Suntech has gained valuable insights into the ever-evolving industrial landscape of Japan and further afield over recent decades. The company’s focus on technology resonates well with its customer base, which includes governmental entities.
Now, with a depreciated JPY, it is our view that there’s never been a more opportune moment for Japanese manufacturers to meet the pressing needs of the macroeconomic environment. Do you agree with this premise, and why or why not?
To provide an overview, our core operations involving heat exchangers and stainless steel tanks remained unaffected by the COVID-19 pandemic and other global events due to their essential nature in daily life. While it's accurate that the costs of raw materials for stainless steel have been increasing, this escalation has been paralleled by an upsurge in product prices. Our strategic positioning in a relatively uncompetitive market provides us with a distinct advantage.
As for businesses that can be easily replicated, China has become their primary hub. Conversely, specialized enterprises that necessitate advanced knowledge or technology continue to thrive in Japan. Suntech's technological offerings resonate particularly well with our customer base, half of which comprises governmental entities. Essentially, public funds are allocated toward these power plant engineering services and products. This dynamic implies that even as material costs escalate, the consequential impact on our business remains limited.
However, this scenario pertains solely to the domestic market. On the international front, we operate manufacturing facilities not only in China but also in Myanmar. Coordinating production processes overseas presents intricate challenges, prompting us to employ an innovative solution known as Smart Glass. This technology enables real-time monitoring of our remote staff's activities. Moreover, the prevailing political turmoil in Myanmar, marked by a coup d'état commencing in February 2021 and ongoing to date, has significantly complicated our overseas operations.
The COVID-19 pandemic introduced several factors that hindered our international operations. Our shipment approach, involving cost, insurance, and freight (CIF), necessitates our ships to dock at customer ports for goods receipt. Unfortunately, the enforcement of stay-at-home orders posed challenges in confirming orders due to the absence of personnel at these port facilities. The resulting logistical delays exert a substantial influence on our business operations, leading to considerable frustration.
Are you still feeling some of that impact now or have things returned to normal?
We are pleased to note that a complete recovery has been achieved at present, and the lingering effects of the pandemic are no longer impacting our operations. Our procurement efforts extend to Finland and Germany, with a notable mention of an episode involving Finnair. Their airport boycott disrupted our material inflow, causing delays in essential supplies. Given the multitude of unforeseen global events throughout the COVID-19 pandemic, we opted for a cautious approach to international business transactions, particularly in the realm of procurement. Furthermore, our revenue is denominated in USD rather than JPY, rendering us relatively unaffected by currency depreciation.
One of the biggest misperceptions we’ve found during our time in Japan is that in certain specific areas, Japanese companies can be very successful in Japan, but have trouble translating that success overseas. The misperception comes from the idea that it is not an innovation problem or a quality problem, rather it is a communication problem. It comes down to getting strengths and details across to international consumers. As someone with an international background, what is your approach to overcoming that challenge? How is Suntech serving as a bridge between Japan and international markets?
Addressing the communication divide holds significant importance for me. In Japan, we adhere to the Japan Industrial Standard (JIS), a framework designed to safeguard domestic enterprises. In the United States, the American Society for Testing and Materials (ASTM) is in place; China operates under Guobiao (GB); Europe abides by the European Committee for Standardization (CEN), while Malaysia conforms to Standards Malaysia (SM). Distinct national standards exist across countries. Regrettably, Japanese entities often struggle to seamlessly align with these foreign standards, which poses a substantial impediment to international expansion.
My personal background is diverse and enriching. I spent my formative years in Arkansas before pursuing higher education at Temple University in Philadelphia. I've witnessed the apprehension exhibited by numerous Japanese companies, particularly those hailing from rural regions. Fortunately, Tokyo, in contemporary times, stands as a diverse metropolis, embracing people of varied ethnicities. However, remote and rural pockets still harbor apprehensions toward foreigners. Astonishment arises in some quarters at the prospect of encountering individuals of African descent within Japanese firms. Personally unbound by such psychological barriers, I view myself as a conduit, aiding the enterprises we collaborate with in surmounting these challenges.
A significant challenge faced by Japanese enterprises lies in the variance of international standards. While the JIS holds sway domestically, foreign counterparts such as ASTM in the US, and CEN in Europe, underpin their respective markets. Notably, Chinese companies solicit quotations based on ASTM or CEN norms, thereby rendering JIS applicable exclusively within Japan. Negotiating these divergent international standards demands a wholly distinct approach. To obtain the requisite certifications, Japanese companies find themselves obliged to allocate JPY 10 million to a Yokohama-based firm, entrusted with the meticulous processing of documentation in English.
