Founded in 1941, Nambu’s central product lines are hydraulic cylinders and rotary joints, primarily for use in molds and dies in industrial machinery.
Japanese manufacturing is experiencing a very exciting time. The previous three years have witnessed significant disruptions in the supply chain caused by COVID, as well as the growing tensions and decoupling between China and the United States. Consequently, global companies and multinationals are actively seeking to diversify their supply chains to ensure reliability. With the yen being considerably weak and Japan having been renowned for decades for its high reliability and advanced technology, we firmly believe that there has never been a more interesting opportunity in the past 20 or 30 years for Japan to reestablish itself as a global competitor. It is in an ideal position to address the most urgent needs in the current macroeconomic environment. Do you agree with this premise? Furthermore, what, in your opinion, are the most promising characteristics or strengths of Japanese suppliers that make them the most suitable choice for the current macroeconomic environment?
When looking at it from an international perspective, that statement may be correct in some respects. I had a discussion with one of my business friends on this topic in the past two to three weeks. In my conversations with similar SME companies, I discovered that one French company has drastically changed its procurement approach. Previously, their focus was predominantly on China for the past two decades, but the situation has now shifted. The United States is considered the most expensive, followed by Germany and then the Asian region as a whole. Within Asia, China, Thailand and Japan are perceived to have similar pricing. Among these countries, Japan stands out for its reputation of high quality combined with cost-effectiveness. As a result, Japanese companies have garnered considerable attention in the context of supply chain diversification.
During my visit to the US three weeks ago, I talked with our agent in the US and many manufacturing companies and discovered that wages in the US have significantly increased. As a result, manufacturing dies there no longer proves to be competitive in price. We provide hydraulic cylinders for dies from Japan, particularly for Japanese-affiliated or Nikkei companies. Some of these companies have shifted their procurement strategy and now obtain dies from Japan due to the considerably lower production costs, approximately half of those in the US. Even when factoring in transportation and tariffs, sourcing dies from Japan remains more economical than acquiring American-produced ones. This shift represents one current trend in the industry.
I have recently come across discussions regarding the potential for Japanese companies to emerge as a viable alternative in the global supply chain. It appears that the pathway for a significant opportunity for Japan is expanding. However, it seems that Japanese SMEs have yet to fully realize these opportunities. They continue to face challenges such as semiconductor shortages and escalating costs of materials and energy, which are further exacerbated by the depreciation of the Japanese yen. Engulfed in these difficulties, they have yet to see the positive aspects of these new prospects. Over the past 20 or 30 years, Japanese Nikkei companies have been venturing abroad, establishing local procurement and supply chain schemes. Chinese companies have also evolved, greatly improving the quality of their products and closing the gap that once gave Japan an advantage. Taking into account various factors, there is a possibility for Japan to export to a high wage country such as the US. However, penetrating other countries or markets with already well-established supply chains would prove challenging for Japanese companies.
Last year marked the 20th anniversary of Nambu's presence in Thailand, during which you dedicated considerable time overseeing its operations. Reflecting on your experience in conducting overseas business, what are the key lessons you have learned? Where does Nambu go from here?
We initially introduced our Japanese monozukuri to developing nations such as Thailand, China and other ASEAN countries, leveraging our pioneering technology to gain an advantage. Over the past 20 years, however, local companies in those regions have significantly improved their production capabilities, narrowing the gap with our own. While they may not have yet reached an equivalent level of quality, replication of our processes has become more widespread. As a result, the competition has shifted towards pricing. It is crucial for Japanese companies to remain the forerunners by continuously developing new technologies and creating innovative products at our headquarters. We have successfully developed new products like e-Zero and are actively identifying needs and exploring new channels within the Japanese market. These new technologies are aimed at developing the domestic market before being sent overseas.
We are currently in the process of carefully considering the optimal strategy for our international operation. The landscape of the automotive industry has undergone a dramatic transformation with the emergence of EVs. Previously, we heavily relied on strong and growing companies like Japanese automotive manufacturers. However, with the shift towards EVs, the situation has changed dramatically. We can no longer rely solely on these traditional partners. Price competition remains a constant challenge, even when selling to local companies. This ongoing issue is one that we consistently confront and must navigate effectively.
Hydraulic cylinders are primarily used in industrial machinery, particularly injection molding equipment, construction machinery such as excavators and other heavy-duty equipment. What new channels does e-Zero allow you to venture into within Japan? Additionally, what are some of the new applications you are considering? Looking at the future, specifically the next five years, which end applications do you anticipate will hold the greatest growth potential for your company?
I don't foresee e-Zero significantly impacting or entering the mass production sector. Instead, this product will maintain its position in the niche market. Several companies already mass-produce electric hydraulic actuators. Many well-established companies have their own series in that regard. However, our business model focuses on a made-to-order approach, actively listening to and collaborating with our customers to deliver optimal solutions. If we were to target the mass production industry, we would inevitably face price competition. Hence, our business model is geared towards offering niche products with a higher price range, emphasizing the value of each product.
