Largely unknown to the general public, Japan’s hidden champions are the technologically adept SME manufacturers that develop high-quality parts and components for larger corporations such as Toyota and Mitsubishi Heavy Industries. Now, their new focus is to carve-out a new place for themselves on the global market.
Over the past several decades, the solid reputation of Japanese manufacturing has been cemented by the major companies that represent the nation worldwide. Household names from the electronics and automotives industries, such as Toyota, Honda, Sony and Panasonic, have been the ambassadors of the ‘Made in Japan’ brand and Japanese quality internationally and will continue to be so.
But these companies represent just the tip of the iceberg. The true strength of Japanese industrial might lies in the nation’s SMEs, which account for more than 97 percent of all companies, 70% of total employment, and 50% of all added-value manufacturing in Japan.
Many of these SMEs are B2B companies that supply parts, components and machinery to larger corporations like those mentioned above, as well as to clients all over the world. Largely unknown to the general public, they are often called the ‘hidden champions’ and their importance will remain quietly understated.
These so-called hidden champions of Japanese industry generally share a few things in common: they are, in most cases, private familyrun firms with deep roots in regional communities with 150 to 300 employees, whose manufacturing and technological prowess have led many to hold leading market shares in niche industries.
Many already export or have factories abroad however the shrinking domestic market in Japan has prompted the call for greater international expansion. While they face stiff competition from regional manufacturing powerhouses that have emerged in recent decades, what sets Japan’s hidden champions apart is their adherence to the tenets of monozukuri (‘the art of making things’), the Japanese manufacturing philosophy that focuses on craftsmanship, attention to detail, and high quality over low cost.
“We once had one customer in China, for example, who stopped buying machines from us and turned to a Taiwanese supplier for price reasons, but came back to us for our quality again,” recalls Masahiro Nakashimada, president of Nakashimada Engineering Works, Ltd.
“This kind of example makes me proud of our employees that work hard every day to make our quality machines. It also gives me confidence in our choice not to lower quality and compete on prices.”
Offering its customers unmatchable high quality, reliability and precision has long been the focus of hidden champions in the industrial machinery arena like Nakashimada Engineering.
Established in 1911 by the great grandfather of the current president, Nakashimada builds cold forging machines, known as “headers” or “formers”, used to make the nuts and bolts indispensable to a wide range of industries, from aerospace and automotives to construction, electronics and IT.
The company began making its own header machines in the 1960s to compete with the American and European imported machinery on the Japanese market. Later, it began exporting itself to the U.S. and Europe in the 1970s thanks to the success of its renowned 2D3B series.
In 1985, with the growing demand for smaller screws emerging from the IT industry, Nakashimada developed its MH-05 machine designed to manufacture high precision miniature components. Since then, this relatively small but highly innovative Fukuoka-based company with less than 150 employees has carved out a niche for itself in developing machines to produce high-precision micro metal parts and today boasts a 50% share of the global micro-forging market.
Masahiro Nakashimada, President, Nakashimada Engineering Works, Ltd.
“Our strength at Nakashimada is that our equipment is capable of producing a range of micro metal parts,” explains the company president. “The maximum diameter of the wires that these machines can treat is 0.5 inches whereas most competitors manufacture their machines from this diameter and bigger. We have almost 80 different kinds of machines available, which is far more than most of our competitors.”
With overseas branches in Germany, California and Shenzhen, China, Nakashimada exports its products to 15 countries worldwide, and over the coming years aims to strengthen its footprint in the global market. With advancements in technologies in the automotive and electronics industries calling for the ever-growing need for micro components, Mr. Nakashimada sees ample opportunities for global growth, particularly in markets where his company has traditionally been strong, such as the U.S., Germany and China, as well as in emerging regions like fast-growing Southeast Asia.
“Automotive will be a promising market in the future because the sector is shifting towards a new generation of vehicles, such as electric vehicles (EVs). For example, we just received an order for eight sets of machines from one particular company that will start producing battery terminals for EVs,” says Mr. Nakashimada.
“There are still some growing industries in America that represent good opportunities for us such as aerospace in which three major players make parts for jet engines. We supply machines for them, so we assume that we can expand our business in that market in the coming years.”
“In China, the EV market is booming. This will also be a major opportunity for our business because massproducing EVs will require many other new parts than just batteries. The same trend will probably be happening in Germany too.”
Like Nakashimada, Toto Folder Manufacturing began developing its own industrial machinery as a domestically-built alternative to imported equipment from the U.S. and Europe. Established as a mechanical maintenance company in 1968, around the time of the emergence of linen supply machinery in Japan, Toto Maintenance (as it was called then) spotted an opportunity to build linen folding machines for its Japanese clients, many of whom were complaining about the unsuitability of the machines imported from Europe and U.S.
