Providing unique and industry first coating solutions

Can you provide a brief introduction of your business and the market you operate in?

The value of our market is around JPY 36 billion, which is roughly USD 300 million. Some customers have a coating system in-house. Others ask us to do the coating. When it comes to sales, we are relatively high ranked when compared to our competitors’ sales. This is not good enough, as we should be in the top three. However, in our market, molding parts and dies account for 40% of the market, while drill bits and cutting tools account for 30%. Parts and components make up 20% of our market, with the remaining 10% comprising others. Therefore, our main focus at this present time is our mold and die business. The automobile sector, the medical sector and the aerospace sector are some of the main industries that our mold and die business caters to, and right now our main focus is on automobiles.

Over the past two to three decades, we have seen Japanese manufacturers face very stiff price competition from competitors located in countries with a lower cost of production, who took away large market shares when it came to mass produced goods. With that being said, when you look at certain specific B2B technologies, often characterized by high-mix low-volume production, we find that Japan still dominates certain subsectors. How is a company like yourselves able to remain competitive despite this big price competition coming from regional makers?

When it comes to the market value itself, the value depends on the customers’ perception and expectancy of surface treatment services here right now in Japan. This changes and evolves over time. Thirty or forty years ago, it was solely related to the needs of the automobile industry, in which Toyota was the leading company. There were a lot of surface treatment related companies that served the needs of the automobile industry. The material to which the surface treatment was applied was mainly special iron and steel, which itself was the base for modern materials. We had to come up with solutions for the automobile companies.

Our customers were happy with our solutions, as we kept the good formation of the iron. The iron was solid. Usually when iron reaches around 750 degrees Celsius, it tends to change formation. At that time, surface treatments that could withstand 1000 degrees Celsius were introduced by many companies, including ourselves. That meant that we were able to meet the needs of the Thermal Diffusion (TD) process, which is similar to CVD coating. It took the best merits of the modern materials and allowed us to increase the treatment standards of the materials that the industry required at that time. One demerit of that however was that it could create a change in length, and therefore a distortion of the product. Therefore, this technique did not work as well in industries other than the automobile industry.

As time progressed, TD was replaced in many ways by Chemical Vapor Deposition (CVD). It works almost to the same proportions as TD when it reaches 1000 degrees Celsius. Many customers were trying to find the best solutions for surface treatments and CVD became popular. CVD and TD were used around thirty to forty years ago for molds and dies. It’s needed for short stamping and forging as well as other processes. Twenty years ago, around 90% of treatments in the market were TD and CVD treatments, with only 10% being PVD treatments. The customers clearly preferred to use TD and CVD. However, due to distortions, our suppliers that made the die actually decided they did not want to use CVD and TD. However, the customers wanted to, as without coatings they could not make stampings longer or shorter.

About 20 years ago, I worked in sales in Aichi prefecture here in Japan. Our customers were first and second tier companies for Toyota and Honda. At that time, we tried to switch from CVD to PVD for stamping die forging. From 2006 to 2009, I worked at SEAVAC USA in the sales department, as we had just started our operations there. We had a lot of customers that were Japanese-American companies. In Japan at that time, around 90% of our sales were from mold and die. The other 10% was cutting tools, which were mostly NS Tools. Almost 80% of our sales were from the automobile industry, with 10% of our sales coming from the medical industry. With regard to the medical industry, we sold compression dies that were used for tablets. They also required coating for lubricity. They needed the mold to be separated from the medical component to avoid things sticking.

In the US at the beginning, we mostly focused on cutting tools for an American company. Around 10 to 15% of our business there was mold and die, but that was for a Japanese company that used to be our customer in Japan. Right now, this is changing. However, the coronavirus did a lot of damage. The coronavirus was a really tough period for us in both Japan and the US.

Japan is changing. Right now, we are focusing on PVD coating. The temperature for PVD is only around 500 degrees Celsius. However, CVD TD is inside of the coat, while PVD is just on the coat.

