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Koyo Sangyo: excelling in the high-mix, low-volume market

Interview - March 4, 2023

Taking advantage of its core technology in gas valves, Koyo Sangyo is looking to expand its horizons.

KENJIRO OYAMA, PRESIDENT OF KOYO SANGYO CO., LTD.
KENJIRO OYAMA | PRESIDENT OF KOYO SANGYO CO., LTD.

Over the last 25-30 years Japan has seen the rise of regional manufacturing competitors from countries like South Korea, China and Taiwan who’ve replicated Japanese monozukuri processes by taking advantage of cheaper labor costs and pushing Japan out of mass industrial markets. However, Japan is still a leader when it comes to niche B2B fields. How have Japanese firms been able to maintain their leadership despite the stiff price competition?

Of course, companies in China and Southeast Asia have low wages and low labor costs. I think they are very competitive in the mass production market, so we cannot compete against them. This is not a playing field for Japan. I think we focus on high mix, low volume products.

In the past, companies with strengths in mass production markets had the advantage, however, people’s preferences have diversified, so I think that just one product doesn't fit all the people’s preferences. I think our company is very strong in the high mix, low volume market and the demand in the market matches a company like ours.

Certainly, some major companies have strengths in the mass production market, but  the people’s preferences have changed and diversified, and our industry of high mix and low volume caters to those needs. It requires a different management style which is more difficult than that of mass production because the major companies producing in the mass market are not good at managing diversified products. Manufacturing high mix, low volume products requires a lot of expertise and experience. Major companies which specialize and are very strong in the mass production market are not good at managing those types of products.

 

One could argue that maintaining this expertise is somewhat under threat given Japan's demographic situation. It's the world’s oldest society and it has a rapidly shrinking population. In fact, in the next 15 years, one in three people will be over the age of 65, presenting 2 major challenges for Japanese firms. The first is a labor crisis and the second is a shrinking domestic market. What are some of the challenges and opportunities this demographic shift is presenting for Koyo Sangyo?

We are fully aware of the social challenges - market shrinkage and the difficulty in obtaining and retaining talent and we are taking two approaches. Firstly, we expand our business areas, and secondly, we add value to our products so they are further improved.

In terms of business expansion, we are going to apply our technology in multiple different fields. To enlarge our currently existing areas, we will provide our product in the surrounding areas. The second social challenge is the aging population and difficulty with the workforce. Of course we are short in our labor force, but our customers are similarly short of labor. So we are developing products to resolve this issue.  Construction workers have to install our products into the equipment. It needs laborers, but the industry is aging, it's difficult to get those resources, so we developed a product for efficient installation with limited resources. Even though labor may be short, we can use this product. Those products are easy to install which can save time and make the work more efficient, so we can provide products with high added value and we can earn more profit.

Let me explain in more detail. Piping around the gas meter requires a lot of parts and components. The workers just come here to the site and choose the appropriate part to install which requires a lot of time. In the case of a valve to shut gas in the gas piping, the craftsperson actually assembles different piping materials to make the piping for the gas. We integrate different parts here, so they don't have to assemble them on-site because the necessary parts have already been joined together, meaning it takes less time to install.

Making units consisting of combined parts is a common solution to solving the labor shortage, but in order to manufacture this, it requires a lot of technologies and experience, which we offer. The labor shortage is a serious issue for us since the people who manufacture the necessary products are especially short.

Even if we expand our business areas, it's still harder to recruit the people who manufacture our products and we may not be able to provide them. The monozukuri manufacturing process includes assembly as well as processing, but there are other processes surrounding that.

Now, technology such as sensors and cameras have been very advanced over the last 10 years. By using those technologies we can simplify and automate some production processes such as lining up the necessary parts and collecting them. We can use robots for this as well.

Do you know the ‘joint work’ robot? It's not an industrial robot, it’s a robot designed for working together with people. An industrial robot should usually be separated from human work, so we see partitions to separate them from humans doing their work.

With these co-working robots, we don't have to separate them from people who are working. We don't have to set up a fence, so we can be more productive in tight spaces and manufacture products with less labor.

There are many additional or associated processes in the manufacturing process such as the lining up of necessary parts, counting the number of parts and collecting them. Those are simple processes, but they were difficult to automate before. However, gradually we are now doing that.

Usually, the required cameras and sensors are very expensive. A very high-tech camera is the same price as a car. We cannot implement many of them, but in order to solve the labor shortage, we make investments. 

 

Which current business area are you focusing on, and what fields or areas of business are you looking to further expand into?

The areas we focus on currently and in the future overlap. Simply, we are now diversifying our businesses and we'd like to focus on other areas than gas valves  such as medical equipment.



On the medical equipment, we also know that you have the Luer Lock. It's a connector that can be applied in medical equipment that are radiation, anesthesia, neurological or digestive related, but they also have high pressure equipment for circulatory systems. What inspired you to develop this product, and why did you specifically diversify into the medical field?

