRO UCHIYAMA, PRESIDENT OF NSK
TOSHIHIRO UCHIYAMA | PRESIDENT OF NSK

NSK is now one of the most prominent manufacturers of bearings globally and the largest in Japan. What has been the secret behind the creation of such a successful entity?

After World War II, Japan started to re-enter the global economy, starting with the development of the steel industries, followed by electrical appliances, automotive and then the machine tool industry. The country developed various industrial segments, which grew as the national economy itself grew. NSK has been very lucky to work with many of the prominent manufacturing companies of Japan, and to grow along with Japan itself after World War II.

At first, NSK was leaning more towards the heavy-duty industries, such as steel mills, as steel was the core material for post-war economic growth. Japanese steel companies, like today’s Nippon Steel & Sumitomo Metal and JFE, had to produce high-grade steel so that Japanese manufacturing sectors could benefit from these qualities in the production and development of their own products. NSK contributed to the steel industry, making steel mills more quality oriented through our bearings. In return, we also benefited from using their high-quality product in our bearings.

After providing high-quality bearings for the steel mills, we moved into the electrical appliances industry, working with companies like Panasonic, Sony and Toshiba when they started to heavily export refrigerators, washers and cleaners to the US and European markets. We provided these companies with lower noise and longer life bearings, hence contributing to the improved quality of their products.

After that we moved on to the automotive industry. We learned a lot by working with automotive makers that faced high demand and had specific requirements in order to make their products better than their competitors. Under such conditions, we had to come up with high-quality bearing solutions that could enable them to be competitive and grow their business worldwide.

NSK started its global market sales in the 1970s, exporting our products from Japan to other countries. This at first created friction with the receiving countries, like Europe and the US, where we faced anti-dumping cases. Therefore, we decided instead to manufacture our products directly in the countries where we market and sell them. NSK was in fact one of the first Japanese companies to expand globally, setting up production in the US, Europe, and even in Brazil. Other manufacturers in the electrical appliances and automotive sectors also started to move into these regions in the 1970s.

NSK has also been involved in the production of VCRs (video cassette recorders). For these highly electronic devices, we were asked to come up with high-precision, low-noise bearings. If the bearings used in the VCR engine didn’t rotate properly and evenly, the picture on the screen would be blurred.

Another major and challenging industry where NSK branched into was the Japanese Shinkansen, or high-speed railway, which JR started operating just before the Tokyo Olympic Games in 1964. That was another challenge for us: we had to come up with bearing designs, which could withstand and endure extremely high-speed specifications. By working within these high demanding industries and with these companies, NSK developed a wide range of sophisticated technologies; and today, based upon these accumulated technologies we are able to work with US, European, and even Chinese companies to offer them all-encompassing solutions.

 

NSK’s share price has risen from approx. 450 yen per share to now more than 1,000 yen per share representing an impressive growth of more than double over the last four years. What do you think have been the key drivers behind such impressive growth?

Firstly, we were able to capture the growth opportunities in growing economies, such as Asia, and in particular China and India. We were probably one of the first bearing companies to go out to China and produce bearings there. Today, NSK is amongst the top manufacturers in China due to its past early investments in this market, which enabled us to capture growth opportunities in China as China itself grew.

Secondly, during these last four or five years, we were able to grow and develop our business – not just bearings, but also electrical power steering (EPS). Power steering used to be hydraulic power-assisted steering, but in order to make vehicles more fuel-efficient and environmentally friendly, automotive makers started to use electric power steering more and more in their vehicles. We first started development of this EPS technology about 30 years ago, but the market penetration at that time was very slow. It was only in the early 1990s that our automotive customers started to use EPS in their vehicles; but still they considered EPS too expensive compared to the existing hydraulic system. In the 21st century, automotive makers have become more fuel economy-minded and environmentally friendly, which has seen the approximate market penetration of EPS grow to around 70% today. As a pioneer of EPS we are able to enjoy a good market position and are currently ranked #2. The EPS business has grown considerably over the past four or five years, particularly in China, which has almost doubled. So geographically speaking, China is our largest market today, besides Japan, and most of our company’s growth, in terms of revenue and profits, comes from developing and growing economies.

 

You showed an encouraging 10% growth in operating income over the third quarter of the last fiscal year. How do you see the company’s positioning at the moment and how do you intend to move towards your next targets from next year?

