A deep dive into Kojima Iryo's commitment to high-quality clothing production, environmental responsibility, and expanding market horizons.
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 short lead times when it comes to production. 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, and why or why not?
I can answer this question from two aspects, from the global perspective and the Japanese perspective, but I think it is best if I start from the perspective of our industry. I would say that I agree wholeheartedly with your premise, and Japanese suppliers are seeing a lot of benefits from the current macroeconomic environment. This comes from all the factors you’ve described; the US-China tensions and the depreciation of the JPY. This is where Japanese suppliers can come in and take advantage as they are known for their reliability, trust, and high quality.
I would define four major reasons why Japanese companies now sit in this position. The first reason is the machinery, and historically Japanese firms have been known for their quality sewing machinery. Number two is the technologies; obviously, something that Japan is praised for worldwide because of its possession of advanced technologies and know-how, especially in terms of the practices of the fabric industry. The supply chain is another factor, with Japanese firms keeping up their promises for lead times and never letting the customers down. Last but not least is the environment, particularly our SDG principles. Japanese firms are focused on lessening the burden on the environment and it is something that defines all industries, not just our one. Being an island nation there is a scarcity of resources so focusing on SDGs is a must. Leaving less of a carbon footprint is something that Japanese companies are defining as a principle leading up to the next generation. Land is also limited, so we really have to think about how to not harm the environment and utilize the space we have to the best of our ability. This is all in pursuit of leaving a better future for the generations to come.
Let’s start by talking about the supply chain in the clothing industry, one that is known to be the longest in any industry. From design to material procurement to the manufacturing processes and finally distribution. How is Kojima Iryo trying to optimize the supply chain processes to make them as efficient as possible?
Answering this question is a little complicated, and the supply chain is actually something that is out of our scope. This is something that is more controlled by procurement and logistics companies, with their priorities tending to be more focused on solving the length and complexity of our industry, especially in combination with the manufacturers. There is little a manufacturer like ourselves can do alone, unless, of course, the company is a big player in the industry. Those major players have strings that they can pull, but I would say that in our situation in particular there isn’t much we can do to improve the logistics chain.
Of course, we are doing all we can to ensure short lead times and that we keep up with promises made to customers in terms of delivery. As long as customers are kept happy and satisfied then the whole industry benefits.
It is important to remember that the textile industry in general is one of the industries that is most responsible for pollution, and there have been tendencies in the past to overstock and overproduce. As a result, there are landfills full of unwanted clothes, so firms in the industry need to ensure proper waste management and recycling schemes. In order to address these issues firms are now producing much less and trying to only produce based on orders placed. With this approach timing is key, and orders need to be delivered on time to customers in order to keep satisfaction levels high.
Another solution we have here at Kojima Iryo is our overseas locations. Our ability to have a firsthand encounter with raw material procurement and our ability to introduce local workers to Japanese technologies and techniques have been very important to our business. We are able to do that while retaining the same quality as here in Japan, which is key in shortening lead times and final delivery to clients.
The world’s population is becoming more and more aware of eco-friendly materials and products. We know that in order to produce 1kg of cotton you must use about 60-100 liters of water as well as other chemicals in order to dye products. How are you adapting your production processes to make them more environmentally friendly?
There are many things we are doing in terms of SDG principles, and currently, we have around 17 different targets to hit. We are trying to implement all of them, so it might be worth me describing roughly what the company is doing to reach these targets.
These are quite related to our overseas locations, and one key location is in Myanmar. We leave a lot less of a carbon footprint in that area and we are considered a much more environmentally friendly company there. One example is the fact that we utilize solar panels there on top of the factory and at least 50% of our electricity used in our Myanmar factory comes from those solar panels. This is because Myanmar is not in good economic shape and realistically we cannot maintain our electrical supply from the national grid. For that reason, we have tried to create our own supply in order to avoid blackouts, and to further avoid blackouts we have ample supplies of generators. Basically, we are looking to keep everything running 24 hours a day, 7 days a week.
Those solar panels are not exclusive to Myanmar however, and we have a very similar situation in Bangladesh. That location isn’t quite reaching 50% of the power needed. Obviously, when you use solar panels there is a significant decrease in CO2 emissions, thus it gives a way of achieving our SDGs.
Some metallic products such as hangers are another aspect, and we don’t throw them away. We are using a local fashion recycling company to give those products a second life. Waste management and circular economies are vital to our operations, and that isn’t just with cotton, but also with side products such as the hangers I mentioned.
