We spoke with Mr. Shinsuke Yagi to discuss the historical hurdles to sustainable chemical production, and the initiatives of his firm to create the framework for a environmentally friendly chemical sector.
Recording a stable operating profit margin (above 10% for 19 consecutive years), a high return-on-equity (19.6% during FY2022), and aggressive shareholder returns (a total payout ratio of 75% compared to a 40% average of TOPICS 500 companies), Nissan Chemical is an R&D oriented company and future-creating enterprise that responds to social needs with its unique, innovative technologies and a well-balanced business portfolio. Founded more than 135 years ago, today the company is a constituent of the Nikkei 225 stock index and hires more than 2,500 employees.
The Japanese chemical sector has suffered when it comes to the production of base chemicals, as many regional competitors have been able to lower their costs. However, Japanese manufacturers still remain leaders in highly functional and specialized chemicals. Furthermore, Japan can count on a variety of chusho kigyos who are able to develop very niche chemical and material technologies. What are the strengths and weaknesses of the Japanese chemical industry today?
I would first like to describe the historical roots of the chemical industry here in Japan, starting from the 1900s to the pre-World War II era. During that period, the chemical industry was based on the development of fertilizers and sodium nitrate-based products. It then moved into the industrial era, where due to a lack of natural resources, Japan was reliant on a lot of imports, such as petroleum-based products from abroad. The petroleum-based industry then began to flourish. With chemical manufacturers focusing their efforts on oil-based manufacturing, they reached an era where they were looking to export their products overseas in order to tackle the global market. Japanese chemical companies became good at processing technologies, and through these technologies, they began to export the processing chemical products overseas. In order to become strong and leverage these processing products, high quality processing, and top-notch quality management and control were key. Systems that ensured this were put into place.
Japanese technology and machinery were high quality and cutting-edge due to the spiritual roots of Japanese craftsmanship. Originally, Japan was renowned for its high level of quality when it came to the manufacturing of swords and ceramics, and this craftsmanship spirit was at its foundation.
In the lead up to the 2000s, we saw a huge rise when it came to the manufacturing and exporting of communication devices worldwide. With the high demand for electronic components that were utilized for the communications industry, Japan’s high-quality standards and technologies were applied. At present, China and Taiwan were also able to produce a high level of quality, but it was Japan who were the leaders in this regard. Around 2006-2009 , we then saw China, Taiwan and Korea pick up speed and surpass Japan as leaders in the communication device industry. There was a similar type of trend when it came to the chemical sector, especially in regards to basic chemicals, with Korea and China becoming strong players in the market. These other countries became stronger, in part because they were able to lower their labour costs in comparison to Japan, where the costs are much higher. Also, Japan is import reliant, and therefore, it is difficult to compete when it came to prices.
The strengths of the Japanese not only chemical sector but also other products are its processing technologies, as well as its high-quality standards, and its ability to maintain very high-quality when it comes to quality control, management and services. The weaknesses of the Japanese chemical sector are the costs involved in manufacturing, the high labor costs and also lack of human resources. These facts make it difficult to compete with foreign countries.
The chemical sector is the world’s largest industrial consumer of both oil and gas, producing more than 10% of fossil fuel emissions. Domestically, the former Suga administration declared that Japan must be a carbon neutral society by the year 2050. What strategies are you employing to reduce your environmental burden and reach carbon neutral targets?
First of all, the globe is moving towards being carbon neutral by 2050. As a midpoint towards that target of 2050, which would be 2027, we have set the goal of reducing our CO2 emissions by 30% of our 2018 figures. This target is 3 years ahead of schedule and we, Nissan Chemical Corporation, set the new goal that achieve carbon neutral by 2050. For this new goal, we have already started to study technologies to reduce GHG gas emissions toward the goal of 0% carbon neutrality in 2050, and we plan to invest to ensure in five domestic factories and the plans are under way. We already transferred from heavy oil-based to natural gas-based initiatives. While this is happening, there is also an aspect which is still a major challenge for us. Since we are producing nitric acid, we also need to introduce technologies to reduce the N2O emitted during its production. When it comes to the production of chemicals, we are working hard to reduce our burden on the environment.
Nissan Chemical’s business can be broken down into four main divisions. You have your chemicals, performance materials, agricultural chemicals, and healthcare. Which business division is your current focus and which one do you believe has the most potential for future growth?
We are putting the most emphasis into our performance chemicals and our agricultural chemicals. With regards to performance chemicals, as you know, we have a lot of products that are utilized in semiconductors and in display applications. We want to continue to strengthen the growth of our existing array of products, but also continue to enhance our R&D in order to develop new materials in this field. We are doing so at an accelerated pace at this moment.
With regards to our agricultural chemicals, we have major core technologies for the development of agricultural chemicals. We are looking to expand the application usage of these core technologies, as well as expand our array of organic chemicals. We are using precise organic synthesis technology to do so.
With regards to our agricultural chemicals, we should create our original drug substances using our high core technologies of fine organic synthesis and biological evaluation to create unique APIs. Furthermore, it is necessary to focus on the development of microbial agrochemicals and organic agrochemicals that might be replace with chemically synthesized agrochemicals.
When we spoke to Mr. Kawai, the president of Tokyo Electron, back in 2020, he predicted that the semiconductor market would grow to be worth 1 trillion USD by the year 2030. Obviously, many things have happened since, such as Covid and a worldwide chip shortage when it comes to semiconductors. This has led to regional leaders expanding their domestic production and capacity so they do not rely on pure play foundries. What opportunities do these pushes present for Nissan Chemical?
