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The trading firm with manufacturing capabilities

Interview - September 28, 2022

With over 200 years of history, Andoh Parachemie has evolved from a simple trader of chemicals to a firm that has developed its own manufacturing capabilities, helping clients with mixing different chemical compounds. In this interview, president Michito Sakuma discuss Andoh Parachemie’s long history, its evolution and future plans in order to continue its success.

MICHITO SAKUMA, PRESIDENT OF ANDOH PARACHEMIE CO., LTD.
MICHITO SAKUMA | PRESIDENT OF ANDOH PARACHEMIE CO., LTD.

The chemical sector in Japan has suffered in recent years due to regional competitors' lowering costs. Yet, Japanese chemical manufacturers have managed to still remain leaders in highly functional and specialized chemicals. Furthermore, Japan can count on a variety of chusho kigyos, who have developed niche chemicals and material technologies. What are the strengths and weaknesses of the Japanese chemical industry today?

The strengths of the Japanese chemical industry still lie in the fact that Japan has the technology and companies willing to take care of products all the way from procuring ingredients to completion of the final product. Everything in the line can be conducted in Japan.

Japan’s weaknesses lie in the aging infrastructure and aging buildings. In particular, we see many oil refineries closing down due to the degradation of aging structures. Obviously, the declining population is a huge weakness for Japan too. With the population numbers falling, we also see drops in demand.

 

Not only is Japan the oldest country in the world, with 30% of its population being over the age of 65, but it also has a decreasing demography. This is creating two big challenges. First is a labor crisis. There is a smaller pool of young graduates for companies to replace their older workers with. Second is a shrinking domestic market. What actions is your company taking to face the challenges posed by Japan’s demography situation?

Digitalization is the answer to the demography issue. During the past two years with COVID-19, employees were not able to come to the office to do business. Therefore, we had to introduce more digital and remote work solutions. The ordering system has also been upgraded from fax-based to email-based. I am personally taking the lead in digitizing all of our processes and digital transformations (DX). DX is the driving force for mitigating issues.

We have recently established a new facility that has introduced many autonomous and automated technologies. Blending is done automatically and does not require manpower. In addition to the new facility, we have also recently established a storage facility too.

With the problems I mentioned earlier, the aging demographic, as well as the aging infrastructure of oil refineries, we find business opportunities for us. The storage facility we built is designed to house dangerous and high-risk chemicals. With Japan losing its ability to produce chemicals domestically, we would need to rely on imports. The investments we have made are looking to 10 years from now when we might have to adapt to the changing environment. 


Gyoda facility


Your Gyoda facility was introduced last year to incorporate automated technologies as well as technology that can automatically fill drums and cans with solvent and it has also allowed you to take on more manufacturing capabilities. Can you tell us more about your Gyoda facility and how it enables more manufacturing capabilities in your business?

With the Gyoda facility, we are able to fortify and enlarge our manufacturing capabilities. Before we were more focused on the trading aspect of chemicals, basically we would take a single type of chemical and distribute it to our clients. Clients however have a need for a mixture of different chemicals. Customization and meeting the customer requirements is a big advantage we now have, as well as our ability to provide OEM products.

 

Your firm is no stranger to providing production and formulation services. How do you foresee the evolution of trading companies in Japan?

I foresee harsher competition and some trading firms will survive, while others will perish. The determining point of survival will be whether the trading firm has its own capability to assure quality and have a wide range of chemicals in stock. Traditionally, trading firms functioned as a middleman, passing one product that is made from the manufacturer to another company that needs it. It really is not enough with the current demands of society. Our firm has evolved to have a wide range of various types of chemicals in stock so that we can readily provide our customers with their needs. At the same time, we assure quality and provide after services. We have about 90 employees, approximately 40 of them are in sales. The other 50 are in what is called the “indirect” department, which tends to handle quality control. About 10 of them are in quality control and there are about 4-5 people that handle logistics. Comprehensive services are something that we provide along with the client chemicals.


We assure quality by using advanced inspection equipment


COVID-19 has posed many challenges to the global shipping and logistics sector over the last two years and of course, this has been exacerbated by China’s recent zero COVID policy. How have these disruptions in the shipping and logistics sector affected your company?

We are feeling a big impact from the Shanghai lockdown. We have been unable to procure the chemicals that go through the port of Shanghai. During Chinese New Year and Golden Week, we have tried to accumulate and pile up stock, so that we may overcome this delay. Unfortunately, we are entering June right now and the situation shows no signs of getting better.

 

What are some of the strategies you are employing to overcome this challenge?

We are taking this situation very seriously and are looking into alternative European brands. Unfortunately, again, with the Russian invasion of Ukraine, prices have soared. We are struggling to be very honest.

 

Your eco-friendly products make up 30% of your overall sales. Could you tell us more about some of the eco-friendly products that you handle and what are some of the strategies you are employing to reduce your environmental burden?

