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Techno State: Precision parts manufacturing for an ever-evolving future

Interview - April 24, 2022

Techno State’s iconic products are retention nuts and sealing caps, demand for which is still expanding even to this day, some six decades after the company obtained a manufacturing method patent in 1960. As a core element of the industry’s supply chain, president Masamitsu Uehara explains how Techno State has focused on monozukuri to streamline processes and ensure that customer needs are met.

MASAMITSU UEHARA, PRESIDENT OF TECHNO STATE CO., LTD.
MASAMITSU UEHARA | PRESIDENT OF TECHNO STATE CO., LTD.

As a specialized manufacturer of sealing parts, and a company that boasts a 10% global market share for these types of components, what does monozukuri mean for you and your company?

Since we are a core part of the supply chain in the industry, if we are unable to ship our components and parts to our customers, then they cannot even make a single car. The core aspect of monozukuri that we are required to perform is to achieve a satisfactory level of quality, accuracy and precision in our parts and components, and to streamline the production line to improve it. We also need to reduce the total delivery cost of the parts and deploy them globally. That is what is required by our customers. Manufacturing parts with great accuracy and precision is indeed the creed of monozukuri.  

Being part of supply chains, we need to set up a business continuity plan (BCP) very thoroughly, so even when something unprecedented happens we can still ship and deliver our parts and components in a timely manner to our customers. This is something we need to have special consideration in monozukuri, and I believe that is what we are trying to establish as the basis of our monozukuri.

 

What has been the impact of the COVID-19 pandemic on the Japanese production line?

COVID-19 hit the production line of the Japanese automobile industry directly. The BCP of the supply chain has been disrupted, and due to the effects of urban lockdown in ASEAN countries, overseas parts production has stopped then the production of major automobile companies has been severely damaged. There is a shortage of semiconductors, and today there is a political risk from Russia. Auto parts manufacturers are being vitally affected.

Auto parts manufacturers have been playing an important role for the stable supply of parts by demonstrating expertise in their respective fields in the structure of the supply chain built in the pyramid with the primary, secondary and tertiary supplier. However, although it functions during the stable growth period, due to the unexpected coronavirus pandemic, political risks, and block structure that does not foresee the crisis of war, it remains dysfunctional and collapses.

The procurement stance of "buying from any region or country if it is cheap" poses a great business risk. As a result of excessively relying on certain regions and countries overseas to procure parts, the vulnerability of the supply chain was revealed. Automakers are beginning to play with the rebuilding of their supply chains.

It was necessary to build a building block with a conventional business model/a triangular pyramid structure to create a stable procurement structure in search of "cheap and good parts". However, this traditional business model is no longer viable because a full review of Japan's trade practices will begin, facilitating legal amendments and enforcement in line with the international business practices of developed countries.

Unfortunately, major Japanese unit makers abuse their dominant bargaining position to buy cheaply, force unfounded discounts, delay payments, and share proposed designs to competitors, etc. If we continue this business practice, we will not be able to strengthen the resilience of small and medium-sized enterprises, and it will be a crisis for the development of Japanese industry.

Therefore, the Japanese government and authorities have decided to strengthen the implementation of the unfair competition prevention based on the "Small and Medium-sized Enterprise Promotion Law" and the “Management Strengthening Law for Small and Medium-sized Enterprises”, and have started to eradicate unfair trading habits centered on large companies. This also leads to "economic security" in Japan.

As the country's core industrial policy, major companies should disperse and separate "resource concentration" and "conventional business" into core businesses for the future, then collectively transfer the diversified business to Japanese "small and medium-sized enterprises" in "business", "human resources" and "assets".

Large enterprises, small and medium-sized enterprises, and vertical "industrial circulation structure type" industrial policies are necessary as a national policy scheme. By passing on the technology of major decentralized businesses to small and medium-sized enterprises, Japan's industrial base can be strengthened. At the same time, domestic production of daily necessities can be started immediately in an "emergency situation". It also helps prevent the outflow of core technologies and skills overseas.

This is what we have been proposing to politics, ministries and agencies for more than 20 years as "proposals" related to "strengthening and growth of small and medium-sized enterprises".

 

What do you believe to be some of the strengths or competitive advantages of Japanese firms that allow them to remain competitive in this very stiff regional manufacturing landscape?

Our company is recognized as a specialized manufacturer for metal sealing, especially in small sizes, which is used for powertrains, engine and transmission assemblies, and we have a core capability in terms of things that fill gaps, connect gaps and function in gaps. The attitude of working closely with automobile manufacturers from the parts development to the mass production phase for a long time has given us an advantage over other companies.

Since the 1990s the volume of powertrain production has been increasing but at the same time, we are seeing the evolution of the design of cars and the functionalities that are required for cars. These things require high quality and precision, and that requires increasing technical ability in manufacturing processes. Our company has been engaged in not only metal stamping, but also post-stamping processes such as welding, thermal heat treatment or surface treatment and cleaning technologies. We've been engaged in activities combining all of these so that we can build components in a precise manner in order to satisfy our customers’ needs.