Our financial performance for the last nine months has been pretty good; it has actually been the best over a nine-month period, helped tremendously by the weaker yen. However we are not satisfied with our performance over the third quarter (October to December) of 2015. The market demand has declined, especially in industrial machinery businesses, which has impacted our results. For example, the steel industry is not doing well, construction equipment is down, mining is down, energy is down, and electrical appliances is almost flat or down.

For us the only growth opportunities in the industrial machinery industry are coming from wind turbines, as well as from high-speed railways in China. The machine tool industry last year was also very good, as our major customers have been building small machining centers for smartphone manufacturing in China, which uses a lot of bearings and ball screws. However, with the smartphone boom now declining, the machine tool industry is showing weaker demand. The automotive industry, on the other hand, is pretty good, with the US posting record-high sales figures, and China showing strong automotive sales growth as well. Even though the growth has slowed a little in China, it still saw almost 24 million vehicles sold last year. This was particularly stimulated by tax reductions introduced for small cars in October.

 

The global outlook is somewhat uncertain at this time, we see rate rises from the US, negative interest rates in Japan, a somewhat sluggish EU zone, and slowdown in China affecting the rest of the world, making the future difficult to forecast. How are all of these factors affecting your businesses?

Yes, China’s economic slowdown will pose some difficulties in the short term, but in the mid to long term, China, Asian countries in general, and India will still grow. The GDP per capita and urbanization rates are still low in those countries. In 10 years’ time the growth will still be there, as there is a big demand for infrastructure in those Asian countries. While I admit there are some uncertainties today, we needn’t necessarily be so pessimistic about economic conditions.

In the automotive industry, we see developed countries, such as Japan, the US and Europe, shifting more and more towards electrical vehicles (EV) or autonomous driving vehicles. Even though EVs normally use a smaller number of bearings per car, I don’t think this will impact our business that much because EVs will require efficient transmission systems that will still require bearings. What’s more, those EVs will inevitably come with other technological challenges, for which we will be needed to provide assistance, and eventually NSK will be called to play a substantial role in the development of future EVs and autonomous driving systems. Autonomous driving is related more to the steering systems and brakes, where we already have EPS, and we will come up with new technologies that will adapt to the needs of ADAS (Autonomous Driving Assist System).

 

The company has 14 R&D centers; as part of your corporate philosophy you contribute to both the wellbeing and safety of society to protect the global environment. How do you encourage this culture of innovation at NSK and what general direction do you want to head in that regard?

First, everybody in our company should have pride in the products we sell. The primary function of our bearing products is to reduce friction in machines and systems. We are working daily to contribute to the world’s environment in such areas, as well as through our steering, where we are encouraging our automotive customers to change from hydraulic to electric. By replacing the hydraulic system with an electric system, we were able to reduce energy loss. Very unfortunately though, this change is not felt by the driver. As there is a risk of causing confusion if the driver were to feel a dramatic difference in steering between hydraulic and electric, any such difference is purposefully minimized. We are hiding in the shadows of these new technologies, but through EPS and the fine-tuning of ECU software, we have achieved a more responsive and stable steering feeling than before. These kinds of performance benefits are made possible precisely because of our products, and are passed on to not only our direct customers, but also to the end users.

We should be proud that we are providing such value to society and people, and I want our employees to be more conscious of this every day.

 

Can you tell us more about your innovative technology ‘integrated motion & control’ that you use in your slogan?

Motion and control does not just mean the immediately obvious of motion and control. Traditionally we have grown our business by working closely with our customers in Japan, and then in the US and Europe, but now we are trying to encourage our employees to think beyond our direct customers’ needs and to consider what our end user would need – for example, comfortable driving, safer driving and more environmentally friendly products. First, we try to think more about the final benefits that we can provide, then we work to create these and pass them on to our customers. So, we are not just providing solutions to problems that customers bring us, but we are endeavoring to offer more creative, forward-looking ideas to our customers before they even occur to them.

 

How do you see the progression of NSK in the automotive industry and what significant trends would you highlight?

The main trends in the automotive sector will revolve around environment, safety, and IT or artificial intelligence (AI) for the coming years. These themes have been quite constant though; there hasn’t been a breakthrough development really for the last 10 years.

