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Special steel to support global industry

Interview - March 15, 2023

Established in 1924, Nakagawa Special Steel Inc. (NSSI) has been supporting Japan’s industrial development as a reputed trader of special steel for almost a century.

FOUNDER OF NAKAGAWA SPECIAL STEEL INC. (SECOND FROM LEFT)
YOICHIRO NAKAGAWA | PRESIDENT OF NAKAGAWA SPECIAL STEEL INC.

How do you think Japanese companies have been able to maintain their leadership despite stiff price competition from regional manufacturers? 

I should probably start by explaining the role that trading companies like our company play in the market. These trading firms play a major role in providing a very high level of quality, cost, and delivery (QCD), and we have a number of steel-producing companies that have close relations with our company for this reason. We believe that the monozukuri process itself provides value and creates very strong supply chains, thus the need for the participation of trading companies. We are a company that specializes in special steel. Of course, steel manufacturers conduct QCD, but we complement and enhance it. It can be said that this is the value of NAKAGAWA SPECIAL STEEL INC. (NSSI). Steel produced by steel manufacturers is delivered to customers such as companies in the automobile, construction machinery, and industrial equipment industries through multiple supply chain companies such as secondary processing, tertiary processing, parts, and assembly manufacturing companies. This steel is processed, assembled, and turned into parts, finally becoming products such as automobiles and construction machinery.

Along these long and complicated supply chains, there are many SMEs who are highly skilled. Special steel trading companies such as NSSI have entered long and complicated supply chains next to steel manufacturers, with the specialized trading companies grasping the QCD required by customers and being able to provide supply-chain-SMEs with details or even make adjustments of various requirements to satisfy final users QCD needs. As a result, we believe that good supply chains where trading companies such as ours are located lead to good manufacturing and excellent monozukuri.

The QCD requirements of these final users such as the automotive and construction equipment manufacturers as well as each supply chain company vary from one to another. The adjustment to cater to each of their needs is important. This is where trading companies such as ours can contribute a lot.

 

As a company focused on QCD, what were some of the challenges the COVID-19 pandemic situation presented to your company, and what are some of the measures your company has implemented in order to mitigate the impact of similar situations in the future?

That situation had a significant impact on our company, and it meant overall that products couldn’t be delivered on time. However, we recognize that these kinds of supply chain disruptions have been a frequent problem in the past, with events such as earthquakes, floods, and pandemics. In order to mitigate these issues we have been changing shipping arrangements and coordinating delivery dates with customers and suppliers. This is actually the function of a trading company.

In Japan, we have frequent earthquakes and somehow we have gotten used to them. Japanese firms are very good at overcoming such situations. Our delivery doesn’t just mean JIT but also adjustments in unexpected situations.

 

Japan is known as a country that is quite resource-poor, with no significant natural resources, nevertheless, Japan is the third largest steel-producing nation in the world. As a steel trading company centered in the steel business, how do you think Japan has been able to be successful despite being resource-poor?

Most of the big Japanese steel mills such as JFE Steel have their plants alongside the ocean, which makes it easier to obtain natural iron ores and coking coal. Also, Japan is a steel scrap exporting country and steel mills with Electric Arc Furnace have advantage when they utilize steel scraps.

 

What would you say is the strength of the Japanese steel industry and what makes it different from regional competitors?

I think the quality, energy conservation and productivity of the Japanese special steel industry has been the best in the world. One of the reasons behind the success of so many Japanese steel companies can be traced back to government support in order to revitalize the country from the ashes of the Second World War. Which allowed the country to pick itself up off the floor after the war, and after that companies began taking the initiative by themselves and became the best quality steel mills with most advanced facilities.

When it comes to special steel, the most important thing is quality and cost. Customers such as automobile manufacturers have very strict standards of quality, and there cannot be shortcuts; these standards must be met in order to satisfy the customers.

Soon after Toyota Motor Corporation was founded, a special steel manufacturing company was established with the idea that “a good car needs a good special steel” which led to forming Aichi Steel Corporation.



You’ve mentioned how back in the day it was said that good cars need good steel, however, when we look at the automotive industry today it is seeing a major shift in the types of materials carmakers are demanding. With not only the end of the combustion engines, but we are also seeing a shift to lighter materials such as aluminum carbon fiber reinforced polymers (CFRP). Could you tell us a little about this shift’s impact on your own business? What solutions are you providing customers in the automotive industry?

