As transport undergoes digital transformation, IHI Transport Machinery is driving innovation by creating value through novel technology.
In the last 25-30 years, Japan has seen the rise of regional competitors who have replicated Japanese manufacturing processes but at a much cheaper labor cost, pushing Japan out of mass production markets. However, Japan is still a leader when it comes to niche B2B fields. How have Japanese firms been able to maintain their leadership despite stiff price competition?
The answer is very difficult to say. I think that the key for survival is the position of Japanese firms in the global markets and the domestic markets. The Japanese market size is halfway for both domestic and global business, in other words, big enough for domestic business but also too small for global business. The Korean market is too small to survive by itself. The Chinese market is huge, and their market itself is a global one because its population is now much more than 1 billion people. In case of a worldwide recession, Japanese firms active in the global market change their main market from the global toward the domestic market. They try to survive in the domestic market. Korean companies do not have this option, the Korean firms continue to struggle to survive in the global markets. China is also very capable of surviving purely on its own domestic market, the China market is nearly global alone too. While we Japanese firms are focusing on surviving in the domestic market, we would forget how to fight in the global markets.
Of course, recession and growth are things that continually happen over time. The flow of time is always cruel, and no one can change it. I think our company, like many other Japanese firms, have been challenging this through struggling for survival. Through this struggle, we have forgotten the global market and adapted to become suitable for the domestic market in times of recession.
In this highly globalized world, why should customers choose Japanese products? Why should consumers choose your parking system over a Chinese or Korean system? What is the difference?
We believe that the reliability of our products is very high, but with that reliability comes a high cost. In the past, we have tried to create high-quality low-cost products by a combination of production area and global supply chains. However, there were many issues we have not experienced in the global supply chain at the moment. We are considering the best combination, though it is like a million-piece puzzle. I think our competitive edge and value comes from our reliability, but also a sort of long historically based quality that our company possesses. Our products are high-quality at a reasonable price, but as you know, good value comes at a price.
The B2B business is not the same as the B2C market. I think the difference is mainly that most of the customer's requirements can be described as specifications and be shared by the customer and us. In the B2B market, customer requirements are clear, especially in niche markets. The customer can define their requirements as figures, numbers and texts. For example, such as size, strength and electrical characters can be described as specs all. This is a very preferable point for Japanese companies, which lack diversity, to compete in the global market.
However, while Japanese companies have focused on the domestic market and forgotten about the global market, the world has totally changed. Japan has its own domestic requirements and likes things done a certain way. Globally accepted specifications and Japanese specifications are different, and even BtoB Japanese companies are finding it difficult to provide globally accepted products and services. Diversity is something that Japan really struggles with. It is hard to imagine the real meanings of requirements of foreigners in far-off lands.
Japan is the oldest society in the world and has a rapidly shrinking population. This presents many challenges to Japanese firms, including a labor crisis and a contracting domestic market. What are some of the challenges and opportunities this demographic shift is presenting to IHI Transport Machinery?
Just last week I told myself “I want to be global.” There are lots of global markets, and the Japanese market is not the only one that exists. We should make global services and global products again. I think this might be one of the solutions to the problem you posed in your question. I think right now it is difficult because of the diversity problem I mentioned earlier. We should obtain more diversity to challenge the global market again.
Around ten years ago, we used to be a more global company. We made some subsidiary companies in China, Malaysia and Indonesia. During this current 10-year period, however, we are gradually shrinking. I think that is because of the amount of business we have done domestically during the past 10 years. For example, the transportation machinery business became busy after the 2011 Tsunami disaster. Coal power systems became much busier because the nuclear power plants had to shut down and we received requests to create coal handling systems, and we focused on the Japanese market.
In the case of the parking business, with the redevelopment of metropolitan areas represented by Tokyo, many buildings have sprung up, including large apartment homes. These developments need parking systems, and thus, we have concentrated on providing many parking systems to the domestic market. Now, I see this as our strong point and our company is a very good fit for the domestic market. Outside of this, however, we do not have enough influence and power, despite our desire to expand globally. I personally really want this to happen.
Which countries or regions do you see as having the most potential in the global market?
Southeast Asia is somewhere we see as a potential market. Of course, you must adjust from country to country. Currently, we see potential in Thailand, Malaysia and Indonesia. Also, we would like to expand the Chinese market, however, right now it is stagnated by some difficulties.
For the Southeast Asian market, do you see potential in your parking systems or your cranes? What strategies do you wish to employ in order to expand there?
