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Promotion of Open Innovation

In fiscal 2016, Hitachi Chemical established a planning division mandated with advancing Open Innovation, and improved its environment to implement technologies, including the management of internal funds related to Open Innovation, the application of information on venture capital and the promotion of business matching. Using Open Innovation, a strategic method, we will actively acquire technology licenses, conduct M&A and joint development, promote reciprocal sales, and undertake other business collaborations to accelerate the pace of commercialization. Through these activities, we will utilize the strengths and resources of our external capabilities such as venture capital invested into growing unlisted enterprises and business in order to have the seeds to fulfill future needs.

In February 2018, Hitachi Chemical made capital investments in Ionic Materials, Inc. (head office: Massachusetts, USA, CEO and founder: Michael Zimmerman, PhD), a company that owns development and manufacturing technologies for solid electrolyte, which is one of the major components of all-solid batteries. As a result, Hitachi Chemical began making use of Ionic Materials’ technologies to begin research on next-generation battery materials. (At present, all-solid batteries being developed by battery and automotive manufacturers are attracting attention as next-generation batteries that achieve higher energy density* compared to traditional lithium-ion batteries using electrolyte solutions.)

*
Energy that can be acquired per unit of mass or unit of volume of the battery (Wh/kg, Wh/L). This is an important index that indicates the amount of energy that the battery can store.

Furthermore, in March 2016, the Company entered businesses of process development and contract manufacturing for regenerative medical products through its capital investment in PCT, LLC, a Caladrius Company (head office: New Jersey, USA, President: Robert Preti; became a wholly owned company in 2017 and changed its name to Hitachi Chemical Advanced Therapeutics Solutions, LLS; hereinafter “HCATS”). Regenerative medical products comprise human or animal cells that have been processed through culturing and other means, and are used for the purpose of treating or preventing disease or injury. Through the acquisition of the vast manufacturing know-how and technologies of regenerative medical products that HCATS has nurtured over more than 20 years, Hitachi Chemicals has developed a cooperative structure that is able to respond to global clinical trials. In addition to the two sites in the U.S., a third cell processing facility has been built in Yokohama, Japan, which started operations in April 2018.

Overview of Open Innovation of Hitachi Chemicals

Overview of Open Innovation of Hitachi Chemicals

Strengthening Material Technology Capabilities

Hitachi Chemical has been providing value to customers by harmonizing in-depth materials know-how gained during the development of our four original product categories that straddle organic and inorganic chemicals and a wide range of technologies developed during the process of making more advanced products. These technologies come in three categories: material technologies (e.g., purification, extraction, compounding, and synthesis, all of which form the basics of material development); process technologies that brings out optimal properties of materials to fulfill diverse needs; and evaluation technologies for working out the next step through precise data analysis. Using these three core technologies as a driving force, Hitachi Chemical will accelerate the pace of development of new products and business fields, and tackle a wide array of issues facing the global community from a fresh perspective.

Global Business Expansion

The 10-year Strategy that we drew up to realize sustainable growth in consideration of Hitachi Chemical Group Identity defines that in 10 years we aspire to be "a globally active developer of innovative solutions beyond the boundaries of chemistry, with advanced functional materials as core and extending to devices, systems and services”. For our 2018 Medium-term Management Plan (FY 2016~FY 2018), we focus the strengthening of global business as a part of our key strategy. This means that we will accelerate commercialization through the promotion of Open Innovation by cooperating with stakeholders such as venture enterprises, customers, and sales, alongside with boosting the top share business up through reforms to our Niche and Cluster* business structure.

*
Niche: Businesses that should be sustained even if small in scale due to high profitability and strategic intent.
 
Cluster: Business groups that can be implemented by sharing strategies for global success through grouping individual product/business.

In addition, the Group is pursuing its business by conducting active equipment investment in various areas both in and outside of Japan, with a focus on business areas that demonstrate growth, targeting an amount 1.5 times the total investment made in the previous Mid-term Plan. Moreover, the Group is also moving forward toward executing large-scale M&As and alliances on the order of 100 billion yen. In fiscal 2017, the Group made steady strides to strengthen its global business by acquiring battery manufacturer Thai Storage Battery PLC (Thailand), as well as automobile insulation parts manufacturer ISOLITE GmbH (Germany), contract manufacturer of regenerative medicine products Hitachi Chemical Advanced Therapeutics Solutions, LLC (the U.S.), and diagnostic pharmaceuticals manufacturer Kyowa Medex Co., Ltd.