When we talk about cotton, that is something that is also part of our circular economy, and we always make sure to use the byproducts in things such as local futon manufacturing. Cotton that is not used by our company is utilized by local companies so we have found a partner to supply our byproducts. Futon and mattress manufacturing is a good example of this and cotton is used as a filling for these products.
Last but not least is human capital and by that I mean the strict regulation of ethics and creating better communication. We have to pay attention to who is working with us and make sure that they are happy with their work. Another thing we do is dispatch Japanese technicians to local areas such as Myanmar and Bangladesh and vice versa.
Local factories dispatch their workers to Japan as trainees in order to learn methods of Japanese-required quality during roughly one year at the Kojima factory. They learn the art of sewing and management methods here in Japan and then can take that knowledge back home with them.
A big advantage of this is the fact that staff dispatched to Japan as a trainee who transfer their knowledge, skills, and technology learned in Japan to their local co-worker can have the opportunity to get promoted. This leads to an increase in their wages.
I think this is great in terms of motivation, because not only are workers returning with a wealth of new knowledge, but they also have ample finances to live a good life in their home country, thus motivating them further to do their best in better establishing Kojima Iryo’s name in their region. This works as a win-win situation for us as we are able to secure better recruits and increase the level of education and expertise in our overseas locations.
With this very robust international network, you have in China, Myanmar, Bangladesh, and the Philippines, what have been the main takeaways you have from conducting business in these various international locations? Are there any other countries or regions that you are targeting for further overseas expansion?
Frankly, I think we have reached our limit so I think in the meantime further expansion to faraway places isn’t forecast. In the meantime, our hands are full with the locations we have. Our products do reach further away locations such as the US, but those are a very small part of our production.
Our plans currently encompass four locations, those being Myanmar, Bangladesh, China, and the Philippines. Lead times are a critical factor that needs to be considered when planning for a new location, especially when you talk about the customers and delivery guarantees. It is why we have the locations we have, basically allowing us to shorten the lead time no matter where the customer is.
Further expansion in the ASEAN region might be a possibility in the future, but currently, we have done market research and our current coverage does allow for services to Indonesia, Laos, Cambodia, Vietnam, and Thailand. Nearby countries do have the option of utilizing our facilities in both Myanmar and the Philippines. I think further expansion within those two locations is more likely right now than expansion to other countries.
If you are able to expand your local production lines and produce more will you use local partnerships to find new customers and understand local markets more? What role do partnerships play in your business model?
I truly believe that finding the right partner is essential to any attempt to penetrate other markets. There are so many things we don’t know about foreign markets and good companies in local regions have expertise in local habits and ways. It could work in two ways. Firstly, you would have economic zones where the companies are more or less government initiatives where those companies are commissioned and get government support. Basically, it would involve both the local government and the Japanese government working together to promote local overseas manufacturing.
In our case, we don’t operate under such a scheme. Although we are a small company, we try to establish each of our locations without any assistance. This is why the decision to expand overseas is one that needs to be carefully considered and has all factors accounted for.
The textile business is one that requires a lot of labor and we need plenty of people to work with in our factories. Compliance with labor unions and local legislation is essential. Every textile company has this issue to some extent or another and I think this is where a good local partner could be vital to overseas operations. Unfortunately, the reality of the situation is that there are a lot of scammers out there prying on Japanese companies. In many cases, if companies are overly promoting themselves as a partner option for Japanese firms overseas, they just want to take the money and run. Choosing a local partner is an important choice, so therefore we need to be careful and do our research.
As a company that is centered on OEM for other companies, what would be your main competitive advantage? Secondly, as an international firm looking to diversify its suppliers and find new business partners, are you looking to find new customers to enlarge your customer portfolio?
I would define Japanese textile companies overall as having exceptional design quality and we are no different. Quality comes first in any products that we produce, to the point where price actually comes second to quality. If you provide excellent quality, you will always find customers, this is something I truly believe.
I think another key advantage we have is our four locations overseas, which in turn gives us excellent lead times. We are able to produce things at an excellent level of quality with great lead times for customers and this allows us to be a very customer-centric company. Whether a customer needs a small lot or a big lot we are able to satisfy their needs with short lead times.
Japan is very well known within the clothing industry for its high-end products, but the amount of resources available in Japan are very scarce. For that reason, it is very challenging to make 100% made-in-Japan products. How do you procure enough materials to make your very high-end products? With your locations all across Asia, how do you maintain the same level of quality as Japan?
