Beyond its role as a medical equipment trading company, Mutoh is developing groundbreaking welfare equipment such as FILLTUNE WeCLEAR, a hearing support device.
Let’s begin with a brief introduction to your company
We have an extensive network of sales offices, with 165 locations all over Japan. Our headquarters are in Hokkaido, and throughout 50 years, we have expanded into Tokyo, Osaka, Kyushu and recently in Nagoya to survive in this market. We have done quite a lot of investment and have acquired 23 companies through M&A. Our goal is to acquire a 20% share of the domestic market. The Japanese medical equipment market size is estimated as JPY 3.5 trillion. Around JPY 1 trillion of this market is large diagnostic devices such as PET devices, CT devices and MRI devices. Government institutions usually do not use a medical equipment trading firm like oursselves when purchasing large-scale diagnostic equipment. Instead, they consult directly with manufacturers regarding equipment performance and pricing. The remaining JPY 2.5 trillion is the area in which traders like us can play a role. Our goal is to acquire 20% of this JPY 2.5 trillion market, which is JPY 500 billion. This fiscal year, we are expecting to achieve a JPY 220 billion market share.
On the other hand, it is said that there are 880,000 hospital beds in Japan. We have concluded contracts with hospitals to use our SPD (Supply Processing and Distribution) system, and currently manage around 72,000 beds, which is 8% of the total. In addition, although we do not have an SPD contract, the total number of beds at hospitals which we have close business relationships are approximately 100,000 beds. Therefore, we have already acquired around 20% of the total number of beds. We are developing our business aiming for 20% market share in all medical fields.
Just this past week, Prime Minister Kishida spoke about Japan’s demographic challenges reaching a tipping point in many respects, not just in terms of labor availability, but also critically in terms of an overburdened public medical system. With more and more elderly people in Japan each year, many in Japan have called for a shift from the current treatment based medical model to a preventative based model. How are you reacting to this shift in how medicine is approached in Japan, and what do you believe can be done to alleviate some of the pressure that we are seeing in Japan’s healthcare system?
We are following the new strategies and new medical model that the Japanese government is trying to create. We believe providing services and products that can comply with the decline of the population will ease the burden that is being placed on the medical industry. Setting up remote diagnostic systems in sparsely populated rural areas is one example. We want to provide a service to those areas that is the equivalent to the service in urban areas. In response to the needs of customers all over Japan, we have been providing the latest products in Japan for about 30 years, such as ultrasonic surgical devices (Sonopet), and near-infrared therapy devices (Super Lizer). In modern times, Japan has become a super-aging society, and the number of people with hearing loss and dementia have increased rapidly. We are also trying to develop and provide a new type of hearing support device (such as bone vibration hearing devices) that enables clear hearing for elderly people. We are shifting ourselves from being a trading firm that responds to needs, to one that focuses on potential issues.
Japan's medical system is based on a mutual aid insurance system operated by the Japanese government. We believe that this system is very suitable and effective for our country. Of course, there are many issues embedded in this national healthcare structure. However, the Japanese government is aware of these issues and is actively adapting to changes. We will continue to follow the government’s path.
One of the issues that we have seen with traditional medical distribution management systems has been an overreliance on the subjective judgement of an individual when it comes to ordering and managing inventory. We know that you have advanced many digital solutions to address this problem as part of your own SPD system MASTY. Could you tell us more about the technologies and services you are supplying to advance medical distribution and improve hospital management?
We started our SPD project more than 30 years ago, when we sent our own research team from Japan to the United States in 1988 to study the SPD systems that were popular there at the time. We learned that the US government obligated the four major pharmaceutical trading firms to provide adequate medicine to all 50 states in a 72-hour period. We learned that this advanced distribution system in the US was very effective and would surely be needed in Japan. In 1994, we signed our first SPD contract with our customer. That was how we started our SPD business.
We adapted the SPD system that is used in the US, so that it would be applicable to the Japanese system. That was how we developed MASTY. The advantage of MASTY is that it is highly customizable when compared to other systems. Some of our customers prefer to do in-house inventory control, and due to space limitations, others want the inventory kept outside of the hospital. We have been working with over 300 facilities, so we have accumulated our know-how and experience over the years. This means that we are able to adapt to the specific needs of each and every customer.
The reason why we have been so well-received and have been able to survive until now has been our ability to be flexible to meet the needs of our customers over the years. Our system was established under the foundation of the Japanese healthcare system. However, economic viability and efficiency are also very important. That was how we were able to evolve.
