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Kaneko Cord: In support of the next generation

Interview - April 1, 2023

Kaneko Cord President Tomoki Kaneko breaks down his vision for how his firm and Japan can continue to support the medical and electronics sectors.

TOMOKI KANEKO, PRESIDENT OF KANEKO CORD CO.,LTD.
TOMOKI KANEKO | PRESIDENT OF KANEKO CORD CO.,LTD.

Over the past 30 years, Japanese firms have faced stiff price competition from Asian neighbors located in countries with a lower cost of production, nevertheless, we find that in certain niche B2B applications, Japan still remains extremely competitive, either through a technological edge or a large market share. How do you explain that companies such as yours are able to remain competitive despite this stiff price competition imposed by Asian manufacturers?

twenty years ago, when I was living in Singapore, I was still 27 years old and I was the president at that time. We had an office in Singapore, so basically we had a sales representative office for Southeast Asia which was dedicated for our telephone, our modular cords. We also had a factory in Suzhou, so we were trying to search for good, cheap materials from Southeast Asia, and trying to procure them. At that time, what I found out is that the telephone cords which I mentioned earlier were manufactured in countries such as Taiwan and in Southeast Asia, countries such as Malaysia – the same thing for roughly half our price.

Of course, with our price, it was uncompetitive. However, as I said, we were able to procure cheap materials and manufacture the same product in China with the same quality as that of Japan. Thankfully we were eventually able to have a competitive price, so we got a lot of orders from Japanese telecommunications manufacturers.What I found out is that this happened for 30 years in Japan. At that time, I knew that these local cable manufacturers were going to catch up with us and exceed us in 10 years’ time. I knew that we would have to find a new way and if we did not take any action for about five years, our company would go bankrupt.

Not only that, we faced two other major issues during that period, other than the cheaper manufacturers also producing something similar in the 1990s. Cordless telephones were disappearing and also around that time, mobile phones started to emerge again, so again, no need for cords. What was lucky at that time is that it was obvious that if we took no action, we would go bankrupt. In Japan we have this saying that if you put a frog in hot water, there’s an immediate response, but if you heat the water slowly, the frog will stay in the water. Luckily, we were the former. In other words, we were put in the hot water, so we were able to react.

I thought that our cord business was deteriorating, so what we can do there is diversify and that is why we started to tap into the area of the medical field. Having said that, we knew that these electronic cords were going to be deteriorating, but we had a lot of workers working on this. What we did was shift those workers to work on industrial robots such as robotic cords, and developed these kind of technologies where we would be able to shift from these mobile communications, to robotic industrial applications.

What was very good is that we had been having this technology involving telephone cords, and as you know, with the phone telephone cords, you move the phone around so that it has to have high strength or else it will cut off. We had that kind of know-how through our many, many years of experience.

Therefore, I thought that if we were able to transfer this technology to the area of industrial robots, because industrial robots move very quickly, I think that we would be able to create a very interesting market. During that time, what our competitors in Southeast Asia were doing is that these electric cable companies were trying to get market from home appliances. They were famous, large and they could also provide volume. However, we had a different eye. Of course, a lot of Japanese home appliance manufacturing companies are very, very strong, but I didn't think there was a huge future for them, so we focused on a different sector.

For sales, we focused on the kind of companies that had industrial machines, as we knew that this was going to be an industry or a market that was going to grow, so we targeted them in order to sell our cables, saying our cables were very strong and didn’t break. In the latter half of the 1990s, I'm talking about perhaps period around 1999, at that time China was still doing a lot of manual work. They hadn't really automated stuff, but we already had a factory in China in 1994. We knew that if we were able to have this robot cabling process, and we if we started to promote this, there would be a time when this would really flourish, so we waited.

 

You mentioned that the strength of your company was to keep the Japanese quality with cost competitiveness. When you work with companies like Fanuc, where they have stringent quality control measures, they demand the highest level of quality from their component makers. How are you able to maintain the Japanese quality in your Chinese factories or in your factories elsewhere?

Inside the electrical cable there's a cord. Initially we had to bring everything, materials and tools, all the way from Japan, and China was just an assembly point. However, that, of course, won't push down the price, so what we did was find a partner in the local market who would be able to produce these kinds of raw materials. As such, we worked with those partners in order to develop quality items that are equivalent to those in Japan. We were very lucky that a lot of people talked about the quality of Japanese technology, but we were able to find a partner that we could really trust.

