Amid supply chain disruptions, demographic shifts, and growing demand for sustainability, Japanese manufacturing stands at a pivotal moment, and Nippon Pigment is one example of those addressing these dynamic changes.
It is our view that Japan is at a very exciting time for manufacturing. On one hand, we have had major supply chain disruptions in the last three years, caused by the COVID-19 pandemic as well as tension from the China-US decoupling situation. As a result, we are seeing many multinational groups try to diversify their supply chains with a focus on reliability. This is where Japan can enter; a country known for decades of high reliability, trustworthiness, and short lead times when it comes to production. Now, with a depreciated JPY, it is our view that there’s never been a more opportune moment for Japanese manufacturers to meet the pressing needs of this macroeconomic environment. Do you agree with this premise, and why or why not?
I agree in principle with your sentiment but there are some issues. The first of course is the depreciation of the JPY, and while exporting it is a benefit. However, due to COVID-19, it is difficult to reap the benefit because of the increasing shift back to the domestic market.
Also, many of the materials we use in our business are produced in China, and now with the depreciation of the JPY, the price of the materials have become higher and it's one of the reasons for our low performance.
We are in the process of reviewing our entire business in the aftermath of the COVID-19 pandemic so that we can focus our investments on areas that will help support the sustainability of our business.
In addition, the high-end pigments that we use are mainly produced by foreign companies. As I mentioned earlier, the price of pigments has risen due to the weak yen, so it's difficult for us to benefit from the depreciation of the JPY.
A characteristic of the Japanese industry as a whole is that it is not always easy to transfer cost increases to our clients. We are negotiating with our clients to transfer cost increases and have succeeded in some of them, but the rest of the cost that could not be transferred has to be absorbed by ourselves.
The Japanese population is the oldest one in the world currently, with a declining demographic line due to low birth rates. Right now there are two prominent issues, those being the labor crisis and the shrinking domestic market. What are some of the challenges you are seeing due to this demographic shift and how is Nippon Pigment reacting to those challenges? In your opinion, do Japanese firms need to look overseas as a way to secure long-term business sustainability?
You are right, and if our company isn’t able to secure enough of a workforce, we cannot sustain the company itself. First, what we are doing is developing a good workplace environment for workers. We are introducing inclusion and further diversity into the workforce, meaning the introduction of male, female, and foreign workers. In order to create this level of diversity we need to ease the burden of physical work, and in this case, automated equipment can assist greatly.
The manufacturing industry as a whole used to be completely male-dominated, but we are now trying to recruit female workers as well by creating a good working environment, so that it is safe for all of our operators. In overseas manufacturing facilities, we are trying to facilitate foreign workers working hand-in-hand with Japanese workers. We are also trying to increase the employment of foreign workers in Japan.
One example I would like to highlight is the automation of the production facility of our affiliated company in China. With the introduction of automation, the productivity of the facility has now become about seven times more than our facility in Japan. Although a simple comparison cannot be made because of the difference in order lots, the production volume of our Japanese facility per person per month is about 10 tons, but in the Chinese facility, it is 60-70 tons while also maintaining the same quality.
The Chinese facility produces larger order lots and that is a prerequisite for such productivity and we can use automation more.
In Japan, on the other hand, we can’t have that large a volume because the products are more customized for each client, but we have tried to shift in that direction as much as possible.
You mentioned earlier that your company is going through a review process to focus on areas that can support the sustainability of your company. Can you elaborate a little more and tell us which areas you are currently focusing on?
Specifically, the compound production that is consigned by other companies in the area we are going to review. In terms of production locations as well as volume, the company has had the intention of reviewing even before COVID-19. This is the best time to do that. Instead, we would like to focus more on our strengths, such as liquid dispersion.
Your dispersion technology has many uses in many industries. Which would you consider to be your core market with this technology and are there any new markets you are prioritizing going forward?
Our focus for the future is going to be the automotive industry. As you are undoubtedly aware, the automotive industry is going through a drastic change right now with the shift to EVs. The power source of the car has changed from the engine to electricity. To use an analogy, it is like an electric appliance with wheels. The EV body's weight will be reduced by using more plastic
For liquid dispersion, the next focus will be the metal material area of the semiconductor industry because by using our mixing technology this particular area could be a target. For us, power semiconductors will be a big interest and we are working on developing die bonding materials for power semiconductors. We would like to keep monitoring this interesting sector as it continues to grow.
