Based in Tokorozawa City, Saitama Prefecture, Hiraiwa is a leading construction and civil engineering company that’s playing a major role in bringing Japan’s aging buildings and infrastructure up to date.
It has been a year and a half since we last met and over that course of time, there has been a certain stimulus taking place in the construction industry. We had just emerged from the Rugby World Cup and preparations for the Olympics, and of course, during COVID-19 we saw a series of stimulus packages designed to help revitalize the Japanese economy. Could you give us your current take on the Japanese construction industry now, what needs you see as vital for the years to come, and what role will your company play in helping to realize those goals?
During the Rugby World Cup and the Tokyo Olympic Games there was the public opinion that for the construction industry at least, there were plenty of jobs to do. Part of this was true both before and after these huge sporting events and we definitely saw a growing need for construction, but now the question is still left on the table. “What is going to happen in the near future?”
Let me answer your question a little frankly, which I boil down to, “Do we still have construction jobs left to do after these large-scale sporting events?” The answer is yes we do, and I feel we are still blessed in many ways to have jobs to do. Specifically, when you talk about the job that we do, we are dealing with the general contractor companies, sometimes referred to as GCs. We deal with these GCs domestically here in Japan in the role of a subcontractor. We heard GCs are full with construction work for the next two years so another way to put it unfortunately is that if you would like to set up a construction project using GCs in Japan you are going to have to wait at least 2 years at this point.
The reason the business is so fruitful currently is not because of the Olympics, and while it is true that the Olympic games had a good effect on the sector, it isn’t a long-term effect by any means. We tend to think that Japan’s economic situation was in a good place after WWII, and there was dramatic upscaling from all industries in Japan. Many buildings and infrastructure projects are still in the same state as post-WWII meaning now is the time for rebuilding and construction activities. There is a lot of refurbishment, demolition, and maintenance on existing infrastructure. This tendency we believe has led to such good business within the construction industry over recent years.
Another trend we are seeing comes from the height of buildings, and these days buildings tend to be taller. Additionally when rebuilding projects come in they tend to be for more than one building, usually covering an entire area. Whether these areas are residential or commercial the fact remains that they were built many years ago, and we are talking about 50-70 years here. When the time comes to rebuild it wouldn’t make sense to just rebuild a single isolated structure, and, instead, we are talking about demolishing a whole area and rebuilding with new structures. When an entire area is rebuilt from scratch you also need to consider the infrastructure that goes with it, whether that be commercial facilities, hospitals, landlines, offices, and schools. This is why we believe that the situation is in a good spot right now for businesses like ours.
We are keenly watching how some of the GCs are operating in the sector and we are trying to do similar activities, implementing our best practices in construction to keep up with the many demands that are emerging.
Hiraiwa’s headquarters is located in Saitama prefecture, one of the top 5 prefectures in Japan in terms of population. You are proud to be a local company, conducting many construction projects locally. Could you tell us about some of the activities you are conducting to help the prefecture with construction, renovation, and demolition?
Mainly right now we are performing construction that is related to hospitals and nursing homes for elderly people in addition to quite a lot of residential developments. These works are going on in both Saitama and Tokyo. A lot are in Tokorozawa, which is a city in Saitama. In fact, you probably took the train today to Tokorozawa station, and as you may have seen, the aging of local infrastructure is quite a problematic point right now in Japan. We are trying to demolish those old buildings and replace them with new buildings that Saitama can be proud of.
Another plus of being in Saitama is the highway speed lane that runs through Saitama, and we see a lot of needs coming up from that area. Demands are increasing daily for logistics and procurement so more companies want their warehouses and logistics hubs built locally in this area for transportation reasons. These types of buildings are being requested by our customers. This is not a new thing for us and we have been doing these activities for the past several years.
One more part of our business that has had recent success is the renewal or renovation of existing buildings. We don’t necessarily have to demolish everything, we can go into buildings that are already there and renovate them, making them look brand new. We also are seeing our client portfolio in this sector increasing too.
Japan is located at the intersection of three tectonic plates and thus is subject to frequent natural disasters. Out of necessity, Japanese firms have had to develop construction solutions to save lives. From our research, we found that Hiraiwa also engages in seismic retrofitting and preventative measures. Can you briefly describe your firm’s disaster prevention technologies that help mitigate the damage caused by frequent natural disasters?