You spoke about being flexible in meeting the needs of the time as being one of your company’s competitive advantages. Having an advanced distribution system is important is times of crisis. A recent example being the Covid-19 pandemic, where we saw soaring prices and widespread shortages of essential medical equipment, hospital beds, ventilators and masks etc. Can you tell us a little more about how you reacted in that time of crisis, and how your services were suited to help those affected?
When we consider the impact of COVID-19, it can be divided into two time periods. In the first year, there was a huge need for personal protective equipment (PPE products). At many sites, there were cases which we were not able to provide these critical materials. At that point, our sales dropped drastically. Our business style changed during this period, as due to this unknown virus, hospitals and other customers were afraid of actually having direct contact with manufacturers. Therefore, the manufacturers were not able to go directly to the customers as they had in the past. However, as we are a trading firm, we were actually the only ones that were accepted and were able to directly connect with customers. We were the one of the trading firms that could accomplish this. It can be said that the value of trading firms has been elevated due to pandemic situation. This was the biggest impact that the pandemic had for our operation. As a result, we’ve become highly recognized by our customers.
Eventually with time, limited contact with the outside eased and things became more open. With the trust that we had acquired with many companies in this period, we were one of the first to be able to procure PPEs and distribute them to the sites. Due to this advantage, we were able to increase our company portfolio and work with new hospitals. In the second half of COVID-19, the government started to give out subsidies for medical equipment, and it indirectly became a life boat for us.
This leads to a greater conversation about the importance of a trader in our system, and how the role of the trader is changing with time. You mentioned product development by understanding the needs that you are seeing and responding accordingly. How has your role as a trader evolved over the years?
The purpose of Japanese trading firms or “sogo shosha” was to take care of everything. It is an effective business model. As a medical trading firm, we feel that our role and our mission is to foresee potential future needs and provide an adequate service as a pioneer. We are shifting ourselves to become a more proposal-oriented trading firm, and we are investing heavily in human resources and business development.
You mentioned that you are slowly becoming a more proposal-oriented trading firm and that you have started developing these types of products. What advantages does your past as a trader and an SPD business provide to your development capabilities?
One of the huge advantages that we have is our company structure. With nationwide branches, we are able to gather the latest information and share within the company. This allows us to give tailored proposals to customers located in each region. For example, much of the COVID-19 subsidy provided by the Japanese government did not proceed at the same time across the country. There have been many examples of subsidy systems that started in one prefecture and then spread throughout this country.
Since we had our base in that prefecture, we were able to learn what the subsidies were and were able to share up-to-date information with our domestic branches. This allowed us to provide new services and propose new solutions to our customers.
We believe our business as a trading firm is not limited to a specific medical sector. It is true that the SPD business has greatly contributed to the expansion of our business performance, however, considering the business as a whole, I think that the SPD-related business is one of the driving forces to move us forward. We believe that the true role of a trading firm is to be a company that can provide comprehensive information to our clients through our SPD business.
When you talk about moving forward, what role will the global market play in your future vision? We read your president’s message, in which you mention a strong desire to establish local subsidiaries overseas and take a more international approach to your business development. Earlier you mentioned that M&A had become a very important part of your strategy, with your company having conducted over 26 M&As to date. Are you interested in applying that strategy overseas as well? Are you interested in collaborating with international companies or perhaps conducting M&As overseas?
It is true that we have utilized M&As as a strategy to expand our business. Although in the past ten years, we have focused more on developing new businesses in-house. Collaborations and partnerships are keys to drive our business forward. When it comes to international expansion, it is very important for us to find the right local partner. However, at the same time, we want to take a new approach. This includes direct contact with local hospitals, doctors and nurses. Right now, I cannot disclose the details, but we want to grasp the needs of each locality fully by having direct contact and learning about the culture and the needs of the people there, so that we can provide new solutions directly.
We also feel that it is our mission to provide our services overseas. To that end we have opened two overseas subsidiaries: Mutoh America in Boston (USA), and Mutoh Medical (Thailand) in Bangkok. We were the first from our industry to go overseas. We envision these locations as being important stepping stones in anticipation of our company's future globalization.
In 2017, Japanese medical universities welcomed 20 overseas students for free, who will graduate in March this year (2023). In the upcoming five years, there will be over 100 students from overseas that will graduate from Japanese medical universities. These graduates will be from Vietnam, Laos, Malaysia, Indonesia and Thailand. These students have been selected by the local governments in those countries. When the graduates return to their countries, we assume that they will require Japanese medical equipment and tools, since they are more familiar with the Japanese equipment they used during their practice and training in Japan. As there are many Southeast Asian medical students coming to study in Japan, we decided to open our Thailand base in Bangkok in 2017 as our first base in the region.
