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Kanase: The go-to manufacturer of acrylic sheets

Interview - July 4, 2023

Specializing in acrylic sheets and polyester buttons, the century-old Japanese company Kanase boasts a fully integrated manufacturing process:it crafts its world-class products from resin materials created in-house.

SEIDO KANAYA, REPRESENTATIVE DIRECTOR & PRESIDENT OF KANASE INC.
SEIDO KANAYA | REPRESENTATIVE DIRECTOR & PRESIDENT OF KANASE INC.

Over the past 30 years, we have seen Japanese firms face very stiff competition from regional manufacturers in countries with lower production costs. This resulted in Japan being pushed out of mass markets in electronics and certain plastics. However, Japanese firms still dominated niche application markets. As an example, Nippura has the world's leading share in acrylic tanks for aquariums. How do companies like yours remain competitive despite stiff price competition from regional neighbors?

Our market is purely domestic. We are not competing against foreign markets. Within the last 20 years, the Japanese market has been shrinking and it will continue to shrink in the next decades due to demographic change. We only have about 800,000 new births yearly and new companies are not attracted to a shrinking market. There is already stiff price competition domestically because there are plenty of suppliers and products. The only way we can survive in this market would be to increase our share. It does not necessarily mean expanding but it means we have to maintain our share. In order to maintain our volume, we have to increase our share because the whole pie is shrinking. We have to provide convenience to our customers. We have to determine what customers want when it comes to acrylic sheets, and we have to make our products stand out from the rest of our competitors who are making the same product.

Customers want good quality and cheaper products with quick response and quick delivery. In the acrylic sheet business, we are competing against Mitsubishi Chemical, Kuraray, Sumitomo chemical and many other blue chip companies. For them, the acrylic sheet business is just a tiny part of the picture. In our case, it makes up the majority of our business. This makes our motivation to promote our business naturally stronger than our competitors. Right now, the acrylic sheet business in Japan is a little over USD 100 million on the manufacturer's side. We have a 20% share. We can still expand our business even in this small-size market. For blue chip companies, even if they take the entire market, it is only going to be about JPY 15 billion. We are a little bit more successful than the other competitors because we are a bit smaller. This is our main business.

Because we are smaller, our decision-making in investment or price cutting is quicker. For example, if a customer wants 10 acrylic sheets, I can call the head of the factory to change production immediately and finish the order in one night and ship the next day. Customers can receive their orders in two days.  In contrast, when customers call bigger companies, they might be able to get the same products, but you will receive them a month later. There is a big difference in delivery time.

 

Japan has a shrinking population, and it is the oldest society in the world. This creates certain challenges such as the shrinking domestic market and tougher HR competition for young graduates. What have you identified as the core challenges and opportunities that Japan’s decreasing demography is creating?

It is a challenge to conduct business in a shrinking business. It is not easy to increase our market share either. All the wholesalers already have suppliers whom they have been doing business with for decades.  We have to cut into that market. It is not easy to recruit young people to our factory. Hiring is not as bad for us as other companies in our hometown because we have a good reputation locally. No one knows us in Tokyo, but everyone knows us in our hometown, and this makes a difference in recruitment. The Japanese market is not suited for mass production products due to the shrinking market. This means that the threat from overseas products is minimal. The demand is shrinking, so the Japanese market is not an attractive market for foreign companies. China, India and Africa are the most attractive markets for all companies in the world.

 

There are different ways of manufacturing acrylic sheets. One is injection molding that utilizes granular pellets. There is also the extrusion method which is the most popular one. It is generally used for mass production and is very easy to automate, but it creates a less flexible production method. Your firm specializes in a third technique which is casting. Casting is known to create more complicated shapes, textures and figures. What made you decide to stick with casting?

