Using "imagination and innovation" and a "customer-first" policy, SANTEC differentiates itself from competitors in the field of photonic laser and optical technology.
Over the past 25-30 years, we have seen the rise of manufacturers in East Asia who can replicate certain manufacturing processes from Japan at a cheaper cost, pushing Japan out of mass industrial markets. However, we still see that many Japanese firms are leaders when it comes to niche B2B fields. How have Japanese firms been able to maintain their leadership despite the stiff price competition?
I think competitiveness is the keyword. Maybe Japan lost competitiveness in the consumer market as you said and we lost market shares. I think when it comes to B2B business, the cost is not only for the device itself. We say “total cost” for customer support, failure rate or quality. With the parts or equipment that we sell, we see that Japan is not losing competitiveness in the “total cost” structure. That is one thing. When it comes to quality, I think it is important and we at Santec do not want to compete on price, so we have to find other differentiating factors. We are confident that we cannot win through a price competition. We have to go for quality and customer support, especially in B2B, as customer relationships are important. European companies perform much better in B2B relationship building and having a ‘customer first’ spirit. I think that total cost concerns and high quality, ‘customer first’, and relationships are important to company culture.
Japan has the world's oldest society and a rapidly shrinking population. In fact, in the next 15 years, one in three people will be over the age of 65, which presents two major challenges for Japanese firms: the first is a labor crisis and the second is a shrinking domestic market. What are some of the challenges and opportunities that this demographic shift is presenting for Santec?
That is a big challenge and we consider ourselves an international company, not a domestic one. 70% of our revenue comes from overseas, so we are not dependent on the domestic market. We knew this was happening, so we have already tried to expand our business outside Japan. Our customer base is small domestically and we know this will be the trend going forward, so we try to focus more on global markets. As I said most of our revenue comes from overseas, so we consider ourselves an international company, and in fact, the location of our headquarters is in a rural area. We have no train station, so it is difficult to attract good talent.
Hiring is being impacted. We are having a hard time hiring good staff, so we are trying to diversify more. At the moment, 24% of our staff are foreign and we actively hire graduates from overseas. A lot of good international students go to Japanese colleges and graduate here. A lot of Chinese also, and we hire those kinds of people. The Japanese market is shrinking so we go overseas as a result, and I understand that attracting young talent is an issue, and for us, it is OK to hire international students because our customers are global. I think we already have about 15-20 Chinese and Korean students and these days; we have PhD students too. Our company deals with high technology, and 10% of our staff, or 26 people, have PhD’s, meaning there are a lot of highly educated international graduates. We attract them and we have PhD’s from Mexico, Chile and France, for example.
Hiring good staff locally in this area is difficult because you have to commute by car. Young people do not have cars, so a lot of them relocate to this region. We have corporate apartments and we can support them, so we ask them to relocate. We have opened up an office space in downtown Nagoya to attract more people because I guess where we are now is in the countryside and a bit far from a railway station, but we have also purchased a small bus to go to and from the local station. The decreasing population is a challenge, particularly when it comes to young people, so we have to engage in global thinking.
You provide digital business solutions such as the Live Supporter, a service that provides optimal smart glass or wearable camera solutions. What are some of the strengths of the Live Supporter service, and what other digital tools are you looking to integrate into your business?
That business unit makes up a very small portion and its revenue was also very small. People always ask us, “Why do you keep that business? Just close it down because the other businesses are much bigger”. However, as a hardware manufacturer, we always envy the software subscription services. That is one reason. We always want to have an opportunity in the software business. There is a big difference between the hardware and software businesses. Hardware must have factories and equipment, and investment is required, along with labor-intensive manufacturing - a lot of headaches and inventory. None of those things are concerns when you are writing code. No inventory, no factory, nothing. We always wanted to enter this field, but we wanted to do it in connection to our existing business. We do a lot of telecommunications, imaging and sensing using OCT. Since we have industrial imaging with OCT, you can see through a lot of stuff, and Live Supporter is a smart glasses solution, we can suggest the best smart glasses for customer’s purpose.
