The Challenge for SMEs to find New Business in the Entrepreneurial Business Society

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1 The 7th APEC SME Business Network Promotion Forum The Challenge for SMEs to find New Business in the Entrepreneurial Business Society May 2005 Japan External Trade Organization (JETRO)

2 INTRODUCTION APEC SME Business Network Promotion Forum was proposed by the Japanese government as Japan s APEC contribution project and subsequently approved at the 5th meeting of SME ministerial meeting at Kuala Lumpur, Malaysia, in September The session in FY2004 will mark the 7th Forum. It is aimed at promoting mutual understanding / business networking of small and medium enterprises in APEC economies, creating new business opportunities and seeking industrial revitalization in the region. Coinciding the Forum, JETRO conducts a survey on major industries in the APEC region or other specific themes each year, and compiles the results into a report. This year, under the theme of The Challenge for SMEs of the New Business in the Entrepreneurial Business Society, JETRO has conducted a case study on SMEs in APEC economies, identifying new business opportunities without adhering to the old way of business activities and practices. We interviewed SMEs, chambers of commerce and industry, and industry organizations based in the APEC region on their strategies to create, renovate, convert and develop their business for success. It is hoped that this report will contribute to SMEs in APEC economies in their efforts to find new business opportunities. Finally, we wish to express our sincere gratitude to all parties who have extended cooperation in the survey. May 2005 Economic Research Department Japan External Trade Organization (JETRO)

3 CONTENTS JAPAN EMS Co., Ltd...1 TEFCO Aomori Co., Ltd....4 Shin Tohoku Chemical Industry Co., Ltd....7 Selco Home Co., Ltd....9 Eco Angels Co., Ltd...11 Gialinks Co., Ltd TM-Erde Co., Ltd UDM, Inc...18 Iwate Rock Hand Co., Ltd La Sara Co., Ltd...25 Akamatsu Kogyo Co., Ltd...28 Nippura Co., Ltd...30 Matsuura Sangyo Co., Ltd...32 Kochi Toyonaka Giken Co., Ltd...34 Yamamoto Precious Metal Co., Ltd...36 Tsuchiya Rubber Co., Ltd...38 CHILE Blue Company S.A...40 Coesam S.A Paradigma Ltda...45 Ministry of Economy...47 CHINA Ensemble International...49 Beijing Li Da Zhi Tong Technology Co., Ltd...50 Shenyang Dajian Trade Co., Ltd...52 Tianjin Furniture and Construction materials Co., Ltd...53 SME Department, National Development and Reform Commission...55 HONG KONG, CHINA AsiaPac Net Media Ltd...56 Hong Kong Science and Technology Parks Corporation (HKSTP)...57 KOREA (REPUBLIC OF) Nepes Corp Penz Co., Ltd....60

4 Sinssi Hwaro...62 Small Business Corporation...63 MALAYSIA Inno Biologies Sdn. Bhd...66 Malaysian Agri Hi-Tech Sdn. Bhd...68 Malaysian Vaccines and Pharmaceuticals Sdn. Bhd...69 MEXICO Robotika, S.A. DE.C.V National Financiera (NAFIN)...71 PHILLIPINES AEO International Food Corporation...72 ATM Ber Aqua...74 Tubigon, Bohol Loomweavers Multi-purpose Cooperative...76 Department of Trade and Industry Region VII (Central Visayas)...78 RUSSIA ZAO-ELIT...80 Intercos-IV...82 Markon...84 Mven...86 ZAO NII Inmicrotecs...87 Khabarovsk region government...88 SINGAPORE Apex-Pal International Ltd...92 BreadTalk Group Ltd...95 Qian Hu Corporation Ltd...98 Standard, Productivity & Innovation Board (SPRING Singapore) CHINESE TAIPEI Interserv International, Inc Magic Technology Co., Ltd USE Electrics Co., Ltd Economic Ministry, Small and Medium Sized Enterprise Department THAILAND Global Taste Tai Franchise Co., Ltd

5 Strong Waves Co.,Ltd (SENADA) Thoophom Lanna Co., Ltd Office of SMEs Promotion(OSMEP) VIETNAM Ace Market Eyes Consultants (AMEC) Nam Hai Company Limited Agency for SME Development (MPI)...121

