Kusano is a trading company that specializes in foundry raw materials, but its range of services has expanded during its 108-year history. We spoke with Soichiro Kusano, President & CEO, to find out more.
Big sogo shosha (trading companies) such as Mitsui, Mitsubishi, Marubeni, Itochu and Sumitomo became world famous, especially in the 80s and 90s, for leading Japan's charge to become a global player. More than 50% of exports from Japan during that period were from these so-called sogo shosha. When the economy collapsed and the bubble economy of Japan burst, many of these companies were seen as superfluous. Today though, we still see 9,000 trading firms operating in Japan. What role do Japanese firms play in the world economy today and what unique advantages or skills do they possess?
The opinion that trading companies were no longer needed started when the internet technology was developed because of the ease for manufacturers to have direct access to customers. The reality though is that trading companies are still needed despite such advancements. Trading companies strengthened their information, logistics and financing technologies and this has helped them stay relevant. In the 21st century, trading companies started developing new markets in the BRICS and other emerging markets. Trading companies are focused on starting new businesses in these new markets and are trying to connect them. This is how our trading company grew. We also focused on natural resources for which we are now seeing an increase in sales.
Trading companies are always trying to determine market needs. For example, because of what is happening in Russia, it has become hard to buy Russian pig iron. Our customers want to know how they can buy pig iron from other countries or from Japan. We have to try to find another source in order to supply them. Nowadays, a big global challenge is SDGs and carbon neutrality. Many companies understand that they need to make changes, but they don’t know how to do it. Trading companies are the key to assisting these companies by advising them on which sectors and markets are best for their business by providing examples for their reference. We act as a bridge that connects two parties.
Environmentalism is so important for businesses today. SDGs are a critical part of any president's message. As a trading firm, what transition are you seeing in Japan in terms of the production of green steel? Is Japan’s steel industry progressing well towards this carbon-neutral target?
That is a difficult question. Big blast furnace companies like Nippon Steel, JFE Steel and Kobe Steel are struggling to hit carbon-neutral targets. They try to focus on using hydrogen to reduce carbon emissions, but this requires complex technology that needs a lot of investment. They are now also focusing on electric furnaces to reduce the use of carbon and steel iron ore. These projects are expected to reduce carbon dioxide emissions and the steel producers have set the challenge to achieve carbon neutrality by 2050. As a trading company, we are focused on collecting steel scraps and selling them.
Japan is well known for its aging population. More than 28% of people are over the age of 65. Simultaneously, it is declining too, with a fertility rate of 1.37 it is expected to have less than 100 million people by 2060. How is your business reacting to this population change? What opportunities and challenges has it presented to you?
We are focused on Southeast Asian countries which have growing markets due to their growing population, countries such as Indonesia, Vietnam and China. The Japanese foundry factory industry is shrinking because of the population decrease. The number of successors to carry on the company is decreasing.
We used to sell just raw materials. We purchase pig iron from a steel maker and sell it. We now coordinate and work with our customers. We provide what they need when building their new factories such as machinery and engineering services. We help them with the machinery or the layouts they need to be more efficient. We also introduce robots that can help customers reduce labor costs.
We are now living in turbulent times. The war in Ukraine brought political and economic sanctions on Russia. There are soaring resource prices and inflation. Here in Japan, there is a huge depreciation of the Japanese yen. There is also China’s zero-tolerance policy against Covid-19, which completely disrupted logistics supply chains. What kind of adjustments has your company made with these world events?
The zero-tolerance policy has made it impossible to maintain port functions and difficult to secure container vessels. There is a shortage of container space due to covid-19 and the problem in Ukraine, so transportation of products was slow and we have to let our customers know about it. Thankfully, our partners and employees in Asia can communicate with our customers and inform them about any delays in shipping. This highlights the importance of building trust with local partners. Because of our established relationship with our local partners, we can address problems regarding delays in shipments. We used to do business face to face with companies overseas but with covid-19, we are now doing everything online and have zoom meetings. Even though we meet on zoom, we are still maintaining our sales due to our good relationship with our partners. For example, we once had a customer in Japan in need of steel scraps. Our partner in Thailand immediately exported what we needed to Japan. We easily procured the material and delivered it to our customers quickly because of our established relationships with our partners.
Kusano’s supplies 99.9% pure iron. We had the pleasure of interviewing many material makers here in Japan. Your pure iron material has been valued by the airline and electronic industries. Can you tell us about its competitive advantages?
