Balancing precision and profitability amidst global expansion in a changing industrial landscape, Noda offers quality products to its customers
Can you provide a brief overview of your company?
The data from last year indicates that our company had a workforce of 250 employees, with 70 in Japan and 180 overseas. We have four factories domestically and three overseas. Our headquarters is strategically located in the central district of Honmachi, Osaka. It is probably easier to look at the finished products instead of our manufactured dies, like the film and internal components of smartphones.
A substantial segment of our output is directed toward catering to electronic components. Samsung is our primary customer at our Vietnamese facility. Besides smartphones and automotive products, we offer our products and services to the packaging and apparel industries.
We are also involved in the production of dies for stamping soft packages, commonly employed for products like chocolates and shampoos. Our expertise further extends to the fabrication of metal and wooden dies used in stamping final products.
My father founded this company in 1985. For the initial portion of its existence, he single-handedly managed its affairs until 2000. When he collapsed, I took over his position as president. Subsequent years have seen us navigate through turbulent economic periods, including the Lehman Shock and the global COVID-19 pandemic. Despite these challenges, our revenue history up to 2021 reflects commendable growth. The proportion of our total revenues is 60% domestic and 40% overseas.
However, a closer examination of our profit distribution reveals an opposite pattern, with 25% attributed to domestic operations and the remaining 75% stemming from our overseas ventures. This proportion shows that our international factories have higher profitability than our domestic counterparts.
We have four notable advantages. First, our operating profit margin stands at approximately 20% for the entire group, a stark contrast to the industry average of around 2% to 3%. Our performance remains considerably above the norm even when accounting for the positive facets of Japanese manufacturing, which typically yields a profitability range of 4% to 5%. Considering that our entire manufacturing sector is shrinking, we have to create a great business model to be profitable.
Despite the inherent advantages of Japanese manufacturing, I believe that this niche field has already hit a wall and is ending. If we combine the profitability of our overseas sites, which is 30%, with Japan's, it will be 20%. The sector has witnessed a contraction from 400 to 350 companies in recent years, a 10% reduction over just two years.
When I succeeded the presidency, there were approximately 1,100 companies in this industry. However, the industry has witnessed a significant shift as it has dwindled to 350 companies over 25 years, one-fourth of the original number. This gives evidence of a shrinking domestic market. As Japanese manufacturers progressively diminished over the last three decades, our company mirrored this trend. Noda is the lone contender within the industry to successfully establish overseas sites, securing a unique competitive edge in a niche domain.
All the other companies are not profitable anymore or struggling to manage their business with very low profit margins. We have been able to initiate synergy with our overseas sites, which successfully enhanced the profit of our entire group. In addition, we strategically divide the work between Japan and overseas. Data collection and some manufacturing processes are delegated to our overseas sites. By setting up a unique business model, we have successfully maintained our profitability.
With an expansive customer base of 5,000 clients, we differentiate ourselves from our closest competitor, who trails with only 500 customers. Our approach does not merely rely on a handful of large-scale customers, but rather, it is anchored in cultivating numerous small-scale customer relationships. By adhering to a more balanced customer distribution, even our largest client represents a relatively modest 2% of our total revenue. This deliberate strategy mitigates the risk of overreliance on a few major clients. On the other hand, our competitors tend to rely on large-scale customers, which take a share of 20%, 30% or even 50%. Although the number of customers is 10 times more than the one in second place, the profit isn't 10 times bigger. Furthermore, our capital ratio is 80%. We have not incurred any debts in financing, which means that our balance sheet is quite healthy.
In many cases, SMEs venturing into foreign countries to start production tend to rely on more Nikkei-based customers. However, as they spend more time in that region, they start to diversify and move beyond that customer base. To what extent are you actively working with foreign-based customers?
Client demands did not drive our expansion into overseas markets. We realized that relying on a single Japanese customer would subject us to a perpetual cycle of complying with their orders and instructions. Our main objective has been to prioritize profitability over sheer revenue figures. Depending heavily on a sizable corporation inevitably exposes us to pressures for cost reduction. For instance, exclusive reliance on a company like Honda could prevent us from cultivating relationships with entities like Mitsubishi or Toyota. We have become more adaptable in the international market by avoiding such dependency. This approach safeguards us against being coerced into accepting orders contrary to our best interests.
In line with my personality and history of taking over this company, I want to avoid subordinating our autonomy to external directives. We aspire to maintain a balanced partnership with our business associates or clients, striving for a mutually equitable 50:50 dynamic, a principle we will firmly uphold moving forward.
At present, our targets are the markets of India and Indonesia. While our connections within these markets are currently in their beginning stages, we have begun the crucial process of gathering information to facilitate our entry.
Does your company cater to a specific industry, or are you considering venturing into new industries to introduce your products and services?
