With a strong expertise built up since 1961, PEC is now providing innovative and reliable fuses for the automotive sector and is helping its transformation.
Could you start by giving us a quick introduction to your company? What are the core pillars of your business and what are your strengths that help you stand out among your competition?
Timeless insight and new mobility. Throughout time Pacific Engineering Corporation (PEC) has generated new ideas from its own unique perspective. Drawing on decades of developmental and manufacturing experience, an intuitive ability to identify the essentials, and a voracious curiosity. Onward to the future, PEC will assume a leading role in the ever-evolving global automotive society, continuously creating new trends.
As a component manufacturer charged with ensuring safety and comfort in the automotive sector, PEC always provides technologies and products that are one step ahead of what customers require. We will continue to create new trends that will shape the future of motoring. We have offices located in several countries around the globe, and for some customers, we have to communicate with the other offices and also cooperate to solve problems. With production facilities, offices, and sales agents in nine countries, PEC has established an efficient global network of production that can meet the needs of the world’s leading car makers. Moreover, we are striving to become a real global company that has an essential presence in various countries around the world.
We at PEC aim to create an environment in which the ideas and individuality of every one of our employees can flourish. An example of this is our new head office building and plant. Meeting, creating, and connecting, while working with customers to unleash the power of diversity, ideas, and teamwork.
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?
To be very honest, the past three years have been a struggle. Speaking only about the exchange rate, it is at a historic low, so it could be said that Japanese companies are in an advantageous position in terms of exports. But speaking of the automobile industry we operate in, the production of automobiles has transmitted during the past three years. There have also been many disruptions in logistics in addition to the rise in material costs.
Especially during COVID, those disruptions in logistics were very apparent. Initially, our deliveries by ship took about two weeks, but with the disruptions deliveries actually took 2-3 months. Since we couldn’t get those in time we had to airfreight things which were very costly. People on-site really had a hard time securing containers and delivering products on time.
I think that the past three years have been historic for both automotive companies and the automotive industry as a whole. There has been a major change in the environment surrounding the industry, especially in terms of technology development. For the automotive industry as a whole, we’ve always seen a constant increase in sales, so the more product we produce the more that is sold. During COVID however since many automakers halted production, even if we made products, there was no one to sell to.
I think that COVID taught us some very important lessons. We learned how important inventory management is and to always take lead times into account. Japanese automotive industry needs to make use of this experience so that we see huge opportunities with the shift to EVs and the electrification of the automotive industry.
As a Japanese tier-one, tier-two, or tier-three supplier we know that companies in this business model exclusively cater to Japanese OEMs. Traditionally the Keiretsu model has been a very tight-knit network and perhaps the strength of the Japanese automotive industry for decades. As you mentioned, what has taken place over the last few years is a historical change in the industry and we are seeing a complete upheaval with new entries, thus the focus is not so much on Japanese makers. Of course, that isn’t taking into account Toyota, who did launch the Prius; the world’s best-selling hybrid. Could you give us an insight into how your being able to cater to this new, outside demand? How have you adapted to cater to companies beyond Japanese OEMs?
We are not a typical supplier and we are basically outside of the Keiretsu model. Historically Japanese OEMs have done very well for themselves, so I think we are in a good position. I think there are some pluses and minuses of the situation, and that is what I meant when I said that we have direct connections with most of the automotive companies globally. This means that we have already diversified for the past twenty years and have a diverse customer base.
Earlier you said that electrification presents many opportunities for your firm when it comes to the automotive sector, but we also know as electrification continues to increase in this field, the risk of electromagnetic interference (EMI) can affect the performance of fuses. For example, high levels of EMI can cause false triggery, compromising the safety and productivity of a vehicle’s electrical systems. How are you adapting your products and fuses to prevent this EMI?
Our fuses are for electrical circuits, so they are considered as having a mechanical structure and do not have any EMI. Currently, we don’t have many concerns since it is a very simple structure and it is not affected by EMI, but in the near future products we offer may have concerns as advancements in technology occur. In that case, we would need to continue to research and develop countermeasures for EMI.
New applications for automotive fuses are emerging because of the unique requirements of EVs. You’ve got high voltage battery protectors, fast charging energy storage, as well as fuses for data communications and infotainment. What products are you developing to cater to these demands we are seeing?
Our products are not focused on infotainment, rather the core focus is for high-voltage electrification, especially in terms of quick charging. Currently, the purpose of our fuses is to protect electric circuits of around 1,000 volts. If it is a conventional internal combustion engine (ICE) car then it only takes a few minutes to put gas in the car, whereas with EVs it currently takes about 30 minutes of charging time, therefore minimizing this charging time is important. Efforts are being made to increase the voltage and thus there is a requirement for surge protection and fuses are necessary in such cases.
