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Leading the global recycling drive through a local approach

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Interview - May 8, 2023

Engaged in the recycling of industrial and household waste, as well as the production of biofuels, Naotomi Shoji aims to expand its international operations in China and Southeast Asia.

SHIGEO KINOSHITA, PRESIDENT OF NAOTOMI SHOJI CO., LTD.
SHIGEO KINOSHITA | PRESIDENT OF NAOTOMI SHOJI CO., LTD.

Over the last 25-30 years, Japan has seen the rise of regional manufacturing competitors who have 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?

One of the reasons why Japanese companies remain competitive is that many of them are family-owned. You could say that this is the main factor. Of the 2.6 million companies in Japan today, 97% are family-owned, and 90% of companies with a history of more than 100 years are family-owned. The advantage of family management is that the president can look five or ten years ahead and make long-term plans and take action. Society and markets are constantly changing, but because family businesses are quicker and more efficient in their decision-making, these companies can respond flexibly to these changes.

Also, employees can easily vector in the same direction as the CEO and unite together, and the organisation functions at a higher and lower level. Otherwise, groups are formed within the company and the driving force is reduced. However, one of the disadvantages of a family business is that employees may focus too much on the president's ideas or be preoccupied with pleasing the president, which can prevent innovations from being born among employees, so we are conscious of creating an environment where innovation can easily occur.

Our company is family-owned, and one of the strengths that I perceive as a characteristic of the Japanese people is that when they implement new ideas and possibilities, they work with sincerity and persistence to realise them. I also feel that many presidents of family-owned companies have a deep sense of determination and responsibility, study and focus their wisdom on management. And they have always taken on new business challenges. I believe this is the reason why Japanese companies are so competitive. For a company like ours with a turnover of 16.5 billion yen, I think it is easier to move around in a family-run business and the speed of growth is faster.

 

Japan is the oldest society in the world, and it has a rapidly shrinking population which presents challenges such as a labor crisis and a shrinking domestic market. What are some of the challenges and opportunities this demographic shift is presenting for your company?

Population decline is a negative, but in a way, it is an opportunity. The reason why it is an opportunity is that we believe that when the population decreases, there will be a metabolism within our industry.

Our main field, the scope of our business, is Nagano Prefecture, and we are confident that we can survive in this market, so we are willing to absorb the customers and employees that will be created in the market as a result of the metabolism.

We also have new graduates who are interested in joining our company. We want to make our company attractive so that we can be the first and best choice for those interested in the recycling industry. A company where we can challenge ourselves and make mistakes. We want to develop the company into a fun place to work. Furthermore, we have people who have changed jobs from other industries, such as manufacturing and service. We have to make sure that we are the first and best choice as a workplace for them. Naotomi currently has approximately 620 employees and pays its permanent staff a wage higher than the average for the prefecture. This is an important point that we cannot afford to lose.

Today, we hear that many people are diagnosed with depression, but we have no employees who suffer psychologically or who are diagnosed with depression because of their working environment. Zero. The results of stress tests conducted by industrial physicians on our employees are below the national average. As well as hardware, we also have a good software system, and we are constantly aware of and improving the physical improvements, such as replacing machinery and vehicles with new ones, as well as creating a comfortable working environment. This is based on the idea that 'employees are comrades and customers are family'.

However, there are still areas where we need to work harder. Working groups will still exist even if the population is decreasing, and Naotomi has to create attractive workplaces so that workers want to work and keep working. We are also actively involved in mergers and acquisitions and have a track record of taking over companies with no successor, and we would like to encourage anyone in the same industry, especially in Nagano Prefecture, to contact us if they are having problems. We contribute to the employment and stability and security of all employees.

 

Some metals such as aluminium are energy intensive when recycled, and others may be contaminated with toxins that cannot be recycled. Furthermore, there is a risk that these contaminated metals could harm the environment if they are not dealt with properly. In your opinion, what new technologies are necessary to make your recycling processes even more environmentally friendly? What other strategies are you undertaking to contribute to a more sustainable society?

We strongly urge manufacturers not to use toxic or contaminated metals. For example, when recycling metals containing hazardous substances, the economic burden and burden on the global environment in the process is enormous, and it is a burden that would not be incurred if hazardous substances were not used in the first place.



In Japan today, all waste and recyclable materials containing hazardous substances are collected and processed by specialist companies.

Only these specialised companies can recycle metals with hazardous substances. If we were to do it ourselves, it would not be economically efficient in terms of cost-effectiveness. What we can do is work on a simpler collection of those wastes, focusing only on Nagano Prefecture.

By the way, our technical laboratory has developed a 'compact determination device for chlorine-containing plastics', which is on track to go on sale as early as autumn this year. It will remove chlorinated plastics and make it easier to utilise other plastics as fuel. Until now, there have been large-sized identification devices, but they are inconvenient, and this portable device is very convenient and inexpensive. Please contact us if you are interested.

To reduce our environmental impact, we are working on energy-saving activities such as switching 100% of our lighting to LED, and there are many things we are doing, such as solar power generation, etc. At AC, we are constantly cleaning filters and heat exchanger fins to increase efficiency, and we are also changing our vehicles from engine cars to EVs and hybrid cars to reduce the consumption of fossil fuels. We are also converting our fleet from engine vehicles to EVs and hybrid vehicles to reduce fossil fuel consumption. We are planning to take delivery of a domestic EV truck this year.

