Secondary processing for first-rate customer satisfaction

Over the past decade, we've seen Japanese companies face very stiff price competition from Asian neighbors. Nevertheless, when it comes to certain niche B2B applications that require engineering expertise and high-mix, low-volume production, we see that Japan still dominates, either with a technological advantage or by having a large market share. In the case of your company, how is your firm able to remain competitive despite this stiff price competition imposed by Asian neighbors?

I think that the reason why Japanese companies are still able to remain competitive is that we find the right-sized markets for ourselves. For example, in terms of mass markets like smartphones and TVs, it is very hard for Japanese SMEs to compete with the power of the capital and speed that Chinese companies have for mass production, so companies such as ours focus more on individual, smaller, unique types of industries, including automotive, office appliances and home appliances.

We don't have many clients for home appliances, but electric vehicles, OA, and various sensors are areas that we focus on, collaborating with other major Japanese companies. Our targets are module and device manufacturers.

Our business approach is to find new businesses and develop new products together with device/module manufacturers and raw material manufacturers, and there are great business opportunities when innovation occurs, as in the era of the transition from mobile phones to smartphones.

Japan is the world's oldest society and has a rapidly shrinking population at the same time, which presents challenges such as a labor crisis. There's a smaller pool of talented young graduates coming through for companies to replace their older, more seasoned workers, and pass on that knowledge and culture to the next generation of workers. There is also a shrinking domestic market. What are some of the challenges and opportunities that Japan’s decreasing demography is creating for your company?

With the declining population, it is apparent that we will experience a shortage of the human labor force. Covid had given us a big push in our shift towards automation at our factory.

The Japanese government, over the past two or three years, has been actively granting subsidies for SMEs to adopt additional technologies, and we've received their support in automating and making use of digital technologies such as AI. Another thing is, we are diversifying our production capability by leveraging our Chinese and Vietnam factories and making products for Japanese customers.

You just mentioned that covid was a time of good transformation for your company, especially when it came to digital technology. During the coronavirus pandemic, and in the aftermath still, we see today, there's been very big logistics and supply chain disruptions. China’s zero-covid policy has created very big backlogs in the global supply chain. How did your company, with its two bases - you have one in Shenzhen and one in Jiangsu – manage to survive during this time of logistics disruption?

It's true that at our Shenzhen factory, there's been a huge delay in shipments, and also the cost of shipments has risen with fewer ships in operation, and that has had a big impact on our business.

Fortunately, there was a port near the Shenzhen factory, so we switched from going through the Hong Kong office to direct trade with the Shenzhen factory, reducing costs and lead times. Direct ferry services between Japan and Jiangsu Province, China, operated normally during this period, minimizing delays.

Your company has three main production bases located overseas. You have one in Vietnam and two in China, that we just discussed. How do you ensure that the technology, the quality, of your product remains standardized across your various production bases in Japan, Vietnam, and China?

We’ve only just established the Vietnamese factory, so technology-wise it's not up to the right level yet. However, in Shenzhen and Jiangsu, we asked our factories to be independent and contain the manufacturing within themselves. We've been giving support from Japan, but since both of them are independent and they have developed their own unique technology, they are in some ways more advanced than Japan.

The reason why we did not standardize production is because in Japan high mix, low volume is the way of business, whereas in China it's due to the wide variety of high mix, low volume to low mix, high volume so we have to adapt production methods and technology.

Our company policy is about improving the four pillars of technology, skills, quality, and customer satisfaction. Also, by enhancing the four pillars at each plant, the company has become a one-and-only company for the customer and won the customer's trust.

Could you give us an example of a technology that was independently developed in Jiangsu or Shenzhen?

Initially, Swacoo’s first collaboration took place when a local company in China that laminates OCA and was asked to process OCA, a difficult-to-process material, based on its track record in the production of backlight components.

The unique experience of the Shenzhen factory is that when Nokia first developed the color display embedded in a cell phone, its backlight components were supplied by Japanese manufacturers for their color displays.

Initially, the company began producing backlight components at its Shenzhen plant, accumulating expertise in mass production manufacturing technology, quality control, and production management, which developed into the production of OCA.

