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Najico: a key player in Japanese railways

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Interview - May 14, 2021

Najico is a leading supplier to Japan’s world famous railway system and counts Japan Railway as one of its main clients. In recent years the company has also diversified into the steel industry while also strengthening its global presence. We speak with president Hiroki Nakamura, who offers his insight into Japan’s railway industry, his company and its products.

HIROKI NAKAMURA PRESIDENT OF NAKAMURA JICO
HIROKI NAKAMURA | PRESIDENT OF NAKAMURA JICO

Japanese corporations have been facing stiff price competition from regional peers located in countries with a cheaper labour force. Despite this situation, Japanese manufacturers have remained technological leaders in niche sectors. How do you explain that Japanese manufacturers have remained competitive despite this increasing price competition?

Over the past years, we have definitely been affected by stiff price competition. This situation is even more apparent within the Asian market. In the universal joint business, for example, our Chinese competitors have been able to enhance the quality of their products while maintaining a relatively cheap price. Ultimately, what differentiates us, and other Japanese corporations, is the spirit of “Monozukuri” (craftsmanship). Even though “Made by Japan'' products may be more expensive, they require less maintenance and boast a longer lifespan. These features are the reason why Japanese manufacturers have remained trusted partners in the production of complex and critical components.

When a potential customer is searching for a product with high functionality and an above-average life-span, Japanese products tend to be selected as they come with a higher degree of customization and reliability. When our clients are required to meet stringent safety standards, they come to us with the insurance that our solutions will match their requirements. While the initial cost of non-Japanese products may be cheaper, on the long-term, our solutions can prove to be more cost effective. The smooth operation of our solutions together with the after sale services we offer have made us trusted suppliers. To give you one example, one of our main clients is a large Chinese corporation involved in the steel mill business. Despite having offers from local suppliers, they continuously rely on NAJICO’s universal joints when purchasing the main joints of their steel mills. When it comes to supplying crucial and complex components, the reliability, track-record and reputation of our products outweighs pricing.

 

NAJICO combines the capabilities of a trading house with the technical know-how of a manufacturer. What synergies have you been able to create between trading and manufacturing?

To understand how we evolved into both a trader and a manufacturer, you must understand our company’s history. We were founded in 1929 as a small trading house for car components. At the time, our main client was a large-scale Japanese railway company whose factory was located very close to our current office. This location was the source of Japanese railway manufacturing. We were given the advice to shift our business to adapt to ‘the age of railways,’ and we responded to this advice by manufacturing components and devices for the railway market. NAJICO’s transformation allowed Japan’s railway manufacturers to lessen their dependence on imports. At the time, railway manufacturers were beginning to shift from steam engines to diesel locomotives; and as such, universal joints and heat exchangers were not available domestically. Our clients requested us to find and supply these novel components, and this change in demand marked the start of our operations as a trader of rolling stock parts; a business that still accounts for the majority of our turnover today. To a large extent, our manufacturing capabilities grew simultaneously with the development of the Japanese railway system. Since then, NAJICO has maintained a close relationship with Japan’s railway companies and currently, Japan Railways (JR) represents about 60% of our business.

Today, our universal joints and heat exchangers dominate the Japanese locomotive sector, and account for nearly 100% of the domestic market share. That being said, it is important to note that locomotives only represent 20% to 30% of railway vehicles currently in use. So while we do not dominate the industry as a whole, our products have nevertheless gained a leadership in a niche segment of the market.

For our universal joint business, we expanded beyond the railway sector to also serve components that we supply to steel mills and to the steel industry in general. Over the past thirty years, we have expanded this segment of our business to become a worldwide supplier of universal joints.

When it comes to our trading activities, we are almost exclusively trading rolling stocks for the railway sector. With regards to our universal joints business, it is mainly directed at the steel market. We have diversified our portfolio to enter the steel market, thereby lessening our reliance on the railway sector. At NAJICO, each segment of our business and product portfolio has its niche area of expertise, which allows us to avoid entering into price competition. Historically, our main source of growth has been our collaboration with Japan Railways (JR). To a large extent, we have grown alongside them for the past decades.

 

In May 2011, the Japanese Government and transportation industry embarked on the creation of the Chuo Shinkansen Maglev, a new bullet train that will link Tokyo to Osaka. Aside from that project, the construction of new transportation lines has decreased in Japan due to the ageing population. On the other hand, the Japanese government has been aggressively exporting its transportation expertise, signing two contracts with India and one to construct a rail line between Malaysia and Singapore. What is your analysis of Japan’s transportation sector today?

For the Japanese railway sector to grow, it requires the construction of new railway tracks. Because of the country’s demographic situation and advanced development, we know that Japan’s railway sector has already plateaued. Leaving Maglev aside, expanding the Shinkansen network is costly; and if you consider the long-term cost-effectiveness of such projects, I do not think that we will be expanding in the future.

The Maglev is an intricate and complex railway, both in terms of installment and technology. While JR Tokai has been spearheading this project with diligence and expertise, it has had to face a series of opposing winds and technical challenges. To continue growing, railway companies have chosen two strategies. Firstly, they focus on value-creation. As such, they are adding new services and integrating digital solutions, such as cashless technology, into the transport system.

Secondly, they are exporting their technology overseas, as embodied by the bullet train currently being developed in India. At NAJICO, we are currently involved in the development of Myanmar’s railway system. To this day, Myanmar uses older locomotive trains; a great match for our technology. Furthermore, Japan had a military base in Myanmar during World War Two, which created a sense of familiarity with Japanese technology and culture. Five to six years ago, when Aung San Suu Kyi was freed, the country opened up and signed a series of ODA projects. NAJICO has been contributing to the development of Myanmar ever since. I have personally been to Myanmar three to four times, and I have met with ministers to discuss both on-going and future projects. Along with the development of the country, our business is growing steadily.

