Innovative solutions for next-generation housing

Could you please give us your take on the construction industry in Japan and how you foresee it in the future?

Let’s start with the business environment in the housing industry, the first aspect is definitely the ageing workforce. You have ageing engineers and construction workers, and this results in a lack of labour. The second aspect is with the decrease of newly built houses you have a decrease in availability of accommodation. The third aspect is that you can definitely tell that there is a big trend towards becoming a carbon-free society. With that, you have different elements being incorporated into housing whether it is lithium batteries, renewable energy, solar energy, or fuel-efficient energy resources. The last factor is with the drive and the push towards realising SDGs by 2020, you have a transformation and change in terms of capital and social values on our societal level. With that, the housing industry is undergoing a full-fledged restructuring and reorganization. This is how we consider the basic components of the environment currently.

Business Environment of the Housing Industry in Japan

In November 2020 Japan’s government declared to the world that Japan will become a carbon neutral society within the next thirty years and of course we are seeing the housing and construction sectors driving forward to reduce their carbon footprint which currently represents 30% of all emissions in Japan. Can you tell us how you will help Japan transition and how you plan to tackle this price problem which is currently reliant on incentives from government?

We are doing third party ownership model of residential PV battery system and water heater.  This kind of business helps the people to obtain this energy equipment without extra cost because they just pay us monthly fee for this equipment. In Japan, we call our service “ENE – KARI” (renting energy)

Making it possible to use energy-saving equipment without initial cost

When we interviewed the president of Pacific Consultants, Mr. Hasegawa, he mentioned that the construction industry has been criticised for its lack of innovative technology in the digitalization era such as Big Data, AI, and 5G, for example. We know that your company has put emphasis on digitalization. Could you please talk to us more about why the construction industry is lacking when it comes to new innovative technologies such as AI, IoT, or big data and how you are attempting to overcome this?

It is not that Japan that has delayed in digitalization, it is the opposite. We were too fast; we were faster than the rest of the world in terms of creating the most complex computerized systems. In fact, we see this with financial institutions like ATM machines. Japan is really fast in terms of creating the most perfect systems, but we are old compared to what is now considered new technology. The systems that we created were much faster than the rest of the world, they are so good that they continue to be used. Now with the rise of this digital platforms like application-based software, that is where it looks and seems like Japan is actually delayed when it comes to that. But it is not necessarily true, but rather we were too good at creating computerised systems and through which we established a solid foundation. Now to transform and shift to this application-based type of digital transformation it is much harder. In terms of our strength in digital technology, to include digitalization is just one aspect of the entire process of incorporating digital technology into this system.

Our strength is we are not just focused on one aspect of digitalization but rather how we can then contribute to enhancing the overall value chain of the entire process. Allow me to explain the value chain that we are creating and incorporating digitalization tech in order to do that. To incorporate different digital technologies into your process, you need to first have this process of standardization. There are three criteria: standardized design, construction, and estimation. That is the basic that you need to first develop, EPCO begins there, then we work on prefabrication. Because you have to create a solid standardization within the model, it then becomes very easy to incorporate prefabrication. The third step in the chain is then to integrate the digital technologies that you are talking about. What follows then is the ability to undergo different types of design on individual project basis. Finally, we are also providing management services for the prefabricated material and the different construction design material in projects. This is not only the strength of EPCO but this value chain model is actually the strength of Japanese construction companies as a whole.

We contribute to enhancing the overall value chain of the entire process.

Your CAD (Computer-Aided-Design) is used to transform CAD data which is in a traditional 2D format into BIM (Building Information Modelling) models which are in a 3D format. Can you tell us why that is important and what are the advantages that you provide your clients by enabling them to transfer from 2D to 3D?

I would like to explain based on the model. Up until now we have 2D drawings, if it is just 2D blueprints, you are not able to understand fully to identify the details. All of the housing construction in Japan built models have all been constructed based on 2D design drawings. The standards today that we have relied on are those developed by extremely talented craftsmen that can work well on this 2D level, but they did not need the details because they could already imagine them as they were working on it. However, with this trend of ageing in the workforce, you do not have as many talented artisans to work on such superior levels. You have more younger people who are not able to do that. Now, when you are able to begin to show the drawings on the 3D level, they are able to better visualize what is needed.