Strengthening the Function of Regional Headquarters

To uncover and exploit new opportunities, Hitachi Chemical wants leverage close-to-market regional headquarters in regions with high-growth potential, and grow its global businesses through them. This will enable us to respond dynamically to the nature and trends in specific overseas markets.

The first of these regional headquarters was launched in April 2011 when we opened Hitachi Chemical (China) Co., Ltd., which is charged with centralizing management and strengthening governance at Hitachi Chemical’s consolidated subsidiaries in China. In the following months, we continued exploring how best to systematically consolidate management and oversight functions at the regional level. As a result, we took action to integrate our Thai consolidated subsidiaries in Automotive Products, Energy Storage Devices and Systems, and other segments by establishing Hitachi Chemical Asia (Thailand) Co., Ltd. in April 2015.

Additionally, also starting in April 2015, we resolved to bring US consolidated subsidiaries in Electronics Materials, Automotive Products, and Diagnostics/Instruments under the control of Hitachi Chemical Co. America, Ltd.

We will continuously strengthen the structure to quickly capture business opportunities in high-growth potential regions, which will lead to the expansion of our global business.

Strengthening the Global Business Structure

Hitachi Chemical is engaged in strengthening its sales and marketing structure by utilizing our overseas group company resource in order to respond to the globalization of our customer’s supply chain and expand into new market.

In fiscal 2017, Hitachi Chemical focused on pioneering new customers and markets driven mainly by regional Sales Divisions. Further, for strengthening global business structure on Auto Products and Energy Storage Devices Business, we have welcomed ISOLITE in July 2017 and Thai Storage Battery in September 2017 as new consolidated subsidiaries. In fiscal 2018, we will strive to expand our sales of automobile and industrial lead-acid batteries in global markets with Sales Divisions of Hitachi Chemical Energy Technology, FIAMM Energy Technology, Thai Storage Battery, in addition to further expand sales of Auto Products for European markets using the business network of ISOLITE.

Create New Businesses

create new business

In order to enhance our ability to build innovation strategy with a company-wide perspective, we have reorganized the Advanced Technology Strategy Planning Department and newly set up the Strategy Planning Department under direct control of the General Manager, which oversees the Research and Innovation Promotion Headquarters, and the Planning Office, which puts together strategies and practices in the Advanced Technology Research and Development Center.

① New Business Development Center
The New Business Development Center promotes the commercialization of new themes guided by Open Innovation and emerging out of the new business creation project (Super-X). In particular, the Center aims to launch new businesses in areas that deal with enhancing quality of life and improving sustainable industries, and that reach beyond the boundaries of existing businesses.

② Innovation Center, a place for cooperation and innovation
In January 2017, we launched the Innovation Center next to Tokyo Station as a place where we will work with our customers to create new businesses. The Innovation Center showcases Hitachi Chemical’s technologies and promotes the creation of new products and businesses by engaging in active dialogues with invited and prospective customers.

③ Marketing Center
Customer needs will be captured for the purpose of conducting mega-trend analysis and developing business models. From fiscal 2018, the Marketing Group, organized into teams dealing with the different areas of new market development, expansion of existing market, and new business development, will nurture efforts, starting with the creation of themes through to commercialization. Such efforts will involve the use of Open Innovation, in addition to working in collaboration with the research and development groups, the business departments, and the sales and marketing teams, both in Japan and throughout the world. The Center will also make use of digital marketing methods to improve efficiency in the hypothesis verification process.

④ Setting up a theme for Business Design idea
We will strive to accelerate the creation of new businesses and improve the success rate by promoting marketing activities performed in “Business Design” mind such as multilateral information gathering, trend/market analysis and verification, and clarification of each value chain. Furthermore, an action guideline for marketing and sales personnel, titled “HC-Way of M&S,” was established in fiscal 2017. The Company will strive to instill within marketers a mindset of “proposing value that exceeds the expectations of our customers.”

