Utilizing its flagship product, the ‘Auto Gate’, Asahi Inovex is shifting its focus to contribute to safety worldwide.
Japan’s last construction boom happened more than 50 years ago prior to the 1964 Tokyo Olympics, and today, due to the demographic shift Japan is experiencing, we are seeing an increased need for maintenance, but at the same time, we see less demand for new construction projects. What is your take on the current state of the Japanese construction sector?
It depends really, and for obvious reasons, we cannot give an outline for the entire Japanese construction sector because it is different per reason and as we are located in Hokkaido, it is almost as if we are our own entirely different country. Of course, by island and region, the specifics of the construction industry and the market itself is different in geographical position. We cannot speak on the overall scale of Japan, but we can definitely speak about Hokkaido.
It is very true that the market responded to the first Japanese Olympic games in 1964, and what we can say is that the hard construction companies that were cooperating and gathering in the greater Tokyo area were affected by this kind of large-scale Olympic event. This has not all been good, however, and some construction sites were halted or even frozen during the Olympics because of all the focus that was given to conducting the sports events. In that sense, you can see the differences in how it operates in different regions and different places in Japan.
Time frame is another factor contributing to differences, which is important to mention. Throughout the history of Japan, we can see lots of ups and downs in the construction business, and in fact, it relates to all kinds of business here in Japan. When WWII ended and Japan needed to be rebuilt from the ashes of war, we as a nation had to come up with new ideas and new solutions. The companies that rose during that time came from necessity and during that time, a large number of infrastructural facilities were established.
Even before the first Olympics games in 1964, we had inbound tourists coming to Japan. There was a huge need to build hotels and accommodation facilities. Again, this relates to my comment on timing; in this situation, timing is everything. We saw this happening again during the seven-to-eight-year build-up to the last Olympic games held here in Japan in 2021, and there was a need to appraise hotels and amenities. From big cities to smaller towns, we categorize them into different needs. For example, big cities like Tokyo, Okinawa, and Hokkaido are categorized as category one and they are the main places that tourists visit when they come to Japan. So, to summarize, the overall picture of the construction industry is not only defined by region, but by timing and the necessity of that time to build or refurbish already established facilities.
Japan has the oldest society in the world and a population that is rapidly shrinking. What challenges and opportunities is Japan’s demographic shift presenting for your firm?
There are many problems and these social issues really are just the tip of the iceberg. There are so many problems that lay underneath but are results of those social issues. The first thing that comes to my mind is the shift in the mentality of the young people of Hokkaido, with many choosing to move to bigger cities like Tokyo at the first opportunity, especially when they are choosing educational institutes. It makes the sustainability of human capital a difficult subject to tackle, especially on construction sites. Another issue comes from the fact that we do not really deal with white-collar workers, but rather deal with blue-collar workers who are doing manual labor on real construction sites. This is a rarity and very hard to obtain because of Japan's culture overall. When young people enter universities, they aim for office work rather than entering manual labor work, and this mindset has been deeply set into the minds of the Japanese for quite some time now. As a result, human capital is very hard to obtain these days, but we try not to have a completely pessimistic view of things, in fact, there is a bright side too.
The bright side is that no matter how much the level of sophistication for a project, Asahi Inovex can do it. This comes from high-added value projects. Perhaps the barrier to entry in terms of price may be higher than other companies, but that is the cost to have the level that Asahi Inovex can introduce to a project, with many other general construction companies not being able to handle the level of sophistication that some projects require. This is something that customers understand and the reason why they approach Asahi Inovex to complete projects for them.
Asahi Inovex is a company that can produce a project from the initial design phase all the way to final completion. Obviously, this all creates a buzz and generates marketing for the brand, which is crucial on the recruiting side. We are doing our best to not only increase our brand awareness, but to decrease margins for our customers to increase our own and our customer's profitability. All this results in our company being able to compensate our workers with great salaries and drive attention towards us, ultimately creating a situation where new graduates would like to work with us.
Your company can be divided into three main divisions: civil engineering and steel structures, architectural steel structures, and housing equipment. Can you tell us which business division you are currently focusing on? Which do you believe has the most potential for future growth?
The two major pillars that the company currently stands on are the civil engineering and steel construction division as well as the building steel construction division. It is hard to give any preference to either one, mainly because for decades now, we have not seen any ups and downs. Obviously, I do not mean in terms of sales, any product throughout history will always have ups and downs in those terms, but rather I mean that there is not one that has shown more promise than the other. This refers to the overall market, as we see that nationwide, civil engineering construction has been in a state of decline, so perhaps newer needs will emerge. In terms of steel construction, we see it taking more of a supporting role and providing more new materials and buildings as well as refurbishing facilities, both new and existing.
