Starting from medical paper cups to KFC Japan take-out packaging, Nissho Sangyo has proven itself to be an ‘Essential Supplier’ throughout its history.
Japanese manufacturing is at a very exciting time. Over the past three years, we have seen severe supply chain disruptions due to COVID-19 and the US-China decoupling situation. As a result, numerous corporate groups are seeking to diversify their suppliers to ensure reliability. Consequently, Japanese firms, renowned for their reliability, advanced technology and high-quality products, find themselves in an interesting position. Many observers argue that the weakened Japanese yen presents a highly unique opportunity. Do you agree with this sentiment? What advantages do Japanese companies possess in the current economic-macro environment?
The pandemic posed formidable challenges that tested our resilience and adaptability. Among the most pressing obstacles were disruptions within our supply chain, which had far-reaching consequences. The escalation of prices and the intricacies of securing sea freight bookings emerged as prominent issues. Even when bookings were secured, ensuring timely delivery remained uncertain, often leading to unforeseen delays. The acquisition of essential raw materials also became a complex endeavor. As COVID-19 extended its global reach, many companies had strategically pre-booked production capacities in regions such as China and Southeast Asia. Consequently, even our established partners in these areas encountered difficulties meeting deadlines due to overproduction and capacity constraints. Regrettably, these challenges persist to this day.
Furthermore, the demand for the range of products we handle, particularly medical disposables like gloves and masks, has undergone a remarkable surge. Prices of those items boosted nearly tenfold from the normal prices before the pandemic. This unprecedented growth necessitated vigilant oversight and thorough consideration of capital investments. The financial strains were notable, as we strove to maintain our commitment to timely deliveries to uphold our customers' trust, a task that often proved difficult. The confluence of extended lead times and exorbitant production and delivery fees placed our business in a challenging predicament.
On a monthly basis, we diligently arranged and imported 40 to 50 containers from Southeast Asia, with a focal point on China. The magnitude of the efforts required to sustain our operations in Japan, where we engage with approximately 500 nationwide dealers, is considerable. A substantial majority of these dealers collaborate closely with hospitals, assisting the frontline personnel who bore the brunt of the pandemic's challenges. The landscape within Japan witnessed numerous businesses suspending their operations due to insufficient liquid funds, hindering their ability to procure the considerably expensive products of that period and execute timely deliveries. The abrupt onset of the pandemic caught everyone off guard.
Throughout this period, we committed to upholding our promises to our extensive network of 500 dealers and end-users, including crucial healthcare institutions. Providing masks and gloves was of paramount importance, given the circumstances. Our capacity to fulfill this commitment was a direct result of the enduring relationships we had fostered with our Chinese suppliers over many years preceding the pandemic. The foundation of these relationships rested on the meticulous cultivation and nurturing of trust with our suppliers.
You manufacture high-cost performance products of significant value, a demand that has intensified during the pandemic. Balancing the imperative to supply substantial quantities while averting cost escalation and upholding product integrity is crucial, given their life-saving nature. As a Japanese corporation, could you elucidate your strategies for upholding quality in off-shore production, particularly in regions like China and Southeast Asia? Could you provide insight into your approach? Are on-site specialists deployed? What systems underpin your ability to ensure elevated quality standards and minimal defect rates in production?
Stringent adherence to quality standards is non-negotiable for our locally produced products in China. Our resolute dedication to quality assurance is facilitated through a collaborative alliance with local manufacturing entities. This shared commitment forms the bedrock for crafting superlative products from premium materials. The collaborative efforts of our marketing and procurement departments harmonize seamlessly in this endeavor. Further solidifying this synergy, our three staff members from China stationed in our Japanese office engage in daily communication with our local manufacturing facility in China.
