Norio Hamada, President & Representative Director of Toho Holdings, a retail and wholesale distributor of prescription and over-the-counter medicines and medical products, looks into the proliferation of generic drugs in Japan, Toho’s technologically advanced facilities, and its “total commitment to good health”.
What would you say has been the impact of Abenomics on the pharmaceutical sector and specifically on Toho Holdings?
With this policy, which is known as “Abenomics”, I believe that there are two sides to the coin. The positive side being that our sector, particularly the medical sector, has received very positive impact from it. But also, with the need to change the healthcare system that is provided to all the population, with which our nation has been blessed until now, we need to go through some pain in order to transform the system. So there is both the positive and the negative.
Looking at our results from last year, and the year before that, there were some negative points, and there was this matter of the fact that in Japan the rate of generic drugs use has been lower than the international standards. This is a point that needs to be improved within Japan. In our sector, both the pharmaceutical companies and our type of companies realize that we must endure some pain to improve the situation, and without it we won’t be able to move ahead. This is something that we are aware of. I believe that these are issues we must overcome at some point, and actually we’ve been postponing it for a long time. I, myself, feel that Toho Holdings is sufficiently prepared to begin overcoming this issue. Plus, positive and negative effects of Abenomics have been so speedy. Within the Japanese pharmaceutical sector, we believe these areas need to be improved in the future. Instead of looking at these issues as something negative, I have the attitude of proactively overcoming these issues.
The Japanese medical provision system has been very well established, even down to the details. Toho Holdings will be contributing in ways such as storage and delivery of medicines and conducting these kinds of business. Many different kinds of people need to be involved so that the relationship between the doctor, pharmacists and the individual patients can be improved, and so there would be many people involved in this process.
Looking at it from the macro perspective, we are working on various business issues, such as reducing medical waste and coming up with more precise ways to conduct our business. Storage, for example. These are new issues that we are facing and I feel that we need to come up with solutions to all of these. At the moment, our company is reconsidering everything that we are now facing and also making changes internally in order to better respond to these new needs.
Our current activities, I believe, are foreshadowing what all the countries of the world, including emerging countries, will have to overcome in the future. So even within Japan I believe that our activities are three steps ahead of the others.
We currently have many systems. Each of those are a result of us thinking about how to improve on which points, and a detailed analysis on these matters so they are built step by step based on these efforts of ours.
We are not a company that creates the medicines or does research and development on the medicines, but we take those drugs that have been produced and then we are the ones to provide solutions as to how to deliver them to the patients, how to store them, and how to make sure that the customers take them properly, which will lead to the cure of the sick. Even if wonderful medicines are produced, without our work they won’t reach the patients. I believe that our work in these areas is our specialty and something we need to continue working on. That is our mission.
Many of the pharmaceutical companies are appreciating the functions we provide, as I described earlier, and have contracted us to take care of more and more areas of their operations. Because some of the drugs that we’re dealing with are quite expensive ones, the sales of them have augmented the negative impact of generic medicines becoming more proliferate. Particularly from this year I believe it will have a positive impact on our business performance.
With the healthcare reforms and the laws that are being passed, do you think the government is doing enough to minimize the escalated health costs that you’ve touched upon?
If you’re asking has enough been done, I believe that there is still much more room to cut costs and slim down. There is still progress to be made and they are starting to take place. I believe the time has finally come for these reforms to take place and so we’re not seeing this new environment in a negative light. Rather we are looking into how we can adapt ourselves to this environment, and what we can do in this environment. I believe that generic medicines will probably become even more proliferate than now.
What opportunities do you see within the TPP for Toho Holdings?
Pharmaceutical manufacturers, both in the US and Europe, as well as in Japan, are expanding overseas in an open style so that although the TPP may have some effect on individual companies, we believe that our current system is very accepted throughout the region of Asia. And so, in general, many people within our sector are welcoming this development, as I am as well.
Within the pharmaceutical sector, as well as in other sectors, we expect developments in emerging countries, such as those in Southeast Asia, and for our company as well. Since about last year we’ve started sending out the message to overseas and in Asia that we are endeavoring to expand our activities overseas. Whereas the individual countries used to have their own regulations, which is a bit difficult to navigate, now with them becoming more simplified it provides us with opportunities to expand our operations both in Southeast Asia and other nations abroad. I plan for our company to be taking this path so the effects of TPP definitely are not negative for us.
Some pharmaceutical manufacturers have had a hard time getting into the markets in Southeast Asia and other emerging countries because of the complex rules within each country, which made it so that the competitive environment in those places was not free competition. With these kinds of issues now on the way to becoming resolved, I believe that there are excellent opportunities in those countries, and because our company deals with not just products from one manufacturer but almost all pharmaceutical manufacturers we have an advantage. We not only deal with prescription medicines but also OTC medicines. The freedom that is now emerging is a big plus for us. Also, we deal not just with medicines, but distribution and storage solutions. The new environment is making it easier for us to operate in these areas as well. Actually in Asia, most of the pharmaceutical manufacturers also have the function of distribution, so I believe there are many opportunities for us to partner up with those in the same sector as us in those countries.
Regardless of whether it is pharmaceutical products from the US or from Europe, we are able to handle these medicines when they are introduced to Japan. Although there is the negative effect of generic medicines at the moment, we also have the capability to handle all the newest medicines and introduce them to Japan. Of course there are budgetary issues, but while we may cut costs in some areas we can also increase them in others, such as introducing medicines for fewer numbers of people, the more difficult diseases, or drugs designed for these kind of serious diseases. And so our efforts in these kinds of activities have been recognized by the pharmaceutical companies who have sometimes given us even sole rights to distribute their products in Japan. So this is a very positive development that is happening now to our company and I expect will continue in the future.
