In a time of global uncertainty and shifting market dynamics, the Japanese manufacturing industry finds itself at a crossroads. The COVID-19 pandemic and geopolitical tensions have disrupted supply chains, prompting multinational corporations to seek reliability and diversification. Amidst this backdrop, Ono Manufacturing continues to build on its own journey, with the United States an important part of that.
It is our view that Japan is at a very exciting time for manufacturing. On one hand, we have had major supply chain disruptions in the last three years, caused by the COVID-19 pandemic as well as tension from the China-US decoupling situation. As a result, we are seeing many multinational groups try to diversify their supply chains with a focus on reliability. This is where Japan can enter; a country known for decades of high reliability, trustworthiness, and advanced technology. Now, with a depreciated JPY, it is our view that there’s never been a more opportune moment for Japanese manufacturers to meet the pressing needs of this macroeconomic environment. Do you agree with this premise? Why or why not?
I joined the firm in 1973, and at that time, this company was a tier two supplier for Mitsubishi Motors, which is located near here in Mizushima. We actually used to produce automobile parts for Mitsubishi. Then, in 1983, our company started exporting to the US market. I vividly remember Barry Bonds and Sammy Sosa battling for the home run records in MLB, and it made me really want to do business in the US. Our business continued with major trading companies, and through this relationship, we started exporting our products. We have been exporting to the region for over 40 years, and our company has maintained a consistent relationship without missing a single month over this period.
As you know, the bubble economy burst in the 1990s, and the following years were known as the Lost Decades. I'm not sure how other companies reacted to these two decades, but in terms of our business, nothing was lost. When things are going well, people are happy, but when things are bad, people try new things to discover solutions. The same goes for our company; we tried many things and keenly listened to exactly what our customers wanted. We made significant investments in facilities in a unique manner, so from our perspective, the Lost Decades were actually 20 hard-working years.
Without these 20 years, our company would have continued blissfully in the economic bubble without making any investments or innovations, and we might have ended up damaging our business as a result. Therefore, the Lost Decades were of great benefit to our company. We are proud to say that our products are delivered to all 50 states in the US, including Hawaii. During the initial stages of our export to the US, we worked with major trading companies, as I mentioned. They sold our products to major importers in the US. Then, in 1987, Japanese Minister of Finance Mr. Kiichi Miyazawa met with the Secretary of the Treasury Mr. James A. Baker, III, and after that meeting, the JPY became stronger. That was a problem for us, so we decided to sell our products to US distributors. Unfortunately, these distributors are major customers of the importers, so that wasn't an ideal situation. It required a change in tactics, so we began seeking out bolt manufacturers. However, at that time, our human resources were limited, and only one person was taking care of this project.
Regarding our new tactic of working directly with bolt manufacturers, it honestly hasn't gone as well as we expected. As you're aware, there are numerous bolt manufacturers in the US. One company then ordered 30 containers full of our products, which is the equivalent of one year's use. They are actually one of the top bolt manufacturers in North America in terms of volume. However, despite this small success, it is difficult to maintain relationships with so many different bolt manufacturers. As a Okayama-based company, we cannot offer tailored after-sales services. Additionally, I have to personally deal with these customers, and English isn't my mother tongue. Fortunately, we were fortunate to have an employee join our company whose English is very good, and she also has a good understanding of industrial terminology. She was crucial in helping me communicate with these companies.
This situation prompted us to rethink our strategy once again, and from there, we began working with washer manufacturers. The 2008 Financial Crisis was a significant event worldwide, but I remember one particular month where our sales breakdown was 52% exports and 48% domestic business. With more sales in USD than in JPY, it is difficult to process in terms of accounting. That's why we established a separate company to handle the trade.
During the time when the JPY was at its strongest, many nut and bolt manufacturers withdrew from the export business, and I often wondered why. At that time, USD 1 was around JPY 100, and as it dropped down to JPY 70, our bank manager approached us, asking, "What are you going to do about the exchange rate?" I told him that even if the exchange rate drops to JPY 50, I will continue to export. Obviously, exchange rates fluctuate all the time, but if we flip-flop on our export business every time the rate moves, then in the eyes of the customers, our company will lack consistency. That is not the right mindset for business, and other similar businesses share my sentiment. For example, if an opportunity arises to produce washers for a Major League Baseball stadium, we don't base every decision on exchange rates.