Special steel is a very basic material, and for that reason, there are various new markets for special steel such as EV, renewable energy, and 5G-related products, etc. We are going into those markets and many of our customers are also focusing their attention on these markets moving forward.

It is said that special steel gives rise to Japanese industries, and we see this as key. We are also in an advanced product business because EV motors are a growing industry and there is an ever-increasing need for advanced products such as special magnetic materials.

Some of our engineers have been working very hard on original motor related new products. We are seeing many of Japan’s best steel makers trying to get into the field of magnetic materials, too, so we have had requests for NSSI to do marketing for these companies, too. One of the newest products to come out from this is a new type of magnet; the only one of its type in the world.

 

We are aware through our research that special steel trading isn’t the only aspect of your business. Can you elaborate more on the other sides of your operation?

We have a warehousing business and a steel processing factory. Both of these businesses have synergies with the steel business. Through this, we have been able to solidify the company’s position and make it strong and competitive. The real estate business has a mutually complementary relationship in terms of profits because the economic cycle is different from that of the steel business. That means if one business is dropping, the other can pick up and mitigate the losses that might occur.

 

Many companies in this report have all agreed on one key element, the idea of partnerships. In order to cater to new markets many Japanese firms are finding co-creation partners to enter new markets and cater to new customers. As a trading company that has many unique technologies and know-how, are you looking to find cooperation partners in other markets, and if yes, which industry would you like to enter?

Our company compares a little differently to the sogo shosha, which are the big trading companies. The sogo shosha act in various fields, whereas we in the field of special steel will look for reliable partners overseas that are related to special steel, such as companies among supply chain of special steel. The other businesses that have been mentioned today have been the real estate business, and we utilize this to align profits and create situations where we have a steady line of profits at any time. New partners will also come from that business.

 

Your company was established back in 1924, which is almost 100 years to date, and during your company’s history, you have been able to expand your business overseas such as in 1996 in Thailand. Since then you have expanded further to the US, China, Vietnam, Indonesia, and your latest endeavor to Mexico in 2014. Moving forward, what other countries or regions have you identified for expansion and what strategies will you employ to do so?

To put it simply, we would like to fight and win in emerging markets. Thailand is promising for the automotive steel industry, and Indonesia looks promising for the construction machinery market. Throughout Asia, the automotive industry is catching up to the rest of the world. In Southeast Asia supply chains of steel makers, parts manufacturers, and process manufacturers of special steel have been built, and in some cases. NSSI has built them. Since there is an existing supply chain industry, there is space for improvement and growth for our company.

In Mexico, we would like to gain a foothold as soon as possible in order to preempt the anticipated growth in Latin America. We have representatives in Europe and if needed will make an expansion to the European market.

 

Could you elaborate on your company’s next mid-term strategy to capitalize on and continue this corporate growth?

I think it will be as basic as brushing up on our internal business, namely, the acquisition of human capital and basically upgrading our employee's skills. Business digitalization is something else we will look to in the mid-term, and essentially it comes down to stepping up the company’s operations to a new level in order to introduce new kinds of approaches.

I would like to emphasize the internal investment in human capital as it is very important to the company. Salespeople and those with a very specialized set of skills are very hard to come by, and there is a scarcity of human resources because of Japan’s demographic issues. With these social problems in mind, we need to invest in human capital and especially those with technical skills and know-how. It is the only way to mitigate the impact of Japan’s dwindling population and this investment in human capital will become a core foundation upon which we can build the future of NSSI.

If you were to sum it up, in-house improvements first, especially in the aftermath of the COVID-19 pandemic.

 

Imagine that we come back in two years’ time and have this interview all over again. What are your goals and dreams for the next two years of Nakagawa Special Steel Inc?

I hope to be able to see in-house improvements as mentioned above and steady growth of existing business and new ones.  Before the COVID-19 pandemic placed so many restrictions on travel I used to enjoy spending my summers in Europe as well as frequent overseas business trips. Now that COVID has almost cleared I would like to do this again to recharge and re-energize.

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