Osaka Soda manufactures specialty chemicals for an extensive range of purposes around the world and has a reputation for high quality products for niche applications in particular. President Tamotsu Sato provides an insight into its unique products, technologies and R&D that are set to expand the business further into international markets.
What would you say has been an impact of Abenomics on manufacturing or indeed on Osaka-Soda specifically?
I have been appointed as the President of Osaka Soda for 13 years. Before Abenomics the exchange rate was about 80 yen to the US dollar, Japan’s stock price was about 8,000 yen, and interest rates were very high. Under this situation, the Japanese yen has been weaker, where the exchange rate rose to about 120 yen; currently it is about 110 yen and the stock price to about 20,000 yen, right now it is about 16,000 to 17,000 yen.
The economic downturn has continued for two decades, but under this situation we finally found a way to break out from deflation. Up to 10 years ago, we had been focused on our domestic operations and business, but for the past 10 years, 25% of our sales have been from exportation. We are quite happy with Abenomics, as Japanese companies are now more competitive towards exporting business, and have become more aggressive in global expansion. What the government can do is very limited, but out of the three arrows of the Abe administration, we think monetary policy has shown the most changes and results.
Besides that, I think Japanese private sectors have to make an effort to make the second and third arrows of Abenomics happen. Fortunately, the price of crude oil is very low, which is good news for manufacturing companies. Only under these circumstances, we believe that drastic structural reforms in the medium to long term are necessary for growth in the emerging markets.
We’ve been told by many of the leaders of Japan that the success of Abenomics is as much about changing mindsets, to think and act more globally, as it is about economic policy. Do you feel this is happening with your peers, other CEOs, that they are thinking much more globally and ambitiously?
I have not yet thought about it deeply; however, Prime Minister Abe has given priority to national interests. First, we have to strengthen Japan. As I have mentioned earlier, the value of yen was growing, but it inhibited the export competitiveness and economic strength of Japan. Now, with the strategy of Abenomics, I believe that Japan will get back on its tracks for economic growth.
What opportunities do you see with the Trans-Pacific Partnership (TPP) for Osaka-Soda, considering your goal to expand into the global market?
As I mentioned earlier, 25% of our net sales accounts is from exports, and 60% comes in the range of Pacific Rim, which is part of the TPP. I have great expectations for the TPP; with the liberalization of the tariffs our business can expand further.
You want to be a top global niche company, using your specialty chemicals to expand internationally. Can you outline these global ambitions, and where America fits into this as well?
Last year, we were honored publicly for one of our top global niche products, synthetic resin. This material is widely used, even within NASA in the United States. It is a high price, but because of its superior quality with high dimensional stability and free maintenance, it is also used by the US Military. Like this, our products have high added value, but they are still relatively costly. By eliminating tariffs and other barriers, or by setting them at a reasonable price, we would be able to expand not only to the United States, but also through Southeast Asia and other emerging countries.
In addition, the United States has shown a growing demand for heat and oil resistant automotive materials, so we expect our synthetic rubbers to be used more than ever. Until now, our company has concentrated on domestic production and overseas sales; but now that we have a larger scale of business, we are considering opening production facilities in the United States.
Liquid chromatography silica gel is a product used in pharmaceutical manufacturing, medicinal R&D, and other applications apart from the healthcare sector, and our sales abroad are growing rapidly through our subsidiaries in the US and Europe. This product is also at a very high price, but in recent years its demand has spread from Western countries to markets in China, South Korea, and India. It is expected to grow to Canada and South America in the coming years, so we have decided to double the production capacity in Japan. Originally, I wanted to increase production overseas, but there are concerns regarding the technology outflow of this process, so we are going to focus production in Japan with the use of cutting-edge technology that cannot be imitated by other countries. Still, we are currently considering the United States as the most promising candidate for other products.
You have been developing products in a wide range of fields, but which field are you considering to prioritize on?