Before the pandemic, I would journey to our manufacturing site in China annually, making a conscientious effort to remain physically connected to the on-site operations and dynamics. I spent around 100 days outside Japan each year, visiting manufacturing sites and suppliers. A comprehensive procurement strategy entails a holistic assessment, including raw material suppliers. Straying from stringent specifications is not allowed; each production stage strictly adheres to specification sheets, beginning with procurement and culminating in product launch. This rigorous compliance empowers us to yield high-caliber products that perfectly align with the discerning demands of the Japanese market.
In 2006, your company introduced a line of medical products, including the Uni Shield and NS, featuring innovative items like the Harn cup, the world's pioneer disposable urine collection cup, as well as gowns and drapes. Could you elaborate on the driving force that led to the inception of your proprietary product range? Furthermore, could you outline your strategies for the future expansion and development of these brands?
A prominent American enterprise was producing blowing bottles designed for endoscopic liquids, a preexisting product category within the market. It entered the Japanese market and established its presence through wholesale distribution channels. Recognizing the potential synergy with our established distribution networks, the company initiated discussions with us to assume the role of their official distributor and reseller in Japan. This strategic partnership endured for a span of approximately five years, setting the stage for our subsequent foray into producing our proprietary brand, Uni Shield.
The inception of our Uni Shield brand, along with the introduction of the innovative Harn Cup, was rooted in our attachment to another company. Subsequently, the American company underwent a capital merger with another affiliated entity, a move catalyzed by a European capital infusion. As a consequence, the copyrights and product portfolio transitioned to the European entity. This development marked a transitional phase, during which we navigated the complexities of this new arrangement for approximately three years. Despite the shifting landscape, our role as resellers persisted, albeit under the backing of a different European parent company. We secured exclusive distribution rights across the entire Japanese market. Beyond our role as resellers, we also operated as importers.
In due course, the CEO of the European company embarked on a visit to Japan, prompting discussions on strategies for business expansion. The conceptualization was straightforward – to orchestrate a joint venture and establish a new enterprise in Japan, which would be tasked to introduce a diverse range of brands tailored to the expectations of domestic Japanese doctors, who have a demand for intricate and specialized products.
Compared to others, I believe that Japanese medical establishments and healthcare professionals exhibit continually evolving requisites and expectations for items such as gowns, drapes, surgical tool arrangements and equipment. The elaborateness of the procurement process is multifaceted, involving numerous stages. While the European company expressed interest in the business, it recognized the complexity inherent in meeting these specific demands and was disinclined to navigate these intricacies. Consequently, we amicably parted ways with them. This departure left us contemplating the course of action for the ensuing years. This juncture marked a turning point as we embarked on the development of our proprietary products and brands.
Our entry into the realm of self-crafted products witnessed the swift creation of Uni Shield, an accomplishment realized in just six months—a remarkably expedited timeline. Our foundation was fortified by the wealth of insights accumulated through engagements with American and European companies within the medical sector, an arena that had not been our forte. This strategic shift facilitated our exploration of new horizons. We facilitated employee immersion in training centers, affording them first hand exposure to surgical operations and procedures. This immersive approach enabled us to glean significant insights from the field. Afterwards, we effectively established a robust groundwork for crafting products in the medical domain. This evolution empowered us to independently introduce a plethora of products and brands. Subsequently, production operations were transferred to China, culminating in the provision of these products to Japanese hospitals.
Over the course of your history, you have established collaborations with companies in the United States and Europe. Additionally, you have engaged in partnerships with overseas firms, such as China, for your fabless manufacturing endeavors, underscoring the significance of partnerships within Nissho Sangyo's operations. Looking ahead, are you actively seeking to cultivate further international partnerships, whether in the realm of fabless manufacturing or distribution initiatives?
Approximately five years ago, we began the fabless manufacturing of disposable medical items, including surgical caps, gowns and drapes, within our allied Vietnamese (manufacturing) facility. The transition to effectively initiate production in Vietnam took two to three years. To ensure a smooth transition, we prepared an instructional video delineating the on-site production processes observed in China. This comprehensive training initiative was geared toward equipping the Vietnamese workforce with the expertise to replicate the manufacturing methodologies. The diligent efforts invested in this endeavor were pivotal in achieving a production framework similar to that in China.
