Thursday, Apr 25, 2019
Infrastructure | Asia-Pacific | Japan

Japan

JESCO: Building excellence


3 weeks ago

Toshihiro Matsumoto, Chairman and Representative Director & CEO JESCO Holdings, Inc.
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Toshihiro Matsumoto

Chairman and Representative Director & CEO of JESCO Holdings, Inc.

Toshihiro Matsumoto of Japanese construction firm JESCO discusses its venture into Vietnam, the impact of the Tokyo 2020 Olympic Games on the construction industry and some of the company’s highlight projects.

 

Despite the redevelopment projects towards the Tokyo 2020 Olympic Games, Japan’s shrinking demography is a concern for the construction industry. What is your long-term vision for the sector?

To be honest, this issue hasn't taken us by surprise. Twenty years ago; we realized that new building constructions would decrease due to our negative demographic evolution. Therefore, we understood that developing oversea markets was a necessary step to pursue corporate growth. For that purpose, we sent highly educated Japanese engineers to ASEAN countries. It was a win-win situation. On the one hand, our engineers acquired precious construction experience in vital ASEAN markets. On the other hand, the local engineers were receiving highly skilled workers they could learn from.

In recent years, the Japanese Ministry of Land, Infrastructure, Transport and Tourism (MLIT) has been pushing forward measures to mitigate the effects of the shrinking labor force. Nevertheless, Japan must look abroad more, and this is particularly relevant when talking about SMEs. It has been many years since I began to encourage other SMEs to move abroad and exploit the opportunities in South East Asia. I published a book entitled “SMEs, now is the time for Vietnam” and I also gave lectures throughout Japan, organized by MLIT, for promoting SMEs to make inroads into overseas construction markets.

Since the beginning of our operation in Vietnam 20 years ago, I put forward our responsibility to contribute to the people of Vietnam. Since we could not speak the local language well, we set up a Japanese language class inside our own company. We focused on teaching the Japanese language as well as the engineering knowledge to our employees to undertake the job retained from Japanese clients. Moreover, we also set up Japanese language classes with credits approval at the University in Vietnam. For the first 10 years, we did not take any construction works. We worked on engineering design until we were able to perform expertly in it, and we continued to provide support in funding and teaching engineering design from Japan. Sometimes, one has to patiently look for the outcome in the long term, not in the short term. As a result, many Vietnamese employees developed extensive knowledge, engineering expertise and a foreign language. We also established 4 offices and gained 430 employees including skillful Vietnamese engineers. This accomplishment became a win-win situation for both ends. Towards our expansion in Vietnam and in the ASEAN region, we will pursue our contributions and the people of Vietnam will continue to receive state-of-the art education that enables them to fulfill their ambitions.

From a macroscopic perspective, the construction sector is living a noticeable decrease, both in the number of participants and investments. The Olympic games have stabilized a rapidly decreasing market that has gone from a minimum of 42 trillion JPY to the current 60 trillion JPY, passing by 84 trillion JPY in its peak within a matter of years. However, we know it will continue its steady drop once the sport event comes to an end.

Despite the Government’s measures to help smaller companies survive, there is an increasing case of Japanese construction firms falling into bankruptcy every year. I try to encourage them to move overseas and rekindle the spirit of challenge by bravely going international.

 

JESCO moved overseas more than 20 years ago. As a pioneer of Japanese globalization amongst its peers, what were some of the challenges you had to face and how did you manage to overcome them?

25 years ago, we penetrated the ASEAN region for the first time. We were assigned by a large infrastructure firm for the construction of the electric facilities of the Petronas Tower in Malaysia. This was our very first overseas project. In collaboration with other international firms, we were in charge of supervising this large project. After successfully finishing it, we remained in Malaysia and incorporated a local subsidiary jointly with a local partner. In ASEAN countries, small companies without an extensive track record are given the opportunity to win contracts. In Japan, such opportunities are only granted to large firms boasting an extensive history of similar projects completion. I truly feel that I went through a valuable experience.

Later, in 2001, we were able to participate in the Vietnamese market. We went into Vietnam because we were attracted by the potential of the local Vietnamese youth. These young people were passionate and faithful about their future. Hoping we could grow together, they joined us, and our collaboration was mutually successful.

Then I decided to set up the first subsidiary in Ho Chi Minh city, but one of the challenges I faced was to procure an office premise. At the time, there was no precedent and it was difficult to find a suited space. We eventually found it and renovated it into offices. Now, we have about 430 employees in total, including JESCO ASIA JSC and JESCO HOA BINH ENGINEERING JSC in Ho Chi Minh city, a branch office in Da Nang City as well as JESCO CNS VIETNAM Company Limited in Hanoi city.

There were many challenges in the early stages of development, but the local people were always extremely welcoming. We received great passion from them, which further motivated us to remain focused on our mission. To respond to their great attitude, we felt it was our mission to add-value to their society. Education played a crucial role in that mission. The local employees immediately took advantage of the tools we provided them with and gave it back to us as we used their skills.