PVD is not good for bonding. A lot of companies tried to shift from CVD to PVD. However, the bonding was not as good. Nowadays, the machines are changing. We also do recipes which we call parameters. Right now, PVD coatings are 90% of the coating that we do, with CVD TD coating only standing at 10%. This represents a huge change in the last 20 years. Three years ago, we had our 70^th anniversary. At that time, I decided to quit using CVD coating. The reasons for this were that it is very costly and it takes a long time. Our customers also give us the same feedback. The coating cycle is longer, which means lower efficiency and production. After the CVD coating is done, it needs to harden, which adds to the time. Also, there were distortion damage claims.

When it comes to PVD, some of its limitations are first, a high capital cost in regard to the equipment. As you mentioned before, there is also the issue of the bonding, and that it is sometimes difficult to coat undercoat areas. It also has a slower rate of deposition. What are some of the advantages of PVD in comparison to CVD?

The PVD is all done in one cycle. Due to the temperature only being 500 degrees Celsius, we do not need to harden anything. That means that it only takes one cycle of perhaps two days. The next day it is taken out.

CVD TD is only one kind of coating. TD is Vanadium Carbide. CVD is Titanium Carbide (TiC). However with PVD coating, if you change titanium, titanium aluminum or chrome for example, you see the color change because of the mixture used. It can do many types of chemical varieties. Also, PVD cycles are shorter when compared to CVD TD cycles. The cost of the equipment used for both PVD and CVD differs. Some of the machines cost over JPY 1 million. You also need to have a washer machine. While PVD and CVD make the same things, CVD machines are around JPY 500,000.

Right now, we also have our heat treatment business. About ten years ago, we sold our heat treatment equipment division to the heat treatment manufacturer Ipsen, which is an American company. They renamed it as Ipsen Japan. Some of our employees returned to our company after that. At that time, we had our coating business and we made coating machines. We also did some heat-treating processes. However right now, heat treatment counts for less than 10% of our sales, and we try to avoid price competition in that field. That was my thinking, as I want to avoid a red ocean.

When it comes to the mold and die business, right now there are a lot of companies in this industry. We appreciate hearing you say that you picked up SPVD ZERO-I coating. However, I try to avoid it. In the coating business, lots of big companies use their money to get a patent, but they then do not use it. However, they try not to block the market. I avoid doing this.

Right now, our sales are around JPY 1.6 billion. Before it was closer to JPY 2 billion. However, at the time of the Lehman Shock (the 2008 financial crisis), our sales were only JPY 800 million, which is around half of what our sales are today. Before that period, we had our heat-treating machine business with sales of around JPY 2 billion. Of course, the profit was less than this. We sold this business in 2008. Before selling, we had 150 people working here. After selling, this number was reduced to 70 people. Around two-thirds of the people are involved in the coating and heat treatment process. The rest of our people are involved in sales, administration and other relevant departments. They work in our offices.

At that time, the maximum annual PVD process sales were around JPY 1 billion. Right now, that figure has doubled. I spent three years working as a sales manager in the US. After the Lehman Shock, my father asked me to come back to Japan. He asked me to become the president. He explained everything to me. I thought that we were bankrupt. That was my first question. It was 19^th March 2009 when I returned to Japan. I remember that as my son’s birthday was the next day. At the time, I thought that the company would disappear. However, we borrowed around JPY 15 billion, and we had sales of JPY 800 million.

As I mentioned earlier, PVD has less bonding compared to CVD TD. However, on the surface, the adhesion is very good. Our company was competing against large companies that are in the top three or four of our field. However, ZERO-I is from our own recipe. The top companies may produce new coatings and new machines, but their technology is standardized. When it comes to our customers, we do the coating and then send it back to them. Some customers then ask us to change something. The big companies above us cannot change anything. However, we are able to change the recipe. We also have thousands of patterns and parameters. I realized however, that we did not have our own core technologies. That is what we are aiming for now.