At that time, most of the manufacturing machines we had were brought from Japan. Ideas on how to think and how to proceed varied greatly between the Japanese and Chinese manufacturers. For example, in Japan when you buy electrical cord, people use it for about thirty years. Just to give you an example, if they buy electrical lines from Japan, they will last 30 years but it would cost you 30 million, and you would obviously have to do the maintenance. However, in China, people buy things that will break after 10 years, but the price is 10 million, so initially I thought that being able to provide something for 30 years at 30 million would be better, but if you think about it, in a decade these kinds of new technologies will become obsolete.

To have this kind of cycle is a good thing, so what we did is we looked at various machines around the world and tried to take on the good parts that we wanted to incorporate and really work very closely with the machine manufacturer. By doing so, we would gradually be able to accumulate new technologies, and now I believe that there is nothing that the Chinese factory can't do in terms of developing electrical wire.

However, in the area of medical catheters there are still a lot of things that still require Japanese machines. I'm sure there will be a time when China has got to catch up, but as of now in the area of catheters, Japanese machines still have a competitive edge in terms of technology. As I said, in terms of the strength, we had the monozukuri we had the machines and also, very importantly, we had the people. Of course, you are able to create good quality stuff in China, but what is more important and harder is to sustain that.

In our market, we say a ‘champion sample’ is when these kind of supplies bring a product to a company. In order to promote it, they bring the best of what they've made, so all of the levels are very high, but what is important is to be able to continuously and sustainably produce it, and I think that really differentiates the strength of our company, so this is where we focus on.

 

From your point of view, what are the challenges and opportunities that Japan's current unique demographic situation is creating?

When I look at the short-term outlook, it is very positive. First off, the decrease in demographics is leading to more automation and medical sales. I already know that that will continue for the next 15 to 20 years, but thereafter even the catheter will start to see a decrease. I think there are still a lot of things that we can do. When you think about large companies such as Johnson & Johnson, they have a large share of the global market, but when.the global market share starts to shrink, their revenue sales start to drop, so it's a big concern for them.

However, we are different because we have so far been focusing on the Japanese market in terms of catheters and electrical cables. What we are currently working on is to tap into the outside world, so this basically in China. In 2011, we set up a catheter factory in China, where the market for medical catheters is at an early stage and is growing. Even after China, there's still a lot of markets which we are able to tap into such as India and Africa. There's no time to think, “all the market share is going to shrink because there's so much opportunity”.

What is interesting is that people's human body, regardless of your nationality, whether big or small in size, it's almost the same. However, with catheters, depending on the country, the required catheter is very different. For example, in countries such as China, annual health checks are not common, as they are in Japan. What happens is that when you don't have these regular medical checks is that when your body starts to feel something and when you go to the hospital, it's too late. Since Chinese people don't go to regular health checks, the catheter they need in China is the catheter you would use for a late-stage patient, whereas in Japan everyone is very diligent about taking their medical checks, so what is required is a catheter that you can use at the initial stage, as well as the other medical equipment.

Therefore, we already know that in China, once they start to have regular health checks, then the kind of catheter that would be required will also change. We already know that. We will try to find a partner who will be able to do the finished goods of this catheter to the very end, and work with them and say, “Now we're going to focus on this market.” We have a catheter, but I want you to acknowledge that we are not a manufacturer who makes the finished product and provides it to hospitals. We have been an OEM. In other words, we have been designing and producing as an OEM. We believe that if you try to do everything by yourself, it’s going to be very, very difficult so it depends on what type of company you partner with, like Foxconn in Thailand, that's how they grew.

What we've been able to establish over the course of the years is that, of course there are a couple of companies here in Japan that do manufacture these kinds of catheter tubes, but there aren't any companies that are able to do everything on an integrated basis from design, development and manufacturing to quality management. We are the only ones that can do that, and also, we are a company that is able to handle various kinds of materials. Various kinds of resins. We are something similar to Foxconn, and therefore when a company wants to manufacture or design a new catheter, a lot of these companies actually come to us.

 

Would you be interested also in countries with a similar market? Countries more developed such as Taiwan, Korea or even Europe and America for this catheter business?

In terms of electronics, as I said, we are focusing on China at this point in time, and it's because China has a market. It has the industrial machines as well as the robotics, and my philosophy when I invest in countries is that I don't want to set up a factory on a temporary basis because the labor cost is cheap.

This means countries such as the Philippines, Vietnam and Malaysia are not interesting because there isn't a market. If there is, if you try to sell the product in that market, that's kind of hard, but if there is no other market, Product A starts to not be able to sell then lots of companies have to retreat because you have no other alternatives. You have to be able to be in a country where there is a market. In other words, if it doesn't work, then we'll go and push for a Product B or Product C, and when you look around the world, there aren't that many countries that do actually have a market. There aren't that many countries, so for example in Southeast Asia you see opportunity only in China as of now, so we will continue to make investments in China. Similarly, we have been keeping a keen eye on India because again, India is a country that has its own market, so I'm sure that this is a market we’ll be tapping.

