In this interview, Hitachi Construction Machinery (HCM) president, Kotaro Hirano, explains how the company is contributing to making construction a greener industry through the utilization of new technologies in its machinery. Mr. Hirano also discusses HCM’s international strategy amid the rapid growth of urbanization projects around the world. HCM already has a prominent presence in the US and Asia, where its reputation for high-quality and industry-leading technology has set it apart from competitors. For Mr. Hirano, the reputed ‘Made in Japan’ brand gives Japanese construction machinery manufacturers an edge over competitors on the international market.
We are talking about your machinery that has oil and now we are seeing a trend with rapid urbanization. We see an increase of confined space especially here in Japan and also in Europe which are requiring modern machines that also are able to meet the regulation when it comes to CO2 emissions and customers are looking for eco-friendly products. Could you please tell us as a reliable solution company, what solution are you offering customers in terms of eco-friendly products?
Just as you mentioned how to reduce CO2 is a big challenge and it represents a great opportunity for us. All of the requirements of our clients around the world, depending on the location, whether you are in Asia or North America, it all differs. Our clients in Europe for example, want us to quickly develop electric construction machines and we have done so and are already selling it. But when it comes to our clients in China or different countries in Asia, they still want machines that run on their engines. It is okay for small machinery to run on electricity but when it comes to larger machines that are ten or twenty tons or middle-sized machines, they still need to be empowered by an engine, not by electricity. Also, what happens is that with charging the machine, the usage is very limited to about four to five hours before another charge is needed. It is also more expensive because of the battery price. But I believe that if cars start to run on batteries more, the overall price of the commodity will come down. I believe that not 100% of all these machines will run on electricity, but based on their size and weight, you start to see things that are running on electricity while others are run by engines. I believe that the engines will run maybe not necessarily solely on fuel, but that the fuel itself will change. Maybe there will be hydrogen- based fuel, for example. There are certain machines that can actually be charged on a cable.
In the mining field, Hitachi Construction Machinery signed an MoU in March with ABB, a heavy electrical equipment manufacturer based in Switzerland, to cooperate in efforts to achieve virtually zero greenhouse gas emissions from mining machinery. Hitachi Construction Machinery manufactures electrically-powered ultra-large hydraulic excavators, as well as trolley dump trucks that work like trains and which are charged by using a pantograph. By collaborating with ABB, which has strengths in all mining processes, we can propose solutions that improve efficiency and optimize the operations of the mining machinery as well as the entire mine, with the aim of eliminating carbon emissions.
Not only do we need to provide solutions in terms of supply as products themselves but also how to provide solutions for energy consumption regarding the operation of the product. For example, if the dump truck is running autonomously without the driver, then the duration which it can be used is much longer than if it was being operated by a person. When it comes to reduction of carbon emissions there is not only one solution. What we are able to do is not only enhance the efficiency of the machine, but also enhance the efficiency with which it is operated, and both of these improvements together help to reduce carbon emissions. Altogether, this improvement needs to be given larger consideration.
When you first answered you mentioned that of course you provide products and machinery to different types of market whether it is Asia pacific but also to Russia meaning that your products are basically used in different types of climate? Could you please tell us how are you able to meet the needs of each market? How do you tailor your products to each market?
Basically, each country has different standards, policies, and regulations with regards to engine usage, so we develop our machines according to such regulations of each market. What we do is going above and beyond. It is of course a norm that we would meet the regulations of the market but further than that, we go to provide services for them to be able to reduce their carbon footprint when it comes to the operation and the usage of the machine itself. One key factor is actually the hydraulics of the machine.
We can extend the lifespan of machines by focusing on hydraulic circulation and by making that process more efficient. Even for the "dry machines" that I mentioned earlier, the reason why those machines have become so efficient is due to this factor of smooth hydraulic circulation. So how efficiently you are able to help the oil rotate and circulate, the lifespan of the machine will improve. I believe that moving forward, the greatest competitive advantage of our machines lies in being able to control the hydraulics.
If we look at one specific industry that affects your company, which is the global construction industry, which is in fact expected to grow in the upcoming years because of the rapid urbanization in Asia-Pacific region, we are also seeing massive growth in Africa and South America. As a global company providing and supporting the construction industry, how are you planning to take an advantage of this growth and what strategies have you been implementing in your company to continue following the trends?
Geographically, the market we are looking to expand is India, Central Asia, South America and Africa. These markets hold great potential for us. With regards to the Americas, we are working together with Deere & Company. We are doing the developing and Deere & Company is doing the selling. For us to expand in the Americas, we need Deere & Company to continue to push forward when it comes to sales. In terms of international strategy, geographically wise, it is just as I mentioned that in regards to the Americas, it is our relationship with Deere & Company and how they are able to expand the sales for us to grow there. In terms of our business strategy, I think moving forward, the best way to grow is by expanding our rental machinery and our used equipment.
