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Proven ability to process soft materials with high precision

Interview - November 8, 2022

Founded in 1955, Chiyoda Integre has carved out its soft material processing business through expertise and with an appreciation of how to engage with overseas markets, not pushing Japanese ways but instead respecting the country where it is investing.

MITSUAKI KOIKE, PRESIDENT OF CHIYODA INTEGRE CO., LTD.
MITSUAKI KOIKE | PRESIDENT OF CHIYODA INTEGRE CO., LTD.

Proven ability to process soft materials with high precision

Founded in 1955, Chiyoda Integre has carved out its soft material processing business through expertise and with an appreciation of how to engage with overseas markets, not pushing Japanese ways but instead respecting the country where it is investing.

 

In recent decades, Japan has seen the rise of regional competitors who can replicate certain manufacturing processes and products from Japan at a cheaper cost and with economies of scale. How have Japanese firms been able to remain so competitive in the face of this tough price competition?

I do not know about other companies but let me share my company's case. We have our own business policy, but when we go overseas, we do not stick solely to the Japanese way of implementing business. When we go to China, we have to follow the local customs and the local business management practices. When we go to another country in Southeast Asia, we have to follow the local rules. We do not push Japanese ways in overseas countries, so we need to adapt to the local environment.

When our company goes overseas, our company is effectively an investor, so we invest our money in businesses engaged in the local market, and we need to respect the local staff who have their own ways in every country. Of course we need to comply with the local rules and regulations, but we also need to adapt to the local environment. That is one of our strengths.

Some other companies take the Japanese way of doing business and apply it to overseas markets as well, but in our case, we respect the local way. We do not push Japanese policies on them.

 

Through your international expansion you have opened many production bases around the world, with more than 11 such bases in China as well in Slovakia, Mexico and America. With such a global production network, how are you able to ensure that the quality of your products remains standardized throughout your global operations?

We have two business models when we go overseas. One is where we enter a market and there are no other competitors or customers yet, entering ahead of them, and in that scenario, we can prepare for them to come later.

The second business model is for mature markets where there are already lots of competitors and customers. We dare to enter mature markets even if there is very fierce price and quality competition because we have confidence in our own cost and quality. That is why we can compete in those mature markets as well. Since we entered Singapore in 1978, we have developed other bases in Southeast Asia and China, but we have always used these two business models.

 

One of the things that differentiates your company is your unique processing technology called Soft Press, which allows users to flexibly process soft materials into a variety of applications from automotive to electronic components. Can you tell us a little bit more about your Soft Press technology, and what are its advantages in comparison to more conventional techniques?

Our Soft Press technology allows us to process soft materials with high precision. Of course, this is different from the processing of hard materials such as stainless-steel plates because you can cut them easily. Soft materials are difficult to cut with precision, but we have the unique technology to achieve this, otherwise our customers’ final products would not work as well.

We have 24 sales offices and 18 factories in 15 countries around the world. And we are dealing with 80,000 kinds of products and 90% of those are designed according to customer specifications. We process soft materials into final parts in products with added functions and this represents the accumulation of our know-how and expertise over the last 67 years. We always try to follow and improve on the customers’ needs and specifications. A good example of this is in the smartphone industry where we use Soft Press technology to shape and assemble various components.

 

Which other applications are you focusing on with Soft Press? Which do you believe will have the most potential for future growth?

We focus on the automobile sector, especially with the current shift to EVs. In the past, our main strength was in office equipment such as copier machines and printers, and we provided parts to major Japanese manufacturers because they dominated the global market in the past.

However, this type of equipment only accounted for 40% of our business in the past and over the last four to five years, people are using less paper so that market has been saturated. We have therefore shifted to the automobile sector where parts are required for the dashboard of the car, such as steering wheels, sensors and also EV batteries because these require diversion of electric parts technology and heat resistance.

This will be a major business in the future and those parts are manufactured in our factories in Mexico and Ohio in the USA, and in Aichi prefecture in Japan. We provide products and parts to the most famous Japanese car manufacturing company, so in the next three years, we are going to experience a drastic change in the components business. For example, factories in China which are EMS, are producing a lot of electronic materials and we in Japan cannot maintain our strength in such manufacturing sectors because those regional competitors have the knowledge and expertise to reproduce and copy our manufacturing processes, so we need to shift to EVs in about the next three years.

 

The past few years have seen some major disruptions in global and local logistics such as the war in Ukraine and China’s zero-covid policy. Some automotive makers, both Japanese and international, are slowly moving their production away from the Chinese market. Toyota, for example, closed its plant in Shanghai. Can you tell us what the impact of this logistical disruption has been on your company, and are there any measures that you have taken to combat it?

Our business has been hit very hard, especially by the lockdown in Shanghai, because we have our production base there. Due to the lockdown, car manufacturing lines in Mexico had to stop because the logistics network behind the procurement of the parts in China had been disrupted and that had a knock-on effect on other business areas too.