To answer your question, there are indeed many companies in Japan that have faced challenges similar to ours. These companies struggled and persevered during the Lost Decades, and they came back stronger.
Doing business for 40 years in the United States is quite an impressive achievement. With your new business in the United States, how are you going to do things differently? Can you walk us through both the motivation and the expectations for producing locally in the United States?
Before this project, we thought that everything would be okay because we already exported our products to the US. Every week, we ship a container from Kobe to Los Angeles. I held the sentiment that it was okay for many years. However, I realized that starting local production in the US would be much better for the next generation. That's how my perspective changed. Now, both my sons and my daughter have joined the company. We now have sufficient English-speaking staff, and my manufacturing manager is doing a fantastic job. It felt like the right time to pull the trigger and proceed with the plan.
Interestingly, both of my sons aspire to go to the US, and producing washers in the US is one of my personal dreams as well. Finally, my dream is coming true, and it is an incredibly exciting time for my company and my family.
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You talked about your motivation for the US expansion as building something for the next generation, and you’ve also mentioned big investments in facilities with custom equipment such as from AIDA Engineering for example. In your opening answer you described how over the Lost Decades, firms such as yours were building up, struggling through, and now you’re prepared to bear the fruits of all your labor. During those 20 years, however, Japan itself developed a big social issue, one of Japan’s aging population. For the first time, we are now starting to see the consequences of this aging population and demographic decline. We now understand how you were investing in facilities, but how were you also investing in human resources during that time? How are you making sure that this kind of technical expertise you’ve accumulated is passed down and preserved for the next generation of employees?
The current technology we have has accumulated over the past 40-50 years, and it is important to value this amassed know-how and technologies. Personally, as I approach turning 70 this year, I transitioned to the role of chairman two years ago, while my eldest son took over as the president. I have come to realize that the younger generation possesses greater competence due to being born in an environment where advanced technology is prevalent. For instance, my 5-year-old grandson can operate an iPhone unassisted. This realization allows me to entrust the work and operation of my company to the younger generation, as they may bring forth unexpected results.
While acknowledging the importance of accumulated technology and know-how as the foundation of our company, I believe we should aspire to go beyond that. The younger generation is now assuming positions of power, granting them the opportunity to acquire modern know-how and techniques that will prove invaluable in the years to come. It all boils down to the evolution of techniques and technologies, and I have full confidence that when I revisit the company in 10 years' time, the production methods will have undergone a complete transformation compared to today.
When I first joined the company, our monthly production was around 50,000 washers. However, at present, we are producing nearly 100 million washers in a single month. The production volume has exponentially increased over the past 30 years. Therefore, when I return in a decade, I fully expect productivity to have taken another significant leap forward. I desire for our methods to evolve. As the saying goes, the definition of insanity is doing the same thing repeatedly while expecting different results. If we aspire to achieve better performance in our business, we must continuously adapt to the times and consistently challenge ourselves to outperform our current standards.
Our company is ISO 9001/JIS Q9001 certified, and familiar with QS 9000. Also, we are interested in the US aerospace industry.
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100 million washers per month is quite a shocking number, especially as from our understanding Japanese firms over the past 20 years have been forced into high-mix-low-volume B2B markets in order to remain competitive internationally. However, when we think of fasteners, washers, and nuts, they are considered naturally high-volume products. I imagine that it can be very difficult to compete in that kind of arena given the circumstances. What do you think it is about your washers in particular that make you the preferred choice, especially for these tough operational environments like the Great Seto Bridge?
When I joined the company, our share of the market in Japan was less than 0.1%. However, within just 10 years, we became the leading market share holder domestically in terms of production. The reason behind this achievement was a significant improvement in our permanent productivity. As a result, we were able to produce a considerably higher number of washers while simultaneously reducing costs. Once we attained the number-one market share, we aspired to become the leading provider of quality products. Thus, we ventured into exporting to the US market.
