An established trading company in Japan, Nishimura Chemitech took the decision to expand into manufacturing almost a decade ago, in 2014. The reason is simple, says company president Osamu Nishimura: “We can no longer survive by operating solely as a trading firm.”
In Japan, there are many manufacturers and chemical firms of varying sizes, giants like Mitsubishi Chemical or Tokyo Electron, but there are also many small chusho kigyos that do not have the capability to export their own products. What role does Nishimura Chemitech play in supporting the Japanese industry today? How are you able to set yourself apart from your competitors?
Frankly, we are not particularly strong in the chemical industry. At the time, when my father founded this firm as a chemical trading company in Japan, trading companies only added value to logistics. We only played the role of purchasing what customers wanted and sold those products to them. Hence, it is hard to see ourselves as a specialist in the chemical industry. We do not have large-scale transactions with major chemical makers. So far, we have been purchasing, procuring and offering products based on what customers want. What we do is something that is deeply rooted in Japanese business practice, where trading companies stand between the makers and clients. It is tough to add value to our clients just by being a trading company because we are simply following the traditional business practice unique to Japan. I have seen what my father has been doing since the foundation of this company, and I realized that we cannot survive by solely being a trading firm. Therefore, we decided to have another function as a manufacturer, and we transformed our business into a manufacturer and a trading company. It is quite hard to comment on how we can be competitive in the chemical trading industry. Of course, we are supporting the export of certain plating chemicals, but we are just doing that. Personally, I do not see the added value to only being a trading company.
Could you share with us your main competitive advantages as a trading firm with manufacturing capabilities? What are the added-value products and services that you are able to provide?
Although it is not something big, our value is being good at listening to the customers' needs, gathering information from them and staying as close as possible to our customers' gemba. We are great at finding out and producing what customers really want. Actually, it is challenging to add value. However, our company's financial results show some of the success we have achieved. If you ask me whether this success will last another five years, I would say that it will not. If someone replicates what we do in a couple of years, that would become a standardized practice in this industry. Therefore, we should keep finding something new that can add value, which will require a lot of effort. It is often said that Japanese companies need to change, but most of them remain the same. I have communicated to our management team that I really feel the need to change, so most of them, including our employees, have an awareness of the urgency of implementing change.
Over the last two years, the COVID pandemic has posed major challenges to global shipping and logistics. Quarantine measures have impacted human resources and in addition to a near tripling of oil prices, 77% of international ports reported delays last year. How have these disruptions in global shipping and logistics affected Nishimura Chemitech?
The disruption of the supply chain due to the COVID-19 pandemic had an impact because we had a hard time procuring the components used for manufacturing equipment. However, since our procurement team did well in managing that disruption, we did not experience a serious impact. We also deal with imported goods from Turkey and other countries. Since our company's foundation, we have held the philosophy that we should not discontinue supplying to our customers. With our relatively large inventory, we never stopped supplying products to our clients. Because the average trading companies do not have the amount of inventory that we do, they failed to continuously supply products to their customers. Holding fast to our philosophy, we have successfully continued to deliver products to our customers, allowing us to cover that shortage and grab opportunities for our business.
When we spoke to the president of Tokyo Electron recently, he predicted that the semiconductor market would grow to be worth USD 1 trillion by 2030. However, we saw a major chip shortage worldwide over the last two years. As a result, regional leaders are pushing to expand their domestic production capacity of semiconductors. What opportunities do these regional pushes present for your firm?
We are blessed with a lot of luck and connections. KIOXIA is one of our main clients for the semiconductor-related business. We also deal with gas scrubbers produced by a Korean company. We happened to be the sales agent for that equipment in order to deal with Samsung. Most Japanese companies do not want to handle equipment made by foreign companies because they will not be able to provide maintenance services in the domestic market. However, we have gained the capability to provide the maintenance and repair for gas scrubbers in the domestic market, helping us earn the position and ability of a maker in addition to being a trader. We also bring that equipment to exhibitions.
In the beginning, we had a hard time permeating or expanding foreign-made equipment to Japanese companies. It took about two years before they recognized the value of said equipment, but now, we have been able to supply 500 pieces of equipment to KIOXIA. I think our opportunity is growing here in line with semiconductor makers trying to push to expand their production capabilities. In our original equipment, like slurry and chemical delivery systems, we are predicting further expansion in this industry as well. Most of our warehouses are located near semiconductor fabs, even in Kumamoto, which I believe gives us an advantage.