As we reflect on our progress, the impetus to expand continues to resonate. Our vision includes establishing additional production facilities, supplemented by the pursuit of collaborative partnerships to unearth untapped potential, thereby facilitating our expansion.
Are you open to the possibility of distributing or reselling branded products from foreign companies within the Japanese domestic market?
Our current product portfolio is carefully customized to cater exclusively to the unique requirements of the Japanese market, offering specialized products sought solely by Japanese hospitals. However, we remain open to the notion of collaboration to address potential gaps in our offered products. This pertains particularly to products not currently within our production scope.
In scenarios where the Japanese market demand requires products not yet included in our repertoire, we are inclined to explore collaborations with overseas manufacturing firms. This strategic approach aligns with our commitment to consistently meet the distinctive needs of the Japanese medical sector.
Given Japan's status as an island nation with a progressively aging and diminishing population, the imminent influx of individuals requiring medical attention is evident. With an inadequacy of medical resources to address this surge, the integration of automation technologies, robotics and remote micro-surgeries has gained traction as a means to alleviate this strain. In light of this, how do you guarantee that your products remain on stream of research and development and the latest advancements to cater to the forthcoming generation's medical requisites?
Each facet of our business is acutely attuned to prevailing societal challenges, such as the burgeoning aging population and workforce shortages in Japan. While these macroeconomic issues might ideally fall under the purview of government initiatives, we recognize our role in navigating these complexities within our specific domains.
Our strategic approach involves an in-depth analysis of the prospects and trends inherent in our core business segments—dining and restaurant operations and disposable medical products for hospitals. These sectors are particularly susceptible to broader social dilemmas. Accordingly, every sector within our business endeavours to proactively embrace innovative solutions that address these prevailing challenges.
In the realm of food services, the dynamic nature of Japan's aging demographic compels us to devise offerings tailored to the elderly population, such as easily digestible food options. Meanwhile, we emphasize the development of value-added services and products that match the evolving market expectations.
The healthcare sector, particularly catering to nursing homes, unveils a market with substantial growth potential, projected to continue over the next two decades. Yet, the hospital landscape grapples with the scarcity of skilled personnel. A partial remedy involves recruiting individuals from Indonesia and other Southeast Asian nations to alleviate this labor shortage. However, barriers such as language differences and the complications of navigating Japanese regulations remain. Addressing these complexities needs thoughtful strategies.
Amidst these challenges, our commitment remains the same. We vigilantly monitor industry trends in both sectors, striving to pivot our approach in tandem with evolving market dynamics. Our main objective is to deliver products and services that have added value, effectively aligning with the various demands of the market.
Commencing with the Osaka World Expo in 1970, Nissho Sangyo has been a steadfast provider of takeout packaging to KFC Japan. Your collaboration has flourished in tandem with the fast-food chain's expansion throughout the 1970s and 1980s. Remarkably, this partnership endures as you continue to accommodate KFC's diverse needs and requests. What attributes distinguish Nissho Sangyo as KFC's preferred choice for takeout packaging? Additionally, could you elaborate on the evolution of your relationship with KFC over the years?
The 1970s stand as a significant era in U.S. history, highlighted by the monumental achievement of landing on the moon. This remarkable feat coincided with their endeavours to establish a pavilion in Japan. The American pavilion at the Osaka World Exposition had an expansive area dedicated to showcasing an array of products. The U.S. leveraged its remarkable lunar success narrative, an achievement underscored by the prominent display of an actual moon rock within the pavilion—an iconic emblem of their lunar journey. Personally, I had the privilege of witnessing this artifact and later revisiting it at a museum in Washington.