Santec is more about offering total solutions. We purchase and sell smart glasses from various manufacturers. We are offering total software solutions and I think that that is our advantage. We have Live Supporter, and there are only three or four unique software solution subscription businesses. The main products are Live Supporter, Remote Access, and Anti-Ransomware software. We do not know what is next, but we are always looking. The Anti-Ransomware is from a Korean company. We buy their basic service and we sell. For remote access, we sell unique software from a Slovenian company which is customized and localized for the Japanese market. Also in the future, we want to install this software onto our machines so that we can remotely do maintenance and support our equipment.
One of your latest products is the seventh-generation model of the wavelength-tunable laser, the TSL-570, which is used in applications such as photonic integrated circuit testing, quantum photonics, spectroscopy and sensors. How did you improve the TSL-570 upon its predecessors? How is it superior to more conventional machines?
Our TSL series is now almost 35 years old and has been selling since 1989. It is a successful product of ours and we have been a leader in this market since we introduced the first commercially available laser 34 years ago. This is what we call a benchtop tunable laser, and 50-60% of the market is made up of researchers. We sell this to top universities and scientists doing cutting-edge fiber optic and telecommunications research. At places like Harvard, MIT and Stanford, all the top researchers have this machine. We are proud of that, and we do Google scholar research. A lot of published papers and theses written by these researchers about high-speed telecommunications are created using our equipment.
Again, this is a small market. I think there are only three or four manufacturers in the whole world, but we believe we have over a 50% market share. Our strategy is that we want to be a top niche company. We want to select markets carefully where we can lead. We do not want to follow, and we make sure there is less competition in niche markets, and we can be a price leader because we do not want price competition. We do not want a price war, so this market is a good example of that. Also, we do not want to enter huge markets because they usually have many players and you end up in a price war anyway, so we usually select a market carefully. Not too large. We say $10-30 million is enough for us, but we want to own over 50% of it. You must become number one, or you lose.
The tunable laser is a good example. I think the market size for this is a bit bigger. The main competitors besides us are usually from Germany and the USA. We have been a leader in this market, and we have strong determination and commitment to not losing this share. We want to make sure we are number one in this marketplace. Like I said, since we have been making this equipment for many years and we have been able to learn from the top universities and research centers that use it.
This market is so important for us, and the TSL-570 gives us a very high margin so we do not lose it. This market is exactly what we want: a mid-to-small sized market with fewer players, less competition. Usually there is no discount, no price competition, so we are happy. This laser is now in its seventh generation as an engine for cavity lasers. We modify this engine around every five to seven years. We make sure the software is updated regularly and that we do not lose market share.
It is estimated that by 2050, myopia will affect half of the global population and if left untreated, high myopia can lead to many problematic eye diseases, such as cataracts, with patients for this specific disease also increasing due to the aging population, for which you have ARGOS®, an optical intraocular size measurement system with a wavelength scanning OCT light source, utilized for preoperative examinations of cataract surgery. Can you tell us a little bit more about ARGOS®, and with eye conditions like myopia increasing, what opportunities do you see for devices like it?
The main engine of ARGOS® is the HSL – high-speed scanning laser. All of the products we make share the same core technologies of our company. We are experts in managing the light of photonics technology, so from the tunable laser, we came up with this ultra-high scanning laser. By sending light and then measuring the light coming back, we can see through some objects. We were selling optical measuring instruments for industrial use, and we felt that our technology could be fully applied to medical measuring instruments for ophthalmology, which led to the development of ARGOS®.
We had a lot of inquiries about using this OCT technology to measure the human body, but we were not in the medical field beforehand. We were heavily focused on telecom applications, and that was the main application in the first 10-20 years. We then expanded to OCT and industrial 3D scanning, or the wafer thickness measurement field. We are now expanding into the medical field. In any case, the core technology is the main thing. ARGOS® laser is simple and has just one function – to measure the length of the eye. That is all, so it is simple. However, it is an expensive piece of equipment and ARGOS® is only used for one purpose – before cataract surgery. It does not cater to any other diseases, so the application is narrow, and the most expensive part is the laser at the heart of the machine.