 

In 2015, you signed an ODM contract with EMMEGI, an Italian manufacturer of Aluminum CNC Machining Centers. Can you tell us more about this partnership?

On the one hand, NAJICO manufactures copper-based coolant components for heat exchangers. On the other hand, we are importing aluminum heat exchangers from EMMEGI. In the past, the heat exchanger market used to be based on copper and copper-related materials. As the automotive sector continuously attempted -and still attempts- to lower their CO2 emissions, the material required for heat exchanger gradually shifted to aluminum. In the past, automotive coolers were exclusively copper based. However, copper coolers presented certain disadvantages. On the one hand, raw material costs were unpredictable; prices were unstable and subject to fluctuations. On the other hand, the final product was heavy.

As such, copper-based heat exchangers have transformed into a niche market. One of the distinctive features of copper-based heat exchangers is that they are typically custom built. As copper-based products are not mass produced, the level of customization required is particularly salient; which we consider to be an advantage.

As the industry moved towards aluminum products, changes occurred. In order to make aluminum heat exchangers a viable business, manufactures have to produce on a mass scale, thereby making custom aluminum heat exchangers difficult to find and complicated to produce. As such, the strategy we adopted is to maintain our copper-based heat exchangers. This allows us to remain one of the only players present in this niche market. Furthermore, our experience allows us to match specific orders and to meet the various requirements of our clients in the railway sector.

On top of this strategy, we acknowledged the demand for aluminum heat exchangers and decided to research potential partners and suppliers that could trade with us. We eventually found EMMEGI, and began collaborating with them.

 

In 2007, you opened a Representative Office in Beijing, China. In 2013, you established Nakamura Jico Asia Pacific in Singapore. Why did you open these two foreign bases, and what is your international expansion strategy?

To answer your question, let me provide you with a brief summary of our history. The NAJICO Group currently comprises of eight different companies. As a group, we have more than 500 employees and a total revenue of about ¥28 billions. This also includes the joint venture we have in the USA. We will soon celebrate the 50th year anniversary of that partnership!

One of the unique qualities of the NAJICO group is that even if we are an SME, we have nevertheless been able to wisely and successfully expand thanks to our trusted network of international partners. To give you a series of examples: in the UK we collaborated with Parkins, an engine maker. In Germany, we created ties with GWB, a universal joint maker. In the US we have partnerships with DANA, Timkin Bearing, and Twindiscs Inc. We have been able to grow internationally thanks to the positive relationship we enjoy with our partners. Our collaborators are on par with us, and our strong network allows us to be recognized as a unique company here in Japan; especially in the railway sector. In the domestic railway sector, we are known for introducing foreign technology into Japan and connecting Japanese companies with added-value services. This has been a very precious business model for us and has led to our success.

If you analyze the Japanese railway business closely, you will observe that most companies are domestically focused. In contrast, NAJICO has a unique position because of its partnership network.

With regards to our international strategy: since I became company president in 2007, I made it my mission to lay a strong foundation for our overseas business. My goal is to grow our international sales so that they represent 20% of our total revenue. I have continuously prioritized expanding our overseas operations, and this vision led to the establishment of our offices in Beijing and Singapore. Moving forward, if our clients require us to create new offices, we will be positioned to do so. I currently have my eyes on the Myanmar project, and I see the country as an exciting opportunity to work hand-in-hand with local partners.

With regards to our universal joint business, I predict that the Indian market will provide countless opportunities, and I would like to expand there. One of the motivating factors for opening our Singapore office was to be able to supply and cater for Asian markets, and places like India in particular. As the second largest steel producer in the world, India represents a great opportunity for us.

 

You became the President of NAJICO in 2007. In the future, you will eventually leave the presidency and hand the company’s management to a successor. When that happens, what legacy would you like to leave at NAJICO? And what objectives would you like to have achieved?

We have a corporate philosophy that we hold dear: To gain the trust of customers, to contribute to society, and to work in harmony. I believe those three components to be a crucial part of NAJICO, and looking at the future, we will continue to value them. When I assumed the presidency, I established a group slogan, called the group management vision. The slogan reads: to become a strong corporate group committed to building trusted quality, growing with our customers and offering new value to society. I particularly want to emphasize the parts that read ‘together with our customers’ because NAJICO has survived and thrived thanks to the support of its clients. To give you an example of the collaborative spirit between NAJICO and its customers, allow me to explain how we plan to support JR. As a flagship and diversified group, JR is spearheading novel projects and ideas, such as the Maglev line and the integration of IC cards. As they take on these challenges, our mission is to move together with them and to provide sincere commitment and assistance when needed. Furthermore, the phrase “offering new value to society” must be understood not only as a desire to provide “technology,” but also as a wish to supply added-value services that can shorten lead time and enhance our client’s supply chain.

The spirit behind NAJICO’s goal to become a strong corporate group is not merely about scale or size; rather, it is about prioritizing the people, the relationships built, the products provided and the information shared. It is about strength, not size. This is something I hope my successor will understand and embody. And if it wasn't clear enough, we are certainly not thinking about doing an IPO!

I personally believe that each generation of president should pioneer a new business segment. My grandfather was the founder, and started NAJICO. The second president, my great uncle, diversified our business and entered the steel market. My father, the third president, focused on acquiring foreign heat exchangers and introducing them to domestic clients. As the fourth generation, I made it my goal to solidify our global operations. As such, I hope that the next generation will be able to carry on this business style, and endeavor to take on a new challenge!

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