6 JAPAN Company Name (Location) Type of Business New Business No. of Employees Overseas Network URL EMS Inc. (Aomori) Manufacturing of electronic apparatus such as optical disk playback equipment, communications equipment, etc. Development and mass production (planned) of next generation white organic EL (electro luminescence) for lighting fixtures Total of the group: 460 (20 employees of EMS, the management company of the group) Hong Kong, China, (Dong Guan City, Guangdong) (cf. five factories in Aomori Prefecture) 1. Outline of the SME's original business before entering the new business The EMS group was founded in 1973 under the name of Furukawa Densan in the town of Nakasato, Aomori Prefecture. Since then, five factories have been established in Aomori Prefecture, and the company has consistently engaged in the manufacture of electronic equipment. The management company, EMS Inc. was founded in 1992 (Goshogawara, Aomori Prefecture; capital, 14 million yen). In recent years, the main product lines have been optical disk playback equipment such as DVD drives and communications equipment such as cordless telephones, etc. Since June 2004, the factory established in Dong Guan City, Guangdong Province, China has been manufacturing mobile telephones and other digital consumer electronic appliances and has been supplying products to major electronics manufacturers in South Korea. 2. Background, prospects and reasons for the SME to enter the new business The reason for EMS to locate its head office in Goshogawara is that, while Aomori Prefecture has the greatest number of migrant workers of any prefecture in Japan, the employment office in this particular city handles the greatest number of migrant workers in all of Aomori, making it possible to secure the workforce locally. However, as it is the current trend to transfer control of the production of relatively simple items to local control in China, the number of employees of the EMS group has dropped to roughly half of the 1200 employees of five or six years ago. However, it is EMS' policy to secure the workforce locally from among inhabitants of Aomori Prefecture. So, EMS thought that as EMS possessed the capacity, it would like to develop and produce new items in Aomori. Having the technological strength in the production of super-slim DVDs etc. and having a housing construction contractor among its group of companies, EMS began to entertain the concept of entering into the business of next-generation lighting of white organic EL (electro luminescence) in Organic EL is in the limelight as the material for next generation display equipment after liquid crystal and plasma displays. In addition to energy efficiency, there are fewer parts than conventional LED (light-emitting diodes) lighting, they can be made thinner, and the cost of parts management can be kept down. Major electronics manufacturers have invested several billions of yen into the development and production of organic EL color displays for televisions and so on, yet, this requires the technology of accurately placing three primary colors into each individual dot of the display. EMS, meanwhile, has developed and is producing only white organic EL. Although white organic EL is simpler than color organic EL, because of the heterogeneous technology that is required for coating the entire surface with white, EMS is not in competition with major 1

7 manufacturers, and so EMS is able to hold down its development and production costs. When EMS embarked on the development project, EMS was in contact with professor Junji Kido of Yamagata University, a leading expert in the field of organic EL, and under his direction, EMS endeavored in research and development. Then, in 2001, EMS established the Device Business Department for promoting R&D of white organic EL, and carried out proprietary research at the research laboratory of the Hanamaki Municipal Incubate Center in Iwate Prefecture. 3. Details of the new business, including profit/loss At the present time, EMS is continuing research and development into next generation white organic EL illumination. EMS plans to begin building the world's first mass production plant for white organic EL illumination devices in Mutsu-Ogawara, Rokkasho development region in Construction of this mass-production plant will begin in 2005 and operation will begin in Operation will swing into full-scale in 2007, and EMS is aiming to turn profits on a monthly basis by Total construction costs will amount to approximately 3.5 billion yen, and it plans to employ 120 workers. After three years of operation, EMS estimates sales volume to reach 2.6 to 3 billion yen. It plans to manufacture backlights for liquid crystal displays for mobile telephones as the main product of the new factory. 4. Availability of public support (please detail public support actually obtained, if any) Regarding the construction of the new plant in the vicinity of Mutsu-Ogawara development area, financial backing and a variety of other public support available under the "Concept of Crystal Valley" which is being promoted by the Aomori Prefectural government will be taken advantage of (details still under negotiation). Also, EMS has have taken advantage of the support systems of the Aomori Prefectural government as well as the central government (Ministry of Economy, Trade and Industry (METI)) in regards to research and development costs. In FY2003, our "Top Emission Structural Organic EL Elemental Development" was selected for METI's 2003 "Creative Technology Research and Development Project" and we received a research grant. 5. Problems/difficulties the SME facing in entering the new business (financing, human resource management, structure management, information gathering, and so on) As there are very few organic EL specialist engineers in the market, securing research and development personnel and collecting information presented are the greatest obstacles. Hanamaki Municipal Incubate Center introduced us to a semiconductor consulting firm in Tokyo, and EMS devised ways to solve the problem by making contact with researchers and engineers within the country. When the business started up, engineers from major electronics manufacturers were sent to EMS on loan, and EMS made extensive use of outsourced personnel and sought the opinions of researchers and experts outside the company. Also, it is EMS s policy to carry out production locally in Aomori, but Aomori is a great distance from Yamagata University and semiconductor-related companies, making it difficult to obtain information. From the perspective of research and development, Hanamaki is located between Aomori and Yamagata as well as being near the urban areas of Sendai and Morioka, making it an attractive lure for business. While organic EL has disadvantages of short life cycle and high production costs etc. in comparison to LEDs, EMS plans to solve these issues during the course of mass production. Securing sources of funds, and the direct 2