We own about 40-50 patents concerning this laser, so this is a successful business model, and we sell quite a lot. We partner with Alcon because Santec was only used to B2B business in a very niche market. For us, selling ophthalmic equipment into the medical market was difficult. We tried selling it directly to doctors but we failed, so we partnered with Alcon, who are the number one manufacturer in the world for ophthalmic lenses that are used in cataract surgery on people aged between 70-80, which are implanted into the eye.
They say that cataract surgery is simple, as it can take only 10 minutes for each eye. You cut and suck out the original lens and implant the new one into the eye. It only takes 10-15 minutes, less than half an hour. Measuring the length of the eye to find out which lens to put in is important, so they use our machine to measure that. Again, our competitors are in Germany. The German firm used to have a monopoly, but then we entered the market with the Alcon, and now we are gaining some market share.
To reiterate, the market may not be worth hundreds of millions of dollars, but I hope it is slightly bigger than before. Regulation is a big issue of course, but luckily, we got FDA approval quickly, so we are now selling into the USA as well. ARGOS® sells globally to more than 50 countries, including the United States and Europe.
Are you looking for more partnerships and collaborative efforts in overseas markets?
Yes, we are always looking for collaborative partnerships, and in fact even now we have about five in Japan. For example, we have our staff in Tokyo University. Now we have one staff member in Tokyo University, Kyushu University and Tohoku University. We do a lot of collaboration with the top universities and we have one PhD student in the University of Southern California. For an partnership overseas for example, we rent a factory to manufacture some of our products. We are trying to do more M&As overseas too.
We have four business segments. One is optical components that goes into fiberoptic telecommunications equipment. Another group is testing and measurement, then there is the telecom market and industrial market, and finally, the medical equipment. We have these four main business units, all using the same core technologies but addressing different markets – telecoms, industrial and medical – so we make equal effort in all the segments.
These days, you sometimes get demand and supply issues coming up in the telecoms or industrial segments, and we do not like these cycles, so that is one reason we always wanted to create one business unit that does not get affected by those ups and downs, which is medical in this case. Medical is always stable – people get sick all the time, so it is a steady market. We always wanted to get into the medical market, and now it is growing steadily, so we are putting a little bit of extra effort into this business, but that does not mean we are not investing in the other business sections.
Our laser is very low powered. You can even shoot it into your eye without any harm, because the power is so low. We use the low powered lasers that are used in telecommunications. If you scan through human skin, you can see 70-100 millimeters through it precisely. There are many applications for which we have sold that laser, including the heart. Some people put the optical fiber into the blocked vessels of the elderly and use a stent near the heart, and then rotate the fiber to look at the artery inside to make sure of where the blockage is located. Then you find the best location to put a stent to make the blocked pipe bigger. It has not materialized yet, but there is a lot of research around OCT applications concerning the human body, which we are pursuing.
When it comes to LiDAR and autonomous driving, many car manufacturers are sitting around between level two and three, and the next big challenge is to bridge that gap so we have fully automated driving. Santec is applying its tunable VCSEL to FMCW-LiDAR, which has an observation distance of around several meters. How does your technology contribute to bridging this gap between 2.5 and autonomous driving?
FMCW LiDAR – frequency modulation LiDAR - is a unique technique that not many people adopt. There are hundreds of companies trying to utilize other LiDAR technologies, but we use that unique method instead. It is a complex laser, and the cost is high, so it may take time for that technology to be adapted for automobiles because automobile application costs have to be low. As such, we are not sure whether our technology can be used for the automobile market. That market is already crowded so there is price competition, so we would rather go more high-tech at a higher price.
