An interview with Takao Ando, President of Sanyo Chemical Industries, Ltd.
To what extent can internationalization be a solution to Japan’s decreasing workforce?
Japan currently faces a shrinking domestic economy and an ageing population. To safeguard our company from any possible impacts, we aim to make our R&D potential and production facilities capable of implementing the necessary requirements within the domestic market, as well the global market. This is in order to implement the overall needs for our customers worldwide.
Sales generated from overseas markets currently account for 40% of our company sales. One of the short term plans we are considering is to produce overseas and then bring those products back to Japan. The majority of our products were exported from Japan previously but in order to avoid being impacted by the potential fluctuation of the Yen, today over 22% of our products are manufactured overseas. Currently our primary target is to increase sales and the percentage of products made overseas. It is essential to ensure raw materials are obtained from the correct sources. This is also important especially in the case of super absorbent polymers which are exported from Japan and China. We aim to choose raw materials from sources as close to production facilities as possible. For example, from Japan to Asian or from China to Asia; we are able to serve both of these countries.
If there is one thing Japan brings to the world stage it is quality and reliability. How do you ensure the Sanyo Chemical quality remains in your overseas productions?
At Sanyo Chemical, we outsource some of our productions to our overseas subsidiaries. It is essential that the high level of production and product quality is sustained regardless of where the products are made. We have implemented several procedures to ensure this is attained. We personally recruit all of our staff members and train them to reach the same level of education as our Japanese workforce. This is the main way we ensure our quality and technology is transferred to our overseas affiliates.
As part of the training we have a special study, education and motivational program, which include experts introducing them to Japan and ensuring that they have the necessary knowledge about technology and Japanese Monozukuri. We do not view our workforce in overseas countries as ‘cheap labor’. Our primary purpose is not to reduce the cost of production but to instead establish a facility outside of Japan, for example in China and Thailand where local people are educated to a high level, thereby, contributing to the happiness of the employees. This was my original idea of globalization and establishing facilities outside of Japan. We embrace globalization not only for profit margin but to educate employees and to create quality products all over the world.
Sanyo Chemical Industries was officially established in 1949 under the name of Sanyo Oil & Fat Industrial Co., Ltd. Almost 70 years later, your company is composed of over 2000 employees, a has a turnover superior to 150 billion JPY. Can you take us through the milestones of your company? Can you give our readers a short overview of your core activities today?
We were officially established in 1949, however our company started before this in Kyoto in 1907, as a manufacturer of soap and textile agents, which were basic surfactants. Adopting a polymerization technology of ethylene oxide adducts, we built a bridgehead to enter into petrochemicals and expanded the potential of surfactants. We are proud to be the first company that used propylene oxide to produce polyurethane. Those alkylene oxide adducts were then incorporated into our products. This was a major milestone for Sanyo Chemicals and enabled us to expand our product line.
Applying the ‘polymerization’ technology to other polymers, we produced acrylic polymer which is not only used for lubricant additives but also for various kinds of adhesives and coating. It led to the development of super absorbent polymer for diapers which is one of our core products. It is also combined with polyurethane technology so as to develop many products such as polyurethane resins, artificial resin and coating materials. So, we diversified to expand the business and satisfy the needs of the market and as part of one technology has been applied to other applications include niche and individual markets.
Today, your company operates in six business segments: toiletries & health, petroleum & automotive, plastic, textiles, info/electronic & construction/others. Can you explain to our readers why your products are essential to our daily lives? What end product or project do you feel the proudest of having contributed to?
One product which I am particularly proud of is the fuel saving additives for lubricating oils. We have supplied this product since 1963, and now as such we have a large share of this market for engine oils, transmission oil or gear oil.
There are many other products which I take pride in producing. The superior polyurethane powder, developed by a mixture of our various seeds and new technologies, is used for the skin of automobile instrument panels. The material has the benefits of being soft and pleasing to the eye due to its genuine leather-like texture that resembles the real thread stitching. It can also be made extremely thin which contributes to the cars lightness and performance.
High-end cars, such as those made by Lexus, used to adopt PVC for instrument panel surface skin, but now Lexus use our polyurethane materials. The benefits of switching from the use of PVC to polyurethane are the lightweight properties, the leather-like texture, and the lower melting temperature, which saves the processing energy. The material cost is increased by the use of this product but in terms of functionality, it is a much superior product.
Furthermore, eventually the total cost which impacts the final sales price, would be almost the same as the PVC’s because of these benefits. The application is not only limited to the luxury cars but expanding to the affordable cars as well. Today we extend our horizons, as our material is being adopted by American automakers beyond Japanese ones, like Toyota and Nissan.
Our company mission is not to make efforts to exceed China’s market in terms of low cost but to instead introduce specialized products, therefore securing high end markets for our products. In order to create this excellent market position, we implement the labor force in the R&D sector. Thirty percent of all employees are involved in R&D.
Your company is also famous for its R&D capability, having developed over 3,000 different types of products in-house. You define your R&D as a “NeeSeeds-Oriented approach,” combination of needs-oriented R&D and seeds-oriented R&D. Can you tell us more about this particular approach to R&D? What innovative products do you have in the pipeline?
“NeeSeeds-Oriented approach” is our original R&D system to develop various new products. We achieve diverse performance by combining the needs with multiple seeds (existing technologies, products & know-hows). A technique developed to meet a certain need is combined with another technique to create another new seed technology for new products.