We were one of the early companies to introduce environmentally friendly chemicals. We first introduced Exxon Mobil isoparaffin type chemicals as well as Dow Chemicals' glycol-based products. These types of environmentally friendly forms are becoming very popular in Japan. It has created higher rates of competition.    

 

Your company has a long history as a trader, having been founded almost 200 years ago. Could you highlight some of the milestones of your history and how your evolution took place?

We were agents for Exxon Mobil in 2017, which is a big milestone for us. Exxon Mobil and our company had an agreement for different paraffin type chemicals which has greatly enlarged our presence in the market.

Another milestone occurred in 2009 when we first went to China to open our overseas subsidiary. I, myself, took the lead in this operation. It was a major event in the company's history and we were able to change the way we operate quite a bit. Before, we had procured overseas chemicals through major Japanese trading firms, but now with an overseas base, we were able to fortify our product line up. With the overseas base, we were able to develop our stock business as well, which accounts for about 25% of our 20 billion JPY turnover.   

 

We understand that your value chemical lineup is a series of eco-friendly products that you source from a limited number of very specialized companies. Can you tell us a little bit more about these value chemicals? Where do you find them and what importance do they play within your business model?

The value lineup of products was launched around two years ago, so it has not yet become a dominant player in our business. We are trying to enforce and enlarge the lineup with eco-friendly types of chemicals. We are creating a variety of lineups so that we can have a USP in terms of providing special types of chemicals.

 

One of the key dates in your company's history was in 2017 when you became an agent for Exxon Mobil. Looking toward the future, are you hoping to create similar agreements with international or domestic companies?

If the right opportunity presents itself, we are happy to take it, especially with overseas operations.

 

Could you tell us more about your partnership with Plus Chemical, a European economic interest organization?

We have registered with Plus Chem, which is an association of global trading firms, in order for us to gain access to up-to-date information regarding the sector. Up to date information is vital to move and pivot, for example, if the information dictates that China is risky right now, we would be able to deviate our route of procurement. By registering and being in the Plus Chem group, we are able to fortify and enlarge our purchasing route. 

 

China presents various challenges to companies looking to sell products produced there in Japan. There are very big differences in the quality control that is required in Japan, especially when you deal with large companies. In China, the culture and regulations are quite different. Culturally, China is vastly different in how business is conducted and how crises are dealt with. How is your firm able to navigate these differences in standardization and culture to unite not only the Chinese and Japanese markets, but also the addition of the Taiwanese markets?

In order to assure quality, we have our subsidiary in Shanghai and Qingdao. We often go from this subsidiary to the Chinese supplier and talk to them directly through the quality check. We ask them to check all the criteria that are required for the Japanese market. In China, they have a substance analysis center, so before purchasing a lot, we first conduct a sample testing of around 1 liter to make sure the quality is adequate and purchasable.

 

Are there any other regions or countries you have identified for further expansion? What strategies will you employ? Could you elaborate more on your international business strategy?

If we were to expand ourselves more overseas, it would be more of a joint venture with local companies. That would expedite the process of penetrating into that market. Our focus is on Nikkei, Japanese affiliated companies. Wherever there is a need for a Japanese affiliated company, we can provide our products.

 

We know prior to COVID-19 you were in China and Thailand. Could you elaborate on why you chose those destinations and what benefits they brought to your business?


ANDOH PARACHEMIE (SHANGHAI) CO., LTD.


The reason we chose to locate our base in Shanghai came down to its openness. It enables us to operate as a business with fewer boundaries and restrictions. Many chemical companies gather around Shanghai, and in terms of transportation, Shanghai is a very convenient location.

In Thailand, there are many Nikkei companies already doing business there. We are actually one of the late ones to enter. We are still trying to consolidate our footings, whilst at the same time, trying to establish a tripartite relationship between Japan, China and Thailand.

 

Your business first started as a trader and distributor and in recent times, you have made investments to bolster your capacities not only as a distributor, but also as a developer of original formulas, offering tailor-made solutions. Looking to the future, how do you foresee the evolution of the company? What do you think are the next steps that need to be taken?

We only currently have one good facility for manufacturing, so we want to build another one in the Kansai area to develop an east and west manufacturing network. Currently, we are mostly a person to person or business to business company. We would like to create a platform that we could all join to do bigger business. Those are the goals we have.

 

By the last day of your presidency, is there a particular objective or ambition that you would like to have achieved during your time as the president of Andoh Parachemie?

This dream I have may be an endless dream to pursue. My goal is to evolve and transform Andoh Parachemie into a total technical solutions partner and become an indispensable utility, like gas, electricity or water. We want to be known as a company that others come to solve their problems. In order to achieve this, all our employees must face the same direction and share in our vision. Price and quality are two major areas we must focus on in order to be competitive in the industry and globally.

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