Since their foundation in 1938, Nippon Steel SG Wire has adopted a pioneering spirit to manufacture and sell around 10,000 different kinds of wires according to the needs of the various fields that require sophisticated manufacturing technologies and advanced quality control, such as automobiles, precision equipment, and medical care, among others.
Over the past couple of decades, we’ve seen the rise of manufacturers in Southeast Asia who can replicate certain manufacturing processes and products from Japan at a cheaper cost and with economies of scale. How have Japanese firms been able to remain so competitive in the face of this tough price competition?
It is very difficult to answer simply. Twenty years ago, we developed our sales and production all over the world using the monozukuri philosophy. I think the power of monozukuri consists of 3 elements.
The first is the power of the field operators. They are really hard workers, and in the field they always think about how to make continuous improvements, or ‘kaizen’.
Throughout a series of quality control activities, they always try to keep on making improvements in their field work. And of course, they also have a very high sense for maintaining safety as well as keeping a high level of quality in what they manufacture.
The second is the power of the staff. They really focus on what's happening in the actual field work and don’t just sit around in the office. They go to the field to look at the actual situation, and they find roots of any issues and develop a framework of what has to happen and how we will run things based on various theories and principles.
So it's a very scientific and logical process. Our staff gains this power through the organization-wide practice of always learning from past failures and sharing knowledge by discussing issues among the entire body of staff. If someone identifies something new they will share it with the entire group, and this is enabled by good organization.
The third is organizational power. By that I mean it comes from across the entire industry, because what we're manufacturing are high precision wire products that use not just our own technology. It wouldn’t work if just a single company was involved.
One aspect of this is we continue receiving requests from our clients. Sometimes it can be overwhelming and pressing, but it always comes. And the other thing is, we're blessed by this environment that we belong to Nippon Steel group. The materials are high quality that can sustain all the high specs and requirements demanded by our customers. In addition, we have really well prepared and streamlined processes. We have all the facilities and all the supporting systems that we need and an entire supply chain to support what we're doing.
I think these three points are why Japan has been leading, or at least led 20 years ago, the manufacturing of the world. But as you highlighted, it's a fact that after that there were emerging countries trying to purchase new manufacturing facilities and using their lower labor costs to copy what we'd been doing before. That's why we have to keep moving ourselves forward and continue developing technology-wise and going into niche areas.
However, I also identify some weaknesses in Japanese monozukuri, or manufacturing, that's also based on the three other factors that I think were responsible for us leading in manufacturing, so that's interesting.
Number one is, as we rely on all the field workers and the great staff so much, Therefore, standardization has been delayed. Number two is that we're delay in digitalization and introducing IT into the field compared to other companies in emerging countries. Emerging countries have introduced most newly equipment that incorporates our technology and know-how. On the other hand, we had to compete with traditional equipment through high skill, so productivity and cost could not match emerging countries.
Number three is, We've always been chasing by the high expectations of our customers and all their requirements, and we try to respond to individual needs so we make our solutions very tailor-made. On the other hand, this approach is totally opposed to mass production, which gives us a disadvantage. That's why the biggest topic we have to resolve right now is that we want to make both sides of the work. One side is we want to have individual solutions. We want to cater as much as possible to all those individual customers’ needs. But on the other hand, we also want to strive for efficiency in our production processes, so we have to go for both.
The Japanese population has the oldest average life expectancy More than 1/3 of the population is over 65, which means a reduced labor force and less demand for products in general. How has this declining demographic affected your company and how are you reacting to this particular challenge?
Regarding the shrinking market size, I think if we only look domestically, you are right that it is shrinking but we're always keeping an eye on the global market and actually, it's expanding on the whole. That's why we realize that we must always stay global.
And as for how to secure the human resources required, at this point in time we still don't have any issues trying to hire engineers, but as you mentioned, with the demographic structure changing to an aging population, we're expecting that in the future it will be harder to hire engineers to work in the field. We think that there's no choice other than going for automation. There are good automation companies in Japan and we continue to collaborate with them and create solutions.
