Kanehiro has become a leader in the field of construction machinery parts through its years of working both as a manufacturer and a trader in the industry.
Over the past several decades we have seen Japanese firms face very stiff price competition from regional manufacturers, nevertheless, when you look at certain niche B2B fields characterized by high-mix-low-volume production we find Japanese companies maintaining leadership either technologically or by market share. How do you explain the ability of companies like yours to remain competitive despite the stiff price competition?
Looking back at Japan’s economic history, we can see that we have experienced rapid growth in the past. That was mainly driven by mass production. However, after that, the Japanese economy went through a series of economic shocks and crashes, so I think it is fair to say that Japanese firms suffered some downturns. Despite that, a number of companies are keeping their leadership in the global market, especially in niche fields and high-mix-low-volume production. I think the reason has to do with these companies always keeping up with changes and striving to stay fresh. I think we are one of those companies. We have gone through a lot of changes over the past 20 years.
Back in the 1950s and 1960s, after WWII, a lot of companies were established in Japan, and as such, the market grew. We saw a lot of new leaders rise, and these leaders became the foundation for the Japanese economy’s growth. We tried to establish manufacturing processes that are colloquially known as monozukuri. That is why Japan as a nation focused on mass production, and thanks to that Japanese people's lives have boomed. Japanese people were able to maintain a high standard of living. As you can see from the reputation Japan has as a country, we are widely regarded as one of the more advanced nations internationally.
After that unfortunately the bubble burst, and that was the largest shock in Japan’s economic history. That was a turning point for us and looking back during that period, I was still young and didn’t have a lot of life experience. I imagine that the Japanese manufacturers who supplied their products to customers changed their minds, especially about the value proposition for manufacturing. They started listening to customers in order to capture the needs of those customers. Before the bubble burst a lot of manufacturers wanted to just supply their own products to the market, however, now that the world is more open there are different people with different environments and different needs. There is a greater need to grasp the needs of different consumers all across the globe. I think the stress of this understanding has changed the manufacturing side over time. A lot of construction machinery companies are focusing on grasping the needs of different customers, and I often hear these kinds of keywords during sales talks recently.
I think another aspect to consider is the high-quality and high performance of Japanese products. I think that a lot of manufacturers in Japan feel that this creates the essence and base for Japanese manufacturing itself. If the quality and performance are high then it creates the perfect launching pad to cater to different customers in different environments. On top of this, a lot of manufacturers add on uniqueness, often referred to as added value. I think that mindset is leading to high quality and high reliability in Japanese manufacturing.
What are your thoughts on Japan’s decreasing demography and what are some of the challenges or opportunities your company has identified thanks to this demographic trend?
In the context of the aging and declining population, we have seen a lot of support and subsidies provided by the government to turn around the current trend. However, this kind of population problem is a long-term plan based on the public's understanding. You mentioned the labor shortage as the impact posed by the aging society, and personally, I think it should be tackled as a very urgent issue. It is getting hard to secure a labor force in the manufacturing sector. In fact, in this sector, it is the engineers that plan and actually make the products, and we are seeing a decline in that population of workers in particular. As education improves it is going to be even harder to hire young new talent as young people continue to turn away from engineering jobs for more desirable white-collar desk jobs. In order to secure human resources for our company, we need to look beyond the Japanese labor market and turn our eyes to neighboring countries to find talent for the future. This is especially true for SMEs, and without this, we might not survive.
I think a lot of SMEs in Japan have a common challenge in dealing with this labor shortage, and we are all trying to deal with it in any way we can. Speaking of ourselves, when we go back to 2010-2015, we actively hired Chinese employees. After 2015 we shifted our focus to ASEAN countries. Based on our experiences I can say that China and Japan have a lot in common. Historically there have been a lot of cultural exchanges between nations and I think we are very good neighbors to each other. There were fewer gaps between cultural perspectives when it came to our Chinese employees. However, as we go further south to Southeast Asia we found that the gap became larger culturally. It is very important to establish better working environments for our Southeast Asian neighbors. A labor contract should not only contain financial terms, but it should also contain some environmental aspects too. A lot of our foreign employees are from Vietnam, and starting from January 2023, the contract also includes living environment support and counseling to help them get used to living in Japan. There is a renewed focus on improving those workers' environments, and I think this aspect is vital to securing a labor force here in Japan. I want those workers to understand the Japanese approach to manufacturing, especially the pursuit of high-quality and high performance.
