Entering untapped Middle Eastern markets is part of an ambitious development strategy that will also see the chemical trader move into traditionally female dominated sectors such as cosmetics.
Where do you believe the competitiveness of the Japanese chemical sector comes from today?
I think the reason why the Japanese chemical industry has grown so much despite the lack of natural resources is because we regard the lack of natural resources as a strength of the Japanese industry as it has driven us to make continuous efforts and improvements.
Necessity is said to be the mother of invention, and since we didn't have natural resources, we made a lot of efforts and were able to grow the economy significantly. I believe it is the strength of the Japanese economy, and Japanese people, having high standards and a strong work ethic.
Regarding the role of trading companies, it is evident that manufacturing alone cannot accomplish everything. Trading companies have played a significant part in the Japanese economy since it began 150 years ago.
The experience of losing the Second World War had a great impact on growth but such experiences made Japanese people more ambitious. That led to excessive specifications which were another challenge to the economy, but the attitude to pursue perfection is a part of the Japanese character.
Large companies have influenced various sectors such as the chemical industry, financial industry, and trading, with the effect of fostering teamwork and generating impact. Companies like Mitsui, and Mitsubishi still hold considerable influence, enabling efficient management of capabilities in the chemical industry.
I would like to address an interesting point about the national character and work ethic. Japan is globally recognized for being industrious. However, it is sometimes criticized for being too inward-looking and resistant to change. Major turning points, such as the end of World War II and the bursting of the economic bubble, have triggered significant transformations. In the present age, Japan's aging population and demographic situation serve as the big switch. Many companies, including SMEs and manufacturers, are responding to this shift by putting greater emphasis overseas to compensate for a shrinking domestic market. I would appreciate it if you could provide more insights into how the aging population is impacting your activities and how your trading firm can serve as a bridge to the international arena.
As Koike Sangyo, we have primarily focused on the domestic market as a trading company and a significant portion of our sales still comes from within Japan. However, the declining population leads to a decrease in demand, necessitating a closer look at the overseas market.
Our clients have already shifted their focus to the domestic market. In response, we have established a new department dedicated to the overseas market and increasing the trading ratio. We aim to be more proactive in expanding into the overseas market by setting up a base abroad.
Speaking of FTAs (Free Trade Agreements), we are currently exploring opportunities in this area. Having lived in Singapore and watched South Korea, I observed that despite their limited natural resources, they effectively manage their economies by making the best use of FTAs.
On the other hand, many countries engage in a lot of exports but do not utilize FTAs extensively. For instance, in Thailand, the utilization of FTAs is only at 57%, which is just half of the potential. In China and South Korea, it is even lower, with only 30% of companies utilizing FTAs in their trade. I believe there is still considerable room for growth. That's why we are paying attention to FTAs.
However, many companies are hesitant to use FTAs due to the complex processes and extensive documentation required, including proof of the origin of goods. The hurdles are high, and mistakes can be costly.
Despite these challenges, we believe that effectively utilizing FTAs will contribute to the growth of our business. Hence, we are working towards increasing the trade ratio in overseas markets and facilitating the use of FTAs. To achieve this, we have established a new department specialized in FTAs.
You've given us a very good perspective on your strategy to better tackle the overseas market, to better serve as a connector through FTAs, and this new department you've established. I'd like to hear a little more about how you're presenting yourself as an attractive option for manufacturers, not just those in Japan, but also those overseas who may want to use your services. I'm very curious about your perspective on how your role as a trader in Japan is evolving given these different macro conditions. Historically you could point to a trader as being responsible for two main functions - the logistics and the financing. I think in the current market there is an expectation of some kind of value-added service, and different traders have seemed to take different approaches, or a combination of approaches, to adding value in new ways. It could be having a very strong overseas network, it could be focused on R&D and product development, collaborating with the manufacturers they serve, it could be offering consulting services, etc. In what direction would you say you are evolving? What particular value-added services do you offer that sets you apart from other traders in the chemical field?
We have recently started expanding our overseas sales and established overseas bases. As a trading company, our goal is to be a comprehensive producer. This means that we not only help companies sell their products but also position ourselves upstream by providing logistics, inventory management expertise, and assisting with store development. We aim to offer a holistic solution to our clients, contributing to the entire process rather than being just a part of it. By doing so, we seek to enhance our presence in the market.
Regarding our strengths, we have a robust network in various industries and longstanding relationships with our customers. We have been working for over 100 years, and have been able to build these connections through pipelines and networks that provide us with valuable information and enable effective communication with customers.
Additionally, we are focused on expediting our decision-making process. To achieve this, we empower our frontline employees to make fast decisions for our clients. Clients also value the continuity of business, and we recognize the importance of minimizing the disruption caused by frequent personnel changes that can occur in large companies. We play a significant role in ensuring stability and consistency for our clients.
When we consider companies like Iwatsu, their development strategy focuses on finding local partners or distributors to fill those gaps in their network, allowing them to offer a unique and tailored service. I am curious to know how local partnerships fit into your development strategy. Have you already pursued or been actively seeking such partnerships?
Yes, we are open to developing such a strategy. In my previous experience working for a chemical manufacturer, I learned that relying solely on exports and establishing local branches does not guarantee success in the local market. Local clients often find it easier to communicate and engage with businesses that are already established in the area.
Therefore, finding local distributors or partners who can help us penetrate the local market and provide assistance, especially with administrative procedures, is crucial. We consider local partnerships to be of significant importance.
In terms of specific regions, many Japanese companies are already present in China, as well as other Asian countries. As a new player in those markets, contacting Japanese companies alone will not help us gain market share.
