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Kohyei Trading: More than the sum of its parts

Interview - April 27, 2022

Kohyei Trading – the trading company founded in 1926 and based in Kobe – has advanced to the present day specializing in functional chemicals as the core of its business. We spoke with President Yoshihiko Tsuchihashi to learn more about the company, its products and their applications, as well as its plans for the future.

YOSHIHIKO TSUCHIHASHI, PRESIDENT KOHYEI TRADING CO., LTD.
YOSHIHIKO TSUCHIHASHI | PRESIDENT KOHYEI TRADING CO., LTD.

Can you please introduce yourself and your company to our audience?

I used to be a musician who played in a band. Later, I was a movie producer where our work received a special award in the Berlin Movie Awards. I was into artistically inclined works before I joined this company (my uncle's company) at twenty-eight and I became the president at thirty-two. I was president for twenty years. Our motto for the twenty years since I became president is to become a super second-class expert in business. With our employees' passion, we were able to achieve this. Our strategy has been to be coordinators of high-mix-low-volume production which has worked in the Japanese market. In the ‘80s and ‘90s, the role of trading companies changed, as global competition arose, it became crucial to provide products at low cost. The selection of raw materials became very important to reduce costs. The suppliers are making effort to improve productivity and shorten production time. Our sales team are also adding value to our products. We are no longer just doing one-off selling, but we are also providing extra services to foster better relationships with customers. In the 90s, since our main suppliers were domestic manufacturers, we focused on domestic sales, and imports and exports accounted for only about 10% of our total sales. However, prior to the 1990s, before major foreign chemical companies entered the Japanese market, we were an important "import agent" for major chemical companies such as DuPont, BASF, and Arkema. Nowadays, these companies have set up offices in Japan and we do the distribution for them as a domestic distributor.

When I joined the company, we only had about 23 billion JPY in turnover which was a significant decrease from previous years. We had to think of a strategy to expand our market.

 

Japan is a resource-poor island nation in the periphery of Asia. It does not have natural resources such as copper, oil, or gas. Yet, when it comes to functional materials, Japanese companies have the dominant market shares. As a trading company, what do you think is the competitive advantage of Japanese chemicals globally?

Currently, the advantage of Japanese chemical manufacturers is price. They are very competitive in price compared to developed overseas companies. Conversely, the Japanese market is isolated from the global market. This is why overseas companies are reluctant to enter the Japanese market. When they do, they are able to do so at a competitive price with the quality that Japanese companies demand compared with the global price.

Unusually for a developed country, some Japanese lunches are priced at around 500 yen. However, in New York, it costs 2,000 JPY. This shows a huge price difference on basic commodities depending on where you are. Japan was able to develop a supply chain with lower costs including chemical products. With globalization, however, competition with major overseas chemical companies has started. We foresee a huge change in the market soon.

 

In your company profile, your products are divided roughly into three categories. You have the chemical division, the molded products, and synthetic rubber or engineering plastic. Among these three divisions, which is your main focus?

Among our product line up, raw chemicals sell the most. We were able to develop a certain synergy within our multiple divisions. For example, we purchase synthetic rubber from various synthetic rubber companies and sell it to automotive companies. But we also provide these synthetic rubber companies with the raw material and chemicals needed to manufacture rubber. We started off just buying rubber from them, but later began selling upstream materials to them too.

Also, we supply our customers with raw materials for providing us with rubber polymer and we send that rubber to another company to make products such as industrial components, machinery, and devices. We then take these products and sell them to end-users. We provide total support from upstream to downstream production. Being present at every phase of production has helped us expand our molded and composed products

 

Aside from being involved in every aspect of the supply chain, you also have manufacturing capabilities. You have a company called ZipperTubing, which is manufacturing electromagnetic shielding for wires. Can you tell us more about this product's unique advantages and application?

ZipperTubing (Japan) has 50 years of history and was established in 1972.  It started as a shield and protective tube company. In time, we developed EMI shield tubing for semiconductor production machinery. This created the first wave of success for the company. The second wave came with the conductive gasket that shields the electromagnetic wave from the Flat TV which we sold to Sony and Panasonic. Later on, we started manufacturing overseas and established a factory in Hong Kong. Our products are now produced in Hong Kong and delivered to Southeast Asian factories.

The third wave is of heat products we developed to be used in construction machinery. In accordance with NOx reduction regulations, there are products that are installed on special machines that reduce NOx and also serve as heat shields. These are three of our biggest product lineups.



