From niche excellence and global markets to carbon neutrality solutions, Toshio Hirao gives his insights on the industry
Japanese manufacturing is at an exciting time. The past three years have seen severe supply chain disruptions due to COVID-19 as well as the US-China decoupling situation and as a result, corporate groups are looking to diversify their suppliers for reliability. Now known for their reliability and advanced technology, Japanese companies are in a very interesting position, and due to a weakened, yen many observers argue this is a unique opportunity. Do you agree with this sentiment and what are the advantages of Japanese companies in this current macro environment?
First and foremost, my basic principle for operating a business is to always be mindful of the global society and the Japanese society and its interrelationship. Japan has 120 million people so we always, in business operations, think of what we could do for the people.
About 45 years ago, I visited Southeast Asian countries. For example, countries like Taiwan, the Philippines, Indonesia, Korea, and China. What I realized is that there are huge cultural differences. In Japan, for example, when you are creating cast steel-related products, it requires about 20 people and there is always human error. Whenever a person makes an error, they through training again so their technological capabilities are enhanced and they can contribute to the production line again. Whereas in other Asian countries when they make a mistake, they are taken out of the production line. This type of mindset is what gives strength to Japanese companies because the technology is retained. There is a sense of working together as a group and elevating the quality and the technological ability of the product through a shared understanding and teamwork spirit, whereas for other cultures it is more “if you cannot do it, you leave”.
So Japanese companies are specializing now in more B2B niche fields that are high mix low volume. This product may be low volume, but the global society is advancing so the demand for this niche product is increasing globally. Many products could be only made in Japan and with the advancement of the global society we are now able to take these niche products and make them Japan’s main business, supported by the strong history and the mindset of monozukuri. Japan is a resource-poor country; unlike China or the US, Japan has no natural resources. However, this monozukuri spirit of always continuously improving and making the production method more efficient has been the core strength - has given Japanese companies an advantage in the global arena. Our customers are casting steel product manufacturers and there are so many steps in this production scheme.
Our company has been specializing in the provision of arc furnaces. In the 1990s during the bubble period, I was deeply contemplating if our company could sustain itself just by providing these arc furnaces. However, since there has been growth in the Chinese, Taiwanese, and other Asian nations, I came to understand that with the cultural differences that I mentioned, the technology of arc furnaces in these nations is not advancing as much as I thought it would because the production mindset is different. Taiwan is evolving towards more of the Japanese style, but I feel Japan retains an advantage in providing comprehensive service.
The turning point of our company was when the president of Japan Foundry Society, contacted me to talk about the future of monozukuri. That was about 20 years ago. He wanted to know my opinion on its prospects. I shared my opinion, giving lectures to industry-related people that were quite well received. This led to a strong business relationship with company A. Company A, in fact, about 10 years ago, took all the production of casting steel, the complex casting back to Japan and they have been containing and evolving the technologies within Japan.
Seeing this trend, Japan has been making progress in this casting steel technology and we have an advantageous position in the market. We not only provide the arc furnace, which has about 40-50 years of lifespan, but we also provide optimality, refractories, lime materials, and other secondary materials and smelting equipment, providing comprehensive maintenance and support to Japanese manufacturers. Japan still has a strong position in the global market. Although it may be a niche market, Japanese people have treasured and continuously worked on improving the technology and the efficiency of manufacturing. Thus, with the development of global countries now, there is a growing demand for these niche products. Japan now has the dominant position in these niche fields. I believe if we continue pushing these products, we will be able to grow and flourish for the 120 million people.
Japan is an island nation that lacks natural resources, yet when we talk about steel production, it is one of the top three in the world after China and India. We know you cater to Japanese clients both domestically and overseas but in terms of overseas clients, how has that evolved? Are you gathering new opportunities with Korean or Chinese customers in Thailand? Where do you see the market growing internationally for your company?
So, especially when the yen was high, we were not internationally competitive, so we do not have any overseas clients, neither in China, Taiwan, Korea, or elsewhere in the world because the cost of the Chinese facility is 60% less than ours. We focus more on working together with Japanese clients and growing together overseas when there is a need in their overseas facility.