That is what we have continued in monozukuri and as a result, we have received orders for the entire processing of parts, and as a matter of fact our market share is increasing. After that, the trend of building a global production system that enables our production process continues.



Could you give us a brief overview of the features of your unique sealing and drilling technologies, and what advantages or distinguishing features they have that separate Techno State from other similar automotive component manufacturers?

Our competitive advantage actually lies in the unique manufacturing technology and materials we use. We have the capability to process and stamp special materials. Currently such materials are difficult to procure and obtain in the first place, but we can handle such materials. There will be higher demand for materials with higher heat resistance or heat resistant magnetism especially for EV and hybrid applications. We've been procuring such materials and we developed our processing and stamping technologies to process such special materials. Our capability in metal stamping and related mold and die technologies requires very high precision accuracy. These material processing technologies, I think, are what differentiates us from other manufacturers. Next year will mark our 100th anniversary, and for those 100 years we've been developing our press machines and stamping technologies. Our technology has evolved over a long time and during that process we've accumulated a lot of know-how.

 

The automotive industry is seeing huge shifts both from traditional engines to EVs and from heavier materials such as steel to lighter ones like aluminum. What impact are these changes having for your firm and how are you responding?

To respond to these changing trends, we've established the “Advanced Technology Creation Center” which serves as an R&D center to develop new materials that can handle these problems and changes. We are also expecting changes in the powertrain domain as well because the materials required for those will also be shifting as well as the energy source used with powertrains. We have used our R&D department to find out what kind of things would be required in the future. To respond to shifts in trends, we would like to propose parts and components to our customers that are based on new energy types. That's the first thing we should do. Furthermore, we’re looking at what will be the energy source for powertrains up to a hundred years into the future. Of course the current energy source is gasoline, which will eventually shift towards electricity, hybrid and liquid or solid hydrogen. In the more distant future there will be optical energy to drive powertrains.

Regarding the energy mix of Japan, from now until 2030 it is forecasted that fossil fuels-based energy - coal, oil and natural gas - as well as renewable energies and nuclear power will continue. According to our own research, the shift to EVs will not happen suddenly. It would be gradual, of course. Gasoline and hybrid powered cars will suffer a decline but by 2045 or 2050 they will still be around. By 2040 or 2050 hydrogen will account for a very large part of the energy source of cars but it's not going to happen all at once. It will change with a gradual increasing trend, and also applies to hybrid ecology using solar or wind power generation and that would be helpful in reducing carbon emissions.

However, when you take a look at mechanical engine cars, they still won’t be eliminated by 2050. They will remain at about 2% of the entire number of cars. That is the data that we are projecting. Of the orders we’ve received for future development, based on data about our client’s customers, EV related orders account for just 3.1%, starting from 2023. HVE power units will account for 34.6% of our parts, starting in 2023.

We ship our parts to Japan's major automobile companies and related companies. Basically, almost all car manufacturers use our parts in their vehicles. We are currently meeting with a new client to discuss how best to utilize our metal sealing parts for their products as well. Mass production for EVs will start in 2024-2025 based on the orders we’ve received for now. Therefore, the shift towards EV’s is not as pronounced and sudden as the media or the public would say. What is important is that we need to satisfy a certain quality of all the criteria involved in EV production. This means that it will still take some time for Japanese companies to set international standards and manufacture affordable EVs, which will require a lot of effort and significant time.

 

What product symbolizes Techno State? What product are you counting on to lead you towards your next 100 years?

Our iconic products are stained nuts and sealing caps. These have been used for a very for a long time and can also be used for today’s EVs. We released stained nuts in 1950 but of course the patent as our strength has expired. It has been used not only for automotive but also for the construction industry. It has been one of our best-selling products, so I believe it symbolizes our past components development.

As for our components of the future, we currently have sealing products used for gasoline engine vehicles. As these are parts that will be expanded globally, they will be used in automobiles produced overseas in the future. We have other parts used for the opening of fuel tanks and these parts will be used for the next 10 to 20 years. These are the kind of parts that symbolize our future over that time period.

We produce parts based on special materials, for example, small assembly units made using innovative manufacturing technology by combining iron and stainless steel. We also have sealing parts manufactured based on special materials that can absorb the impact of vibration or shock on the component, so these products could also be working for the next 10 to 20 years.

The important thing here is when the energy of cars changes, the current parts will also need to be innovated and these also will require special materials. When that change occurs, we believe that our technology, which has processing technology suitable for special materials, will be one of our competitive advantages. Undoubtedly, these are the components that symbolize the future of our company.

 

You’ve undertaken many overseas study trips both in California and Seattle as well as in Germany in 2019. What were the main takeaways from these trips and experiences, and how have you applied these experiences to your firm’s DX activities? What further initiatives have you started developing or are in the progress of developing as a result?

