Supporting the shift to a carbon-neutral world

I want to ask you about Society 5.0 because we know that Japan, in the face of major changes, has had to adopt new technologies such as IoT, Big Data, and AI to overcome societal changes such as the aging population. Can you tell us how Japan could teach the world when it comes to the next generation of automated labor devices to help the next generations of society?

It is indeed a fact that Japan’s aging population has caused some problems in the domestic market and the labor force has shrunk. We know that this demographic crisis has pushed a lot of Japanese companies to expand overseas, and our company is no exception, we cannot continue relying heavily on the domestic market. We are now making necessary steps to go beyond the Japanese borders and expand in Asian markets such as in China and Vietnam and our aim, aside from what the more economically developed Chinese companies are doing, is to contribute to the rapidly growing Southeast Asian region. Vietnam would serve as our entry point to further expand in the Southeast Asian market. We invested in a water treatment machine making facility in Vietnam and through this we can reach other potential markets.

In terms of the management of the supply chain which is very crucial because we have to deal with sustaining various elements such as materials, sales, delivery, and quality due to the fact that one market differs from another. Our management’s decision is very important as to where, which, and what kind of things should be produced, this is how our supply chain works. To make this happen and to optimize and make this process efficient, AI plays a crucial role. If we can improve one particular aspect of the supply chain, all things combined can be improved on a larger scale. Furthermore, our aim is to be competitive in terms of prices and to produce products with the best features. Our midterm strategy was to invest in the hardware infrastructure necessary for the introduction of IoT and AI, but we have accomplished beyond that initial plan. Currently, we are now in the next phase of implementing full-scale IoT & AI with robots and 3D CAD programming. While it is true that there is a declining demand in the local market here in Japan, however, by making enough efforts to improve the supply chain it is possible to improve the situation and increase your attractiveness towards the customers.

Japan’s big infrastructure and construction boom occurred in the 1960s before the first Olympic Games that was held in Tokyo, since then Japan became a major industrial nation. Nowadays, with the aging population and aging infrastructure, there is an increasing need for repair and maintenance and on the contrary the demand for new infrastructure has slowed down. With regards to your civil engineering business for water solutions, can you tell us about your situation in the domestic market and your forecast for the international aspect of your business?

There are two approaches that have been adopted these days, the government utilizes PPP (Public Private Partnership) and the private sectors utilize BOT (Build Operation Transfer), these approaches have been adopted by developed countries. Unfortunately, Japan is relatively slow in adopting these approaches in the domestic market, this is one of the reasons why we are targeting the Southeast Asian market. We believe that we could get good returns in a short period of time, it is just a matter of implementing our technologies to these emerging countries. With regards to Japan’s aging population, through our R&D efforts we could come up with a new business that could potentially address this demographic problem and could cater to the elderly. One example is to come up with solutions that could compensate for the lack of human capital in the production lines. Through digital transformation, on the other hand, we are looking to tackle projects using our technology for the desalination of salt water and the creation of energy sources, for example, through our PRO system.

Another way to accomplish this is through joint ventures. Despite the enhanced technology that we have it is quite challenging to capture bigger markets because compared to larger companies our capital is relatively lower. We are now combining efforts with eight different companies from Nagasaki which operate in different kinds of industries, our goal is to promote our technologies and showcase our respective portfolios. A top government official initiated this move to use renewable energy sources and this project involves working in line with this government’s policy. Nagasaki companies are trying to bring their own resources to develop new businesses in order to achieve our target of 46 GW by 2030, this is one of the steps towards becoming a carbon-neutral society. This synergy to be created could be a win-win situation for Japanese companies.

These projects on utilizing renewable energy provide some challenges such as high costs. Japan has pledged to be a carbon-neutral society by 2050, therefore there is a big need to create new technologies related to renewable energy. In your opinion, what sectors are most likely going to benefit from these changes? How will your company leverage this?

Water treatment is the company's strong suit. If you think about it, our business activities are helping towards decarbonization even before this global move towards a more environment-friendly drive. From the engineering’s point of view, as we install our technologies, we would like to be more efficient in decreasing the consumption of electricity while improving the production sites which result in the decrease of CO2 release. We will also develop a global O&M Business using these technologies and IoT & AI to achieve optimization (Quality, Cost & Delivery) in terms of wind turbines that generate power, these have to be maintained as well and this is one of the company’s strengths. We are excellent not only in repair and maintenance but also inspection works in the motors, pumps, and ventilations. I believe that in order to benefit from each other, it is also important to attract foreign companies into Japan and not only Japanese companies venturing in the overseas markets. 

You are a social infrastructure company, and you have two lines of business, water treatment business and electrical energy based business. In your water treatment you have these desalination systems to produce fresh water from seawater, MBR systems for advanced treatment of industrial and domestic wastewater by biodegradation using membranes and then you have the electrical appliances used as a control measure and you do so efficiently with your devices. Which is your bestselling system? What synergies have you been able to create between these water treatment and electrical energy lines of business in your company?

The water treatment and environmental parts of our business occupy 60% of our annual total sales, to be more specific this segment encompasses system design, manufacturing, construction, equipment, and maintenance. It is a complex segment in our business portfolio. Furthermore, our electrical energy business is around 10 to 20%, and our maintenance-related work outside the water treatment is around 10 to 15%. We are a company that provides one stop solutions; using the experience of the processes in these segments, we have started to develop a system to optimize the material, energy and money balances in DX.

To create new devices we see that many Japanese firms combine their know-how and technologies through co-creation efforts. Is this something that your business is looking for? What role does co-creation play in your R&D?

We promoted the oil-containing wastewater treatment unit G-ace series to a Vietnamese university, and we have been able to use their skills, knowledge and academic facilities to customize the system to suit the Vietnamese market. We have seen sustainable growth in the Southeast Asian market and one of our strategies is to cooperate with the local authorities, government support agencies and academic institutions. It is not co-creation per se, it is more of a collaboration. An Energy Recovery System by Pressure Retarded Osmosis (PRO system), which has been in development since 2003 and is still a world leader in the experimental stage, is now being developed in cooperation with various institutions.

Kyowakiden’s G-ace series wastewater treatment

You have been present overseas since 2003 when you established in Hongkong, in 2007 in China, and more recently in Vietnam. Obviously Southeast Asia is very important for your business, what strategies are you going to adopt as you expand further in this market? Will it be through joint-ventures, M&A, or opening a new office?

Each country’s market is different; thus, we must respond accordingly. We want our company in China to run independently because that kind of market is complex. With regards to Vietnam which is our hub to enter the Southeast Asian market, we currently have 50 people working there. We will then transfer our accumulated know-how on water treatment, electrical solutions, repair and maintenance, and everything else combined to Vietnam. We will establish local manufacturing facilities around these emerging countries.

In the distant future you will eventually retire, and you will hand over the company to the next generation of executives. When that happens, what vision would you like to have achieved? What kind of legacy would you like to leave? 

Two years ago, I resigned as President and assumed the position of Chairman. The managerial restructuring has to be more adaptive to the approaches of the new president. I have set up a holding company which manages eight subsidiaries and is responsible for business strategy. I must come up with a new vision for the company. I created a group of specialists and together we are working with a new theme for the years to come. We have 15 different business segments, and we regularly conduct meetings pertaining to this managerial restructuring. It would take a lot of time for the new president to fully understand the philosophy of the company, for this reason I have to be properly educated on how to run this company. It is my responsibility to understand the company’s culture, know-how, and the achievements done by my predecessors. I would like to take over with more firmness and more confidence.