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Revitalizing Japan's SME manufacturers

Interview - December 29, 2023

Takumido is committed to revitalizing traditions, fostering expertise, and building a brighter future.

MITSUNORI SUWA, REPRESENTATIVE DIRECTOR & PRESIDENT OF TAKUMIDO CO., LTD.
MITSUNORI SUWA | REPRESENTATIVE DIRECTOR & PRESIDENT OF TAKUMIDO CO., LTD.

Can you provide a brief overview of your company?

Takumido, as a company, is dedicated to revitalizing and rejuvenating small and medium-sized enterprises (SMEs), particularly those with established but struggling business models in the manufacturing sector. These businesses may have amassed a wealth of craftsmanship over the years, but they face significant challenges such as an aging workforce and difficulties finding successors. Some have even been forced to close not only due to financial hardships but also due to not finding enough workforce and/or successors. Nevertheless, we firmly believe that the Japanese tradition of craftsmanship continues to thrive and holds immense value on the global stage.

I agree that this is true, given my own experience of doing business in Myanmar. Even internationally, Japanese manufacturing values are something to be preserved, given their great appeal for their exceptional quality, meticulous production processes, and punctual delivery.  One of the major values and missions of our company is to leverage these strengths to drive and revitalize these struggling businesses.

All the companies we work with are SMEs, often lacking public listing and struggling with limited financial resources. However, they possess significant strengths and capabilities, especially in manufacturing. They simply lack the financial support to sustain their operations. Our objective is to extend a helping hand, fostering a spirit of mutual support and allowing these companies' wisdom and strengths to shine. Through such collaborative efforts, we aim to establish a robust and supportive network for all participating companies.

Financial constraints also hinder SMEs from independently handling functions like marketing, PR, and supply chain management. We aim to consolidate these functions into a unified team, enabling them to cover everything more effectively as a platform. One company can be really good at financing or marketing, but it may be lacking in other areas. Each company can contribute its expertise, and any weaknesses can be compensated by others.

For example, one of our group companies, Pluseeds, has a unique and strong plastic molding technology that attracts major cosmetic companies for their containers. However, Pluseeds does not have enough marketing resources internally. Takumido offers marketing support to Pluseeds and another group company, Hartwell, which has good PR expertise, offers Pluseeds PR support for their trade show exhibition and press release.

Japanese companies conduct business in Asia with a strong client-first mentality, often going above and beyond, even at their own expense, to provide exceptional services and maintain a trustworthy monozukuri reputation. This commitment is a strength we can harness through our company. While these companies may incur significant costs and investments without immediate returns, our support allows them to realize returns in the future. Generally, Japanese SMEs are not good at making enough profit. We believe that our support will differentiate our companies from many other Japanese SMEs.

 

Japan’s aging population leads to two main issues: a labor force shortage and a shrinking domestic market. What is Takumido’s core strength to promote and appeal to its prospective clients domestically and internationally? How much do you rely on overseas to make a business successful?

The aging of highly skilled engineers and craftsmen presents a significant challenge in transferring essential skills and trade know-how. In Japan, the retirement age is currently set at 65. However, considering the evolving demographics toward a society with more centenarians, we believe it's imperative to reconsider this framework to enable more individuals to continue working beyond the age of 65 if they wish to do so. This approach not only allows older workers to find joy in their work and life but also fosters a sense of usefulness in society.

Under this revised framework, elderly workers wouldn’t necessarily need to work full-time every day. They could contribute two to three days, even a day a week at their choice, primarily focusing on transmitting their valuable skills to the younger generation. This approach helps address the pressing issue of a shrinking workforce and population. While this challenge is addressed by recruiting more foreign staff, our approach emphasizes enabling skilled elderly workers to continue their contributions.

At the core of the Takumido Group’s mission is the spirit of mutual support. Depending on the circumstances, one company within the group may face a lack of human resources, while another may have an excess labor force. We have practical experience in transferring labor within the group, which is not only simple task labor but can also be a complex task. By operating as a group of companies, we have successfully moved personnel from one company (Company A) to another (Company B) for fixed terms when needed. This unique characteristic of the Takumido Group allows us to efficiently address labor shortages within the group and optimize resource allocation, ultimately benefiting all member companies.