Japanese die manufacturers conventionally focus on either product quality or expanding into overseas markets. However, it is critical to acknowledge that this industry has already matured. Distinguishing oneself solely based on product attributes has become increasingly challenging. In consideration of this, we find ourselves at a point where a paradigm shift is necessary, and serious consideration must be given to DX and IoT, a broader direction in which numerous Japanese industries are heading.
The focal point no longer rests solely on enhancing product quality. Instead, a more holistic perspective entails enhancing the entire system encompassing the customer experience and order placement process. Our strategic approach involves integrating cutting-edge technology into our dies. By incorporating embedded chips within our dies, we gain the ability to monitor shot counts and seamlessly manage data via cloud-based systems. This approach allows us to gain considerable operational insights and improve our efficiency for our clients. Since we are trying to differentiate our business through digitization instead of the products we offer, we have a dedicated team proficient in coding and programming, which is a distinct advantage within our industry.
Noda has developed the Chrome Die, a corroded blade renowned for its capability to manufacture high-quality products without the fear of the blade collapsing. Can you talk in more detail about the motivation behind the creation of the Chrome Die and how it is superior to other dies on the market?
The most significant distinction between chrome dies and conventional dies lies in their precision. Chrome dies exhibit a level of precision that surpasses that of wooden and standard dies by a factor of 100. While chrome dies find prominent applications in the automotive sector, it is important to note that some applications do not require such high levels of accuracy or precision.
Our Vietnamese factory manufactures wooden dies for the airbags because the accuracy they require is relatively lower. Similarly, this holds true for interior laser applications. Our choice of die material is contingent upon the degree of accuracy the specific application demands. Given the perpetual advancements in technology, we find ourselves presented with opportunities to continuously enhance precision and accuracy. Chrome Die was our proactive response to these industry trends, fueled by our commitment to meeting and exceeding customer expectations.
While wooden molds have niche applications, particularly in prototyping various products or molding materials at lower temperatures, they have limitations. They are not as durable as metals or plastic, causing them to be less resilient in high-pressure and high-temperature scenarios. Moreover, their lifespan tends to be comparatively shorter. Given your expertise as a manufacturer of wooden molds, what are their advantages today?
Some might have initially visualized injection or vacuum molding processes when envisioning the wooden dies or molds we produce. However, it is crucial to highlight that our wooden dies possess a unique attribute – they remain resilient against temperature changes.
Mr. Suga announced that all cars in Japan must be hybrid or EV-based by 2035. How has this transition influenced your customer base? To what degree has this transformative disruption impacted your business?
The paradigm shift from traditional combustion engines to EVs substantially reduces the number of components required for automobiles. This transformation is poised to open the doors for new entrants into the market. An illustrative example is VinFast, a Vietnamese EV manufacturer that recently made its debut in New York. This transition presents a fertile ground for growth within the electronic component manufacturing sector, where we have numerous clients for our dies. In fact, should any of these clients venture into the automotive market, it could potentially create fresh opportunities for our business.
Our die manufacturing expertise extends across various automotive applications, and we remain adaptable regardless of whether the vehicle is powered by a traditional combustion engine or an EV. This versatility is driven by our commitment to supplying dies that serve a wide range of components within a vehicle. For instance, we provide dies for elements such as the film used in car navigation systems as well as airbags, cushions and safety insulation. This comprehensive approach to component manufacturing protects us from the potential challenges posed by a singular focus on engine-related components. Our market presence remains robust as EVs continue incorporating navigation and safety features.
The transition to EVs itself does not fundamentally disrupt our business. However, we do admit that the shrinking domestic market poses a disadvantage. As a result, we are proactively exploring opportunities in overseas markets to counterbalance this trend.
The automotive industry was the key industry in Japan. However, looking at VinFast's impressive market value of JPY 1.2 trillion, we recognize the importance of fostering new partnerships with emerging Asian carmakers such as VinFast, BYD, Hyundai and others. While our history shows that we used to only cater to Japanese car manufacturers like Honda, Toyota and Nissan, the new trend directs us toward cultivating fruitful collaborations with dynamic Asian counterparts.
Do you have an ambition to take your business a step further to Europe or America?
Operating within a niche sector, our ambition is to ascend to the pinnacle of global niche leadership. Our strategic roadmap entails venturing into new territories, with India and Indonesia as the imminent destinations in the coming year. The subsequent milestone in our expansion journey is Mexico, and Europe, including Eastern Europe, is on our radar because of its existing market. Since we want to dominate the global market, we will set our sights on the prospective market in Africa. Our vision is nothing short of global dominance, akin to the remarkable journey of Naoya Inoue, the professional boxer.
Imagine we come back in 10 years and have this interview all over again: Is there a goal or an ambition you would like to achieve for the company by then?
We aim to dominate this industry as a global niche top company.
Interview conducted by Karune Walker & Paul Mannion