One of Japan’s leading environmental and engineering consultancy firms, Original Engineering Consultants (OEC) has developed its business in various fields, including water supply, sewerage works, sanitation and solid waste treatment.
As a consulting firm specialized in the fields of water supply, sewerage works, sanitation and waste management, how do you analyze the current state of Japan's water infrastructure?
Our role as water consultants is to appropriately handle and judge complex study items that require a high level of expertise from the standpoint of the local government, and to develop plans, detailed designs, construction supervision, and asset data management according to the municipality's budget, service level, and project years.
Water consultants emerged during the period of rapid economic growth in the 1960s, when the need for social capital improvement increased. From the viewpoint of ensuring objectivity in construction, the government clarified the principle of separation of design and construction, and the field of specialized construction consultants who perform design work (survey, planning, and design) was established. The "water consultants" specializing in water supply and sewage systems were derived from this field.
The Cabinet Office estimates that Japan's water supply and sewage infrastructure assets amount to approximately 130 trillion yen, which is the second largest stock by sector after roads. Of this stock, waterworks are almost widely used, with the total pipe length in Japan reaching approximately 670,000 km. However, the annual renewal rate of pipelines is low, at 0.75% on average nationwide, and it is calculated to take approximately 130 years to renew all pipelines. The legal service life of water pipelines is 40 years, but the aging of pipelines is expected to increase due to the lack of progress in renewal of pipeline facilities that were built in large numbers during the period of rapid economic growth, making the renewal of aging pipelines an important issue for the stable supply of safe water.
In the sewage sector, the national sewage treatment population penetration rate is 92.1% (at the end of FY2020), of which only 80.1% is served by sewage systems, and approximately 9.9 million people still do not have access to sewage treatment facilities, thus accelerating the promotion of sewage treatment is required. Although the need for new facility construction continues to decline, a large number of water supply and sewage facilities that were rapidly developed during the high-growth period are reaching the end of their useful lives every year, and there is a need to maintain and renew these infrastructure assets that are essential for a safe, secure, and cultured lifestyle. In addition, there is a growing need for flood countermeasures to protect human lives and assets from the frequent guerrilla torrential rains and wind and flood damage caused by large typhoons that have occurred in recent years, earthquake-proofing to ensure that toilets can be used even after an earthquake, and reinforcement measures for tsunami-proof sewerage facilities.
Due to the declining population caused by the falling birthrate and aging society, we predict that Japan's construction industry in general and the water infrastructure market in particular will not trend upward, but will move toward a gradual contraction due to new needs. However, we believe it is possible for us to expand our business performance. The challenge for Japan's construction sector is that not enough young workers and engineers are entering the workforce to compensate for the declining number of construction workers and construction engineers due to the aging of the workforce.
Water and wastewater consultancy is a business area that requires the integration of various expertise in civil engineering, architecture, structure, mechanics, electricity, geology, water quality, etc. Therefore, it takes a long time to train specialized engineers and gain practical experience. OEC is one of only about a dozen or so comprehensive water and wastewater consulting firms in Japan. OEC's recruitment capabilities have been strengthened by its long business experience in its 61st year of operation, its easy working environment, welfare programs, and psychologically secure organizational atmosphere. If we can establish a foothold in the current business market and continue to recruit and train professional engineers, it is quite possible for us to develop in the future.
On the other hand, looking at overseas markets, the main water infrastructure markets are South Asia, including ASEAN and India. However, although these countries have high water infrastructure needs, their financial strength is weak, and loans from international financial institutions are needed to develop water infrastructure. However, these countries often have already used up their government credit lines, and budgets are often not secured. Even when a project does move forward, it often takes longer than expected for the project to progress due to changes in government policy or resistance from local residents
Many Japanese water infrastructure-related companies tend to analyze such country risks and develop their business cautiously. Whenever we are involved in overseas water infrastructure projects, we too analyze various business risks before deciding whether or not to enter the market.
The aging of the workforce is a crisis of survival for Japan's construction industry. Last year, a quarter of Japan's construction workforce was over 65 years old. Are there any activities or technical services your company is doing as a water and wastewater consultant firm to overcome this challenge?
Construction consultant businesses such as ours are classified as construction-related businesses. Through the activities of our industry association, of which many of our companies are members, we have been lobbying members of the Diet to revise laws to increase the average wage of construction workers and to make the working environment more attractive by reducing working hours and increasing vacations and vacations. In order to secure workers for the construction industry, it is crucial that the Japanese government enact laws regarding immigration of overseas workers so that the industry can hire more foreign employees.
OEC is in the process of developing equipment that will enable us to perform inexpensive in-pipe surveys of sewer pipelines. In addition, when we perform construction work for which we are responsible for the design, we sometimes conduct a question-and-answer session between the construction company and OEC regarding the details of the design.