However, when it comes to countries such as the US and in Europe in particular, for in Europe there are a lot of very competitive industrial machine markets there. In other words, there are a lot of electronical cable suppliers, and the interesting thing about Europe, is that there are a lot of standards, so all of these companies that have been long established, have accumulated all of these standards and to tap into such a market as a latecomer, I believe, will take a lot of time and will take a lot of investment which I don't think is worth it, so I would therefore like to focus on countries such as India and other growing markets.

In terms of capital, we are already obviously invested in China. We already have a market presence there and also in Korea we already tapped into the Korean market 10 years ago, so we actually have a quite substantial market share there as well as in Japan. Currently, our catheters are mainly in Asian countries, but of course we are considering tapping into the US and European markets in terms of catheters, and that is because of this very stringent or very non-profitable business that we have in Japan because in Japan, with all of these surgeries or medical procedures, the government sets the price. If you do the surgery, you can collect this much. If you sell this medicine, you can charge this much.

In Japan, the Ministry of Health, Labor and Welfare reviews the price once every two months, so if you have a catheter that you were initially selling at 200,000 yen, in two years’ time the ministry will say, “OK, reduce that price to ¥180,000”, and two years later ¥150,000. In Japan these good quality products therefore start to drop in price. If I were to give you an example, this is actually a catheter that was recently certified and approved. The same catheter is worth over ¥700,000 in the US and ¥450,000 in Europe, and in Japan, it is ¥250,000.

This is an issue for the medical sector here in Japan, because the government holds such strong power, and they are very stringent on the price. Therefore, if we're making the same stuff, of course it's a no brainer to be able to focus on countries and regions where you're able to sell higher such as the US and in Europe. That is fine for medical companies such as us. Compared to the Japanese market, the US market is much more attractive, and I think that has to do with something that is very deeply rooted in the Japanese society.

In Japan, as you may know, we have this health card, where everybody pays. Basically, if you work in a company, you pay this through a certain health community, but all of these are currently loss making because everybody's old, and the government really needs to take the burden off the people, but they can't do that because they have a lot of problems.

The only choice they have is to have the medical equipment cheap, which is the problem. However, in countries such as the US, there is no such insurance for everybody. You have to pay, and the more insurance you pay, the better treatment you get.

If you do not pay insurance, you get no treatment so it’s very clear cut in what you can do. Therefore, we find markets such as the US to be very attractive. No one in Japan realizes this, but Japanese people are very lucky that they are able to receive this high treatment at a very good price.

 

In 2015, you created a food department shortly after you opened the Haruno Caviar Valley Farm, and then started developing this high, premium quality caviar. You also made an investment in 2020 in a company called Jaesto Aquaculture Business, located in Estonia, and we saw that you promoted Hull caviar in the Cannes Festival in Europe. We saw pictures at Buckingham Palace. What's the link between catheters and electronics, and this caviar-slash-food business, and what is your vision for the future of this business? Where do you wish to take it?

The premise is that I wanted to have a third pillar of for our business following the electronics and the medical business and that was, for me, the food business because I believe that the food market is going to grow very, very significantly and there are a lot of challenges. I really wanted to be able to have this third pillar related to the food business, and in order to tap into that, I chose caviar, but it's not that I wanted to do caviar, it was more that I wanted to get myself in the food business.

The food business is very interesting as of now. On one hand, there is a lack of food. There are food shortages and everywhere at the same time we see food loss. Everybody's wanting to have safe and secure food. There's a lot of modified food and also there's a lot of technology, such as being able to ship fresh food, this kind of infrastructure is becoming very widespread. There are modified genetic foods etc, and in order to tap into the food business, as I said, we chose caviar as a trigger because again, people think ‘cable’ then ‘caviar’, but for me it's the same. It's all manufacturing. We love manufacturing, this is our core business.

The only difference between a cable and caviar is whether it's alive or whether it's dead. We want to be able to produce and manufacture good quality things that will make consumers happy. All of that is the same. Obviously, they are making caviar in various factories. I’ve visited France, Italy, China, Russia and so on. What I found out is that Japan does have a very good opportunity because in Japan, the water is very clean and it's really well suited to fish farming, ocean farming, but having said that, it's very, very difficult to be able to ship this kind of fresh food every single day by airfreight because of the distance, so I searched in Europe, as I wanted to manufacture in Europe. I wanted to find a country that has clean water and is rich in nature. That was Estonia.

