Kotaro Hirano, CEO of Hitachi Construction Machinery, discusses the company’s worldwide operations and how it is well positioned to take advantage of the construction boom in Asia
What has been the impact of Japan’s decreasing demographic on your business, and what is your future strategy?
The decreasing demographic is going to take place in Japan. Nevertheless, the challenge after 2020 is that the time will come to renew the highway and sewage infrastructure that have been here for a long time.
As the population decreases, the demand for investment will decrease. Therefore, what is necessary for our construction machinery and equipment is to make it more efficient and safer. By developing more efficient machinery, not only will it be relevant for the domestic market, it will also be relevant for the international market. For example, we developed a robot with two arms that played a crucial role in the 2011 Eastern Japan earthquake. We received a very high assessment on this robot as it worked efficiently in a difficult area, where not many people could access. Consequently, we do not see the decreasing population as being negative, but rather as a positive opportunity.
Asia, especially the ASEAN and India, currently have huge construction opportunities. How important will Asia be for the future of Hitachi Construction Machinery?
Last week I was in Indonesia, it took 3 hours by car to travel 40kms. This is nothing unusual, it happens every morning and evening there. Additionally, two months ago I was in India. The road conditions there make the car shake as you travel. Whenever I travel to these types of developing countries I always speak to the local government officials. They all mention that unless they improve their infrastructure they cannot attract foreign investment.
Additionally, having so many cars causes environmental problems. Therefore, in countries such as Indonesia, India or Thailand, they really want to have efficient investments. They aim to increase the efficiency of their roads and infrastructures, which represents a big business opportunity where our equipment, such as our excavators, are in high demand.
What are the services that Hitachi Construction Machinery provides to its clients to be a One Stop Service provider?
We have a network that includes not only used machinery but also rental of used machinery. In Vietnam, the demand for new excavators is 500 units. However, the demand for used ones is 7,000. In Vietnam, almost all the used ones are Japanese made. When I enquire to the customers that are using Hitachi’s used machines, they are not satisfied because there are some quality issues. This is why, for an extra 10% of the price, I have offered customers to do their maintenance and repairs, in Japan, and then bring back the used machines to Vietnam. It is much better that we bring back the used machines to do the repairs than leaving them with a broker. The customers will be left with better quality.
What are the current projects and objectives of your R&D department?
We previously discussed repairs. Therefore, one aim would be to prevent having to do this in the first place by predicting when they are going to be needed. For example, the oil in a hose is circulating at a very high temperature; this can lead to it eventually snapping over time. Thus, we have monitored the data of every machine from the year 2000, a total of 1.18 million machines. As we monitor them 24/7, we can notify the company using them that the machine’s hose needs replacing within its next 500 hours of usage. Consequently, the machine can be removed from the construction site to prevent accidents. We have just implemented this service, called “ConSite”, into Europe and Australia in October 2017 as well. We would like to provide this service to other parts of our machines so customers can use our products without any worries.
Your company is present in both developing and developed countries. Do you have a tailor made approach to each country? What are the core products that you focus on in Asia?
We develop separately for America, China and Asia due to the restrictions on emissions and the software acceptability. For example, the focus of Chinese customers is not on software but rather on tough lasting machines. This is a very similar concept that is maintained in India, the Middle East and east Africa. This is why we have 3 plants in India that export to the Middle East and east Africa. All the products are made in Japan, but in these plants the products can be arranged to be exported to the neighboring countries.
Your new mid-term plan was called ‘Connect Together 2019.’ One of the objectives was to increase profitability by 9%. Could you tell us about the strategies and pillars that will allow you to achieve the objectives set forward?
One of the pillars would be to strengthen this valuable chain. In fiscal year 2016 the ‘value chain business’ made up 35% of total sales. We hope to increase this to 50% by 2019. In fiscal year 2017, it was 41%. This increase is made possible as the customers are demanding used machines rental parts all over the world. As makers, we have the opportunity to provide a full-service range, not just new machines but also adequate products matching demand all over the world. Consequently, this means we are going to evolve from manufacturer to solution provider. We have to include this efficiency in the production stage of manufacturing.
What objectives or achievements would you like to personally achieve for Hitachi Construction Machinery within the next 5-10 years?
2020 is our 50th anniversary of becoming independent from Hitachi Ltd. For the next 50 years, I would like to see us become a company that answers to the customers’ needs. For example, we see in the media that by 2020 cars will become hybrid or Electric. Construction machines will eventually follow this path. Our strength is that we belong to the Hitachi group as they make the car batteries and sensors, this will provide us with a definite competitive advantage.