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Trade transitions: Seiko Sangyo to pivot through challenges and seizing global opportunities

Interview - October 7, 2023

From responding to market shifts and Japan's aging demographic to embracing emerging opportunities in Indonesia: A deep dive into the adaptive strategies, growth milestones, and future vision of a company on the brink of its 85th anniversary.

HARUO KOSUGE, REPRESENTATIVE DIRECTOR & PRESIDENT OF SEIKO SANGYO CO., LTD.
HARUO KOSUGE | REPRESENTATIVE DIRECTOR & PRESIDENT OF SEIKO SANGYO CO., LTD.

Japan has been known for decades for having advanced technology and being very trustworthy and reliable, and with the very weak yen relative to the US dollar. We believe that this is an opportune moment for Japanese firms and suppliers to re-establish themselves on the international stage. Do you agree with this premise? Why or why not?

I agree with that premise. The key strength of Japanese companies is their ability to consistently deliver high-quality products on time and according to promised deadlines.

 

While it is true that it is more cost-effective to export products from Japan, the rising import costs for raw materials certainly affect your clients. What do you make of the current macroeconomic climate for your own business activities?

Due to the continuously rising import costs for raw materials, we’ve experienced an increase in product costs. The major manufacturers we collaborate with as a trader have had to make four separate price revisions to account for these cost increases. Initially, our end users and customers were understanding and accepting of the first and second price revisions. However, as we now find ourselves dealing with the third and fourth price increases, there is a notable reluctance among our clients to agree to these additional cost adjustments. We are still under the negotiations with them perseveringly while checking the direction of the makers.

 

Do you see an opportunity in the trend of manufacturing moving back to Japan?

Indeed, many Japanese firms are moving their manufacturing back to Japan, and this trend is not solely a consequence of the COVID-19 pandemic. A significant factor driving this shift is the heightened concern over increasing geopolitical risks.

 

Can you talk about the impact of Japan's aging population on your own activities?

The trend of centralization into urban areas is driven by Japan's aging and diminishing population. As more people migrate to cities, rural regions are experiencing adverse economic and construction-related consequences. One specific example of this impact is our dealer who receives our welding materials. They are currently facing challenges due to the decline in public construction projects in rural areas, which is in turn negatively impacting our business.

 

One silver lining of this population decline for many traders and SMEs is being in some ways kind of forced to put a greater emphasis on overseas markets to compensate for the lack of work in Japan. You just celebrated 10 years in Indonesia. Can you walk us through the motivation of why you chose Indonesia and some of the key lessons you've learned after a decade of international business?

When we were considering our overseas expansion, we had three potential candidates: China, Thailand and Indonesia. We decided to rule out China due to geopolitical concerns and its vast size. As an SME, establishing a widespread presence across such a large nation would be challenging, and we didn't see substantial growth potential in the market.

In the case of Thailand, we realized that we were entering the market already too late, given that Japanese companies had initiated their expansion there some 30 years ago. Consequently, the market was somewhat saturated.

On the other hand, Indonesia is a fairly new market for Japanese companies. This market had several compelling factors, including a large population, a high ratio of younger generations and a cultural affinity with Japan as a nation. Additionally, as Indonesia is predominantly a Muslim country, it offered a relatively smoother entry point for our business.

 

Historically, the role of the trader was to serve two functions: to supply the financing and take care of logistics. However, they are now expected to add value in all kinds of new ways, whether that be co-creative support, R&D support or consulting. You offer a variety of complimentary services from design to prototyping to assist your clients. Could you go into more detail about how you set yourself apart, and how you add value on behalf of your clients?

The role of traditional traders, which historically involved merely passing goods from right to left, has evolved significantly in recent years. Major trading companies, in particular, have embraced change by adding value through initiatives such as establishing their own research or manufacturing centers and taking active risks by setting up their own manufacturing or processing facilities. Likewise, SMEs are taking risks. In today’s market, it is crucial for us to add special value to our products and services in order to survive in the market. The keywords that define our strategy are offering technological support, maintaining a stable supply by managing our own inventory, and providing high quality services.

One of our unique solutions is our 3D measurement commissioning service, where we closely work with our clients who are upstream and downstream manufacturers. We act as the connecting bridge between multiple companies. The products we create are a combination of the technologies sourced from various companies, and we employ our 3D measurement devices to ensure the quality of these products for our end users.



