Consisting of four companies, Tohei Holdings' clients encompass a diverse range of industries, including electronics, telecommunications, entertainment, and academia.
Over the last 25-30 years Japan has seen a rise in regional manufacturing competitors from countries like China, Taiwan, and Korea, who have replicated Japan’s model for success. However, we still see Japanese firms as leaders in niche B2B fields. Additionally, over the last few years due to the impact of COVID-19, rising labor costs, and supply chain disruptions in China, many Japanese firms are now returning their production to factories in Japan. What are your thoughts on this trend of bringing production back to Japan?
We are actually a company that relies on Chinese production in many ways, and in most cases, our products are produced in China. Frankly speaking, I think my opinions might be different from what you are saying in your question. Japan is indeed praised for the craftsmen who have accumulated know-how, techniques, and technologies over many decades, and no industry is that truer than die-cast manufacturing. However, I would say that this perception is being challenged by the ever-increasing skill set of Chinese experts. Chinese engineers are now reaching almost the same level as some of the expert craftsmen in Japan, and because of a myriad of reasons Japan is actually losing its human factor. Sadly, these kinds of craftsmen in Japan are not getting any younger and there is a huge issue with technological inheritance. I think it is very fair to say that economically developing countries like China are catching up with the quality and the level of technological breakthroughs that Japan was known for many years ago.
I think the truth of the matter is that Japanese manufacturing is going to be dependent on Chinese manufacturing for the time being, no matter what is being said in the media these days. In particular, for like our firm that produces consumer goods which do not rely on highly advanced technology, die-cast and mechanical manufacturing are very dependent on China for our production, and furthermore, our customers are also dependent on that.
I will explain why China has become equivalent to Japan in the field of molds and mechanical parts production. Recently, molds are created based on CAD design data of mechanical parts with NC machining tools. In this case, reliability related to accuracy comes from machine manufacturing rather than the human factor. Major NC machining tools are provided by Japanese manufacture, in that point, Japan is beyond some economically developing countries including China. However, they can buy such an equipment and install it on their premises, thus gaining the ability to reproduce Japanese high-quality standards of manufacturing. If they have good CAD/CAM systems, that can lead to mass production for high quality mechanical parts in China.
As you know Japan is currently facing a number of social issues including a very low birth rate. What this means is that the population is declining, and thus there are fewer people available to fill work positions. Especially in rural areas, the situation is critical, and if production lines are brought back to Japan on a large scale, we will face labor shortage.
Regarding the reshoring of production to Japan, I’ve brought up a lot of negative points, that isn’t to say that there aren’t any positives. Some of our products are shipped to Japan. By manufacturing locally in Japan, we can reduce transit times, thus shortening the delivery lead time.
Also, I would say that there are some benefits, especially when we talk about small quantities of production, and deliver them to the customer in Japan. By small quantities, we are talking about 100 or 200 units per production lot. Production in China is not getting any cheaper for small quantities of production, because the production efficiency decreases. So, for that reason we are bringing smaller production back to Japan currently. It is a fact that we have already depend not 100% on production in China. The Chinese currency against JPY is going up. And USD against JPY is going up, too. It would be a natural thing to assume that under these circumstances we would bring back small quantities of production to Japan because of inefficient.
One aspect of your business that is firmly rooted in Japan is your subsidiary T&H Design, a part of your business that is engaged in design, development, and consultancy. Can you tell us why you have decided to keep that aspect of your business domestic when you could easily reduce your costs by having an operation in Vietnam or the Philippines?
The core business for T&H Design in Japan includes smaller production and design, development, and consultancy. While remote meetings have become common, in the field of commissioned design related to manufacturing, it is necessary to physically see and touch the products and have face-to-face meetings with clients. Therefore, it is necessary to work close to our clients. Considering that the majority of our clients are in Japan and Japanese clients may not be proficient in English, we have established our base in Japan.
T&H Design doesn’t cater to big volumes. But when designing products with the intention of mass production in China, some customers need a first-hand approach domestically here in Japan before they start mass production in China.
