Sanko Group’s instrumental role in global industry

Over the past couple of decades we’ve seen the rise of companies in South East Asia who can replicate certain Japanese civil engineering and construction processes at a cheaper cost and with economies of scale. How have Japanese firms been able to remain so competitive in niche segments such as construction machinery in the face of this tough price competition?

Well, one thing I can definitely share with you is that the world of machinery is a very specific world and is more specialized than a large-scale infrastructure company. What we do is very specific in terms of providing automation services for big factories and facilities. This also includes various control systems, construction maintenance and procurement as well as instrumentation and other control systems.

In one sense we’re a one stop service provider for all of these types of different processes and when it comes to the strength of the Japanese companies the number one factor in their success is their adherence to high quality standards and the ability to provide high quality products and services, including after services, and further, I think the way in which they do business, which is that they develop long standing relationships with their clients.

And when it comes to our global business and the way in which we roll that out to our petrochemical customers, be they Shell or ExxonMobil, or Petronas in Malaysia, or Pertamina in Indonesia, wherever it is, the key is that we're always looking at how to develop the business over the long term. We don't do business in the short term, we plan for the long term and once we have a project underway we are already considering how to roll out the next project after that. This way, we can develop long standing relationships with our clients.

Let's say we have an operation in Singapore and we have a Chinese competitor in terms of price, the Chinese counterpart is definitely cheaper. Probably even half the price we would charge. Although that’s a big difference, the reason why our clients end up choosing us is because once we take on an assignment, we don't run away. We see it through till the very end and I think that is a really key point in this industry.

What tends to happen in this world is that if the financial support stops, then the subcontractor just ends it and runs away. You might say that our company is just a little slow to run away because obviously when the money trail ends, it's not good for anybody in this field, but in our company’s history, we've never stopped a project halfway.

And another thing that we are quite proud of is that when it comes to requiring additional costs from our clients we don’t hide or run away but negotiate frankly and fairly with them. In our corporate history we've never taken legal action against any of our clients, and I think that's very rare in this industry compared to how that happens all the time with North American firms.

Everyone is quick to take legal action, but we believe that the cost of undergoing these types of legal processes far exceeds the actual cost of the project itself eventually. I guess you could just say that it is a standard basic policy that we have within the company to always seek long-term relationships with our clients and we're never looking to just have short term relationships, but rather always looking at the long range view and doing business from that perspective.

When we start a relationship with a new client, we provide them with the kind of service we’d like them to continue to rely on in future projects so in this way we are doing our own PR (Public Relations) work whilst actually working with clients. And the basis of that PR is definitely our standards with regards to our emphasis on providing high value, quality and safety. Particularly on quality and safety, we do not compromise and that’s why our clients value our work so highly. Since the start of our company in the 40s we have not had even one fatality at any construction site, and I think that is something we pride ourselves on.

In the era of Industry 4.0 everything is getting automated through the use of sensors and actuators. As a firm specializing in instrumentation, how do you believe your business will evolve in the future?

We have something of a passive posture when it comes to satisfying our customers’ requirements. We will react to their changing needs rather than try to pre-empt them. If a client would require certain automation services, we would provide those services as and when they are needed so we're not necessarily pushing specific proposals, but rather just providing the construction maintenance services that they would require.

There's a little bit of consulting involved where if they come to us with a proposal A and B we'll let them know which is better and which is easier to do in terms of construction and maintenance considerations but we don’t proactively push them to go into further automation.

I don’t believe Industry 4.0 is having a big impact on our business. It has a greater impact on such manufacturers as Hitachi as the industry becomes more standardized. My own assessment of the trends in this sector is that Japan still has to catch up with countries like Germany where there are clearly defined market standards. In Japan companies are still competing with one another within the market to become the market standard, and it's only once things become standardized and we start to see a more horizontal structure being rolled out that we will see those larger companies become subject to those changes you mentioned.

Since we are a B2B supplier of instrumentation, it’s different for us. We adopt new technologies when they become available to maintain and improve our level of quality but no wholesale changes are needed. For example, some of valve actuators that used to be controlled by  air pressure or electricity are now controlled by  radio waves, and so those kinds of elements might change but there won't necessarily be a huge, drastic change with the way in which we do business.

Your business is composed of four main areas: instrumentation, construction consulting, engineering and you also have your own manufacturing capabilities. Can you tell us what are the synergies you're able to create between these four businesses, and how do they benefit your clients?

We started out just as a run of the construction company putting together pipes, laying cables, not having any technical expertise after the war. We could have just remained in one field, but we realized that we could actually provide a variety of services to our clients.

