Top Management Interview 2017

President and Representative Director
Shigeru Hayashi

Joined Sumitomo Bakelite in 1970. Appointed General Manager of Curing Materials in the Molding Materials Business Marketing Division in 1991; General Manager of the Utsunomiya Plant in 1992; General Manager of Molding Material at the Osaka Branch in 1995; General Manager of the Molding Materials Business Marketing Division in 1997; General Manager of the Functional Molding Materials Business Marketing Division in 1999; and Director in 2000. After serving as Vice President from 2008, appointed President in 2010. Chair of the CS Promotion Committee since 2006.

Mari Watanabe

Joined Tokyo Broadcasting System Television, Inc. in 1990.
Served as an anchorwoman for various programs including Tetsuya Chikushi News 23 and other programs.
After becoming a freelance newscaster in 1998, she has appeared in a number of TV programs including News Station and BS Rekishikan, among others.

Interview with the President

A Century of Continually Supporting Society as a Pioneer of Plastics

Watanabe As a consumer, I feel like I use plastics on a daily basis. Could you describe your company's success and development process as a pioneer of plastics?

Hayashi It is no exaggeration to say that plastics are one of the materials that have evolved the most since the Industrial Revolution. The world’s oldest plastic was made from phenolic resin, which was first developed in 1907 by Dr. Leo Baekeland in the United States. He named this invention Bakelite, which is the origin of our company name. Today, plastics are used in a certain form in everything from airplanes and automobiles to home electronics, semiconductors, and daily essentials. The history of industry is one in which naturally-derived materials such as iron, aluminium, hemp, and silk, among others, have been replaced with plastics.

Pride of the Materials Industry Underpinning the World Economy's Infrastructure

Watanabe Fiscal 2016 was the first year of your company's mid-term business plan. How was the operating environment in fiscal 2016?

Hayashi In recent years, our group has faced a number of challenges in Japan, including a declining birthrate and aging population and the hollowing out of industry. This is why we have worked to rebuild our businesses with greater focus on addressing risk, which has included improving business processes and M&A of overseas companies. In fiscal 2016, we just missed the ¥200 billion mark in terms of net sales, but we were able to reach our initially planned milestone for operating income of ¥15.5 billion*1. Overall we became a stronger company. Nevertheless, I believe we must evolve further in order to build a business structure that helps resolve social issues while generating higher added value by harnessing our accumulated technologies as a pioneer of plastics.
*1 Profit in real terms that excludes actuarial differences from retirement benefit accounting

Watanabe Is it correct to say your company's identity is fulfilling a responsibility to enhance management and be of greater use to society by providing high quality products to stakeholders?

Hayashi Yes, that's exactly our identity. The most important element determining whether we can be of use to society and increase profits is the type of value we deliver to customers. From the perspective of a manufacturer of finished goods, materials manufacturers are nearly always viewed as a tier-three supplier, under tier-one and tier-two suppliers. In other words, our mission is to provide value to tier-one and tier-two suppliers by helping create better components. This is why our most cherished desire is to correctly identify business themes and needs from tier-one and tier-two suppliers, build positive relationships with them, and play a helping hand in development as a key partner.
Watanabe The importance of companies doing much of the work behind the scenes is immeasurable for consumers. For example, in news broadcasting, we check the authenticity of news stories as a team and only broadcast them after detailed vetting. Viewers know that the process behind the scenes leading up to the actual broadcast is the most important. In the case of your company, does this means that you form a piece of social infrastructure from the sense that plastics support our daily lives?

Hayashi Semiconductors represent one of our products that is contributing to society as a form of infrastructure. Today, semiconductors are used in just about every aspect of our lives, from airplanes and automobiles to home electronics and mobile phones. We maintain a high worldwide market share in epoxy molding compounds for encapsulation, which protects and is essential to ensure the quality of semiconductors.
Watanabe The pride that your company's products are essential to our lives and help underpin the very fabric of society in unforeseen places must be a source of pride for the company. Could you share some of the areas where you expect to see growth in the future?

Hayashi In our mid-term business plan, we have decided to concentrate resources on four areas. First is automotive parts, where we excel the most. The fact that plastics are being used as an alternative to metal to reduce the weight of vehicles is becoming a driving force behind growth. The use of electronics in automobiles continues to accelerate, given advancements in autonomous driving systems and in China spurred on by government subsidies aimed at promoting the spread of eco cars (electric cars [EV] and others) due to environmental regulations. This is a very promising market and I believe we can directly capitalize on our accumulated technologies and knowledge.
Watanabe Autonomous driving systems are in the testing stage and EVs have already hit the market. This area could see a sudden acceleration in demand given the efforts of each country to cut back on CO2 emissions for environmental reasons.

Hayashi Going forward, there will be growing demand for rationalization, lighter, thinner, shorter and smaller designs, and speeding up of the manufacturing process. Currently, we have laboratories in Japan, China and Singapore, where we are building a system for development involving open innovation together with our customers. We have already implemented open innovation for two-wheeled vehicles, and now we will do the same for four-wheel vehicles. We will also look to set up open laboratories in Europe and North America so that we work with manufacturers from around the world on new product development using our tools and resins.

Watanabe It's wonderful to be able to work together with partners from around the world. I'm excited to think about the useful new products that could be coming our way in the future.

