[Initiatives Related to the EMS Business]

Reaching New Stages ofGrowth through theMaximization of Our
Unique Strengths
Motonori Toshinari Managing Executive Officer
Our strengths in the EMS business
Operations undertaken by the Kaga Electronics Group in its
EMS business have mostly emerged from customer transactions based on our parts dealership. As an electronic component trading company, we have been involved in negotiations
with customers from the design stage of semiconductors anddelivered needed parts to them, with these negotiations often
evolving into customer requests for EMS. Therefore, what distinguishes us from other companies is an environment conducive to the development of parts delivery transactions intoEMS. Transactional relationships with our EMS customers
typically last a decade or two as these operations are built
upon hard-earned customer trust.
Our area of expertise is consistently concentrated onPoint

1

Convenience store-type EMS vs GMS* type-EMS
Qualityrequirements

KAGAELECTRONICS• Small initial investment(Leased landand buildings,
standardizedinteriors)• High-mix, low-volume production• Local production, local
consumption model(procurement, manufacturingand logistics)

Large lot,
short-life
production

Long-term
stabledemandlow-volume, high-mix manufacture as opposed to massproducing PC and cell phone components. Moreover, we locate
our bases close to our clientele in order to follow the
local-production, local-consumption model, exactly as convenience store chains do. Even while an EMS transaction typicallybegins with an order for the monthly manufacture of 100 units,
other transactions could involve the manufacturing of up to10,000 units each month.
Under the assumption that we rank around 20th within theglobal EMS industry, we aim to secure a position among top 10companies. As our Japanese customers currently account for
approximately 85% of our EMS customer portfolio, we consider
securing a growing number of non-Japanese customers key toraising our industry ranking. Although the proportion ofChinese customers is expanding in our customer portfolio,European and U.S. customers still remain a minority. Accordingly,
we are proactively striving to reach out to the latter customer
group. To that end, our bases in Mexico and Turkey play
important roles in our bid to serve customers in the UnitedStates and Europe, respectively.

The genuine capabilities of the Kaga
Electronics Group demonstrated during theCOVID-19 pandemic
Amid the COVID-19 pandemic, we thoroughly implemented
measures to curb infections among our workforce based on anawareness of the risk of disruption in factory operations as aresult of the spread of the virus. We also addressed emerging

Point2Global expansion

Maintaining 20 production
bases in 10 countries“We act as a close partner for our customers”

Securing a back-up system under which bases swiftly
supplement one another to avoid country risks

Procurement from the closest source,production at the closest base, JIT supply
2009CzechRepublic

1999 Shenzhen
2009 Suzhou 12013 Suzhou 22015 Hubei

2002 Yamagata
2005 Tokyo
2019 Fukushima
2019 Aomori2020 Tottori (3)Major competitors(mega-EMS firms)• Large amountof investment• Largevolume of production• Export-centered model2016 Mexico

Costrequirements*General Merchandise Store2018 Turkey

2018 India

2000 Malaysia
2004 Thailand 12014 Indonesia
2017 Vietnam
2019 Thailand 2

Integrated Report 202324

Special Featuresubsequent issues arising from supply chain disruption, surging logistics costs, and the shortage of electronic parts.
Specifically, we have leveraged all of the routes at our disposal
as an electronic parts trading company to either gather
necessary parts or propose alternative products to customers.
Thanks to these efforts, we were able to overcome thischallenging period.
Fortunately, there were no supply disruptions, and at notime did our production stoppages cause any customer
line stoppages.
The markets for electronic parts and semiconductors areexpanding due to the increasing use of electronics in all products, not just automobiles. Customers who want to reduce theburden of capital investment in these products are accelerating
their active use of EMS. The use of EMS to reduce fixed costs isalready well-established among Western companies. Similarly,
Japanese companies are beginning to employ EMS, including
our services, rather than investing in their own productionlines, with the aim of focusing more on development and sales
than ever before. Ultimately, someone has to make the goods.
As a company that fills lines with orders from various companies, we can utilize EMS from small lots, and we expect thatthe number of situations in which our Company can be utilized
will continue to expand in the future.

