Civil engineering firm Raito Kogyo, whose main business is in slope protection and stabilization, ground improvement and soil-cement walls, is looking to expand its footprint in Asia as investment in the region’s infrastructure increases dramatically. The Worlfolio speaks with president Kazuo Suzuki about the necessity of going abroad for Japanese companies faced with a dwindling domestic market, as well as his company’s operations overseas.
Until very recently, the Japanese private sector has been relatively afraid of going abroad. You have said that you have had some trouble of establishing yourselves in India. Why do you believe that the Japanese private sector is having trouble going overseas? Also, how important do you think it is to go abroad?
It is important to expand abroad. However, until recently there has not been a necessity to do so because the domestic market has been big enough to make Japanese companies grow. It’s not about being afraid, but one of the main flaws Japanese companies have is that they are risk-averse. They think too much about something going wrong. Japanese culture doesn’t really allow for failures, it’s regarded as something that is shameful. So, it’s more of the personality of this country that leads to Japanese companies not being able to take those risks. Also, Japanese people tend to pursue perfection. They don’t want to do things that are half good. As a result, they think about it a lot and then they act on it.
One more reason is that, in Japanese companies, a lot of decisions take time to actually happen and be processed. There isn’t usually just one decision maker in a company. It’s usually numerous amounts of people that all have to sign off on something in order to make it work. That’s a very Japanese way of doing things in business.
However, as you are aware the Japanese market is being saturated and it’s prospected to be diminishing hereafter, so it’s very important to go abroad and interrogate into the foreign market. Now, it is time for us to change conventional ways of thinking.
Up until now, Japanese companies have been very conscious about costs. It has been more of an artisanal way of thinking. If the quality of the product is truly good, then the cost doesn’t matter. But that way of thinking means that they get left behind from the rest of the world. It’s also very pertinent that Japan starts creating things that fit into the lives of people across the world.
More than 56% of Japanese exports go to Asia. From your perspective what potential do you see in the Asian market as a whole, including China, Korea and the ASEAN?
I believe the potential of Asia is very high in terms of the possibility that Japanese companies have to expand and grow in the area. Its geographical proximity to Japan is definitely a big advantage to us. This explains why more business transactions in trading as well as in other industries including ours occur between Japan and other Asian countries as compared to the U.S. and EU countries.
As you can see, the population is declining in Japan, and it’s predicted that it will be difficult for the Japanese market to grow significantly in the future. Even in the construction industry, market trends have been shifted from quantitative expansion to qualitive improvement. The demand from social infrastructure has also been moved from development and expansion to maintenance and repair. Under such market conditions, we have to think seriously about going to Asia so that we can grow sustainably in the future. Investment in infrastructure in Asia is expected to increase dramatically, especially in South East Asia.
However, there are many competitors in those markets, such as Chinese and Korean companies. We are not just taking those markets as places to expand into unilaterally but as places where we can make a good partnership and cooperate with local people.
What do you believe are Japan’s strengths over China and Korea?
In Japan, it’s always been said that the quality is amazing. That being said, we are losing out based on costs in comparison to other countries. So, does that mean we need to cut back on quality? From a Japanese perspective that is unacceptable. The item is being made in Japan and the quality must be very good. Japan is known for having superior technology. So can we really compete just with the quality?
Good quality is the strength of Japanese companies. However, this could rather become a weak point if we pursue quality too much without considering cost and needs and provide excessively high-grade products that customers are not asking for.
Here is another story; when we went to Angola, there were companies coming from other Asian countries. They would bring their whole party, from managers and engineers to operators, workers, cooks, and even housemaids. They built their own village in the middle of the site. It seemed they didn’t care about the custom of the land. That way of working reminded us that we need to look into the essence of customer’s needs of each country that is willing to bring our services in.
Right after Japan lost WW2, the focus was not on quality but that everyone had something. However, once the quality of lifestyle went up, people wanted more quality. We are hoping this happens in South East Asia. For example, countries like Singapore, who do have good things, now want more quality. They are coming to us and ask if we have any suitable products for them. Then we can propose proper things to them, and they are buying Japanese products even though they are a little bit pricier.
In countries that just need sheer number, it may be difficult for Japanese companies to do well, but once their quality of life goes up, Japanese companies can compete more aggressively in those markets. They will understand that Japanese products are actually better, and better quality means better cost performance down the line. However, that being said, we can’t wait for these countries to become developed enough so that these people would realize this. One of the barriers we are facing for now is that we have to create products that fit the needs of the people living in those countries.