The “NeeSeeds-Oriented approach” broadens the range of technologies to as many as 3,000 different types of products. An example of our “NeeSeeds-Oriented approach” can be seen with our super absorbent polymers. These are mainly used for diapers but we have expanded the application of this product to alkaline batteries and agriculture. Another example is Polyurethane. It is widely used as polyurethane foam in car sheet, bed and insulators. By using the basic polyurethane technology, we expanded polyurethane resin application to coating, adhesive, sealant & elastomer, etc., whose use is further extended to a leather-like skin material in automobile interior panel.
We have also an example of polyurethane being used as plastic components inside medical devices. As a company, we are currently focusing our efforts on medical applications. This is something new and different from what we have created so far and has been made possible after being approved as a medical device business operator in 2011.
The product is a surgical hemostatic agent (an agent for stopping bleeding or keeping the blood within the blood vessel) used for a procedure of an anastomosis (sawing & connection) between an artificial blood vessel and a specific aorta (thoracic aorta and / or branching artery of aortic arch) in the surgical operation. It was a new product that we introduced to the market. Our R&D center has been already being working on this project for more than twenty years. Now that we have received official registration and the product is authorized for use in surgeries. The product is already in use for cardiovascular surgery in Japan. We have received good feedback from the hospitals and expect that our product will be introduced for use in many hospitals.
We expect the government to promote and assist us in entering the global market. As a chemical manufacturer, I think this is extraordinary. We will be launching the product to our American Customers. We expect this to grow into a big market in the future, on an international level.
We will also examine the expansion of the eligibility of this product, not just for the heart but for other areas.
Developing medical materials, there are some high-potential items. Silk-Elastin has the capability to contribute to the treatment of intractable cutaneous ulcers (severe skin disease such as diabetic lower extremity ulcer), it will move to the investigator initiated clinical trials stage in the near future. Also we developed a big production technology of Escherichia coli. This is still in the research stages of development, we apply our surfactant technology and developed a very new method of production.
We have been looking to meet new demands in areas where our technology could be applied. We are working on a new lithium battery which is very different to the conventional type of lithium battery. Our new technology is expected to provide the battery in various sizes and high-capacity systems.
Our R&D center has been working for more than four years on this product. This is our priority project at the moment, we expect it may take a long period of time for the product to be launched and sold. We view it as a necessity to show investors and attract more investors to this project. Today our company’s priority is to create high-value-added products and there is a high expectancy that these products will have a long life in the market. Even if it takes longer to produce, we will continue with our investment in order to contribute to our society. Sixty percent of our total R&D facility is spent on conventional business including technical service and production of existing products and 40% of our R&D is spent on new developments.
From FY2013 to FY 2016, your net sales declined from 165 to 150 billion JPY. Simultaneously, your operating income soared, jumping from 8. 9 billion to over 13 billion JPY. What will be your mid-term strategy to keep that momentum going? Can you give us an overview of this sound financial investment that you have?
Sanyo Chemical’s turnover has been stable and our profits have increased. Our products are highly dependent on the change from crude oil to naphtha and this transition has occurred during recent years, resulting in the drastic change in our products end price. We made a record amount of profit last year of 153 million yen. Our profits increased due to the shift towards high value, high end products. At the same time, our turnover has been stable, because of the close partnership we have developed with our existing clients and high level of customer service and satisfaction.
With regard to globalization can you run us through the steps that will allow your company to reach its objective? What is the role of the United States?
It is important to first prepare for globalization and this includes ensuring the plants are suitably equipped, as well as putting the workforce through our education and training programs.
Previously decisions were made only by Japanese management, but we have now transferred decision making rights to the management of the individual overseas business sites. To allow this transference of decision making we have adapted a SAP computer system, to give a common network in which to communicate and optimize for example consolidated accounting has been achieved. We also introduced the SAP computer system to protect the company's data. I advise all Japanese directors to embrace globalization.
Both nationally and abroad, your market is highly competitive, with industrial giants and local competitors wanting to get their share of the pie. What are the competitive advantages of your company?
In terms of competitiveness our company's main strategy is to produce high end value products. In terms of creating more strong holds to increase our competitiveness, we are considering that we need to produce our fundamental commodity products reasonably as well.
Currently competition is very fierce especially in the field of commodity products. Regardless of how fierce the competition is, it is something that must be continued. Not only with the high-end products in mind, but also because we have innovative products which require fundamental commodity materials such as polyols, so, these fundamental materials are required for our product lines. We are looking for alliances with other companies to retain our competitiveness in the fundamental commodity material field. For example, we are forming collaboration with PTT who are a gigantic company in Thailand.
Today you are of course President of Sanyo Chemical who has more than 2,000 employees, sales all around the world and is truly pioneering a certain sector in electronics and lithium batteries. During your presidency, have you set yourself a personal objective you would like to achieve?
Our number one priority is to achieve profit and contribute more to society. When I am asked whether profit or sales volume is more important, I always say profit. I’m not only thinking of the scale of the company but also creating value for a better world.
The advances in chemistry make the world a better place for everyone. Our mission is to give shape to the unlimited possibilities of chemistry with customers, and as such, we are responsible for bringing products all over the world. To that end, we continue to challenge ourselves without fear of failure. Our dream is for our corporate group to become truly unique and excellent and that our products make people happy throughout the world. Sanyo Chemical will progress toward the realization of this dream. I wish to contribute to society by providing the necessary performance chemicals and to steadily carry out our responsibilities to society.
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