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Promotion of Open Innovation

In fiscal 2016, Hitachi Chemical established a planning division mandated with advancing Open Innovation, and has moved forward with the operation of internal funds related to Open Innovation, and the application of information on venture capital and business matching in Japan. 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 December 2015, Hitachi Chemical adopted a quantum dot film technology from Nanosys, Inc. (head office: California, USA, President and CEO: Jason Hartlove), a leading company in quantum dot technology, which helps to generate images with brighter colors) to speed up the pace of development.

Furthermore, in March 2016, the Company entered the market of contract manufacturing for regenerative medicine through its capital investment in PCT, LLC, a Caladrius Company (head office: New Jersey, USA, President: Robert Preti; hereinafter “PCT”). Regenerative medicine is a treatment method in which externally cultured cells are transplanted into the body to restore organ or immune functions damaged by injury or disease. Hitachi Chemical is poised to utilize PCT’s technology and know-how in the field to launch contract cell manufacturing for regenerative medicine targeting the Japanese market by fiscal 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

To increase the size of its foothold in overseas markets, particularly in emerging markets, Hitachi Chemical actively invests in its plants and equipment in promising regions under marketing strategies customized for local demand trends in the markets, where we operate and engage in R&D, manufacturing, and market products. In this context, the Group is moving to set up regional headquarters with oversight of key regions to ensure efficient management and business activities.

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”. Furthermore, for our 2018 Medium-term Management Plan (FY 2016~FY 2018), we listed the strengthening of global business as one of our basic policies. 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 nurturing the top share business 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.

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 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 five Thai consolidated subsidiaries in Automotive Products, Energy Storage Devices and Systems, and other segments by establishing Hitachi Chemical Asia (Thailand) Co., Ltd. Additionally, we resolved to bring three US consolidated subsidiaries in Electronics Materials, Automotive Products, and Diagnostics/Instruments under the control of Hitachi Chemical Company America, Ltd. Both of these companies started their operations on April 1, 2015.

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 2016, Hitachi Chemical undertook organizational restructuring to advance sales and marketing activities from both the market and regional perspectives with the aim of further strengthening our sales structures for respective customers. We also worked with the Sales Division of Hitachi Chemical Energy Technology, which became a consolidated subsidiary of Hitachi Chemical in January 2015, and consolidated our joint sales structure targeting emerging nations and regions, and sustainable energy markets. In fiscal 2017, Hitachi Chemical will strive to further solidify our joint sales structure with FIAMM Energy Technology, which Hitachi Chemical acquired in February 2017 with the goal of expanding the sales of automobile and industrial lead-acid batteries.

Create New Businesses

Creating New Businesses

① New Business Development Center
In fiscal 2017, we transferred our New Business Development Center to the Research and Innovation Promotion Headquarters for the timely and flexible implementation of all phases from marketing-driven theme creation to commercialization. Furthermore, we have reorganized and split the Strategy Planning Department into planning organizations for the Marketing Center and the Advanced Technology Research and Development Center. Hitachi Chemical also established the New Business Planning Group under the New Business Promotion Center. The new group will be responsible for the planning, strategy development, and project support for new businesses in fields that traditionally fell outside the responsibilities of the Center, including the enhancement of quality of life and sustainable industries, and advance commercialization based on themes guided by Super-X and Open Innovation.

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 by integrating and reorganizing the Marketing Centers under the New Business Headquarters and the Business Sectors. 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. The Innovation Center Operation Committee, consisting of members from different departments, will strive to enhance the quality of the Innovation Center.

③ Marketing Center
A planning group was established under the Marketing Center and the Marketing Promotion Group was renamed to the Marketing Group. The Center will strive to strengthen the collaborative relationship among the Business Sectors, Research and Department, and all personnel working in sales and marketing in Japan and overseas.

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 standardizing the marketing activities under “Business Design” thinking mode such as information gathering, trend/market analysis and verification through Open Innovation activities, and clarification of each at the value chain.

⑤ Advanced Technology Research and Development Center
The Core Technology Innovation Center was renamed the Advanced Technology Research and Development Center with the goal of accelerating the development of component technologies that support mid- to long-term new businesses. Hitachi Chemical also established the Strategy Planning Department with a mandate of strengthening research planning strategies and developing R&D management processes with the R&D Headquarters, as well as business design and Open Innovation 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.

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 integration of core competencies, we strive to resolve global scale social issues including problems caused by climate change.

Promoting Sustainable Engineering through the Combination and Harmonization of Technology Platform

Program for Fiscal Year 2016

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 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 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 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 2016, the ratio of Environmental Conscious Products to total revenue was 69%.

FY 2012 2013 2014 2015 2016
Ratio of Environmental Conscious Products to total revenue (%) 71 66 70 74 69

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 2016 was 16.9%. Using the products from fiscal 2010 as a reference, we will strive to achieve a 20% resource reduction rate per function by fiscal 2018.

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

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 automakers, 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

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 75.9% 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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