Sanwa Metal Industry is a market-leading Japanese specialist in the production and sale of grease nipples – a small but crucial product that allows lubricant to be fed into machinery.
In the eyes of the West, Japan has somehow lost its innovative edge, and in some consumer markets this is the case. However, in niche, B2B and quality-sensitive fields such as complex components, Japanese firms and many SMEs such as yourself remain world leaders. Could you share with us your manufacturing philosophy and the strengths of your company that allow you to retain your position?
I cannot necessarily speak for all companies in the industry, however, I can talk from our own company’s perspective. This issue has been prevalent for many years now and in the past, we have faced price competitiveness from Chinese or Taiwanese manufacturers companies because they make things cheaper. In that way, stiff price competitiveness has been hardly felt by most Japanese companies along with ourselves.
This isn’t to take away from the fact that there are companies that are clearly struggling with this situation where Japanese companies have been blocked from coming to overseas markets and exposing themselves to foreign countries.
Back in the day, we saw this situation unfold with some of our customers shifting their supply chain and giving preferences to cheaper ones in China. Every cloud has a silver lining, and these companies are now the ones coming back to Japan because of the unmistakable quality that Japan provides. I think the number one reason this happened was that Japanese companies have always been able to provide sustainable and reliable quality, and the same cannot be said of (not all but some of) Chinese manufacturing companies.
This brings us to not only Sanwa Metal’s manufacturing experience, but also the whole situation in Japan. Japanese manufacturing companies are capable of providing stable quality and highly added-value products without dropping quality standards.
This has clearly shown your success in the domestic market. How are you able to translate that success into international markets as well? Places such as Indonesia do not value quality as much as domestic companies here in Japan. How are you able to strike a balance between cost and quality, and succeed so well in a market like Indonesia?
The situation in Indonesia is fluctuating and the success in the past there might not translate to the situation in the country now. Let me first tell you a little bit about how we first broke into the Indonesian market.
It started about 30 years ago, and our first attempt came about because we saw great promise in the market. Demands from the Indonesian market were escalating at that time. There were a lot of products that were flown to Indonesia and most of them were coming from China. In fact, some of the local manufacturing companies were buying from China things such as bolts, nuts, and grease nipples. In the end, however, the Chinese companies were not able to sustain the same level of high quality, which is crucial in such an important part. With bolt nuts, there is some wiggle room for the quality to fluctuate slightly, but with grease nipples, this isn’t the case. Indonesia is a very important market for Sanwa Metal and we were visiting the country around twice a year. Customers to maintain their trust to our brand (“SK Brand” = trustable quality), too, realized that the Japanese high-quality standards were the best fit for their market expectations. In these 30years, we have had no quality claim from Indonesian customers.
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From this, we have seen an explosion of interest not just from Indonesia, but from neighboring countries such as Singapore and Malaysia. Considering the Southeast Asian market is so important to us we started building our brand in these countries. This didn’t come from only pure sales, but rather we spent time getting valuable feedback from our customers in the region to better understand their needs and find ways of improving our products overall.
The last few years have been very tumultuous in terms of supply chain management for many companies, given the lockdowns in China, the war in Ukraine, and logistics issues brought about thanks to COVID-19. All of this is making Japan once again a very appealing option. Can you tell us about the impact of COVID-19 and the associated logistics disruptions on your company?
We find ourselves in a more favorable position because most of the materials and the procurement of raw materials have happened here domestically. Logistics wise the pandemic hasn’t had that much of an effect on us. We do however have a factory in Thailand and that was in a bit of a tricky situation because some of the raw materials were not easily shipped from Japan to Thailand. To solve this situation we tried to stockpile as much stock as we could so that the factory could be as secure as we could make it.
There has been a long-standing issue demographically, with Japan now being the world’s first super-aged society. To make matters worse, the population is in a state of decline, with the latest estimates putting the population under 100 million by 2050. Can you tell us about some of the challenges as well as some of the opportunities that Japan’s aging demographic is presenting your firm?
It is a very clear fact that SMEs in Japan are facing this kind of problem and something that is naturally happening with Japanese companies. Along with the problems you mentioned are the resulting issues with recruitment. Three years ago Sanwa Metal was successful in recruiting new graduates, however, for the past three years, we have not been able to repeat this. Actually, my son, Mr. Muneyuki Kitayama is in charge of this, and he is trying his best to introduce new recruitment tools and HR system (salary, welfare both in hard and software, education etc.) to attract interest in the company.
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The problem is more financial, because most Japanese SMEs have a very tight budget, and year to year it is very difficult to give up that budget for new recruits. It also comes down to how important new recruits are to the operation of the company. If a company needs a refresh with new recruits, then obviously they do whatever it takes to get those people in. Recently we have improved our budget for recruitment purposes and the CEO has given his go-ahead to bring in new graduates.
