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Overseas expansion potential for niche ‘scrap and build’ machinery experts

Interview - September 2, 2016

Toshiyuki Kanda, President of the Okada Aiyon Corporation, discusses the potential to further expand the company’s niche products for the demolition and construction sectors not only in Japan, but also overseas, particularly in Western Europe, Southeast Asia and the US.

 

TOSHIYUKI KANDA, PRESIDENT OF THE OKADA AIYON CORPORATION
TOSHIYUKI KANDA | PRESIDENT OF THE OKADA AIYON CORPORATION

What do you think has been the impact of Abenomics on the economy? Has it met your expectations in terms of boosting growth?

Abenomics was implemented with three arrows. The first arrow touched upon monetary policies, which was approached with a very aggressive strategy that I believe has gone fairly well. The second arrow was about fiscal policies, and I believe this was positive too. The third arrow, the growth strategy, has not been as successful as expected. It is still early to say, and we have to wait a bit for it to be fully implemented, but compared to the previous policies, I personally feel that we can get something out of the growth strategy plan if it is implemented well.

 

As a company related to the construction sector, Abenomics is indeed putting more money out in the market, and with the Tokyo 2020 Olympics coming up, there will be a lot of movements in this sector, both in terms of new construction and reconstructing existing buildings. Do you believe your sector and your clients have felt this growth?

We have created an arch reaching up to 2020 for our mid and long-term plan. So far, we have not yet seen the expected hype of those events, because there was a problem with the Olympic emblem and the stadium. There have been a lot of problems regarding the preparations for the Olympics. We were very excited about the opportunities surrounding this major event, which was why we created this arch, but so far it is not living up to the expectations. The government has been putting in a lot of effort towards this as well, and it is true that the demand is increasing, but the projects related to the Olympics have not yet picked up pace. When they do, we are ready for it.

 

What do you think about the possibility of increasing public-private partnership opportunities in Japan and do you believe this will be the way to grow in this sector?

I personally believe that public-private partnerships are very important for the future growth. However, our company is extremely niche, and cannot be compared to other huge companies like Komatsu and Hitachi that are frequently collaborating with the government. I believe it is essential for the construction machinery industry to have these kinds of partnerships, but Okada Aiyon does not have that much collaboration with the government.

 

The international construction, mining and energy sectors are not having their best times in recent years; but the commodities markets will eventually come back to life. Within this context there will be an important need to enhance productivity in these sectors. How can a company such as Okada Aiyon bring added value to the equation?

We have four main products, the first one being the scissor that is used to break down concrete in bigger sized buildings. The next one is a smaller version that is used after applying the big scissor, to break down the pieces into even smaller pieces. Our third main product is the cutter; and lastly, our fourth one is the hydraulic breaker. This kind of breaker is produced in the US, Europe, China and Korea, so the market for this specific product is huge. However, this machine makes a lot of noise so it cannot be utilized in the cities. Our core business revolves around the first two products, and in these segments we are the number one in terms of quality both domestically and globally.

 

As one of your main operations revolves around breaking down buildings in Japan, considering the fact that there are a lot of natural disasters to comply with, there is also a big need for breaking down and reconstructing buildings in Japan. Do you see opportunities within that area here in the domestic market?

Indeed, the “scrap and build” is one of our core businesses. The lifecycle of concrete is around 50 years, and since Japan experienced a massive economic boom in the seventies, this was when all the skyscrapers and tall buildings were constructed. Toranomon, the area where we are right now, is a “scrap and build” area. And as I said, the lifecycle is around 50 years, which means that most of these buildings require renovations and reestablishments now. There was an accident at the Chuo Highway where the Sasago Tunnel collapsed and a lot of people were injured. The main reason for the collapse was the outdated infrastructure.

It is crucial for us to have the business operating in those areas to re-establish these buildings and constructions. As I mentioned, the Olympics will present opportunities for us, but we are still focusing on our fundamental business, which is the “scrap and build”. We are in fact expanding this business to Osaka and Nagoya as well.

In terms of the mining business as a sector, it is true that we are experiencing difficult times; even China is seeing a decrease at the moment. Companies such as Caterpillar are hit hard from this situation, but our company is not affected as much considering that our core business is still the “scrap and build”.

You mentioned innovation before, and I would like to highlight our product developments. Japan is facing a decreasing and ageing population, which has led to a decrease in the labor force. What we have done is to combine our first product, the big cutter, with a crusher blade, in order to rationalize the product, make it more efficient, speedy, and of course more cost-effective.

Another innovative product we have developed is the quick coupler. Originally, people had to attach a pin inside for it to function properly, which would require a lot of time and effort, and not to mention that it was dangerous. That is why we created this quick coupler to make things more efficient and less dangerous as it automatically attaches the pin. Moving forward, we will continue on the path of improving efficiency and safety in our products.

 

What would you say are the main competitive advantages of Okada Aiyon over the main competitors in the market?

I will not say that we do not have rivals, but in this niche sector, it is very difficult to find actual competitors. Since the product portfolios differ, it is not easy finding one company that offers the exact same thing; only one or two other companies come to my mind that I would consider absolute competitors.

One of our main competitive advantages and key characteristics is that we do manufacturing, sales and after service all in one, and I believe we are the only ones in this sector that can offer this kind of total solution.

We live in a society where everything is affected by technology and innovation, and in terms of cars, clocks and other electric devices, they do not break very easily. However, in our sector, products break so maintenance is very important, which is why it is a great competitive advantage for us to be able to offer this to our clients.