Everything I’ve just described has all been related to our number one business, which is in the construction of buildings, but now I would like to switch to another aspect of our business; seismic retrofitting and civil engineering. We are also very strong in this segment, basically acting with local governments. Japan as a country is quite vulnerable to earthquakes and massive amounts of rainfall during the rainy season. Add to that the fact that in Japan the temperatures are always changing and those temperature changes can be very harsh at times. For that reason, there are a lot of needs coming for seismic retrofitting and civil engineering, and one example might be the strengthening of buildings from a seismic point of view. We must build dams to protect rivers from overflow and we must also cover the mountain ranges we have from landslides. It can be a risky situation overall but I feel that this segment has been very important to us too, especially as a local company.
There are quite a lot of civil engineering projects on our hands because of the many natural disasters that Japan is susceptible to. In some areas though customers are okay with rivers overflowing to some extent because the empty ponds have been calibrated to withstand flooding. At the same time, however, we do see an increased need for piping and sewage facilities. Those pipes underground are aging and the seismic activity isn’t helping matters either. Those old pipes are pretty rigid, which was the standard when they were laid, but nowadays we have more flexible piping that allows for seismic activity without breaking. The hope is by laying this new piping we can avoid risky situations further.
The Ukraine situation is affecting business, and with the prolonged conflict there we see an increase in prices across the board. Raw materials and crude oil all have seen price hikes and on a larger scale, this is also having a big effect on Japan’s economy. Prices in Japan are rising with inflation, which in turn is affecting the cost of living. What this means, in the long run, is that the profitability of a project is not as lucrative as it could be, and the situation when starting a project inevitably will not be the same as when it is finished. Rapid price escalation during multi-year projects is a problematic point that is affecting our profitability.
If you take a look at our two different businesses, we have two different types of clients. In civil engineering, we are talking about governmental bodies or regional municipalities, who are acting based on the budgets set for them. They have the flexibility to change their budgets based on the prices that are promised at the beginning of a project because, of course, prices can change. We cannot say this about residential or commercial facilities. It is not acceptable to just go up to the customer and change the agreed-upon price. Those companies would not agree, and it might end up with an unstable relationship moving forward.
In addition to increasing the value of real estate, your company’s core goal is to address changes in society. One of the major social challenges facing Japan today is the aging and shrinking population. This creates major problems such as shrinking domestic markets and labor issues. On the other hand, it also creates certain opportunities for companies to develop technologies and innovations that can address the aging population. What challenges and opportunities do these demographic trends in Japan present for your company?
I would like to mention recruitment, especially for site foreman as we haven’t seen much support and change in the industry over the past decade; nothing has been happening in that sector. This has resulted in a bad image for the construction industry and we are finding fewer and fewer young people wanting to work in the sector. This is because of that image and the young simply find construction jobs hard, not well paid, and intensive. It is not easy to go to a construction site day in and day out.
Even with the compensation coming up from countries in Southeast Asia, there are still problems as they are not allowed to work in Japan for extended periods, and because of the depreciation of the JPY, many are looking elsewhere for better-paid work. Life is getting more and more expensive in Japan so we see a tendency for Vietnamese people who were brought here to work are now looking to countries like Korea, Taiwan, and Australia for employment. It has become a massive issue because human capital is the most essential part of our business and without it, we cannot build buildings. Losing Vietnamese that we have brought in can be a kind of one-two punch, increasing expenditure due to the re-recruiting and re-educating of people. To sustain workers you just have to increase the salary and make sure that their quality of life is taken care of. Human capital is in such great demand across the board right now in almost every industry.
To add to the myriad of problems the Japanese government is now putting limits on the working times of people. There is an increased awareness about work styles and home life, and the government wants more flexibility in how and when people work. That itself is not a good thing for construction. Many things are on our plate right now in terms of problematic points.
What are you doing to overcome these challenges?
The key point here is digital transformation (DX) with new kinds of ICT tools for the construction sector that could eliminate or maybe compensate for some of the human power that is lacking. Most construction companies these days are seeing these technologies as a necessity,
What was the biggest challenge you’ve faced when implementing DX into your business?
First of all, the system itself is difficult to embed but it can produce completed images using CG and animation. It is a transition point from 2D to 3D. You can visualize a project in a much better way and it helps make that project's implementation go much smoother. It has been used frequently in our company and it helps in numerous different ways. The system is called BIM and it has become an essential part of our business now.
