Delving into the semiconductor resurgence, the journey towards digitalization, and the innovative shift from product-based to service-centric business. An exploration of challenges, strategies, and visions for a modern, adaptive, and globally-connected enterprise in the heart of Japan.
At present, we find ourselves at a pivotal juncture for Japanese industry. The last three years have seen severe supply chain disruptions due to COVID-19 as well as the US-China decoupling situation. As a result, many corporate groups are looking to diversify their suppliers for reliability. Known for their reliability and advanced technology, Japanese firms are in an interesting position, and due to a weak JPY, many observers argue that this is a unique opportunity. Do you agree with this sentiment, and what are the advantages of Japanese firms in this current macroeconomic environment?
Export-wise there is an advantage to the depreciation, however, with inflation domestically, there is a shrinkage of purchasing power which I believe overall is not good for Japan. In some aspects though there is a silver lining that Japanese companies are experiencing in terms of manufacturing. If you look at stock prices, there has been an annual increase of about 20% which is significant compared to the US and Europe. This jump is being supported by the semiconductor industry which is now becoming more prevalent in Japan. Japan plans to triple domestic chip sales to 15 trillion yen by 2030, attracting public and private investment. These investments will certainly push the Japanese economy in the right direction.
As a result of increased inventories and a drop in demand due to tightening monetary policy, the semiconductor industry has experienced a significant downturn over the last few months. Nevertheless, all major companies expect to rebound in the second half of 2023. Drops in inventories, consumption-driven recovery in China, pause in interest hikes, and spikes in demand for microchips for new applications give reasons for optimism. How will these developments affect your business as it relates to semiconductors? What challenges or opportunities do you foresee for your business when it comes to semiconductors?
It is true that the growth of demand for semiconductors will increase, but it really depends on the specific areas. Investments are being made in areas such as semiconductor manufacturing equipment, AI, and data centers, and demand for semiconductors in these areas will increase.
Speaking of our company, we are involved in the fields of analog and power semiconductors, and we expect the semiconductor segment's annual performance to exceed that of the previous year due to the abundant order backlog accumulated during the semiconductor shortage.
On the other hand, new orders for FY2024 are very uncertain, as the weak yen is pushing up prices for domestic customers. We would like to respond to this situation by entering into new distributor contracts and selling electronic components from Japanese manufacturers to China and other overseas markets.
You mentioned how your firm caters to analog and power semiconductors, but we also know that you cater to electronic components, mechanical appliances, AI, and other different industries. Which industry are you currently putting the most focus on right now? Are there any new applications or fields that you would like to introduce your products or services to?
Our focus is on the services business. Among them, we are focusing on cloud services and subscription business. We are also working to create new solutions by combining different elements with existing services, thus developing a high value-added business.
During the COVID-19 pandemic, many physical retail stores struggled. However, online sales did jump by 30% as a result and Japan became the fourth-largest e-commerce market in the world. What impact has increased e-commerce had on your business?
Since we provide security equipment for brick-and-mortar stores, we were negatively affected by the COVID-19 pandemic, but now sales to foreign visitors to Japan have recovered.
COVID-19 had not only negative impacts, but also positive ones, such as the acceleration of digitalization, like the expansion of the e-commerce business. With that push, our company has shifted its focus from traditional hardware product sales to businesses that provide services closer to the end user. Many of these services are cloud-based and subscription-based. Our company offers remote access products to meet the demand for telework, “MSP (Managed Service Provider) services” that can perform tasks such as monitoring network availability on behalf of our clients in the cloud, It is also developing the "TK Ecosystem". These services are tailored to help customers solve their problems.
Can you tell us more about this TK ecosystem and when do you expect it to roll out?
“TK Ecosystem”, a cloud service for smart office*, is scheduled for release by the end of 2023. Through this service, you can visualize employee location, meeting room usage, office congestion, network connectivity, and employee entry/exit information on a dashboard.
For example, employees can check the real-time status of meeting room usage, allowing them to make reservations and schedule adjustments smoothly. Network connectivity can also be monitored, making it easier to identify the cause of a problem in the event of an outage and enabling rapid recovery. It also contributes to health management by visualizing entry/exit information and correctly managing employee working hours. Various other information can be viewed on the dashboard, enabling efficient work styles and improving employee wellbeing.
* smart office：Offices that promote the creation of a comfortable environment by introducing IT technologies such as IoT and AI and utilizing high-speed networks.
Japan is notoriously slow at adopting digital technologies, both in business and everyday life. In order to reverse this trend, the administration of former Prime Minister Suga introduced a digital agency that provides incentives to private industry in order to increase the adoption of IoT and cloud-based solutions. Why do you believe that the Japanese industry has been so slow to adopt digital technologies?
In my opinion, the introduction of digital technology has been delayed in Japan due to ambiguous target setting. There needs to be a vision of what kind of state can be achieved by putting in new tools. Japan is also facing a labor shortage due to this situation. We offer " MSP(Managed Service Provider) service " that utilize cloud-based products and can perform tasks such as monitoring network uptime on behalf of our clients in the cloud. We hope to solve our clients' problems with this type of technology service.
What role do partnerships play in your business model and are you currently looking for any partnerships in overseas markets such as China or the US?
For us, partnerships are one of the ways to maintain close local communication with our overseas customers and suppliers. Therefore, we are always looking for new partnerships. The regions we are looking at are the United States, China, Hong Kong, Taiwan, India, and Southeast Asia. Most recently, in 2023, we signed a partnership agreement in China in the field of semiconductors.
Imagine that we come back in four years and have this interview all over again: what goals or dreams do you hope to have achieved by the time we come back for that new interview?
Although we are a trading company, we would like to evolve into a company that can satisfy our customers by selling services, not by selling products. We are currently reforming our business model and focusing on the service business. In four years, we aim for this business to account for more than 50% of total our operating income. We are good at identifying beneficial services, customizing them to Japanese specifications, and deploying them to our customers. We hope to achieve this goal by leveraging this strength.
Interview conducted by Karune Walker & Sasha Lauture