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Shaping future markets: Japanese innovations & global expansion in infrastructure - Insights from a trade leader

Interview - January 14, 2024

Amidst Japan's resurgence on the global stage due to supply chain disruptions and currency trends, Shinji Takahashi, President of Sansho Shoji Co., Ltd, highlights the need for differentiation beyond competitive pricing. Focusing on specialized products, especially for niche markets, Takahashi underlines Japan's stability and diligent workforce as advantages. With a declining population and expanding into global markets, he emphasizes the company's strategy, centered on high-quality products like their unique flexible hoses and bellows, showcasing resilience during seismic events. Their R&D thrust into hydrogen-resistant hoses reflects their commitment to innovation, while plans for ASEAN market expansion hint at a flourishing future.

SHINJI TAKAHASHI, PRESIDENT OF SANSHO SHOJI CO., LTD
SHINJI TAKAHASHI | PRESIDENT OF SANSHO SHOJI CO., LTD

Now is a pivotal time for the Japanese industry. In the past three years, we’ve seen severe supply chain disruptions due to COVID-19, as well as the US-China decoupling situation. As a result, many corporate groups are looking to diversify their suppliers for reliability. Known for their reliability, advanced technology, and quality services, Japanese firms are in an interesting position. Coupled with the weak Japanese yen, many observers argue that this is a unique opportunity. Do you agree with this sentiment, and what are the advantages of Japanese suppliers in this current macro environment?

As a Japanese person, I want to agree with that idea. To illustrate the industry, consider a huge pyramid with outstanding technologies at the top and mass production at the base. We aim to reach the top of this pyramid, but we must not compromise on production volume. Competing solely on volume will inevitably result in defeat. To ensure the survival of the Japanese industry, we must continuously strive to stay one step ahead in the field.

 

Your services are catered toward a variety of industries and applications such as cars, electronics, beauty, food, and many others. Is there a specific industry or application you are currently focusing on? Are there any new industries or applications to which you'd like to cater your services?

While tomorrow's outcomes remain uncertain, I firmly believe that concentrating our resources in a particular area will yield the most profitable results. Our company's history began with my grandfather, specializing in hard metals for tools supplied by Sumitomo Electric. Over time, we faced challenges related to the changes in the business routes. During my father's era, we not only transitioned our primary focus toward electronics but also completely revamped our portfolio.

As the economic environment underwent significant transformations, we encountered a decline in major clients like Sharp and Panasonic, which compelled us to diversify to sustain our business. Although our website showcases a wide array of products and services, our core emphasis remains on mobility and electronics. While we possess the capability to engage in various ventures, our primary dedication revolves around products made in Japan, marked by unique specializations, such as beauty-related items not available in the Chinese market and food products unattainable from the South Korean market. These opportunities led us to enter these fields.

In the foreseeable future, our strategic focus will center around EVs and CASE technologies.

 

Electronics and mobility solutions have lived through a period of instability. During the Coronavirus pandemic, we saw huge supply chain disruptions in the semiconductor field, which led to a shortage of components in the automotive field. There have also been trade tensions between China and the US that have further disrupted these two vital sectors of the global supply chain. Within that context, how do you think your position as a trader has evolved? How are you able to help your clients overcome these huge supply chain disruptions that are still occurring?

We've faced significant challenges in recent years, and the Shanghai lockdown had a profound impact on our business. Manufacturers with operations in Shanghai encountered difficulties in shipping their products out of the city, and we were initially powerless to address this issue. Nevertheless, our strength lies in our adept negotiation skills, a vital component of our business. Through these negotiations, we've been able to procure materials and products tailored to the specific needs of our valued customers, including our strong partner, Sumitomo Electric.

Japanese traders play a unique and essential role in this process. While it would be ideal for end-users to communicate directly with manufacturers, practical scenarios often involve users specifying their requirements, only for manufacturers to express their inability to fulfill such requests. That's where we step in, acting as intermediaries between manufacturers and users, effectively bridging the gap. We've cultivated strong relationships with manufacturers like Sumitomo Electric and Mitsubishi Materials, a copper specialist in Nagano. Leveraging these connections, we've been successful in coordinating with manufacturers to ensure that users receive the exact products they require. This function has proven crucial, particularly during emergencies.