Both. I like to think of both of them as my children. Energy, resources, and food diversity means national security. Our transportation machinery should be needed in any country. Those countries have very big cities, and big cities need many more parking systems suitable for the next mobility system. Our target is always the big cities of the world. Europeans tend to not like using parking systems such as ours, however, you will be surprised that the first mechanical parking system in Japan was a German product.
In major cities across the world, it is estimated that up to 10% of traffic in the city center are drivers looking for parking spaces. Since your foundation, your company has been providing high-capacity parking systems. How are your parking systems superior to more conventional ones and how are you adapting your parking systems to suit densely populated areas?
I think the solution requires not only the parking system, but also the integrated IT systems too. By that, I mean a smartphone reservation system or something similar. These network systems will be useful for not only the drivers but also the parking system providers.
Our parking systems have a lot of variety. For a parking system owner, if they need a small and compact parking system, we can provide that. In the mid-Tokyo area cars tend to be bigger, wider and taller than normal. We can provide parking solutions for those car owners. Recently the number of EVs has increased, EVs are expensive right now, and tend to be rather large and heavy to accommodate the batteries needed. The big thing with EVs though is that they need the power to charge. These requirements are difficult to solve for old type mechanical parking systems. We can provide new solutions to these EV owners and parking owners.
Japan is often criticized for its slow adoption of digital tools. In fact, it is ranked only 28th in recent digital competitiveness rankings. In your company's case, however, you have developed IoT solutions for many issues such as illegal parking and accident prevention. Could you tell us a little bit more about the IT solutions you are providing? What other digital technologies are you looking to integrate in the future?
I think for a company like ours, we need help from other young companies such as startups to integrate more modern IT solutions. Mechanisms of the mechanical parking themselves are not advanced technology. However, the parking systems should be fitted for social requirements by using advanced IT technologies. We try to provide integrated parking systems, which can be combined with local government and community systems. As you know well, the digital aspect is only part of the solution for social challenges. We should know what customers require. To reflect requirements changing day by day onto the parking system, modern IT systems are necessary.
I have a friend who heads up an urban development company. He mentioned recently that he wants to develop a digital society through the production of many sensors. He asked me to join because parking systems are a key part of that plan and a key sensor for society. Everything should be a sensor for the community in order to better it.
Japanese startups are not very well prepared for providing digital services to large corporations. Nevertheless, in Asia, Europe and the US, you can find startups that are leaders in this field. Are you looking to find help or partners in startups overseas or are you mostly focused on the domestic market?
My former position was that I wanted to make global connections worldwide with Singaporean, Chinese and American technologies. That was my dream, but at the moment, this company is very domestic. My dream continues however, and one day I hope to connect to the global market. As I mentioned earlier, Japanese companies, both big and small, are very poor at diversity. Even small startups can often not see past what is in front of them. American startups on the other hand are thinking about the global market almost as soon as they are established. They are thinking of ways to adapt their technology to global needs and requirements. This is a very different approach. If my company wishes to expand out to the global market, we must be more global and think more global. The key to this is connecting with global IT companies and startups.
From a manufacturing and machinery perspective, what role do partnerships play in your business model and are you looking for partnerships in overseas markets?
Collaboration with local partners is very important for the growth of a business. In China, we have a partnership with Huatong Group. We have started conduct the parking business in China Quingdao.
Your cranes are used for a variety of applications, such as construction, the industrial sector and even ports. One of your latest jib cranes is the V-series, which can respond to a variety of construction methods. Can you tell us what benefits your V-series offers your customers?
We adapted inverter systems for these machines. Generally, the V-series features very precise controls. Our cranes tend to be stronger than other companies' cranes. However, I feel the differences do not end there. Operators really like our cranes because the operation system is highly reliable. Our cranes are very stable, so when you hang heavy material from the crane, its deflection is small. As with our other products, the heavier the crane, the higher the cost. As I mentioned earlier, good things come at a price. Customers know this well, and they choose us.
Since 2004, your company has expanded into China, along with Malaysia, Indonesia and Taiwan. Moving forward, are you looking to further expand your operation internationally and what strategies are you looking to employ?
Right now, we are looking to utilize those subsidiary networks. They alone are too small for global business, so we are looking to make them network with local companies. Localization is also very key to gaining a presence in a region, and crucial for further expansion. We are not looking to create more subsidiaries right now; we feel that we have enough.
Imagine we come back six years from now and have this interview all over again. What goals will you like to have achieved by then?
My dream is to make this company a global and diverse one. Our company can be a little traditional and I hope that if you come back in 6 years' time, our company will be operating across the globe. In fact, perhaps a change in business model is needed, and perhaps we can transform our business into a service company.