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Kaiho seeks to establish partnerships to boost auto parts recycling worldwide

Interview - March 11, 2023

A company that is focused on recycling and reusing auto parts, Kaiho Industry is an established international name which has developed an enviable network of alliances since being founded in 1969.


For the last 30 years, Japan has been competing with regional competitors in Korea, Taiwan and China who replicated Japanese monozukuri. As a company that is focused on recycling and reusing auto parts, what advantages have you seen with Japanese auto parts in your business dealings with international clientele?

This graph shows the percentage of new Japanese manufactured car sales in the global market. Japanese companies account for 30% which means that Japanese cars are well-received in the global market. Number 12 of the SDG goals says that both manufacturers and users bear a responsibility. The normal cycle in recycling begins with the manufacturers producing products and ends with end users using them. Recycling can only be done if people take care of what they have used. Manufacturers' mindset is just making good products and selling them. Our company recycles used products, which completes the product's cycle. We take care of all manufacturer parts for Toyota, Honda, Ford, BMW and many others, so we have to familiarize ourselves with all the different brands.


With the switch to EV cars and lithium-ion batteries, Japan has provided JPY 100 billion in incentives to create lithium-ion battery factories. Lithium-ion batteries contain many minerals such as cobalt, nickel, and manganese.  Currently, there are specialists that recycle each of these hard elements, but there is no comprehensive industry standard for the complete recycling of these batteries. Can you give us your take on how we can create a circular economy when it comes to lithium-ion batteries?

We have to learn about EV cars. This is a diagram of vehicle manufacturers and recyclers. The role of manufacturers is to procure raw materials from the earth to manufacture automobiles. Our role as recyclers is to dismantle used vehicles and resell vehicle parts. We separate all the different components, recycle them, and take them back to the manufacturers.  Continually digging for raw materials will cause damage to the earth, so it is important to recycle existing materials to minimize the damage to the environment.


Who do you think is ultimately responsible for implementing changes in recycling practices? Is it the consumers, private industries like yours, or a government-led change that is needed?

All parties need to have a measure of responsibility and do their part. However, it would be ideal if the government makes regulations to expedite the process. There are very few countries where the government is taking the lead in the recycling process. As a private company, we would like to take the lead in making a proposal to the government to encourage them to pursue a recycling society.


One way to pursue a recycling society is standardization. You introduced the Japan Reuse Standard (JRS) for used engines. It is a five-level assessment to check the quality of an engine. Can you tell us how this method of standardization reassures your clients and helps your brand as you expanded internationally?

Around 40 years ago, before the establishment of the JRS system, a car that broke down and was in need of an engine replacement was taken to a car repair shop. The car repair will then ask a car dismantling company for an engine replacement with less mileage. The broken engine is later taken by car dismantlers to be sold overseas. There used to be no standards for identifying the quality of engines. Overseas buyers try to purchase the engines at the lowest price possible, but the Japanese dismantlers would like to sell them at a higher rate. Oftentimes, the quality of the engines is low. Only when the buyers take the engines to their home country and check it out do they find out that the engines are no good. This is the dark business cycle that has been going on for a while, so we introduced the new JRS standard to determine and assure the quality of secondhand engines.


Your business has a number of stakeholders and you have a well-developed network in recycling. Not only are you forming alliances, but you are also engaging in education regarding recycling practices. In 2003, you formed the RUM alliance for motorization reasons. In 2007, you established the Recycling Education Center, and most recently, the KRA system. What type of alliances are you looking for in the future?

Our company established Kaiho Recyclers Alliance, which now has 90 companies domestically. We are the number 1 exporter in Japan in terms of used cars and car parts. We wanted to create a platform to share our extensive 53-year experience. Our goal is to make the transactions of used cars more transparent and fairer on both ends. The Japanese are not the best at conducting business overseas and they are often deceived. This alliance has been created to provide transparency in domestic and overseas recyclers and services. In addition, it also provides knowledge and training on proper recycling.

We are not actively seeking to expand our network overseas. We want to act as trainers or instructors in terms of car recycling. As an example, there are many vehicle dismantlers in Africa, but they only dismantle components that can be sold and then throw the rest of the scraps in the mountains, which causes damage to the environment. Once the government becomes aware of the situation and decides to address the issue, we would like to be available and offer our support to them.