When it comes to our strategies moving forward, we have bases not only in Narashino, Japan, but also Swedish company called Suzuki Garphyttan AB. Including these subsidiaries, the NSSG Group has many sites around the world, that we're going to deliverour message in terms of our human resources and our products. Each site will be our focus for nurturing new generation of engineers who we will send out all over the world.
However, no matter how much we nurture great engineers in these locations and send them all over the world, it's hard for us to penetrate all the way down to the field level so I think it's important to fill each individual hierarchical layer in each individual region with local workers and leaders who understand our approach and want to do very well because no matter how hard we try, it’s very difficult to fully understand all the various cultures and how to motivate workers in the field. So that's why we think that local leaders are important.
In engines as well as clutch springs or transmission springs, wires are exposed to very high heat and fatigue. In your product development, how are you able to tackle these two problems of heat resistance and fatigue in the products that you create?
The biggest factor in triggering improvements to our products is always our customers. They ask for a certain level of strength when it comes to fatigue or resistance and that’s what we aim for. We have all the basic processing technologies required to enable us to do that, and it's always a process of continuous improvement in order to achieve a higher level of certain specs. So demand, or requests for good specs is one driver. The other two contributing factors are a good supply of good quality material, and the peripheral technologies which support and enable the entire process to happen. This is what allows the continuous improvement of the manufacturing process, which is all underpinned by monozukuri.
The automotive industry is currently living in a time of great transformation including the move from traditional combustion engines to EV cars, and from the use of heavy ferrous metals like steel to lightweight alternatives including aluminum. How is your company reacting to these changes in the automotive industry?
Our mid-term strategy goes up to the year 2025. In 2038 we will celebrate our 100th anniversary. We're very good at doing things like ICE(Internal Combustion Engine) related products and we believe that the switch to electrification will be completed by then. By that time, we want to set out a clear, long term strategy. We need to consider the level of demand there will be at that time, but we will also be looking at spreading our market share of non-ICE products as well, and not just sticking to the automotive industry but also solutions and products outside of that.
I cannot tell you much more about exactly what development we're doing for the transition over to EVs, but we're figuring out what we can do in respect of EV’s, and that includes continuing to provide wire products and similar products that we're already producing. We're working on that. As for the transition from heavy to lighter materials, we still very much trust in the strength and resilience of steel as a material firstly because it is economical, low cost, and secondly because very abundant resources are available. Thirdly, I think it’s good from an SDG’s perspective because the nature of the material means it is 100% recyclable.
I think there are still numerous possibilities for us to explore regarding the versatile characteristics of steel. We can use heat processing and other ways to process it and give it different characteristics, and it allows the widespread use of our products, that are competitive with FRP, light titanium, and other special materials.
We think we still have more than half of those characteristics of steel that we can explore and study, which still gives a lot of possibilities for steel as a material. While human beings have been using steel since long ago in history, we still think there are a lot of possibilities awaiting us when it comes to discovering new properties of steel.
Among your proprietary products is a wire with a diameter of 16 microns, making it thinner than a strand of human hair. What is the need for such a thin product and what applications does it allow you to target?
The main use would be as a contact probe or for medical use, which sometimes requires the use of very thin wire. The most popular use would involve wire about 30 to 40 microns in diameter, and we usually use it as a base for future processing. For example, if you want to ply something around that particular wire, it’s suitable for that.
In recent times you've had many changes occurring in your medical business. In 2019 you transferred the medical products division from a subsidiary to NSSG itself. Three years after that restructuring, can you tell us how that has gone? Has it met your expectations? And secondly, what applications and what performance do you expect from your medical business in future?
