While the world is further digitizing, Unipack provides quality paper packaging for those who prefer a more traditional touch.
As a manufacturer of paper-based packaging products, what is your understanding of the Japanese monozukuri philosophy of production, and what role does it play in your manufacturing processes?
Our company is celebrating its 73rd anniversary and I think since I joined the company things have changed. We changed the mindset and the way of thinking within the company. I think that the company has been very lucky in our history, from an objective point of view.
I want to first share my views on monozukuri. The essence of monozukuri when manufacturing any products is whether our product is accepted by users or not. There can be whatever type of good materials, or design, or specifications between manufacturers, but if the users don't accept it, it doesn't make sense so it's just a matter of utility. In the field of monozukuri, what I usually value is getting the point of view, or perspective, of users or customers.
The next question is about how to ensure quality. When it comes to quality, I want to talk about the business environment of our main product – envelopes. Actually, the circumstances surrounding envelopes have changed over the past 20 years. Back then, even if we delivered a defective envelope, for example, and it was not sealed properly, the customer would just say “OK, please take more care next time, and correct the mistakes”. Since just before 2003, however, when the Act on the Protection of Personal Information (APPI) took effect, the mindset of companies changed.
The required quality for envelopes also changed because what's inside of the envelope is the same - papers and documents – but the value of the content has changed, meaning that information has become more important than money because of the Act on the Protection of Personal Information.
More and more companies have focused on the efficiency and quality of their products, especially with envelopes. For example, if the customer finds one defective envelope, they have to inspect all the other envelopes, which requires extra effort. And of course we have to contact other customers who received the envelopes to check if they are OK, and they have to contact us, the supplier, to make sure that the other lots of envelopes are good.
In such a case we are causing extra work for the customer, and as a manufacturer of those products we should avoid such situations. Therefore, if we find one defective product, of course we immediately have to replace it for the customer, and we need to investigate why we caused such a problem, and we deep dive into the causes and inform the people in the field.
Today we live in a very digital age where a lot of information is shared via communication platforms found on electronics and computers, something that was compounded with coronavirus, where we saw an increase of digital usage. Nevertheless, critical information is still shared by paper, even though the overall consumption of paper products is decreasing. How do you foresee the evolution of our usage of envelopes and other paper based products?
Looking at the envelope market, 20 years ago the market size exceeded ¥100 billion. 50 years ago, envelopes were one of the main means of communication. Until 20 years ago, there were no electronic devices or email, Instagram and so on. Our company grew, partly supported by the population increase and the economic growth over the years. Then the zip codes evolved in Japan and envelopes had to have more boxes to write the digits in. First there were three digits, then this increased to five digits and then 7 digits. Every time the number of digits in the code was increased, demand for envelopes increased, not because of our own efforts, but because of these external factors.
Around 10-15 years ago, electronic devices such as mobile phones, e-mail and Line started being used and those are the main channels. Now we have the trend towards going paperless, and together with the declining population and birth rate, the number of people who need to send envelopes has decreased. Furthermore, entry barriers to the market have gone down, so many companies from other industries have come into this industry, and it's quite over-saturated. There are no positive factors in the market. There is a Chinese saying; “to be surrounded by enemies”. The market has been shrinking, for sure. The market size will halve in the next three years to ¥50 billion.
Due to the implementation of a new invoicing system, envelopes with windows will be reduced in the future. Maybe you’ve only lived in Japan for three or five years so you don't know about 50 years ago in Japan. When we got the newspapers every day, there were always a lot of advertisements in them, especially on weekends. However, consumers were overwhelmed with the amount of advertisements, and they didn't know what advertisement was really for them. It’s the same thing when we consider email because we have tons of emails every day and we don't know which email is more important, which is the urgent one. It's difficult to find, and sometimes important information could be buried because we have too much information coming in via emails. It's the same as those adverts. The more information that is sent via a channel such as email, the harder it is to identify the important parts of it.
Therefore, people are deciding to return to basics and use more primitive means to store important information. There is a requirement that we shouldn't have any defective products and that our envelopes should maintain a high quality to meet customers’ expectations. Our role is to continue manufacturing high quality envelopes that consumers can rely on.
