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Sansho: The bridge between raw materials and manufacturers seeking cutting-edge innovation

Interview - October 28, 2022

By combining their R&D with warehouse capabilities, Sansho is a technology trading company able to support customers from numerous industries in their development of advanced products and solutions.

ATSUSHI KARAKAWA, PRESIDENT OF SANSHO CO., LTD
ATSUSHI KARAKAWA | PRESIDENT OF SANSHO CO., LTD

Sogo shosha such as Mitsui, Mitsubishi and Marubeni dominated Japanese interactions with the world in the 1980s and 1990s. In 1992 the market crashed, and many of these companies were seen as superfluous and no longer needed. Yet today we still see more than 9000 smaller shosha firms existing here in Japan and playing a very important role. As a specialized technology trading company could you tell us how you're bridging the gap between manufacturers and the end-user?

It is true that in the past the sogo shosha took leadership here in the domestic market in Japan. They were trading a lot of commodities and introducing a lot of Japan’s unique products to the world. The role of these big conglomerates, however, has slowly faded away. We believe that our company plays a very important role for manufacturing industries in Japan because we are mainly dealing with functional materials.

When we describe Japan, it is widely known as a country that lacks resources. Big companies such as those sogo shoshas needed to bring those kinds of products to Japan. We are no different, and Sansho has taken on the role of a trading house, but we are not dealing with primary materials such as crude oil or wheat. We deal more in functional materials such as additives for various industries. These are mainly polysaccharides of natural origin like pectin, guar gum, locust beam gum, xanthan gum, starch and so on. In addition, we deal fiber material, nonwoven, high performance papers, functional plastic material like film or net. We feel that we fill an important role not only in bringing these products to Japan but also vice versa, bringing high quality Japanese products to the global market.

Customers can often be demanding, needing products that we supply as soon as possible. It is for this reason that it is important to have a trade house with actual warehouses that can comply with the demands of customers. We also take on the role of an intermediary, coordinating with supplier and user, and being able to provide detailed information about any product we stock. I think it makes a good combination, the ability to provide information to the customer and to operate as a trading house for that customer too. Especially, our technical support is highly evaluated by both of the supplier and user. Customers demand transparency, to understand what they are buying. All things combined, these are the major roles that Sansho is playing.

 

The latest predictions have the population of Japan dropping to under 100 million by 2060. You’ve mentioned in your presidential message how the domestic market is becoming saturated and there’s a need for reorganization in order to survive. Can you explain what this reorganization means and how your company is reacting to these population changes?

The population is decreasing, as you mentioned, however, we see that the markets for elderly-oriented products are growing. Adult diapers and softer food for the elderly are examples of products that have domestically seen some growth in recent years. Many manufacturers in Japan are looking to develop these kinds of products. Our customers have requested that we search for the raw materials and additives for these kinds of products. Important thing is we need to continuously reorganize our dealing product line to match market needs. This fits right in with the aims of the company, this is the kind of thing we want to do.

 

Do you see this as an opportunity for Japanese trading firms, the fact that Japan is the first nation in the world to have this super-aged population?

It is very important to have your antenna out and understand what the customers might be wanting in the near future. Having so many raw materials in our stock, the number one function of such a trade house is to sell as much as possible. However, in our situation, it is the opposite. We tend to believe that first we must read the minds of our customers and understand what the market demands might be in the near future. We are almost selling our R&D capabilities to our customers.

To give an example, take pectin, an almost magical additive that is used widely in many products. The pectin can be used for gelling agent of fruit jam and can be used for stabilizer of yoghurt drink. If you take the medical field, with Japan’s aging population already here we are finding large numbers of people only being able to eat food in liquid forms. One pharmaceutical company had an idea to apply pectin on their new evolutionary product to give new functionality for their liquid food. We cannot disclose in detail, but they finally could success to develop new liquid food product by collaborating with us.

 

Are you looking to pursue more of these co-creation-type encounters or projects, especially with overseas partners?

Well, it is not something new for us. The conference room we are having this interview in is our research laboratory, which we built for this particular reason. These kinds of co-creation projects with customers are already underway, and the company will be escalating these in the near future.

 

Russia’s military invasion of Ukraine has seen huge disruptions to world supply chains. To add to that, COVID-19 had a huge impact too, China is experiencing lockdowns, and the JPY is rapidly depreciating. All of these macro factors must be affecting your business. How have you adapted your product lineups and sales strategies to these world events?

To answer this question in just one sentence: we were relatively lucky. Of course, there are so many troubles happening right now on a global scale. We increased the inventory level of our products  we keep in our warehouse here in Japan because we understood to some extent how crucial this would be for our loyal customers. For this reason, we increased our stock at the very start of COVID-19, packing it with as much as we could. We dealt with a lot of domestic customers, and they started to worry, so in order to erase their frustrations and calm them down, we increased that warehouse's raw materials store. That gave us a step ahead and allowed us to have a steady supply for our customers.

I believe that one of the factors for our luckiness is we are selling to various industry.

This difficult situation is not affected all of the industry, some of them are not good and some of them are good.

The things happening right now are quite unexpected, and the Russian situation might cause problems with shipping. Airplanes are not flying across Russia, and container shipping is often late. Rapid JPY depreciating is we cannot control at all. This situation is frustrating, but if you take everything besides this, we are very lucky to have not been less affected.



Sansho imports, exports and sells a lot of different products. You sell products for the pharmaceutical industry, the food industry, the papermaking, industrial foods and functional food industries too. Could you give us an insight into which particular products are your specialty or main focus? What synergies have you been able to create between your different product lineups?

The food industry is one of our focus and pectin is a key product for us. We cannot buy domestic pectin, because only overseas companies are producing it. Pectin can be used in food, as well as in pharmaceuticals and cosmetics. Guar gum is another key product, and it gives very high viscosity to water. Of course, It can be used for food and non-food, but it can be used for papermaking.