That’s a very challenging question. I would frankly say I don't feel that medical is one of our core businesses yet. It still has a way to go and that's why we made all these moves. We tried once to separate ourselves from the medical division and have it as a daughter company but then we thought it wasn’t strong enough so we incorporated it back into our main body to try and achieve some technological breakthroughs and strengthen the business.
That's why some of the researchers and engineers from our main body are also supporting and working in the medical section. We're still struggling a lot to see how we can get through it and reach a better level but there are a lot of restrictions regulatory-wise applied to medical devices and there is also a lot of competition.
For example, there are already big companies providing such supplies both in Japan and overseas in the US. We were originally intending to go for a niche area and find something we could do in the medical industry but because we are essentially a material supplier, it’s a little bit difficult to make a good profit as a business, but we're struggling through it.
Aside from the support you’ve had from Nippon Steel Corporation in acquiring very highly functional materials, what are some of the other synergies you're able to create with Nippon Steel Corporation, and what advantages belonging to the Nippon Steel Group are brought to your firm?
I would say we're enjoying the full scope of advantages because we're a 100% subsidiary of Nippon Steel, and it's really crucial to our business that we can have all those high quality materials readily supplied, and with good performance levels, because that's a key to our business. I think another huge synergy we're enjoying is the rotation of human resources, so we can send our engineers over to Nippon Steel and sometimes we take personnel from them and we learn from each other. We can also send our wire technology and spread it over to the main body of Nippon Steel. Sometimes Nippon Steel researchers come to us as well, so it's a very good synergy there.
You acquired Garphyttan, the largest wire maker in Europe at the time, in 2009. Furthermore In 2014 you acquired KTS Wire Ltd, a UK based company. Why did you decide to acquire these companies and make it a subsidiary?
Our ambition is to go global so these acquisitions are necessities. We identified synergies between both companies and Nippon Steel was actually the main party to lead first M&A with Garphyttan. So that's why it happened as you’ve seen.
Actually, before we did that, we had also been exporting from our plant in Narashino, but as we are doing global business there are also other factors that would incur costs such as tariffs, for example, if you're exporting products for use in other areas. Obviously you’d want to have some local supplies as well in other regions, for example, North America or Europe, so that's why considering all these factors, we think it's very beneficial to have that under our group.
Another side of it is the technological synergy that we have identified. We could share our technologies with them and show them how we do metal processing in Japan, and they also have very unique technology that they could share with us. As for R&D, SG Wire is sending people to Sweden so they can do research together, so having all these technicians and researchers working together provides obvious synergy in terms of advancing our technology.
Looking at the future, is your company currently looking for similar types of partnerships and M&A’s with foreign firms? Are you looking for expanding your network by engaging in partnerships or acquisitions?
We’re not thinking about M&A’s at this moment, but looking at the future I think we’ll be seeing a changing business environment within the industry and if somebody decides to sell their business and there's a chance for us, it’s possible that we might take it.
You made a series of acquisitions in Europe from 2000 to 2015. You are also present in North America as well as Mexico and around Asia. Looking at the future, what markets will you prioritize and why?
I would say North America and China are the priorities. We don't know what's going to be happening with China's policy on EV’s and so on. But still, in the foreseeable future, we still expect big demand for our ICE technology so I would say North America and China still remain a good priority.
Let's say we come back to interview you again on the last day of your presidency. What would you like to tell us about your goals and dreams for the company by that time, and what would you like to have achieved by then?
The big milestones we’ve set are for 2038 because that's the year of the 100th anniversary of the company and we want to make sure we're really a shining company that's very attractive for our employees, making good social contributions and achieving SDG's. We’d like everyone to appreciate the company’s business, to appreciate what we're doing, and also we want to contribute to our stakeholders and stockholders.
From that perspective, we start thinking about what we should do right now, and that's what I'm going to do. And as for my tenure, I'm not sure if I'm going to stay in the presidency until 2038. Probably not, but we want to make ourselves a company that we can all be proud of. That’s our goal.