Innovation through specialization driving the next-generation of manufacturing success

In the last 25 to 30 years, Japan has seen the rise of regional manufacturing competitors from who have replicated Japanese manufacturing processes, but at a lower labor cost, challenging Japan's position in mass industrial markets. Nevertheless, Japanese firms continue to excel as leaders in niche B2B fields. How have Japanese companies managed to maintain this leadership despite intense competition? What sets your company apart from regional competitors?

Let me provide a brief overview of our company's history. It was founded by Mr. Matsumoto and operated under his leadership for 20-21 years. Then, the ownership was handed to Nissho Iwai or the current Sojitz trading firm. That continued for over 20 years. After that, ownership transitioned to a fund, which managed it for five years. Later, a Japanese company named Advanex owned the company for another five years. Currently, the capital is held by a Taiwanese company. Throughout its history, the company faced bankruptcy risks and threats on multiple occasions but overcame them with the support of various companies. In 2021, our company got listed on the Taiwanese stock market.

Our business portfolio covers a wide range of industries, including electronics, home appliances, medical devices, and more. Our core technologies involve injection molding and assembly, and we have been actively involved in the development of products such as Sony's video deck unit. I feel the biggest difference between the Taiwanese, Korean, and Japanese companies is that the Taiwanese and Koreans are good at capturing the market using the existing technology and products, whereas the Japanese are good at innovating but not good at securing the market.

Our past clients such as NEC, Pioneer, and Sharp were not able to be flexible enough to meet the changing social needs, but what we did ourselves was to convert ourselves from electronic components to a multiple parts manufacturer.

Can you tell us what's next in terms of your applications? Are there any new applications you want to introduce your products to?

We have shifted our focus away from the electronics and smartphone industries due to their fluctuating nature and lower product prices. Currently, we are concentrating on automotive components and parts, particularly with the increasing demand for electric vehicles (EVs). The conversion from metal to plastic parts is inevitable, as Tesla has shown. However, we are also targeting parts that apply to both EVs and internal combustion engine vehicles, ensuring our market presence for the next 5-10 years.

In the next generation of EVs, the number of parts will be severely reduced. The average car today has more than 15,000 different components, whereas an EV-based engine will have half as many. Of course, you have the battery, the motor, and the actuator. In the case of your business, which components or applications are you talking about that will switch from metal to plastic?

For our business, we are specifically focusing on the conversion of metal components to plastic in the field of EV automotive, particularly in electric parking brakes. Previously, the component attached to the tire was made of metal, but now our customers converted it to plastic. In this industry, Continental holds the global number one market share, and we are collaborating with Aisin, currently ranked third, to climb higher in the ranks. Converting from metal components to plastic or resin presents certain challenges. Unlike metal, plastic materials tend to expand and contract depending on the compound used. It is crucial to consider these material changes and ensure strength through experienced engineers and craftsmanship.

If we specifically look at Japan, the former Suga administration legislated that all cars sold in Japan must be hybrids or EVs by the year 2035. Many countries are ahead of Japan in this regard, aiming to replace gasoline vehicles with EVs. Norway, for example, has set a goal for 2025 and is on track to achieve it by next year. Given this context, what is your assessment of Japan's transition to EVs?

Looking at the current situation in Japan, it is evident that Japan is lagging in its transition to EVs. Emerging companies from other industries have become dominant players in the EV field. However, considering Japan's history after WWII, major automotive giants like Toyota and Honda were able to catch up with the Western automotive industry. This indicates that Japanese companies still possess the capability to catch up, even though they may be currently behind.

In our case, we are not solely focusing on EVs but also other types of vehicles. For example, we are working on the components used in electric parking braking systems and power steering systems which are installed in both ICE vehicles and EVs, which were made of metal. We are converting these components into resin-based ones. In China, our main focus is collaborating with Aisin and NSK to supply their Chinese clients.

I feel Japanese companies as a culture are not able to keep up with the rapidly changing speed of the global situation. What I did nine years ago was accept capital investment from a Taiwanese company. Taiwan has giants like Foxconn and TSMC. Although technically speaking they may not be that advanced business-wise, they have a very extensive advantage and merits, so we want to collaborate with Taiwanese companies and partner with them so we can expand our business scope.

When it comes to these large automotive makers in Japan, they are known for the keiretsu model, which includes a hierarchical structure with tiered suppliers and providers. As a fully independent company from the keiretsu structure, what advantages does this give you to flexibly respond to changing market demands?

Currently, our business model is to leverage the advanced technology of Japan and combine that with the speed and the business capability of Taiwan and penetrate new markets through Taiwan into areas such as Europe and US.