 

How do they manage to have the right qualifications to do the job, considering that each company has unique machines and processes? How do you transfer the qualities and skills to the personnel, even if it's only for a short amount of time?

It's important to acknowledge that this approach may not be universally applicable to highly specialized technologies or craftsmanship. Even if the industries differ, some functions or technologies can be similar. In the beginning, we didn't expect that one person could be transferred to another company that does something completely different. However, the element or essence of their work can be transferable. It's worth noting that this approach is not a one-size-fits-all solution but rather a case-by-case evaluation.

 

Digital transformation can be an effective tool in transferring knowledge and making technology simpler. Is this something you help smaller companies to reach, and do you help your companies transform themselves and make the legacy easier to share with the newer workforce?

Not quite yet but we are looking to capitalize on the strength of Mr. Masuda in IT, particularly cryptocurrency, and creating dynamics with different technologies.

This doesn’t mean we will be transforming this company into a web3 company on the spot. I do have experience in standard IT management, and Mr. Shimoda, another executive officer responsible for supply chain management, also boasts a strong technical background. Together, we are actively working on developing a new IT system to support the group's activities.

We started working on establishing the IT infrastructure, particularly in the context of sales and marketing management. Our primary goal is to gather and visualize data to enhance everyone’s understanding of the company’s direction and performance. This initial step is crucial in the journey toward digital transformation.

We intend to take one step at a time. We’ll begin with areas such as sales and marketing, followed by supply chain management, production control, and so forth. Ultimately, our DX (Digital Transformation) vision entails creating a unified IT infrastructure that covers overall company activities including sales and marketing, inventory management, etc. While each of our portfolio company’s business is different from each other, many of the KPI requirements in each function such as sales and marketing are very similar and can be standardized. These encompass details like the frequency of client interactions by the sales team or website traffic metrics. We plan to centralize all this information into a single data warehouse, allowing us to access all management metrics from one centralized location.

We are committed to sharing each group company’s progress and approach with other group companies, as this can serve as an inspiration for other companies to improve and strengthen their own activities.

 

Over the last decades, there's been a rise of new manufacturers from countries like China, Taiwan and South Korea who have duplicated the Japanese model but at a cheaper cost and quality, pushing Japan to move to B2B and niche fields. In this context, what are the core strengths of Takumido to appeal to your foreign customers?

One of our strengths that is gaining momentum is "Collaboration within Takumido Group”. To take an example, is the collaboration between Nippon Engineering and Pronec Thai. Nippon Engineering is a packaging machinery manufacturer which only has a domestic sales channel. Pronec Thai is a coil manufacturer located in Thailand. While Pronec Thai’s core business is coil manufacturing, it also has some engineers specializing in mechanical engineering. This allows Pronec Thai to become a South-east Asian distributor and maintenance support provider of Nippon Engineering.

Nippon Engineering, with its limited staff of only 20 members and a few proficient English speakers, faced challenges in expanding overseas independently. However, with the assistance of Takumido Group, they can now venture beyond Japan's borders.

While China and other countries excel in cheap mass production, Japan's strength lies in producing cutting-edge niche products. However, small companies that are outstanding in creating unique niche products often lack the resources to scale their operations. That's where our support comes in, enabling them to expand not only within Japan but also overseas. Our concept revolves around uniqueness, cutting-edge niche products and enterprise-level management. For instance, consider Nippon Dryer. To our knowledge, there are only a handful of companies worldwide, maybe three or four, capable of producing industrial or specialized dryers. Given this unique expertise, we aim to assist them in expanding their presence outside Japan.

While China and other countries excel in cheap mass production, Japan's strength lies in producing cutting-edge niche products. However, small companies that are outstanding in creating unique niche products often lack the resources to scale their operations. That's where our support comes in, enabling them to expand not only within Japan but also overseas. Our concept revolves around uniqueness, cutting-edge niche products, and enterprise-level management.



As you are looking to go overseas, are you focusing on specific markets or locations, or are you open to expanding to any region like the US, Europe, or Asia? Can you tell us more about your international expansion strategy?

We are focused on optimizing our limited resources, and one of our key strategies is to leverage our factories in the Philippines and Thailand as central hubs for expanding our presence in Asia. These facilities play a vital role in our operations, and the components we manufacture find their way into various countries and industries.