I’ll give you an overview of our corporate structure. Sanko is our parent company, then we have Sanko Controls Co., Ltd. and Sanko Construction Co., Ltd. Then there is Sanko Material Supply Co., Ltd. and Sanko Computer Software Co., Ltd. Senko holds 100% of the shares of all the companies.

Sanko Head Office in Tokyo

So how do we execute projects? Let's say it's a project in Singapore. Once Sanko signs the contract via our overseas subsidiary, Sanko Provides the engineering sub services and construction design. When we take on a project we sign an EPC (Engineering, Procurement and Construction) contract which is the standard in our industry. Sanko does the engineering and construction and the procurement happens at Sanko Material Supply. In terms of procurement of the materials, Sanko Material Supply effectively procures them for Sanko.

If it was a petrochemical project then Sanko Computer Software company and Sanko Controls would take care of the maintenance. And of course, before we started the project, we would inform our clients of the fact that we have these various in-house capabilities. Each company takes care of a separate part of the project.

Sanko Controls also has capabilities to manufacture such as a various sampling system and instrumentation panel, so we're able to provide those services throughout the project. Let's say as part of the project, the petrochemical company wants to develop a certain specialized system on a small scale, using PLC (Programmable Logic Controller) for example, then Sanko Computer Software can design and develop the software required.

You deal with very varied types of manufacturers. How do you tailor your services to each client? How are you able on a Monday to do a petrochemical plant and then on a Thursday do a semiconductor facility?

Good question. As I explained earlier we have a chain of management in place which facilitates cross-company workflows within the Sanko group when engaging in large projects involving varied processes. However, at the same time, these companies are also independent firms, so they each have their own independent sales forces and marketing divisions.

So let's say in the case of a pharmaceutical company for example, you would have Sanko Controls independently conducting the sales, and executing the project within the company. Sanko Controls has two major departments, one being system validation service (SVS) and the other being its manufacturing (Instrumentation and Control System) division. The particular expertise of Sanko Controls is pharmaceuticals and nuclear power so if there was a pharmaceutical project, they would actually take the lead in signing that contract and then take that forward to Sanko.

Our other companies like Sanko Computer Software have their own sales divisions as well, and it takes care of one of the world’s leading tire manufacturers so if there was a project for them, then it would actually be the point person in charge at Sanko Computer Software who would make sure that any of the other companies within the group that would be required to contribute to the project were properly notified and brought on board, whether it be Sanko Controls or Sanko.

So each company has its own sales division and marketing, and they take the initiative in whichever field they have technical expertise, and so in that way everyone is taking initiatives to sign on to projects in different sectors, whether it be petrochemical or pharmaceuticals. One thing to bear in mind though is that the types of projects that come about tend to change according to the specific conditions at the time but nevertheless we can cater for manufacturers in all areas of industry.

A contract in Singapore would be signed by Sanko’s subsidiary in Singapore whereas if there was a project in Indonesia, maybe Sanko’s subsidiary in Indonesia would take the initiative, but that's not always the case, so there are varying sorts of conditions. We have many different channels and many different ways in which we connect with our clients, and we can offer different things to different clients, from maintenance services to software and all these capabilities that we have acquired have come about through the synergies created between our businesses.

You have a worldwide presence now not only in developed countries but also developing ones. Can you tell us a little bit more about your international strategy and looking at the future, what goals and objectives you have for your operations in developed and developing nations, and which markets will you prioritize?

We have several different companies overseas, but the way in which they were formed were all different. In Singapore they conduct construction, engineering, maintenance and procurement, but not necessarily the control software. In the Philippines our company doesn't do any construction work, it only does engineering design. Just blueprints and drawings, and they actually take care of such work for many projects as well, and in doing so, we're able to keep our costs down.

And actually Vietnam is very interesting. We actually do recruitment there, and  provide personnel from our Vietnamese company. We hire personnel, train them and finally send the trained staff to group companies in Japan and they are considered part of our team. We have about 60 employees that are from overseas, including countries such as Vietnam, Thailand and the Philippines.

Overseas workers only represent about maybe 10% of our total employees, so the number of Japanese employees is about 650 today. And I believe that we will eventually recruit around 30% of our workers from overseas countries. This illustrates our commitment to finding the right people to play varied roles in the markets that we want to expand into.

We were up until just recently thinking of expanding into Myanmar, but I'm kind of relieved we didn't. Let's say we had a big project in Singapore involving 1100-1200 people. Among those 1200 people, maybe five would be Japanese. The rest would be Singaporean locals, and also Malaysians, Indonesians, Burmese, Indians and Pakistanis. We actually recruit personnel from these kinds of countries for the project.

The reason why we were looking at Myanmar as a next location to grow in is because it seemed quite neutral in terms of not having certain religious restrictions as well. When we're doing business with our overseas clients, among the biggest barriers are the religious restrictions that come into play. And that is why we thought that maybe it would be a good idea to expand into Myanmar.