Construction is a very traditional sector and has been slow to embrace digital solutions. What impact do you anticipate DX will have on the Construction sector in Japan?
The construction industry gets this reputation of being behind in incorporating DX (digital transformation) technology, but there are actually limitations to the introduction of DX into the construction field. It may be possible to integrate DX into monitoring, but the actual work of installation, refurbishment and repair still need to be done manually. It is crucial to establish countermeasures to prevent problems later. As an example, it is important to prevent differential settlement, which can affect the road and can cause accidents. We have to prioritize needed repairs before doing them. Budget is often the issue. There is often not enough budget for the refurbishment of pipelines. We have to do repairs according to the priority and fix them within the budget available.
In these scenarios, a firm like yours can offer assistance by providing solutions in asset management, planning, budgeting and maintenance. Due to the declining population, there are a number of construction consulting firms popping up, such as those we’ve met like Shin-Nippon consultants or Nihon Suido consultants. What are your company’s unique strengths, and what makes you the best choice in comparison to other construction consulting firms?
There really is not a lot of difference among the consulting firms because when it comes to working for the local Japanese government, there are strict regulations and standards for designing public infrastructures. Contracted companies already have high standards, so whatever consulting firm you go with, quality is assured. Municipalities are actively signing contracts with local constructors to ensure the continuity of local business and make sure there are enough companies to support local governments with their construction and infrastructure projects. Our company’s strength is in our flexibility when it comes to meeting the needs of the local government. There are often set contracts but we are flexible in adjusting methods to extend the life spans of infrastructure.
In extending the lifespan of infrastructure, it is important to establish local relationships and pass the technical know-how to local companies. What role does this play in your company? Are you seeking overseas partners?
The business structures in Japan and overseas are very different. Oftentimes, our client is the local government. We usually work as an independent company, and we stay neutral when it comes to working with construction companies. Monopoly is an infringement of regulations, so we have to be fair to all construction companies and offer them the same information. In some cases, there are projects bid by a consortium. In these cases, we can have a joint venture with a construction firm. We make a team and bid on municipal projects. When we work overseas in countries such as the Philippines or Vietnam, we have to follow and take into consideration the intention of the local politicians. We try to establish good relationships with the local politicians and offer our services to them.
What has been your strategy to foster a good relationship with the overseas local communities?
Forming good relationships with the local government and local authorities is very important. We were able to enter the market through financial institutions such as JICA (Japan International Cooperation Agency), ADB (Asian Development Bank) and World Bank projects. At the initial stage of our feasibility study, we provide mechanical, civil and electrical engineers. There are also financial experts to conduct the overall study. Based on this experience, we are able to expand not only in the metropolitan areas but also to other parts of the Philippines. Our expertise and experience in feasibility studies and our ongoing projects expanded our projects in the Philippines and other Asian countries.
How are you looking to expand your international business?
In developing countries such as Vietnam and the Philippines, there is a growing demand for water supply systems. However, they have reached their maximum loans from international banks so they cannot get additional funding to build water supply infrastructure. They want to cover everything within the PPP (Public Private Partnerships) framework. The budget is often not enough, so we are focused on working together with JICA and Japanese international aid agencies to help us have a much more sustainable way of doing business. Working with ADB and World Bank is possible, but their budgeting schemes have shrunk. Their budget allowance for feasibility studies has decreased. This means we have to hire local workers to be able to cover all expenses. Working with JICA and other Japanese agencies, on the other hand, means securing enough budget to fully conduct the high-quality service we normally provide.
A top Japanese firm receives a significant amount of the international aid budget ordered by JICA. This company promotes many projects in cooperation with local companies in various parts of the world.
Although the percentage of our overseas business is not high, we would like to participate in overseas projects in countries and regions in which we have been involved by dispatching engineers to those regions in cooperation with Japanese companies to diversify management risks.
Over the years your company has taken part in hundreds of projects all over Japan and Southeast Asia. Is there a particular project that you believe best demonstrates the ability and capacity of OEC?
One example that can represent our company would be our project in Seoul, South Korea. In 1988, there was the Seoul Olympics and they needed a wastewater treatment facility by the Han river, which was polluted at the time. It took months for our engineers to stay in South Korea to do the work. Our success in this project was the driving force of our company's expansion overseas.
If we come back in five years and have this interview all over again, what dreams do you have for the company and what goals would you have liked to have accomplished by then?
Our goal is to both grow the business and enhance the happiness of the employees. My goal is to make our company’s overall happiness index as high as possible, and not only have the ones on top happy. I hope that a higher happiness index in the company will improve our company values as well.