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Shinkoh Electronics: Where adapting is a way of life

Interview - March 14, 2022

Founded in 1974, Shinkoh Electronics has been at the heart of the semiconductor industry for nearly half a century. In that time, a number of changes have occurred. Where companies such as Toshiba and Mitsubishi were once global leaders in semiconductor manufacturing, the last two decades have seen a shift in focus. Japanese companies are no longer making semiconductors themselves, but embedding semiconductors purchased overseas into their products. “This,” says company president and CEO, Hideo Sakaki, “is the new standard.” Faced with a series of challenges, Shinkoh is staging a recovery and looking to the future as it prepares to launch a new line of products to coincide with its 50th anniversary.

 

HIDEO SAKAKI, PRESIDENT & CEO OF SHINKOH-ELECTRONICS CO., LTD.
HIDEO SAKAKI | PRESIDENT & CEO OF SHINKOH-ELECTRONICS CO., LTD.

In the global semiconductor industry, 80 percent of materials are supplied by Japanese companies, who also stand out in the fields of functional chemicals and equipment. What is your assessment of the Japanese semiconductor industry and its?

About 20 to 30 years ago, companies like Toshiba, Panasonic, Mitsubishi, and NEC were global leaders in semiconductor manufacturing. However, they have been replaced by Taiwanese and American companies. Japanese companies have now shifted their focus from making semiconductor themselves to products that utilise semiconductors. Major Japanese firms are purchasing semiconductors from overseas markets and embedding them in their products, and this is the new standard.

Even though most people do not know what optical semiconductors are, they are used, for example, in LEDs, which are an example of optical sensors. A major Japanese company is still a world leader in optical semiconductors, and we often collaborate with them; we commission them to produce parts of our products and often work jointly. We have also been working as an agent for an LED manufacturer based in Tokushima Prefecture, which invented blue and white light LEDs and has a high market share in LEDs, for over 20 years. Another world-leading Japanese company has a high share in optical devices. Therefore, Japan is still a global leader in optical semiconductors.

 

Japan’s ageing population, with one in three people expected to be over the age of 65 by 2035, is causing a shrinking of the domestic market and a labour shortage. How is your company reacting to Japan’s demographic shift?

For the last 20 years, the prospect of an aging and declining population has been a grave issue as well as a problem for our company. Furthermore, the COVID-19 pandemic has aggravated the situation due to a further decline in the birth rate. Looking at the international market, automotive makers like Toyota are going abroad to countries such as China and India, which have large populations. Focusing on global markets is crucial in terms of our company’s survival, and to achieve this, we have been working with our branch in China. The management there speak Japanese and have a deep understanding of Japanese culture. We also have an agent in the United States who we have worked with for 30 years and with whom we have a good relationship.

We are also welcoming foreign workers to our company, including a Korean woman who works in a technical development position and who speaks Chinese, Japanese, Korean, and a little English. She also takes care of procurement from China and Taiwan. We are open to recruiting more foreign workers to compensate for the decreasing labour force in Japan.

Looking at the global situation, automation is a key trend. With a declining population, making human labour more efficient is more crucial than ever, and automation is vital. Many of our photo sensors are used in automated products, such as ATMs, automatic money change machine), and in convenience stores. We believe there is growth potential for photosensors in the global market.

 

COVID-19 has also had a significant impact on the global economy, negatively affecting many businesses. On the other hand, there have been some silver linings, such as the increased adoption of digital transformation (DX) technologies. How have you adapted to the situation wrought by the pandemic?

We have been negatively affected by the pandemic; however, this was only for a short period of time. The business was doing well in the first half of 2020, but as the pandemic became more severe, from around late June to early July of that year, most major manufacturers limited or halted their operations: this caused our orders to stop, and sales decreased by around 25 percent. However, we are seeing a recovery now.

On the other hand, there is still a shortage in semiconductors as well as a resin material shortage due to a major incident in a resin factory. Suddenly, as the pandemic rages on, the manufacturing industry is trying to increase production capacity and companies are ordering surpluses, effectively securing larger inventories to avoid future shortages. Usually, the lead time for our orders is around two months, but now for many we are looking at half a year, or even all the way to October 2022.