Moving forward, our basic policy in terms of how we want to globalize and continue to grow, is that wherever there is work, we want to be able to go in and do that project. So if we find a viable or exciting project and opportunity for us, we want to be able to open an office there and be able to recruit local people and make the project work.

So if you ask me, where do you want to go? I guess the answer would be anywhere. But strategically, in terms of where I have an interest in going, you could say the Middle East as well as South Asia, including India. Up until now we have had projects all over the Middle East, including Saudi Arabia, Iran, Iraq, and the UAE.

In terms of the Middle East, especially with regards to petrochemical projects, we've had several different projects there including seawater desalination plants, and we were doing such projects even before and during the Gulf War. A number of our employees were taken hostage as well although thankfully every member of our staff could escape uninjured, and so we have a little bit of experience with regards to the Middle East. We haven't yet had a project in Egypt. We did a lot of projects in Iran but the latest one was about 15 years ago. I think it was something to do with LPG gas.

Companies in heavy industry and construction sectors are having problems hiring qualified people and hiring overseas workers entails setting up training overseas. Can you tell us how you are dealing with this human resource problem, particularly in Japan, and how is your Instrumentation Technology Development Center helping you overcome this challenge?

Actually, the instrumentation technology vocational training school was accredited by the governor of the Kanagawa Prefecture. Its official name is the Vocational Ability Development Center and it was developed not only to train our and our clients’ engineers, but also to provide certain certifications required by our end users. It is run using money both from our clients and Kanagawa prefecture and it is also the main center where we train and certify our overseas employees.

Training foreign staff at the in-house training center

I think that the governmental system which oversees the training and recruiting of foreign apprentices in Japan could be better because historically the government actually has quite a conservative approach to providing working status to foreign employees so there is a lot of bureaucracy involved.

I think it's quite preposterous that there's a system in place in Japan where the country will welcome foreign apprentice and have them study and get training in Japan for a number of years, and then be required to go back to their own country and contribute to their own economies based on what they learned in Japan.

This refers to the technical intern training system which basically makes it virtually impossible for them to receive employment at a Japanese company in the long term. Our company therefore does not adopt  this system and once we train our overseas employees in Japan they get to work for our subsidiary company in their own country, like Sanko Vietnam, for example. Once there, we can apply for their visa from the Japanese immigration department so that they can transfer to another company within the group located here in Japan. It is called an intra-company transferee visa.

So it's a little bit complicated, but after newly employed, they receive training in Japan for a few months, they go back to Vietnam for one year, let's say, and during their time in that company, they learn Japanese and take a ‘basics of instrumentation’ course and then they're able to come back and work here, where we have a school already so they're able to get the basics of engineering / instrumentation, and how to continue living in Japan - opening a bank account, being able to get a cell phone – all the basic things needed to get oriented in Japan.

As they've studied Japanese for one year in their own country already, they understand Japanese a little bit and we work with them on the understanding that they want to live and continue working in Japan. Of course it's up to them, and it's their free choice to stay or leave, but we do give them the same training and standards that Japanese employees get and in a sense it is more beneficial for them to continue working and living in Japan.

They could make use of the intra-company transferee visa system where we provide more in depth training and offer them a viable career path. This is part of our commitment to human resources, and the investment that we make in it.

So I believe that it's a win-win process and it gives a lot to those who choose to take this route. This is how we believe that we can really support the Japanese workforce and really be able to achieve our goal of having 30% of our total workforce come from overseas.

What are your dreams for the company over the next few years and what goals would you like to have accomplished by then?

I know this is a strange thing for me to say based on my position, but we're not necessarily looking for specific targets that we want to reach in terms of sales and profit. Rather, I'm more focused on increasing our reputation not only in Japan but across the world so that when a person thinks of instrumentation, the first company that springs to mind is Sanko.

I’m often asked what the future of instrumentation is because people are looking at whether it is something to invest in or not. There are definitely these different trends like Industry 4.0 and the markets that are really growing are the ones related to technology, ICT and all of these kinds of sectors. But you know when you actually consider the technology involved in our field, it's actually quite low tech but it's indispensable. Somebody needs to lay down cables and install instruments otherwise things won’t work.

So of course the kind of technology required will be different according to the time and the place but with regards to the kind of work that we are providing – and with all due respect to our employees - it's not necessarily the fanciest, most cutting edge technology that we're dealing with. However it is still most certainly indispensable, so our work is about laying down the solid, steady but indispensable type of steps that are required universally in big projects.

I think that if we are able to maintain our business on a steadfast level, then we're going to always be able to contribute to a safer society for all and maintain a viable presence even into our 80th anniversary.