By integrating agriculture, construction, recycling and all-weather pavement repair solutions, IKEE Group has earned the reputation as the advanced infrastructure activist. We spoke with president and CEO Shu Nishiyama to learn more about the company, its services and its plans for the future. From road paving and drainage piping to agriculture, materials testing and landscaping, IKEE Group uses synergies to its benefit, allowing everyone to “proceed with a common, united purpose,” Mr. Nishiyama says.
What is your analysis of the Japanese construction and infrastructure sector today and how do you think it will advance and evolve in the future?
Some say that the Japanese construction market is mature, and I do not think there are big projects or big developments looming. Companies will be forced into specialized areas such as maintenance. On the other hand, Japan has seen a strong trend towards urbanization and the centralization of people and resources. However, there is an opposing force to this, and that is the value and beauty of rural areas. The main activity for the Japanese construction market is maintenance: in the past, we went down the path of urbanization and now we need to focus on maintenance.
European cities, for example, tend not to be huge. Maybe we are at a point where we must choose between continued urbanization or repopulating the countryside. In terms of maintenance, cities are more effective and efficient, but if the entire country is to be equally developed, then we need to consider the value of the countryside. We need to determine which way we are heading.
However, look at Indonesia. They are relocating their capital and that discussion has also occurred in Japan in the past. It has almost faded in Japan for now, but it will re-emerge at some point. On the other hand, the future may not be as we expect and there will be other options as well.
Japan has the highest average life expectancy in the world, at 85 years, and almost a third of the population is over the age of 65, which translates into a limited labor force and shrinking domestic market. How are these demographic issues affecting your company?
Again, this is a very painful issue to think about and the fact that Japan is an island creates both advantages and disadvantages. Now in Japan there is a kind of momentum that the economy needs migrant workers.
For example, think about Singapore. Many workers come from Malaysia; they can cross the border into Singapore and return home to Malaysia at the end of the workday. That cannot happen in Japan. Perhaps farming villages would require migrant workers but local consent would be needed for them to live and work there.
There are various perspectives regarding this issue in Japan. The situation is very interesting, and we do not know what will happen next. I need to develop both expectations and predictions about the changes to come, an expectation being something that I would like to happen and a prediction meaning what is going to happen. Predictions and expectations are two different things that can be totally opposite, so it is important to keep watching what is happening and understanding what other people think too.
How is Ikee Group trying to address the impact of the changes taking place in Japanese society, especially the demographic decline?
We have tried to recruit workers from Cambodia but that has been difficult because of the pandemic. I believe we will have more migrant workers in Japanese society in the future. However, usually once a trend gets underway in Japan, there is always a rebound, so if things go one way eventually there will be a big swing back. For now, however, we must employ migrant workers, and that is why we hire foreign engineers, including from Cambodia and Mozambique. We now have a Nigerian engineer who completed university in Japan, and another African engineer will be joining us soon.
You have several lines of business spread across more than 10 subsidiaries. What are some of the synergies that exist between them?
We have the road paving business, drainage piping work, materials testing, and landscaping. Originally, we dealt only with road paving. My father, who passed away 20 years ago, was a soldier in World War Two. After the war, in 1957, he established this as a roller paving company. That was our starting point.
After the bubble burst, many companies were struggling, and financial institutions asked us to restructure them. We did not try to purchase them, that was not our intention, but when you look at these companies, they all operate in the infrastructure maintenance business. Their customers overlap, which means we can easily transfer people between them.
Let me give you an example, our agricultural production company, Aguri. This is a company that I built because I wanted to do business in agriculture: obviously, our origins are in road paving but there is an off-peak season to this work, which is during the summer, from May to September, and since we are a regional SME, we have many heavy machinery operators and workers who we want to keep busy during the low season. Furthermore, there is the issue that fewer people are working in agriculture nowadays. These were the two main reasons for establishing Aguri.
To complete my point about synergy, you must know that Aguri produces rice. Its goal is to adopt a model of chemical-free, organic agriculture, so the company decided to try and produce its own fertilizer. Fertilizer requires food waste and other organic waste such as branches and leaves that come from tree and plant cutting. Therefore, our landscaping company, called Yuki, can contribute the materials required for the fertilizer. Furthermore, the technical inspection team within our company, Biruri, can analyze the ingredients. We also have the recycling business, and Biruri delivers the fertilizers to individual customers, who know how valuable the synergy between our divisions is. Our group companies can combine and share customers, information, and technologies so that everyone in the group can proceed with a common, united purpose.
One of your products is Excel, which is an all-weather pavement repair material. In developing nations, road maintenance can be a rather difficult task, especially in poorly connected remote areas that are difficult to reach by heavy machinery. How does Excel target these challenges in the countries where you work, such as Cambodia?
After I went on a business trip to India, I visited Cambodia, traveling there via Thailand by road. There were so many potholes on the way, which is the reasoning behind developing this great product, which is very easy to use.
Excel is a stabilizer for repairing holes that mixes cement and asphalt emulsion. Asphalt mixture is normally heated at high temperatures, but Excel can be used at room temperature and no machinery is required to use it, all you need to do is step on it. However, it is not very profitable commercially because it comes in 20 kilo packages that cost USD 20. I thought that it would not sell well at this price, but I also thought that the Cambodian government would appreciate it.
