Founded in 1970, Pelnox has leveraged its proprietary technology and know-how for extraordinary growth as a formulator of resin compounds and tailored products.
The Japanese chemical sector suffered in the production of base chemicals due to regional competitors being able to lower costs. Nevertheless, Japanese manufacturers remain leaders when it comes to highly functional and specialized chemicals. Japan can also count on a variety of chusho kigyos who are able to develop niche chemical and material technologies. In your opinion, what are the strengths and weaknesses of the Japanese chemical sector today?
The strength of the Japanese chemical industry lies in its ability to expand and advance further from the basic chemicals. In fact, I believe that the most advanced area of Japan's chemical industry is its capability to provide photoresist for semiconductors. Japanese companies are dominating 90% of the share in the world because they have the ability to mass-produce high-purity products with fine synthesis and filtration technology. This fine chemical is produced through several stages of fine synthesis and filtration of impurities. With that, Japanese companies have been able to excel in the fields of semiconductors and electronic devices & components. The demand for Japanese fine chemicals is increasing, especially with the miniaturization trend. Japan excels in the field of advanced functional chemicals for LCD, solar cell, OLED, and EV. However, Japanese companies are unable to compete with the cost competitiveness of their Asian counterparts and are falling behind. I believe that the cause of this is not only a problem of private companies, but also a problem of the government support system.
Miniaturization is intrinsically linked to the history of electronics. The first computers were cupboard-size devices, but today's laptops are smaller and have faster processing power. With this trend of miniaturization, products are becoming smaller with added functionality. How are you reacting to this current miniaturization trend?
Next-generation components are evolving to be smaller and thinner, but they also generate heat due to the large current flow, which causes performance degradation of the components. The resins used in these components must have higher functionality, such as thermal conductivity, heat resistance, and water resistance. We not only meet these needs, but also develop new products with added value and introduce them to the market.
For example, XU-2000 heat-dissipating gap filler is a heat-conductive resin which can be located between components. It can efficiently dissipate the heat generated inside equipment via a heat sink, yet can be bonded thin and has high flexibility and adhesiveness. Compared to other heat-dissipating gap fillers, it is a high value-added, highly functional material with excellent adhesion and environmental resistance, as well as having measures to prevent electrical contact failure.
Encapsulating resins used for power semiconductor modules and automotive devices are our mainstream products, and they continue to evolve. In addition to the high heat resistance that enables these products to withstand high current flow and heat generation, we are expanding our lineup of products that lead the competition by maintaining functionality over long periods of time even in harsh environments and providing flame retardant properties.
Your business can be divided into two main divisions: insulating materials and conductive materials. Which one of these two divisions are you currently focusing on? Which do you believe has the most potential for future growth?
We believe that the insulating materials business continues to have potential and future potential. We are investing a lot of resources in it. There are 2,500 registered raw materials that are essential for our manufacturing. Of these, about 50 materials are used for the conductive materials business, and the rest are the raw materials for the insulating materials business.
For a formulator (compounding technology company) like us, the more types of raw materials we can use, the more we can demonstrate our compounding and mixing technologies. In this respect, the insulating materials business has potential for developing new products.
Our insulation material products are also used in Japan's new flagship rocket, the H3 Launch Vehicle, which was launched recently. We are involved in the development and manufacture of binders for CFRP used in the rockets, providing resins with high strength, high quality, and high reliability. We have aggressively entered the aerospace business as well as the market for automotive components, which is one of our strengths.
In the conductive materials business, we are also entering new markets. We believe that the materials used as bioelectrodes for wearable devices, for preventive medical care
, will allow us to demonstrate our dispersion technology, likewise, we are developing conductive materials with features that other companies do not have.
At present, 70% of our development resources are allocated to the insulation materials business and 30% to the conductive materials business.
With CASE, cars are becoming more like computers on wheels, and the cost share of electronic components in relation to the total value of the car will grow to about 35% by 2035, which is up from around 16% today. How are you adapting to the shift to the automotive industry? What opportunities does this new emphasis on electronics that come with EV present for your company?
The shift to EVs offers a great opportunity for us because it increases the number of ECU circuits. Our strength is our ability to provide materials that are heat resistant & heat dissipating and can cater to the heat cycle and work in severe environments, from hot deserts to freezing areas. Our resins do not crack even under extreme conditions, which enables us to use a design that allows semiconductors to properly function. With the shift to EVs, semiconductor chips are about to be replaced by silicon carbide (SiC), and semiconductor modules using this SiC must have unprecedented heat resistance and heat cycle characteristics. We are collaborating with several major semiconductor module manufacturers to develop the resins to be used in next-generation semiconductors, and we have advanced to the prototype evaluation stage.