People in ASEAN countries are filled with strong hearts and they respect our attitude towards work. As we, Japanese, give priority to discipline, dedication and respect of each other, I have repeatedly been asked by local partners to share JESCO’s business ethics with employees in Vietnam.

 

In April 2018, you were awarded with “the 1st Japan Construction International Award” by the Ministry of Land, Infrastructure, Transport and Tourism. (MLIT) You were evaluated for three projects: the Noi Bai International Airport Terminal 2 Building, the intelligent transport systems (ITS) of the North-South Expressway and the Sunrise City View high-rise condominium building. Can you tell us more about these projects?

The award from MLIT was commended for three reasons: Firstly, because JESCO Group started with a low-risk business focusing on engineering design and integration, which was a scheme to expand into profitable businesses later on but with a firm base. Secondly, because of our contribution towards Vietnamese employees by providing our own language class inside our company and raising them by transferring engineering skills. Thirdly, because our group received high ratings with regards to social contribution as we used our qualified skills to develop society.

In the meantime, we collaborated with other Japanese companies for the construction of Terminal 1, at the Tan Son Nhat International Airport in Ho Chi Minh city. In 2007, JESCO ASIA JSC got awarded with the Gold Medal prize from The Ministry of Transport of Vietnam for it. 

Thanks to the success of this project, we were given the chance to participate in the construction project of the Noi Bai International Airport Terminal 2, in Hanoi city. We took care of the design and supervision of the electrical equipment construction, but we also wanted to participate in the engineering aspect of it. To lead this project to success, we recruited a well-known Japanese engineer. In June 2012, we got awarded with “the 6th Engineering Contribution, international section” prize from the Engineering Advancement Association of Japan. Throughout these two projects, Vietnamese engineers at JESCO group were enthusiastic because they could see they were contributing to the development of their own country. 

The fact that the Vietnamese entrusted us with such a project depicts a cultural difference between Japan and other ASEAN countries. In Japan the reputation of the company is what matters the most. In other parts, individual talent is valued above all else. Having talented human capital in your team, even if your company is small, gives the opportunity to show what you can do. This shows that Japanese SMEs need to take the next step and move overseas. I believe that Japanese business ethics have much to offer in order to bring peace in ASEAN countries. I have learned that through sincere communication and collaboration, business can be a true connection between hearts and can bring development to each country.

When we established the company in 1970, we made 4 promises:

The first one was to be a company that would always be in the service of its employees. Number two was that all our employees would hold stock. Number three was to be a listed company. Number four was that none of my family members would be involved in the business. Based on these 4 promises, we were able to grow the name of JESCO, which stands for Japan Electric Services Creative Offering. At that time, not many Japanese companies were incorporated with the Romanic alphabet, but I thought it was important to have a name that would be easily understood overseas. I am extremely proud of our journey and of our ability to remain ethical, profitable and fair.

 

What new project is JESCO currently undergoing?

Our most recent project is the investment we placed in a company named Depot Saigon, which is developing Saigon’s port and warehouse project in the Saigon river, Ho Chi Minh city. This project is strategically significant because the port will be connecting Vietnam with the rest of south East Asia. We have historically been involved in EPC (engineering, procurement, and construction) and we will provide our expertise to this project. Consequently, we have been diversifying our business and we believe that this project will help us to develop new income streams.

Secondly, we have commenced discussions to collaborate with NEC Networks & System Integration Corporation to cooperation a mutually beneficial business between Japan and Vietnam. Thanks to its booming economy and rising populations, Vietnam represents a great opportunity to further grow our business.

We are also developing our engineering capabilities by using new technologies for market research. In 2019, we formed an alliance with a Japanese engineering company called Quick Fox. Furthermore, as the most successful case, we made a strategic alliance with Hoa Binh Construction, the leading construction company in Ho Chi Minh city, in 2014. Our partnership started as a form of joint venture with net sales of 300 million JPY, which has now grown to roughly 2.4 billion JPY sales in FY2019 and estimated to be worth 3.0 billion JPY in 2020. 

Our market share of electrical facility and equipment installment in Ho Chi Minh’s high-rise condominiums construction is reaching about 30% according to in-house estimations, and we plan to pursue our efforts in the region while expending to other areas. 

In recognition of these achievements, in April 2018, we received the 2018 High Quality Construction Award from the Vietnamese Senior Vice-Minister of Construction himself. We received this reward because of our involvement in the construction of comprehensive facilities in the Ascent Condominium project, a high-rise condominium in Ho Chi Minh city.

 

You founded JESCO 49 years ago. When you decide it is time for the next generation to take the leadership of JESCO, what legacy do you hope to leave behind?

While the majority of companies prioritize profit margins, I believe the most importantfeature of an organizationis its“heart.” The “heart” refers to the culture and the mission shared by all members of a given group. At JESCO, our “heart”is composed of sincere communication and collaboration. While certain firms from my generation have forgotten this, I believe any organization must be a “GOOD COMPANY” before it can be big or profitable. It is only by cultivating honest business practices and positive relationships with all stakeholders and with society that a company can achieve success. JESCO must be a company that prioritizes the happiness of the entire “JESCO family”. That is the legacy I want to leave behind.

 


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