We deal with a lot of products or equipment made by Korean companies, and we also have some Korean employees. It is hard to expand foreign-made equipment in the Japanese semiconductor industry due to the price, difficulties in maintenance or even their reputation. In the past, many Korean manufacturers gave up on providing their equipment to the semiconductor market in Japan. However, we succeeded in expanding the gas scrubbers made by a Korean manufacturer. Since we have the best practice penetrating the Japanese market, it has earned us a good reputation among South Korean makers. They now believe that if they rely on Nishimura, they will be able to enter the Japanese market. We are receiving some requests to become the sales agent for Korean firms and offer maintenance services on their behalf.
The point-of-use (POU) system you launched in December of last year has many applications in semiconductor processes. Could you give a breakdown of your POU system, and what are some of its strengths?
This has also been brought about by luck and connections. We were not the original developer of the POU system, but a company called Nomura Micro used to have this technology. Nomura Micro had a chemical supplying system, but after they joined NYS, our company, we invented the POU system.
The three engineers of Nomura Micro who had that knowledge and technology wanted to establish their own company. However, ultimately, they were hired by Nishimura, and then we set up a new business division from which the POU system was developed. Although they had the knowledge and technology, they did not have the channel to sell them. To that end, we became their manufacturer because we already have the channels to many semiconductor makers. Many semiconductor manufacturers adopted the technology, so we were able to expand it.
It is a chemical mixing system. Conventionally, the chemical is mixed with the agent in a pot. In this advanced system, however, the density of the solution can be changed before proceeding to the next phase. In order to respond to the needs of the customers, we developed this technology. We are still in the testing phase, and we have already applied for a patent for this technology. As the maker, I believe that we can differentiate our company from others through this development. Furthermore, we showcased it in Semicon in Japan and China exhibitions.
What role do partnerships play in your business model? Are you currently looking for any partnerships in overseas markets?
Before the pandemic, we had a lot of opportunities to establish new partnerships with foreign makers. For example, we communicated with an American maker about a partnership to expand into the Asian market. We were about to close a contract for a joint venture, but that strategy has been postponed due to the COVID pandemic. As a trading company, it is difficult to have a partnership. However, as a maker, it is crucial to find a partner because we cannot do everything alone. We need to offer maintenance services if we are to be present in overseas markets. Hence, we are looking for a partner in the overseas market that has strong and unique technology in the semiconductor industry and the capability to provide maintenance. Basically, we are trying to find someone who can do what we are doing in the domestic market.
Nishimura Chemitech is one of the companies that have successfully introduced foreign-made products to the Japanese market. Given that unique position, are you looking to diversify your client portfolio to make you the go-to partner for overseas firms that want to introduce their products to the Japanese market?
We would like to expand our role in introducing foreign-made products to the Japanese market. With Japanese business practice, it is difficult to gain a good reputation or evaluation unless we know the other party well, which takes time. Many trading companies are trying to introduce foreign-made products or equipment to the Japanese market, but our ability to offer maintenance services along with the products sets us apart. I think we are a rare case, and our experience is quite advantageous. We would like to expand that position while offering maintenance services. If other companies replicate that practice, it will become standardized, making it a challenge to find another additional value to the services we provide. Nevertheless, we can capitalize on this successful practice.
Moving forward, what other countries or regions have you identified for further expansion? What strategies will you employ?
Our bases in Singapore and Taiwan, established by my father, deal with the plating business, not the semiconductor business. They take care of our old clients from the company’s founding period. For my part, I would like to take advantage of these bases, particularly Taiwan, to expand our equipment for semiconductors. We are also promoting a number of semiconductor-related equipment made by a South Korean company. In that sense, it is not easy to establish another base in Korea on our own. Since Japan and Korea are so close, many Korean manufacturers or component makers are directly coming into the Japanese market to sell their products, making it difficult to set up a base in South Korea. My next target is mainland China, which could be through a sales agency or a joint venture. It is really hard to successfully enter the Chinese market on our own, so it would probably be through a joint venture.
Imagine we come back in six years and have this interview all over again. What goals would you like to have accomplished by then?
I believe that in six years, we will be pursuing a new added value that is different from what we have now, which will lead to the growth of this company. We also need to find the successor of this business. I have a daughter, but it is going to be difficult to pass down the company to her. My father had it easier because he had two sons.
For the next generation, we have to think about the new phase of this company, whether we should pursue an IPO or merge with somebody. Together with my younger brother, we have created a vision for the future. Thinking about our company’s trading capabilities, it is really hard to divest that part of this company. It is crucial to expand our capability as a maker going forward so that we can have new added value for our customers six years from now. Looking back at our history, we were more affected by the flooding in Thailand than the Lehman Shock. COVID-19 was an impactful event, and we cannot go back to what we were before that happened. The same goes for the customers. Since I am not young anymore, I am 52; I want to seek young talent with fresh minds to discover something new. Although I am not tech savvy, I aim to recruit young talent who are able to independently listen and analyze the needs of the customers with a creative business mindset.