We spoke to Mr. Nobuhiro Arai, president of DN Holdings about the ongoing partnership and upcoming merger of Nippon Engineering Consultants, which is skilled in planning and design of social and civil infrastructure, and DIA Consultants, which is skilled in geotechnical survey and analysis to become a comprehensive civil engineering consultant group and representative of Japan overseas.
What is your take on the current state of Japan's construction market and how do you expect it to change?
In terms of the breakdown of the construction market, mainly we have the public projects that are initiated by the government and the local governments, and their spending for those projects is about JPY 8 trillion a year. Back in 2009 when the democratic party of Japan was the main ruling party, this spending almost doubled to JPY 16 trillion, but since then, that budget was reduced by half. However, as you know, Japan has a lot of natural disasters, especially torrential rains, which can result in significant damages. The government has the budget for countermeasures against natural disasters, they have budgeted JPY 8 trillion for that initiative. As you know, the budget is limited for major projects, but there are no major ones ongoing in Japan currently. For example, a major project in the past was the bridge connecting the Honshu mainland with the Shikoku Island. Rather than building new infrastructure, we are focused on maintaining and repairing said infrastructure building from 50 or 60 years ago.
Did you notice something different when you use the Japanese Expressway? On the Expressway, you might have noticed that there is only one lane per direction, while in other advanced countries they typically have two or more for one direction. Around 30% of the existing expressways in Japan have only one lane for one direction because of the budget and the cost-effectiveness. Although in terms of disaster prevention, we need to secure an evacuation route and it is important to have multiple lanes on the expressway. Not only looking on cost-effectiveness, but we also have to build multiple lanes for emergency and security purposes. That is why we like to work on the remaining expressways to have multiple lanes. There is no big project ongoing, but there is a budget secured for disaster prevention or reduction.
You have developed integrated disaster prevention and reduction measures for roads and similar infrastructures, could you tell us more about how your measures reinforce roads against natural disasters?
We have conducted many initiatives for the prevention and reduction of disasters in multiple areas. The main topic I would like to focus on is that we have a lot of earthquakes and we have a lot of torrential rain in Japan. It is hard to predict this rain and sometimes, heavy rain comes and the precipitation over exceeds our expectations. We cannot predict where that could happen, and it is the same for earthquakes. Japan is very unstable in terms of natural disasters, so we are running simulations. We artificially cause an earthquake and rain in a virtual network, using AI. Looking at the results of the simulations, we consider how to evacuate safely and what measures are effective in case of disasters. We gain knowledge from the simulation—hardware and software knowledge. This project is ongoing and we call it the “DDX” or “Dynamic DX” - we are proposing this service to the government and local municipalities.
You have developed 3D geological modelling systems which monitor geotechnical risks, and as you just mentioned, you developed this Dynamic DX System to better understand the management priorities in event of a natural disaster. Can you elaborate more on this technology and how such digital tools are helping you in providing services to your clients?
We have previously analyzed the bridges and roads when an earthquake occurred. This informs us what change or damage they have, but the bridge is just a dot and the road is just a line. Therefore, we have only analyzed the narrow areas, it is either dots or lines for many years. Another example is when a tsunami hits towns or the land, we analyze how these waves or the water have penetrated the land. We have done simulations and analysis and what is changing right now is using the use of digital technologies. We are able to analyze and evaluate a wider region of the affected areas from the disaster using AI. We utilise the AI to learn from our experiences so that it can analyze what damage is done to the land or wider areas when an earthquake hits. I made a presentation on this topic in an academic meeting before, so there is an English text available because if I verbally explain, it is difficult to imagine so I recommend you get the material.
The difference between our technology and other companies like OYO Corporation, is that they are evolving their technologies to focus on narrow areas of damage and natural disaster risk. On the other hand, we give a comprehensive assessment on wider areas, for example, when we have heavy rain, what area is the most dangerous when we look at a wide area? What is the order of escape or evacuation? When we have heavy rain, there is a risk of flooding, We can look at the wider areas because there are many locations at risk of flooding, but we can determine which is the most critical one. We can evaluate so this limited budget can effectively ensure safety and give reassurance to the Japanese people. Many local municipalities have a disaster map but this only has limited information. Our Disaster mitigation development and planning system is more accurate and realistic, and provides a better service.