Of course Abenomics had to be done in order for us to exit from the recession, and while we faced various issues such as the fact that we have rising costs of social security, which is quite a different system from various other parts of the world, there are new challenges to be faced. Bt I believe that Abenomics was a positive decision to be made in that we are now aiming to overcome these issues.
Issues won’t be resolved if you just concentrate on a particular issue and just think hard about how to solve it forever. I believe that for us to prosper the key is to decide which areas to slim down or cut down on and then also to seek opportunities, new challenges, in which we expect to be able to prosper. I believe this is an indispensable attitude to pursuing prosperity, so in our company I’m always aiming for us to be forward looking.
It is fair to say that Toho is really an industry leader in terms of logistics and innovation, such as utilizing robotics in your distribution center, TBC Saitama, which has brought you an Award of Excellence from METI. So what is the next project you have in your mind for optimizing efficiency and quality for your services?
Our distribution center in Saitama Prefecture called “TBC Saitama” has been established but we’re also looking to create a new distribution center in Hiroshima Prefecture as well. Actually TBC Tokyo, which was created a few years ago, is not yet automated. There is the balance of investment and it’s effectiveness that we must consider. Even in TBC Saitama, which received the award, I feel there is still room for improvement. There are different parts I would like to improve on. For example, in TBC Saitama 65% of the piece picking processes work is done by an automated system, but I’m hoping that we can raise that to 90%; that is our ambition.
I believe that with adopting technological systems we must work on a total unilateral basis because technology is continuing to advance. Our next priority is developing the TBC Hiroshima and the way we work is that, because technology is continuing to advance, if we know a new development in technology is coming soon, we are willing to wait, say half a year, until this becomes available for us to use.
I don’t know if our TBC Hiroshima will receive an award but in any case I believe that the point of technology is for it to be useful on site. If it can’t be used there’s no point to it. I’m putting a lot of pressure on our employees who are working on the development of TBC Hiroshima to pursue automation and the adoption of cutting-edge technology. Having received the award for our TBC Saitama it gave us the opportunities to create new relationships with the organization that are creating cutting-edge robotics technologies, so these partners are able to give us opinions and ideas that will further advance our efforts for automation. Also, as the countries of Southeast Asia continue to develop, I believe that we’ll be able to bring over our experience and allow them to skip certain phases and go right on to the technologically advanced state.
This way, you really embody your slogan “total commitment to good health” because it’s not just purchasing pharmaceuticals and distributing them to hospital and to pharmacies, but it’s also medical devices, giving medicine consulting, and site management. How important is this slogan to your corporate culture and how does it shape your day-to-day operations and the decisions you make as president?
Toho Holdings, and actually as it was back then “Toho Pharmaceuticals”, began 70 years ago with only seven or eight people. But we have now developed this company, and some of the points in which we had to break through is when the Japanese systems changed and we adapted ourselves to respond to those changes. In 2009 we developed a holding company in order for us to operate both of our two main core businesses, which is the wholesale of pharmaceuticals and the dispensing pharmacy business. In the dispensing pharmacy business even, we’re actually the fourth or fifth largest in Japan. With our tens of thousands of customers, I believe that our company has the number one potential within the sector.
At the time we formulated the medium-term management plan in 2006, we developed this new slogan of “total commitment to good health.” We had not had the slogan beforehand, but it was already within our company’s mentality, so we just put it into words and made it something that can be shared within the whole company. When we created the slogan I asked that we include the word “total” in Japanese and my staff worked with me on that. This slogan was created with the idea that we’re going to aim for rebirth of our company and working from the perspective of our partners and particularly of the people that we’re serving.
We, therefore, worked on retraining all of the employees of the company and in connection we developed a training center in Karuizawa, Nagano Prefecture, where we send approximately 100 of our employees every year. At this point we have retrained about 70% of our employees. So every year the training takes about 12 days separated into three sessions. We have really been working unilaterally to reeducate our employees and I believe that the sales performance will come as a result.
We’ve been conducting TV meeting for over 20 years, which happens every month, and all the employees participate from Okinawa to Hokkaido, where we deliver messages to them. We also have TV meetings among our senior management on the days off actually, which is not very popular with them, but we do this in order for them to understand what we have in mind and I communicate to them myself.
Toho really does enjoy a strong brand here in Japan, but as you work to grow it internationally how are you working to communicate the strengths of your brand? What do you want your brand to signal to potential clients?
Actually this is all going to start now. Since several years ago I have been going abroad to introduce us to potential partners and in the beginning I was having some difficulty gaining their understanding, but increasingly we’re receiving interest from them. Just last March we set up a preparatory office for oversees business development, and although we had a few people working in China previously, it’s only this past year that we’ve really started working on putting our efforts into overseas expansion. At the moment we have a little over 10 people working at the preparatory office who are fluent in Chinese or English, and so we’re working now on training personnel who can communicate on a native level abroad.
I want to ask you just what final message would you like to send to G7 leaders about Japan? What’s the new brand of Japan as it leaves behind two decades of poor economic growth and deflation in your mind?
I don’t know if I can say something so lofty but within our field we have been working for a long time with people within the medical sectors as well as patients who are suffering from illness. This is going to continue in areas that will be developed further, such as nursing care and home care. I’m sure that the leaders of the G7 will have various differing opinions on various matters, but at least in terms of the issues that we’re dealing with it is a common issue for all the countries.
I hope that the leaders will put aside their small differences and kind of look from a macro perspective in order to find solutions and make progress in addressing these issues, so that they can be solved quickly and swiftly, and the TPP is one of the efforts. There’s only one Earth; we’re all united.