We have been able to survive because we have the knowhow of the last 40 years. Titanium Nitride (TiN) coating is a very basic coating. However, it depends on the company. For example, if we are both going to make a curry, and there is meat and vegetables for us to share and choose from, even though we use the same ingredients, my curry will be different to your curry. They cannot be the same. In the past, a lot of customers asked why our TiN coating was a different color to the TiN coating of another company. Titanium itself is silver, and the TiN coating of the other company was silver. However, our TiN coating was gold. This is due to the processing in the PVD coating and the volume of nitride. If there is less nitride the color is going to be silver. This is the same when it comes to the vegetables and meats used in a curry. The recipes may be a little different. However, somebody developed each technology first. We just follow it.

In the last five years, I tried to shift to our own technology. Our coating chambers are similar to others. They are not original. We try to develop our own machines. However, other manufacturers' machines can stutter, like the XYZ because of the coal base. Our R&D does not have this problem. However, that is confidential, and our competitors do not know about it.

Right now, the automotive industry is going through a time of tremendous change, with the switch from combustion engines to EVs. However, one of the big changes that this is causing for manufacturers is a change in materials. How is your firm adapting to these changes in the automotive industry?

We are adapting to these changes at this moment. The PVD machines use the arc method. This refers to welding. Also, the other coating is sputtering, which was originally established in Europe many years ago. Right now, when we consider special steel, it should not be treated at over 500 degrees Celsius. Less than 500 degrees Celsius is fine. Aluminum stainless coatings should not be treated at higher temperatures. The sputtering can be lower. I wish that the coating would be better without heating, as the materials are changing. This may not be enough for automobiles or other things. I never said these comments before, so please be careful. We really are adapting right now. We are doing some testing right now but I cannot speak about it.

You mentioned before that automotives represented a very big share of your sales ratio, and that you are now trying to diversify. What sectors have you identified as key for that diversification?

We try to offer applications that other companies do not know about. That is my focus. I want us to have our own market, which our competitors do not know about. We have not been successful yet. However, that is what we are working on right now. I do not like price competition, so we are aiming to create unique applications for our customers. We are carrying out tests right now. However, they are confidential and I cannot disclose them.

Your company has had a presence in the US for quite some time, which was strengthened in 2004 when you opened a second office there. Could you tell us a little about the history of your firm in the US, and looking at the future, what are your expectations and strategies for the North American market?

I am the fifth president of our company. My grandfather was the founder, and my father was the second president. The third president was a senior executive, but not an actual family member. He was the president who established SEAVAC USA. He knew a guy that used to work for a first-tier company that were suppliers for Honda. The guy quit and came to work for SEAVAC USA. He could speak English, so he did the marketing for the company. He also worked in sales as he had connections with Honda and other companies. However, he passed away from cancer. There was nobody to fill his sales role.

At that time, SEAVAC US expected companies to do business with them. They set up plants. However, the companies said no. This was due to the two owners of two companies that worked together for sales and production. SEAVAC USA negotiated with the sales company XYZ. We needed the production as they were asking for coatings. Therefore, we set up plants over there. However, there were not a lot of customers. The marketing that was done was not sufficient to me. They asked companies how much they would pay for coatings per month. That was all they did, and that was clearly not good enough. The president of SEAVAC Japan became the president of SEAVAC USA. My father became the president of our company again. That was around the years 2004 and 2005. At that time, I was working as a sales manager in Aichi. However, it was a very competitive area to work in.

My father asked me to join SEAVAC USA as their sales were not very good. I joined in 2006. I was shocked, as I had heard that we had business with Honda and others. However, there was nothing. We had large chambers that were only being used for ten small pieces, for example. For three years, I myself drove around the US, especially in the Midwest. I visited 400 companies from many different states. When I visited these companies, I asked the receptionists if I could speak with the plant manager or the chief engineer for coatings or dies etc. In Japan, people introduce you to new companies, so this was quite different for me. However, our sales were not good in that period due in part to the Lehman Shock. Our break-even point was 60%. I was actually able to achieve that during my time there. However, after the Lehman Shock, I returned to Japan. Although I only spent three years at SEAVAC USA, I felt that the business could be successful.