Our strategy is to establish a local network by reaching out to local companies. Through this approach, we have discovered that local companies are also interested in exporting their products to Japan, presenting new opportunities, so our Asia strategy involves reaching out to local companies rather than solely relying on Japanese ones. We assist with procurement, sales, and distribution, and we help facilitate their sales to third countries.
My role in this company focuses on new market development, particularly in countries that other Japanese companies don't typically target, such as Saudi Arabia. When I visited Saudi Arabia and spoke with local businesses, I discovered their affinity for Japanese SMEs. Some even have specialized departments dedicated to Japan. However, they struggle to connect with SMEs, which presents an opportunity for us to bridge that gap.
Similar situations exist in the Middle East and Islamic countries. Many Japanese companies overlook these regions, but there is a demand for Japanese products and services there. Our role is to fill that information gap and play a vital role in expanding business opportunities.
Are there any particular markets or regions, besides Saudi Arabia which you’ve just mentioned, in which you have identified or started working towards establishing a stronger presence?
India is an example that comes to mind. Many Japanese companies have established a presence there, but they are facing challenges in conducting business successfully. When we consider the region from North Africa to Japan, there are several Islamic countries in between, and Morocco is one of them.
We have ventured into the Moroccan market, particularly for the sale of oil. Additionally, Turkey is a key manufacturing hub in the Middle East. While Japanese companies are attempting to do business in India, they are encountering difficulties, so these countries represent untapped markets for Japanese businesses.
Our main customers are located in Japan, and some companies are seeking to expand their operations to the United States or Europe. However, they may face limitations in these overseas markets. We tell them that numerous untapped countries still exist.
These untapped markets in the Middle East and other regions have a genuine interest in Japanese products. However, they face challenges due to the language barrier. For example, Japanese catalogs are only available in Japanese, making it difficult for potential customers to understand the contents and make informed purchasing decisions. Our aim is to bridge this gap and facilitate business by providing accessible information.
As you mentioned, there are various limitations and challenges in these untapped markets. For instance, India is known for being a difficult place for foreigners to do business. The same applies to Turkey and other countries. How do you plan to overcome these challenges and be the first to successfully establish a foothold in these markets?
We actively recruit local employees who can effectively communicate with the local population. We have hired employees from Morocco, the United States, South Korea, and China. Local employees possess a natural ability to connect with people in their respective regions, even if Japanese employees have a good command of foreign languages. We consider this a vital aspect of our strategy.
Additionally, we aim to explore regions or countries that others are hesitant to tackle, to challenge stereotypes and seize opportunities. As the current president, I engage in conversations with other presidents to gather information about regions or countries that they find challenging to address. When we identify such areas, we prioritize them for our operations. Strategic discussions among top management play a significant role in decision-making.
Speaking of employees, it is crucial to create an attractive and comfortable working environment for them. Employees won't stay unless the company provides such an environment, particularly if they are from places like the US or China. Establishing this kind of environment is a fundamental aspect of our business philosophy.
Furthermore, supporting female workers is essential. When we look at Japan's top five trading companies, such as Mitsubishi, only 15% of employees are female, and the figure for managerial positions is even lower.
In a declining population situation, it becomes crucial to create an environment where women can work and balance their careers with motherhood. Female employees bring diverse perspectives and contribute unique value to our business. Currently, they play an active role in the cosmetics and healthcare sectors, which I believe will contribute to the growth of trade ratios. The power of women is still needed in the Japanese economy.
We've been speaking about your overseas strategy and all the markets that you're looking to tackle. Your company caters to five main industries as a whole. Is there any specific industry that you're looking to tap into in the future, or strengthen your presence in?
As for existing businesses such as batteries, semiconductors and resins, they are fortunately on track. However, even though these areas continue to thrive, we are unsure if we can play a substantial role in them. Therefore, it becomes crucial for us to venture into new fields. Specifically, we aim to expand in female-related sectors such as healthcare or cosmetics and will be releasing a virginal cleansing product called ‘hemmate’ in collaboration with internationally famous make-up artist Haruka Tazaki. Let me introduce comments on ‘hemmate’:
“In 2020, the world was struck by the COVID-19 pandemic, bringing our lives to a standstill. When the familiar routines of work and daily life became anything but ordinary, and what we had built with our own efforts seemed irrelevant to someone suffering somewhere, it became a catalyst for rethinking how we use our lives.
“Currently, as I travel around the world, witnessing real societal issues unfolding, I reflect on how I can contribute to this world. This contemplation has led me to consider, as a woman, reaching out to and empathizing with women from different races and generations around the world who face various issues and concerns. It has inspired me to create items that are not unattainable luxury, but rather accessible daily care products. These items are designed to help women liberate themselves, cherish themselves more, and foster greater self-love.
“In a world where the Femtech market is experiencing rapid growth, I aim to change the somewhat passive mindset in our country. Through the brand ‘hemmate,’ I aspire to engage in activities that contribute to international cooperation.”
Your company is celebrating its 112th anniversary this year. Let's imagine that we meet again for the 115th anniversary, three years from now, and conduct this interview once more. What would you like to share with us? What are your dreams for the company? How would you like your company to be seen globally?
As I mentioned, we aim to strengthen our overseas network. This has been our goal for a while, but we have yet to take significant action. We have just begun working on it. Our target is to achieve a 30% contribution from overseas operations within the next three years. This represents our primary objective. Additionally, we aspire to establish another core pillar of business alongside batteries, resins and semiconductors.