The semiconductor market is predicted to grow to be worth around USD 1 trillion by 2030. Over the last few years, especially due to the COVID pandemic and supply chain issues, we have seen chip shortages worldwide. As a result, regional leaders are pushing to expand their domestic production capacity. How are you adapting to these regional pushes, and how do you plan on taking advantage of some of the opportunities that may arise from them?
Automobile manufacturers are conservative and use only proven semiconductors, and TSMC and others are planning to increase production of semiconductors for automobiles. The shortage of semiconductors used in electronic circuit units (ECUs) for automobiles is still continuing, and this is having a significant impact on our company, such as a decrease in purchase orders for insulation resins used in electronic components for automobiles. In particular, sales of cast resins for semiconductor modules and temperature sensors for automobiles have decreased. We believe that if automobile production volume recovers or stabilizes due to capital investment by semiconductor manufacturers the shipping volume for our existing products will increase and adoption of new products will accelerate.
In the next 15 years, it is estimated that 1 in 3 Japanese people will be over the age of 65, which presents issues such as a labor crisis and shrinking domestic market. What are some of the challenges that you see with Japan's demographic situation in your company?
50% of our products are being exported, and 60% of that is exported to the Chinese market. On that note, the shrinking domestic market may not have a great impact on our business. However, the nation’s declining and aging population has posed a slight problem for us because 165 of our employees are also aging and we have fewer younger and more talented engineers.
How do you plan on overcoming this issue of human resources?
Every year, we not only employ a constant number of new graduates, but also actively recruit mid-career personnel. Even if we have a smaller workforce, we are building a system to improve development efficiency.
We are building a project/program development system, especially for engineers in their 30s, to respond flexibly to changes, promote building close relationships with customers, improve the level of our engineers, and minimize development lead time at a level competitive with AI through the use of digital technology and implementation of design thinking.
What role do partnerships play in your business model? Are you currently looking for any international co-creation partners?
We are open to collaborating with any Japanese or foreign companies. The pandemic has been a great push for online promotion, so we have been taking advantage of our website, blogs and e-commerce sites to showcase our products. Any interested companies can contact us, and we are more than happy to pursue joint developments. We often collaborate with Japanese as well as foreign companies. The major automotive manufacturers in Japan are the ones who take the initiative to contact us for joint ventures and collaborations.
Moving forward, what other countries or regions have you identified for further expansion? What strategies will you employ?
We have been focusing on the Taiwanese and Chinese markets. However, from here on, we would like to follow in the footsteps of Japanese and foreign major automotive companies and expand to Thailand, Indonesia and India. India is our biggest target considering that it has a huge population that will soon surpass China. Moreover, India has a lot of intelligent people who we can recruit as our personnel, and we are now looking for a distributor there. In 2019, our plan to expand to India failed because of the pandemic, so I want to employ that strategy once again this year and focus on India. We are giving more emphasis to India and Southeast Asia because their main means of transportation are four-wheel vehicles and motorcycles.
Imagine we come back on your last day as the president of the company to interview you all over again. What dreams and goals would you like to have achieved by then?
When I became the president, my goal was to work on our KPI of increasing our sales and operating profit. The first time I talked in front of our employees, I spoke to them about making our company profitable and aiming for an operating profit of 10%. With this profitability, we can return the advantage in the form of salary to our employees. Constantly developing new products is crucial to becoming a profitable company.
The Japanese chemical industry needs to keep developing and double our ability to produce new products in order to survive. It is easy to say that we want to produce new products, but that is difficult to carry out. The information gathered by the salespeople of our company is vital, which needs to be new and cutting-edge information. Customers who belong to the upper management are more willing to disclose direction and information. Therefore, our salespeople must be good enough to meet those in the higher management. In the development of products, we will not be able to ascertain whether our efforts will lead to a real or profitable product. We have to see it through to the end. However, if our customers and salespeople have the passion, I am willing to take on that challenge as the president.
We do market-size research and all sorts of data analysis, but the passion of our salespeople is what matters in the end. If they are willing to take on the challenge, we, the management team, likewise want to invest in potential projects and build new plants to produce new products.