8 connection leading to new development are the reasons for this. Although EMS does enter into tie-ups with manufacturers of lighting equipment and give them ideas for uses in new products in order to promote the expansion of uses for white organic EL, EMS itself is a vendor of white organic EL panels only. 6. Outlook of the new business As mentioned in (3) above, EMS will begin full-scale production of white organic EL illumination in EMS is presently developing marketing routes. EMS has a schedule to commercialize white organic EL lighting products as a replacement for ordinary fluorescent and incandescent lights from 2010, and EMS plans to put white organic EL into use in art museums and hotels, etc. by embedding them into the floors and walls as night-time indoor lighting and as visual guidance for the elderly. End 3

9 JAPAN Company Name TEFCO Aomori Co., Ltd. (Aomori) (Location) Type of Business Precision metals / parts manufacturing New Business Development, manufacturing, and sales of ornamental lettering and images (for 1: clock and watch dials, 2: consumer electronics, AV equipment, automobile logos) by electro forming method No. of Employees 50 Overseas Network None (however, we have a sales base in Yokohama, "Tefco International Co., Ltd.) URL None 1. Outline of the SME's original business before entering the new business Hiroo Nakayama, president of Tefco Aomori, worked for ten years in a major trading company where he was in charge of trading iron ore. From 1971, for the next 17 years, he worked at an electrolysis manufacturing company managed by a friend where he learned the method of electro forming (electroplating). In 1988 he struck out on his own, founding Tefco Aomori (Hirosaki-shi, Aomori Prefecture; capital, 32.4 million yen). The name "TEFCO" is an acronym for Technology by Electro Forming Company, Ltd. 2. Background, prospects and reasons for the SME to enter the new business The key technology of Tefco Aomori's new business is electro forming. Normally, electroplating is thought of as forming a bond that will absolutely not peel off, but Tefco, having electro forming (electroplating) technology, researched ways of removing the plating from the surface of all but the image portions where it is desired for the plating to remain, and thus new products were created. Our first line of new business using this technology was the development, production, and sales of lettering for clock and watch dials using the electro forming method (mass production started in 1990). The conventional method of producing clock and watch dials has been through the press working method, whereby super-fine metal lettering is pressed and then mounted onto the dial base (a kind of typesetting), however, the workers who engaged in this line of work are of the aging generation, and becoming fewer and fewer. For this reason, the person in charge of development at a major clock and watch manufacturer approached president Nakayama with a proposal of producing clock and watch dials by electro plating (electro forming method). With the Tefco Aomori electro forming method, lettering from one seal is transcribed (pressed on), and the time required to produce one clock/watch dial has been reduced from the conventional ten minutes down to five seconds, and even more intricate designs have been made possible. Our second line of new business (for which mass production started in 2001) is the development, production, and sale of transfer-type metal seals "Tefco Mirror," which also uses electrolysis forming method technology. These are used for manufacturers' logos of high class consumer electronic products, AV equipment, automobiles, eyeglasses, etc. Development was triggered by the suggestion to major consumer electronics manufacturers "how about using clock/watch dial technology for ornamental logos on products" as consumer electronic products and AV equipment becomes thinner, smaller, lighter, and products designs aim more and more toward high class. The Tefco Mirror is capable of a minimum of 30 microns in thickness, making intricate designs possible. With 4

10 the diffusion of mobile phones throughout the world, and the sluggish market for clocks and watches, Tefco Aomori has endeavored to develop this into the pillar of its new business. 3. Details of the new business, including profit/loss 1) Development, production, and sales of clock/watch dials made by the electro forming method: In the first three years after founding in 1988, the rate of production line rejects exceeded 80%, and deficits of over 240 million yen had accumulated. However, with loan guarantees by Aomori Technopolis Foundation, development was halted in 1991, and in 1997, the company supplied approximately 8 million watch and clock dials. Subsequently, due to the slump on the world clock and watch market, the volume supplied dropped to the four to five million level, but due to the popularity of Citizen's electromagnetic solar watch, sales once again reached the 8 million level in World production volume of clocks and watches totals approximately 500 million units. Of that volume, the high-class models targeted by Tefco Aomori account for about 50 million, of which the company claims a 15 to 20% share. The name of Tefco Aomori is known throughout virtually the whole clock and watch industry around the world, and in addition to supplying major Japanese clock/watch manufacturers, 95% of the merchandise is sold through the Yokohama sales company, and products are exported to manufacturers in ten countries. 2) Development, production, and sales of "Tefco Mirror" transfer-type metal seals produced by the electro forming method: Mass production began in 2001, and in 2003, the company supplied 30 million units (of which 2 million were supplied to the auto industry). In addition to the increasing demand for high class consumer electronic products such as LCD TVs, demand is now on the rise. The cost of affixing logos to ordinary products is usually around three to four yen each, whereas the Tefco Mirror which targets high class products has the high cost of thirty to forty yen apiece. In addition to sales of the Tefco Mirror (for logo seals), the company also obtains income from the sale of the machinery used to attach the logos to the product. With clock/watch dials and the Tefco Mirror as the company's main product lines, Tefco Aomori's gross sales volume for FY2003 stood at approximately 400 million yen. 4. Availability of public support (please detail public support actually obtained, if any) The company was the benefactor of loan guarantee financing by Aomori Technopolis Foundation in In 1991, the company received Regional Technology Commercialization Grant for 1990 and 1991 High Tech Research and Development Grant from the Foundation. In 1998, the company received the Third Tohoku Venture-Land Subsidy from Tohoku Venture-Land Promotion Center (a spin-off organization of Tohoku Economic Federation under private management). With regards to patent applications, the company made use of the Industrial Technology Development Assistance System, which is an Aomori patent application support organization. In this system, half of the cost of application fees, investigative claim fees, and lawyer fees is shared by the prefectural government. In addition, the company consults with professors in the organic and inorganic divisions at the Hachinohe Industrial Research Institute in Aomori and Hirosaki University. 5. Problems/difficulties the SME facing in entering the new business (financing, human resource management, structure management, information gathering, and so on) In the time period after the founding of the company, development costs were excessively high, leading to the 5