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Japan is the world's oldest society and has a rapidly shrinking population at the same time, which presents challenges such as a labor crisis, as well as a shrinking domestic market. What are some of the challenges and opportunities you see with Japan's demographic shift?

Japan is currently experiencing a lack of labor force, but when you see China or India, the price of labor is going up. To address this, we are automating our production scheme, especially for automotive electric parking brake manufacturing. We no longer require people to be involved with that part of the production. We will be able to take this production scheme and apply it in the US or India or elsewhere, where the labor cost is high.

Furthermore, we have welcomed 50 Vietnamese trainees from our Vietnamese factories. By operating with the minimum wage and leveraging the experience of senior workers who retire at the age of 60 or 65, we can compensate for the lack of labor force and benefit from their expertise. Aging is an advantage for us since Japan has a tradition of experienced workers in various fields. These experienced veterans are often recruited by Chinese, Taiwanese, or Korean companies, and we aim to retain them within our company. We are retaining these senior, experienced people because being elderly is advantageous in terms of experience. Leveraging their experience within our company is crucial.

Another advantage that we have is leveraging our seniority to enrich our craftsmanship, or takumi method. There is a company in Nara with an 800-year history that specializes in refurbishing ancient ruins. Like them, we have experienced in-house engineers who provide extensive know-how and knowledge in various production areas, such as converting metal parts to plastic, developing door miller units, and more. These strengths enable us to compete with major international and Japanese firms. However, the challenge is to transform this craftsmanship and takumi method into AI, like ChatGPT, so we can digitize and universalize these methods.

When it comes to persisting levels of craftsmanship, AI and ChatGPT can obviously help, but there is a concern about losing the human touch. What are your thoughts on this? Do you think something will be lost when integrating AI technologies into your processes?

I see a huge advantage in converting this knowledge into AI and ChatGPT. By doing so, we can significantly reduce costs and increase speed. For example, in China, robots are now cooking, and in the US, AI supports physicians in the medical field. I am not suggesting that AI will completely replace humans, but it can expedite the development process and reduce costs. For instance, creating an automotive used to take six months, but with AI, it may only take one month. My goal is to replace myself and management with AI and ChatGPT, as we typically receive the highest wages. If we can cut those wages by using AI, it would be beneficial for the company. With AI, time and costs would be greatly reduced. I believe China will take the lead in this area. We want to combine human elements with AI in designing and processing every phase of production, aiming to expedite processes and reduce costs. It will be a combination of human expertise and AI.

I was curious about your precision melting capabilities and the creation of micro holes as thin as 0.15mm, which were previously considered impossible through machining. How do you achieve such high accuracy in your micro-parts?

Daiichi Kasei is unique in not relocating employees once they are assigned to a specific position. Unlike other Japanese companies, we do not move them around to different roles or locations. Instead of having staff work in a variety of disciplines to become generally competent, we focus on raising specialists. Our approach is more like making sauce or sushi, where craftsmen focus on one thing and pursue it until the end. Through this approach, we elevate and accumulate our technology, enabling us to achieve micron-level precision. It is similar to the uniqueness of Coca-Cola – no other company can replicate its taste. Similarly, no other company can replicate ourselves and our unique business model.

Are there any countries or regions that you have identified for further expansion into, and what strategies will you employ to achieve that?

Japanese companies expand overseas because their clients are located in those areas. Taiwanese and Korean companies, on the other hand, expand overseas because the market exists there. We want to follow the latter model and be market-oriented, establishing ourselves in key market areas such as China and India. North America is also an attractive market for us. Economic giants with rocket and aerospace development programs like China, India, the US, and Russia are among our targets, although Russia is controversial.

If we were to conduct this interview again in 10 years, is there a personal goal that you would like to have achieved by then?

My goal is to make the company independent, self-operating, and mature as a Japanese organization. The challenge lies in shifting from a management style where orders are given for the company to move forward, to a more voluntary job-oriented American business model. We aim to adopt a GE (General Electric) model, inspired by the changes implemented by Mr. Welch in the company's structure.

In the US, IBM used to focus on hardware, but they have successfully transformed themselves to specialize in software and high-end semiconductors in response to market needs. We aim to be equally flexible in adapting to market demands and developing ourselves. Our future leader is a 35-year-old Taiwanese individual who speaks fluent Japanese. He was recently studying for a master’s degree at the University of Kyushu, and after only a few years at the company he has shown huge progress, so I have high hopes for him. Together, we aspire to make this company globally competitive and proudly Japanese.

Interview conducted by Karune Walker & Paul Mannion