⑤ Advanced Technology Research and Development Center
The Center will promote Open Innovation activities and the creation of new business opportunities in collaboration with our customers—and nurture the development of next-generation global human resources—to serve as a base for creating innovations originating in marketing and technological efforts. These efforts will be made to create new businesses and innovative technologies that will wow customers. The Strategy Planning Department of the Innovation Promotion Headquarters and the planning group within the Center will work together to strengthen the mid- and long-term strategies for new technologies and new businesses, promote research and development themes that utilize the business design, promote the development of R&D management processes with the R&D Headquarters, and encourage Open Innovation activities as well as overseas research and marketing activities.

⑥ Promotion of new business creation project (Super-X)
We are promoting the strengthening and acceleration of new business creation through research development management being operated directly under management. Super-X Project was formed to undertake challenges to create a large scale new business unprecedented to our existing businesses by integrating cutting edge technologies owned by our company and technologies implemented from outside through Open Innovation.

⑦ Intellectual Property Strategy Center
All of the different departments are working together as one to promote intellectual property strategies for the purpose of enhancing Open Innovation, creating new businesses, and organizing the business environment. Through the use of intellectual property analysis, steps for determining thematic policies, forming alliances, and acquiring clearance will be taken to proceed swiftly and accurately. At the same time, support will be given toward coming up with discoveries that have tremendous potential. Through these efforts, the Company will strive for the early organization of a strong global intellectual property network that will help expand the protection of its businesses.

Business Programs for Social Needs

In the latest 10-year strategic plan, the Hitachi Chemical Group has set out the social needs related to improve quality of life and realize sustainable environment as the values to be realized by the Group. To this end, the Group has started to implement various programs. Regarding improve Quality of Life (QOL), we will expand regenerative medicine such as cancer immunotherapy in order to reduce patient burden and contribute to the improvement of their QOL. The Group is establishing technologies to manufacture novel products with superior quality and high safety at low cost to serve the most advanced medical field of regenerative medicine, thus contributing to the improvement of QOL of patients. This will be done by combining the know-how on diagnostic and other agents that the Hitachi Chemical Group has cultivated in the life science business with the manufacturing technology used in the clean rooms obtained through the materials business for semiconductors, and the knowledge and expertise of PCT Co., Ltd. In fiscal 2016, we evaluated the externalities caused by a program of consigned manufacturing of cells for regenerative medicine in terms of monetary value.

Regarding the realization of sustainable environment, important topics to work on include controlling the CO2 emissions generated by automobiles, to develop environmentally-friendly alternative materials from regulations on hazardous substances in materials used, and to conserve fossil fuels such as petroleum and natural gas, metals and other underground resources. From the energy-saving point of view, the development of eco cars is required to solve the problems. The Hitachi Chemical Group has put priority in developing environmentally beneficial automobile parts as one of the critical issues in our strategic plan. Among the parts, particularly, the Group's technologies of plastic molding and friction materials with reduced copper content are significantly contributing to the improvement of environmental performance at the use of our customers. In fiscal 2016, we evaluated the externalities caused by the plastic back door modules and copper free brake pads.

Business program's externality evaluated in FY2016
Classification
of Social needs
Category of activity
/Strategy
Number of sites involved Program name Corresponding
social needs
Outcome
(Externality)
Social Improving Quality of Life
- Establishing regenerative medicine business
All sites (100%)
(QOL improvement is our group-wide activity in the 10-year strategic plan.)
Consigned manufacturing of cells for regenerative medicine Expansion of regenerative medicine is expected to contribute to QOL improvement by reducing the burden of patients. Securing production power against decreasing production population due to cancer.
Reduction of medical expenses by cancer immunotherapy.
Environmental Realizing sustainable environment
- Promoting sustainable engineering
All sites (100%)
(Sustainable environment realization is our group-wide activity in the 10-year strategic plan.)
Manufacture of environmentally compatible automobile parts The development of eco cars is required from the viewpoint of energy saving to solve such issues as controlling CO2 emissions generated by automobiles, developing eco-friendly materials to avoid hazardous substance usage, and conserving natural resources including fossil fuels. Plastic Back Door Module: Energy saving by weight reduction.
Copper free brake pad: Prevention of water contamination by copper scattering in friction powder.