11 accumulation of 240 million yen in liabilities, and the company was preparing for bankruptcy, but an officer of Aomori Technopolis Foundation made an inspection tour of the actual development site, and the company was approved for loan guarantees. In order to survive, new products have to be developed constantly, and as the thinking goes, the greater the anguish in bringing the product into the world, the better the product. Accordingly, about three to five percent of the sales volume is budgeted for R&D. Even in years when the company is running in the red, at least five to ten million is budgeted (for R&D). During the time while working at the trading company, Nakayama has the experience of patent infringement litigation case in the US resulting in a huge financial loss, and therefore, before exporting any product, it is an absolute necessity to obtain the pertinent patent rights in the country where the goods are exported to. The company now has 28 patents pending, of which 20 are abroad (seven countries: Germany, Switzerland, USA, China, South Korea, Hong Kong, Taiwan). All patent applications have been made through an international patent office in Tokyo. Personnel are local graduates of industrial high schools who have been trained in-house. Since ten years ago, the company has instituted an invention incentive system whereby if an invention is patented and leads to the materialization of an actual product, a special bonus of 100 thousand yen per month is paid out for a period of one year. In actuality, three employees have contributed a total of four patents. In regards to seeking out new customers, in the early days of the company, using his experience from working at a trading company, Nakayama packed products into a suitcase and made sales visits to companies both at home and abroad. At present, it is a seller's market and the manufacturers are the ones who initiate contact. 6. Outlook of the new business The company's policies are: 1) patents are the springboard to the world markets, 2) the company will not become a mega-corporation (with 50 employees as the maximum, maintain the position of supplying products for use in high class high price merchandise), and 3) limited to products made in Japan only, and the company has no intention to alter its stance in the future. There are no plans to expand into other fields of business other than the current line of using electro forming method technology for ornamental lettering and images. Future plans are to show the Tefco Mirror all over the world, placing primary emphasis on honogram-type patterned designs. Patents on honogram-type are already pending, and inquiries are already coming in from customers. End 6

12 JAPAN Company Name Shin Tohoku Chemical Industry Co., Ltd. (Miyagi) (Location) Type of Business Mining New business area Development, manufacturing and marketing of moisture absorption construction materials based on natural zeolite No. of Employees 31 (as of September 2004) Overseas Network None URL 1. Outline of the SME s original business before entering the new business The company was established in 1963 upon the discovery of a zeolite deposit on the outskirts of Sendai. Zeolite is a natural crystal with catalytic effects, ion exchange capacity, deodorizing and absorption properties. It has been used as solid acid catalyst or industrial water processing agent in the manufacturing of synthetic fibers. While producing these products, Shin Tohoku Chemical Industry also pursued the development of new products that take advantage of zeolite properties. In 1979, it developed a deodorizer / moisture absorber for pets, which proved to be a major hit. 2. Background, prospects and reasons for the SME to enter the new business The company undertook joint research with universities and private enterprises on zeolite products, and became the first Japanese company to successfully develop a "breathable construction material" in 1991 in conjunction with Kashima Corporation. This material prevents moisture buildup / mold / condensation, has deodorizing effects and absorbs chemicals such as formaldehyde. Future demand growth was anticipated for its broad applications to areas requiring a constant environment such as storage rooms at art galleries / museums (also aged care facilities, schools, etc.), or even for general homes in light of growing health-consciousness. 3. Details of the new business, including profit/loss The development of the breathable material received numerous support, including technological guidance from the Miyagi Industrial Technology Center (today's Industrial Technology Institute, Miyagi Prefecture Government) and design assistance from the Tohoku Institute of Technology. The developed product was first introduced to the storeroom at Meguro Gajoen, and has since been utilized as storeroom lining material both at home and abroad. Joint R&D with Nihon Boka Light Kogyo has enabled volume production and cost reduction, broadening application to residential homes in general. Currently, the company is developing residential-use inner materials (mainly as wall lining), as well as wallpaper that offer similar functions. 4. Availability of public support (please detail public support actually obtained, if any) Numerous financial assistance, such as technological development grants, have been received, including Miyagi Prefecture's technological improvement grant (1981) and the Tohoku Bureau of Economy, Trade and Industry's regional creative technological development grant (2002). In 2004, the company was selected for the Miyagi Manufacturing Leader Challenge Project (note) to seek expansion of its sales channels to the greater Tokyo area. 7