One notable example is a collaboration plan between Pronec Thai (PRT), a coil and coil winding machine manufacturer, and Nihon Engineering Service (NES), a packaging automation machine manufacturer. NES is growing steadily and has a strong desire to expand globally while facing a manufacturing resource capacity problem. On the other hand, PRT has plenty of resources in Thailand including machinery engineers who have transferrable engineering skills for packaging machines. Thus, these two companies are planning a collaboration effort for NES’s global expansion using PRT resources in Thailand.

 

Are you trying to establish partnerships to get to these new markets? What would be your vision about partnerships, and what would make a partner of choice in your vision? Do you want to expand through partnerships, not only focusing on your resources but also your partner's resources and marketing capabilities?

We have established collaborations with individual companies, such as Nippon Engineering Service, a manufacturer of packaging machinery, and an Israeli company specializing in automatic counting machines that employ 3D cameras. However, our primary focus remains on consolidating and strengthening our core operations at our headquarters.

Strategically, we are currently in the early stages of our partnerships, with a primary emphasis on bolstering our domestic presence. Our objective is to provide comprehensive support in areas where there may be gaps, building robust domestic functions, including marketing, distribution, and sales channels. Through these efforts, we aim to establish a stable foundation within our domestic market, naturally enabling us to capitalize on emerging partnerships.

 

Can you give us more insight into what is so unique about your company that could make other companies interested in being acquired by you going further? How will you assure these SMEs that you will bring them success when acquiring them? What is your key advantage to make them successful afterward?

The first of the 10 key values of Takumido Group, which also happens to be my personal motto that I consistently emphasize, is the importance of finding joy in one's work, as it is the key to continuity. Our approach in this regard is truly distinctive and sets us apart.

 

How do you identify specific companies that match what you are looking for as a platformer? What do you look for in a company?

The special connections among the people involved have been instrumental in building our relationships.

Our concept may differ slightly from other investment companies, as we allow for organic exploration of funding or partnerships with us. Unlike typical private equity funds, we don't prioritize short-term profits, creating an enjoyable environment. Our intention is to maintain these relationships indefinitely, as we have no plans to sell them. We can commit to the long-term growth of the company.  Additionally, we aim to serve as the headquarters for each company, allowing them to focus on their core operations while we manage other aspects. That concept may put us in a unique position to welcome new companies.

 

Considering you tackle a wide range of industries, which one do you reckon would have the most growth potential? Will you plan to maybe gather some of these companies under one banner at some point?

Our approach is rooted in the idea of becoming a platform that welcomes struggling small and medium-sized companies, often facing challenges like finding a successor or financial constraints. We view ourselves as a serving platter, rather than solely seeking areas of maximum profit. When we consider new companies to join our platform, our primary focus is on whether we can help remove their specific constraints and enhance their value. This criterion guides our investment decisions, rather than simply selecting areas for profit maximization. That’s not our way of thinking.

Our primary focus moving forward is on enhancing various functionalities, including Sales & Marketing, Supply Chain Management, Finance and Admin, IT, etc., by leveraging the "Takumido Platform." Many very small companies lack dedicated specialists in specific functional areas, which can limit their growth potential. Our approach involves providing customized support tailored to their unique needs, enabling them to address their weaknesses in a particular area.

 

When you provide support to these companies, you also buy some shares. The corporate profile of each company shows that Takumido is technically the major shareholder. How does this business model work?  

Currently, we own 100% of our group companies. However, there may be another way of collaboration between Takumido and SMEs. We aim to leverage the experience and knowledge we accumulate from managing our portfolio of companies to offer our “headquarters as a service” to SMEs even without acquiring 100% of their shares. This approach can provide target companies with a deeper understanding of Takumido while receiving our “service”, potentially leading to their decision to become part of our group eventually.

 

If one is not an SME but needs support, how will Takumido be able to provide support while making it sustainable for both companies?

As a group, we are actively developing a service center designed to centralize financing and general administrative functions. This center will serve all companies within our group, functioning much like a headquarters. This approach not only streamlines operations but also provides benefits to the previous owners of portfolio companies. Founders typically prefer to focus on their core business rather than managing administrative tasks, making this aspect a valuable selling point for us.