Fuses are a critical component in ensuring the safety of passengers in a car. An ICE vehicle averages about 14 volts whereas with EVs we are seeing averages between 600 to 1000 volts. Compared we are seeing 40 times higher voltages so there is a much higher risk. A challenge our firm is facing is how to create fuses that can deal with such high voltages. Ensuring the car and the passenger's safety is paramount. Of course, it would be easy if we could make parts that are 40 times bigger, but that will result in heavy and bulky components, an opposite move of the entire industry right now. This is where the difficulty lies; how do you create stronger fuses without making them bigger and heavier? Fuses need to be more compact and as lightweight as possible, and it is becoming a monumental challenge simply because industry demands are changing by the day.
There are competing technologies for EVs. We’ve heard about fuel cells and even hybrid vehicles. Are these factors that are in play for your firm as well? Do you believe that certain countries or regions will adopt fuel cells or hybrids whereas certain locations will be purely EV-based?
I understand that Japan is a very unique country globally and the trend right now is focusing on hybrid vehicles whereas the rest of the world is trending towards focusing on EVs. As far as I know, that is the situation.
Fuel cells need charging stations for the hydrogen and in Japan, we don’t have many hydrogen stations to meet the requirements. I think that fuel cells are an unknown in Japan currently. Honestly, Japan doesn’t even have enough solar panel stations currently, or even wind turbines. Renewable energy is a huge requirement for supplying these charging stations. I think where we are currently at with the situation there are so many unanswered questions.
One theme in our interviews is that through partnerships and joint development, many firms can overcome challenges and penetrate new markets. Could you go into the role that partnerships play in your business model? Are you looking for any partnerships when it comes to the development of your products?
In the past, our partnerships have been mostly with our customers. They give us some assignments and we work together, basically with tier-one companies as well as some OEM companies. Fuses are only a small part of an automobile but still is a critical one, so from our point of view we have to understand the role it plays in the vehicle and how it synergizes with the surrounding components too. That is why it is important to listen to what those tier-one and OEM companies want. This is how we consider the role of partnerships with our company.
It means that in the future to come, whatever a customer asks of us we need to provide viable solutions and answers to the most pressing issues they have. The level of requirements is on the rise and the time we have to come up with solutions is becoming less and less. In this case, I believe that we will need to consider some sort of joint venture or technical alliance.
One thing you’ve mentioned throughout this interview is the fact that the requirements of the industry are constantly changing, and this makes things very challenging. This means that you have to accumulate new experience, come up with new data, and conduct new research in order to give answers to clients. Japan’s demographic situation is a counter to this as Japan has a shrinking and aging population. Even Prime Minister Kishida has stressed the severity of the situation and this situation has several side effects including a labor crisis and a shrinking domestic market. What have been some of the challenges you’ve seen from this demographic shift and how have you been reacting to them?
Of course, it is getting harder to recruit people on every level. From engineers to factory workers it has been a struggle. It is however a macro issue, and when you look at companies on a micro level some companies have been successful in hiring people. The situation is not the same for everyone. I think we have to make our company one that seems attractive to work at for people looking in from the outside, and honestly, this is something that we are focusing on. We are redesigning our human resources system to encourage skilled workers to continue working past the age of 60 if they feel comfortable doing so. In fact, our oldest employee is 76- years old if I’m correct.
We now have 124 engineers working for the company, and when you compare that to the 84 we had five years ago you can see it is a significant jump. Even with some engineers leaving we have still managed to increase the number of engineers we have by about 50%. I wouldn’t say that we are excellent at recruitment, but when compared to some other Japanese firms I would say we are doing a good job at least. I think it comes down to our efforts to improve the work environment for all our workers.
One thing that makes companies more attractive is the amount of overseas offices they have or their international presence. Your firm has been present in the United States since 1994, and the company has locations in countries such as Thailand, China, South Korea, and Germany. Going forward, which countries or regions do you believe will be key for the growth of PEC and what strategies will you employ?
Location-wise I think we have enough already so there are no immediate plans for new locations. Many other companies are looking to China as the market where you can really become a success. It is the same story for us and the Chinese market is a big focus for our firm. In order to succeed we believe we need to have an agent in the country, basically someone that can guarantee delivery for customers. I think too that a key to this market in particular is listening to the customers and understanding what exactly they want.
Imagine if we come back in 8 years and have this interview all over again. What goals or dreams would you like to have achieved by the time we come back for that new interview?
That is a good question. The truth is that I might not be here by then. The philosophy of the company is to create a new flow in society and in order to do so we need to have “colorful creators,” which is what we call our employees. By having these colorful creators, we can create new value in the industry. Being colorful means enhancing the happiness of the employees as well as their satisfaction with their work. I hope that in five to ten years I have created as many colorful creators in our company as possible. I want them to be happy and enjoy their time working at the company. This comes through both mental satisfaction as well as financial satisfaction. Financially and mentally we want to provide an environment where employees feel safe, satisfied, and happy, not only in Japan but all over the globe.