One drawback to the BIM system however is the sheer amount of data being processed. If you can pass through that fact BIM can be extremely handy and a very beneficial tool. The whole essence of BIM is to embed it into construction sites and assist people by collecting data and analyzing a project to upscale the activities conducted. All things are aimed to make the job simpler and clearer for the people in the field doing the actual construction work. The utilization of BIM as well as other digital tools will build up the foundation of our company and simplify the job on real construction sites. That work is described traditionally as long hours and hard work, so obviously the key to continuing this business is making that job a little easier for our employees. If these tools can be embedded correctly we can see a future where the construction industry has a rehabilitated image and becomes a more desirable job.
It isn’t all sunshine and rainbows and there are a lot of problems still existing in this business. As you know, one problem leads to another. As good as BIM sounds, the issues come with educating people to use the system correctly. To get the best out of BIM you have to have those who can use the system and understand exactly how it works. Educational fees are becoming a high line of expenditure for us and we are now outsourcing the educational process so that it is implemented correctly. The other high expenditure we are seeing is machinery, and we must continually buy new equipment to help our staff perform the construction job accurately and smoothly. These are the problematic points.
We have a ‘Gemba Help Desk’ in our headquarters to help with the operation that cannot be done on the site, such as planning tasks, various applications as the commencement of work, and consideration of construction methods during the period. Because of this, engineers at the construction site can concentrate on the task there as much as possible.
Moreover, we have a “Kensetsu Director”, who supports the construction site. We hired two women as Kensetsu Directors who are not qualified engineers but are interested in the work of construction. They play the role of doing work that does not require specialized knowledge of construction like clerical work and measuring. It enables the site engineers to concentrate on their work which requires specialized knowledge and only they can do it, thus they can work more efficiently and proceed with construction more quickly.
To simplify things a little, I think I can summarize our approach by saying that small things matter. Just going to a site and seeing how things are done can lead to big improvements in efficiency. We have found that it has helped the situation by installing cameras in the construction helmets of workers. The site foreman can be contacted at any time and instantly they can see what is happening. They can then evaluate the situation without having to be physically present at a location.
It’s a waste of time for the site foreman to be shuttling back and forth between the construction site and the office. We are also considering the introduction of an ultra-compact drone so that the site foreman can understand the progress of construction work on the site and the points where problems are occurring, even while sitting at his desk in the office. Again, all aim to point towards simplifying the jobs within the company and supporting our staff.
We found that you are planning to introduce Telecubes for remote work to construction sites as well, can you tell us a little more about it?
We are going to install a few of these tiny remote boxes or remote working stations at the construction sites and it simplifies the work of some of our staff. They don’t need to travel to an office to report on a situation, rather they can quickly pop into one of the boxes and open their laptop. They help in the summertime because these boxes are equipped with air conditioning systems, so workers can relax in a cool environment whilst they work.
You’re a specialist in general construction, focusing mainly on commercial and residential facilities but can also provide a series of different solutions depending on the needs of your clients. What new opportunities do you see for your business in the mid-term?
If we think about the next 5 years there are three major points. The first point is of course more implementation of BIM technologies; embedding digital tools into our construction sites and within the actual construction workflow itself. With this we will continue to visualize a project from start to finish, resulting in increased efficiency across the board of a project. Secondly, there needs to be support for the jobs which can be done by non-engineers using the construction directors I mentioned earlier. Lastly, the final point is simply to concentrate more on actual jobs, and each engineer should find ways to enable him to just do what he needs to with the distraction of unnecessary things.
If we can successfully implement these features over the next few years to come we believe that will bring our company to the next stage of its evolution. Again, as I mentioned earlier, these initiatives are all working to rehabilitate the image of the construction industry in general, making a future where a job in construction is once again desirable. We deeply value human capital so creating this environment and image is vital to the continuation of our business.
If you look at developing countries you always see an influx of people from rural areas moving to cities, but at the same time, there is a balance, with enough people still living in those rural areas. With Japan’s plunging population we are seeing whole areas become ghost towns. The government has stated that its a priority to conduct regional revitalization; basically, the idea of bringing people back to rural areas to help revitalize the local economy. I think your business is very well placed in this sense, contributing to social infrastructure like hospitality, schools, homes, and hospitals. Can you tell us a little more about your vision for Japan’s future and how you can revitalize these regional areas?
This is a national problem not just a regional problem for Saitama. Perhaps one way to solve this is to create a specific feature for each region, bringing interest from people to either visit or alternatively, live there. However, despite these ideas, the problem is a little more fundamental and rooted in the Japanese government itself. Local governments are the ones with the budget and the money to revitalize a region. It is their responsibility at the end of the day.
