A trading company that specializes in supplying chemicals, Kohyei Trading is a go-to partner to businesses from a whole host of sectors.
I would like to start by getting your take on the role of Japanese chemicals in development. Japan is a very interesting juxtaposition because, on the one hand, it's a resource-poor country with no natural raw materials. Yet, on the other hand, it has the 5th largest chemical industry in the world, with a huge industrial conglomerate centered around Osaka and Kobe ports, the Kyushu port, Nagoya port, and of course Yokohama and Tokyo-based ports. Could you give us your perspective as a business closely aligned with the chemical industry on why you think Japan is so successful in the chemical sector despite being resource-poor?
Over the past 50 years, the Japanese chemical industry has developed and grown through a process trading scheme where raw materials are imported to Japan, and Japanese chemical manufacturers use advanced technologies to create products for export to overseas countries.
Our business model is both import and export. We mainly import chemical products from overseas companies and act as their agent, stocking and selling their products to our domestic customers. Simultaneously, we engage in transactions involving domestically manufactured products, with 90% of sales directed towards the domestic market and 10% for export.
Kohyei Trading's strength lies in its ability to adapt to disruptions in the supply chain, as seen during the war in Ukraine and the consequent surge in the price of chemicals from Europe due to additional transport and other costs. From a market perspective, Kohyei Trading hedges risks by providing alternative chemicals to our customers, thereby establishing long-standing and trusted relationships.
I would like to further explore your marketing approach as it relates to SMEs or chusho kigyos, as they are called here in Japan. We are aware that 90% of the companies in Japan are smaller-based companies, or SMEs as we commonly refer to them. Historically, wholesalers or traders like yourself have played a vital role in Japan's national economy by facilitating the expansion of these smaller companies into new overseas markets. Could you please elaborate on your role as a trading company in facilitating these chusho kigyos to broaden their horizons beyond Japan?
When medium-sized companies expand overseas, we export, obtain licenses for hazardous goods, etc. in each country, stock them locally, and provide the same functions overseas as we do in Japan.
But you did explore in the video the fact that you operate more than just a typical trading company. You're helping facilitate alliances between similar companies in the industry. You do the provision of inventory services. You also spoke about the fact that you're able to do planning for new products that clients are looking to bring to the market. Could you outline one story, without having to name that client, of some of these extra services you provided, and what challenges you have had to overcome in doing this service?
One notable example is a collaboration with the Kyushu Region, developing biodegradable sheets used in sweet potato farms. These sheets are made from the residue after extracting the juice from the sweet potato to make shōchū.
This residue fiber is turned into powder and that powder is used to make biodegradable sheets to cover up fields to avoid any weeds. Conventionally, during the month of August, the women remove the sheet from the sweet potato bed and the men harvest them by machine, but with this biodegradable sheet, there's no need to remove the sheet since it's fully biodegradable and it goes back to the soil and further nourishes the sweet potato, so it's a 100% circular economy, and we have been working with this project about 20 years.
The uniqueness of Kohyei Trading is that we have a long-term vision. If it were other trading firms, if did not work out in a few years, they would stop the project, but we were determined to pursue it till the end. That's why we can achieve success and achieve the complete circular economy model in sweet potato farming.
The resins that Kohyei Trading handles are chemically manufactured plastic materials that have the unique characteristic of being completely biodegradable due to special enzymes present in the soil that eat the plastic material. Could you please provide more information about this resin, and perhaps address the misconception that chemically synthesized materials cannot biodegrade?
This material is composed of PBAT, a chemical material, and PBS, which has biodegradable properties chemically and is compounded with sweet potato fiber residue.
This collaboration involves the chemical company, the Japanese shōchū manufacturer, the Agricultural Association, farmers, and, Kohyei Trading, serving as the bridging partner. We are responsible for providing compound recipes for manufacturing.
During the development process, we encountered several setbacks, including a consignment factory that backed out from working with us. However, we persevered and eventually found a new manufacturing company in Kyushu. Typically, when faced with significant failures, many companies would halt the project. However, the unique aspect of our approach at Kohyei Trading is our determination to pursue success relentlessly.
Moving on, I would like to discuss semiconductors with you. Your business is closely aligned with this industry, as semiconductors are extensively used in personal electronics, telecommunications, and various other applications. Japan is increasingly becoming a significant hub for semiconductor development. For instance, Intel plans to open a fab here, and Sony and TSMC have partnered with Kumamoto in Japan. Additionally, there has been the launch of Rapidus, a new venture in Hokkaido for the two-nanometer node, starting next year. I would like to hear your perspective on the semiconductor industry and the opportunities you perceive, particularly considering the new government support and incentives in place.
We have a group company called Zippertubing Japan that specializes in manufacturing equipment for semiconductor machinery and facilities. As a result, we have established relationships with major Japanese semiconductor machinery producers. With the support of the government and its active push in the semiconductor industry, we anticipate significant growth in our business.
Kohyei Trading has its strengths, particularly in our relationships with automotive manufacturers. On the other hand, our group company, Zippertubing Japan excels in manufacturing and has strong connections to semiconductor machinery companies.
For example, in line with the shift towards electric vehicles (EVs), we are aiming to leverage the strengths of both entities by developing a new product specifically tailored to the EV market. We hope to achieve this within three years and are currently in the R&D phase. It’s Zippertubing’s semiconductor expertise combined with Kohyei Trading’s automotive experience.