In our company, our chemical product is based on chlor-alkali business, but we put emphasis on how to expand derivatives, and we have been promoting an effusing type of R&D of our current unique technologies. As a new business field, we plan to expand our focus on healthcare.
In order to expand into a new business field, it is necessary to supplement knowledge that we are not familiar with through corporate acquisitions, but I think the importance lies in our own unique development and technology, just like the chromatography business that I have mentioned before.
In addition, our company has independently worked on the technology development of chiral compounds. This technology became famous when Dr Ryoji Noyori was awarded the Nobel Prize in 2001, and it is said that 70% of the medicine in the 21st century is to be a chiral compound. However, due to its costs, it is difficult for its industrialization, and there are companies in this industry that have abandoned their efforts in the past. We finally came to the point of recognition with this new technology, so we believe that the expansion of business related to chiral compounds is our next step.
Currently, we have eight operations that hold the No.1 or No.2 spots in the Japanese and global market shares. Despite the deflation, we have managed to extend our sales by 20% in the last four years. We would like to increase operations like these, where chiral compounds are a part of it.
The core of Osaka-Soda’s success is Japanese virtues such as high quality, high efficiency and an almost obsessive focus on the customer. Can you outline how this translates into day-to-day, and how you will ensure that as you go internationally, these stay fundamentally strong to the growth?
Our company was established in 1915 with the production of caustic soda. 100 years ago, Japan was transforming itself from an agricultural country to an industrial country. The expansion of industries started from the development of textiles and dyeing raw materials where caustic soda was indispensable for such developments.
At that time, everything had been imported and our predecessors developed their own unique technology to make caustic soda for the first time in Japan and established our company. It is these values and ideas of progress and innovation of our predecessors that continues on as we create new business and promote global strategies.
Osaka-Soda has implemented a responsible care management policy, which emphasizes environmental protection, and has taken measures to reduce its carbon footprint by introducing alternative energy sources to its factories and through its resource recycling business. Can you elaborate on this policy?
Caustic soda production uses a lot of energy because of the electrolysis of salt. Specifically, 40% of our cost comes from electric power. There is a method of using nuclear power as well as methods of using coal and natural gas as fuel, but their emissions of CO2 have caused a big problem for the environment.
We are the pioneer and long-established company that uses electrolysis technology, and by taking advantage of our know-how, we have introduced power-saving electrolytic cells to each plant.
In addition, we originally produced caustic soda by using mercury as a catalyst. Currently, we have converted into an ion-exchange membrane process, but we still use our recycling technology to collect mercury and rare metals. In that way, we developed a business that addresses environmental and safety issues while at the same time contributing to society.
What would you say to the international community who may still be hesitant to invest in Japan or do business with a Japanese company?
Japanese industrial companies always conduct their business activities from a customer’s point of view. We always keep in mind our customers and dedicate a long time in the development of our products. As a result, we gain their trust. There may be some opinions about the lack of trust or confidence in Japanese politics and society, but from our standpoint, I do not agree.
It is not an actual Japanese virtue but the word “Omotenashi”, which holds a close meaning to service and hospitality, is very popular amongst Japanese people. Such a mindset is still alive and stays unbroken. I think this has led to creating products that are trusted by the world.
I would like to continue developing products that are world-class, such as our chiral compounds, with confidence and the trust of the international community.
I think the G7 leaders will be surprised to find a new Japan, one that goes beyond borders and is inclusive on a global scale. What final message would you like to send to the leaders of the G7?
We would like to communicate our group corporate philosophy: “To realize an affluent society by developing innovative products through our aspirations for high standards”.
I think human value is decided by whether or not you are holding high aspirations. This idea has lead to and is connected to our group corporate philosophy.
Currently, the world faces a variety of challenges, such as terrorism. The members of the G7 are participating as a representative of the country and its interests. If these participants also think about human values and high aspirations, I think we can resolve various issues, and the world will become a peaceful and harmonious place. I truly hope it will be a great and productive conference.