DN holdings itself is a joint holding between Nippon Engineering Consultants and DIA Consultants formed in 2021 in anticipation of a 2023 merger. I would like to know what are the synergistic benefits this merger brings to you and what new markets are you anticipating to tackle with your combined capabilities?
Nippon Engineering Consultants is excellent at developing various social infrastructure such as roads, cities, and harbors both in Japan and overseas. DIA Consultants is excellent in ground investigation and analysis. Each company is number one in their respective field, but not outstandingly number one. We want to aim to be the outstanding number one company in these fields.
What strategies are you implementing to reach that target?
The strategy we are taking to achieve this goal is first, as we grow existing technologies, we would like to first utilize the ICT with DX. One specific area that we are focusing on is offshore wind power generation. European businesses are very strong when it comes wind power generation, but we like to develop our technologies and systems that are suited for the Japanese environment. We are strong in ground investigation and analysis and, we just proceeded with an experimental study in that area. The second area we would like to focus on is renewable energy. Hydrogen is one key element as well as CCUS (Carbon Capture, Utilization and Storage). Those are the renewable energies we would like to focus on.
When we spoke to Kiso Jiban, they explained to us how Japan has some of the most complex soil in the world due to heavy tectonic activity. It makes construction difficult and we know that you have worked in Vietnam, as well as the Philippines. How do you adapt your technology to suit different soil compositions for international markets?
The Philippines and Vietnam have their own geological structures, but when we build infrastructure, we conduct Boring and Drilling Survey Investigation and then the result is analyzed. However, these should be conducted by local companies because overseas governments are responsible for the development of companies. We, Japan, cannot do those surveys or investigations overseas, moreover, as you said, Japanese projects are very expensive, but that is due to us having the higehest safety standards. That is why infrastructure has lasted for so long. I think this is not acknowledged overseas. They say it is expensive, but actually, we have high standards.
In the next 5 years, construction investment in Asia is expected to average about USD 1.6 trillion per year. Since the 1990s, you have been in Vietnam and also expanded to the Philippines. Are you looking for more local partners to help you expand your international business and help conduct geological surveys for projects?
Aside from Vietnam and the Philippines, we are looking for partners in Africa because we would like to develop businesses in there too. Our main focus is Southeast Asia and Africa. We not only provide the manufacturer or develop the infrastructures and services, but we have also been contracted for JICA projects. We are providing support for technology transfer in local regions. For example, we are teaching engineers about the technologies while also creating the specifications. Metaverse is asolution that allows avatars to communicate with each other in a 3D VR space, hold meetings, or take courses. This way one can experience the actual infrastructure. For example, you can virtually practice how to repair the damaged part of a bridge. This virtual experience is an important focus.
What other strategies will you employ to find partners in these regions? What is your international business strategy for the future?
The strategy to expand the businesses overseas is to establish a local entity first, but this comes with risks. For the time being, we would like to expand the business through ODAs just to provide existing technologies, such as building infrastructure and bridges or conducting investigation and analysis of the ground. One example is drones; by using drones, we can explore from the sky when building roads in the mountains and we can assess the possibility of landslides, as well as the geotechnical risks. Through that, we can come up with new services combining these tools.
US President Joe Biden signed last year a USD 2 trillion infrastructure bill. Europe is the leading region for the renewable energy field. In your specific case, what opportunities can you see for your company in the United States and in Europe for the field of energy? What added value can you provide these countries?
We have no plans to enter Europe or the US energy sector markets. The reason is we do not have much knowledge of financing and it is difficult to finance. Furthermore, recovering the investment is harder for us which is why we have limited areas; only Japan, Southeast Asia and Africa.
Imagine that we come back six years for your 65th anniversary and have this interview again: what would you like to tell us? What are your dreams for this company? What goals would you like to accomplish by then?
My goal for the company five years from now is that I want to make a company where the employees enjoy working. We cannot survive in the market just by taking work from the government or in public sectors, so we have to create jobs on our own. The employees will be required to have the management skills and do the jobs by themselves. We would also like to enter different business sectors partnering with different companies such as energy firms. One idea is to have Park-PFI, which is like a SPC that many companies establish in one association. Parks are currently managed by local municipalities, but private companies undertake the job of managing operating funds and the establishing commerical facilities or doing services, which is one example of a new venture. If we create new companies with new initiatives, we would like to lead our employees to run those businesses so the employees will become the people of those subsidiaries. The employees are not just waiting for the job, but they are creating their own opportunities to run the business themselves.