13 The Tohoku Institute of Technology and the Miyagi Industrial Technology Center are also extending assistance in technological development. Note A project launched by Miyagi Prefecture in FY2004 as a mechanism for helping local SME's expand their sales channels to the greater Tokyo area, etc. The project utilizes experienced sales representatives based in the metropolitan area to obtain information on market needs for participating companies' products and other relevant industry information, while facilitating liaison with new sales destinations. 5. Problems/difficulties the SME facing in entering the new business (financing, human resource management, structure management, information gathering, and so on) Non-technological problems include the need to transform the mentality of uses on the "breathable" concept of the new material. Initially, people in the construction industry perceived "moisture absorption" as a negative property for construction materials, preventing the product from spreading quickly. Joint development partner, Kashima Corporation, promoted the product mainly to art galleries, etc. and has gradually built up its recognition. In the absence of their own distribution networks for residential construction materials, Shin Tohoku Chemical Industry initially sold products to agencies via major trading houses. However, in response to growing demand and the introduction of similar products by large companies, Shin Tohoku switched to a direct sales system to agencies in 2004, with the aim of sales promotion and a reduction in retail prices. 6. Outlook of the new business Amidst growing public awareness of the Sick House Syndrome and the use of natural materials, the company envisages zeolite use in materials for residential homes, and is undertaking the development of new products in addition to the wallpaper mentioned earlier. R&D is underway to develop moisture-retention blocks that provide the "Uchimizu (water sprinkling)" cooling effect (evaporating moisture taking heat from the environment) to counter the Heat Island Phenomenon. Such blocks can be laid externally in rooftop gardens / verandahs or reinforced for use on pavements, thereby expanding applications even further. With several international orders already coming in, the company has its eyes set on expanding into overseas markets. End 8

14 JAPAN Company Name Selco Home, Inc. (Miyagi) (Location) Type of Business Construction, real estate New business area Building and marketing Canadian imported homes No. of Employees 203 (as of October 1, 2003) Overseas Network Representative office in Canada (Toronto) URL 1. Outline of the SME s original business before entering the new business Since its establishment in 1959, Selco Home has mainly dealt with residential developments and sales of homes / real estate properties, but also began marketing system homes imported from Canada in In 1996, it introduced a franchise system (partnership business) for the imported home side of the business, and started providing franchisees with consultation on the know-how of material procurement, design, construction and sales. 2. Background, prospects and reasons for the SME to enter the new business The bursting of the economic bubble caused changes to the nation's economic environment, including a downward spiral of land prices and tighter fiscal policies, thus signaling the end to the days when people take up huge loans to purchase homes. With the aim of providing homes that customers are happy with, the company explored alternatives to conventional home construction, identifying the possibility of imported homes as one option. Around that time, homes were among the items highlighted for their high prices compared to equivalent prices overseas. The strong yen also worked to the advantage of the company's quest. Following a fact-finding tour of North America, Selco Home began importing 2 x 4 system homes from Canada in The project initially met with a series of trial and error with the need to clear various home-related regulations. As the imported home business got on track, Selco Home and its competitors became deluged with inquiries on the "secret behind the success of the imported home business", prompting the company to launch a franchise system ("partnership business") in imported home sales. The move coincided with the decision by the Government Housing Loan Corporation to ease its loan criteria, scrapping the requirement of using construction materials that meet Japanese standards (JAS, JIS, etc.), and accepting the use of imported materials as long as they meet equivalent standards in the country of origin. The lowered impediment to the use of imported materials, and the bargaining power of collective material procurement in the partnership business, convinced the company of further cost reduction. 3. Details of the new business, including profit/loss The company's first new business was the importation of 2 x 4 system homes from Canada. It maintained processes at Canadian factories as much as possible in line with Canadian regulations, so as to reduce process error (although some changes were inevitable for compliance with Japanese construction standards). Selco Home also developed "framer" specialists for assembling imported components, rather than hiring conventional carpenters, so as to control all aspects of imported home marketing from material procurement to construction and sales. 9