In terms of hiring Japanese people, we are having some external impact from the declining population situation. Other than that I think the other reason is that after the bubble burst we had what is commonly known as the lost decades. Gradually the Japanese economy flattened, and there were even periods of negative growth. I think this has rubbed off on a whole generation, and young people these days have a lot less passion for work. However, despite this, I believe that all of these individuals whether they are Japanese or foreigners should have a challenging spirit. It is something I think about, and I often wonder about the best ways to foster this challenging spirit. It is my job as president to foster these young people and help them grow into personifications of this challenging spirit.
This population issue has also presented an unbalanced situation between employers and employees. As a result, the rate of short-term retirement is also increasing. In that context, I think it is more important than ever to foster the passions of young talent. If we continue to push and care for these young talented workers, one day they can achieve their own personal goals working for this company. That will also lead to better retention of our labor force.
Your firm was founded in 1952, and you began as a trader of construction equipment body parts, and over time you have developed manufacturing capabilities. Could you give us a brief history of that evolution, and how does that past as a trader provide you advantages as a manufacturer?
I am the second-generation president and as you mentioned in 1952 we established our company as a trader of machine parts. In 1992 we changed the company name to Kanehiro, the current name, and I succeeded my predecessor in this business the same year. We were still traders for machines and equipment for factories. That was the time when the bubble burst in Japan, unfortunately. Before that, the number of factories in Japan was growing rapidly. In Japan, production bases for many industries other than automobiles were domestic, but after the bubble burst, many companies began to look overseas as production bases, focusing on optimal supply to demand areas.
Next came the beginning of the population decline that we are still experiencing to this day. In this context, I experienced the dilemma of responsibility to continue supplying parts and materials, but in this practice, we started to see limitations in our business. I thought it would be more interesting if we made them in-house, so I made a complete 180-degree change in our direction. We started manufacturing ourselves and that was a big turning point for the company.
I think that our experience as a trader really sets us apart from our competition. We know how to deal with many types of machines and pieces of equipment. When we were a trader we worked together side-by-side with our customers to come up with the best solutions and I think that is even more true now than it was before. That experience is contributing to our competitive edge nowadays. We work together with clients to come up with the best value solution that works for both parties. That is the foundation of our current manufacturing business.
A current trend we’re seeing in the field of construction equipment is the increased adoption of digital technologies within construction sites and construction equipment itself. As a manufacturer of metal assembly parts used in construction machinery, what are the big changes you are seeing right now within your business and what solutions are you developing to help address these changes?
Let me answer your question from the perspective of the customers and then our perspective as well. First of all, our clients are manufacturers of construction machines, and they have updated their models for the machines over time. That was largely triggered by the restrictions for gas emissions that came from the Kyoto protocol. Since then, the engine has been updated along with the regulation update, and the model of the construction machine itself has changed greatly each time. As the engines change, the peripheral components for the engines change as well. We also need to incorporate new technologies and it has been quite interesting to see all of this take place.
This is how we have responded to changes in the development department, the manufacturer department, and the design department. We are always focusing on catching up with the needs of our customers. We will change our sales system to a business that best meets them. We try to incorporate new technologies into the many process steps and even testing. 3D design models are used during the development of products, and we started utilizing this process over 5 years ago. Using this kind of technology we can analyze a customer's request using 3D data so that we can better capture the quality or strength that a customer requires.
On the manufacturing side, we started using robots five years ago and we are still promoting and expanding this capability. In our Hiroshima factory two robots are working around the clock and we are planning to have four or five more robots in the near future.
For the finished products we use 3D dimensional measurement equipment to make sure that we meet the required size and shape. We have two different divisions here at Kanehiro, one is for larger components and the other is for small components.
I’ve talked about how the customer’s situation has changed over time and I would now like to talk about how we have responded to these changes. As I mentioned, we have two different divisions, one is about larger components and the other is about smaller components. The former is called a module structure part, and the latter is called a functional part because it has a movement function. These two parts are very different in how we proceed with manufacturing.
For structural components basically, the customers provide us with the designs or the drawings and based on that we accurately produce the product that the customer requires. Accuracy is very important here, and in order to achieve that accuracy it is necessary to discuss the process in depth during production. On the other hand, for the smaller components, there is more of a need for workability and mobility, so in those cases, we thoroughly pursue performance, durability, and strength, and proceed with production after including detailed specifications in the drawings. These are the two important pillars of our manufacturing.