In 1972, Toto Folder launched its folder for towels and diapers, before its folding machine for bed sheets brought nationwide success. Today the company is a leading supplier of feeding, folding and sorting machines to hotels, hospitals and major laundry and linen supply customers such as Inax Inamoto Corporation and Tosen Machinery Corporation.
Over the past 45 years, the company has built the number one market share in Japan, as well as a large list of overseas customers, mainly thanks to the high-quality, user-friendliness and efficiency of its machinery.
“Here at Toto Folder, we manufacture equipment for linen supply, such as hotel and hospital linen, and also transportation and industrialized items such as uniforms. Naturally, as we are dealing with a variety of different industries and businesses, there are a wide variety of linens, and it is therefore our job to ensure the quality of the folding, and the overall final finishing of all types of linens,” explains Yozo Maejima, President of Toto Folder Manufacturing Co. Ltd.
“This is crucial as our equipment folds linens for many hotels, and it is our job to keep high standards to satisfy them. We can do so by ensuring the quality, our user-friendly machines, and our strict adherence to delivery times. I believe that most SMEs in Japan share the same philosophy as us, which is quite simple: always put quality first, no matter who the client is.”
Toto Folder’s first folding machines were conceived in direct response to its clients’ needs back in the early 1970s and today its specialists and engineers continue to listen to its customers in order to develop better solutions and machinery . A clear testament to Toto Folder’s constant strive for innovation is the fact it holds some 100 patents in Japan.
One of the company’s latest innovations is the adoption of stateof- the-art image-processing in its sheet machines, which can dry, iron and fold sheets neatly and process 1,000-1,200 sheets per hour.
“Thanks to these image processors, you can not only find dirt and stains, but also, we are able to detect a 2 mm hole, and when found, the machine will automatically remove those sheets. Furthermore, the machine folds all the sheets by automatically detecting the size of the sheets (single, double, queen, etc.) and will then order them accordingly,” explains Mr. Maejima.
“Finally, a barcode will be automatically attached in order to enhance traceability. This process is applicable to many other products such as towels. In addition, our machine can detect patterns, fabrics, colors, and can sort them accordingly, making it easier for hotels to handle their sheets or uniforms. All these unique technologies that we possess, such as our image-processing technology, allows our machine to be extremely user friendly.”
Toto Folder operates in 25 countries worldwide and like many Japanese firms competing on the global market, it tries to set itself apart by offering superior technology and quality.
“Companies from around the world can copy how the sheets are folded,” says Mr. Maejima, “but they cannot compete with our quality commitment.”
Automotives and heavy industry
Komatsu, Hitachi Construction Machinery, Mitsubishi Heavy Industries and Isuzu Motors are wellknown industrial titans of Japan that all share one thing common: they all depend on the high-quality and high-performing automotive components developed by another hidden champion, Okubo Gear.
Okubo Gear manufactures a wide range of gears, axles, gear boxes, transmissions and planetary gear speed reducers for automotive, construction and other equipment – from trucks and tractors, to cranes, diggers, snow plows and forestry machinery.
Founded in 1938, this Kanagawabased company has a proud history of innovation and R&D, while its experience and know-how has allowed it to gain the trust of major overseas clients, who value Okubo Gear’s commitment to monozukuri high quality over low cost.
“The reason why the customers should spend an extra dollar to buy a Japanese product is the inherent quality that allows it to last longer,” explains Toshiaki Okubo, president and CEO of Okubo Gear Co. Ltd.
“One of our major American customers often praises our products for not needing any ‘second claim’ and remaining safe of field failures. Of course, the price needs to be appropriate but our main objective is to manufacture a quality product.
”The company’s major overseas partners include: Canadian farming machinery maker Buhler Versatile Inc., Dutch giant CNH Global NV, which manufactures agricultural, construction, trucks, commercial vehicles, buses, and marine equipment; Sweden’s Eprioc; and Chinese state-owned heavy machinery firm XCMG Group.
Toshiaki Okubo, President and CEO, Okubo Gear Co. Ltd
Leveraging on its experience and the trust garnered from these major corporations, Okubo Gear aims to further strengthen its international operations over the coming years as a means to offset the impact of the shrinking domestic market in Japan, with a particular focus on China and Asia.
“In our opinion, China is the most promising market. We currently export our parts to our local warehouse and then assemble our products on-site. However, we feel that this model is not efficient enough so we are now considering localizing the whole chain directly in the country, from manufacturing to sales,” says Mr. Okubo.
