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Hiroshima Banking Reborn

Interview - December 31, 2024

Hirogin Holdings is revitalizing Hiroshima through trusting relations with the regional community.

TOSHIO HEYA, PRESIDENT OF HIROGIN HOLDINGS, INC.
TOSHIO HEYA | PRESIDENT OF HIROGIN HOLDINGS, INC.

As of March 2024, the Nikkei 225 had crossed 40,000 yen, marking a record year for Japanese investment. A significant increase in private equity transactions fueled this surge. Additionally, there was a marked rise in land prices and real estate and an increase in IPO activity. One of the major positive factors was the influx of foreign capital into the Japanese market. The stock market saw its highest level of increase in a decade, and the real estate market experienced a 45% increase over the previous year. How would you explain this very strong Japanese financial market performance? How did it spill over to the Hiroshima region? How did Hiroshima benefit from this investment?

From a macro perspective, the Japanese economy has been deflated for the past 30 years. We are now at a tipping point, and the trend is upward, but the movement will be gradual.

As for Hiroshima, the region is also undergoing significant change. The industries that support Hiroshima are primarily automobile manufacturing and shipbuilding. Carbon neutrality and related sustainability issues are changing the strategies and conditions surrounding the ecosystem of these industries. If these companies can adapt to global needs, this will lead to further progress in the industry.


 


At the same time, tourism is another important industry in Hiroshima. Hiroshima has two famous World Heritage sites, the Atomic Bomb Dome and Miyajima, and we want to utilize these to attract domestic and international tourists fully. We aim to provide attractions and an environment encouraging tourists to stay longer and enjoy the city rather than just take a day trip. The city center is currently undergoing redevelopment, and while Hiroshima's growth is average for Japan, future changes will make it stand out.

We believe the improvement in the economy will be very gradual because wages will need to rise, leading to an increase in the cost of production. The buyer should bear this increased cost. In the past couple of years, in the B2B (Business to Business) realm, price increases for goods have gradually been accepted, and the buyer bears the overall cost, but this is limited to large companies. It has yet to spill over into small and medium-sized enterprises (SMEs) and B2C (Business to Consumer). Once the purchasers and consumers bear the increased costs, wages should rise, and the overall economy should grow.

 

Regarding high-tech sectors like the semiconductor sector, Hiroshima already has some success stories. For example, Rorze Corporation is a leader in wafer-handling robots. Furthermore, Hiroshima has been attracting foreign investment in recent years. For example, Micron plans to open a new memory plant in the area. What do you think makes Hiroshima attractive to high-tech companies? How do you expect the sector to evolve in the future?

One reason is that semiconductor manufacturing requires clean water, and Hiroshima is blessed with water. Higashi Hiroshima City in Hiroshima Prefecture is currently one of the hottest areas. Although the area is mostly mountainous, development is progressing, and Hiroshima University has relocated its campus to this area. In addition, there used to be a company called Elpida Memory, Inc., but unfortunately, it has ceased operations, and Micron has taken over the business. Micron plans to invest 500 billion yen in the future, creating 500 new jobs. This will further advance the local infrastructure and stimulate the local economy.

Looking at Japanese cities economically, the leader is Tokyo and its surrounding areas, followed by the Kansai region and Nagoya. The next core cities are Sapporo, Sendai, Hiroshima, and Fukuoka. Unfortunately, among these cities, Hiroshima has lagged behind in terms of economic development. Still, with the recent active development and redevelopment of the city and its surrounding areas, we expect Hiroshima to grow in the future.

 

Comparing Japan's 47 prefectures, Hiroshima ranks 12th in both population and GDP, which is quite significant. The mid-term plan states that the city aims to execute 130 billion yen in investments and loans in the tourism industry over the five years through FY2028. They want tourists to stay and explore natural, historical, and cultural sights, not just pass through. As a regional integrated service group, how do you plan to bring together the various stakeholders to make this happen? Are there any lesser-known attractions or places you would recommend?

Our group has a company called Hirogin Area Design, which focuses on consulting for regional revitalization, including tourism promotion. One of our group's major contributions has been attracting foreign luxury hotels. For example, our group was involved in bringing in the Hilton, which attracted wealthy foreign tourists. Previously, there were no luxury hotels in the region, but now there is a Hilton, and soon a VOCO and a Marriott will also be operational, expanding the global hotel network in the area.

As for tourism routes, we are looking at how best to connect the natural and historical heritage of the region. For example, we are considering using the Seto Inland Sea to link the islands, Onomichi, Fukuyama area, and Shikoku. This will create an attractive and convenient tourist route.

 

Large-scale projects, such as linking Hiroshima to the Fukuyama area and islands, take a lot of time and involve various stakeholders, including private companies and governments. How do you see your role in this?

Since Hirogin Holdings is centered on banking, our mission is to connect all entities, including national and government bodies, and to provide funding to these operating entities and companies. Our active role is to provide the framework and funding for projects.


Exterior view of the headquarters building of Hirogin Holdings Co.


You have partnered with a venture capital (VC) firm called Hiroshima Venture Capital to establish a 2 billion yen fund to promote startups in the Hiroshima area. How do you feel about the development of startups in Hiroshima? What are some of the key factors you look for when evaluating new businesses?

Hiroshima needs to catch up when it comes to venture capital and startups. We are trying to turn a point activity into a surface activity so that more startups can grow and prosper with Hiroshima as a base. We have worked with a venture capital firm to set up a fund, which has helped encourage startups, but we need to expand it further. To this end, a major event was held this November to bring local companies and startups together.