15 This experience evolved to a second new business the company calls "Partnership Business". The numerous trial and error it went through in marketing imported homes, became valuable know-how. Under the program, Selco Home arranges the ordering / importation / transportation of construction materials, and provide them to partner companies at cost in addition to know-how of designs, construction and sales. There are over 90 companies participating in the Partnership Business. Proliferation of imported homes in Japan, and scale merit of making volume procurement with partner companies have successfully reduced the costs of imported homes by almost 50% from the initial stage. Currently, around 95% of the company's profits (500 million yen in ordinary profit for the fiscal year to September 2003) is attributable to imported homes. 4. Availability of public support (please detail public support actually obtained, if any) Financial assistance for display homes The fact that there was a display home site in Sendai worked to the company's advantage. 5. Problems/difficulties the SME facing in entering the new business (financing, human resource management, structure management, information gathering, and so on) The biggest problem the company faced in handling imported homes was the number of local regulations applicable, including the requirement to clear Japanese standards such as JAS (Japanese Agricultural Standard) and JIS (Japanese Industrial Standards), and fire-management license under the Construction Standards Law. Also, framers were initially brought in from Canada for assembling 2 x 4 system homes in Japan, but visa constraints prevented them from conducting "work" activities. The initial stage of the business was hampered with regulatory difficulties one after another. Housing-related regulations have eased since then, but problems in other aspects persist. For example, the lack of round-the-clock operations at the Sendai ports / airports is causing losses in time and transportation costs. 6. Outlook of the new business Public awareness in imported homes remains relatively low, leaving room for further market expansion. Selco Home is also considering exporting budget-priced log house kits to add to the range of import home products it offers. Preparation is underway for market launch in 2005, importing Siberian timbers processed at a factory in Dalian, China. End 10

16 JAPAN Company Name (Location) Type of Business New Business No. of Employees Overseas Network URL Eco Angels, Inc. (Kamei Porcelain Manufacturing Co., Ltd) (Gifu) Earth and stone (environment business) Development, production, and sales of unfired bricks made from waste materials 6 employees (two on loan, additional post below president) China (Beijing City / Quanzhou City) 1. Outline of the SME's original business before entering the new business Kamei Porcelain Manufacturing Co., Ltd was founded among local industries in 1956 engaging in the firing of tiles. The tile industry in the region is divided among areas, procuring materials, transport of materials, and firing, each done by local companies, and the system that has been handed down through the generations is inflexible. President Hiroaki Kamei became the second generation president of Kamei Porcelain Manufacturing Co., Ltd. ten years ago. 2. Background, prospects and reasons for the SME to enter the new business At first, it was thought that the management base was weak, and that something must be done to improve the situation. Without being restrained by the status quo of the materials procurement and sales structures, the company groped around for an independent way of contributing to recycle-based society. To start with, waste materials from the porcelain industry itself were collected and recycled, but then later, more common waste materials (mud from sewers, mud from dams, slag from ironworks, waste from the ceramics industry, electric power wastes, etc.) were collected for recycling. In early attempts at firing those wastes that had been collected, it was found to be impossible as each material had a different fusion point. Therefore, instead of the conventional dry manufacturing process, the method was switched to a wet manufacturing process, and furthermore, cement as a hardening agent with properties that contrast with clay was blended with the clay, creating "non-fired hardening technology" (patented formula) developed by Kamei Porcelain. Using this process, it has become possible to produce eco products such as antique-style bricks, etc. that have a texture similar to porcelain but are actually non-fired products made from industrial wastes as the raw materials and without preprocessing. In order for these eco-products to be able to make direct contributions to the recycle-based society, Eco Angels, Inc. was established as a separate entity from Kamei Porcelain Co., Ltd. 3. Details of the new business, including profit/loss Eco Angels has a production capacity of approximately 500,000 pieces (1,150 tons) per month. Wa Communications Factories, however, is engaged in manufacturing under technical licensing agreements at factories in Kansai, Kyosei Co., Ltd. (KEPCO group) and Kanto, Toden Environment Engineering Co., Ltd. (TEPCO group). As for marketing, as a result of research into the recycling of sewer mud with Seki City, eco products have come to be used in public construction works and a wide variety of public works projects, and riding on the crest of the gardening boom, Kahma Home Center is handling the products, establishing a growing track record. 11

17 4. Availability of public support (please detail public support actually obtained, if any) The company has received no public support or grants, but does, however, have the support of Seki City and Takayama City etc. in respect to processing of sewer mud. 5. Problems/difficulties the SME facing in entering the new business (financing, human resource management, structure management, information gathering, and so on) As for technological development, it was an extremely difficult task to succeed in blending the very dissimilar materials of concrete and clay. Difficulties were also faced in obtaining funds, however, corporate strategy presentation ability is improving. 6. Outlook of the new business At present, China has taken a keen interest in eco products from the perspective of environmental policy, and the company is making a bid for a joint venture with Chinese electric power / iron and steel works. The company would also like to sell the technology and plants as a set to China and other overseas countries in cooperation with Tokyo Electric Power Company's CO2 Reduction CDM Project. Also, have recently been in contact with Chinese stone quarrying company, we would also like to engage in domestic distribution of stone materials. End 12