Since childhood, I have always been interested in other countries, so I have no hesitation in working outside of Japan. Many of my mother’s cousins are Japanese American; I have Japanese aunts who do not speak Japanese, so it has never been difficult for me to get out of Japan. I have always wanted to have an international business and visit many different places.
Our group has developed a very special and unique paving machine. I asked people in Iran if they wanted to adopt this special machine, then I visited Cambodia and saw the situation there and decided it would be a great opportunity for Excel because of how helpful it could be in this country.
To use Excel, asphalt emulsion must be produced and that is why it is unique. Without that, it will not mix with the cement. My main goal from the beginning was to get them interested in the road roller as well as the asphalt emulsion, so Excel allowed me to capture their attention, and touch their hearts from the beginning.
Are you interested in international collaborations and cooperation projects, and if so, what is Ikee Group’s partner of choice?
We have not reached that point yet, but I would like to find a local partner to work with. In Southeast Asia, decent products are not always sold in a decent manner. We can find new partners who we can work well with, but the difficulty of conducting business in Southeast Asia is competition with Chinese companies. For example, a Chinese construction firm that is almost entirely government-owned may be assigned by the state to work in this market, where they offer low prices and fast delivery. That is the type of competition there is in the Southeast Asian market.
We Japanese companies try to emphasize that, although our products may be more expensive, they are of high quality and therefore are cost-effective in the long-term. However, for foreign markets such as in Asia to understand this, there needs to be more awareness and social consent.
Recently, I had a video conference with Cambodia’s Ministry of Land Management, Urban Planning, and Construction. I gave a presentation in which I mentioned that the market has not reached consensus about the need to think more about costs over products’ entire lifecycle, rather than immediate costs, and that is why Japanese products are still considered expensive and their delivery slow. What I am trying to create is not a perfect “Japanese” way, but a 60-40 split between the Japanese and local way of doing things. However, it is difficult to preserve Japanese practices going forward and of course there are big differences depending on the countries where you operate.
Are there any markets or regions that you consider key as part of your international business and what kind of strategy are you looking to employ?
This is partly a joke, but the market with the highest potential is the moon. When I was younger, my dream was to be the first company to pave the moon’s surface. Obviously, that is extremely difficult, so coming back down to Earth, I want to make our company stronger in Cambodia.
Also, we exported the Excel road repair material to Laos last December and we are now in talks with Bangladesh, India, and some African countries. We would like to increase exports of Excel. As you know, Cambodia and Laos are Asian countries that are very close to China. However, if we move to pro-Japan, pro-US countries, major Japanese companies are already successfully operating in these areas, so they are no longer niche.
My goal is to target countries with small markets. If we go into small markets, we might not be successful at first. However, if we think about the expansion of our companies as if our group was a virus, each unit may be small, but we can have a big network and that might be very interesting. Currently, we have a project in Kyrgyzstan, and we have interests in the Pacific region. Obviously, we are an SME so we cannot do the same things that major companies do, which puts us at a disadvantage, so we need to carve out niche businesses.
Next month I am going to meet with the Cambodian Environment Minister because they are trying to build a recycling system. Our current proposal, which we have presented to the country’s Minister of Public Works and Transport, includes the building of a recycling center. Part of the proposal is to use plastic waste to make modified asphalt. We have been working on ways to stop contamination from microplastics and limit the production of dioxins. Once we have developed the right solutions, I think our proposal will be successful.
You mentioned that you are looking to go into small, emerging markets in Asia, Africa, and the Pacific. Will you apply the same strategy as in Cambodia, where you penetrated the market with Excel, and then expand into other areas?
That is one of the business models we can use for expansion, but a quicker way to penetrate these new markets would be by starting a plastic waste recycling business. When it comes to companies, I do not think in terms of success or failure; you either survive or leave. We are doing business in Cambodia right now, but it does not mean the venture has been a success and we might have to pull out in the future.
I am always thinking about what we should do next. Before the pandemic, I visited foreign countries every month, but international travel is difficult now. On the other hand, the fact that not many people are crossing borders could be an opportunity. If we manage to visit other countries, something we are trying very hard to do, that will give us an advantage. Unlike in big organizations, especially Japanese companies, I can do that because I am the owner of an SME.
If we were to interview you again on the last day of your presidency, what dreams or goals would you like to have achieved by then?
I enjoy marathons and cycling, but now I am just thinking of the time when I am going to retire. One of the biggest challenges for SMEs is the issue of succession and preparing the next generation. We are not a big company, so that is our biggest challenge.
My main concern, which I think about every day, is how I can pass this business on to the next generation. I have 400 employees and they are all working very hard. Japanese companies are somewhat like a family, and I know the names and faces of all 400 employees, so I want them to work happily. Even though generations change, I want our employees to continue working happily even once I am gone. For an SME like ours it is crucial to keep our spirit. Larger companies are more strictly organized and can sometimes miss the kind of spirit needed for innovation and growth; the kind of spirit that was evident in Japan in the 1960s, when I was born, and the economy was booming.
My other goal is to remain curious and continue trying new things. That is where there is potential for growth. Maybe I am unique, and other SMEs are more conservative and do not think of expanding their business into international markets or about starting something new.
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