The automotive industry is undergoing a huge transition with the switch to electric vehicles. What opportunities has this transition in the automotive industry presented to your company? What materials are you offering for the automotive industry?

Our major customers provide rubber and molded parts to engine rooms. With the switch to EV, many of their sales will be decreasing in the next twenty years. We are now finding ways to provide new solutions to our customers using our ZipperTubing and other related companies' technologies. We listen to their problems and offer solutions with our market-oriented approach.  For example, we are considering opening a visual media of our company and group companies on themes such as the EV market and preparing promotional materials in print media.

 

You mentioned earlier that the healthcare market is a potential market that you can expand into. The healthcare market is also undergoing a transition to an outpatient model such as home care and clinic rather than hospital-based treatment. What opportunities has the shift to an outpatient model presented to your company?

We are not directly involved in medical outpatient healthcare devices. We are focused on providing raw materials to pharmaceutical companies, and agrochemical and medical device manufacturers. Our market approach is working together with our existing customers. We are not developing new markets ourselves, but we are offering support to our existing clients. If they need materials for medical devices, then we will be there for them. We expand and diversify based on the needs of our customers. This is how we were able to diversify.

 

You are celebrating your 50th anniversary for ZipperTubing this year. For your midterm strategy, what are some of the goals that you have set for yourself for the company in terms of product development?

Internationally, we will focus on India and Southeast Asia because of the population growth. The midterm plan would be combining two factories into one. We will have a bigger production area and can allocate specific areas to manufacture products for Kohyei Group and Kohyei Trading. Taking into consideration the challenges that our customers are facing, we are developing and producing new products using ZipperTubing (Japan) expertise and trading capabilities. Both Kohyei Trading and ZipperTubing (Japan) are quite stable companies, so we are not pursuing a short-term profit strategy. We want to grow steadily, instead of making big investments, we prefer to take it slow and take things one step at a time. This conservative attitude has allowed us to stay in business for 74 years. Throughout all those years, we have never had our finances go into the red.

 

In terms of R&D, what products are you focusing on developing and what role does co-creation play in this process. Are you perhaps looking for overseas partners to help you?

With R&D, we are aiming for a market-oriented approach. ZipperTubing has enagaged in a product-oriented approach in the past and experienced a difficult phase. What we are now aiming for is that Kohyei Trading determines the needs for a required product, and ZipperTubing makes them. The main pillars of ZipperTubing are heat resistance and noise reduction measures. We are also in the semiconductor market, which is currently growing. We are trying to strengthen these fields by conducting industry-academia collaborations with university research centers and private collaborations. ZipperTubing and Kohyei Trading are in a way a collaboration. Kohyei Trading has a dedicated sales team for ZipperTubing products, and we have other sales teams for other departments such as chemical products and molded products. All these departments take care of the customers' needs and demands in the automotive and construction fields in a cross-sectional way. Based on those needs, we delegate which division will sell which product.

 

What would be your strategies in your expansion? Will you continue to pursue joint ventures, or perhaps an M&A, or build new factories?

Currently, our biggest focus is the Indian market. A new factory is being constructed right now to make more products. In India, we are focusing on selling our products to local companies and not Japanese-affiliated companies. It is important for us to dedicate human resources to strengthen the manufacturing and the sales aspect of the team there.

Our sales will be about 23 million USD this fiscal year in India and 30 million USD next fiscal year. We have an excellent local partner, and we are actively investing to increase sales. As mentioned before, we set up our trading company in India in 2012 with this local partner and started making a profit in the third year. Normally, all Japanese companies in India experience a difficult phase because the Indian market is very cost-sensitive and also there are many competitors.

In India, we have been importing plastics and other materials from around the world that suit the local market, stocking them appropriately, and selling them. One of our customers who made polycarbonate seats did not run the business well, so we acquired this company and the machines for extrusion. This business is on track and the plant has been operating profitably since then. In addition, one new extruder is going to be brought in from Italy, and this new line is scheduled to be installed and operational in the new 130,000 square foot plant in April 2022.

 

When we come back for your 100th anniversary, what goals and dreams for the company would you want to have accomplished by then?

I would like to be a motivator that can move my employees to give their best and excel in their work. For example, when we perform an M&A, I want the employee taking care of it to be passionate and willing.

A sense of ownership, this is the key to the success of the project. It is very important to motivate people and reward them for their hard work. Kohyei Trading and ZipperTubing distribute a certain amount of profits above a certain level as a closing bonus, and the profits shared by all executives and employees are a reward for their hard work. We hope to continue to increase profits until our 100th anniversary.

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