Before 2017 all of our production including design and prototyping was entrusted to our group company in China. However, due to the reasons mentioned above, the design, prototyping, and small-scale production have been transferred to our group company in Japan. This transition was a milestone in the group’s history, although I’m sure we will talk more about our history a little later on.
You cater your products to a wide range of industries such as electronics, telecommunications, education, and entertainment, with clients such as many major companies in Japan and US. Among all of the industries you cater to, which one has the most potential for future growth from a business perspective? Are there any new industries you are looking to introduce your technologies into?
We cannot identify a specific industry with high growth potential because we think about all of the clients and the industries we cater to as a sort of flat line. We don’t outline any particular segment that we would like to focus on more.
Our client's industry is unrelated, but there are fields that we are paying attention to. One of the big ones is AI. A lot of things have been said in the news in recent years about AI. Tohei has often been thought of as a traditional OEM manufacturing company, and we are known for our hardware approach solutions for clients. AI and software solutions need to be developed to complement the hardware side of things. We are thinking about embedding more AI or IoT solutions into our production lines.
Drone manufacturing is another thing, but there is not something we have any particular results with just yet. We are however analyzing the market and we see that many customers are moving into this area. There are now many services emerging from drone manufacturing and the industries related to this sector. We would like to take advantage of this opportunity and see ourselves in drone manufacturing as well.
You might question in how AI can help our production lines, and the answer lies in image inspection using AI. AI is widely tried to use in many manufacturing companies for these reasons. To err is to be human, and therefore defects can happen. We aim to decrease defects by utilizing AI as a better approach to quality assurance. In the ultra-competitive market of manufacturing, the use of AI in quality assurance may become essential in the near future.
Scratches and small defects are somewhat inevitable during production, which are often overlooked the human eye alone. When human errors happen, we expect that AI can solve those problems, and AI are bringing up the quality level to the maximum possible.
The drone industry itself is seeing a huge boom right now and many demands are coming in. We’ve been approached by a company to produce a drive for a motor inside a drone, and that project was a success. Once we completed the drive, the thought then went to produce a whole drone. This is another major theme that we are currently looking into for the near future.
One notable IoT-based product you have been involved in is the teplo automatic teapot, which will automatically brew tea based on user data, following extraction conditions specified through instructions given via a smartphone app. Could you kindly provide us with additional insights into the development and functionality of the teplo teapot? Furthermore, we are interested in your broader perspective on the growing prevalence of IoT-driven devices.
Yes, we definitely see more IoT devices coming up just this year alone. Wearables in particular are somewhat of an area of interest for us. The teplo you mentioned is the automatic teapot for compatible with various teas from around the world, including black tea and green tea, a tea extraction machine that creates extraction patterns based on human biological information. Right now, we are also looking at wearable devices that measure heart rate, temperature, humidity, consumed calories, and blood oxygen saturation (SpO2), and then upload such kind of data to cloud data base. And flowmeters with high precision and high resolution which developed by us is used to calibrate medical infusion pump. Other devices that measure urine volume and record it along with date and time. We even developed a sake dispenser that is adaptable to all sorts of different sake. The user applies a QR code at a retail location and the machine pours a small amount for the customer to try. If the customer likes the sake, they can then purchase through the smartphone application. The QR code comes from an accompanying smartphone application and the app will provide the customer with more information on the sake they have selected to taste such as region of origin and key ingredients. Furthermore, it provides the analyzed preferences of customers' sake choices to retailer. The machine is provided to an SME in Aizu and we were responsible for providing them with the solution they required. The feedback so far has been very good.
The work with major telecommunication company in Japan relates to wearable devices. It is a device responsible for measuring heart rates and it attaches to the user's shirt. Basically, it is a medical device and they are looking to introduce it to individuals. In this particular project, we helped them with the R&D and the solution to produce this device.