It was my grandfather’s choice. In terms of initial investment for building an acrylic sheet factory, casting is cheaper than extrusion. I thought about starting a new line of extruding acrylic sheets, but we did not pursue it because it was not profitable. In Japan, the price for cast acrylic sheets is more expensive than extruded acrylic sheets because the quality is different. When it comes to thickness, extruded sheets are more accurate than cast ones. Casting sheets are made one sheet at a time and pour the liquid into a mold. Extrusion is like a printing machine. Pellets are poured and then heat is applied to melt them. Then they go through the rollers and get extruded. It is far more productive than casting. Machine lines for extruding acrylic have to run 24 hours every day. It is meant for continuous and big-quantity production and is not suitable for small quantities. The Japanese domestic market requires high-mix low-volume products with quick delivery times. The market has changed now to where it suits our way of production.

 

You have your own proprietary method and thanks to this method you are able to create your own chips and processes. Kanese Lite has a very high molecular weight which means it has increased strength and chemical resistance. What applications do the high molecular weight allow you to achieve that other methods would not allow you to?

Different companies have different recipes to make it. Our current way of making our sheets has not changed that much since our company started, but we are making progress on producing different grades of our products. When we started, we only had one product with different colors, thicknesses and sizes. Now, we have different varieties depending on which market we are in. This sheet is used in products such as aquariums, sign boards and displays. Different customers have different ways of using acrylic sheets and they have different needs depending on which product they use. We have to tailor our products according to their needs. To do that, we have to stick with casting acrylic sheets.

 

Is there a particular application of your product that you are most proud of?

We are making acrylic buttons. They are not selling very well at the moment, but it is a product that is unique to us. We are the only ones who can make it. About 60 years ago, there were clear buttons in the market, but they were molded. Molded acrylic buttons are not so resistant to heat or dry cleaning, so they have been removed from the market. Six years ago, we created a special acrylic resin just for buttons that is heat and chemical resistant. The environment that buttons are subjected to is quite tough for any plastic. They are constantly subjected to high heat when put into washers and dryers. They are also subjected to dry cleaning solvents and chemicals. The raw materials used for buttons are very limited and acrylic resin was not a part of it. We created a special resin that is durable to make buttons suited for daily use. We are very proud of it.

 

From an engineering standpoint, one of the biggest disadvantages of acrylic is its low resistance to heat. It also gets easily scratched more than glass. How were you able to create an acrylic to make buttons that can withstand heat?

It was out of necessity. We used to do black buttons from casein resin which is from milk. About 30 years ago, the price of casein skyrocketed, and we lost our raw suppliers from New Zealand. Button manufacturers or other casein resin users worry about cost and quality. It was much easier to make cheese, butter and other dairy products instead of producing casein, so we lost our casein black buttons.  Casein black is a special kind of black. We can never make a pure and shiny black button from polyester. Since we were working with acrylic, I thought of making buttons with it because acrylics make really nice blends. Our black acrylic sheets are used for piano legs. Producing something black is not easy because black has many tones. Acrylic resin used for buttons is not sold in the regular market because they are completely different. We somehow succeeded in making it. We did not have it patented because we know that no one can make it. Also, if it gets patented, the information will be shared in the market. We are afraid someone will copy it.  

 

Are you planning on exporting your unique technology designed to create acrylic buttons globally?

We are trying to export, but the current international market is very particular about pricing. The buttons are too expensive for them. We sent our catalog to major apparel companies. Unfortunately, there was not much interest shown about six years ago. However, it might be different nowadays because of SDGs.



Your firm originally started as a button manufacturer. You have a famous trademark in the industry like the ivory elephant. You have also diversified to create more environmentally friendly products. Can you please give us an overview of your history in the button business, and what is the role of the button business in your business Group which also includes acrylic sheets?