I do not know whether our technology can contribute to autonomous cars, but we see other LiDAR opportunities in industrial applications, factory automation and automated pick-ups. The OCT scanning technology and LiDAR are similar. We have a lot of knowledge in OCT data processing, so this FMCW-LiDAR technology plus our software or data processing technology that we accumulated from OCT can merge, and maybe we can come up with new technology that can provide other industrial sensing and imaging solutions.
We saw in your corporate policy that Santec is aiming to deliver what you call OPTOPIA. Could you elaborate more on this OPTOPIA concept for us?
Optopia is a word we created - optics technology plus utopia – to represent a global society supported by fiber optic photonics technology, where communication is much better and life is happier and warm because it is a utopia – Optopia. We think a world supported by fiber optic technology will be warm hearted and enlightened, as you saw. We call it a “Human Centric Information Society”. It is not machine centric, autonomous car centric, money centric or material centric. It is human centric.
Warm hearted people helping each other because telecommunication is so advanced. Technology must contribute to human society and maintain a better world where people are happier. If you develop technology and society advances but people are not happy, that is not a good society, so we focus like Steve Jobs did in Silicon Valley. We want to make the world a better place so our technology can contribute using fiber optic photonics technology.
We want to make our world a better place, and that's the concept of our company. That is how all this is united, and maybe this is one strength of our company, or corporate philosophy. Our corporate culture is another way in which we attract people to work with us. We have such a good mission, so whenever new staff join our company, I talk about this corporate policy for 30-40 minutes, and many of the new staff work here for years.
Every year, we confirm that our goals are the same, so when we hire people, I ask everybody, “Why are you here, sitting in this room? Do you just want to make money, or were you told by your parents that you had to work? Why are you here?”, we ask. I always tell them, “You are here to contribute to the creation of Optopia. Let's work hard. We have a common mission and common goal.” I think that is important, so I hope we make sure we have a common goal.
After that, we have three missions. Firstly, to advance the creation of Optopia using our photonic solutions. Secondly, we want to be respected leaders in this field, not followers, and we want to influence the world to become better. Thirdly, we want to deliver results, which in a business context means making a profit. In this way, we make everybody happy as we grow - shareholders, customers and suppliers. All the people surrounding us. Let's deliver results to everybody. Another good part of Santec’s culture is something that we call ICC venture spirit.
Santec is neither a large nor small company. It is a good, mid sized company, and we always say we are a venture business. We do not want to be like a big corporation, moving slowly with slow decision making. We always want to maintain the venture spirit, so that is our philosophy. We want to maximize our potential and explore new markets.
The venture spirit is a common purpose for each employee, and we commit to making full use of our potential to overcome any adversity and explore new paths, so the venture spirit means doing business while living in a rapidly changing society. It is almost like living in a jungle, where you don't know what is going to happen tomorrow. There is no path or road, and you do not know when the rain will come or when a lion might come and eat you. It is the same in the business world. It is so competitive, and this world is changing so rapidly, you do not know what is going to happen with politics, the economy or environmental issues, so the venture spirit is very important. We have to create our own path and you have to use all of your skills to survive, so that is the concept of our venture spirit, so we have ICC’s independence - you have to be independent if you do not want to rely on anybody, and if you have this independent spirit, you have more self-motivated employees, so I am so proud of our staff. No one is waiting for a command from their boss. They understand their positions, and they will look for what needs to be done and they all work autonomously.
That is independence, and we always say independence is important, and everybody must respect everybody else’s independence. Everybody wants to be independent. First, you do not want to rely on your parents, you do not want to rely on somebody else, and for everybody, life is a battle to be free, to be independent. We understand that, so we say to all 300 of our employees, “You are the CEO of Yourself Corporation. You are your own boss, and you know you want to be independent, and you know your role and duty.” We are fostering a sense of independence among workers whilst at the same time engendering a common goal for us all.