Next, we have the digital urine tester. As you know one of the social problems in Japan mean there are a lot of elderly people here. Elderly people are more likely to have health problems that hospitals need to analyze. This device sends data to doctors such as volume of urination and time spent urinating. That device is very helpful in keeping elderly people in good health.
This is just a short introduction to the many different IoT devices we have developed as an OEM manufacturer, from next-generation medical devices all the way to fun anime-based toys for dedicated fans. Almost all of these amazing applications and devices are developed 100% in-house by our company for our partners and clients. T&H is working hard to design and manufacture these products by themselves to meet customer requirements.
To answer your question on the future of IoT I think that smart devices in the next 15 years are going to be able to connect to everything. Food, medical, work, entertainment, and even daily chores.
Could you tell us more about the teplo?
The customer that came to us about this product was a young gentleman who is CEO of LOAD&ROAD, the developer of the teplo teapot, and he was very passionate about tea. Mr. Kazunori Kawanobe attended Babson College in Boston MA, US to do his Master of Business Administration (MBA), if I’m not mistaken. Mr. Mayuresh Soni is the co-founder of LOAD&ROAD with Mr. Kawanobe. The idea was to establish a device that allowed users to brew their tea from their smartphones and to calculate and set the optimal brewing conditions based on the user data.
The device has 6 sensors which allows it to be more personalized tea brewing experience. The sensors, not only reads the user’s heart rate, but also measure the user's finger temperature and surrounding conditions. The device which connected smartphone analyzes the data and calculates the mood that the user is in. The smartphone automatically brews teas with the personalized brewing condition.
IoT is a big field, with almost limitless applications as we demonstrated today. IoT itself mainly consists of two main aspects: sensor terminals that collect and transmit information, and servers that process that information. This allows various services to be deployed in server-side applications using data collected by sensors. We are the company that can bring these ideas to realize for many clients. We can bring together all the needed features to create final products that people truly appreciate.
In 2021 the global IoT market reached USD 300 billion and is expected to reach above USD 650 billion by 2026. What are your thoughts on the IoT development industry currently?
My personal opinion right now is that the IoT development industry with specialized devices for collecting the data is operating at a slow pace, and honestly, it is not developing at the pace that experts were expecting. Just five years ago the thought was that almost home appliances and equipment in our daily lives would be connected to the internet by now but that has not been realized yet.
IoT service by specialized devices on offer you might assume that they are advanced and generate great profits, but the reality is that we are not profiting a lot from these kinds of products and the numbers prove that the IoT industry is not growing at the pace needed.
On the other hand, IoT service linked to smartphone applications, is growing significantly. You have to remember that a smartphone is an IoT device that everyone carries around with themselves all day. The industry tends to head towards this direction; emphasizing connectivity with smartphone devices. It is difficult to ensure thorough cyber security with dedicated IoT devices, but when using smartphones, the smartphone manufacturer can do this role for them.
Apart from your endeavors in the area of IoT devices, where is your primary focus directed at the moment?
I think drones would be the industry that we are looking most optimistically at. There is a goal to make our drone, but I think the ultimate goal is logistic solutions, basically anything involving moving things around with drones. This is a particular area that we are invested in exploring.
First of all, we are a monozukuri company, and the word “monozukuri” translates to the “art of making things.” The key word here is “thing”, and if our customers don’t have their trust in our ability to make things we simply cannot survive.
Back in the day, there were navigation systems for cars such as global positioning systems (GPS), and other devices were separated such as a telephone and camera. Nowadays a smartphone is a combination of all of these different devices, unified in one small package. This means that customers don’t have to purchase all of these devices, instead, they just purchase one, and this means that there is less of a necessity to create small devices with singular purposes. It makes a little more difficult to decide to address the areas. On the other hand, drones are being considered for various fields in the future, and a large number of units are required in the global market as hardware. In other words, it can be said that drones are one of the few hardware products where an increase in production volume is anticipated in the future. This is why we decided on drones and we feel it has the potential of future growth.
What would you say are the core strengths of your firm that differentiate you from your competition?