During the exposition, KFC inaugurated a trial store, a testament to the growing prominence of the fast-food industry. Simultaneously, my father was actively seeking innovative solutions specifically catering to the rapidly growing demands of the fast-food chain sector. During this period, essentials like paper cups and plastic utensils were not yet introduced as a comprehensive solution within the Japanese market. This vacuum became a focal point for my father's entrepreneurial vision.
Gradually, my father consolidated diverse Japanese companies, including printing companies, capable of furnishing a comprehensive solution that met KFC's requirements. This strategic initiative was meticulously planned, with preparations initiated even before KFC's establishment in Japan. This foresight proved advantageous, positioning us favourably ahead of KFC's entry into the Japanese market. Our paths converged during the exposition, leading to KFC's adoption of our offerings as its supplier. Subsequently, in 1971, the inaugural KFC store was launched in Japan.
Over the ensuing years, as KFC expanded its footprint, we evolved simultaneously, producing disposable items and devising various solutions tailored to KFC's unique demands. Our enduring partnership with KFC spans half a century, with our initial interactions tracing back to this key moment.
In my younger years, I undertook responsibilities in marketing and sales, and I vividly recollect interactions with KFC personnel and managers. Amidst a substantial delegation, only a few individuals held the knowledge of KFC's closely guarded secret mix of herbs and spices — a testament to the confidentiality surrounding their iconic recipe.
Many companies we have interviewed express intentions to expand overseas as a strategy to mitigate the impact of Japan's contracting domestic market. Does Nissho Sangyo share this interest in international expansion, involving establishing overseas facilities like distribution centres or sales offices? If so, what regions or countries do you believe are key for fostering growth?
Our commitment to sourcing suppliers is unwavering, with dedicated personnel overseeing the identification of potential partners. Currently, we're actively exploring collaborations with companies in India, where we're engaged in discussions with multiple firms capable of facilitating procurement on our behalf. Furthermore, we are keen to establish cooperative relationships with Thailand, renowned for producing non-woven products like drapes and gowns. Beyond our established bases in Vietnam and China, we're pursuing avenues for expansion into other nations to diversify our supplier network.
Presently, only a marginal fraction of our product assortment is earmarked for overseas markets. We have customized products to meet the specific demands of the Philippine market, reflecting their unique requirements. While the prospect of exporting and forging new international partnerships remains a consideration, it isn't integral to our present midterm strategic blueprint. Our production hubs in China and Vietnam are geared towards supplying the Japanese market, rendering the introduction of additional logistic complexities for international expansion less practical within our current framework.
With Nissho Sangyo having been founded in 1966, the approaching year 2026 will commemorate its 60th anniversary. As the president, do you have any personal goals or ambitions you aspire to realize by this significant milestone?
I have devoted significant efforts to propel our company forward, but I am eager to pass on the mantle of ambition to the next generation. I was born in 1959, and the approaching February will mark my 65th year, a crossroad that leads favourably to a contented retirement. I'm gratified to share that both my sons are actively contributing in distinct divisions – one in the KFC sector and the other in the medical sales domain. Their commendable business acumen signifies a smooth transition and a promising potential for innovative developments within the company.
Currently, our business is upheld by three pillars: restaurant sales including KFC, amusement sales and medical disposable sales. I envision my sons injecting novel perspectives and pioneering solutions that could potentially lead to the emergence of a new pillar. Their contributions hold the potential to initiate fresh developments and chart new opportunities.
Our core strengths stem from being an essential supplier, integral to the needs of both our customers and society. The fields of medical care and food services are two bedrocks that underpin our lives and exhibit enduring sustainability, resistant to the whims of economic fluctuations. I've personally weathered events such as the Lehman Shock and the undulating economic tides, which have profoundly impacted businesses, especially those entwined with exports and imports, further exacerbated by currency depreciation. Notably, companies like Toyota were compelled to recalibrate their strategies, localizing production due to the volatility of the Japanese market. I am appreciative that our company stands steadfastly on these two resilient pillars. The consistency in our sales and margins bestows robust stability, rendering us less vulnerable to the ebbs and flows of economic shifts.