My grandfather started the company when he was 20 years old. He started making shell buttons from sazae shells. At the time, sazae shells were used for men's underwear. He was not the first person in our hometown to make these buttons, but he became the most successful and the biggest maker even before the war. During the war, we made buttons from local trees because procuring raw materials became difficult. We were supplying buttons for the navy. Since we were supplying buttons for the navy, they come to our factory about once in three months under the guise of inspection. There was a huge shortage of food at the time for many people, but the navy officers had plenty of food and supplies. My father said that when he was young and the navy officers came, he always had Japanese sake, beef and sugar which were very rare for most people. After the war, there was even more of a food shortage because the navy officers stopped coming.

After we started with the natural shell button business before the war, we also imported ivory nuts from Ecuador. It is one of the major naturally made buttons in the world. Ivory nuts are seeds of a palm tree. The seed is a bit smaller than a fist. The outside skin is dark brown, but the inside is ivory. It was easy to turn shapes out of the nuts. In dyeing the buttons, the most important part is to make sure that the color does not bleed into the clothes. We normally do not use ivory colors, so we dye the buttons black dark gray, brown and other colors. The dyeing resiliency of ivory nuts is very high which means that the pigments on the buttons stay for a very long time and they do not bleed. We are still making these buttons and buying the nuts from Ecuador. After the war, we started making patterns from classic materials such as polyester resin, casein and urea. Chemical products are good for mass production.

The 50s and 60s were the times for exporting overseas, and it was not just for companies like Panasonic and Sony. At the time, fiber-related business was the top industry in Japan and not Toyota or Nippon Steel. In developing countries, light industries pick up first and heavy industries come later. The '50s was the era for light industries and we exported overseas and to Southeast Asia and made big profits at the time. We were exporting about 70% of our products overseas. It was the golden age for the “ivory elephant”. We bought the patent from a US company called Oceana International Inc. and that turned out to be the bread and butter for our company. These buttons made us the most profits then because we're the only producer. When we bought the patent for USD 3 million at the time, it did not sell at all. Both my grandfather and father were wondering if they should extend the contract since it did not make any profit at all. However, after my father left Japan for New York, the orders started coming in so they decided to renew the contract.

The next 15 years was the era for Perma Pearl. That was the product that provided a good foundation for our company. Back then, we could not really pay USD 3 million right away to the American company because there was a law limiting foreign exchange. The owner of the pearl essence, Mearl Corporation, believed my father and agreed to loan us the whole amount and wrote us a check so we could buy their pearl essence. We paid a little extra when we paid back the loan, and it took us about 3–5 years to pay them back.

 

In your production model, your company has a manufacturing base located in Japan and China. Can you tell us how these factories are complementary to your production system, and how do you ensure that the quality of your Chinese factory keeps the standard of the brand?

Our factory in China was originally located in Hong Kong, near the old Hong Kong airport. The area is called Kwun Tong, which is an industrial area. In Japan, people think that the factories are barrack-type buildings. In Hong Kong, factories are tall buildings with different factories on different floors. Union Button was on the top floor which was the tenth floor and the rooftop. Union Button was originally owned by a son of a very rich Shanghai-based garment factory owner. During the revolution in '49, he escaped from Shanghai and came to Hong Kong and established Union Button. They were our customers. We were selling blanks to them. Blanks were not finished product buttons. They were round-shaped. After buying them, they need to be polished, holed and finished. The owner's children were working in the United States, so he thought of selling his company either to Dai Nippon Ink who was selling them polyester resins or to us who was supplying them with blanks. He decided to sell the company to us with no written contract. This shows the deep mutual trust that existed between the companies. We paid and he handed us the shares. The factory was located in Hong Kong when we bought it, but Hong Kong was not suitable for manufacturing. Later, we moved the factory to Shenzhen.

At the time, Shenzhen was not a big city like it is now. It was a small city and there were no expressways. It was difficult to go to the factory site but after China took off. Shenzhen is a totally different city now. The biggest issue for us in Shenzhen was the insufficient supply of electricity. There were a lot of limitations imposed on the usage of electricity. We could not run the factory like we wanted. Sometimes, we have to stop production three times a week. It was hard to do business in those conditions, so we decided to move our factory to where it is right now. The button business for the last 20 years was tough. Even in Japan, we have been losing money for the past 10 consecutive years. It is a money-losing business for us. In China, it was only profitable for the first 20 years, and then it stopped making profits.

