Adding technical expertise to a management philosophy of togetherness, trust and collaboration between employees, moves all aspects in the right direction, and a hidden champion emerges
Over the past 25-30 years Japan has seen a rise in regional manufacturing competitors from countries like China, Taiwan, and Korea, who have replicated Japanese manufacturing processes, but done so at a cheaper labor cost, thus pushing Japan out of certain markets. However, we still see Japanese firms as leaders in niche B2B fields. How have Japanese manufacturers maintained their leadership despite the stiff price competition and what do you believe are the key strengths of Japanese firms?
We should start by telling you our story. Sanshin had been producing cathode-ray tube
(CRT) until around 2003, so basically 30 years of production. There used to be around 100 people working here over three production lines. Sales were around JPY 150 million per month and 70% of those sales were coming from CRT components. That was 20 years ago now though, and back then the JPY was pretty strong. If I remember correctly the peak was around 1995 with the JPY riding at about JPY 79 to USD 1.
Naturally, all major companies in Japan such as Hitachi, Panasonic, Toshiba, and Sony started moving outside of Japan. That meant less business for CRT solutions. The sales dropped drastically over a short period of just 3 years, reaching a level of around 30% of what it used to be. The shift started taking place around 1995 and eventually culminated in 2003. At first, Sanshin tried to cope by branching out to Thailand and moving our CRT business there, but that was not enough. Finally, in 2003 We decided to close one of our main factories in Japan.
You asked about the strengths of Japanese manufacturers, and I actually think that in some cases perhaps Japanese products are over-engineered. Competing products from Taiwan, China, or South Korea may not have the highest quality but they are often good enough, and that is why they are enjoying a higher market share. What we can say however is that here at Sanshin what we always try to do is maintain a good balance between the QCD elements; those being quality, cost, and delivery.
Whenever I talk with my clients that are mass production companies, they always demand higher specs. From my side it might seem as if this isn’t always necessary, so I try to communicate this to my clients. Basically, we try to explain that if the client really wants too high spec products, then the production costs are going to increase to compensate for the increased quality. If the client can accept a slightly lower specification at a lower cost, then that is great because we would really like those clients to understand that cost and quality are a balancing act. We’ve learned from our regional competitors who understand that good enough can sometimes be superior. I believe that by taking full advantage of the development capabilities of Japanese companies and designing with a balance of QCD, we will continue to see products that are acceptable to the market at reasonable costs.
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?
I’m not so sure that analysis is correct for the entire industry of Japan. Even with a weaker JPY, it won’t be enough to draw back manufacturing operations to Japan. Sanshin already has its own Thai operation and there are no intentions of bringing that back to Japan for various reasons. I personally believe that local products should be produced and consumed in local markets. Even with this weak JPY situation, it isn’t going to directly benefit manufacturing in Japan.
On the other hand, I’m more optimistic about Japanese firms making headway in overseas markets like Southeast Asia where a number of large firms have already established their presence. We are also tied to the region with our Thai operation. I believe that Japanese companies still have a competitive edge on the manufacturing management side of the operation if not the R&D side. Consistency and standardization are two key qualities, but consistency means maintaining stable operations and overall quality. The output should not fluctuate too much, and rises and falls are not acceptable. Sanshin has always strived to help local operations understand how important standardization is to production. In light of this, Japanese companies that are consistent in quality and business practices and can be trusted will continue to be needed in the global supply chain.
We know that you opened your Thailand factory in 1996. How do you ensure that the level of quality is the same as that of Japan? Can you tell us a little more about your quality management activities in Thailand?
I believe that quality is the lifeblood of a company. However, when I was first transferred to Thailand, our company was suffering from many quality problems. At that time, the average length of service of our Thai staff was less than three years, and it was no exaggeration to say that all of them were newcomers. The first thing we tried to do was to standardize the work. We prepared an operation standard (Operation Standard) for all the items we were producing, which was easy to understand for anyone to see, using lots of pictures and illustrations. It took about a year to complete the work, but the operation standard documents greatly reduced human errors. At the same time, we promoted improvement activities and small group activities. In improvement activities, an improvement proposal commendation system was established, and a system was introduced whereby the president and other executives would visit the work site to receive explanations from the workers who made the proposals and evaluate them on the spot for outstanding improvements. Employees are increasingly motivated to make improvements, and currently more than 2,000 improvement proposals are submitted each year. Approximately 50% of these cases are related to quality improvement. In small group activities, nine teams are organized each year. The leaders of the top three teams win the right to participate in the final tournament of small group activity presentations held in Japan every three years. Many employees actively participate in these activities. There have been many examples of quality improvement in small group activities, which have contributed to the improvement of quality in our Thai factory. People in tropical countries, including Thailand, love to have fun. We believe that it is necessary in Thailand, including quality improvement, to think about how we can enjoy our work while doing it, not out of a sense of obligation. I believe that the key to success overseas is not to follow the Japanese style that we have cultivated, but to understand the culture and nature of the people in each country and adjust accordingly.