You talked about direct contact with local hospitals overseas. There has been a growing awareness especially in the wake of Covid-19, of traceability when trading vital equipment overseas. The best example is Covid-19 vaccines, which require very special conditions to be able to be transported. Can you tell us about the role that you see new technologies like blockchain and other digital technologies playing in maintaining a structured medical supply chain?
It is stipulated by Japanese law that you must have clear traceability when it comes to medical equipment and medicines. This is a standard that is required in Japanese society. It is obligatory to track and keep records of by who each medical device is manufactured by, the traders in between, as well as in what surgeries the devices have been applied. For this reason, we also record information on such medical devices in our system so it can be retrieved any time. With COVID-19, perhaps the traceability to ordinary citizens has not been fully realized. However, within the medical realm, this traceability is complete and we have to follow the laws and regulations. We will continue to focus on maintaining this traceability system in the field of medical equipment and to invest in systems.
We know that you deal directly with hospitals through your SPD business. Traditionally speaking, this type of business is very regional. You need to have a regional footprint and you need to know the local hospital and staff etc. How did you fit your services to understand the local needs that led to your national expansion?
Traditionally in Japan, there was and still is an agency system where a certain type of product can only be procured from local agencies or dealers.
We have taken the initiative to break this traditional system. We strongly believe that all types of equipment and medical consumables should be available at the same price by anyone, anywhere (excluding import shipping costs). We want to change this closed traditional local agency system. However, there are still many things that needs to be done. In order to do so, there are many areas that we have not yet reached. For example, there are still undeveloped areas in Japan where we do not have any bases. We are trying to get beyond this traditional system and standardize a new rational business model.
If we had focused our sales in Hokkaido only, we might have been able to do business more comfortably. However, since our mission is to go against this old tradition, we did not take this path. We are still struggling, but are currently halfway through. Our chairman states this is a necessary action for Japan’s medical industry, as the dealers tend to keep the prices in their area. Currently due to the information society that we now have, the hospitals are aware of the regional price disparity, and they actually contact us for fair prices.
In 1994, we started the SPD business in Japan, which we learned from the US. We learned that there were only four major companies that controlled all 50 states. That was how we tried to model our business. We can say that everything started from there.
We really like this ethos that you have, providing any equipment for any person in any place, and trying to break with this old tradition. You mentioned that you are about halfway there in your estimation. What do you see as the critical or key challenges that remain for you to break that norm and establish a more equitable distribution system?
There are still many issues. Penetrating into the hospitals is one key issue that we are experiencing. Our business model is going directly to the hospitals and talking with the medical personnel on a daily basis. This has allowed us to grow our strength in the market. What we hear directly from the hospitals is the issue of price imbalance. They are forced to buy from the local agencies keeping their prices. Therefore, we are trying to increase our contact with the hospitals and increase the areas of the hospitals that we have direct contact with. Slowly but surely, we are enlarging our sales channels.
In the industry, there is a medical equipment association. Over 1,000 companies are registered under this umbrella. There are another 1,000 companies that are not part of the association. Therefore, we have 2,000 companies to compete with.
Considering the future medical administration and economic requirements, it is likely that many small and medium-sized companies will be eliminated or exit the market voluntarily in the future, just like other industries. We estimate that only a few large companies like us and the companies that operate under them will remain.
Imagine that we come back to have an interview with you again on the last day of your presidency of the company. Is there an ambition or an objective that you would like to achieve before leaving the company to the next generation of executives?
As I stated earlier, I think that only companies like ours will survive in this market, by applying the rationality demanded by the market. Currently we have 1,100 permanent employees and around 1,600 contract employees. Overall, the number of employees that work for us is over 2,700. We want to be the number one dealer of medical equipment and make our employees feel honored to be part of our company. If we can reach that goal, I will be happy to pass the baton to the next generation.
I am the sixth-generation president, and our current chairman was the fourth-generation president. During our third-generation president’s time, the headquarters were in Hokkaido. In 1970, the company decided to come to Tokyo and expand our business. Currently we have acquired over 23 companies as part of our group. I always refer back to this very important first step that our third-generation president took. We have to always be mindful of treasuring this frontier spirit and endeavor to enlarge the market.
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