 

Traders are unique to Japan. When we interviewed Ryoyo and Sojitz, they explained to us that the role that traders play is evolving. Before, traders were mainly responsible for financing by negotiating with material makers and for logistics. Nowadays, however, we're seeing that Japanese, particularly specialized traders, are turning into more of a solution business, where they must be able to offer alternatives, sometimes even co-development with certain clients. How do you foresee the next step of evolution for traders? Say, in the next five years, how do you think your business will evolve?

At our company, we're all contemplating our future, striving to define who we'll become and what we'll do in the next 10 to 20 years. We share the same idea with Sojitz. I began to work for Mitsui Bussan nearly 40 years ago, in 1985. They used to say that logistics and investments were the two wheels of their business. However, today, the focus has shifted away from logistics, with a greater emphasis on investments in iron ore in Australia and Brazil.

In the coming five to 10 years, I believe our primary advantage will remain unchanged - our extensive network of strong client relationships and our ability to negotiate and act as a bridge between various stakeholders. Nonetheless, when things go well, some clients may assert that they no longer require our services, putting us at arm's length from their operations. To ensure our survival, we must offer something unique, possibly a distinct function or service, or even the capability to manufacture products.

One example is our in-house development of "CareBird," a monitoring system for elderly individuals needing care, linked to a sensor from our vendor. To distribute this kind of original product is a long way. Although we don’t specialize in IT, we have the human resources to develop programs and make necessary upgrades, like adding new functionality to the system.

We are trying to focus on being able to produce something or establish the supply chain as a whole. Many companies produce wire harnesses. While we don't currently manufacture wire harnesses in-house, we are considering partnering with a wire harness manufacturer. Together, we aim to facilitate production and establish a comprehensive supply chain, from material procurement to product distribution. Creating this system or framework represents another strategic avenue.



Are you looking to partner with companies in international markets, whether for these kinds of projects, other developments or supply chain solidification?

Currently, we aren't looking for international partners, but we are collaborating with some Japanese manufacturers that have expanded their bases to overseas markets.

 

EV and CASE are undergoing a major transformation, specifically with CASE cars becoming computers on wheels. The cost share of electronic components in relation to the car is expected to grow to about 35% in the next few years. What opportunities does this emphasis on electronics and software that come with these trends of EV and CASE present for your firm? What strategies are you implementing to take advantage of that?

While we refer to ourselves as semiconductor traders, we currently do not handle semiconductors themselves and lack the necessary expertise. However, we aspire to acquire this knowledge and focus on devices and units related to semiconductors. Our specialization lies in wire harnesses, a critical component in the upstream supply chain.

For EVs and hybrid cars, units must be installed to control electronic devices. These units require components such as substrates and heatsinks for heat dissipation, which is an area we excel, closely related to materials and components.

We supply heatsinks to Ioniq, an EV brand under Hyundai. Our company in South Korea, along with one South Korean employee based in Japan, collaborate to serve Hyundai.

I'd like to touch upon our success model. Dealing with South Korea, especially as a Japanese company, presents unique difficulties. Managing South Korean staff, particularly in sales, can be a challenge.

Typically, larger companies hire talented South Koreans, only to see them depart after a few years. Effective management of local personnel is crucial when entering foreign markets, especially for SMEs like us to successfully expand our local business. We've achieved remarkable success in both personnel management and our business operations in this particular local market. Additionally, our specialization in EVs positions us well for the anticipated growth in this sector.

 

oving forward, are there any countries or regions that you've identified as key to the growth of your firm? What strategies will you employ to achieve those goals?

Our most recent venture is in India, where we are strategically positioned to serve the automotive industry in the region. While we initially established an operational base in India to bolster our supply chain, our vision extends beyond this scope.

Doing business in India presents its challenges, and our company's approach is to engage in business that other companies may shy away from. There are few Japanese traders, especially SME traders, in the Indian market. Although larger traders have established their presence there, they often avoid smaller transactions. We see this as an opportunity, as we are open to a wide range of possibilities, and we are willing to do anything. Our goal is to be recognized as a versatile and adaptable business or trader in India, and we welcome collaborations with other companies seeking potential opportunities to work together.