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You mentioned before that the automotive industry was one of your targets for the future. The automotive sector is currently undergoing a time of incredible transformation. Inside the vehicle, of course, many people are talking about the change from combustion engines to electric vehicles as well as hybrids and plug-in hybrids. Another big change that's happening is the electronification of cars. Cars are slowly becoming mobile phones on wheels. Experts believe that within the next 10 years, more than 50% of the car’s value will come from its electronic components. What are some of the opportunities that you've identified in the automotive market, and can you tell us a bit about the products that you're currently developing for the automotive industry?

In my understanding, cars will evolve in two main directions. One is EVs, and the other is autonomous driving. Currently, we are focusing on automotive in-vehicle displays. A meter panel and CID panel are separate, but soon they will be combined into one big panel that will horizontally cover the front space, so we are trying to enter into optical film lamination products, catering to these new changes in the panel. For EVs, we're looking to produce lithium-ion battery-related components.

There's a big collaboration taking place in the automotive industry for batteries, not only within the traditional keiretsu suppliers, but non-automotive companies like Panasonic are partnering with Toyota. There are other big names completely unrelated to automotive now becoming players. Could you tell us a bit more about those components for the lithium-ion batteries?

The major difference between internal combustion engines and electric vehicles is that Li-ion batteries and drive motors are key components. We manufacture components for small Li-ion batteries and electronic devices such as mobile devices and are using this know-how to enter the market for components related to the insulation, heat insulation, and heat dissipation of Li-ion batteries for automotive use. We believe that the global shift to electric vehicles has created opportunities for entry from other industries.

I'd like to take this opportunity to learn a bit more about your company. We saw in our research that your company was created in 1971. Originally under the name Suwa Kozai Shokai. Could you tell us a little bit more about the history of your company since its foundation, and maybe some of the key milestones that have been achieved?

My father is the founder of the company, and initially, our company started as a packaging material seller, and we started doing soft press. Before, there was a concentration of small and medium-sized enterprises producing many precision and component parts; these include Olympus cameras and Seiko watches. At first, our company only had dealings with companies in Nagano, but thanks to the trading companies domestically, we were able to increase our customer portfolio nationwide.

Nearby, there's a factory. We started providing inkjet printer parts to them, and that business grew. Then we placed our office in Hong Kong and a factory in China. By having our base overseas, we were able to further enlarge our customer portfolio, working together with not only companies in Nagano, but other places in Japan also.

We hear time and again in our interviews that once established internationally, Japanese SMEs want to diversify beyond Nikkei companies and find more locally based companies in those markets. Perhaps Chinese based companies or Taiwanese based companies. Has your company done that, and are you currently looking to diversify your current client portfolio beyond Japanese makers?

We have diversified ourselves, working with regional customers in Taiwan, for example. We no longer have the factory now, but initially, the company supplied backlight components for LCD TVs of Taiwanese companies.

OCA supply to major Taiwanese smartphone manufacturers through a Taiwanese trading company has also been achieved. As for in-vehicle usage products, we are currently supplying a Taiwanese and Chinese company with the OCA product and the optical film for panels.

Now, Japanese affiliated companies are going outside of China for production, however, China has a large domestic market, so we are trying to increase our relationship with local Chinese companies so we can enlarge our pie there.

And what does an ideal partner look like?

Local materials manufacturer in China. We recently started collaborating with a Chinese materials supplier to make a product that we sell to Nikkei companies.

We spoke at length about your expansion into China, for example, as well as the new plant that you have in Vietnam. Looking at the future, are there any other regions that you would like to expand into?

We are not actively seeking to go overseas or expand overseas by ourselves. We are an SME, so we have to concentrate our management resources, and our strategy is to work together with Japanese device, module, and materials manufacturers because they are constantly innovating.

By having a tight-knit relationship with these providers and presenting them with Swacoo’s technology, know-how, and capabilities, we want to continue moving forward and finding new markets globally.

Let's say we come back to interview you again in nine years for your company’s 60^th anniversary. What would you like to tell us about your goals and dreams for the company in that timeframe, and what would you like to have achieved by then?

It's very hard as an SME to formulate a mid-term plan or a long-term plan, but just two years ago for the first time, we created a three-year plan and next year we will be completing this period. At that point, we'll be formulating a long-term plan that would be envisioning five to 10 years, so when you come back in 10 years, I would be able to evaluate ourselves based on this long-term plan and see if we were able to achieve the target of a specific market, or be able to meet our goals in terms of sales and profitability, so I look forward to seeing you again.