As you can see, these divisions are very related to each other and are able to operate together in a self-sufficient manner, independent of our other divisions. Additionally, when you consider the market stagnation over recent years, it makes it near impossible to give a preference to one over the other in terms of future potential and promise.
One thing I can give a definitive answer on is something that the company has been fostering for 50 years now. Human capital has been developed at Asahi Inovex to be interchangeable, meaning that workers who work on one building's construction site are able to fit into a completely different project almost instantly. Fostering this human capital is actually a very beneficial point in that way for us, and in essence, by fostering this part of our business, we are able to reduce the cost of human capital, which in this business is the largest contributor to overall costs, and then, as a result, create better margins. We have been doing this for the past 10 years and consider ourselves lucky so far.
Something else that the company is doing to increase profitability is related to the Toyota production system, and we have taken on those methods developed by Toyota many years ago. This can be as simple as the instruction manuals and how the construction method we utilized is embedded into a production site. These methods need to be carefully studied by people working on those sites, as well as new recruits joining a site.
One more thing I would like to mention is proper tooling. For a construction company, this is very important and the cost year to year is going up. We could describe this whole process as systematic education to further overwhelming cost reductions. All of this serves the needs of the customers and enables Asahi Inovex to better help those customers create the margins that they want. Obviously, this all goes out the window if a company is to create and design a project that is not appropriate for a customer's needs, and this is something that Asahi Inovex takes very seriously. Scrapping and removing the production site is a huge additional fee and something that can drag us down.
In other interviews, many have stressed the importance of partnering with tech-focused construction startups in overseas locations such as California in order to accelerate the integration of DX into the Japanese construction sector. Is finding such overseas partnerships an area of interest for Asahi Inovex?
Yes, we definitely feel it is a great thing for our company, and if we are being honest, we do not see DX being slow to be adopted here in Japan. To some extent, some companies are early adopters whilst others have been later, so that is all I can really say about the overall picture. The adoption of 3D modeling BIM systems was a needed decision, and it is not just the idea of utilizing that technology, but rather utilizing the human capital that has valued skills with this technology and ensuring that the technology is embedded properly.
While 3D modeling is one example, there is also DX involved in robotics, and this is obviously a solution to the demographic issues you mentioned earlier. Do we feel a necessity for this? The answer is yes, and in fact, we are going to be doing even more robotics at construction sites in the future. Tools are designed by those coming through a construction site and come in the form of different programs and systems, and we will develop those when a need arises.
When we last interviewed you in 2019, one thing you were very passionate about was your Autogate: an unmanned non-power gate that automatically opens and closes to prevent flooding. How have you improved the Autogate over the past three years?
Two years ago, the company extended the patent for the Autogate with existing models, and this really was a great achievement, as there was another company looking to penetrate the market and take the patent from us. There was a lot of struggle and frustration during that time, but eventually, we were able to win out and were granted an extension on our existing patent. Still to this day, Asahi Inovex is considered the leading company in Japan for this kind of product and we hope to continue to introduce this to many more regions over time.
Over the past three years, we have furthered the features offered by Autogate, and right now we have gone past the second generation of Autogate and are now into the third. We have a patent pending on this generation, but the unique aspect is that this patent is an international one. Once that is received, we are off to the races as far as international distribution goes, and we have a very good track record exporting the Autogate to countries like Thailand. Countries like this look to be the most promising for the future and have shown great economic growth in recent years. Obviously, we are not limiting ourselves and want to grow across the board in places like the EU.
We have already submitted the documents for the international patent and do not have a doubt that we will receive it soon, but as with everything these days, COVID-19 has slowed down the process considerably. We are now forecasting perhaps another year before this international patent is processed.
In regards to why we are targeting the EU, it really comes down to the fact that the market is already in a mature phase. There are a lot of construction sites that have been used to build gates for many years, and we see an opportunity to complement those with newer technology.
As I mentioned, three generations of Autogate have been released thus far and they all have had unique features. Two of the generations have varied in size, with the idea of making the product as small as possible to tap into the sewage pipe market. We aim to be able to control the water flow inside any type of household piping system. Autogate has seen continued use for flood preventative measures, and for this application, we need large scale size, in fact, we have even seen applications for tsunami prevention. The newer generation of Autogate is taking a fresh approach, as traditionally, the Autogate takes an approach of step surfaces, but now we are applying the Autogate on flat surfaces as well. This is called ‘Autogate Stepless Butterfly Float’ and we are seeing applications with all three generations.
The reason why we have diversified the product this way is that we would like to introduce the Autogate to as many places as possible. This enables us to not only increase the installation base and flexibility, but also increase our client's portfolios.