As an example, our plant in Dongguan, China, produces certain parts but if they stop procuring, that will affect car part manufacturers in Germany and then that will affect the provision of parts to an American car manufacturing company in the US. The whole supply network is connected globally and if the Chinese logistics network is disrupted, that affects other countries involved in car production further down the line.

We try to produce for local needs and we also suggest different options of sourcing to customers. For example, instead of China, we can produce parts in Ohio, USA, or we can produce the same product in Southeast Asia. We were actually surprised at how connected the global supply chain network is, but the biggest concern is that China's lockdown might happen again. This is unpredictable, so it is very difficult to adjust to an unpredictable situation.



R&D is an important factor in Japan with more than 3% of GDP being spent on it. Could you please share with us the current focus of your research and product development strategy? Are there any new products or technologies that you can share with us?

Our main focus in R&D technology is car parts, the cockpit in cars, and EV batteries. We have a plant in Toyohashi City in Aichi prefecture. The plant had been suspended. It began to operate again and we would like to focus on the production of auto parts more over the next three years. Our focus is on EV batteries and connected cars, and that includes heat prevention measures in addition to electromagnetic noise prevention, and responding to 5G technologies.

As for other products and fields, a famous Japanese company makes a game in China. Our products are used in the game. We made profit from the game sales last year. The famous Japanese company is now gathering a lot of semiconductors to accelerate the production of the game, so we have made a profit out of it.

 

What role does collaboration or co-creation play in your business model and are you currently looking for partners either in Japan or overseas?

Since we entered the Southeast Asian market in 1978, we have not had any partners. We never had a partnership with any companies overseas. I have thought about M&A and joint ventures sometimes, but we are not aiming for this kind of methodology.

For example, when many Japanese companies go to China, they look for a partner and they establish offices and plants in China. Maybe that will shorten lead times - they can start the business within a year doing it that way, whereas doing it alone would take three years.

We think that if we had a partnership with local companies in China, we might make more profit or make it earlier than other companies. However, the difficulty is when we break up with partner companies or withdraw from the market locally.

Sometimes we like to stay in a foreign market but our partner may be against it, so we have a conflict of interest. I have seen such situations with other Japanese companies and they struggle when it comes to breaking up with local partners.

We therefore enter overseas markets on our own without any partnerships. Another characteristic of our business policy when we go overseas is we do not belong to any group companies. We are fully independent.

The advantage is that we can deal with materials for any manufacturer, but the disadvantage is that sometimes a monopoly situation happens, and we cannot deal with certain companies’ materials.

Our corporate culture emphasizes taking steady steps so in terms of the Soft Press technology, we are not thinking about domestic partnerships, and also overseas, we might be conservative, but we want to take steady steps and have access to the market whenever we want.

 

With regard to your international growth, which countries or regions have you identified for further expansion into, and what strategies would you employ to do so? Could you elaborate more on your international business strategy for us?

Since opening our first overseas facility in Singapore in 1978, we have established other offices in ASEAN countries and we have made a lot of profit in those markets. With those profits, we entered the Chinese market. Then with those profits from China, we went into the US and European markets.

Now we are going to expand our bases in advanced nations such as the US and Europe. If we can strengthen our business in those nations, we can become a truly global company. Of course, we would like to expand our businesses independently.

We did not have a partnership in China, and the advantage of that is Chinese companies did not steal our products or the Soft Press technology, so that was a big benefit. Although it is an invisible issue, not having our technology stolen by other companies in China is good for us.

 

With the rise of electric vehicles, we are seeing some major changes in the automobile industry, such as the shift to lighter weight materials and the use of fewer parts. Could you tell us a bit more specifically about what kind of products and technologies you are providing for EVs?

You mentioned lighter weight materials used for automobiles. One product they need is a heat release mechanism. Those are usually made of aluminum, which is very heavy, but now they are thinking about switching the material to rubber which would allow us to replace existing products with resin-made materials that are lighter. This is one of the products that could be useful for the future changes in the automobile industry.

 

Let's say we come back to interview you again on the last day of your presidency. What would you like to have achieved by then?

As I mentioned earlier, my ultimate goal is to expand our business overseas in advanced nations such as the US and Europe. We want to establish plants in those regions and we want to become a truly global company.

This headquarters was established this year and I designed this building. I spent most of my business career, about 20 years, overseas. I started the expansion of our overseas business in Southeast Asia and then in China, and I have recruited many local employees.

When I came back to Japan, we drew on my experience and expertise overseas. As president, I want to further expand the business so that more customers worldwide can use our Soft Press parts and technologies.

When we recruit people, we do not ask their gender, age, nationality or educational background. Regardless of those criteria, we recruit good talent and we have only 300 Japanese employees and 4000 in our group companies in total, but we would like to expand the business overseas based on this current policy. That is my goal.

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