18 JAPAN Company Name (Location) Type of Business New Business No. of Employees Overseas Network URL Gialinks Co., Ltd. (Gifu) Agriculture Production of soy beans etc. in Argentina 6 directors, 2 staffers in Argentina branch (1 farmhand), production is carried out locally on consignment Argentina 1. Outline of the SME's original business before entering the new business Gialinks is a food company located in Gifu Prefecture that has a six-person executive staff. The president and CEO of the company is Tomohiro Nakata, who is also the president of SALAD COSMO, which is located in Nakatsugawa City, Gifu Prefecture. SALAD COSMO raises additive-free, non-chlorinated bean sprouts and mung bean sprouts, and produces pesticide-free white radish sprouts, alfalfa, broccoli, and soba sprouts. The company supplies these products nationwide to supermarkets such as Seikyo, Ion Co., Ltd., etc. Affiliate companies include SALAD COSMO USA Co., LTD. (California), etc. 2. Background, prospects and reasons for the SME to enter the new business In accordance with Gifu Prefecture's "Citizen Food Security Plan," (a plan that includes goals such as raising the prefecture's food self-sufficiency rate to 50 percent, and so on), Governor Kajiwara, soon after a trip to Argentina in 1998 spoke with President Nakata of Gialinks and requested that the company cooperate in establishing agricultural operations in Argentina, a country rich in agricultural resources, and with seasons the opposite of Japan's, in order to prepare for a food crisis in the future. A total of six executives from food companies in Gifu Prefecture, including President Nakata, solicited investment from both within Gifu Prefecture and outside the prefecture, and in the year 2000 established "Gialinks" as a private company. They did this with the public-spirited zeal of an NPO (non-profit organization), and the mission of Gialinks is to provide food security for both the citizens of Gifu Prefecture and citizens throughout Japan in times of crisis. 3. Details of the new business, including profit/loss In October 2002, the company began test cultivation of soybeans, wheat, and soba locally. These crops were harvested in April of 2003, and in June they received a favorable evaluation in Japan. In October the company acquired a total of 1,265 hectares (equivalent to 2 percent of the 60,000 hectares under cultivation in Gifu Prefecture) at the foot of and near the Andes Mountain Range. At this time, a ceremony was held marking the opening of the farm, and full-scale cultivation began. In August of this year, 160 tons of soybeans produced at the farm in Argentina arrived in Japan. Simultaneously, 400 tons of soybeans arrived from the neighboring country of Paraguay that was produced by Japanese emigrants living there. The company released the 560 tons of soybeans first in Gifu Prefecture at the market price there, and soybean related companies in Kyoto and Toyama gave the soybeans high marks. Plans call for expanding production to achieve a goal of 1,800 tons. Cultivation operations at the farm have been consigned to Tractor Work Company, and this company is also 13

19 handling employment. Investment in this enterprise through August 31 of this year totals 92 million yen. Currently, the executives are working hard on behalf of the company without compensation, and the company's future looks bright, and is operating smoothly. 4. Availability of public support (please detail public support actually obtained, if any) The Gifu prefectural government has not made any direct investment into the company, but starting with Governor Kajiwara and on down, the company has received strong moral support for the plans. 5. Problems/difficulties the SME facing in entering the new business (financing, human resource management, structure management, information gathering, and so on) Initially, a third-sector arrangement with the prefectural authorities was considered, but problems with establishing the chain of responsibility, financing, and so forth, left matters at a standstill. So finally it was decided to establish a completely private enterprise, and then investment was solicited from both within and outside the prefecture. 6. Outlook of the new business Serious consideration is being given not only to Argentina, but also Paraguay and other South American countries when it comes to Japan's future food security. Particularly in South American countries following the Second World War, through the agricultural emigration policy, Japanese who have emigrated to these countries have worked hard along with Japan's citizens at home. Gialinks intends to develop the forefront of food security for the people of the world. End 14

20 JAPAN Company Name TM-Erde Co., Ltd. (Siga) (Location) Type of Business Environmental equipment sales, environmental consultations New business area Marketing RVM (reverse vending machines) and offering associated services No. of Employees 14 Overseas Network None URL 1. Outline of the SME s original business before entering the new business The predecessor of TM-Erde is an incinerator marketing company Daiei Sangyo, which was established in 1971 and incorporated in In 1995, Shiga-based long-established metal processing manufacturer Takahashi Kinzoku (capital: 98 million yen) took over the company, and re-launched it as Daiei Engineering. In 2000, the company was then renamed to the current TM-Erde (Erde = Earth). With the capital of 20 million yen, TM-Erde has the head office in Hikone City, Shiga Prefecture, and registered the sales of 283 million yen for the fiscal year to October 2003 (according to the TSR corporate data). Takahashi Kinzoku's president Masayuki Takahashi serves as the representative director, while managing director Masaaki Hongo takes charge of actual business operations. In the days as Daiei Sangyo from 1976 to 1995, the company's main line of business was the distribution, installation and maintenance of incinerators. 2. Background, prospects and reasons for the SME to enter the new business TM-Erde embarked into the new business on a full scale in The business background for entering the new business was the decline in the number of new incinerator projects. In those days, farming communities were mandated to install a "small incinerator" at their sewage disposal facilities. The company sold and installed a substantial number of incinerators across Shiga Prefecture. However, dioxin scare created a social trend away from waste incineration, and the government introduced a new regulation banning the use of incinerators without dioxin control mechanisms. In the given situation, the company found it difficult to secure sales and profits for the following year, and concluded that the incinerator business alone could no longer sustain its existence, thus starting to search for a new business pillar. It conducted business surveys / research in line with the trend away from waste incineration, and was exploring the options of (1) a restaurant system based on frozen foods, (2) diaper processing system and (3) distribution of kitchen waste processors, when it encountered RVM (reverse vending machines). RVM is equipment that directly collects used drink receptacles (e.g. cans and PET bottles) from consumers. They have been in wide circulation in Europe and the United States for many years as a recycling device for protecting the environment and facilitating a recycling-oriented society. At the time, the international business division of Matsushita Electric Industrial Co. Ltd., which had trading association with the parent company Takahashi Kinzoku, was preparing to introduce RVM from the United States. TM-Erde had the equipment on loan from Matsushita, and ran its own tests to collect data, before deciding to deal with the machines itself, observing the right timing for a launch in the Japanese market (end of 1995). However, the company learned in the spring of 1996 that the alliance of Nissho Iwai Corporation and Fuji 15