First of all, you asked how we are able to maintain standards abroad, and I think the key to that lies in human capital. If you train them enough and have a good level of education, I would say this applies company-wide, from production floor workers up to upper management. Even managers need to upscale their skills. The way we do this is firstly by dispatching Japanese staff to our foreign locations to relay practices and policies.
In China, we actually have some fantastic staff, on practically the same level as we have in Japan. We also use them to dispatch to other locations as technical experts such as Myanmar or the Philippines. I’ve already mentioned our year-long training program for our local staff, and that has received great feedback from those that have partaken in this program, as I mentioned earlier, this is a great motivator for staff looking to create a more stable financial situation for themselves.
Another aspect that we use to keep the quality level up is periodic audits. This is something that is happening from a customer point of view, and sometimes customers come in on their own to audit our plants. It is also something that we occasionally do internally as well. They are designed to make sure that quality practices are obeyed.
I think that at the end of the day, all these practices come down to fostering human capital. Without people the quality of production simply cannot be met, making our workers the crucial cog that makes our whole operation work. It is very hard these days to recruit and maintain staff, so motivation is vital and we value our staff above all else.
As for your other question about the material procurement, to put it bluntly, it isn’t our problem per se. The material we procure tends to be from partners, and although we do have our own material procurement that only represents a small fraction of our material procurement activities. Vendors provide the material, and by vendors I actually mean customers. Our major business is OEM so customers provide us with the materials they would like us to work with and those customers demand those high quality materials.
Kojima Iryo has a number of different departments including the Pmi, CSC, and SSS, and you also have a subsidiary called HL Corporation. Which do you believe has the most potential for future growth? Within these business units are there any products that you are particularly proud of?
We have our divisions, Pmi being our OEM and ODM full ladies’ fabric items department, CSC being our sports OEM and pattern creation department, and finally, our SSS department is for our OEM and ODM ladies formal suits and wear. They each have an important role to play in our business model so I would say that each is very important for different reasons. I think in terms of our core business however, CSC probably has the most potential with younger people and given Japan’s population issues appealing to the younger generation is going to be important going forward.
Are your customers domestically based or are you also looking for more customers in overseas markets?
As much as we would like more foreign customers in faraway places we cannot take the risk. We were burned in the past during the COVID-19 pandemic in America. As you understand we are purely ODM and OEM, and an American material manufacturing company came our way and told us to buy their stock on a free on-board (FOB) basis. We received the stock and made the products for the customer in America, but then suddenly the pandemic hit. COVID halted many things and it meant that we couldn’t ship products properly. The customer then approached us saying that they no longer had buyers for the products lined up because of the pandemic, and as you are probably aware department stores in New York all closed up due to stay-at-home orders. The customer said that even if they could procure the products from us they could no longer sell them. Inevitably we had to postpone the shipment and we took a big hit from the money we already spent on the materials.
Time passed, in fact, it was around three years later that we decided to try and address this situation again. We approached that customer about all the products we produced for them and they said that they could no longer afford the products, even though promises were made. They said that they would only buy the products if we gave them a 50% discount, something that really didn’t make any sense to us. That customer forgot all the extra costs that we took the brunt of, things such as salaries, three years of warehousing fees, and production costs. Half price would be paramount to practically giving the products away and our company taking a massive hit, so as you can imagine, an agreement never got made. It taught us that American customers are very quick to change their minds and if they think the price is not suitable they are quick to run away from a deal, and this creates an unstable business environment.
We don’t want a repeat of this situation as it was a rough experience for us. Europe might be better because they share certain principles with Japan. Promises made are fulfilled, and in that market, I think we would be less vulnerable. I think this story is a good example of our willingness to do business overseas but our hesitancy with the US market after our bad experience there.
Imagine that we come back in six years and have this interview all over again. What goals or dreams would you like to have achieved by the time we come back for that new interview?
I would be lying if I didn’t say that we would like to increase our operational profit and new heights in terms of sales. These sales however don’t guarantee that the company will be profitable, but we will do our best as a company to make sure we can increase our profits. Obviously, we are happy with the numbers we are achieving right now, but every company wants to achieve more. Improved profitability means that a company is wanted and needed by customers. That isn’t just in a business sense but also in a social sense, in a contribution to society. All things together create a good circle that brings people’s attention to what we do.
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