Of course, your company was a trading firm for so many years, and we know from interviews with other trading firms that this business revolves around supplying products that can reduce costs, labor, and time. Larger or more modular based components that are almost complete and fully integrated can be a real lifesaver for a lot of manufacturers. Could you give us an example of a specific product that you’re providing in this modular way where you’re integrating a number of components for a client? Secondly, your company is celebrating 20 years as a manufacturer, so what are some of the biggest lessons you’ve learned in those 20 years?
Speaking of how we manufacture our module parts, there are a lot of essences incorporated into that process. Looking into the construction industry, now a lot of construction companies are competing in the global market. Unlike automobiles, construction machinery doesn’t require a lot of maintenance. In order to achieve that environment, when we manufacture the equipment or components, we have to think about anti-rust properties. Basically, construction machinery can operate in harsh environments and in all weather conditions, regardless of whether it is on-road or off-road. The steel that is used for components doesn’t have any dust on it. For example, when making module parts, the rust prevention of the paint coating in the final process plays a very important role. You have to have very high levels of precision in equipment like this. Welding needs to be exact and there shouldn’t be any spaces between components. When we manufacture this equipment, we always make sure to check a lot of points in order to achieve high quality, and all of this is done hand-in-hand with the customer. There are high hurdles to achieve when manufacturing for clients, and that doesn’t even include the cost-reduction activities that we do for those clients. When we manufacture modular structural parts, we face a high hurdle to how to keep costs down while maintaining high quality. In order to achieve this, we will continue to hold constant discussions with our customers.
Regarding the lessons we’ve learned along the way, I think one important one is the fact that when you manufacture module parts you have to do everything end-to-end. By that, I mean cutting, processing, welding, assembly, and painting. You have to become an all-rounder, and as an SME we thought it would be important to learn about each of these different steps, each and every employee, including the management team, is focused on learning each process. This led to manufacturing module parts, and it enabled us to learn more about each process step. We spent a lot of time talking with customers so that we could understand and catch those needs. When introducing the equipment necessary for each process of module manufacturing, it takes about two years from equipment installation to full operation., and that two years is also required to acquire sufficient knowledge about the process steps. In March 2022, we acquired the necessary painting equipment and knowledge to perform the final coating process. After 8 years, we’ve finally managed to go from cutting to coating, and we have finally fully achieved end-to-end production on module manufacturing.
The company has factories in both Hiroshima and China, and one very important lesson we have learned throughout our history as a company is that as a trader you cannot produce value by yourself. You just sell whatever can be sold, so it is important to analyze the needs of the market. Going forward I think that China is going to continue to grow as a market and we would like to use our experience in that region.
We know that you have been present in the Chinese market for many years now. Looking at the future, are there any other regions of the world that you are interested in expanding into?
The reason we chose China was that we felt that the region had some very good prospects for rapid growth. In the past, they were making highways across the country there and the government was looking to complete those highways at twice the speed that Japan completed a similar project. They actually worked very hard around the clock.
A lot of Western companies have outsourced their production to China, so at the time we felt that we could get the best or optimal procurement out of that country. That was another attractive aspect of going to China and ultimately that is why we decided to try and open a factory there.
Since we expanded into China, we have a lot of good partners there that are helping in terms of procurement both in mainland China and Taiwan. In the future, we are actively considering overseas expansion to other regions. Exports to other regions are mainly from Japan. I think that it will be an indirect export that creates a synergistic effect by teaming up with an international trading company familiar with the region. All of our clients are already globalized Japanese construction machine makers. They are trying to make products that are trying to compete on a global scale, so we would like to contribute to their efforts.
Imagine that we come back on the very last day of your presidency and have this interview all over again. What are your goals and dreams that you hope to achieve before you pass the company over to the next generation?
Looking back on our company’s history there are a lot of turning points where we changed our business structure. Through all of these turning points, we have succeeded thanks to the strong foundation built by our company’s founder. Even when I retire and pass on the company to the next generation, I believe that these policies will continue to push our company’s success in the future. Although the business of Kanehiro has changed drastically, the guiding philosophy hasn’t, and I hope that is the case when you return to interview me again in the future.