This year, Kaneko Sangyo marks the 104th year since its founding. The company’s major products are solenoid valves for instrumentation, direct acting solenoid valves, tank ventilation equipment such as breather valves, flame arresters, gas seal units (self-acting regulating valve as tank blanketing valve), its original product Keeper Breather (which can combine with the breather valve and gas seal unit with or without Flame arrester) and new the IoT product APOSA (Auto Pro Operation by Smart Application).
Can you give us a brief introduction to your company?
The intention of the tagline “silent technology” is based on the traditional Japanese form of theater called kabuki. The crew in black called kuroko who is in charge of the various stage elements, wearing black costumes to support the kabuki actors behind the scenes. Since we also work behind the scenes, we adopted the concept of kuroko and added the tagline silent technology before the company name “Kaneko”.
In order to generate electricity by LNG or thermal power generation to run air conditioners, the shafts and bearings of the generating turbines must be constantly moving and oil is needed to keep these things running smoothly. Our valves are utilized to control the flow of oil to this shaft. Thus, we are contributing to run main equipment behind the scenes.
Japan used to be famous for its consumer products. In recent years, however, we have seen the emergence of regional competitors with cheaper labor costs and massive economies of scale, pushing Japanese firms out of mass production markets. However, with your silent technologies, especially in niche fields with high-mix-low-volume production, we still find that Japanese firms both chusho kigyos and large companies have a dominant market share in technology or clientele. How do Japanese companies remain competitive despite the stiff price competition?
A significant unique point of Japan's business structure is it is composed of major companies like Toyota, while more than 90% are SMEs. The Japanese government provides strong support to SMEs by setting up an agency under the Ministry of Economy, dedicated to nurturing the growth of SMEs. Our founder came from Niigata prefecture, and our company continued as a specialist in fluid control devices. In the more than 104 years of running our business, we have experienced good and bad times. We have survived because we have continually concentrated on satisfying the needs of our clients instead of pursuing profit. Customers being satisfied with our products means that they recognize the value of our products, leading to the sales and profits that have allowed us to keep going until now.
However, I think it is important for them to be more active and seek ways to contribute to satisfying the demands of our clients. A drop or rise in our profit is indicative of the satisfaction level of our customers.
The mindset of actively contributing toward our customers’ satisfaction is embedded in our company’s DNA. As a result, we have been able to run our business for over a century. Even so, I am anxious about whether we can continue our growth as an SME because of the changing society.
Japan is not only the oldest society in the world, but it also has a negative population growth rate, losing around five million people every five years. The country’s demographic situation is creating two significant challenges, especially for SMEs. First, it is difficult to recruit new graduates due to the stiff competition in the labor market, making it a challenge for talented engineers to pass on manufacturing knowledge to the next generation. Secondly, fewer people means an ever-decreasing pool of domestic consumers. How is your company facing these two challenges caused by Japan's decreasing demography?
Japan has always been an agricultural-based society. Since it is an island nation, it has nurtured a tight-knit community. It is like sitting around in a circle and following the leader. When the leader commands the others to wait under the persimmon tree, people would wait. Nevertheless, waiting obediently does not always mean being rewarded with enough persimmon harvest. In like manner, the majority of Japanese companies have been passively following the government. With the present population of 120 million, the working population is only around 40 million. We have to fully take advantage of the working population from overseas to cover the absence of growth for the country. It is very important for the LDP, the ruling party, to change its mindset and consider a new approach to tackle Japan's population problem. For our part, we are developing new products that take into account the country's demographic decline and lack of workforce.
You were able to include digital technologies into the IoT of your APOSA products in order to predict and control abnormalities before they occur. Can you tell us more about the APOSA? What are some of its advantages compared to other products? Looking at the future, how will you integrate automation and digital technologies into your offered products?
About digitization and anti-explosion technology, our development of APOSA, which incorporates digital technologies, is encouraged by Japan's Ministry of Economy’s policy toward creating smart technology. There is a regulation in Japan for chemical and energy plants to perform overall maintenance and inspection every four or eight years. The Three-Mile Island explosion in the US was due to an unclosed valve after maintenance, showing that the maintenance posed some risks. Having a maintenance-free environment throughout the year is ideal. APOSA was designed for preventive maintenance. Like in health check-ups where they give recommendations according to one's results, APOSA monitors what happens in the fluid control and addresses small issues before they become a major problem.