As I mentioned earlier, the machines themselves continually become more upgraded and with that you see the prices are also increasing, meaning, our clients can no longer use only one machine to conduct the entire construction work that they require. The machine that you would use to work on ten meters of road is different from the machine for one hundred metres road. You would need to but you cannot really hold two machines and eventually you are going to have to resort to renting one of them.
Moving forward, I believe the rental business is going to grow. By providing our rental service of our own machinery, we are able to also conduct control of all of the information and data accumulation for that machine. Up until now, we have been providing rental services in Japan. We have expanded our rental business into North America, China, Malaysia, Europe and the UK. I believe that this is how the industry is going to change. Therefore, we are looking to expand our business by really looking at different elements, not only the technology, but the product and the business model.
When we were interviewing the president of Honda and also Komatsu, they both agreed on one concept which is R&D. If we look at Japan’s R&D expenditure in 2019, it is nineteen trillion Japanese Yen, meaning that Japanese companies are investing massively into R&D to be competitive globally and to be able to compete with other competitors obviously. But not only that, also to introduce new products and new technologies, could you please tell us the role that R&D plays within your company and are there any specific technologies or R&D capabilities that define Hitachi Construction Machinery?
As I mentioned earlier with regards to the functions of the machine, just controlling the hydraulics, for example, is not enough anymore. With regards to R&D and where we can expand, it is in the digital technology area and working together with communications and data companies that we can expand the quality of our product. Recently we invested in the Chrysalix RoboValley Fund.
This is because there are limits to what we can achieve on our own in terms of communications and accumulation of data, so we are always looking for new start-ups and digital technology providers. I think it is really important for us to really be able to find that diamond in the rough. I think one of our largest dreams is the fact that we understand the operation and the ways in which our clients use the machine that we provide them.
Can you give us a brief overview of your latest products?
There is the Chinese dedicated model, you see that actually in China you are seeing the demand expanding. We had a really high market share when I was in China in the early 2000s. Since the collapse of Lehman Brothers in the fall of 2008, the Chinese government had been investing in their infrastructure, with the total amount reaching four trillion yuan. This is part of their economic strategy post a large amount of spending has been circulated especially in the rural regions of China.
You start to see more railways, lots of infrastructure investment happening and there is also complete reorganization of the agriculture system in place. At that time in 2005-2007, we had a huge share in the market. In fact, the growth in demand was beyond what we were even providing to our clients at that time. People who had up to that point been working as truck drivers started buying their own construction machines to use for work. As a result, in addition to those civil engineering companies specializing in the operation of construction machinery, a large number of private operators started to handle heavy equipment because there was such great demand for it. These private operators are continuing to help expand the market demand, and they are now buying machines from Chinese manufacturers. When we talk to such self-employed operators, we find that they understand the high level of Hitachi's machinery, but they say that it is too expensive for them to buy. The prices are high because the attachments are replaced and the machines are equipped with advanced functions that can handle a wide range of operations from home demolition to civil engineering work.
A lot of these self-employed Chinese operators do not need any of those services. They just need a simple machine that can continue to dig well with a shovel. For that reason, we developed dedicated machines equipped with a narrower range of functions focused on civil engineering work, and introduced them to the market.
I have some questions remaining but the next one will be the current situation that we are actually living in which is the Covid-19 situation that has impacted many businesses especially when it comes to the mid-term strategy of each company. Could you please enlighten us and tell us what has been the impact of Covid-19 in your company? And how have you been able to reinvent yourself to be able to be a company that is still leading globally?
So as I mentioned, I have already described to you the strategy that we are taking, for example the fact that rental services and the used equipment started to become an important part of the business. I believe that such aspects will continue to increase as a result of the current of Covid-19 pandemic. Regarding the last fiscal year, our revenue from rental equipment has increased despite Covid-19 pandemic. The reason for that is that as a result of the pandemic, they are not able to conduct work on a regular basis so it is difficult for them to purchase new machinery. For such customers, they utilize the rental services. I believe that once they enter into rental equipment, that becomes an easy way to continue doing that. Not all of our clients will be 100% rental, they will be using some machines that they purchased. There will be a combination of rental machines and purchased equipment. This is what I tell my service staff. Your sales zone that you cover now is not only new machines but it includes used equipment and rental equipment.
Often it is the case that our clients purchase new equipment when they secure a new contract. What happens is if they are able to secure a certain amount of new contracts in a year, then they invest in new equipment. What our sales people do, if they are able to secure a new contract for the duration of an entire year, then we tell them that it is recommended to purchase a new machine whereas if the contract is only for two months duration for example, we recommend them to instead use our rental services. And if they are not able to pay for it or they do not have the funds, we can recommend them to buy used equipment. In a sense, our sales staff become consultants. We are not only looking to sell you the product but we are here to see your payment situation, your investment condition and the way in which your business is running and provide solutions accordingly.