When I became the president here in Japan, I could not do anything for SEAVAC USA, as at that time I did not have a person that I felt I could trust. However, right now we do. The sales manager at SEAVAC USA used to be the president for another Japanese company in the US. Our operations there improved a lot. However, then the coronavirus pandemic occurred. While there were issues over the years, I believe that we do have a chance to be successful. Even though the bank and one of our shareholders asked for us to delist, I refused, as I believe that we still have a chance. Our sales manager there actually started doing business with Japanese companies that work with Toyota in San Antonio, Texas. He also got some business from some other big Japanese companies in the US . These Japanese customers are doing business with us both here in Japan and in the US.

SEAVAC USA also borrowed from SEAVAC Japan to cover its losses. The bank told us to quit the business and return to Japan. However, if we lose the business in the US, then we could lose the business in Japan too, as we would lose those annual sales. We are negotiating with a potential partner right now.

The North American market is a very big market with a lot of potential. It is also important to me personally, as I did sales over there.

You just mentioned that you believe in the potential of that market. Looking at the future, are you looking for similar partnerships or collaboration opportunities, and if so, what does a good partner look like for you?

The company that we are negotiating with right now could be a good potential partner, as they could also be our customer here in Japan too. Their agent is a shosha (a Japanese trading company), so they have many contacts, which may give us an opportunity to enter a new field. The company is a really big name in the field. But this is all confidential.

Beyond the US, are there other international markets that you would be interested in exporting to or selling your services to?

That is a very good question, and one that is hard to answer, as it is something that we are currently doing. About two weeks ago, I was in Thailand. We are looking at the Southeast Asian market. Some years ago, we wanted to target that market. However, it was not possible as we needed to focus on improving our business in the US. We are looking at marketing in that region now, but it will take at least one year. We also have a partnership there, which we did not have in the US. However, this is also confidential.

One of our guys used to work for Ipsen and has experience working in sales in Southeast Asia. After he left Ipsen, he came back to our company. He had made a lot of connections in the region, and spoke with a company from Thailand about cooperating together. We are currently at the marketing stage right now.

You decided to persist in the US as you know that market has huge potential and you personally did sales there for some years. What have you identified as your company’s unique selling point? What can you offer to local customers in the US? What is the difference between your company and your competitors there?

My honest feeling when I was a salesman was that our competitors’ salesmen in the US were not real salesmen. They do not see things from the actual customer’s perspective. They are only interested in selling their product. In Japan our salesmen work together with the customers to provide exactly what the customer is looking for. They give the customers advice and give them options. I want to be on the side of the customers. That is a good part of Japanese culture. We respect the customers. I studied in the US for eight years, so I understand the culture there. Even though the customers may be American, they prefer the Japanese way of sales. They understand that we think about their needs and try to find ways to solve any problems. I myself always asked the customers if they had any problems and made sure to check that they were satisfied with our services. This is important when doing business in the US.

Your company will be celebrating its 80^th year anniversary in 2029. If we were to return on that day, is there a personal goal or ambition that you would like to have achieved by then that you would like to share with us in an interview?

When I became president in 2010 after the Lehman Shock, I changed the organization and the rules of the company. I wanted the company to be able to continue as it was even if I was no longer the president. I want to continue learning more myself. As a decision maker, it is necessary to improve your knowledge and experience. By improving myself, I can improve the company. The changes that I made during the coronavirus period have also improved this company. I meet with lots of different people in different areas. That helps me to understand their knowledge and build connections.

I am 53 this year. My wife asked me when I was going to finish my career and step down as president. I told my wife that maybe I would continue until I am 65. That means that I have less than 15 years left in this position. When I step down as president, I will pass this company to the next generation. I want our directors and chiefs to think for themselves and find ways to improve the company, as it will be passed on to them in the future. I want them to have a long-term view. In 2049, for our 100^th year anniversary, I will be 80 years old. Even though I will not be the president, I want to see a strong and prosperous company at that time.

Right now, I am focusing on the next 12 years before I am 65. That is my focus. I learned from my father at the time of the Lehman Shock. I came back from the US and became a Senior Executive. Everything was really stressful, but you need to remain positive. Do not listen to criticism as it is not productive.