 

As you operate in a niche market, it was also a natural step to expand globally and have sales representatives all across the world; you have just recently entered India, and you have been in the US for a while now, for example. What would you say is your global strategy and how important is your global business?

With globalization, we aim to expand our business abroad. In our business plan of Arch 2020, we have been playing with numbers and words. The 1 times 2 times 10 represent our management expectations to double the profits domestically, and double the profits from our foreign market as well. The triple 10 figure represents ROE and overall profits.

Our foreign expansion is one of the key focuses moving forward. Our core strength as of today is in Japan and North America, but for the future, our focus is on the Far East and Western Europe. There is a massive increase in demand in Western Europe.

 

The Asean region is also presenting huge opportunities in various sectors, and many Japanese companies – not only in the construction sector – are investing heavily in this area. Countries such as The Philippines, Vietnam, Laos, Myanmar, Indonesia etc. are all in huge need of reconstruction and the “scrap and build” business. Do you see opportunities in this area going forward?

I agree that there are big opportunities in this area. Having a look at our company structure and the profits, since the Lehman shock we have mainly focused on the domestic market, and the foreign market represented only about 15%. Our foreign market was almost completely reliant on the US market. Now, we have tried to go further into China and India, and we have set up a sales representative office in India. I do see a lot of potential and demand in the Southeast Asia region as you mentioned.

Our foreign business share has increased from 15% to 20%, and it is still relying on the American market as we have our main subsidiaries there – we recently established our third subsidiary in the US, in Texas – so this is where our key focus is, but Southeast Asia offers a lot of opportunities.

 

Regarding your American subsidiaries, what are your growth expectations in this region, how does business work for you in America, and what do you expect your presence to be in the upcoming years?

We have subsidiaries in Portland, Oregon, and other branches in Ohio and Cleveland. The reason we chose Portland as our head office is because it is closer to Japan. Currently our subsidiary company – Okada America, Inc. – has a market share of around 5% to 6%, but our goal is to make it 10% at least.

We also see many companies moving south in the US. Toyota, for example, used to have their offices in California, but they are now relocating to Dallas, Texas.

Since January this year, we have our office set up in Cleveland. There is a decrease in shale gas in the US, but Dallas is developing other methods so this area can go without it. The fuel price level is back to $50 a barrel, and if this number improves, we will do great.

 

With the new shale gas and new ways of improving especially the oil production, there are two main opportunities: one is to get involved in the process, and the other is to be close to the areas that can generate this energy and amounts of money. As a company strategizing to be in Dallas for this very reason, is there any other geographical position in the world that you are spotting as well?

As I mentioned, we already have the sales representative offices in different places and we have established a strategy in these places that we have to implement. In terms of doing business in India, negotiations are quite hard. Every year, we are attending this world exhibition for our sector. In previous years it has been held in France, Las Vegas and Germany. There are so many people visiting this exhibition every year – it is worse than taking the Yamanote line in the morning! Those exhibitions are very good for us to attend, and we have been able to sell our products at a very high price, so Europe has been lucrative in that sense. We used to have offices in the Netherlands until the Lehman shock, but we had to shut down because of the crisis, and now we are trying to come back.

Europe, especially Germany and northern Europe, are huge markets that we are aiming to tap. One of the main characteristics of our products is that they are expensive but have high quality.

 

Okada Aiyon’s shares on the stock market have rocketed recently and it is apparent that your investors are positive about the future of the company. They feel confident. Do you think they are right in having this positive outlook?

Definitely. Until recently, our company did not engage in IR activities, although we had been in the stock market for 20 years. We started to do more PR and IR activities around three years ago and I was personally surprised by the amount of great response we got from our investors as well as external audiences. When the Tokyo and the Osaka stock market merged, we were facilitating those activities and were able to go higher to the First Section of Tokyo Stock Exchange. Now, we engage in those activities at least once a month because we can really see a good return. In terms of introducing and exporting to foreign investors, we are planning to collaborate with a company called FinTech in order to do PR activities together towards foreign investors.

When we first held IR activities during our general meetings, we would have 10 investors in the room. However, after we started these activities, three years ago, we had 22, and last year we had 100 people attending. During our last IR meeting we had no less than 232 people attending; so in three years we went from 10 to 232 people.

 

You have now been at the helm for 10 years, and in 10 more to come, what would you like your legacy as the leader of this company to be?

Looking back at our history, I was a banker before I came into this company. Okada Aiyon was run by the Okada family and they entrusted me with the rein. During the first year as president, we had fairly good profits, which was very good; but the years that followed were the years when the Lehman shock took place. The first year, I was very humble in my position and did not want to do anything reckless, but after the financial crisis I felt that I needed to move on and do something for the company to grow.

As I moved forward, everybody followed me and I got a lot of support. After all, it turned out to be a good experience. One of my favorite concepts is communication and working together as a team, and our current business is focusing on 2020 as I told you. We have already tripled profits, which is fantastic of course, but in order to become a first-class company, it has to run for a profit of ¥10 billion. We consider ourselves first class if we reach ¥20 billion; that’s our aim.

My main legacy I want to leave is to expand the Okada group. Japan has a large population and it is difficult to make everyone happy, but we have about 200 employees, and making our employees and the people related to our business happy is one of our main goals. That is the legacy I want to leave. 

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