This has actually become a much easier visual aid for the engineers and construction workers. They will not make errors on the site, and they will be less mistakes and the quality will be much better. That is definitely one strength of this change. In terms of our strength, there is a huge amount of information incorporated within this design drawing and the process takes a long time. With that, you have the rise in cost in design and it also extends the delivery period and lengthens the process altogether because you also have very few technicians who can work on 3D level. What we do is we developed a system, so called “CAD2BIM”, which automatically convert CAD data into BIM data. Our original system that we have developed enables us to be able to provide BIM data faster, cheaper, and a greater volume. You are able to visualize on the construction site what is required in the pre-construction process. It expands the amount of what can be done on the prefabrication level. With the ageing demographic and the lack of labour force, you are able to fill in that gap and provide a viable model for Japan’s construction industry to continue to grow.

Our original system allows to create BIM from CAD data automatically

The construction industry in Japan is a matured market. Nevertheless, the global construction industry is expected to reach the value of $11 trillion – more than 40% of which will be held in new projects in Asia-Pacific region. We know that you have your presence in China and Hong Kong. Could you please tell us what strategies you have implemented to take the advantage of this growth and what solution can you provide to foreign companies and foreign markets with this business model?

We established CAD centres fifteen years ago and BIM centres a few years ago in China, and because that history is part of our know how, in 2008 we actually began a joint venture in China with China’s largest piping manufacture called China LESSO Group, they are one of the world’s largest piping manufacturers and they are also on Hong Kong Main Board stock exchange. They are manufacturing pipes, but the added value is low, as a result of creating a joint venture to EPCO, they were able to then provide prefabricated models of their piping technology and their pipe products.

Prefabrication Model of piping

With what extent does that help to expand our business, you may ask? The Chinese housing industry is growing at the rapid pace, isn’t it? This joint venture you imagine must be growing also, but actually it is not. The reason for that is Chinese developers. Housing developers in China manufacture something solid and that is the end of the story for them. They are looking to just design at the minimum cost and expand their profit, they do not care about quality. They will not ensure the material either and I think that is something that is continued within the history of the housing sector there for a very long time. Another reason is that they are retaining employees for a very long period, twenty-four hours, three hundred sixty-five days a year, because they have sustained labour force, they do not need this prefabricated model that does not rely on labourers. When you incorporate this with the system that we are providing, it is a little more expensive.

Do you have any plans to export this to other societies like Italy, Germany, and the US which are also ageing? What next steps are there if this is not working so well in China? How do you envision your international business in the long-term going?

We do not have the concrete plan, but we do have the ambition to do so. However, what has changed in the Chinese housing market is that, up until now, they did not really care too much about the quality because they were looking at the housing industry as an investment opportunity. They did not actually live in the buildings, now as purchasing power has increased, you see that the Chinese are actually living in the houses. With that, they are starting to desire better quality. Another factor is that you see that the labour cost in China is increasing. So, in a nutshell, what I want to explain is that through this prefabrication model system that we are able to provide something that is required when you get to a level of economic growth and purchasing power that a country is able to reach, then they start to see the need and the demand for this kind of system. Developed countries have great opportunities for growing and rolling this out. Those are the markets where we can really incorporate this system and provide it. For developing countries, it is still something that maybe longer down the line.

Through your history, you have conducted a lot of partnerships, for example, with Panasonic where you had a joint company, you also conducted joint research with Cambridge University, and it seems that your group has been very keen on growing with these partnerships. Could you highlight perhaps one of your successful partnerships and a success story of co-development. Secondly, looking at the future, are you looking for a new partnership, and if so, where and what type of partnership will you be looking for?

In the process of doing all of these different joint venture projects, there have been failures but some of the successes include the fact that our work with Cambridge University in which we created this interchange company was able to be so successful that it is listed from last year on the stock exchange in Tokyo. It is a company that provides the service in which you are able to utilize an online system to transfer from one electric power company, say TEPCO, to a new electric power company. What is so amazing about this system is not just about utilizing online to transfer the contract but rather you can actually do a simulation based on your situation in how you use electricity and utilities. It does the simulation for you to calculate and estimate what is the most optimal budget plan and service that would be the best for your case. It projects different scenarios that you can use in your process of choosing what the company needs. This is an idea that started in June 2013 at Cambridge University.