Another reason we are not so proactive when it comes to recruitment comes down to the way of increasing our production capacity. We have made efforts in rationalization production line and saving labor. If we keep the same production line before, then we will need more people.
What has been your strategy to export your monozukuri overseas, especially as you have said that your company’s strength is the sustained quality that Chinese companies couldn’t maintain?
The short answer is that it was very hard. It has been very hard to sustain that high level of quality that we have here in Japan and to solve this problem in Thailand, we have tried to tell our Thai staff our monozukuri philosophy and introduced automatic and semi-automatic equipment. What we are trying to achieve is production system that operates the same way no matter where in the world it is. Our workers in Thailand is very hungry and highly motivated to skill up themselves, but it is also true that, if compared to Japan, their industrial education level has not been matured yet, we have made efforts in both (1) our personnel education and (2) machineries able to keep quality not depending on personal skill (like semi-automatic / automatic machineries) = tried to build sustainable high quality production line in both soft and hardware.
Can you tell us more about your distribution network in Thailand, and if you are looking for any new partners to expand your reach in Southeast Asia?
It actually is a bit of a different situation there, because 85% of the products produced in Thailand are coming back to the headquarters in Japan. We then distribute these products, so there is no distributor interference. The remaining 15% is distributed locally, however, again we do our own distribution, so there is no distribution chain whatsoever.
What is your breakdown of sales between domestic clients and international clients?
8% of orders are coming from companies that do not originate in Japan, and the remaining 92% goes to domestic Japanese companies.
The Thailand factory is producing products that are serving major models, and the Thailand factory is dealing more in producing mass production. In Japan we produce everything else, so that means more sophisticated types of fittings and grease nipples. The customers can’t tell, and really they don’t need to. As long as the quality is consistent and the customers are happy, then our goals have been achieved.
Out of that 92% are there any Japanese companies that are operating overseas?
Yes, that is very true. Most of the cases are sold in Japan, but that doesn’t mean that the products need to be utilized in Japan.
Looking toward the future, what is your ideal balance between foreign and Japanese customers?
I would say that we are looking forward to increasing the ratio of foreign companies that have been placing orders with us, rather than the overwhelming number of Japanese companies. My son, Mr. Muneyuki Kitayama is responsible for foreign market exposure, and he is trying to increase the ratio of foreign companies that are placing orders with us. It is actually very complicated because grease nipples themselves are a very small part and it is very hard to introduce this small part to foreign clients. The solution may be to introduce this part to an intermediary company that uses this as an assembly part for a sub-product that is exported to some foreign countries.
As the person in charge of such expansion, what is next for Sanwa Metal? Are there any particular markets or regions that you have identified for further expansion and how will you tackle those markets?
We definitely see some opportunities out there, because there are a lot of industries and a lot of companies out there in foreign markets. We are currently doing due diligence research of the markets and seeing which way is the right way to go. Currently, there is no final decision but we are definitely optimistic, and something we want to get involved in. It can be very hard, as some countries out there are very cost sensitive and they don’t quite understand the difference in quality with such small parts. To this end, we will give preference to B2B fields in which we may have chance to make an appeal our stable-quality-supply.
It is more crucial for companies to use our products because if you take a grease nipple as an example, companies will think this product is very cheap and very small, and therefore will think that quality isn’t really that important. For B2B companies that assemble crucial parts for safety, quality is the most important aspect of their business. Quality itself will increase the company’s brand recognition, and the hope is that we will be known outside Japan as a sign of quality.
If you were to give an elevator pitch to potential clients, what would be the key point for companies to pick Sanwa Metal over some of your competitors?
It is very hard because of the nature of our products. In the past, I have traveled to the US to pitch some of our products and it didn’t work out well. We are trying our best and obviously, this is a huge hurdle to overcome. We are currently in the research phase for some new markets and some potential new expansions.
Another hurdle is the cultural differences, and despite the fact that Japanese culture is about quality, it may exceed the quality necessary for other markets. There are however a lot of persuasive points (such as “stable quality supply”) to be delivered to potential customers and it really comes down to just getting our message out to the world.
Let’s imagine that we come back on the very last day of your presidency and have this interview all over again. What would you like to say in that interview, and what are your hopes and dreams for Sanwa Metal that you will have hoped to have achieved by then?
My task, and the task of the next generation too, will be to make everyone happy. I want to create a friendly environment where everyone feels satisfied with their work. Reaching this goal will be another matter, and obviously, some financial aspects need to be considered. If the company doesn’t make a profit then the employees won’t be happy and wouldn’t receive proper salaries. Monozukuri is an ever-changing thing, and possibly in the future, the company needs to adapt to new types of monozukuri in order to meet the demands of customers, but I foresee that as being on the shoulders of the next generation of Sanwa Metal. The key is to sustain the business you have and keep your ears to the ground for something else that will steer the company towards prosperity.