Kawaguchi Group: The total solution provider in agriculture

Japan has a super aging society and while that is not necessarily true when you look at big cities like Tokyo and Osaka because the population there is growing, it’s the regions of Japan that are becoming depopulated, people are leaving. As such the government has made a very big effort to create regional revitalization, encouraging people to stay, to create businesses. As a company which is a historical company of Tottori, what do you think is your responsibility in helping towards the revitalization of Tottori, your region?

Speaking of our contribution, from my personal point of view as someone born and raised in Tottori myself, I feel a contributive spirit in myself, that I have a duty to contribute to the society of Tottori prefecture and do something because as Tottori is a very small prefecture by population ranked 47th out of 47 in Japan, the numbers speak for themselves. Tottori has a very low number of inhabitants, in fact many people in Tottori have never ridden on an airplane to Tokyo, even within the Kawaguchi group company there are several people who still haven’t been outside of Tottori and visited the big cities in Japan.

However, in the early stages of my life I moved to Tokyo, studied at University and then moved to the United States for graduate school. Now, when I came back, I still felt a strong connection to Tottori and wanted to contribute to the stability of the region, and show the wonderful people and miraculous points of Tottori to the world. It feels like a personal responsibility, that I have a debt to the region of Tottori and must show the people here that the world is a miraculous place full of undiscovered beauty and opportunities to find themselves. I believe that by connecting Tottori to the world, to some extent introducing Tottori to the world, I can be a kind conductor.

Today, your firm has three main business divisions. You have your agriculture, packaging and agri-solutions division. Secondly you have your pet food division, where you produce food for dogs and cats, and domestic animals. And thirdly, you have your High-Tech Battery Division. These are three quite distinct business lines. Can you explain to us how you are able to create synergies between these three different business lines, and give us a quick overview of your business and of the choices behind these three divisions?

It seems like you already understand our business lines and that you’ve done your research about the company so maybe I don’t need to go too in depth but…

I came back to Tottori from studying in the United States 11 years ago and am now 47 years old. At that time I really inherited the responsibilities of this organization in earnest. At that time, the company was focused on wholesale enterprises. Looking back now, I could easily see that this was not the right approach for this company. There is a flow to business outlines and operations, usually there is a manufacturer, wholesale, distribution, logistics, retail etc., we used to be just a step in this flow, but over the last decade have reorganized ourselves to have a more comprehensive approach to our business.

There is a very Japanese perception that we are villagers or commoners that share our enterprise and actually work not for personal profitability but to contribute towards a community good, for the region or the country. This used to be a very common mentality in Japan, and is still in many ways present here. My role in our recent transformation has been coordinating a 180-degree shift away from this older perspective. Japanese society has a strong middle class and is not a “super rich” society, the overwhelming majority of people are middle class. Even wholesale has its own subdivisions, first wholesale, second, third, all the way to the bottom. Everyone serves the same goal to create regional wealth, but not for themselves, this is the traditional way of thinking.

On a day to day basis business is getting more stiff and competitive, that’s the effect of globalization as companies must catch up with the times. It used to be okay in the 20th century but now there are so many other global companies that do business with more transparency, and no boundaries crossed. Earlier you mentioned Japan’s deflation, deflation happened because of Japan's history as a society, as an economy.

When I came back 11 years ago, we were at a crucial turning point. I felt that I had to diversify and find a new direction for the company. Are we going the way of retailing, distribution, or staying with wholesale? I compared Japan to other countries. Of course being an island nation, agricultural methods here are different but we have a history of producing and exporting crops to the world. China and other mainland countries have a very different and much less sustainable mentality when it comes to agricultural production. Why not take advantage of our historically artisanal and sustainable mentality and become a more retail oriented company, rather than marketing ourselves like companies in China or America. Tottori is also known for its disparity in temperatures. We have very hot summers and very cold winters. I believe it is an absolute necessity for people in cold areas to be innovative when it comes to food production. That is the reason I wanted to shift our agricultural focus away from wholesale and into retail.

You mentioned Japan’s unique business structure, and how your company is different, having adopted a D2C (Direct to Consumer) model. The D2C model has many advantages, but it has certain disadvantages such as a high demand for equity, to set up direct channels in order to bypass all the other retailers. I understand that in Japan, and as a Japanese company it may be easier, however your firm is also present in Bangladesh, the United States, and Mexico. From an international perspective, can you tell us what are some of the advantages of your D2C model?

We are located here in Tottori which is the main office and plant for the company but yes, it is possible to adopt our D2C model to our operations in other countries. For example, our battery division in Mexico is basically focused on assembly, but then finding our end users in the US is direct marketing and direct sales, by definition. The company doesn’t just expand as a manufacturing company but also with sales, which allows them to work on the same basis as in Japan, namely D2C. In Bangladesh we also have a lot of business integration but have more or less adopted the same principles of our D2C structure. Through localizing production and creating foreign sales offices, we have successfully been able to expand our business overseas. We are also already in the process of localizing production in Thailand, and have plans to do so in China.

I would like to talk a bit more about your operations in Mexico. We know that you have the High Tech Battery Division. This is a very exciting time for the lithium-ion battery sector as they are becoming more widely used in state-of-the-art manufacturing. Everyone knows about electric vehicles, but they are also used in drones, construction machinery, and in many other sectors. There are also certain challenges, for example, the stability of the components inside, and the recycling of batteries and their chemical components. Can you tell us more about how your firm is navigating the opportunities and challenges of the lithium-ion battery sector?

