We sat down with Mr. Akihiro Kobayashi, president and COO of Kobayashi Pharmaceutical to discuss how the firm is exceeding the high quality standards of the Japanese market, and their strategy for exporting their proprietary heating, cooling, and OTC health products to overseas markets.
Japan’s population has continuously declined and aged since 2008, with 28% now over the age of 65. This trend is expected to continue, which will affect how companies react. First of all, the domestic market will shrink for companies selling products. Secondly, it will be increasingly difficult for companies to hire competent staff. Please describe how you intend to respond to changes in Japan’s demographics. Furthermore, what kind of products is Kobayashi Pharma developing in order to serve this new demographic structure as your customer base?
Our strategy is centered on creating unique innovative products that meet our customer’s needs and that have never existed before. If we only made cold medicines and gastrointestinal drugs, our business would shrink along with the population. However, I am confident that we can achieve growth despite a shrinking population since we are constantly creating new markets
For example, our Netsusama Sheet, a cooling gel sheet, is a product that never existed before, and Naishitol, a drug that removes visceral fat, created a completely new market. A rapidly aging population is not a problem for Japan alone but for countries across the world. Those who care for the elderly are also aging themselves. Those caregivers view illnesses such as dementia as familiar and something that could also happen to themselves soon. We enjoy the largest market share for deodorants and last year, we launched a kit that screens for cognitive problems through a scent smell test. We also handle supplements for maintaining cognitive functions.
Japanese pharma companies, and their manufacturing divisions in particular, have been creating niche products that also enjoy an international reputation. Before the COVID-19 pandemic, the total number of foreign visitors to Japan was 2.5 million (who spent USD 1,300 per person on average). This number has dropped to 12,000. However, Japanese retailers’ direct marketing sales via the internet have increased by 15%. How has the pandemic affected your business? And how have you adapted to the rising trend in online sales?
The greatest impact has been the drying up of inbound demand due to the drop in foreign visitors to Japan. This took out approximately 6% of our sales.
In the domestic market, sales of BreathCare, an oral breath freshener, were reduced by half due to the lack of dinner parties and drinking parties. Fortunately, however, sales of some of our other 158 products have increased.
An example is Inochi no Haha, a product that alleviates symptoms of menopause and treats symptoms caused by menstrual disorders in young women. The product is in extremely high demand and is supported and purchased by women suffering from increased stress levels due to working from home.
There has also been a rise in constipation caused by less walking due to more people working from home. This has led to an increase in sales of Easy Fiber, a health food made of dietary fiber, and Bluelet, an automatic toilet bowl cleaner, due to increased use of the toilet at home.
We have also been pursuing the e-commerce market, which has been growing, by increasing advertising and sales promotions for e-commerce.
Digital tools are changing business and society. Solutions for digital transformation, such as IoT, 5G and AI, are increasingly being utilized. It is estimated that global digital transformation expenditure will reach USD 2.8 trillion by 2025. In your annual review message, you have made reference to the development of Kobayashi Pharma’s own digital transformation solutions. Can you explain what those solutions are and how useful they will be for your business going forward?
We have stepped up investment in order to promote digital transformation in various aspects of our business. Our product development activities arise from the problems facing consumers. We used to search for such problems by interviewing customers or visiting their homes.
These days we read and analyze the complaints people post on social media and come up with new product ideas. Twitter is a treasure trove of ideas. Since there are limits to how many tweets people can read, we have AI read the tweets in an effort to improve development efficiency.
Kobayashi Pharma’s business is divided into three major categories. They are heat products, such as disposable body warmers; cool products that include Netsusama Sheet, which eases migraines and reduces fevers; and quasi-pharmaceutical healthcare and sanitary products, such as deodorants, dental products and nutritional supplements. Which product sells the most? And which business area do you think has the greatest growth potential?
Since we handle a vast range of products, it is difficult to choose one. However, I can say that supplements and Chinese medicine are doing well and seeing a steady rise in sales. Household products with healthcare elements are also strong. An example is Nightmin Mimi Hogu Time, an earplug that warms the ear using a small body warmer.
“mimi hogu time” earplugs
Japan’s consumer market is extremely demanding in terms of quality and standards. Japanese manufacturers tend to develop products highly focused on the Japanese market. However, the competitive edge of such products often fails to be understood by international customers. This is known as the Galapagos syndrome. What kind of measures are you taking so that your products will be viable both in the Japanese and international markets?
I think this question is inherent to all companies that conduct business activities in an existing market. For example, if a Japanese company wants to sell shampoo, detergents, or cold medicine in a foreign market, it will face intense competition since the market is already saturated. The earplugs that warm the ear, which I mentioned earlier, are a completely new product that I think will attract interest due to its novelty and uniqueness.
Can you tell us a little more about your R&D strategy? What do you place emphasis on? Is there any new product you would like to introduce to our readers around the world?
We pursue a “big fish in a small pond” strategy. There are few competitors in a small pond. There we can gain a large market share and high profits. There are a lot of fish in a big pond, but the competition is fierce since everyone comes to fish. Therefore, you cannot earn high profits for the same amount of sales.
We strive to discover many small ponds across the world.
Japanese companies have been partnering with academic institutions and private companies abroad to obtain local knowhow. Is co-creation for product development relevant to your company’s business? If so, what kind of partner do you require?
We seldom manufacture new products from scratch in-house. We start business by searching for companies that have the technologies and equipment that can give life to our ideas. If there is sufficient market response, we hope to bring those new products to our production line and reduce production costs.
In 2020, you acquired Alva-Amco, which manufactures and sells non-prescription drugs in the United States, in order to enter the U.S. market. You have set a target of achieving sales of ¥9 billion by 2030 through the non-prescription drug business in the United States. Why did you set such a target and what is the key product for achieving it?
A lot of Alva-Amco’s products are also big fish in a small pond. We have found a company that is very similar to us.
Fungicure Jock Itch Wash is a very unique product. The more we advertise, the more it sells. I have high expectations for the product. As we have a product in Japan that is related to Fungicure Jock Itch Wash, I hope to add it to their product line.
You have offices in countries such as China, the U.K., and Australia. Can you tell us about your international strategy for the United States and other countries? In which country do you aim to develop your brand?
We have been gradually increasing sales in each country. In most cases, we establish a foundation for business with disposable body warmers, Netsusama Sheet, and Ammeltz (an anti-inflammatory and pain relief drug). After doing so, we hope to launch OTC drugs and increase sales.
Imagine us coming back here and interviewing you again in 2029 when Kobayashi Pharma celebrates its 110th anniversary. What would you wish to tell us? What are your dreams for Kobayashi Pharma? And what kind of goals do you wish to achieve by then?
Every employee of Kobayashi Pharma is required to come up with one idea for a new product or business improvement each month. This applies to everyone—not only those involved in product development but also those in the Personnel Department, those involved in investor relations, and those working in the plants. It means that this is something that everyone works on without exception. New products are born out of this pool of ideas from our employees. My goal is to teach the employees in our offices across the world how to generate ideas, and how to develop new products in each country and sell them there.
Thank you very much.