“Our sales department is also working on various opportunities in the U.S.A. and Europe but our main focus remains on China. In Asia, there is almost no local company that has the right know-how and technology to manufacture quality products. This is the reason why we will be focusing our efforts on this region.”
Okubo Gear began serving the truck industry before diversifying into heavy industries and machinery. Diversification and seeking out new segments will remain key to the company’s international growth strategy moving forward.
As Mr. Okubo explains, mastering technologies to make lighter parts for the automotive industry enabled the company to make the smooth transition into heavy machinery, where weight is not an issue (moving in the opposite direction, he points out, would have been much more difficult). Now the focus is on continuing to improve its technology and to springboard into other market segments.
“Today, our objective is to add more value to our products by working on their size or added functions. This way, we will be able to differentiate ourselves. Our second strategy is to diversify the application range of our products not only to land but also to sea and air,” he adds.
“The most important objective is to differentiate our products from the competitors by targeting niche markets. The only way to aim for these niche markets is to focus our R&D efforts to make lighter and smaller gears with additional functions.”
Like many of Japan’s hidden champions, Okayasu Rubber began as a trading company before moving into manufacturing products itself in the mid-20th century. And today, the company produces and supplies high-quality, long-lasting rubber components for a large list of customers in the automotives, infrastructure, electronics, food, medical and household industries.
The high quality, performance and durability of Okayasu Rubber’s products, which are tried and trusted by major corporations like Toyota, Mitsubishi Heavy Industries and JFE Steel, can be attributed to the technology and know-how that goes into the company’s manufacturing methods, as well as its commitment to R&D in materials science.
Okayasu Rubber designs and develops its own material compounds and automated production machinery, which performs techniques such as extrusion molding, direct pressure molding and injection molding, ensuring a superior quality product that cannot be matched by its competitors.
“Some of our main strengths are the high-quality, long-lasting rubber materials, made with our very sophisticated technological knowhow and our machinery. With us, there is no need for human labor at any stage of the manufacturing process, therefore ensuring the best quality and cost-effective formula,” explains Hiroshi Oka, President of Okayasu Rubber Co. Ltd.
“In fact, recently, we had a flow of customers from Mexico, China and Korea, and I believe the main reason they came to Okayasu Rubber is because they bought rubber at a different site, and realized the quality was not satisfactory, as it had a very short lifespan. A regular buyer might not be aware of the importance of the quality of rubber at first, but the quality of the material is key to ensuring the satisfaction of the client and a successful product.”
Aside from high-quality, Mr. Oka points out another strength of Japanese SMEs, which is the attention paid to customers in order to create bespoke products – something he says is very important for rubber components.
“We tailor make, design and develop the product as the bigger supplier requests, because the rubber business is extremely precise and it is important to ensure all clients are satisfied with the precision and quality of our product,” he explains.
“Another key word to describe the role of our company is feedback. Having an open-communication channel with our clients is crucial, as it allows us to ensure the best quality, manage client expectations, and receive feedback on how to improve our product.”
Okayasu Rubber’s international journey began in 1994 with the opening of its Malaysia factory to serve Southeast Asia. As for many of its peers, Japan’s shrinking market has reoriented the company’s focus towards the global market, where it plans to introduce its high-quality products to new customers in the U.S. and Europe. In fact, Mr. Oka states they intend to open a U.S. production plant within the next three years.
Shifting to B2C also forms another important part of Okayasu Rubber’s strategy. Amazon is not the place where you would expect to find Japan’s hidden champions, which are generally B2B companies creating highly specialized parts and components for larger corporations. However, Okayasu Rubber has made the shift to creating its own finished consumer products, some of which are already available on Amazon Japan.
“The new challenge for the company is to move forward to the creation of the product. Since the establishment of the company, we have always been “taking orders” from bigger manufacturers. However, times are changing, and we are looking to start inventing, developing, designing, and producing our own products,” explains Mr. Oka.
“We are a company that procures products for other big companies, and while we are trying to expand, the core of our business will not change. Nonetheless, in the next 10 years, I would like to see the company positioning itself as a reliable, number-one, one-stopshop rubber supplier guaranteeing efficiency and high-quality.”
Such adaption and diversification will be key to the survival of Japan’s SMEs manufacturers in the face of the challenging domestic market. Through their new focus on international expansion coupled with their constant commitment to developing new technologies, these hidden champions of Japanese manufacturing are carving out a new place for themselves on the global industrial landscape of the 21st century.