We believe that our ability to respond to the detailed requests of our customers is what makes us unique.
Pure iron is used as a raw material for special steels, magnets and magnetic materials.
However, with the increase in demand for electricity, the accompanying efficiency improvements, and the trend toward CN, as typified by EVs, we see the potential to expand into industries and fields we have not yet entered.
What are the unique qualities and competitive advantages of your pure iron?
It took considerable passion, time, and repeated trial and error to achieve 99.9% purity.
Also, because it is manufactured in Japan, the supply chain is stable. If they were made in China, it would be difficult to obtain products with a zero-tolerance policy.
The president of Nippon Coke revealed to us in an interview how they were looking to use their hydrogen capture technology from their furnace work and use their kneaders and mixers for the cosmetic industry and various other applications. Are you able to diversify beyond what you are doing right now? What new industries and opportunities do you see on the horizon for your firm?
For us, SDGs are one of the keys to accessing the agricultural business. We are already selling carnation cuttings in Japan imported from Spain. We already have access to the agricultural business, but this business is also decreasing due to population decline. We are using SDGs to combine agriculture and smart business. Right now, we are involved in creating rice more efficiently and introducing new machinery.
Rice Farmers used to be only concerned about producing good-tasting rice. Now, we are working on enhancing the product yield and creating plastic products from rice. For example, this file holder is made with 20% rice. Rice that is not fit for consumption is used to produce materials. Maybe in the future, we can produce some machinery parts using the rice materials that will be environmentally friendly and good for farmers.
As a trading firm, what is your role in the operation of creating new materials?
We have access to construction and automobile companies that can use these materials. We can introduce parts that they can use that can contribute to SDGs.
You have been operating overseas since 2003. You started operations in Indonesia in 2013 and in Vietnam last year. Can you tell us about the benefits of those locations to your businesses? Why did you set up in those particular locations?
Most of the time, we set up offices overseas when a big customer has plans to build a factory in that location and they need us to provide materials, help in the layout of their factory or give advice on what kind of machinery is needed. We then use this base to cater to Japanese companies in these locations. In Indonesia, for example, one of our customers had a plan to go there and build a new foundry factory and then they requested KUSANO to expand there together. In Vietnam, they already had a foundry factory too. We did business in Vietnam before but without a base. Now, we have established a base in Vietnam, too
You cater to Japanese customers located in those locations. Are you looking to expand beyond the Japanese customer base and cater to local and international players operating there?
We would like to do so, but we find many cases where it is very difficult to manage the credit of local companies in collecting accounts receivable. In China, if we sell to Chinese companies, sometimes it will be hard to get the money back. It is also the same in Indonesia and Vietnam if we sell to local companies. That is why we decided to focus on Japanese companies first. However, sometimes we do business with Chinese, Korean, Taiwanese, and Thai companies that we can trust.
Trading firms agree on one thing and that is the importance of having a strong overseas network connection. Are you looking to find partners in overseas markets? What kind of partners are you looking for?
For us, finding partners and agents in other countries can help us start our business easier. On the other hand, it could also be a challenge because our management philosophies are different. They would stop supplying if their business is not doing well. We give all our effort into establishing our own base so that we can do the business longer.
What is your midterm strategy to continue your corporate growth?
We have four strategies at the moment. I made a 10-year strategy 8 years ago. The first one is developing human resources for the next hundred years. The second is focusing on a niche product so that we can be number one. It is hard for us to compete with bigger trading companies on mainstream products so focusing on niche products is important. The third is an aggressive investment. We have a net asset of ¥7 billion. We are now studying M&A of transportation and engineering fields. We are more focused on machinery, so we need more good engineers. Also, we want to focus on dealing with scrap metals since they are in high demand and align towards the goal of carbon neutrality. The last one is to aim for “KUSANO in ASIA”. We actually expanded our business by establishing our own bases in China, Indonesia and Vietnam so far.
What are the main dreams and goals you have set for the future of Kusano Sangyo?
There are more than 80,000 companies in the world that have been in business for more than 100 years, and it is estimated that there are 30,000 companies in Japan. The oldest trading firm in Japan has existed for about 350 years. Moreover, one of our clients in the foundry industry has been in existence for over 500 years. We would like to make our company sustainable and develop to last not only for the next 100 years, but for the next 900 years, so that it will be a company that lasts for 1,000 years.