We sat down with Mr. Hideki Kawase, president
of Sankyo Steel, to discuss the impact of the ongoing electrification of the
automotive sector on his business and their plans for the overseas market.
In recent
decades, Japan has seen the rise of regional manufacturing competitors which
have replicated the Japanese monozukuri process
but taking advantage of cheaper labor costs, pushing Japan out of mass
industrial markets. However, we still see many Japanese firms being leaders in
niche B2B fields. How have Japanese firms been able to maintain leadership
despite the stiff price competition?
The
competitiveness of Japanese companies lies in its hierarchical structure, where
automotive manufacturers like Toyota are at the very top, followed by multiple
tiers, one through four companies, that support each other. This hierarchical pyramid
is established within the local area is a typical structure in the automotive
industry, not only in Japan, but also in the US and European markets.
As one of
Toyota’s supporting companies located in Aichi, close to their research and
development center, we can closely communicate with each other. When we
understand what they want, we can propose more cost-effective ways of
production. The close-knit communication between companies aids us in
efficiently developing automotive components. Despite being in Toyota's
hierarchical system in Japan, we are not automatically included in their
overseas hierarchical system. Although it took time, we have recently
successfully entered Toyota's market in the US. The depreciation of the
Japanese yen has also improved our competitiveness.
When we
interviewed the president of Toyota Boshoku, he mentioned that the 21st century
marks the beginning of the end of the keiretsu model. They have lost their share when it comes to dealing
with Toyota. Even as a large corporation, Toyota is going abroad to find
cheaper providers and labor costs, forcing SMEs to expand and find new
opportunities overseas. What are you doing to mitigate these challenges? Are
you looking to find any plausible customers and do you believe that the keiretsu model is coming to an end?
I do not
agree that it is the end of the keiretsu model
because despite Toyota Boshoku not being able to secure the contract with
Kamuri, they acquired other big contracts from Toyota in the US. When the
agreement with Kamuri did not move forward, it was replaced by JCI.
Toyota
will continue to value Toyota Boshoku. Our overseas sales for Toyota and Honda
are 50% and 40%, respectively. 100% of our production in Japan is for Toyota,
and 50% is delegated to Toyota in our US factory. Meanwhile, in our Mexican
factory, 40% is designed to meet the needs of Toyota, and Nissan, Honda and
Mazda account for the remaining 60%.
We do not
have any business dealings with the Big Three firms like GM, and we are not
interested in expanding our business with them because they have a different
mindset toward subcontractors. Nikkei companies are one of the reasons why the
Japanese supply chain remains strong. However, if there is a change to a new
model and our products might be discontinued, they will offer us a new type of
product to keep our business relationship alive. It is crucial to foster our
business relationships. In contrast, overseas companies are more likely to let
us go when a model or product is discontinued. There are many ups and downs in
working with many automotive manufacturers, except for Toyota. We have
partnered with Aisin, which does some work for GM in the US, but the ups and
downs are quite severe, just like Mazda. Toyota providing the most stable
amount of production greatly helps us.