An ICE (internal combustion engine) has roughly about 30,000 different parts and components. However, the next generation of cars is simpler. We are going to see certain countries worldwide transition faster to these types of vehicles, but places in Africa and ASEAN countries will still keep using ICE engines for many years to come. Can you tell us how you foresee your international business developing in terms of the type of cars you will cater to? Do you still plan on focusing on ICE engines, or will you be adapting to both types of cars?

While there is a transition to EVs in developed countries, developing countries will continue to use gasoline and diesel-fueled cars. There are currently about 3300 companies in Japan that recycle vehicles. There were over 5,000 ten years ago. About 2,000 went out of business within 10 years. The number of recyclers might decrease by another 2000 again in the next 10 years. We have to be flexible and respond to the changes in the industry in order to survive. We need to be able to recycle EVs while still providing our current business overseas.


We see that you have the Robotics Process Automation (RPA). Can you tell us more about how you ensure that the right component reaches the end users?

Our reason for creating the RPA system is to determine the exact parts needed by a client and have an inventory to check for availability. We currently export to over 90 countries. As an example, Russia might have a very popular second-hand Japanese car market. However, the same Toyota Corolla model might require different parts depending on where they were manufactured. The Toyota Corolla manufactured in Japan would require different components from the one manufactured in Thailand. With our 53 years of experience and accumulated data, we can tell right away what is needed by the buyer. The usual business model of recyclers is to invite buyers to their factory when they dismantle the vehicle and then let them take all the parts, so some specific data is not obtained by recyclers. However, our company has a digital database that helps us provide our service to the international market.


Your company has been recognized in recent years. In 2020, you won the Forbes Small Giant Award. This year, you received two Awards - the GLOCAL award and EY Entrepreneur of the Year award. Since your establishment in 1969, which of your company's milestones are you most proud of?

The biggest turning point for the company happened in 1990 when my father realized that automotive parts that were considered scraps actually have value for foreign buyers. He was operating a scrap dismantling company when a foreign buyer visited our company to purchase parts from his mountain of scraps. It was then that my father realized then that it can be a good business. He is unique because he really liked foreign people, which helped him establish good relationships overseas and create a new chain of business.


This year, Japan's population dropped below 126 million for the first time in record years. Only Okinawa among the 47 prefectures saw a rise in population. Not only is the population declining but it is also aging. How will the population change affect your business, and what steps are you taking to deal with the situation?

With the population decline, there is a shrinking of the market. There would be less demand for new and secondhand cars. However, the population overseas is about 8 billion, so there is a growing need for new and secondhand cars. If second-hand cars sell well, there would be a demand for second-hand part replacements. Currently, 75% of our business is export. We are trying to create alliances overseas. With Corolla Thailand and Corolla Japan having incompatible parts, we are working together with recyclers in Thailand to create a three-country network. We can ask Thai recyclers to dispatch their component parts to our customers.


Your company operates internationally. You have a recycling plant in Minas Jorais, Brazil, a joint venture in India, and car auctions in the UAE. What are the benefits of your international relations to your current business, and which countries and regions do you see the most growth potential for your business?

India is a growing market that we are currently focusing on. They have a population that is 10 times that of Japan, and there is a growing demand for vehicles. Recently, the government has become aware of the environmental issues, so automotive recyclers need licensing from the State. We currently have an accredited license from Haryana State, but we want to expand and receive licensing for other states so we can expand our operations in India and UAE. It will act as our hub for Africa and the Middle East. By expanding and solidifying our business here, we can penetrate other markets.


If we come back to the last year of your presidency and interview you again, what dreams and goals would you like to have achieved for the company by then?

I always tell my employees that we have to be proud of our business operations in providing a recycling service to our clients. My biggest goal is to create a world that is cosmopolitan, which means that people are inhabitants of the earth, not a specific country or nation. The earth is an entity that is not owned by anyone. People out of their self-centeredness created borders and confined themselves to the land. It is selfish because it is just about achieving a win situation only for themselves. We want to take out the concept of being separate people and promote unity, where a surplus in one part can offset the lack in other parts. This can be food to eat or land to live in. The concept of not taking but giving to other people is important and it is something that I really would like to achieve.