You mentioned that going abroad is crucial to your company’s survival. Which countries present key opportunities for your business?

Our focus is on countries that make industrial equipment, in which our products are incorporated, including China, Germany, France, and Italy. We have sales agents in these markets, and in the United States too, who we have been working with for a considerable length of time. However, we still do not have a robust business model, so we are looking into stabilising and reinforcing our sales channels.

In terms of the market for sensors, other Japanese customers export their industrial equipment or components in which our sensors are used. Companies trying to copy Japanese devices disassemble them and find the critical components; and sensors are one of them. Because it takes time to develop and copy these kinds of sensors, we are often contacted by copycat companies, such as Chinese ones, who in some cases prefer to purchase them directly from us. But this is only temporary; ultimately, some Chinese companies are copying our products, which is inevitable. Therefore, we are trying to add value and make increasingly high-performance products to be more competitive. This is our long-term strategy.

 

You are working on integrating new sensing technologies, including adapting them to be used in certain conditions, such as dusty environments. How do you develop unique sensors that respond to your clients’ requests?

Many of our products are used in banking machines, ATMs, and cash dispensers. 25 years ago, demand for them was at a low price, but over time the need for quality assurance has grown. In Japan, ATMs are usually found indoors, but in other places such as Hong Kong, China, the US, or elsewhere, they are often outdoors. To assure proper functionality, it is important to make units dust-proof, which is how we developed our technology. In fact, we are pioneers in the development of cost-effective dust-proof technology, which was soon replicated by other manufacturers, both domestically and overseas. At first, we were surprised about receiving requests to make dust-proof sensors. But we realised that our customers export their products to China, India, and other countries where conditions may be dusty. That is why it is important that our products are compatible with these outdoor environments. Furthermore, with globalisation, this trend is only increasing.

Thanks to our technology we have received the recognition not only of Japanese companies, but manufacturers from China and the US too, such as banking machine manufacturers. These companies make the ATM shell and use our units: they have specific quality assurance requirements, and we cater to these. Our uniqueness is that our sales team works very closely with our customer’s engineers, allowing us to grasp their needs instantly and turning them into prototypes in a short period of time. With this ability to propose and provide solutions, we are adding value to our products.

To improve preventative medicine, physical testing and check-ups are crucial and medical devices allow for such tests to be conducted efficiently. The US, Germany, and Japan are leaders when it comes to medical devices, and Japan is specialised in blood analysis. A company that produces clinical testing equipment in Hyogo Prefecture, and a manufacturer of Specimen pre-treatment modules.

Pre-processing is prompting major developments in blood testing equipment used in hospitals. 30 to 40 photo sensors are used for analysis in such devices. There is also a growing trend in the automation of medical devices, since it is very important to make tests effective and efficient, as well as ensuring low costs. In fact, I believe the cost of physical check-ups is decreasing thanks to automation.

 

Are you looking for new co-creation partners internationally?

We are discussing the terms of collaboration with a Chinese company, who will be handling a part of our component manufacturing. When it comes to the European and US markets, we are looking for sales distributors rather than manufacturers. It would be great to find partners who understand our product in the US, France, or Germany.

 

Your company was founded in 1974, and you will soon be celebrating your 50th anniversary. What goals would you like to have achieved by then?

We currently have a sales turnover of ¥4 billion and for our 50th anniversary, the original target was to reach ¥5 billion. However, due to the pandemic, many of our projections have stagnated. We are launching a new product line next year; we have developed a new device that uses a new type of photo sensor, and we are planning on launching two versions of it. Hopefully in a few years’ time, these new products will contribute to reaching our sales goals.

 

Imagine we interviewed you again on the last day of your presidency. What would you like your legacy for the next generation to be?

I am the second president of this company, but I am not from the founder’s family. In fact, my colleague’s father founded Shinkoh-Electronics, so I will be passing the company on to him. We have invested heavily in the new products that will be launched next year, so we need to make them a success. We must also keep adding value to our products. To do that, financial investments are obviously important, but the human element also plays a vital role. We are trying to recruit new and talented engineers; however, we are still struggling to find competent people who wish to come to Odawara city.

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