 

Are you planning on sticking to it?

It is not that easy to shut it down. Had we been a big corporation, we would have shut it down a long time ago. The reason why we are keeping the business is that we still have 50 employees in the Japanese button division. It is one of our social responsibilities to keep our employees’ jobs. This is the reason why I have been very patient up to this point. The situation is the same in China. Eventually, I might have to make a very difficult decision.

 

We have seen the importance of partnerships within your business history. We talked about the patent from the US company and the acquisition of your Hong Kong firm. Looking towards the future are you looking for similar partnerships in terms of collaboration or acquisition like you did in the past?

We are open but we are not actively looking for any partners or considering any acquisitions right now. When it comes to M&A, I am not really interested in buying a company in a remote place either in Japan or overseas because if I acquire any new company, I have to take care of it. I am already old. I don't really want to go to a remote place in Africa or India. It will be tough for me. At my age, it is not easy to travel. Even going to Hong Kong and China once a month is not as easy as it used to be.

 

Regarding your international business, you used to sell your buttons internationally. Today, what is the importance of the international market to your company

The international market was not too attractive for us because of the pricing issue. However, the situation has changed compared to 10 years ago and the yen is much weaker now. If there are possibilities of exporting overseas, we would consider it for sure.

 

Since Covid, we heard many interesting claims from our interviewees that manufacturing will come back to Japan. Can you see manufacturing coming back to Japan?

I think so. On the other hand, due to the demographic change, it is not as easy to open a factory here. Even with Sony and TSMC making semiconductors, I am not sure how many people they are going to hire.

Up until recently, it was difficult to export due to the price difference, but the prices in developing countries are increasing yearly. This means that our window of opportunity is getting wider. Union Button was an independent entity apart from it being a part of our company. They have their own history and customers which are American apparel like Polo, Calvin Klein, Tommy Hilfiger and others. We also serve Uniqlo from the Chinese Union Button. We sometimes buy from them. Most of the time they do their own business. In terms of the market, we are neither competing or cooperating. In terms of engineering, we share our know-how and learn from each other.

 

You moved to Tokyo from University and had your doctorate in political science at the University of Chicago before working in a foreign bank in the trading division. It is quite a unique background for a president of a monozukuri button and acrylic sheet business. What advantages did your experience in banking and finishing an international degree bring to you?

When I studied in the US and stayed in Chicago, I made many Asian friends. Many of them were Chinese who are now in Hong Kong, Singapore, and Jakarta. I am still friends with many of them and I consider them a treasure. I also worked in a US bank for six years at a trading desk and derivative products. The experience allowed me to be able to talk to any bank in Japan on an equal footing. Our borrowing cost is extremely low. Last December, we borrowed JPY 5.8 billion for 20 years to build a new factory in Wakayama. Our average cost for 20 years is 0.48% which is extremely low. We could borrow the funding so low because of my financial background.

 

If we come back on the last day of your presidency, is there a certain goal, message or achievement that you would like to accomplish then?

We are building a factory that will be completed next March. During the golden week of 2024, we will move our acrylic sheet factory to the new location in Wakayama. Some people think that we have a huge debt, and it is twice the amount of our annual sales which could be a source of great financial pressure on me. Personally, though, any issue that could be solved by money is not an issue for me. I do not have a son, so the biggest pressure for me is deciding who will take over my position. I will feel accomplished if I find a solution to that. There are only two ways of solving my predicament. One would be to make the company public, and another would be to sell. I would like to sell to our foreign or domestic competitor. I would not like to sell my company just for funds. Ever since I worked in finance, I never really liked money-oriented thinking.

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