The important thing here is to find out what people in that country really need, and if necessary, we reduce cost by cutting down marginal functions while maintaining the essential quality.
Since your establishment over half a century ago, how has the company evolved and what core technologies have you been offering to the market?
We have two main fields. One is to stabilize and reinforce the soft ground. The other is to prevent disasters such as landslides and slope failures, and to restore in case these disasters occur. The land of Japan is 70% mountainous and 30% flat, but we have many soft soil areas where ground stability is poor. Moreover, many natural disasters like floods and earthquakes occur every year regardless of the seasons. I'm feeling natural disasters, especially climate-related disasters, are becoming more severe these days. Under these conditions, we need to maintain various infrastructures such as roads, railroads, airports and ports, and keep them safe. It is very important to keep the ground stable all the time and prevent liquefaction and land subsidence from occurring during earthquakes. We have continued to develop technologies in this field for more than 70 years, and now we have technologies that can respond to various ground problems and disasters. These are the technologies we believe in the near future we can export to Asian countries as they start to need more of these things.
Why should companies, overseas or domestically choose your products?
Although earlier I mentioned that there are many competitors from China and Korea, we are actually starting to get more business through Chinese and Korean companies. Those companies are starting to realize that it is not only about the price but more about the quality. They are trying to prevent accidents from happening after they build something, and that’s why they want something and someone they can trust and rely on. When they have some difficult projects, they come to Raito.
As we are not a general contractor but a subcontractor, we have the flexibility to take on these types of work. Even though it’s a Chinese or Korean company, as long as we feel they are valuing our technology, we don’t have anything against these companies in working with them. We believe that these types of projects in the future will increase, steadily, as these companies begin to realize the full potential of our products and services.
Ultimately, it comes down to having good quality. Although sometimes it’s about lowering the quality to fit the needs of the people, by still maintaining quality we will have products and services to sell in these countries.
From 2013, your sales grew from 75 billion yen to more than 90 billion yen in 2016. You are aiming to hit 100 billion in the next couple of years. What is your growth strategy or mid-term plan?
In 2016, the sales were 93 billion, and as the latest results as of March 2017, our sales actually reached 102 billion. So each year it is increasing little by little. As mentioned earlier, the domestic construction market is relatively flat, so it is not possible to expect a sudden surge in Japan.
What we are aiming for is to keep a general slope upwards that we hope to help with having new markets to expand into and new technologies to continue research and development. The new markets we try to expand into are markets in Asia, especially in South East Asia. The direction of new technology development is to enhance existing geotechnical technologies by using information and communication technologies, artificial intelligence, and robotics. We are aiming at saving labor for these works.
You have been in this company for more than 30 years and appointed president five years ago. How has it been working for this company for such a long time? How has it been being the president and what objectives have you set yourself before leaving the company to someone else?
If you look at growth numbers over the past few years, the growth has been quite substantial. Although this has been under my presidency, I believe the reason for this is simply because the market environment has been a tailwind for us.
Right now, within the company we are thinking about what we can leave for the next generation. One of the answers to this question was to have a research development centre which is now becoming our development base. We believe this facility will help us to create new technologies and to explore new fields, which will help Raito's further growth in the future.
We have been talking a lot about how working with Japanese companies is expensive but sustainable through the years. Therefore, what final message would you like to leave to companies in Asia in regard to the different technologies and services they can get through working with Raito Kogyo?
We would like to contribute to infrastructure development in Asia by using our expertise in geotechnical engineering that we have built up over the years. We would like to provide our skills and knowledge in accordance with each country's needs. We also hope to build partnerships with many different companies and organizations in Asia so that we could work together with local people and contribute to the development of such skills and knowledge in these countries.
These developing nations have young people and the infrastructure isn’t in place yet. They will be at the forefront of getting these infrastructures in place. They actually have a higher ability of taking in new things. By working together, Raito can teach them technology and know-how with employment. Moreover, we can share information with people in those local areas to develop more products that fit in with those local needs. Also, by procuring the raw materials from the local areas or other Asian countries we can limit the cost that way.
If the market environment of Asia was improved and manpower and goods were transferred more freely, it would be beneficial for all Asian countries for better development. This would also accelerate business growth for Japanese companies in this region. I hope that one day we will be able to integrate ourselves into those countries more by having more offices in those countries.
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