 

Your company has been present in the US since the 80s with two bases catering to two different sides of your business. The one in Chicago specializes in the automotive field, while the one in LA handles electronics. The US is in a very exciting time, as there are a lot of policies to bring automotive and electronic manufacturing back to America, with foundries being opened across the country. What's your outlook for the US market shortly?

Our expansion into the United States was my father's vision. He decided that I should study at a university in Chicago since he couldn't speak English and limited his visits to the U.S. for business purposes. The primary motivation for choosing the U.S. as our expansion destination was its leadership in business and technology. My father used to liken this choice to Malaysia's 'Look East Policy' and dubbed it 'Look USA.'

While the automotive sector is thriving in the U.S., the electronics field in California holds equal significance. Initially, we exclusively dealt with Kyocera International in San Diego. However, we have since diversified our clientele to include other companies, such as FormFactor, a semiconductor manufacturer, and those in the secondary battery industry.

Our goal is to introduce new Japanese technologies to the semiconductor industry in California, as Made-in-Japan products are highly regarded in the U.S. We aspire to expand our presence in the semiconductor sector in California. It's worth noting that the automotive industry tends to bypass traders, but I'm keen on exploring opportunities in Mexico through partnerships with tier-two Japanese companies to supply components, wire harnesses, and other Made-in-Japan products. This endeavor is designed to cater to Japanese tier-one automakers, and it's a concept I'm enthusiastic about.    

 

Your midterm plan, “Challenge 25,” which began in April 2021, focuses on five domains you believe are expected to grow: mobility, electronics, industrial equipment, information communications & and software and lifestyle. You are also redefining your company's functions. Halfway through your midterm plan, how's it going so far?

Our midterm plan started in 2021, which was around the time when COVID was almost over. At that time, the business was not that bad because we were already on the path to recovery from the challenges we faced due to the pandemic. However, the current situation in the electronics sector is posing new difficulties.

We are redefining our raison d'etat. The role of SME traders is evolving and diminishing. In the past year, we faced contract terminations with some business partners, reflecting a reduced need for our services in those relationships. Nevertheless, we are actively seeking our place in new fields, such as our in-house monitoring system and establishing a supply chain for wire harnesses. Progress in these projects is steady but slower compared to our previous contracts.

To guide our efforts in the next five to ten years, we recognize the importance of having a clear vision. Dreams and hopes are essential motivators, and we are currently exploring what we want to achieve shortly.

 

In the distant future, you will eventually pass down the company to the fourth generation of executives. When that happens, what ambitions, dreams, or goals would you like to have accomplished? 

I have a well-defined vision for the next generation, and I'm transparent about it to ensure everyone knows what to expect in the coming years. While I intend to pass down the company to the next generation, I will retain a different role, likely as Chairman. I want the next generation of executives to take the reins, with a single leader at the top and a strong management team for support. We've identified the key members of this management team, and they are actively shaping the company's vision for the next five to ten years. I'm not working alone; I'm collaborating with fourth-generation staff to plan for the next 10 to 20 years.            

Transferring leadership to the next generation has been my priority for the past two decades. I've learned from my father's experience, who never retired and didn't have a clear succession plan in place. When I joined the company, the person he appointed was the president. No one from the Takahashi family became the President. He later acknowledged his mistake in selecting a successor.

In contrast, I've already designated the next-generation president, provided them with development training, and documented my succession decision securely. I've taken steps to ensure the company will be in capable hands if anything were to happen to me.

 

When do you plan to become the Chairman?

In 2026. I am the third-generation president, and the fourth-generation president is ready. We have an internal study group called the Sansho Management Institute (SMI). The first generation from this institute had become the director. They are the fifth generation, and belong to the second generation of SMI. Perhaps someone in this institute would become the fifth-generation president.  

Traditionally, company leaders often postpone the decision on their successors until late in their careers. My father also grappled with this decision and later regretted his choice. To avoid such pitfalls, I have already entrusted the decision-making process to the next generation. Over the next five to ten years, they will be at the forefront of decision-making, although I will remain actively engaged in these discussions.          

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