We know that your core market has been sewage treatment, but in recent years you’ve diversified into all kinds of other areas including pharmaceuticals and semiconductors. Is there a particular new business or customer base that you find most compelling right now that you would like to put a greater emphasis on?
Let me start with a question. Can you guess which industry contributes the most to CO2 emissions in Japan? Surprisingly, it's the steel sector, with key players like Nippon Steel leading the emissions. I hold a strong belief that the burgeoning hydrogen industry can restore Japan's international reputation to its former glory. It's essential to understand that Japan's steel industry accounts for a significant share of CO2 emissions, driven by the chemical reactions involving iron minerals, and coke. The domestic landscape features three dominant players: Nippon Steel, JFE Steel, and Kawasaki Steel.
These companies collectively generate a substantial portion of the CO2 emissions due to these reactions. Currently, research and development efforts are underway to replace coke with hydrogen, a national initiative known as Course 50. The successful implementation of this technology would lead to a transformation in steel manufacturing, fostering an environmentally friendly approach. Notably, the steel industry has been a cornerstone of Japan's economy since WWII. Thus, we anticipate that the adoption of this technology will create a ripple effect, unlocking various opportunities for associated enterprises.
Can you tell us a little more about your involvement in the Course 50 project to the extent that you can?
Through our collaboration with major Japanese iron makers, we have achieved a significant milestone; the development of the world’s first facility capable of raising hydrogen to temperatures as high as 1100 degrees Celsius. The steel production process demands elevated temperatures, traditionally sustained through the addition of coke. As hydrogen inherently operates at lower temperatures, we engineered a specialized device to elevate the temperature to the requisite 1100 degrees Celsius. I'm pleased to share that this innovative device has been successfully delivered to a major Japanese iron maker's facility.
Is this technology seeing practical use or is it still in the development phase?
It is still in the early experimental phase.
Are you getting any inquiries from other major steel manufacturers around the world?
It is something that the Course 50 project is trying to do, which is essentially bringing together steel manufacturers from all around the world.
We know that your firm has been involved in many collaborations including the one you just mentioned with Nippon Steel. For many decades now Japanese firms have taken a vertical approach to collaboration, but with the changing of the times, a more horizontal approach is required. What role do these kinds of collaborations play in your business model both domestically and overseas?
I joined the Young Entrepreneur section of the Japanese Chamber of Commerce (YEG) with the primary intention of fostering collaborations with fellow domestic enterprises. Such platforms for emerging entrepreneurs are prevalent globally, and I've come to understand that they provide fertile ground for meaningful partnerships. Within these environments, you establish connections with other driven young individuals, all pursuing success with the same zeal as you. A noteworthy example of the potential of such collaborations is evident in my relationship with Mr. Kawakita, the President of Daiko.
In our production processes, we utilize pigskin gloves. However, these gloves tend to last for a mere two weeks, which raises concerns about sustainability and waste. In response, a collaborative effort was initiated with Daiko. Together, we addressed this challenge and devised a solution; more durable, sustainable gloves that significantly extend their useful lifespan. This is a testament to the power of collaboration within forums like the YEG, where innovative solutions emerge through the collective drive of passionate entrepreneurs.
Across Southeast Asia, the influence of Japanese hardware has shown a decline, notably in countries such as Thailand, Vietnam, and the Philippines. Conversely, there has been a substantial surge in demand for assimilating the Japanese approach to business operations, particularly regarding practices like cohesive employee meetings. This softer, more holistic methodology has garnered significant appeal among foreign companies operating outside Japan's borders.
Within the YEG, we are actively crafting a tour designed to cater to those intrigued by the intricacies of Japanese operational practices. This immersive experience offers participants an opportunity to visit factories and gain insights into the deeply ingrained Kaizen, 5Ss, and monozukuri philosophies inherent to Japanese production culture. This burgeoning interest in experiential learning is evident through the escalating demand for such initiatives.
Furthermore, in line with the World Trade Organization's (WTO) aspirations, I am personally participating in the development of novel sustainable circular tourism endeavors in Kagawa. These collaborative initiatives have considerably expanded our company's scope of inquiries, encompassing not only our manufacturing prowess but also broader dimensions of expertise.