I felt that the areas of digital and virtual technology were advancing so I visited the US to take a look at Microsoft or Google to see how the virtual world would spread. After that I visited Germany to see how they were trying to apply the virtual world to reality through the industry 4.0 concept. I thought there would be some clues or tips as to how I could leverage that technology to achieve digital transformation.

We are at a crunch time which comes only once in a hundred years. The reasons for this are firstly that products and the industries which give rise to them evolve and change over time. As we’ve seen since the advent of cars, there has been evolution in the purposes for using cars as well, from convenience to enjoyment, so the concept of cars as products has also evolved. In order to catch up with the changes of the product itself, the industry structure also needs to be transformed. The industry structure needs to follow the changes in the product. For example, around 1923 the Japanese automotive industry had started, and not only automobile parts manufacturers but also related industries have expanded and brought prosperity as Japan’s core industry.

There was a fierce competition among these manufacturers and right now some of them that won that contest are still competing. However, we are in 2022 and this is the time to consider as an automotive industry company, what kind of automobiles are required. That means we need a new definition of a car and of mobility. We are in a phase where we need to redefine these things, which means we cannot continue extending the conventional paradigm. We need a paradigm shift. We need disruption otherwise we cannot make cars that will be appreciated by the users. Furthermore, there will be future concepts like smart cities and environment-based cities so we need to change now in order to satisfy those future needs. Now is the time to change ourselves and only companies who can change themselves for the next 100 years can survive this moment.

Now is the time that we need to revisit and redefine our existing businesses as well. For example, our current business model is based on small part units order, but we now need to enter a new phase where we will take the module level. To that end, we will evolve into a proposal-based solution business model. For example, innovative special material parts, and we'd also like to offer renewed components, which would help lift environmental burdens. We need to offer our renewed components to be integrated into unit modules so that we can reduce the environmental burden through our components.

We also have to respond to the changes in terms of 5G and 6G technologies, and that would also redefine mobility. In order to meet this need, we would like to propose a solution as a business, since that would be required in future. That said, of course you cannot predict everything in the future so we'd like to sow some seeds in relation to future needs. Right now our business is based on the needs of our customers, but at the same time we need to consider sowing the seeds for what will be in the future. We are trying to redesign and revisit our business model so that we can catch up with the changing situation.

Our DX information center has been accumulating information in a database since the project started in 2017. We have a database for parts and molds, and a database for pressing machines and stamping operation and we also utilize a mold simulation during the product design phase to visually check if there are any problems. We are currently trying to develop software for the automatic layout design of parts and molds as well. That’s what's being covered by the DX information center. As we learned from the German trip, we’d like to visualize the operating state and utilization rate of our production facilities and plants located in Japan as well as overseas, we are also working on visualization of the manufacturing process.

The "business risks" that we must consider are: (1) Decline in the production labor population due to the declining birthrate and aging population. (2) Regional conflicts, civil wars, wars. (3) Exchange rate fluctuations. (4) Natural disasters. (5) pressure on Japanese companies expanding overseas due to political risks between nations, etc. We set 5 risk hedges in 2010 and started to research where risks can be minimized for expanding overseas production bases. We established a company in Taiwan in December 2010, Mexico in September 2013, and Thailand in December 2018. In Chicago, USA, a company (trading company) was established in August 1997 to serve as a sales point for receiving and placing orders from local companies in the United States, and it has been in operation until now.

I said to the automotive manufacturers that as long as a country satisfies these five criteria, I would go into a country to start a business. I tried to analyze the global market and identify the business risks related to starting a business in foreign countries. These are the five criteria. Firstly, if the country has a declining birth rate or declining working population, then you cannot leverage the capability of that country. Secondly, if there is a risk of conflict or war we should not start a business in such a country. The third one is whether there is an unstable forex rate and fluctuations in it, and the fourth one is whether the country is affected by natural disasters, like Japan. Finally, the fifth one is about political risk and whether there will be any pressure on Japanese companies when they're trying to start a business in that country.

These are the criteria that I use to decide whether to say yes or no to investing a foreign market, and if a country doesn’t satisfy these criteria I will say no even if an established manufacturer asks us to do so. Given those criteria, I focused on the USMCA countries and found that Mexico was a very attractive country for us to do business. From the area where we have invested, the production bases of major automobile manufacturers are located within 200 km. In the US, we have trading houses. From Mexico we can approach countries like Argentina, Uruguay, Paraguay, Brazil and Venezuela so we are leveraging our Mexican company in that way also. As for Asian countries, in ASEAN we have affiliated companies that we cooperate with and as you know, we have production sites in Thailand and Taiwan as well. However, I’ve been very clear that there is no possibility of us doing business in mainland China so any suggestion of starting a business there will be met with a “no”, and the same in Russia, 

Looking at the future, we are evaluating the possibility of breaking into the Vietnamese market because in Taiwan we have a joint venture with a company that invests in Vietnam so we'd like to leverage that relationship so that we can enter the Vietnamese market. That is the vision of our international strategy going forward.

 

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