There are a lot of metal processing and manufacturing companies in Japan and overseas. What makes Sanshin different? What are the competitive advantages that set you apart from your competition?
I believe that our company has two main advantages. The first is in our quality management, production management, and high management capability. We have a four-tier meeting system (daily, weekly, monthly, and quarter meetings), which allows us to immediately gather live information from the field and take countermeasures through daily meetings. At the weekly and monthly meetings, major issues are followed up and recurrence prevention measures are thoroughly implemented. Follow-up on the mid-term management plan is conducted at the quarter meetings. We are proud of the fact that we have built a management system that is unrivaled by any other company by operating a three-level meeting system for many years.
The second point is teamwork across departments. For the past seven years, we have had an organizational structure without a plant manager. I (the president) and five other managers from each department (sales, quality engineering, manufacturing, and production control) have formed a management team. The concept of the management team is that everyone is a factory manager. The idea was to eliminate sectionalism and to give top priority to the company's interests. As a result, the managers of each department became more active in their interactions with each other, and in proportion to this, the cooperation among their subordinates deepened, and the walls between departments were broken down. I feel that these two points are the greatest strengths of our company. In addition, through these activities, production has become more efficient and automated, and we have developed our own unique processing methods, which I believe has led to the improvement of our technological capabilities.
During our research, we saw that your products are used for a variety of applications. Looking at the future, what applications will you prioritize for future growth?
We have our stamping operation for automotive applications, our components operation, and our audio parts operation. In Thailand, we would like to move over from stamping and pressing to sheet metal work. This also means moving from mass production to smaller volumes, basically high-mix-low-volume lots. However, despite this, our stamping business will still stay. The reason for this change is that we opened a sheet metal facility in Thailand in 2015. This is in line with typical growth patterns in developing markets.
The Thai government gives out various incentives for all overseas operations to come and start businesses there. The first thing many foreign employees do is earn money to buy things like motorbikes. Then they earn more money and start buying things like automobiles or houses. This creates traffic congestion, especially in urban centers. The more urban planning and renovation projects, the more there is a need for sheet metal work. The introduction of transportation like buses, trams, and trains means more sheet metal, which in turn means more opportunities for companies like ourselves. We foresaw this trend, so the question wasn’t “if,” but rather “when.”
We actually started work on new facilities in 2011, but as you might know, that was the year of terrible flooding across the country. We lost a lot of machinery and the resulting damage cost the company around JPY 1 billion. It took us almost 4 years to get back on our feet, but finally, the sheet metal facility opened in 2015, which in hindsight may have been the best possible time. Over the past 7 years, our business with sheet metal has increased ten-fold.
Recently we added a painting line to our production, so now we are able to handle everything including blanking bending welding painting and subassembly. All of these processes for sheet metal can be handled at the same place. The next target is to create an assembly line for final products rather than just providing components. The facilities are actually ready to start building and shipping final products.
Are you planning on replicating this model for success in other markets? Is the company interested in using partnerships or M&As overseas as a way of expanding its presence abroad?
The company mantra is to trust each other, help each other, and be happy together. The place is actually already filled now and there is no more room for expansion. I’ve already acquired the next space for building a new facility in Thailand. It is actually only a 5-minute drive from the other facility. The plot for factories number 1 and 2 combined is approximately 32,000 square meters, and the new plot is also about half that size, 16,000 square meters.
Now that the team of Japanese and Thai managers has around 20 years of experience
under their belt in Thailand, they are now the leaders of the local management there.
We would like to use up all of our newly owned land in the future and they would like to work in a new location (overseas). We are willing to consider a third base after Thailand if they are willing to cooperate with us in our overseas business. India, Mexico, Africa....
You’ve secured a new plot of land for a new factory. What is the target of this new factory? Why did you decide that now was the opportune time to enhance production?
It is mostly for expanding our metalwork and processing capabilities. The current facility will be overwhelmed in the next 12 months.
Are most of your clients for sheet metal work located in Thailand or do you export back to Japan?
It is 100% local business with all of our clients being in Thailand. However, many of our customers export parts and finished products to Japan and other countries. Although the recent depreciation of the yen has made exports to Japan much tougher, we are still working with our customers to help them to export their products to other countries.
In 2025 your company will celebrate its 80th anniversary, a big landmark for the company. What goal would you like to achieve before that big 80th anniversary?
For the past 20 years, I’ve spent half of my time in Thailand and half of my time in Japan. I have been so busy that the 80th anniversary slipped my mind. Looking back, I feel that the greatest turning point for our company was the numerous efforts made in the revitalization of our Thai factory. As we approach our 80th anniversary, we would like to look back and confirm the reforms we have made over the past 20 years. We will then organize our minds and look toward our upcoming 100th anniversary and continue to pursue our management policy of "Growth and success with our employees" and "Happy employees" for the next 20 years. I would like to continue to think about how we can further promote Happy Together Management, a management policy that encourages employee participation.