Predicting and preventing issues in advance involves analyzing big data using AI. We have been developing APOSA for more than eight years. It is very complicated, especially looking at the materials and valves. It is crucial to compile big data and perform data analysis through AI. I consider this big data as an intangible asset, which will unfailingly deliver a new value to our company. Japanese SMEs used to employ their small innovations to develop products at a lower price. However, that no longer applies to the present society. Intangible assets have become critical in a company's growth. Society and business have changed. We have transitioned from selling products to services.
The COP26 rule book was finalized last year as to how the Paris Agreement would hold countries accountable for their ability to go carbon-neutral. The Suga administration announced that Japan must be carbon-neutral by 2050. Mitsubishi Gas Chemical is working closely with ARAMCO of Saudi Arabia in developing alternative technologies like ammonia - a CO2-free alternative fuel and a means to transport hydrogen. How are you adapting your valves to the next generation of applications in the chemical industry? Are you looking for partnerships that could help you develop new products?
Some of our employees have a mechanical engineering background, but we need electronic engineers to incorporate AI. Besides the difficulty of recruiting electronic engineers, it is a challenge to hire experienced ones who are capable of integrating AI. As a countermeasure, we are actively seeking partners, domestic and overseas, who already employ AI and digital technologies to create a connected industry. We must discuss our partnerships further to harmoniously grow together.
We have made it our responsibility to extend the survival of the human race as much as we can. Mitsubishi Gas Chemical's ammonia is used to generate hydrogen as the energy source, and we provide our breather valves for their chemical tanks. When a chemicals storage tank breathes, the small emission pollutes the air. The system where a pipe collects such emissions can catch fire because of the flammable fluids. In accordance with the ISO regulations, which emphasize taking preventive measures, the flame arrestor that we have developed is a safety device against such occurrences. We have looked into all the possible risks, and our flame arresters are one of the solutions to prevent fires in chemical plants. Our equipment helps stop the spread of fires to other areas. We conduct testing in our flame extinguishing experiment station and our products demonstrate their effectiveness in fire prevention. In fact, our product was used to ensure the safety of a hydrogen charging station. Since there are risks involved in utilizing renewable energy sources like hydrogen, our consumers and us need to be aware of those risks. Our company aims to eliminate those risks.
SMEs are required to handle safety assurance by using some of our resources. In our development of new products for society, ensuring our products' safety incurs costs. It is critical to have an overall business scheme to attain balance. We can convert our secured profit from big data or intangible assets to research and development as well as safety assurance experimentation. With more demands and expectations from SMEs than in the past, I am concerned that Japanese SMEs may struggle to survive.
Can you tell us more about your international strategy? What are some of the key regions that you are looking to tackle in the future?
The Chinese market is a very attractive market, but China may experience a similar situation to Ukraine due to geopolitical reasons. Centralizing our supply in China can be high risk. Although having multiple supply chains will require more investment, it will be safer. We need to balance our resources to create a stable supply chain. Unlike China, with more advanced testing, Japan has strict regulations on Wi-Fi, radio transmission and drones. We are trying to fully utilize 5G and LTE in our chemical plants by developing wireless devices that prevent explosions along with other added features. We are collaborating with the many 5G and LTE manufacturers in China to develop a technology that is adaptable to high-risk or hazardous areas. It will continue to be our lucrative market and a platform for experimentation, but we will not be putting all our resources into the Chinese market. In Vietnam, we have a production facility and a technical & sales center. We moved the research and development center to Vietnam because of its many talented young engineers. There is a high return for investment in Vietnam.
Nevertheless, Japanese engineers stand out in quality control and management of data, which positively influence the services and overall business. We must identify the strengths of each research center to be able to distribute the work accordingly and deliver an excellent impact. The challenge in Vietnam and other Asian nations is the lack of commitment of the engineers, especially when they receive a better salary offer. Therefore, it is crucial for the workers to be satisfied with their jobs to help them form a loyal attachment to their work. If it was not for COVID, I would go to Vietnam to talk to the employees and better understand their motivations.
If we were to come back in 6 years for your 110th anniversary, what would you like to tell us? What are your dreams for this company, and what would you like to have achieved by then?
As an SME, it is critical to evolve. We want to be more than a manufacturer and seller of valves. We also aim to provide exceptional services. To do that, we need to establish a strong connection between our products and the new services we provide. Even as a small company, we have a strong impact and value.
The increase in our sales demonstrates the improved satisfaction level our customers have with our products and services. We want to incessantly motivate our employees because it indirectly influences the growth of our company and our active service to the community and society.