It is very true that local governments are very focused on recycling issues, especially for products which may be harmful to the environment. In Mexico we collaborate with a SDG compliant recycling company to manage our waste in a way that is as eco-friendly as possible. In many ways disposal in Mexico has been trickier than anywhere else, but we have been able to learn a lot from working there and apply those lessons to our operations in Tottori and abroad.

As you mentioned your firm has been in Bangladesh for some years, in 2016 you expanded into the United States with Riverd USA, you have a manufacturing presence in Mexico and are in the process of expanding into Thailand and China. Can you run us through your international strategy? What are some of the key markets that you wish to prioritize?

We actually had a manufacturing plant in China until 7 years ago when it reached its productive limit and was put on hold. It was decommissioned as the company was in the midst of its operational transition that I touched on earlier today. The company philosophy of creativity, people, agriculture, and food has always been the core of our operation. However, the time is now to embrace new managerial principles that are more in line with the future and our philosophy. To answer your question, these four words are actually embedded into our strategy. We are combining the meaning of manufacturing with the local people. As they are ones who physically manufacture the products, we want to embed their spirit and expertise into our products. We manufacture our pet food here in Tottori because of a particular sanitary certificate we have obtained. In Japan domestic food manufactures are the ones serving the domestic needs of people in Japan. As a result, for a long time there was no understanding of what “traditional Japanese” food that could be exported was. We’ve seen the success of manufacturers in other sectors like Panasonic or Sony in electronics in exporting their products overseas, so why not food? There is a huge market for Japanese food expertise, it's also a big driver of tourism.

By 2050 we’re going to be 9.3 billion people on the planet. It’s estimated that to be able to feed everyone, food production needs to almost double. This is obviously a big challenge given that the amount of arable is decreasing, and the high environmental impact of conventional food production. The question becomes, do we change our way of living, or can we produce more on less land? As a company that is very involved in the agri and food sector, and coming from Japan which was one of the first users of pesticides, and has one the largest yields in the world despite a very small amount of arable land, how do you believe we can address the future needs of global food production?

For some of the products that we have, such as our pet food products, we’ve developed our own cutting-edge retort sterilization process to extend shelf life by up to 2 years. This year and in the short term we are looking to shift into human food production as well as pet food products. The task of increasing the global food supply falls on a global chain, which we intend to be an important contributor to. The technology we’ve developed such as our heat sterilization and retort sterilization are a keyway in which we can contribute to addressing global food supply issues. Why do tourists from Asian countries come to Japan? There is obviously sightseeing, but we are seeing food as an increasingly popular reason for tourists to come to Japan. Japan is very disaster prone. The idea behind moving into human food production is to make healthy, delicious food with a very long shelf life in case of emergencies.

When we talk about pet food and certain types of agriculture, there tends to be a strong relationship with the consumer at hand. What the American market wants for an example, may be very different from the Chinese market. In terms of agriculture, there is a growing need in the sector to find local partners to co-create, to create ventures to meet the needs of different markets. Towards the future, is your company interested in creating co-creation partnerships or global ventures with foreign firms?

I want to emphasize our efforts to make human food. We’ve learned quite a lot from our overseas businesses and are now able to take more confident steps in a global direction. People in Japan are very sensitive to quality, especially in agriculture. We want to continue to develop our thriving business ecosystem, a circular economy in which our customers, retailers, and distributors are all happy with the price and quality of our product. To answer your question, we were only able to develop and have so much success with our business model because of the ideas and knowledge we’ve accumulated through our history of collaboration. In this way we can serve the people through our accumulated knowledge.

From an outside perspective, it may seem like we are spread thin across unrelated fields, but for us it makes a lot of sense as we’ve used the lessons of these fields and our experience abroad to find synergy between the strongest points in each throughout our 73 years of existence. Getting the best out of our products and technologies through our experience is our monozukuri style.

You talked to us about the circular economy you are creating in agriculture, how that links with your pet food and human food business. If we were to come back and have this interview with you again, let's say 3 years from now, what kind of objectives would you like to have achieved?

Growing within the agricultural sector itself is our goal. To grow more melons, strawberries, and other crops of the highest quality. There is also a manufacturing angle, in the sense that we are developing new ways to more efficiently pick crops. There is also a tourism/commercial angle, as people are increasingly interested in picking their own produce and things like this. We believe that there will be a large rebound in Japanese tourism after Coronavirus, and we will take steps to be ready for that. The new business concept we’re developing right now is focused on having an even greater direct relationship with our customers.

You became president in 2014 of this family business. There will come a time in which you will step down as president. Come that time, what legacy would you like to leave for the next generation?

The employees of the company are proud of what they do and the work they’ve done. Everything we do is for the community; we attract a lot of attention in this community and want people here to be proud of having us here and want to be involved with us in enriching our community. To create a buzz for everything we do, and to have pride in our company's work and our Japanese heritage of manufacturing. Kaizen does not mean improvement; it does not mean development. Kaizen is Kaizen. English doesn’t have a comparable world. It’s about getting the best out of what is already good. Excellency. That the concept has spread around the world of manufacturing is a source of great pride. I also feel that being able to impart what a wonderful legacy we have not only as manufacturers, but as a nation to the next generation to be part of my duty to the future of our company.