We would like to get your cost-risk analysis on Japan’s aging population. On one hand, you have a very international perspective, and bringing in foreign workers doesn’t seem to be an issue at all, but on the other hand, Kagawa is a very rural part of Japan with a low population density, so I imagine that recruitment can be an ongoing challenge. Do you see Japan’s aging population as more of an opportunity or more of a threat in terms of day-to-day business continuity?
I have the privilege of being a father to three children alongside my wife, which makes me feel that we are contributing to our society in a meaningful way. My professional focus lies in the M&A sectors in Japan, where I've encountered numerous companies facing a unique challenge: the absence of successors. Consequently, these entities are exploring options to merge with or be acquired by other firms. The COVID-19 pandemic prompted governmental support for SMEs in the form of loans, which were due for repayment in April 2023. Yet, a substantial number of these businesses continue to grapple with the pandemic's aftermath. This predicament has necessitated the Japanese government to take proactive steps, including extending the loan repayment duration.
The overarching backdrop is the declining Japanese population, resulting in the unfortunate closure of numerous SMEs. Concurrently, a dwindling labor force coupled with an economic downturn poses formidable challenges. However, within these challenges lies potential opportunity. As a member of the G7 and the pioneer in navigating rapid demographic changes, Japan occupies a unique position. Other nations, including China, are poised to follow suit. Japan's response to these shifts is being closely watched, positioning the country as a role model for adapting to such transformations.
Various avenues hold promise for overcoming these challenges, one of which is the integration of refugees into Japanese society. Personally, I embarked on a project, visiting a refugee camp in Bangladesh to gain insights into their circumstances. As Japanese society evolves, unprecedented opportunities for women to participate in the workforce and forge successful careers have emerged. Notably, the national retirement age has been extended to 65 from 60, and many companies extend employment opportunities even further. It's conceivable that lifetime employment could become a reality as I approach that stage.
The Japanese government is diligently leveraging its available tools to address these concerns. In October 2022, there was a subtle relaxation of laws about foreign workers, enabling companies like ours to tap into a more diverse workforce. The upcoming Osaka Expo in 2025 holds substantial promise. This event presents an exceptional opportunity to rejuvenate Japan's global presence and convey a powerful message to the world.
Japan’s economy is unsustainable as it currently exists, so we are very curious to get your point of view on how it will unfold in the next 20-40 years. Either Japan needs to meaningfully globalize and go out into the world, or they have to let the world into Japan by naturalizing foreign-born citizens working in Japan. Which route do you think it will go?
From my perspective, the recent inclusion of the English language as compulsory education in Japanese elementary schools represents a significant development. Previously, language instruction commenced only in middle school, a point at which I believe learning a new language is less effective. This language barrier has undoubtedly discouraged many Japanese individuals from pursuing experiences abroad. However, I am optimistic that within the next decade, we will witness an influx of foreign nationals coming to Japan. Consequently, it becomes imperative for the Japanese government to enact measures that foster inclusivity for foreign workers.
Yet, considering the contracting domestic market, a larger-scale contemplation arises; the strategies Japanese SMEs adopt to navigate this landscape and their endeavors to expand beyond national borders. Given the current scenario, venturing into foreign markets has become not just a strategic choice, but a survival imperative.
A common misconception is that Japanese people lack English language proficiency. However, the reality is that many Japanese individuals have not been equipped with the skills required for debating or articulating opinions. Reflecting on the Japanese education system, predominantly fosters a passive learning environment, often emphasizing rote memorization of specific facts or techniques. The scope for self-discovery is limited, leading to challenges in cultivating critical thinking and logical reasoning beyond predetermined solutions to problems. In my view, cultivating the ability to form independent opinions and honing critical thinking skills are pivotal. It is somewhat disconcerting how these attributes are often lacking among Japanese individuals, inhibiting their capacity to formulate original ideas.
Imagine that we come back and interview you again in 5 years. What goals or dreams do you hope to have achieved by the time we come back for that new interview?
I am excited to share that this upcoming December, I will be launching my venture in Thailand, focusing on the critical matter of food waste. I aim to forge a path that harmonizes business growth with environmental stewardship. I am especially driven by the significant food waste challenge prevalent in Africa, which calls for innovative solutions.
In recent times, we have witnessed substantial population growth in several countries, including Thailand, Bangladesh, Africa, and Vietnam. This demographic shift underscores the urgency to address pertinent issues like food waste and sustainable business practices on a global scale.