I think it would be best to introduce you to the history of our company to best describe our core strengths. We started with cassette player manufacturing in the 1970s. At that time, we were designing and producing the generic mechanism module for cassette players. We introduced that to cassette player manufacturing companies. I would not say we were operating as an OEM manufacturer at the time, but rather as a generic mechanism module manufacturer.
In the1980s the VHS came to prominence. There were a lot of companies producing VHS tapes and VHS decks. In the 1970s and 1980s, there was a shift from producing mechanism modules for cassette drives to mechanism modules for VHS, resulting in increased sales. Those sales allowed us to financially grow the company.
In the 1990s CD players appeared. This was the next evolution of audio electronics manufacturing, and we began producing the mechanism module for CD player manufacturers. Audio and visual companies were our major customers during the early decades of our existence. Later in the 1990s we entered the PC revolution, with the utilization of CD-ROM becoming more and more prevalent. In Taiwan, many companies that manufactured PC peripherals emerged, and at that time, these companies were our customers, and we sold them mechanism modules for CD-ROM drives.
However, in 1998, the IT bubble collapse and the whole industry took a plunge. We were in a difficult situation, but fortunately DVD saved our firm. We were able to rebuild the company with new products related to DVDs. Once again, major audio and visual-related companies have become major customers.
Next is 2008 and the Lehman Shock, meaning another financial crisis. All industries felt the crunch and the worst thing that happened to us was the advent of audio & visual devices using hard disc, semiconductor memories and streaming such as the iPod. These devices were a new evolution of the audio-visual revolution that had dominated the past few decades. Our biggest challenge is that mechanical module is no longer in demand for such kind of devices. It meant that many hardware manufacturers related to audio & visual products were beginning to leave the industry. Our company has also seen a significant decline in sales of mechanical modules. Then in 2010 we decided to throw all of our resources to China. We decided to focus our major business from selling mechanism module to purely on OEM and literally all the resources we have were thrown at that endeavor. This resulted in success, and the company once again entered a growth trajectory. In this way, our company leverages its advanced development and manufacturing technology in mechanical modules, which has become our strength. Currently, we are engaged in OEM and ODM businesses, capitalizing on this expertise.
What would you say are the core strengths of your firm that differentiate you from your competition?
Currently, our business 100% relies on the orders placed by other businesses on an OEM basis, however, we are considering venturing into the drone industry to increase the proportion of our own product sales. Relationship for design and sales with Japanese and foreign companies will be something that we are looking for in the near future.
Every decade things progress and change at a rapid pace, and it feels like every ten years something new comes up. For that sake, we have accumulated some assets to create a financial cushion for ourselves that will secure our future for at least the next ten years. The big lesson we’ve learned throughout our history is that the future is never certain. Nobody knows exactly what the future holds so for that reason we need to be prepared and think about new products.
Are there any new products that you’ve developed that you would like to showcase for us?
Not introducing a new product, but I would like to introduce the products we currently produce as OEM business. We are making a new product now in China called the Bill Validator. This is a precision mechanism module. Take vending machines as an example, you place a note in the machine and that requires validation. This product was requested by a company, and they have a significant market share about this kind of products and designed this Bill Validator for implementation in many vending machines across Japan. They entrusted us with the manufacturing of this Bill Validator. Another product we make in large quantities is amusement arcade machines. Among them, we are producing crane game machines in China. The actual crane part is quite mechanical and our strength can be utilized. As you can see, quite a lot of machines that require mechanical parts fall into our wheelhouse. We have also received orders for products in the field of household robots. Our customer is Preferred Robotics in Japan. It is a subsidiary of Preferred Networks that develops the most advanced AI in Japan. Preferred Robotics is engaged in the development and sale of robots using AI. We are currently manufacturing a product called “Kachaka” as per Preferred Robotics' request. This product falls into the category of smart furniture.
We also engage the other OEM based products not related to mechanical one. We have the products such as audio mixers, high-quality audio recorders capable of superior recording, effectors for electric guitars. These products are used by semi-professional and professional bands.