During our previous interview, which took place on the 50th anniversary of Japan Zippertubing, we mentioned our plans for a new factory and operations shortly. I am pleased to inform you that we have successfully launched the new factory, which is three times larger than our existing two factories. In terms of floor size, it is twice as large as the previous factory.
Currently, we are securing space within the factory, as explained earlier, to support the development of a new joint development product for EVs. This collaborative effort involves Japan Zippertubing and Kohyei Trading. We also have a video showcasing the new facility.
The video presents our new factory, which opened last week, which features rooms with different themes. We specifically entrusted our female employees with the design of the cafeteria, offices, and meeting spaces to create comfortable and inviting common areas.
One product we produce is a gasket. Another is a large heat countermeasure part. The image shown in the video was taken before the installation of facilities.
The second floor houses our offices, and we have secured also new space for our joint project. Although the image depicts a space after completion, it is now fully furnished with tables, chairs, and necessary facilities. Lastly, we have a material storage area as shown in the video.
Let's delve deeper into the opportunities presented by the transition to the next generation of vehicles. These vehicles, in comparison to conventional combustion engines, are much simpler, with fewer parts. While a typical combustion engine has around 30,000 parts, the next-generation vehicles will have less than 15,000 parts, primarily consisting of the battery, inverter, and motor. These three components will be the main focus. Furthermore, we are aware that over 50% of the value of these cars will be derived from electronics. Could you tell us what opportunity this is presenting for you as a trading firm to bring new products to the market and gather new customers as we transition to the next generation of vehicles?
The production of ICEs (internal combustion engines) in Japan is expected to reach 60% by 2030. As for European nations' initial plan to achieve 100% EV conversion by 2035 has been reconsidered.
Countries like Germany, which have a strong presence of ICE vehicles, are now considering alternative options such as clean IC engines as a transitional solution. In the US market, there is a preference for supporting domestic EV manufacturers, but existing automotive manufacturers still voice their opinions strongly.
Considering these factors, a short-term conversion to EVs may not be feasible or plausible. The transition will likely be a long-term process, and various alternative proposals, such as fuel cell vehicles, will be considered in different countries and regions. As a trading firm, we must continue our existing business while determining our future path in the potential automotive market.
Automotive-related companies are anticipating future changes in demand and are seeking to enter new fields with their technologies, which we will see in 10-20 years. With our eight areas of expertise, knowledge, and experience in each field.
each possessing expertise, knowledge, and experience in different fields, we approach the market by closely listening to our customers' intentions and proposals.
We provide comprehensive information and leverage our experience to support them in navigating new areas. Through collaboration and active support, we assist in introducing and selling their products in these new fields. To that end, we made this video to explain to our customers our strengths and the comprehensive solutions we can provide for them.
Is Japan finally becoming cost effective or do you still see producing overseas as being the key to success for your clients?
Last year, we collaborated with an air conditioning company that decided to shift its production from China to Japan. This decision was driven by the increased economic viability of producing in Japan for the Japanese market.
As the cost of production overseas, particularly in China, continued to rise, we assisted the air conditioning company by coordinating the supply chain and providing all the requirements for their production in Japan. We anticipate that this trend of production returning to Japan will persist due to the lower production costs now in Japan compared to overseas.
Over the past 30 years, Japanese wages have not experienced significant growth in comparison to other regions. Consequently, the cost of labor in Japan has become relatively lower, leading to a resurgence in manufacturing activities globally. However, the long-term decline in population poses challenges to Japan's economic capability.
Without proactive measures, Japan may fall behind as a second or third-class manufacturing nation, losing its position as a leader in advanced technology. As a Japanese trading firm, this outcome is not acceptable to us.
Therefore, we are developing a strategy as a group to address this issue and enhance Japan's economic strength. We are looking at five-year, ten-year, and twenty-year terms to formulate a comprehensive plan that will collectively contribute to raising Japan's economic potential.
And finally, I want to ask about overseas. You have six locations in diverse places such as India, Indonesia, Taiwan, Thailand, and Hong Kong. Could you explain to us moving forward, though, what new locations perhaps would you like to expand to, and currently among the six overseas bases, which is the priority for mid-term growth?
Our focus for expansion is on areas with growing populations, namely Thailand, Indonesia, and India. These regions have shown substantial growth in both the number of customers and profitability.
Additionally, we are considering Vietnam, particularly Hanoi, as a potential growth market. While there have been discussions about expanding into globally Southern countries in Africa and South America, our immediate focus is on areas that are closer in terms of proximity.
What is next for Zippertubing? What are you looking to achieve in the next three years?
1949 is the year we consider the year in which we were established, so we are in our 75th year, so three years will be our 78th anniversary. In three years, as I mentioned, the collaboration between Kohyei Trading and Zippertubing Japan should bear fruit. This July, we have a whole group meeting to plan out the strategy for future growth as a group of companies. We aim to have a clear vision for the next three years.
Imagine that we also come back three years from now and we have this interview again with you at this table. What dream do you have for Zippertubing Japan?
Zippertubing Japan’s history is around 50 years long. We have products that have been used since our foundation, as well as products developed in the past five or 10 years that are being used by our customers. Currently, we are working on developing new products to cater to existing and new markets. That is why we have established a new factory. In the coming year, our goal is to introduce society to new products. Our goal is to meet the needs of new markets and to introduce new products to society.
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