21 Electric was importing RVM, instead of Matsushita, and hastily contacted Fuji Electric for distribution license. The development coincided with the decision by the mayor of Hozumi Township, Gifu Prefecture (today's Mizuho City), which was one of TM-Erde's incinerator customers, to introduce RVM upon inspection of the system in the Untied States. This chain of events led to the company's first sales of RVM to Hozumi Township in June The company marketed RVM in partnership with Fuji Electric until around the end of 2000 and start of 2001, when Fuji Electric underwent organizational changes. Compounded with minor problems of RVM equipment, the two companies started to see differences in their marketing policies. Around the same time, TM-Erde learned that Norway's Tomra was entering the Japanese market with its RVM system. A quick examination of Tomra's RVM system revealed its superiority in both design and functionality, convincing the board of directors to switch the supplier from Fuji Electric to Tomra. It began marketing Tomra's RVM in Since then, the company has been replacing previously supplied RVM units, supplied by the alliance of Fuji Electric and Envipco, with Tomra units at the end of their respective leasing cycles. 3. Details of the new business, including profit/loss The new business involves RVM marketing / installation, collection / maintenance regarding RVM and recycling of collected items. As for hardware, the company provides RVM devices and their accessories (roofing / floor preparation) as a package. The software aspect of the business includes providing maintenance of installed equipment (incl. handling machine faults), collecting metal cans (pressed aluminum / steel cans) / PET bottles (crushed), and selling collected cans / PET bottles for recycling. The data (quantity / weight) on cans / bottles processed is managed and provided to clients, so that the clients can identify their recycling performance. As for the profit status, the sales from software services have been approximately 100 million yen per annum, generating stable profits and contributing significantly to the company's business performance. Thus far, around 120 RVM units have been sold to 32 premises. 4. Availability of public support (please detail public support actually obtained, if any) Nothing is in particular. JETRO Osaka's trade consultation service was used before entering a business agreement with a foreign company. 5. Problems/difficulties the SME facing in entering the new business (financing, human resource management, structure management, information gathering, and so on) The problem of the RVM business is that maintenance / collection services generate profits only if there are clusters of customers, rather than individual customers located apart from each other. This is why the company needed to streamline its operations. Countermeasures include (1) carefully selecting sales areas, and gathering information to narrow down focal areas. The research found that large cities already had established waste processing measures / mechanisms with little room for newcomers. The target was therefore set for communities with the population of 10,000 to 50,000, which are either undecided or in the process of deciding waste processing systems. However, in view of maintenance / collection convenience, sales areas were defined within 2 hour drive from the head office in Yahiko. 16

22 Also, (2) the engineering department was divided into a section serving manufacturer functions, and a section operating more closely with client communities. The subcontractor handling can / bottle collection work was also asked to develop and adopt a mechanism to handle 10 to 15% of maintenance work, thus enhancing maintenance efficiency. (3) Can / bottle collection is, in principle, subcontracted to local welfare organizations as much as possible, so as to heighten clients' recycling awareness and reduce the company's costs. 6. Outlook of the new business TM-Erde is working toward a system primarily based on selling services, rather than RVM equipment (approx. 3.5 million yen per unit). Under the system, the company offers the option of leasing the equipment, but only as a package with maintenance / collection services. The service charges should be set at so much per can / bottle processed, or so much per month. The company also strives to expand its recycling-oriented business beyond RVM. It must become a "general resource recycling company", defining waste as "resources". Another goal is to become a coordinator of community participation. Community participation is the foundation of environmental conservation. It is important to devise and implement a mechanism that facilitates community participation. For example, the company may issue point-system cards, so that users can earn points for waste collection, and redeem them at local supermarkets and facilities such as public bathhouses. The company sees significance in contributing to local communities in the spirit of the "Sanpo-Yoshi (three-way benefits = benefits for the seller, the buyer and the community)" philosophy held by traditional Omi-region merchants, or the "Senyo Kori (Provide benefits first, and profit from them later)" principle of pharmaceutical merchants in Toyama. End 17