Hayashi The second core area is aircraft interiors. This area, too, faces the never-ending challenge of finding ways to reduce weight. This represents another area where we can capitalize on the technologies we have developed for automotive parts. In 2014, we acquired Vaupell, a tier-one supplier for aircraft manufacturer Boeing, marking our full fledged entry into the field. We are aiming to establish a model where we combine our added value as a tier-three materials manufacturer with Vaupell’s molding, coating and assembly processes to become an integrated supplier for all aircraft manufacturers. The third area is highly integrated devices. As I noted earlier, the semiconductor field will underpin the new infrastructure of the future, such as next-generation power devices, nextgeneration memory, and high speed telecommunications devices, among others. Leveraging our advanced technologies, we will contribute to the evolution of society by continually delivering even greater added value.

Watanabe All of your company's technologies are connected to our future lifestyle. In this sense, I wonder what you have in store for the fourth core area of health care, as this is even more familiar to us.

Hayashi We have engaged in medical related businesses for about half a century, but growth has been sluggish. Medical devices are classified from Class I to Class IV to indicate the risks and effects on human life. We have developed products in the Class I and Class II categories that have a lower degree of impact. However, the technical barrier for these devices is not particularly high, so they have become generalized. Therefore, we launched R&D over 10 years ago with the goal of developing Class III and Class IV medical devices. Among these, our steerable microcatheter received FDA approval in 2016 after being approved in Japan, and now the business has started to take off.

This is a revolutionary product because its articulating tip can be moved freely in all directions without the need for a guidewire, compared to conventional catheters that can only be maneuvered in a straight line. Physicians can smoothly insert the catheter and adjust its position in curving veins using the handheld dial while looking at x-ray images. Initially, we developed the steerable microcatheter to treat liver cancer, but it is expected to be used for visceral artery aneurysms, abdominal aortic aneurysms, and uterine fibroids, as well. In the future, we hope to create catheters that can treat brain tumors and even cerebral infarction.

Watanabe No matter how skilled a physician may be, they cannot treat an illness without the right medical devices. In this sense, your steerable microcatheter represents a marked advance and reduction in burden for not only medical professionals, but also patients, too.

Hayashi During the development phase, we worked closely with a number of leading physicians in Japan and abroad. We hope to expand the possibilities of endovascular treatment so as to reduce the burden placed on patients as much as possible.

Reducing Food Loss and Contributing to Agriculture as a Business

Watanabe As a consumer, I'm interested to know more about your company's food packaging products.

Hayashi I think the product you are talking about is P-Plus® freshness preserving film for fruits and vegetables.

Watanabe I see this product is already being used by many convenience stores and supermarkets for freshly cut vegetables.

Hayashi P-Plus® helps to significantly reduce food loss because it extends the shelf life of vegetables. This also has a huge benefit economically, and I feel it contributes a great deal to society from the standpoint of reducing food loss. P-Plus® locks in freshness, too, so it is now being used to export Japan's high quality agricultural produce to overseas markets. It has created quite a buzz, actually.
Watanabe Food issues will become even more critical in the future, so it is very important to find ways to reduce waste.The quality of Japan's agricultural produce is extremely high, and although there is strong demand overseas, I hear that distribution hurdles remain high. Therefore, I feel P-Plus® is a technology with great future potential for addressing these issues.

Aiming for a Better Tomorrow with Stakeholders

Watanabe As a manufacturer that owns and operates factories, what are your thoughts regarding the relationship between environmental issues and local communities?

Hayashi We use nature's bounty such as raw materials and energy to power our businesses, but we also have direct and indirect impacts on the environment from waste as well as the discharge of chemicals and effluent. Reducing environmental impacts from our businesses and implementing initiatives for environmental conservation represent the absolute bare minimum we must do.

                 Therefore, as one of our efforts, we created the biotope called "Ikoi no Mori" (Calming Woods) at our Shizuoka Plant, which is helping to preserve local biodiversity. In this way, we are protecting flora and fauna that have lived in the local area since ancient times, including the prefecture's endangered killifish and kingfisher. Our biotope is also open to local residents for use as a place of recreation and learning.
Watanabe Hearing about the company's many initiatives, I recognize the involvement of employees plays an indispensable role in your company's growth. Over the past several years, the importance of diversity, including the greater involvement of women in the workplace, is garnering a great deal of attention in Japan. What type of initiatives is your company implementing in this regard?

Hayashi It should be second nature to develop human resources and provide workplaces where everyone can be actively involved, regardless of nationality or gender. However, the nature of our business is rather unique, so we still face challenges in terms of women's empowerment. This includes the clear issues of having few female managers and the average years of service of women in career-track positions is short. As a result, we have created an action plan to address these issues. We have set a goal to double the number of female managers compared to fiscal 2014 over the four-year period from April 2016. Under this action plan, we are now working on educating employees about our programs, changing our workplace culture, fostering professional mindsets, and increasing the number of women we hire.

Watanabe In closing, what path will your company follow in the future and what are your expectations for the future?
Hayashi The fact more than 100 years have passed since our founding demonstrates we have overcome a number of market changes and upheavals in business climate. In recent years, we have faced difficult challenges due to globalization, and changes in industrial structure, society and the environment. Nevertheless, we find ourselves at a stage for our next evolution thanks to our long-standing technologies and the support of stakeholders. To achieve this evolution, we must create new products that resolve social issues as well as generate economic and social value, while building relationships with customers, under the basic policy of giving customer satisfaction the utmost priority. Expanding this new value globally will enable us to contribute to the planet, society, and people’s lives.
Today, we have operations in 15 countries and regions around the world. I feel it of equal importance to fulfill our social responsibilities by making efforts to comply with local laws and understand the culture, enhancing and reinforcing corporate governance, and giving consideration to the environment and safety as a chemicals company.
Going forward, we will support and follow the Responsible Care Global Charter that calls for companies to voluntarily implement and continually improve environmental, health and safety measures.

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