As far as safety is concerned, safety awareness is getting higher and higher. Safety and quality consistency are the primary concern for NSK as well. We continue to work closely with our automotive customers to come up with ideas on how to secure safety in our products, both for our automotive components and the vehicle itself. We have introduced, in this regard, a global platform to cater for the needs of our customers in the automotive industry and increase our efficiency. This global platform means that there is one common platform that is used in the millions of vehicles out there, which forces us to deliver quality products on a consistent basis for our customers. If we hadn’t introduced this global platform, we would be left open to major recall or safety issues.

In regard to the environment issue, there are several approaches we can use to make the global environment better. Nowadays, people are getting more and more skeptical about the environmental implications of the current internal combustion engines, so that the sustainability and future of the internal combustion engine is now under question. We will therefore concentrate R&D efforts in this area for us to make the current internal combustion engines cleaner; while another option is of course to come up with a different system, like EVs.

In regards to IT or AI, this is a new territory or new frontier for us to break into. What sort of IT technologies can we introduce to our systems and our products? Our products are mechanical components so they can’t easily be converted into virtual bearings. However, many companies are working towards this new frontier so we need to consider working with these companies to come up with new technologies or innovations over the next 10 years. These may not be in the form of bearings or steering systems as we know them; we are open to any new ideas from our employees, other companies and partners. There are no barriers between our companies, so we encourage our employees to take advantage of this 100th anniversary event to be imaginative and see their ideas through.

 

Can you tell me about the importance you place on the US market and what you believe holds in terms of potential for NSK?

I worked in the US market for 12 years, initially working with Japanese automotive makers, and then to grow our business there. Before we even built the first bearing plant in the US in 1975, we provided bearings for electrical appliances such as refrigerators, washers and dryers, but that industry is almost gone in the US now. Therefore, currently we are in the process of shifting our engineering and sales resources to more traditional manufacturing areas, like the steel industry. Steel mills are very old, but there is still a demand for US-made steel. We are also in the process of developing business with energy-related companies, such as companies involved with oil reef pumps and compressors. We have not been so strong in these areas in the past due to product availability being impacted by an anti-dumping suit in the US. However, now that the anti-dumping suit has been resolved, we are able to supply from Japan or other countries to those industrial or general industry areas.

We already have a market position in the automotive industry, and if we continue our activities, as we are doing today, we should be able to grow that business even further. When it comes to the general industrial areas I mentioned, we still have a lot of room to grow. In order to penetrate these areas, we have to utilize our own technologies that have been developed and accumulated by working with our various client companies.

Our customers appreciate NSK particularly for its high level of service. Many US companies have found they have lost some maintenance technologies, knowledge and know-how over the difficult economic times. Many also have had to downsize or cut headcount in those supporting functions and are now looking at outsourcing for these services. NSK, on the other hand, has found itself giving bearing seminars to those companies who have lost this knowledge on how to use bearings, how to assemble them and how to take care of bearing operation. That does not fall into our high-tech services, but is a very basic and fundamental service that we provide.

 

NSK is turning 100 years old this year in 2016. Tell me, if you can, the measures that you have taken, or will take in order to ideally achieve the objectives for NSK Vision 2026?

In 2016 our sales revenue will edge closer to the 1 trillion yen mark. Internally, I am giving a higher target of 2 trillion yen by 2026 to our employees, which would require a doubling of our sales. I want to open up the boxes; I want our employees to think bigger about what can we do, what we should do towards the future; not just targeting 3% to 5% growth every year, but why not look at doubling our sales and tripling our profits? That kind of thinking will activate our employees’ imagination and ideas. They may at first get lost in what they should do to get to this 2 trillion yen mark, on how exactly we can double sales in 10 years, or double our size in 10 years, but these kinds of challenges will stimulate our people to think more.

Currently, thanks to our employees’ efforts our profitability is at a good level and getting closer to 10% operating margin. That means that we can spend money on our R&D, and we now have to come up with how and where to spend it. Profitability is key; if we are not profitable we cannot spend money or invest in our company’s future. Since we now have this profitability, we can look at the future, spend a bit more on R&D and consider M&A opportunities as well, if necessary.

 

Do you have a final message about Japan, innovation or about your company?

Regarding Japan, I believe that we are very good at taking care of people, of visitors and customers. Taking good care of customers is in our company’s DNA. We can listen to customers, we can work with customers, we treat our customers as partners, and we ourselves are partners to our customers – this is in NSK’s DNA. For our next 100 years, we want to add more to our skills, to our DNA, and we don’t want to limit ourselves to being just a partner to the industry, but we want to be pioneers and break into new frontiers by leading our customers to their future.

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