With over 50 years in the business and a proven track record worldwide, Teikoku Electric provides canned motor pumps that are fully customizable in order to meet the often complex requirements of its customers.
In the last 25-30 years, Japan has seen the rise of regional manufacturing competitors, who have replicated Japanese monozukuri processes but done so at a cheaper labor cost, pushing Japan out of mass industrial markets. However, we still see that many Japanese firms are leaders when it comes to niche B2B fields. How have Japanese firms maintained this leadership despite the stiff price competition?
The market for canned motor pumps is actually pretty small, and in fact, it only occupies less than 1% of the total pump market. As you can see, it is very niche. For such a tiny niche market, large companies tend to stay away and do not look to participate. They have tried in the past, but each time they have given up. Most of our clients are in the chemical industry, and their demands are not only hard to satisfy, but also diverse in nature. Often they will ask us for products that can meet American standards. Large companies do not really want to meet these demands as they find them too niche and too customized to individual clients’ needs. That is why when we take on a client, we hand-make each unit. We are operating on the complete opposite end of standardization. Large companies simply cannot address these kinds of highly complicated requests, and we find our clients are very happy with our customized approach.
As we have all seen, over the past few decades China has risen to become a formidable force when it comes to manufacturing. Those Chinese manufacturers tend to propose low prices, and obviously, companies like ourselves produce in Japan so we simply cannot compete in terms of cost. We do not propose low prices to our clients, so in order to beat these low-price competitors, we rely on our competitive advantage which is quality. Our company has a long history and during that time, we have accumulated a large bank of knowledge and expertise. Not only do we have this kind of know-how, but we try to follow the kaizen philosophies of continual improvement.
You mentioned that because you manufacture in Japan, your products tend to be more expensive. Since the advent of COVID-19, we have seen this assumption change slightly. On one hand, we saw big logistic disruptions and we also saw China’s zero-COVID policy wreak havoc on production. On top of this, we also saw the JPY and the USD exchange rates fluctuate heavily, making manufacturing in Japan cheaper. Over the last six months, we have seen many corporations bring back monozukuri to Japan. As a company that manufactures here domestically, what is your opinion on these changes, and do you believe that bringing production back to Japan will be a sustainable trend in the future?
Salaries for Japanese employees remained quite low for a number of decades, and now we are seeing that South Korean workers are receiving more than Japanese workers. Additionally, we are seeing American workers’ salaries shooting up. One key factor of this trend is labor cost, and if this low labor cost is maintained then I think we will see more companies bringing back their production here to Japan. Another factor is electricity costs, and when you look at Kyushu Island, the electricity costs are lower than in any other area domestically. That is why Sony and TMSC chose Kumamoto as the location of their new semiconductor fabrication plant. As long as these two factors remain in place, I think this trend of bringing back production to Japan will continue.
However, when you look at the salaries of workers here domestically, I believe that the government has asked companies to increase those. Also, you have to think about the price of LNG, and energy prices are continuing to skyrocket. Essentially it comes down to a balance of all of these factors.
Ever since Japan’s government said that the country needs to be carbon neutral by the year 2050, Japan’s industry has been outspokenly ambitious when it comes to the setting of carbon neutral targets. Can you tell us how some of your products aid Japan’s manufacturing industry in reaching its carbon-neutral targets? What are some of the strategies you are employing in order to achieve a more sustainable society?
Let me first talk about how we can contribute to reaching those ambitious targets. There was an initiative taken by Mitsubishi Heavy Industries where they were mixing ammonia into coal to produce power while reducing the amount of coal they are using. We as a company have many years of experience in pump production, so we want them to use our pumps in their process. Specifically, we mean the pumps used to supply ammonia. We have now reached the research stage and some of the pumps are already in the hands of customers. I hope this continues in the future. We are actually taking action so that customers can use our pumps in biomass power generation as well as offshore wind power. Some of those clients have already started using our products.
Ammonia is often used as a hydrogen carrier, so for some transportation ships for hydrogen there is a plan to use our products. As for biofuels that use plants or waste oil, the US is leading in this area, but our products are critical.