We didn't especially aim to develop products in the medical field, but we were providing products to medical customers, and we heard about some of the challenges they faced, and we thought our products might solve their issues and problems, so we started development to resolve their issues and challenges. Our technology can be applied in their field as well.

Usually, common sense in our field is not necessarily the same as  in other industries, so we are not providing something that can directly cure or treat patients, but I think we can help the customers by supplying joints, valves and that type of equipment.

 

Apart from gas and medical, we also know your products are used in industries such as the railways.  How do you take your core technologies and adapt them to these different industries?

I think the point is collaboration. That can be applied to other fields such as water works and also medical equipment. We need to collaborate with business partners in specific fields so we can exchange opinions, learn from each other, and learn their way of thinking.  There are special techniques required for that field, so we can learn more, and we can adopt those technologies and that knowledge into our products. However, in terms of the medical field, it's too technical, especially the medical terminology, so we sometimes call experts and doctors so that we can have study sessions.

 

You developed the Alumina joint along with Sanki Engineering, which is entirely made of aluminum. Can you tell us how Alumina joints are superior to more conventional products?

The Alumina joint is used for refrigerant piping of air conditioning in commercial usage, not for the home. The piping requires aluminum joints. 99% of commercial pipes are made of copper, so it needs brazing and welding. For that process, fire is used, and the building is under construction and they have to do all the piping work by welding. Copper pipes are very heavy, but aluminum is very light. Copper is three times heavier than aluminum, so if workers have to bring copper pipes up to the ceiling, it's too difficult, but since aluminum is light it’s easier. Construction workers are aging as well, and it's very hard for them to carry heavy parts but aluminum is lightweight, so it's easier.

The usual process requires fire, but it's too dangerous because the building is under construction, so we came up with a process and tools that don't require fire to install air conditioning equipment or piping. Another advantage of using aluminum is that it's cheaper. The per-kilo price is a lot cheaper  and the weight is one third of copper, so those advantages are very convenient.

There is one weakness, actually. Many parts used for air conditioning are made of copper because copper has a good heat conductivity ratio, but if we connect copper with aluminum directly, corrosion will occur, so we couldn’t directly connect them. We therefore developed an attachment to link them together. Connecting conventional copper pipe to itself doesn’t require an attachment, but in order to connect it to aluminum we needed the attachment, so that's why we developed it.

 

Given the success of the Alumina joint, are you looking for similar partnerships or collaborative efforts in overseas markets?

In terms of this joint development with Sanki Engineering, we are only providing our product to the domestic market because it depends on air conditioning manufacturers having the structure to accept a switch in materials, but now more and more air conditioning manufacturers are gradually accepting this shift of materials so maybe we can expand this business overseas.

If one of the main air conditioning manufacturers, Daikin, switches to aluminum, since they sell a lot of their products in Southeast Asia, maybe more of our products could be sold.

This attachment requires high techniques and a high quality of installation. China has good craftspeople who are very good at installing it, but sometimes the quality is very bad, making it not stable so I'm not sure if China can adopt this change.

 

You have overseas operations in China, but you've also developed products for overseas railway vehicles in Indonesia. Moving forward, what other countries or regions have you identified for further expansion from a physical standpoint, and what strategies will you employ to do so?

Currently we are doing international business only in China and Taiwan, and a little in South Korea. It’s difficult to say whether we can expand the business in other regions and countries, especially expanding gas technology in Asia, because gas is a source of heat, so in warm countries there is no demand for heat because it's already hot and, for example in very cold countries like Russia, it's so cold that this doesn't provide enough energy to create heat, so we need to go further to expand our businesses.

Maybe one option is to expand our business in China because now we have a base in the northern part of this country, so we'd like to expand to the south as well. This is one of the goals of our business expansion overseas.

 

Let's say we come back to interview you again in four years' time for your company’s 100th 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?

I'm not fully aware of the 100th anniversary, personally, because it's just a passing point. Our business will continue beyond the 100th anniversary, but thinking about the business and our capabilities, we believe we can make the company much bigger because if the scale is small, it's difficult to enter a new field and make a big investment.

Our current numerical goal is 10 billion yen in revenue, and we are aiming to achieve that. Over the last five years, our revenue as well as company size have been growing so maybe we cannot achieve this target before the 100th anniversary, but we are on a good growth track.

We are aiming to expand the business further, and one of my roles is to set up a good environment for our employees so that they can feel reassured trying new things and taking up new challenges because as the company grows quickly. Sometimes some people try to protect their roles and protect their positions and there are various frictions, my role is to prevent them from happening.

As president, I’d like to set up a good business environment so that people can feel free to take up new challenges without concerning themselves with bureaucracy. Without a challenge, we cannot succeed. I don't want to be like a top down, one-man president.

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