We are also in the process of implementing group financing solutions. With this approach, individual group companies won't need to navigate their own financing needs independently, as the headquarters will oversee and manage the financing aspects. This initiative is still a work in progress.

 

What motivated you to start this company?

The previous management of this company was in trouble, and the former management team couldn't handle the company. Mr. Suwa and our team replaced them.  

 

Why did you make the transition from YWM to Takumido, and what strength did you bring in with the change of name? How much did you integrate from the previous management into the new one?  

Initially, our approach involved acquiring struggling companies, but we recognized that acquisition alone doesn't guarantee success. We needed to add specific functions to improve their operations. To achieve this, we assembled a specialized team with diverse strengths, wisdom, knowledge, skill sets, and backgrounds. This team plays a crucial role in identifying and rectifying areas that require improvement within each acquired company.

We don't seek to blame the previous management; rather, we acknowledge that their team was often limited in experience compared to our dedicated service team.

The concept of becoming the headquarters for each company revolves around its ability to produce quality products, but success as a company requires more than that. There are other important things we need to do as the headquarters or shareholder, like really stepping in and even taking certain functions from the company so that they can focus on core things. YWM was more like a financial investment company, and it wasn't able to prepare enough resources to work on a turnaround of itself.

Turning around SMEs is an incredibly challenging and time-consuming task. Our goal is to create a platform that assumes various functions across the group, enabling each person/team to concentrate on a single function for the entire group. That's probably the transition from the previous company to the current company.

While financing often involves finding solutions using intellect, the manufacturing sector requires much more, including craftsmanship and manpower, especially in the context of SMEs. From the IT industry's perspective, money is made on PCs, but in manufacturing, we think it's the sweat and hard work that generate profits.

In terms of sales and marketing, I took a hands-on approach to understanding the operations. Even with a sales team in place, the company's sales were stagnant. I asked them how many clients they visited daily, and their response was nearly zero. They claimed that they were super busy. However, I thought, if the company wasn't making money, how could they be busy? It didn't make sense. I  looked at their schedules, categorized the unknown sales work, and transferred it to someone else to carve out some time for each salesperson. As we expanded available time, we deployed more people to do sales, from which we determined the number of visits, meetings, and deals that were made. Consequently, we give feedback on the KPIs, which most companies did not implement before. That's the work we needed to do.

Our office may not be as lavish as some of the offices you've visited because we prioritize manufacturing over elaborate office spaces. As a manufacturing company with a revenue of JPY 6 billion, we don't feel the need to allocate excessive resources to office aesthetics. In the manufacturing sector, investing in lavish headquarters or office spaces often leads to financial instability and bankruptcy. Our focus remains on the core of our business, which is manufacturing, not on paperwork.

 

Do you plan to acquire other companies overseas to strengthen your group and boost your domestic and ultimately your overseas sales?

Takumido's core mission revolves around strengthening the Japanese manufacturing sector and promoting Japanese craftsmanship both domestically and internationally. From this perspective, our identity will always be based in Japan, with a primary focus on enhancing the craftsmanship of Japanese manufacturers.

Our strategic approach involves seeking companies that have a connection to Japan, either as subsidiaries or through other meaningful ties. Pronec Thailand, for example, was a subsidiary of a Japanese company, and Bigmate had connections to Otomo. This strategy of aligning with companies associated with Japan will continue to guide our future endeavors.

 

Imagine we come back in four years for your 10th anniversary and have this interview all over again. What would you like to tell us? What are your dreams for this company, and what goals would you like to accomplish over the next four years to come?

As we approach our 10th-year anniversary, we remain committed to our growth journey. Our aim is to continue strengthening various functions of our organization, including our marketing and sales capabilities, financial expertise and our role as the headquarters for companies within our group. Additionally, we have plans to optimize our factory functions, utilizing a site equivalent to two soccer fields. Our vision includes establishing a Takumido manufacturing hub and an R&D hub that seamlessly integrates these functions. Despite being a small to mid-sized company, our goal is to stand firm with substantial growth potential and an expanding workforce.

Rather than making substantial investments in office spaces, our focus is on investing in well-optimized factory spaces that enhance the manufacturing efficiency of the companies within our group, with the potential integration of AI technology.

If there are those who share our vision and philosophy globally, we’ll gladly want to hear from them and enjoy working together. 

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