How do you plan to face difficulties such as Japan’s declining demography, Japanese markets becoming smaller, and new entrants into the market posing further competition?
I think this is related to your question at the end of overseas strategy. The main target is consumers of our envelope products. This is our main business and makes up 80% of total sales, whereas paper bags are 20%, but due to covid-19, more and more shops have been closed and shopping bags are not used because of that. However, we are now focusing on shopping bags going forward. And you asked a question about our overseas strategies, but for us it's difficult to look at overseas as a market. Maybe we should look at the overseas market on a production basis. As for the envelope business, it's better to have local production and local consumption because envelopes are heavy and if we produce them as an export, we’d have to pay a heavy tariff.
By the way, when we establish a local entity in an overseas market, of course we need to consider the ROI, and it takes time to recover the investment. However, overseas markets, especially ones with a growing population fueling the market, are very attractive, especially for consumer goods manufacturers. It's essential to enter a market with population growth, but the difficulty is it's difficult to differentiate our envelopes from competitors’ ones because they all look basically the same, unlike other products. We are therefore looking at overseas markets maybe on a production basis because of the lower labor costs. We have a plant in Qingdao, China which was established 10 years ago.
In the beginning we manufactured envelopes but after three to four years we stopped manufacturing them because it was not profitable. We wondered what to do and we decided to manufacture shopping bags instead because the production process is similar between envelopes and shopping bags. We have been manufacturing shopping bags for over 10 years now, and the quality of our products has been highly evaluated by customers, and one of our major customers is one of Japan’s most well-known alcoholic beverage companies. We make shopping bags for them. There are smaller ones for visual displays in the shops and you can put six cans of beer in there so it’s a good size, and there’s a bigger one for gift sets which can hold 24 cans of beer, but this company is very strict in terms of quality, and they do an audit of the plant where the bags are manufactured.
We passed this alcohol company’s audit and got approval and other Japanese beer companies also decided to place orders with us because they knew we can meet their high quality standards as well. We also deal with famous Japanese skincare products, which are very expensive and require a very high quality product from us, involving precision down to one millimeter. By accepting this cosmetics company’s standards, the quality of our products has risen. We're a company that can supply them with such quality.
Looking at the future, are you looking to open more production bases, and in doing so, are you also looking for partners to help you in these overseas openings?
When I took the office of president, we only had one plant in Qingdao, China, but if we continued with only one plant in that country, there was a certain risk attached with things like the covid outbreak causing a lockdown in certain localities so we decided to diversify our plant network. Apart from just Qingdao in China, we now have four other bases there as well as plants in Vietnam and Indonesia which are under investigation right now.
There is a kind of string made from paper, which passes stringent resistance tests. Apple was using this string in its packaging. I visited an Apple store in New York in the autumn of 2019 and also visited Bloomingdale’s department store in New York, and at that time I looked into paper-based strings for the first time to take back to Japan. I took the shopping bags from Apple in the US to Japan, and I sent them to our Chinese plant and asked whether they could manufacture similar products based on local materials. Actually, many of the products in the EU and US are manufactured in China and they knew how the bags were made. Since a large Japanese telecommunications company has more production lots in terms of volume than Apple, that was an opportunity for us to expand this business. Incidentally, we have confidentiality agreements with the alcohol and the telecom company so they can’t be included in this report without us getting their approval first.
Let's say we come back to interview you again on the last day of your presidency. What would you like to tell us about your goals and dreams for the company by that time, and what would you like to have achieved by then?
There are many companies with long histories here, and some companies are just lucky to be supplying the market, but in our case I want my company to survive with a purpose. We are doing everything to rebuild the structures within our company, for example the sales system, the staff and HR system, the company’s rules and regulations, the management of suppliers and vendors, and also the old environmental policies and financial situation and so on. In five years’ time I want to list our company on the stock exchange. Actually, we already have a successor, but even if he takes over the business we’ll need to work together for two or three years as a handing over period. I want to make the company better so that it can more easily be listed on the stock exchange. There are actually over 300 manufacturers of envelopes in Japan. All of the top 30 companies in this business except us are family businesses, so I’m the first person to take over such a business as an outsider. It is very rare.