Please allow me to provide a brief explanation about our China factory. Our China factory is in Dongguan, Guangdong in China since 2003. We established first China factory in Shenzhen in 1989. So, we have over 30 years of experience for production in China. Some of the products we produce are introduced through factory automation. We have roughly 21 units of our metal stamping machinery and 18 plastic injection molding machines as well as a variety of different surface mounting machines. Additionally, we have printed circuit board (PCB) manufacturing lines that allow us to produce motherboards for the various final products we produce. For assembly, we do have factory automation solutions that come about due to collaborations with factory automation companies in the area. QA here is important too because in our factory's quality assurance department, we use precision measuring instruments to ensure dimensions accurate to the micron level match the designs submitted by customers.
Of course, we aren’t the only OEM company there, there are several similar companies in China alone. Our work is a combination of R&D, mechatronics, design, prototyping, and QA, creating a very strong position and a good appeal for potential customers. As you can see, our company has an extensive track record of releasing products that are dependent on the mechatronics that we produce. I think our greatest strength is that we don’t try to focus on just one area or industry, rather we try to combine all of our strengths, technical expertise, and qualities in one factory so that customers have a place to go for total solutions.
What role do partnerships play in your business model and are you currently looking for any more partnerships either domestically or overseas?
We are looking for feasible partners through our current connections. One example is our recent partnership with “Monozukuri Ventures”, a venture capital firm that specializes in hardware manufacturing technology. This company already has a presence inside and outside of Japan, specifically in America. In order to further expand outside of those locations more partnerships will be required, especially for locations that we lack expertise in. We are excited and looking forward to creating more partnerships similar to our relationship with “Monozukuri Ventures”.
Most major companies have new business development teams to explore new business areas outside their core competencies. In such departments, even if new plans are developed, there may not be the technical resources within the company to implement them. That opens up a lot of doors for us to have joint project with them. This new business development team collaborates with T&H Design to carry out prototyping and small-scale production of new products. We have so many acquaintances with many major companies and that connects us to more potential partners in the future. This isn’t limited to companies either, and we have deep relationships with many major and famous universities across Japan and research institution in Tohoku area in Japan. This approach through partnerships with customers and clients is crucial for us and we really can’t release anything without these connections.
In terms of venture companies, we know that you work with many Japanese-based venture companies. Do you have the capability to work with foreign-based venture companies to help them realize their prototyping?
Currently, we are OEM-focused and our venture company relationships are focused on the domestic market. Since we have little resource to get information about foreign companies looking for OEM manufacturing and expertise, we are for the time being trying to focus on the domestic market only. We do have one example of venture capital investment in a venture capital firm based in Silicon Valley California. This relationship is a partnership between ourselves and, a gentleman who used to work for Hitachi, and two gentlemen who graduated from Stanford University. The venture firm is called Go-Ahead Ventures. This firm evaluates over 3000 startups per year. This provides us first-hand information on the US market and gives us a window into the latest trends in technology.
Your holding company was only established in 2022, but you trace your roots all the way back to 1971 making your firm over 50 years old. Imagine that we come back in 2031 to celebrate your 60th anniversary and have this interview all over again. What goals or dreams do you hope to achieve by the time we come back for that new interview?
One thing I would like to achieve is to become less dependent on China. Currently, most of our products are produced in China. Actually, China isn’t the only place we produce, we have a subcontracted factory in Malaysia that started just last year. This space has allowed us to increase our production volume. Furthermore, we will expand our commissioned development and small-scale production business in Japan. It will also push our dependency away from China. Diversification is a key strategy for us. In terms of strengthening our software development capabilities, we are looking to make connections with some Indian software development companies.
The ultimate goal here is to sell our in-house developed products to the world, just like we used to do. When we were engaged in the development and manufacturing of mechanical modules for audio products, we were able to achieve this. So many Audio & visual manufacturing companies were adopting our products. But currently, we can no longer say this is the case. We want to break free from this situation.