For carbon offsets, we plant trees every year; there is a system called J-Credits, and we are planning to participate in this credit system. In the equipment sector, we will also introduce the purchase of renewable energy. And we are also reducing our electricity use by changing our working habits. This year we are building a new plant with AI, which will be more environmentally friendly and more recycling-efficient; construction will start in April and the plant will be operational by 2023.

 

You have many other business lines, such as industrial waste disposal, general waste treatment, and even old clothes for recycling, and we know you also conduct demolition work, as well as manufacturing biodiesels. Can you tell us which one of these is your current focus, and which one you believe has the most potential for future growth?

Currently, our business has four main pillars: firstly, metal recycling; second, industrial waste treatment and recycling; thirdly, general waste recycling including waste paper and biodiesel fuel production; and fourthly, other activities such as building maintenance, demolition and used clothing. These are our four pillars.

We see growth potential in all pillars 1-3, while opinions are divided on pillar 4. Particularly 1 is the need to recycle scrap metal, as steel scrap is used more than ever in blast furnaces due to decarbonisation measures. We also expect demand for copper and other non-ferrous metals to increase, as well as steel, due to the penetration of EV vehicles and the global improvement in quality of life. And recycling is more earth-friendly than digging up mountains.

Alternative fuels can be made from the industrial waste of 2. The need for such alternative fuels is also increasing in Japan. Increasing the recycling rate of industrial waste is also something that is being attempted at our new plant. As for the 3 general wastes from everyday life, for example, recycling plastic and plastic bottles is something we are now focusing on and will continue to target for recycling, which has great potential. Furthermore, we are currently recycling food waste into compost and animal feed, which are also valuable raw materials, so we are planning to expand our facilities and look forward to the day when this becomes a reality.

 

By 2026, the global demand for biofuels is set to grow by 41 billion litres. In 2021 the Indian government brought forward its target of selling 20% ethanol blended fuels across the country by 5 years to the year 2025. We also know you take used tempura oil discharged from food-related businesses and recycle this into materials used for biodiesel fuels utilized in buses and collection vehicles. As the demand for biodiesel fuels continues to grow, what opportunities do you see for your firm? can How are your BDFs superior to more conventional ones?

The BDF we currently produce is only suitable for certain diesel engines, so we are preparing to introduce a new type of filtration plant to diversify its applications. This will be operational by the end of next year. We are not thinking about exporting the BDF we produce at the moment. We are considering collecting tempura oil in Nagano Prefecture and recycling it into BDF that can be used in buses, trucks and heavy machinery. We want to complete this recycling system within Nagano Prefecture. Vehicles running on tempura oil generated at home will go to local kindergartens, primary schools, etc. to collect waste and other materials. It is truly a visualised local production for local consumption of recycling. We expect it to be easy for children to understand and familiarise themselves with.

 

Can you tell us the role that partnerships play in your business model, and are you currently looking for any partnerships in overseas markets?

We feel that partnerships are important, both at home and abroad. Overseas, we currently have partners in China and Malaysia. We have a partnership with a company in Malaysia, where we outsource the sorting of metals, which in Japan would have to be sorted at a high cost, to them so that they can sort them at a lower cost. We also sell the paper to companies in South East Asia and South Korea.

In January last year, we set up a joint venture with a local company in China and started operating it to recycle cars. I chose China because I have been involved with China for about 35 years, I have a lot of good friends there and trust, and there is a huge market very close by in a neighbouring country, so I decided to have a joint venture there. We are the second company in China.

Our strategy is to do car recycling in China first. But because of COVID, the start was stalled, and now we are trying to accelerate it again. China's political system is a one-party Communist Party rule, which has both advantages and disadvantages. That's what we think because we have been dealing with China for a long time and have learnt and acquired wisdom, and that's why we have been able to develop our business in China.

 

Moving forward, have you identified any other countries or regions that you would like to physically expand into, and what strategies will you employ?

Horizontal development of vehicles and another dismantling in China. The huge nearby market is full of attractions.

ASEAN is also an attractive market for us, especially Malaysia, where we have partners, which is our first choice. We want to challenge ourselves there. I don't know if it will be a joint venture or if we will have our direct facilities and factories, but we are dreaming - before COVID, we went to ASEAN to do some field research. The pandemic has stopped our overseas expansion, so we want to pick up the pace again.

 

Imagine we come back to interview you again in six years: what would you like to have achieved by then?

Our goal for the next six years is to increase the company's profits and sales. We expect to generate approximately 16.5 billion yen this year, so our first step is to achieve sales of at least 20 billion yen. We consider sales to be one of the proofs that people appreciate our company, so we will do our best to gain the support of as many people as possible.

Poverty eradication is one of the sustainable development goals of the SDGs, and Naotomi is now taking action, both locally and globally, to alleviate poverty, especially among children. six years later, we want to expand and continue our actions and make our results visible.

And in six years, we aim to have more employees who choose to work for us, and increased employee satisfaction. We want to create an attractive working environment where people are happy to work with us.

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