Creativity and consciousness - being aware - are so important. We emphasize this. If you read Santec’s policy, you might understand us 100%. There are 10 key values which will answer all of your questions. We always say that if we do these 10 things, we will never lose, we will always be successful. This is our differentiator. This is our strength. This is our strategy. We say “customer first”, we listen to the customer and strive to exceed their expectations. Number two is “target and lead the market”. We want to select markets we can lead carefully. We do not want to enter a market where we will lose. We are confident that if it becomes a price war, we would lose because we do not have deep pockets. Once it becomes a price competition, whoever has the most cash will win. It would not be about just the technology or spec or performance, it would just be a money game. You just put a lot of money into advertisements or press and you spend a lot of money or lower the price and then you win. We cannot do that. We are a small company, so we do not want to do that, so we value outstanding performance and we always look for excellence. We never compromise.
Next, we have imagination and innovation. We differentiate ourselves with our vision and invention, not with price. Also, we have a flexible and flat organization and we want to maintain it. We do not want to build bureaucratic systems where the decision making is slow.
Diversity and team bonding is also important. In Japanese companies, DX is very poor. I understand that even in our company we have a lot of stuff on paper. We do not like that, but team bonding or teamwork probably makes the company more efficient. Even though the software or high-tech tools may be poor, that is made up for by teamwork. I do not know if that is really good or not, however. Open communication is important though, and a global perspective is important. What we call acumen and diligence is important, and agility and perseverance is important. We have these 16 words, 300 English letters and 800 Japanese letters. We emphasize this all the time, and our staff has been growing .
Imagine we come back to interview you again in two years' time: what would you like to have achieved by then?
Our company is very goal oriented, and every three-years we set mid-term goals, and every nine years we have one long-term goal. 2022 is the last year of our last three-year project, AOP 13, which stands for Attack Optopia Program. Also, a nine-year project is finishing, named OE, in 2022. OE means ‘On Everest’ because every year, for the last 10 years, our sales revenue goal was mountain-high, so nine years ago we said we wanted to go to the highest section of Everest, at 8800 meters, and this is an $88 million company, so that project successfully finished. Each year we have a project named after a mountain. In the first year it was Mount Fuji, and we have had a lot of other mountains, European, North Face and McKinley, for example. The last one was Everest.
A growth plan was made for 15% growth. That is our basic corporate goal. Grow 15% every year. Last year, in 2021, we already achieved 88 million one year ahead of schedule, so for this year’s annual goal we had no mountain higher than Everest. As such, this year’s project is called Aurora, which started on April 1st. It is called Aurora because an Aurora is located 120 kilometers up in the sky, so we are aiming for a $120 million goal, and we have put in place the guidance for achieving this. Our nine-year project is ending next March with great success.
The next nine-year project from 2023 to 2031 will be called OP 2031, in which the P stands for Pluto because there are nine planets in the solar system. Now we are telling everybody that we are going to outer space. Next year’s project name is Moon, so Moon, Mercury, Venus. When we already achieve the 15% growth rate, in 2031 on Pluto, the team needs goals and a vision of where they are going.
At Santec we have one phrase, and we have a lot of our own keywords, but one keyword we use most often is GPAR – Goal, Plan, Action, Review. Not PDCA – we do not like it being called PDCA. Some people use PDCA – Plan, Do, Check, Action. ‘Do’ and ‘Action’ are the same thing, so we think that PDCA is not appropriate, and we came up with GPAR, meaning that goals are the most important thing. Goal setting and planning, action and review. We repeat this all the time. Weekly, daily, monthly, quarterly, yearly, every three years, every six years or nine years. Setting goals is so important. We say that once you have set a goal, 50% of your job is done, because deciding goals with a team who may disagree between themselves can mean taking a long time to decide on something, which is a waste of time.
Then you think about how to get there because now you know exactly where you want to go, so now you talk more about what method you will use to get there. Are you going to use a plane, or bus, or walk or fly? That is the P in GPAR. After the G (goal) is set, and the P (plan) is set, then you take action. We follow this path, and we always show the goal. The goal is important.
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