 In fact, it can be chemically modified to be used in shampoos and hair conditioners. It is cheap, yet versatile and can be applied to many different products.

Plastic nets are getting big business right now as a liquid filter supporting material. Liquid filter is widely used in semiconductor manufacturing. That production is widely using filters made of these plastic nets. It's not just for filtering liquid, it is more sophisticated than that. When producing semiconductors, you have to fit strict requirements and filter out impurities. I guess you could say that this plastic material is also a bit more sophisticated. We were put into this opportunity by the COVID-19 situation, and a necessity was created. We know that worldwide there is a shortage of semiconductors, and this industry is demanding a lot of products.

 

We are seeing regional pushes worldwide to increase semiconductor production, here in Japan Sony will open a new plant in Kumamoto. Do you see opportunities in this semiconductor field for your company?

We are definitely optimistic, but this is not an area we have expertise in right now. Obviously, we are very keen to see how this industry changes in the near future. We are not a tier-one supplier for semiconductor manufacturing, we supply filter supporting material to the companies that do the filter manufacturing for semiconductor manufacturing. The need for these functional materials might be coming in the future and we are looking objectively toward that.

 

Japan is famous for its level of spending in R&D, up to 3.5% of the annual GDP goes towards this. It is often private enterprises such as Sansho that contribute the most towards this budget. Can you tell us about the R&D aspect of your business, and how it helps you to create value for your clients?

The function of having R&D on the premises is changing from time to time. I would like to highlight two reasons here today. The first is for quality control (QC) reasons. When the products we import  arrives here in Japan, it must be checked before being supplied to customers. Customers of course have their own QC departments but imagine if a product that we deliver has issues when a customer checks it. It would be disastrous and not something we would like to experience. For that reason, an R&D center was very important, and key in assuring quality to our clients.

The other reason is related to applications development. The user’s sometimes be in trouble which products may fit their usage. Depending on the user's purpose, we can suggest the best product and how to use it. At the same time, it opens so many doors for our customers. The R&D center lets us find new applications for all of these different products that we bring in from across the globe. Synergies from different products can create many new applications for the customers.

 

I wanted to ask about the Co-Lab, which you set up in April 2020 in Tokyo. Basically, it functions as a branch where you can work together with potential clients on prototypes. Could you explain what was the motivation behind opening Co-Lab?

We truly believe that the Co-Lab is very effective for visual purposes. With customers sometimes seeing is believing. It serves an educational purpose too, so that we may show our customer how certain products work. Tokyo as a location is very good, customers can conveniently travel to that location and don’t have to go so far. It used to be that a salesman would travel to the customer to get an idea of what they wanted, then travel to the R&D center, talk to the personnel there, come up with an idea and then bring that back to the customer. It used to be a very long-winded process. Shortening the lead time on getting hands-on with a customer is always a good thing, and it is the key motivation behind the Co-Lab.

With the R&D and Co-Lab being in different places, we are able to use video chat to cross-check things with the customer. Education is key in this process and having a face-to-face situation where the customer can collaborate with personnel has been very effective.

 

Moving forward for the next couple of years, what targets have you set for the company? Is there any particular industry that you’ve targeted for the next two years to increase your sales in?

We are actually trying a completely different approach. We are trying to avoid pivoting too much with trendy or hot industries. We are putting more emphasis on the production side, with our managers and salesmen often visiting production sites to understand more of what is happening. This enables us to be more stable and on a more ground level. We are very niche in the products we handle, for instance, the food sector is a major area for us. No matter how the world changes, people still need to eat, so for that reason, we feel safe in that industry. This may be a different approach from what you expect from a trade house, but we like to take things slow and steady in order to get deep into the areas that we are confident in.

 

If you were to summarize your company’s unique competitive advantage, what would that be?

In the DNA of Sansho are embedded human connections. First of all, we are dealing with the Japanese market, which is a very complicated thing. Some supplies from foreign countries are very unique and therefore difficult to introduce to Japan. Selling in Japan too is very difficult, and there are many obstacles along the way. We tend to believe that our company simplifies this process and makes it easier for foreign suppliers to introduce their products to the consumers of Japan. Both our suppliers and ourselves treasure this kind of connection. I like to think that Sansho builds a bridge that enables our customers to reach their customers. It is something that we have been doing for a very long time and are quite good at.

 

Since 1955 you have been partnering up with overseas firms and helping them penetrate the Japanese market. At this current moment which regions or countries are you looking to focus on for import and export reasons?

As long as a product is good enough for sale in Japan, we will take it. Pectin is something that we are actively importing right now. In fact, I’ve mentioned earlier how there is no pectin being produced domestically here in Japan, only overseas. Like pectin, we are always looking for the products has a significant value to import from overseas. Non-wood pulp-based paper products are also something we would like to highlight. We bring in the fibers and create products that have an added value, specialized paper products in cooperation with domestic partner company. We re-buy these products again once they are finalized and re-sell them to overseas markets. The company doesn’t have its own production sites, so we can only act as a manufacturing company, rather than actually produce products. Countries we are aiming for include China, and Southeast Asia.

 

Imagine we conduct this interview with you again on the last day of your presidency. What goals will you have hoped to achieve by then?

We don’t think of ourselves as a traditional hierarchical Japanese company, and in our company, we have more of a flat structure. Anyone working here can freely express his or her mindset, even if the opinion is very weird, voices are heard. Communication is key between every single department and individual. I myself am the CEO, yet I often visit the R&D facilities in person and work shoulder to shoulder with other employees. We want to keep this structure right now because it enables our leaders with unique skills to operate in a more efficient way and stand out among the crowd.

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