Personally, being born in 1953, I have always harbored a dream of doing business with US companies. This aspiration persists today because the United States holds the top position globally in terms of social infrastructure. Therefore, it has long been on my mind to engage in business with American firms. However, conducting business with the US necessitates supplying mass-production components while also catering to customers' demands for smaller lots. I am sure you came here by Shinkansen today. As you might be aware that Nozomi is an express train that only stops at major cities, and Kodama on the other hand stops at every station. You can imagine our production like these two different Shinkansen. Nozomi primarily engages in mass production, whereas Kodama focuses on smaller-scale production. We needed to establish both types of productions. This led us to establish a new factory in Tamahara, specifically dedicated to mass production. Meanwhile, our main headquarters shifted its focus to handling smaller lot orders from clients. Naturally, these smaller lots are priced higher due to their specialized, value-added production with unique features.
In contrast, numerous Japanese firms are now emphasizing smaller lot production. While catering to customer preferences, smaller lots yield lower profits. However, I instructed my sales team to seize orders for mass-production items in larger quantities. By doing so, we can confidently reduce costs for clients through economies of scale.
You mentioned there that the main factory is for high-added-value small lots and your new factory in Tamahara is for mass production. What about the new US factory? Will it be for more high-value-added products or mass production?
I would say that right now we are aiming for mass production that meets American standards. The first step is to bring new AIDA press machinery, and currently, we are planning on bringing just a single washer. This is because there is no equivalent machine in the American market. We will use this AIDA press machine to produce products that meet US specifications.
Your company has taken many different approaches over 40 years, going from just pure export to working with Japanese trading houses, working with local distributors, all the way to working directly with American bolt makers. As your roots set in more and more in the United States, what strategy will you take to further consolidate your presence in the US market?
Currently, our strategy is to adopt a wait-and-see approach. However, one of my long-standing dreams, which I have yet to fulfill, is to establish local production in the US. I take immense pride in witnessing my sons' relentless efforts to bring this dream to fruition. As mentioned earlier, our initial focus will be on producing products that meet US specifications. While it is difficult to predict the future, I prefer a cautious and grounded approach rather than rapid expansion in the US. This approach allows the new US site to firmly establish itself, and I believe it will lead to increased demand for our products in the US market. I have always harbored concerns that relying solely on exporting might lead Americans to perceive our company as responsible for job losses. My philosophy is that manufacturing in the US should be carried out by the American people themselves. Consequently, I aim to support American individuals in producing our products for American companies, a sentiment I have shared with my sons on numerous occasions.
Undeniably, I hold great affection for the US, despite the considerable distance of almost 14 hours between Okayama and the United States. I vividly recall gazing out of the plane window as we soared past the Rockies. The same profound love I feel for the US is something I hope will one day be reciprocated by the people of the United States towards my company.
Ono Manufacturing has now been responsible for some impressive infrastructure projects throughout its history; projects such as the Tokyo Skytree. Looking back at your company’s history, is there a particular sentimental favorite project or site where your products are being used? Is there a project that fills you with pride when you look back at what your company was able to provide?
One project that stands out for me is the Aqua-Line in Tokyo Bay, an undersea tunnel connecting Chiba and Kanagawa. I'm also proud of our involvement in the construction of the Great Seto Bridge. The Aqua-Line project consisted of 8 construction areas with 4 general construction companies collaborating. In total, we received orders for 3 million washers, involving 32 joint ventures. While the volume of orders was significant, we take greater pride in the quality of the products we provided. Our Elastic Washers, designed with a sandwich structure that two washers sandwich a piece of rubber, enabling them to swing with the momentum of an earthquake. The general construction companies sought a solution to enhance the Aqua-Line's earthquake resistance, and the idea for the Elastic Washer emerged as our response to their requirement.
Following the devastating Great Tohoku Earthquake in 2011, concerns arose about the safety of the Aqua-Line. Given the soft and muddy land around Tokyo Bay, I worried considerably. Fortunately, the Aqua-Line remained intact, sustaining no damage. Personally, I firmly believe that our Elastic Washers played a crucial role in safeguarding the Aqua-Line, and that fills me with immense pride.
Regarding international projects, it's not a single project that stands out, but rather our company's accomplishment of exporting products to all 50 states in the US. In fact, we have successfully exported our products to over 20 countries worldwide, including unique examples such as Iran and Thailand. Once I retire from my role as Chairman, it is my dream to visit each structure that utilizes our products and witness firsthand their impact.
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