Recently, we developed an e-Zero solution for a tire manufacturing production line. During rubber transportation, the sides tend to warp, adding pressure from the top. By utilizing electro-hydraulic actuators instead of conventional hydraulic systems, we significantly reduce energy consumption, thereby contributing to decarbonization and reducing ever-rising electricity bills. Moreover, the large cranes responsible for suspending containers rely on four wire lines. Conventionally, traditional hydraulic pumps are continuously rotating to give the tension to the wires. In emergency situations, such as obstructions, these wires need to be loosened rapidly. However, replacing them with e-Zero substantially reduces the electricity consumption associated with wire tensioning and loosening. We don't have repeat customers for such specific requests. Therefore, to ensure sustainable revenue for our company, we must identify industries and customers capable of consistently generating new orders and opportunities. This represents the challenging aspect of operating in a niche field.
Our product, e-Zero, is specifically employed within the production line; its application is more niche, resulting in relatively low demand. Once the product is installed, it serves its purpose for a certain period of time.
What efforts are you making to strengthen your overseas channels in search of more stable business? Also, what role do partnerships, such as the one you have with your agent in the US, play in fortifying your global sales channels?
We are in the process of exploring the market for e-Zero in Japan. Although it is a highly advanced and complex technology, we have not yet reached the stage of expanding this product overseas.
We have successfully introduced our existing lineup of hydraulic cylinders for dies to overseas markets, and we currently hold an almost 100% share in Nikkei companies within the US market. This is thanks to our agent’s presence and hard work there. The continuation of a long-standing and good relationship with agents requires win-win-win for each other and customers. Pursuing only one's own profits will not last long.
Expanding our client base would enable us to establish a stronger presence in foreign markets.
Aside from the US, we have subsidiary companies with factories in Thailand and China. We export our products to other ASEAN countries from Thailand, including Indonesia, Vietnam, Malaysia and India. We have been exporting extensively to India, but due to COVID, we couldn't visit the Indian market for three years. During our recent visit, we noticed that several companies were making copies of our products. In the Indian market, cost is the primary determining factor. Exporting products from Thailand no longer satisfies our Indian customers, so establishing some base in India would be a viable option. Almost every five years, we need to train up and send Japanese managers to Thailand and China as a replacement. However, if we were to establish another base, we might face a challenge in terms of our human resources, as a reality of SME. Having a local manager could be one possible solution. Nevertheless, we would also need to address quality control and management from our headquarters. Finding the right partner in India would greatly benefit our business.
In Japan, there are certain SMEs called “Global Niche Top”. Nambu was selected as Global Niche Top 100 company by the Japanese government in 2014, recognized for its hydraulic cylinders for molds and rotary joints for heavy industry. Whereas in Germany, they are known as "Hidden Champions." Most of them, as SMEs of similar size to our company, have a well-established international network. They appoint local managers, not German managers, to oversee their operations and implement a rigorous auditing system within the group company. I understand the importance of such management, but not only I but also most Japanese companies find it challenging. Trusting and depending on individuals with different ideas and sensibilities would be not easy. But we might need to change our mind after this to expand our global network.
You started as a hydraulic cylinder manufacturer and gradually expanded your operations by diversifying and vertically integrating into other areas, such as manufacturing rotary joints, equipment parts, limit switches and a range of sensors. It appears that you are aiming to transition from producing individual components to offering complete systems. Is this assumption correct? How do you envision the company's evolution over the next three to five years?
In 2018, our company underwent a significant policy and mission change, with decarbonization becoming the primary focus. Previously, we primarily functioned as a component manufacturer, contributing to major systems like those made by Yuasa. However, we shifted your focus to becoming a total solution provider for hydraulic systems, including pumps, components, cylinders and servos. Our objective is to become a prominent player in the industry by offering high-control servo capabilities and on-demand power, all while adhering to carbon neutrality. Since then, we have been enhancing the skills of your engineers through training programs and inviting external engineers to collaborate. However, this transformation is still an ongoing process that requires time and effort.
Imagine we come back to have this interview all over again on your 90th anniversary as a company. What dreams or ambitions would you like to have achieved by then?
Our primary goal is to become a leading total solution provider, serving as the third pillar of our business. This aspect is still under development, and we are busily working to assess the market through innovative products like e-Zero.
Looking ahead, we anticipate a significant demand for carbonless products that can provide highly controlled big power. Over the next eight years, our objective is to acquire comprehensive technologies and assemble an exceptional team of engineers capable of meeting the growing market needs. Furthermore, we aim to actively expand our presence overseas and engage in international operations.