Governments need to be closely working with the residents themselves and in my own opinion, this is the only way to solve this problem properly. They need to talk with the people that still live in those areas and discover what makes each region truly unique. That idea can spark something that might just inspire a push for the best features of a region. Unfortunately, however, these are just my musings and to solve these issues it requires the cooperation of many entities together. The success of one area might inspire nearby regions, thus resulting in the revitalization of rural Japan as a whole.
One very good example of this is in Kumamoto. As you are probably already aware, Sony and TSMC are building a huge semiconductor manufacturing plant there. Traditionally Kumamoto is quite a rural area but this new plant is estimated to create many jobs, thus bringing the region to the forefront of Japan’s semiconductor manufacturing. I believe that this tactic of foreign production in local Japanese areas could be a method of approaching revitalization. It is now becoming cheaper to employ Japanese people, especially in comparison to other countries. You also have the depreciation of the JPY resulting in a favorable situation for foreign companies looking to localize production in Japan.
You’ve been present in Vietnam since 2016 with a regional office and then went full-scale in 2018. You have a very unique business model for your overseas operations because you’re bringing Japanese engineers and ensuring Japanese construction quality onsite, but still working with local partners to help commercial or residential-based facilities. Could you give us an update on your Vietnam operation and the progress you’ve made there since the last time we interviewed you?
Yes, one part of our business is not only performing as a construction company but also helping some Japanese companies expand their business to Vietnam. That part of our business hasn’t changed. You may think that the JPY depreciation has made it a problematic point for some companies like ourselves to go and localize production outside of Japan but we still see a good amount of demand, and in particular that demand is coming from Japanese firms wanting to penetrate local markets with Japanese production overseas or the introduction of their products and services in Vietnam. More and more companies are inquiring about our services as experts in the Vietnamese market, and we provide consistent services such as searching for the land of the factory, supporting various applications, construction, and after-sales support. This year we are expecting a good profit line which is a good surplus for our business.
We started by introducing our services to one small SME company from Japan back in 2016, but since then things have started growing. Last year we closed with a JPY 2 billion valuation of our entire production line in Vietnam, and this year we are chasing the goal of JPY 3 billion. Just for reference, our sales in Japan currently are around JPY 13 billion annually. It has improved since the last time you came to visit us, and I think that simply comes down to the fact that we are more famous now. We are seen as the kind of company that assists others in penetrating the Vietnamese market, and within the domestic market which is greatly appreciated by many of our clients. Previously we mostly worked with SMEs, but as our name has spread, we have started working more with some Tokyo Stock Exchange-listed companies.
Recently however prices have been rising and the picture might not be as fantastic as you might assume. Ho Chi Minh City and Hanoi have inevitably seen an increase in prices also, especially for land and building materials. We saw this situation coming and have since established an office in Da Nang; the central part of Vietnam. The prices there are much more affordable and it has allowed us to help Japanese firms localize their production outside of Ho Chi Minh and Hanoi. One small problem with Da Nang however is the seaport, which is quite small and it means that Cargo ships coming in are quite limited. To counter this however, the Vietnamese government is currently implementing a project to enlarge the scope of the seaport, which I’m sure our firm will benefit greatly from.
For possible new employees looking at your firm as a potential employer, how would you define your company for them? What are the defining strengths and unique aspects of Hiraiwa that allow your company to stand out on a global stage?
I think the key point is that we are a one-of-a-kind company that keeps challenging the possible. Becoming number 1 isn’t an easy task and there are many struggles along the way. The company has always operated under the ethos of treasuring human resources and based on that you can reach any goal. We strive to never stop challenging ourselves in reaching our goals and making the best of opportunities when they present themselves, no matter the obstacles that might stand in our way.
This can be seen in our restaurant business in Taiwan. We have a one-of-a-kind restaurant that specializes in Japanese crab there and obviously, if it was a sushi restaurant, there would be fierce and high-quality competition; perhaps even better than in Ginza. Every single industry is like this and there are well-established rivals and players in each. It is very difficult to become the number one company, that’s why we don't compete for No. 1, but we compete for Only One. It is important to look for areas where the need is there but does not exist.
What do you think you are currently missing to become number one? Is there a specific goal that you would like to achieve?
If you thoroughly collect many "only ones," you will naturally become number one!
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