Managing Executive Officer
Motonori Toshinari

PointShifting our value chain to high-value-added fields: Development / design + EMS services

3

Conventional value chain

Development
Added value
High

DesignVerification

Procurement

Manufacture

Inspection

Analysis

MaintenanceOur future value chain incorporating functions offered by KAGA FEICost planning, prototype design(Software & hardware)
Design for mass-production

Low

Analysis of mass-production, cost improvement(Software & hardware)
Mass-production

Development of inspection
machines and facilities*Our conventional positions

Expand the scope of business fields

Facilitate collaboration among our bases around the globe and establish a human resource development structure,with KAGA EMS TOWADA (Production Center) playing a central role
Towada Factory

Production Center• Take a cross-functional approachto managing production bases
across the Group• Promote production and quality
standards for the entire Group• Enhance intra-Group
collaboration in terms of BCPs

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KAGA ELECTRONICS CO.,LTD.

Serves as an
information hub forGroup production
bases and facilitates
their collaborationMother plant

Collaboration

Production bases across the Group Collaboration• Know-how related to production, quality
management, factory automation, andother factors• Serves as the primary factory supporting
domestic production• Promotes and advances the introductionof automated and labor-saving solutions
and IT technologies• Assists in the launch of overseas
production bases

For example, our bases in China serve local corporations
who prefer Japanese EMS providers to ensure that their products for exports are in conformity with global quality standards.
Meanwhile, our customers in Japan utilize EMS offered by ourbases in Turkey and Mexico in the course of manufacturing
products for the United States and Europe in order to mitigate
geopolitical risks.

Building a foundation supporting the future
growth of the EMS businessWe sometimes encounter customers who have never prepared
the necessary documents for commissioned parts manufacturing, as they have always been dependent on their own
in-house manufacturing know-how. For customers unfamiliar
with this type of EMS, the staff at KAGA EMS TOWADA CO.,LTD. (TOWADA) has formed a team to provide onsite EMS
launch support. We are also developing a framework in which
TOWADA serves as the mother plant and production center,
serving as a connecting hub for each base as well as
dispatching its own staff.
To nurture human resources capable of supporting EMS,
TOWADA, along with the Tottori Factory, another domestic

EMS base run by Kyokuto Electric Co., Ltd., have begun hiring
graduates of industrial high schools and technical colleges.
We are currently training these individuals with the aim of dispatching them to bases overseas bases. At the same time, we
also invite human resources from overseas, including Vietnamand Indonesia, to undergo training programs in Japan.
The Kaga Electronics Group is aiming to become a company
with sales of ¥1 trillion, of which we hope to generate at least¥300 billion in EMS sales. Currently, sales are approximately¥150 billion, and we are on track to reach ¥200 billion. The ratio
between Japanese-affiliated and non-Japanese-affiliated customers is 6:4, with 40% believed to be non-Japanese-affiliated.
In order to expand our non-Japanese affiliated customer base,local employees are indispensable. The Japanese way of thinking alone will never be enough. In terms of regions, Mexico,Turkey, and then India are next. As India is a vast country, webelieve that multiple bases are necessary.
Looking ahead, we will not only offer EMS but also strive tosecure customer understanding of our unique, comprehensive
strength in the provision of one-stop services ranging from theprocurement of electronic parts and repair to after-sales
services. We are confident that the Group could be even stronger
if we assess needs of each customer and sector in depth andaccommodate such needs in a steadfast manner.

Proactive expansion of the EMS business

Oct. 2022
The relocated and expanded
plant in Malaysia is now infull-scale operation. Invested
approximately ¥1 billion toexpand its facilities by more than
20% from the existing plant.

ASEAN

New factory in Malaysia

Apr. 2024
June 2023
A new factory in Turkey started
operation. In light of strong needs
arising from manufacturers’
aversion of geopolitical risks, thisfactory is expected to serve as amain factor serving Europe.

EuropeThe relocated and expanded Mexican base will be operational. The Company will invest approximately ¥5 billion
over the next five years, aiming for sales of ¥50 billion
and the creation of approximately 2,000 jobs within thefirst five years of operations.

The Americas

New factory in Mexico

New factory in Turkey

Integrated Report 2023

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