Now let me talk more about our commitment to carbon neutrality. Now the company is currently working on developing our goals and targets for carbon neutrality. We are in a position where we can announce these goals this year. One activity we have done is changing all of our lights to LEDs, and another is placing solar panels on top of our factory roofs. We did both of those activities last year and they have been effective in reducing our electricity usage. Additionally, we have dozens of company cars that we lease, and we are gradually switching to hybrid vehicles starting with those that are being renewed after their lease terms have expired.
Your Type BP Vertical Boiler Circulation Pump can upgrade and replace wet stator-type boiler circulation pumps used in electric generating stations. Most interestingly, it requires little to no maintenance, a process that is costly and time-consuming for many clients. What technologies have you integrated to allow for a more maintenance-free pump?
There actually are some manufacturers other than us that produce pumps for boilers, such as KSB, a German manufacturer, but these products do not have cans. When liquid or water enters their product, it has direct contact with the motor, and thus their motors have a short life expectancy. For maintenance, the clients need to replace the motor itself, and that is big in terms of cost. Many clients do not like this because delivery times can also be long. Our products are canned, so access to the motor is blocked, especially for liquids like water. The life expectancy of our motors is much longer than our competitors. I would say that our competitor's wet motor pumps have a life expectancy of around 5 years, however, our canned motor pumps can expect a lifespan of around 10 years or more. That is double the amount of our competitors, and that cost saving is appreciated by our clients. As a slight drawback, our motor efficiency is lower than our competitors. At the end of the day, it comes down to our client’s choice; whether they want to have a longer life or higher efficiency.
Your products are used in a variety of different fields such as fine chemicals, petrochemicals, pharmaceuticals, and food. Are there any new industries or applications that you would like to expand your products into?
As I mentioned before, we are not good at power applications. However, our products are used in the Shinkansen and the transformers on the rail lines. Not only are our pumps supplied to the power industry, but we also supply boiler circulation solutions. Unfortunately, being an SME, we are only able to acquire a tiny part of the market share for the power industry, but I am hoping that the mix of ammonia and coal that I mentioned earlier starts to take off so that we may capture a larger share of the market with our pumps. This business is an entry point for us to establish a large presence in the power industry. Biomass energy and wind power are also key points for the future of the power industry, so I can see these also becoming entry points for our company. One other entry point I mentioned earlier is for transportation ships, especially in regard to ammonia and MCH transportation. We are also looking into the sustainable aviation fuel industry, and while we will not be directly supplying those companies, we see opportunities to contribute to those companies in the future.
With different industries, your company will have to adapt to handling different sets of materials or liquids with your pumps. Some are toxic or flammable, while others are explosive or highly acidic. As such, there are a variety of different safety standards for each industry. How are you adapting your products to fit the safety standards of specific applications?
Each of our clients has their own standards, so when they place an order, they are required to submit those to us. Sometimes it is possible for our products to deviate from the requirements, but we will also try our best to match the standards of their industry. For that to happen, we have to have discussions with the client so that we can both be on the same page and those requirements are met.
What role does collaboration play in your business model, and are you currently looking for any partnerships in overseas markets?
Honestly, partnerships are something quite difficult, although it is becoming popular among different industries. I am not saying we do not have an interest in partnerships, but we are not thinking about partnerships with similar companies with similar product lineups. There is some potential for a partnership with a company from a totally different industry. Each company we work with has its own specifications and each country’s government has its own standards and regulations. Honestly, it is difficult for our factory located in Japan to address all of these different standards and regulations. Our service model tends to prefer locally produced and locally consumed, so for that reason, I think it is possible to acquire some local companies through M&As. Our focus however right now is the growth of our existing subsidiaries, and one example is in China where we are expanding our facilities.
What countries or regions have you identified as key to the growth of your business?
Right now, we are looking for an entry point for Australia, which has great power in terms of the energy business. Unfortunately, we do not have local information on Australia. In terms of our international strategy, we already have seven sites, and each still has extra room for growth. The US, China, and India are all big markets with great potential for us to grow. We want to enhance production and service businesses at these sites.
Imagine that we come back and interview you all over again on the last day of your presidency. Are there any goals or ambitions that you would like to achieve before you pass the baton onto the next generation of Teikoku Electric executives?
I want to make my company the kind of company where employees feel proud to work here. I want to make the kind of company where we have so many applicants that I might even have to turn people away; a place that is so desirable that everyone wants to work here and employee satisfaction is as high as it can possibly be.