When it comes to arc furnaces, the intense heat generated can cause wear and erosion on the refractory lining which leads to the release of harmful substances and also reduces the lifetime of the furnace. Furthermore, the use of particular electrodes can lead to the introduction of impurities. How does your firm help its clients overcome some of these challenges seen when it comes to arc furnaces?
The refractory is manufactured in a way so that it does not accumulate damage. That is because we need to make the furnace, the refractories, last for 40-50 years, so we need to pre-calculate in the designing phase how much thickness of steel or material is required for the efficient use of the furnace. There is a risk of the surface of the refractories melting and that would cause the contamination of the casting of the steel. However, when the refractory is designed, special steel is utilized so the longevity of the furnace is ensured. For example, special steel made by company D, and also
Company D has these special features that are long-lasting, so these types of materials are utilized in the refractories.
You mentioned that you are a fabless company, therefore I presume you have the power to procure materials or technology from German, American, Indian, or international partners that could help you cater better to your domestic Japanese clients. Are you currently looking for such partnerships?
In terms of our work overseas, we commission the manufacturing of steel structures to a Korean company, but all the controls are made in Japan. Much control equipment is produced overseas but clients prefer to use Japanese-made products since they are long-lasting, and they do not break. If the equipment breaks the operation stops, so customers prefer to work with the Japanese companies. Controls primarily, the transformers, which is a special type of equipment that is made for the arc furnace, so for both midsize and small-scale arc furnaces we work with Japanese companies for the control equipment.
Japan is the oldest society in the world with a rapidly shrinking population and we are seeing issues such as a labor crisis and a shrinking domestic market. What are some of the challenges this demographic shift has presented to your firm and how are you reacting to them?
Population decline is posing a huge threat to Japanese industry. The passing down of the existing engineers' knowledge is critical. With fewer workers available to learn this knowledge, it is important to develop robotics and AI as a substitute. However, existing AI and robotics are not enough. We have to increase and enhance the utilization of sensors to find new applications of the technology so we can fully automate the production process. For example, in arc furnaces, there have been fluorescent X-ray analysis methods available. We need to make advancements in these methods so the analysis could be more easily and automatically done, not in separate machinery but embedded. For example, if analytic equipment is built in then, there is no requirement to take the sample out and do separate testing, it could be done within the arc furnace. This type of efficiency comes through new applications and combinations of existing technology. It is important in providing a solution to the shrinking workforce.
As Japanese companies are struggling with hiring, it is my conviction that M&As are the only way Japanese companies can retain their technology. Before the merger was based on, for example, capital or technological alliance, but now it is more for securing human resources. Once we restructure the industry to ensure human resources and advance AI and other technological means, we can continue the growth.
One pertinent issue for your industry is the idea of carbon neutrality. Former Prime Minister Suga said Japan will be carbon neutral by 2050. Could you tell us what kind of technologies and solutions you are providing for clients?
With regards to the environmental approach for the gas burner there is a new stipulation by the Japanese government that by 2030 the gas burner will be required to use 30% ammonium mixed liquified natural gas as the fuel, and there is a burner developed ready for this.
Another approach that could be taken for small to midscale arc furnaces is changing the style of operation. These furnaces do not often go 30/5 MT and it requires energy to heat up and cool down every time; there is a heat dissipation associated with the operation which can be a source of inefficiency. However, with the labor force in mind, especially with the tendency now to reduce working hours, it may be difficult to change the operating style. For example, if you concentrate the operation [of the furnace] on one week and run it continuously for 24 hours, then we can reduce the electricity usage by about 20% in comparison to conventional operations for a full month. But that is not applicable in the current Japanese labor force workstyle changes and reform.
If we were to return to do this interview all over again on your last day, is there a certain goal that you would like to have achieved?
Our goal is to ensure that we continue to contribute to productivity improvements for our clients, large and small, and stagnation is not an option.
Interview conducted by Karune Walker & Paul Mannion