We do have a bit of discrimination against us, especially from top-notch IT companies that have complained that our Autogate is not high-tech, and while yes, it is a very simple construction, it is able to do its job without the need for super high-tech powered efforts. You do not want a product like this to be too high-tech. Of course, you could install sensors into the Autogate, but by loading up the product with high-tech components, you are also increasing the cost of the solutions as well as making it too complicated for clients to use effectively. That is not to mention the human capital costs of having to install sensors, and in the long run, that creates a process that has a lot more cons than pros. This product is simple, but it works because it is unpowered and not complicated and I think that is the key in addition to making it much more eco-friendly.
During times of disaster, the first thing that people will run out of is electricity. If a product runs off of electricity, once blackouts occur, that product will no longer operate. Autogate provides good old-fashioned 24/7 operation.
What role do partnerships play in your business model and are you currently looking for any overseas partners?
We are aiming for regions far beyond our expertise, and the pending international patent is going to open a lot of doors for us in Europe. We are eagerly looking at more mature markets in the region such as the UK and France, mainly because those countries have pre-established infrastructures and are therefore old. We would like to come in and help improve existing piping and sewage systems. Those countries being so close to the ocean means that flood prevention is crucial, and this is something that the Autogate can provide.
The COVID-19 pandemic has put some obstacles in our path, first and foremost being the delay in getting that international patent. We are looking for partnerships to open our doors to Europe and provide the right solutions to the market.
The other form of partnership we are looking for is an actual physical partnership with firms that might be able to conduct the installation of the Autogate for us across Europe. This company needs to be one that has experience with this form of installation. We are looking very optimistically at both of these types of partnerships: consultancy and physical installation, and we are looking forward to what the future brings.
However, the idea of partnerships is a delicate issue. We could go the route of going to expos, and in fact, we have been doing this actively, but on the other hand, with the technology being as simple as it is, we must be careful of copycats coming up with similar structures to ours. These companies must understand that while on the surface it may appear as though it is a very easy technology to copy, there are in fact, many smaller details that are crucial to the operation of the devices and are quite complicated in design. At the end of the day, this device is going to be responsible for people’s lives and deviating from our design by only a single percent could be the difference between life and death for a customer. We do not want this situation to come to fruition.
The Japanese domestic market is still very promising. We have counted roughly 20,000-30,000 places that would benefit from a change to the Autogate, and over the past 20 years, we have only reached about 3,000. With those numbers in mind, you can see that there is still a lot of potential domestically, and in fact, we calculated that it would take approximately 100 years for us to replace all of the older gates in Japan with Autogates. The current Autogate Stepless Butterfly Float takes about one week to install.
Imagine that we come back five years from now and have this interview all over again. What would you like to tell us? What are your goals and dreams for Asahi Inovex for the next five years?
Up until now, our company’s mid-term strategies have been divided into short terms of three to five years maximum. For the future, however, we are tending to look further ahead and at longer spans, such as 30-100 years. The company is united behind the theme of creating products that are tools that can support everyday life and create a sense of comfort and security for our customers. We create things that are not easily identifiable by civilians, yet nonetheless, create an atmosphere for easy living. As a manufacturer, this is our greatest weapon and it is something that can be deployed by the company for the next few years, and even further in the next 30. We have identified that the market tends to reshape itself every 30 years to meet the demands of the next generation, so that is why we are looking ahead. No matter how much time passes, the company will still be here with its best products and services for our customers.
Each of our divisions also has its own goals and aspirations for the future and before this interview, I asked them to comment on this question. The steel structure division has particular concerns with the decline in human capital. There is a real need to maintain already existing facilities and we are seeing a high demand for maintenance. Coordinating the management of all the different kinds of construction facilities is key here, and coordination with affiliated companies is crucial to decrease costs and increase margins. It is a very delicate balancing act that requires a lot of different moving parts. It is going to be a long road and I imagine that there will be a few bumps, however, we are looking very optimistically toward the future.
Japan is so susceptible to many natural disasters, typhoons, floods, and earthquakes; you name it, and chances are Japan has experienced it. Of course, by priority, our products are designed to help prevent these and in the case of a disaster, assist in alerting people and saving lives. This promise with our customers is something that we value very deeply and something that we would like to continue moving forward.
Before we finish today, I would like to also cover a little of the environmental aspect of our business. The company is not only providing core products in civil engineering and steel structures, but also provides environmentally friendly air conditioning systems and central heating systems. These are related to decreasing CO2 dispersion in a zero-carbon society. Buildings these days must be equipped with systems that are by definition, eco-friendly. This is also a big advantage of Japanese construction companies. These companies need to be taking this success story and exporting it to foreign markets to introduce the best features of Japanese construction. Countries outside Japan also need to realize that Japanese firms already have a wealth of knowledge and have been complying with decarbonization guidelines for years now.