Promotion of Sustainable Engineering (Supplying Eco-friendly products)

Hitachi Chemical is promoting initiatives that contribute to the reduction the burden on global environment and solving other environmental issues by using products and services with high environmental value. By creating environmentally-friendly products and services through compounding and integrating core competencies, we strive to resolve global scale social issues including problems caused by climate change.

Program for Fiscal Year 2017

Sustainable engineering is the sum total of Hitachi Chemical’s technological capabilities that form the foundation of a sustainable business. At the heart of sustainable engineering is business innovation. We seek to minimize our impact and burden on the earth and contribute to finding solutions for global environmental problems by combining and integrating our core technologies. We are proactive in bringing to market products that offer high environmental value, excellent performance and cost advantage. In this way, we are further strengthening our position in the market in the area of sustainable technology amid intensifying competition.

Until fiscal year 2015, Hitachi Chemical had promoted the development and market expansion of environmentally conscious Eco-Products that met the Hitachi Group environment standards, as “Sustainable engineering products.” Starting from fiscal year 2016, Hitachi Chemical has revised the definition of such products and incorporated them as “Environmental Conscious Products” into its indicator of the ratio of Environmentally Conscious Products to total sales. In fiscal year 2017, the ratio of Environmental Conscious Products to total revenue was 58%.

FY 2013 2014 2015 2016 2017
Ratio of Environmental Conscious Products to total revenue (%) 66 70 74 69 58

Starting from fiscal 2016, to further create business opportunities for products offering high environmental value, Hitachi Chemical selected 16 products (lines) that are considered core products (lines) from a business strategy point of view, and began quantifying (visualizing) environmental value in fiscal 2016. Using the rate of reduction of resource usage per function of these target products (lines) as a benchmark, we will simultaneously enhance the functionality of products and reduce resource use and help lessen the burden on the environment. The rate of reduction of resource usage for fiscal 2017 was 16.5%, going down slightly compared to the previous year. Using the products from fiscal 2010 as a reference, we will strive to achieve our goal of a 18.5% resource reduction rate per function by fiscal 2018.

Result of Sustainable Engineering Promotion
FY 2016 2017
Reduction of resource use per function (%) 16.9 16.5

Example of Sustainable Engineering Products

Powder Metal Products for Environmentally Friendly Mobility and Equipment that Improves Fuel Efficiency

Automakers are striving to improve their engines and develop hybrid and electric vehicles to comply with environmental regulations that are becoming stricter each year. Hitachi Chemical supplies various products for engines and other auto parts that leverage powder metal technologies, which allow a broad range of shapes and materials. The product in the photo is an example of above-mentioned powder metal products. These products are highly rated by our customers, because they optimize the timing of opening and closing engine intake/ exhaust valves to reduce exhaust emissions and improve fuel efficiency and output.

Eco-friendly Disc Brake Pad

Eco-friendly Disc Brake Pad

A disc brake pad (DP) is a part built into the brakes of automobiles and motorcycles that stops a vehicle by applying pressure from both sides of the disc rolling together with the wheel. Powder dust containing copper and other substances scatters upon braking, which is regarded as an issue since such dust may flow into rivers from the road surface and cause water pollution. To prevent such pollution, a law to regulate the amount of copper contained in the DP is planned to be enforced in the United States from 2021 onwards. While copper is generally used to enhance abrasion resistance of the DP and maintain its performance for a long time, Hitachi Chemical has developed environmentally-friendly DPs (*1) with less or no copper contained, that are able to maintain abrasion resistance while meeting regulatory requirements by supplementing its performance with multiple materials. By pursuing both environmental consciousness and performance, Hitachi Chemical has reduced the average amount of copper used per eco-friendly DP by 77.1% compared with that of the product in FY2010.

*1
Copper-free DP with no copper contained and "reduced copper" unless this is a product name DP with less amount of copper contained
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