Many of our major clients are in China, Korea and Taiwan, and there is a huge demand for our products, both in terms of semiconductors and display applications. Providing local manufacturing facilities, as well as local R&D facilities, is not only our greatest requirement but also our customers’ requests at the moment. We feel that we are able to meet the market demands and needs locally, and we are also able to quickly respond to our major clients in the field. For us, that is our mission. We want to be able to capitalize on the opportunities that the growth of the semiconductor industry is providing. If we continue to increase our competency in the semiconductor field, it will allow us to contribute to a wide range of other business areas that are going to see major growth in the future, such as sensing technologies and the life science fields.
One product that is used as part of semiconductor manufacturing is your Snowtex which was released in 1951, and is your very own colloidal silica that was initially used for textiles, but has since been adopted by many other industries. What do you attribute to the success of Snowtex, and how do you plan to grow it in the future?
In terms of Snowtex, we have a very specific and strong core technology for the controlling of nano particle size from few nm to around 300 nm. That is why it was able expand to what it is today. It is also not only silica based, but it is able to cater to a wide range such as zirconia, titania and other nano particles as well. That core technology has given birth to around 130 different chemical products that are now is use in a wide range of fields.
Some of its core applications are as a polishing agent for metals and glass wafers. Recently, it is also utilized to enhance the efficiency when it comes to unearthing in the energy field of oil and shale gas, for example. It works efficiently in the storage and containment of CO2 as well. There are many possibilities that the applications will continue to increase.
You have developed many other innovations such as the Livalo, a pitavastatin calcium that helps reduce LDL cholesterol. You also have Hypertech, a nucleating agent which makes it possible to reduce the amount of metal for wiring items by more than 90%. Can you tell us a little more about your R&D strategy? Are there any products or technologies that you are currently working on that you would like to showcase to our international readers?
When it comes to R&D, we are actually investing around 8% of our overall net sales into our R&D fund, while average of other companies in the same business is around 3-4 %. We are putting a lot of efforts into our R&D when it comes to agrichemicals, as well as life science and performance materials. We are also expanding our R&D in the environmental fields. With regards to performance materials, we are carrying out R&D efforts to expand in the semiconductor field as well as the optical communications field. When it comes to our healthcare R&D, we are putting more emphasis into the enhancement of nucleic acid medicines and peptides medicines. We are also looking to expand in the agrichemical chemical business. We want to develop our in-house original new substances by our core synthesis technology and bring into various applications as many as one, and our R&D department is working on that. Furthermore, we have just create a biochemical team at the Biological Research Laboratory and have begun developing microbial and organic agrochemical.
Is this mostly focused for the domestic market? (Agricultural chemicals)
This is not only based domestically, but it is our overall focus for both the domestic market and the overseas market.
More hazardous pesticides should be reduced by 50% by the year 2030 in response to various global environmental load reduction, including the European Union's "Farm to Fork" strategy. As a result of this, we are looking to expand our organic agrichemicals and microbial formulations to help them meet that reduction target of 50%.
We saw in our research that you have an alliance with the bio-venture where you are developing innovative oligonucleotide drug pipelines and technologies. What role does collaboration play in your business model, and are you looking for collaborative partners in overseas markets?
Currently we have five core technologies and two more that are in development. We are looking to utilize and leverage our seven core technologies and find ways in which we can expand their application to all kinds of business areas and fields. We want to do this by working together with companies that represent a growth opportunity for us as well. That could be partners that include start-ups as well as other companies that are looking to partner with us in the development of products and applications. From that perspective, we are very proactive when it comes to welcoming such partnerships and co-creation alliances.
An example of this is that we have already taken on the strategy of acquiring products in certain cases. We acquired two different types of fungicides these 3 years. Another example relates to the search for and development of new performance materials. We have already signed a co-creation contract with a company in the US, and we have carried out the initial investment.
Since establishing your first overseas operations in the USA in 1989, you have expanded to Korea, France, Taiwan, China, Brazil, and India. Moving forward, which countries or regions have you identified for further expansion into, and what strategies will you employ?
When it comes to expanding our business area for our performance materials, the main fields are semiconductors and display materials. We are looking to expand our sales as well as distribution and manufacturing facilities in China, Korea and Taiwan. For agrichemicals, the main market that we are putting our emphasis on is India, as we believe that there is great growth potential there. We are also looking at expanding our business in Brazil. Currently, we only do sales there, but we are also considering manufacturing in the future. Southeast Asia will be our next target when it comes to expanding in the agrichemical market.
In regard to our US strategy, we have Nissan Chemical America, and we see that as our main base for expanding the application of Snowtex in the US market. We are also planning on increasing the volume of the manufacturing and sales of Snowtex in the US through Nissan Chemical America. Furthermore, we have an agrichemical partnership with a US company, and we plan to expand operations through that partnership. Finally, we want to expand our agrichemicals to South America.
Imagine that we come back five years from now and have this interview all over again. What would you like to tell us? What are your dreams for this company and what goals would you like to have accomplished by then?
We are a 135-year-old company, and as its president, I am looking to see how we can continue to sustain ourselves and still be a company that will survive into the next century. My goal as president is to be able to identify what kinds of seeds must be sown and the kinds of growth that are necessary to achieve this. That is my goal, while I am president.