When you look at the capital markets around the world, it’s not huge, it’s quite limited, but caviar is of course categorized in the food market, but also in the farming market and also the rich or the affluent market, so in order for us to be able to really tap into the food market, as I said, we started to have this caviar as the trigger. What we are currently working on is to become number one in this area.

Currently, I'm focusing on overall aquatic farming, because a lot of people have misunderstood, and they think that in Japan there is a lot of fish because they imagine Japan being related to sushi, but that is not the case. There's a clear sense of urgency that Japanese people are not being able to consume fish. Of course, Japan is surrounded by the ocean, so you would assume that there is a lot of fish and that was the case, but Japan caught too much fish. What happened is that over the course of these last three decades, the fish catch in Japan has decreased down to one third.

However, when you look outside of Japan, in other words in foreign countries, the fish produce has increased by three times. We are at a very critical point of time where even if foreign people come to Japan and want to eat nice sushi, they won’t be able to, because we will no longer have sushi. The difference between Japan and the rest of the world is that in the rest of the world, in terms of the fish produce, you're able to catch in the ocean and you're able to do farming, but in Japan, its just catching the fish in the sea, because from a sustainability perspective they've been working longer. They’ve had farming business for a very prolonged period, for over 3 decades, and finding that's been very, very fruitful.

That is why the fish produce is 3 times that of 30 years ago in Japan. We didn't focus on farming, but we were just catching ocean fish, our produce has fallen to one third. Having said that, Japan does have wonderful technology and there are a lot of universities who are coming up with these farming technologies. However, the only problem is that we have all of these dots, but they’re still not in a line and still not coming up for service, so what I want to do is create such a platform.

 

Let's say we come back to interview you again in six years' time for your company’s 80th anniversary. What would you like to tell us about your goals and dreams for the company in that timeframe, and what would you like to have achieved by then?

In terms of finding that third pillar for our business, I don't want to just make yummy or delicious farming food, but I also think the sustainability part is very, very important. We've been pushing forward with this, and Mr Michael Noble approached us because he was interested, and two years ago in 2020 he was appointed the president of the Noble Sustainability Trust, Japan.

By the 100th anniversary of our company, we want to be the first to be able to really create a sustainable company that is providing sustainability to society as well as ramping up the economy, because when you look at how the world situation is, the population is increasing, which means that there is going to be more need for food. At the same time, we have to be mindful of the environment, but humans are very foolish in that we want to have this and that but don't want to drop our standard of life. I want to be able to find an answer to that because not many companies have been able to find that answer. I want to be able to find that answer from the perspective of not just food, but also from our electronics division and medical businesses.

Basically, Michael Noble wanted to be able to create a world that is environmentally friendly and also sustainable, and be able to have that kind of technology innovation as well as a company. He already has his own Noble foundation, but he wanted to create this new foundation in order to be able to connect global companies around the world that have a design way of thinking with them. There are a lot of companies that do work on these kind of environments and the sustainability, but if these businesses do not succeed, the world environment will deteriorate. In order for the environment to be sustained, these businesses need to be successful, and in order to do that, you need to be able to connect these different companies around the world.

I kind of followed through on his way of thinking, so I told him that I wanted to be a part of his community. I want to finish the news that we are already working on, and Michael Noble has been very interested, so he's also been disseminating one of these initiatives that we are working on in Hamamatsu city. We are partnering with a Japan Steel subsidiary, Nippon Steel Engineering, and it's a 3 year project where, in Hamamatsu City, there is waste disposal site and they are currently constructing another waste disposal site which will be completed in 2024. What we are going to do is create a circular system there, whereby on the one hand there's a waste disposal facility, and next to that we will have a farming facility.

Next to that we will have farmland because these kinds of waste disposal facilities generate heat waste as well as hot water, which can be used efficiently for fish farming, and there's already been research conducted that tells you that by using that, you would be able to farm larger fish.When you do fish farming, there's obviously going to be dirty water that's going to be created, so what do you do with that? That water has a lot of nutrients in it, and it has been scientifically proven that if you use that dirty water for farming, for vegetables, it will make the vegetables more delicious, bigger and much quicker. Also, when you do waste disposal, it generates this thing that’s called a slug, and again, it is very good to use this for farming vegetables. We want to create this kind of economy where we have this disposal system with fish farming as well as vegetable farming. If this is really successful, we should be able to do something further in the world.

When we talk about our journey from electrical cables to catheters, in particular, Western people laugh about it, but we are really serious, and as I mentioned earlier on, rather than strength, we want to be able to be an innovative company. Even if this market is no longer required in future, we could develop ourselves. As long as we have that kind of innovative strength, we will be able to survive 100 and 200 years more.

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