The nuts and bolts of the construction industry

Over the past couple of decades, we’ve seen the rise of manufacturers (in Southeast Asia) who can replicate certain manufacturing processes and products from Japan, but at a cheaper cost and with economies of scale. How have Japanese firms been able to remain so competitive in the face of this tough price competition?

I don't know very much about Japanese companies in general but overall, I think they are becoming less competitive globally. With regards to our company, the strength of our products is that although they may not necessarily be cheap, we can get them to where they are needed in a timely manner.

Could you explain to us what role Kondotec plays in the manufacturing supply chain here in Japan, especially in terms of structural steel material and industrial material?

It's difficult to describe our company in a nutshell because we deal with so many different products in our lineup, but in terms of the construction field, there are main materials such as wall materials or pillars, and auxiliary materials such as nuts and bolts. We naturally focus on the auxiliary materials and our strength is delivering them to the person who is in need. The right timing at the right place.

The city of Osaka evolved around the river as we used the river for transport. As a result, there were many shipbuilders in this area. Many materials are used for shipbuilding, and we started our business by supplying shipbuilders with small clips.

We needed to diversify in order to survive so we shifted into the construction industry, and we found that the same clip used for shipbuilding was also applicable to construction. In this way we expanded our business areas and we had customers from various fields. Our marketing efforts determined the needs of our customers and decided whether to manufacture products by ourselves or purchase products from domestic and international sources. We can make the price affordable for our customers because we now have 47 offices in Japan.

What are the advantages that your experience as a wholesaler bring to your manufacturing capabilities?

For example, let me explain about bracing rods. They are used to strengthen and retain the structure of a building. The bracing system provide stability and improve seismic performance by applying pressure to the middle of the wall. The length of each brace varies depending on the size of the structure. So you may have a variety of lengths up to 10 meters.

How would you carry such a variety of braces? Logistics wise, it's important to have efficient shipping of the parts to the site, so we assemble the parts and take them directly. Having 47 offices and four factories around Japan makes us very effective. We are one of only a very few companies who can do this.

 
Shiga Factory

Given your position as a unique ‘unicorn’ type of company in the construction industry, how do you foresee the evolution of the construction sector in Japan?

The Japanese construction industry is facing falling demand due to the aging population, and there will be more focus on the maintenance of existing buildings. In order to cater for these needs we have acquired and merged with 3 scaffolding construction companies.

Older people and women will be working at construction sites to meet future demand. We acquired Kuriyama Aluminum earlier this year because aluminum is one-third the weight of steel. We are trying to prioritize using lighter materials.

The Japanese population has the oldest average life expectancy in the world of 85 years. More than one-third of the population is over 65, which means a reduced labor force and less demand for products in general. How has this declining demographic affected your company and how are you reacting to this particular challenge?

Our focus is not only on the construction industry, but there are also various industries that we cater to within the domestic market. In terms of GDP, 500 trillion yen, we feel that there are still infinite possibilities we can tap into. While it may be small at this point, we have an office in Thailand and we are targeting the ASEAN region. In terms of us having more market share and also securing more manpower, this Thai office will play a crucial role.

The Coronavirus has been devastating for the world economy for a year and a half now. Can you tell us what are some of the mid to long term changes that the coronavirus has accelerated at Kondotec and what impact it has had on your company?

Our sales activities were restricted during the period you mentioned due to the COVID-19 pandemic. Some companies like TRUSCO Nakayama Corporation focus on ecommerce and, while we concentrate on direct sales to customers and handle made-to-order products, which led to restrictions on our business.

We do have our ecommerce sales division, which was established recently. We are more focused on non-ecommerce sales. For example, we don’t just sell the braces, but we also sell the construction work and installation of things like scaffolding which cannot be sold via the e-commerce.

How are you able to guarantee the efficiency and timeliness of your product deliveries?

In order to provide supplies in a timely and efficient manner, we have an inventory stock and 47 warehouses and four factories around Japan. Those facilities play a key role in our logistics. Also, if you know what you need for a specific thing, for example if you're making a ‘yakisoba’ and you know the ingredients, you can ask TRUSCO Nakayama Corporation to procure everything. But if you don't know how to make ‘yakisoba’ it's better to ask us who know what ingredients are needed to make ‘yakisoba’.

You have acquired scaffolding companies and made them subsidiaries. Why did you decide to invest so heavily in scaffolding now, and what expectations do you have moving forward with regards to that new business?

Within the construction industry, scaffolding is required in the civil engineering division and in the building construction division. For building construction, it's used for the maintenance and the construction of buildings, but scale in that sector is relatively small and there are many players, so there’s more price competition.

Aqueduct bridge repair

For civil engineering, the government runs lots of big projects like refurbishing or developing bridges and there are less players, so we are now trying to enter the civil engineering scaffolding market combining the three we have acquired.

Your current mid-term plan is to grow organically to 72 billion yen in sales by the year 2024. Now that 2024 is only a few years away. What do you foresee as being the biggest challenge or obstacle to reaching that target?

We acquire new projects and 1000 new customers per year and that accounts for about 5% of our sales. It's true that we lose some customers, but we keep gaining new ones then there is a good balance. We are, however, looking into expanding into other markets.

We started off in shipbuilding and we took the same product and applied it to construction and now we're now looking into entering agriculture and other fields as well. So why agriculture? There is a need to protect agricultural produce from wildlife such as deer, bears and pigeons and we already have the required materials, such as netting in our construction product portfolio to be able to do this.

So the way we evolved from shipbuilding to construction, is the same type of shift we are now trying to perform towards agriculture and other fields. To utilize our existing products and diversify them for other applications.

What kind of products from your history of supplying materials for construction projects can you apply to the environmental protection initiatives you are currently involved in?

In our marketing approach, we talk to our potential customers, identify their needs, and provide them with possible solutions from our product lineup. We have Kuriyama Aluminum as one of our group companies now, so we're trying to see how we can apply aluminum products.

In 2019 you acquired a labor-saving and image processing equipment business from Mechatro Engineering Co, whose products make it quite different from other companies in your portfolio. Why did you decide to acquire that business?

In 2014, we acquired Chuoh Giken that has a similar business to Mechatro.
The reason why we acquired Chuoh Giken is because they have labor saving technology which is applicable to our customers who often have factories. In order to promote efficiency factories, we have acquired their technology so we can provide a new solution to our customers. And regarding Mechatro, visualization, IT, ICT is quite well defined when it comes to construction sites, so we are trying to promote DX in construction sites through fortifying our capabilities. In terms of digitalization, we have developed a software client – one of the very first in Japan - which uses a smartphone to do inspections of chain hoists.

In Japan there is a regulation where you must do regular check-ups of chains because chains of course get thinner from abrasion if you keep using them. Using our smartphone application, you're able to determine simplify inspection and keep inspection records.

You mentioned having an office in Thailand and that you were focusing on the Asian or Southeast Asian market, but are there any other particular regions or markets that you’d like to expand into? And how do you plan to expand into those overseas areas?

We are looking to expand into the global market but not planning to have any offices or factories other than in Thailand at this moment. We are planning to go to an exhibition in Germany to exhibit our railroad bolt , and then we will try to gauge the market reaction towards our products in Europe.

Let's say we come back to interview you again on the last day of your presidency. What would you like to tell us about your goals and dreams for the company by that time, and what would you like to have achieved by then?

I'm not thinking of something big. Just taking one step at a time in expanding the application of our products into new markets.