In 2016, you started to see that in Japan, with regards utilities, it became more possible to choose your own provider. There was deregulation of the utilities, with that, we were able to import this UK system into Japan. I think our second success story is definitely our joint venture with TEPCO. With regards to this success, up until now, TEPCO was simply providing electricity to its clients but with this huge global trend towards carbon-free society, they started to incorporate services of also providing solar battery, other carbon-free energy resources and provide that for customers and create this utility functions and they incorporated the third-party model to do so, that is our joint venture.

Allow me to add from the perspective of TEPCO here, being an electric power company, we consider solar energy as our competitor for a long time, if you are going to switch to solar energy, that is going to hurt us. But another value apart from this shift and being able to provide carbon-free energy sources for our clients is the fact that Japan is a country that is susceptible to many natural disasters. As disaster risk reduction (DRR), we are actually buying and incorporating solar and battery energy sources, so Japan becomes more resilient to power outages. In the case of a power outage as a result of some natural disasters, the country will not stop because we still have the ability to draw from solar and battery energy. That is actually a huge strength as an electric power company to have and helps us change our mindset towards our business.

Japanese construction companies tend to be leaders when it comes to disaster prevention systems. In your particular case, do you offer any type of services that contributes to disaster prevention?

One aspect that we are providing is definitely that in Japan there is a housing and construction law where you need to ensure that your facility is able to be sustained in a long term basis. We are creating prefabricated hardware materials that enable that and that it is in compliance with construction law. All kinds of information regarding that facility whether it is the design drawings from the past, what kind of track record or history we have on repair and maintenance, all of that is provided on a digital database and this information is now much more accessible. We also have a call centre that is available to provide after services and maintenance, and management services to our clients around the clock. Through utilising this application and software application, if there is a typhoon on its way, the application will provide information and data about what to do and how to manage the situation. In fact, we even have a BIM maintenance manual[HI3]  incorporated so that the residents in the homes can actually do certain level of repair on their own.

Such backup services really empower the residents and the users that we are able to provide to, an example, is a resident application. The water in the toilet is overflowing, rather than relying on YouTube, you rely on this application. With YouTube, if you were trying to communicate about what is happening, you need to take a video and put it on YouTube. What happens is that if you have to just rely on YouTube videos as your manual, the companies need to put the whole videos based on the different toilet makers and models. However, with this, it streamlines that process, and you are able to provide everything on the BIM data. This same 3D BIM model is something that can be utilised on a number of different toilet models. We are actually creating this at our centre in Shenzhen.

EPCO CRM system

Throughout this interview, you spoke about your company and major trends that are affecting construction industry. If you look at the future of your company, what would be your mid-term strategy to continue your corporate growth? What strategies will be implemented to reach the goal? And what role does international expansion will play in this objective?

We deliberately did not incorporate our overseas sales and profits into our profile so we have made our medium-term plan, something that we can do on a very realistic basis just domestically. The reason for that is that Japanese investors and stake holders, if you make too ambitious a numerical target, it is more negative and not good for them because they see that you start to see your stocks decrease. They do not like that, they like realistic targets. Unfortunately, because of that, you do not have such investors that are going to back something like Amazon. But we do have joint venture in China, and we also have a really wonderful joint venture in Thailand with SCG, Thailand largest cement maker. We have collaborated with them to incorporate this future industry for our BIM platform and streamline their process. In the next five years, through such operations and businesses, we are looking to put ourselves on an upward trend and really grow and create steady expansion. That is why, through such coverage and Newsweek for example, we are looking to be able to be known on a greater level.

Let’s imagine that we come back in nine years, what objective or vision would you like to have achieved at EPCO, both personally for your company and personally as well?

First is definitely through this joint venture with TEPCO and our subsidiary company, TEPCO HomeTech, we are really looking and excited to contribute to a carbon-free society. In terms of TEPCO’s business opportunity and potential here, ours maybe looking to expand to ten billion yen but for TEPCO HomeTech and TEPCO, I believe that it actually would be about a hundred billion yen. And I think when you reach that numerical target, you can really contribute substantially to Japan achieving carbon-free society. The second goal that I would love to achieve is in regard to our joint venture with LESSO group in China. We hope to provide digitalization and prefabrication services which utilize BIM into their supply chain and streamline their value chain and really hope to greatly contribute to enhancing the quality in the Chinese market. The third thing is something that I could not go to too much in detail about our CRM business, we are able to enhance the quality of existing housing and the residents in Japan and to be able to expand that as an asset.