Traditionally, Hiroshima has had a strong manufacturing sector, but the younger generation is now leaving Hiroshima to work in Tokyo and other major cities. Therefore, it is important to develop and establish new digital transformation (DX) and IT-related industries to retain the younger generation in Hiroshima.


"TSUNAGU Hiroshima 2024," an event that brings together local companies and startups


Your company is deeply rooted in this community and has been based in Hiroshima since its founding as the 66th National Bank in 1878. Over the years, we have evolved through mergers and other changes, most recently undergoing a major transformation to a holding structure in 2020. How does the holding structure benefit your day-to-day operations?

The reason we switched to a holding structure is that we are limited in what we can do as a bank alone. For example, as a bank, our leasing, investment, and management consulting subsidiaries are only auxiliary to the bank's main business, which is not ideal. By changing to a holding structure, all companies are positioned on par with the bank and have more opportunities for business operations.

Currently, there are approximately 3,700 employees within the holdings, of which approximately 3,200 work for the bank. This horizontal holding structure system allows the bank to leverage the expertise of these group companies.

 

In addition to establishing subsidiaries in finance and investment-related fields, such as Hirogin Securities and Hirogin Capital Partners, you have diversified into a variety of fields, including consulting. For example, you have established Hirogin Life Partners, which offers asset management proposals, and you also have a company called Hirogin Human Resources, which provides personnel and labor consulting services. What synergies do you think can be created between these different companies? Are there any new areas you would like to address in terms of business expansion over the next few years?

The greatest synergy from the holding structure is that the bank now functions in terms of linkage to the services of the group companies, whereas previously, the focus was solely on the bank's services. The bank's sales representatives can meet with client companies to identify their investment, human resource, IT, and other needs and link them to group companies that provide appropriate services. This synergy has worked very well in the nearly four years since the holding structure was established.

Looking to the future, new service divisions and companies will be established as needs arise from clients. Since the holding structure is still relatively new, our main focus for the time being is on how to optimally evolve the existing operating companies.

 

By the end of the five-year mid-term plan, you hope to achieve a net income of 45 billion yen. This includes investments in high-margin and non-banking sector businesses. Which high-margin businesses do you believe will contribute the most to this profit target?

Last year, the final profit was 27.6 billion yen on a consolidated basis, and our goal is to increase that to 45 billion yen by 2028. The bank will play a central role in achieving this goal, and group companies will also contribute. Since it has only been a few years since we established our holding structure, it is important to strengthen the foundation of our group companies and generate stable profits.

 

An interesting aspect of your mid-term plan is that it sets non-financial indicators related to the revitalization of Hiroshima at about the same level as the financial indicators. Notably, the plan seeks to make Hiroshima the next generation of modern neighborhoods through increased net migration to the region, increased tourism spending, technology, digital transformation, and sustainability. What service products or initiatives do you see Hirogin Holdings working on to achieve this vision?

The reason we set non-financial targets is that our mission is to revitalize the community as a regional integrated service group with a focus on Hiroshima. In order to achieve our financial goals, we must achieve our non-financial revitalization and growth goals. Our aim extends beyond Hiroshima to include the neighboring prefectures of Yamaguchi, Okayama, and Ehime.

Of course, it is difficult for a holding company alone to effect such significant change, so it is crucial to cooperate with local governments and companies. With numerous connections, especially with banks, we can strongly influence sustainability, carbon neutrality, and related business operations. Therefore, we are committed to contributing as much as possible to these efforts.

 

The Tokyo Stock Exchange has reformed itself to make Japanese investment more attractive to both domestic and foreign investors. This has already paid off, with 9 trillion yen in share buybacks announced as of May this year. One of the most important parts of these reforms is increased information, especially for international investors who are at a disadvantage compared to local Japanese investors. What efforts are you making to increase communication and attractiveness to foreign investors?

We actively disclose materials in English to foreign investors, and I have visited Europe, North America, and Asia to talk with foreign investors. When I speak with these investors, they often do not know much about Hiroshima. They are aware of the city's historical significance, but they are often unaware of its industrial structure. This is understandable, so it is important that I play my part in explaining Hiroshima to them.

 

This year, you established your first overseas subsidiary, Hirogin Global Consulting, in Singapore. What was the reason for establishing this subsidiary this year?

We had overseas offices until the 1990s but closed them due to deteriorating economic conditions. Subsequently, we established representative offices in Shanghai, Bangkok, Hanoi, and Singapore. The Singapore representative office was upgraded to a local subsidiary because Singapore is a hub for shipping and maritime-related industries. With so many clients in this industry, having a presence in Singapore is crucial for us to provide consulting and sales activities.

 

How do you see the future internationalization of Hirogin Holdings? Do you have plans to open new offices, or are you considering inviting partners to Japan?

Frankly, we are not particularly interested in expanding our international footprint over the next few years. This is mainly due to limited capital resources. We also lack human resources and local networks in other countries at this time. However, we hope to become an established global presence in the future.

 

Returning to the mid-term plan, I have already talked about tourism and regional development, but there is an important point that I have not yet touched on. That is the use of digital technology and digital transformation. What value do you think mastering the DX process and technology will bring to Hirogin Holdings and the region as a whole?

DX is at the core of our mid-term plan, targeting business operations and efficiency through DX. It also focuses on leveraging DX to create new value.

 

Hirogin Holdings has a very long history dating back to the 19th century and has gone through many transformations. Of course, there have also been many generations of presidents and business leaders. What goals, ambitions, or objectives do you hope to achieve during your tenure as president?

My goal is to lead Hirogin Holdings to become a group with a dominant presence in the region. As its leader, I will do my best to achieve this goal.

 


For more information, visit their website at: https://www.hirogin-hd.co.jp/english/

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