The demand for sustainable solutions is on the rise as people become more environmentally conscious. Can you elaborate on how Nippon Pigment is aligning its strategies with global SDGs?
This topic is one that no company can avoid, so of course our first priority is to produce products that are environmentally sustainable, for example using biodegradable plastics. We are using them already however that is in really limited volumes at this time. Basically speaking we are still using general plastics. In line with these initiatives, we are running parallel ones such as reducing electricity consumption, reducing waste and increasing yield. Another is the reduction of energy consumption, and all of these initiatives are based on the ISO 14000 which is a family of standards by the International Organization for Standardization related to environmental management. In Indonesia, our subsidiary company is engaged in mangrove plantation activities as an initiative to improve environmental issues.
As the president of this company, what do you believe to be the competitive advantages of your firm that set Nippon Pigment apart from your competition?
I think it all centers around our dispersion technology. We don’t actually produce that wide a range of chemical items, rather we sell the processing technology and that is what I consider to be our strength. The idea of having a close relationship with our clients and understanding their mindset is something we excel at.
During many interviews we’ve conducted, firms have often stressed how difficult it is to maintain quality outside of Japan because the mentality of work is different from location to location. You mentioned that you sell processing technology, and we know that you have many locations outside of Japan. How do you ensure that your overseas factories maintain the same level of quality that you produce in Japan?
Maintaining that level of quality is important to us and we do this by controlling each facility through our mother facility in Japan. Let’s say that we produce a new item or product; that product will be first tested in Japan where protocols and specifications are set. These are sent to all of the machines in other locations so that they can recreate the exact same product in their facilities. Those products are then tested and checked meticulously to ensure the quality matches our strict standards. In addition, we have a number of Japanese engineers living at each of our locations to ensure standards are met.
What is the current focus of your R&D right now and are there any new products or developments that you would like to showcase for us today?
Japanese companies tend to see a little bit farther down the road when it comes to investment than US companies. In our case, that is in liquid dispersion technology. By aggressive investments in the metal material area of semiconductor production, we would like to make it a core pillar of our future business. This is why we built our new facility in Saitama in 2018.
This facility is producing color filters for LCDs and liquid dispersions for semiconductors. Some of these are in the market already but not all of them. We are trying to increase our product lineup in the future.
Many interviewees have mentioned to us the importance of partnerships as a way of penetrating new markets. What role do partnerships play in your business model and are you looking for any new partners right now as you expand in overseas markets?
At this point in time, we are not looking for any partners but the importance of partners is 100% true. Without partnerships, we can’t really sustain big overseas operations. Our partnerships in Korea and Indonesia have worked very successfully and we are very grateful for the good relationships we have in those locations. In order to establish these good partnerships, clear communication is critical because cultures and regions are so different from one another. Common understanding is a must in order to make such partnerships a success.
You mentioned earlier a focus on the domestic market, but looking at your financial results from the past 2-3 years we saw a 50% drop in turnover domestically. Conversely, in Southeast Asia, you jumped from JPY 7 billion to JPY 13 billion in turnover over the same time period. Could you explain to us this drop in Japan and growth in Southeast Asia?
First, the decline in sales in Japan was due to the application of new accounting standards.
As for the growth in sales in Southeast Asia, it indicates that our business in those countries is growing. In our business model, the main body of Nippon Pigment does not sell products to those countries, but basically transfers technology from Japan and has it produced and sold locally.
For example, our business in Indonesia is growing, and although it does not contribute to our sales volume in Japan, it leads to profits for the entire group.
We are also planning to transfer the technology for our product, Masterbatch, to Indonesia for production and sales in Indonesia.
Moving forward are there any new regions or countries that are the target for future expansion into and what strategies will you employ to do so?
It really depends on the sorts of opportunities that come up, but I will say that right now we have no intentions of going to new markets for our compound or The Masterbatch businesses. We are focused on liquid dispersion right now and the target for that is Korea and Asia region and that will be through our current partner we have there.
Imagine that we come back in two years and have this interview all over again. What goals or dreams do you hope to achieve by the time we come back for that new interview?
I would like to get a good evaluation of our liquid dispersion technology, which will be the first step in transforming our business model. In two years’ time, I would like to see some outcomes from our reviewing process.