Next year, you will be celebrating your 85th anniversary, and you've gone through different iterations and stages throughout that time. What do you believe to be the most important milestones in the history of this company, and what is your direction for the next stage in its evolution?

The key milestone of our company occurred right after WWII. Following the dissolution of the navy post-war, a challenge arose as there were no immediate buyers for welding material products of Kobelco. Thereafter, Kobelco was in danger of shutting down of the factory.

Fortunately, our manager at that time, who had prior experience working in the quality assurance sector at Mitsubishi Heavy Industries' Yokohama factory, leveraged this connection. We began supplying Kobelco products to Mitsubishi Heavy Industries, which not only helped Kobelco sustain and grow its business but also fostered a deep appreciation for our collaboration. Since then, we have continued to work closely with Kobelco, jointly expanding our sales network and growing together. MHI's ship-building base is no longer here. About 30 or 40 years ago, it was redeveloped as MM21, located in Minato Mirai, on the seaside of Yokohama Station - a massive area that used to be the shipyard of Mitsubishi.

 

With regard to your future vision, are you more focused on supporting major players or helping the domestic business of SMEs? To what extent are you focusing on helping their international business development?

Since the automotive industry is a significant strength of Japan, it was our target as we entered the Indonesian market. The market was forecasted to have a growing demand due to its increasing population. Our initial endeavor involved introducing Mitsubishi Materials' cutting tools to Indonesia, and our collaboration with them continues as we work together to expand their market share in that particular market.

We offer various equipment which includes cutting tools, grinding tools and measuring instruments, both domestically and internationally. Mitsubishi Materials' cutting tools are combined with Mitutoyo's measurement instruments. After every material undergoes processing, it is subject to measurement to ensure it meets the established standards.

 

The automotive industry is living in a very transformative time, primarily in response to the shift toward lighter materials to meet environmental standards for EVs, PHVs and HVs. This transition is leading to a reduction in the use of heavy ferrous metals like iron or steel in lieu of aluminum, magnesium or different resins, each of which requires various kinds of processing, cutting and welding methods. How is that change in material affecting your business?

While the shift toward lighter materials during this EV era means that there will be fewer steel cutting and welding tools required, we are witnessing a growing demand for the measurement-related products we provide because the precision requirements for each component and part are increasing. Since we will also be handling newly developed products by other companies, we don't foresee a significant downturn in our business.

 

Are you interested in providing the same services to other foreign manufacturing companies in Indonesia?

Currently, our customer base primarily consists of Nikkei companies, accounting for a significant 70% of our clientele. We have established a track record of successfully collaborating with local companies and delivering Japanese-quality products to them. Our goal is to diversify this customer base by increasing the ratio of local companies we work with, especially considering the fact that Japanese companies excel in ICE for hybrid cars but face challenges in the EV field. As a trading firm, our mission is to identify and respond to emerging demands in the EV sector by providing the appropriate products.

 

Are there any new markets beyond Indonesia that you have your eye on to look for new clients to support or for your own expansion?

Although that is our utmost challenge, we don't have any definite plans at this moment. At present, we find Indonesia to be the most attractive market.  Japan's economy is facing challenges due to a shrinking working-age population, whereas Indonesia is experiencing growth in its workforce, distinguishing it from other Southeast Asian countries. Given these circumstances, Indonesia remains our primary focus.

 

Is your company currently looking for new partnerships and suppliers? If so, what does a partner of choice look like?

Our approach will be based on a case-by-case evaluation. Our first step is to identify promising market demands before seeking out the right vendor or supplier and acting as the mediator.

Currently, we are engaged in a collaborative effort with a tier-one supplier in the automotive company to develop a new product. Through these experiences, we are trying to find new business avenues for the future.

 

Imagine we come back on the last day of your presidency to have this interview all over again. Is there a goal or an ambition that you would like to have achieved during your time as president before handing over the company to the next generation of executives?

As the president, I consistently emphasize our company's two core goals to our employees. The first goal is to build a strong foundation that ensures a sustainable and prosperous life for all our employees. As we approach our 100th anniversary, our immediate target is to achieve a successful century in business.

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