Founded in 1917, Takamatsu Construction Group has grown into an organization comprising 19 companies that work together to deliver industry-leading excellence across four business areas: architecture, civil engineering, real estate and wooden detached housing.
Can you give us your assessment on the current state of Japan’s construction market, and your forecast for its evolution in the years to come?
My general overview of the Japanese construction industry is that it is at a shifting point. Our company is also experiencing a shifting point. Whereas “scrap and build” used to be the predominant trend, now it is more about maintaining and refurbishing existing buildings and infrastructure. We used to focus on building new rental apartments, however we are now more focused on how to rehabilitate and refurbish existing buildings. We would like to add value to these buildings and make them more sustainable, before selling them to the third party.
In order to explain our business strategy, let me first give you an overview of Takamatsu Corporation. There are many landowners in Japan that have owned their land for a very long time. We propose to these landowners to build rental apartments on their land. If the landowners have inherited the land, they need to pay a large inheritance tax. Japanese inheritance tax is one of the highest in the world, so it can be difficult for some landowners, especially if they have many properties. Most of Takamatsu Corporation’s projects don’t work with outside architects. We propose directly to the landowner. We have over 300 people in our sales force in Tokyo alone. We visit the landowners and present them with our proposals for building apartments on their land. That was our business model for over 60 years, and we continue to operate like this today. It is a need that I do not think will disappear. However, there are many existing apartments that were built 40 or 50 years ago that need to be rebuilt. Before 1981, the standards of construction were quite low, and many of these old buildings are now in a poor state. Our engineers have the know-how and expertise to repair and reinforce existing apartments without having to rebuild them. For example, we use friction dampers that convert seismic friction into thermal friction which prevents damage and reinforces the building.
Right now, our business is more focused on these old existing buildings. However, we have to consider the rights of the tenants, and it can be difficult to convince them to discontinue their contracts. We have a team whose duty it is to address the demands of the tenants, before we can begin our work. Going forward, there are many buildings that need to be maintained and repaired, and this is a great opportunity for us to add value to these existing buildings without having to rebuild them.
Since 2000, you have had a concerted strategy of M&A, which is very unusual in the construction sector, especially in Japan. What has been the motivation for this integrated structure, and what are the strengths and drawbacks of this model?
That is a very good question, and one that we frequently get asked by Japanese stakeholders. It is quite rare, but we have been doing this for a long time. It originated as an opportunity for us when Aoki Corporation (a highly regarded construction firm) filed for Japanese civil rehabilitation law, which is the same as Chapter 11 on bankruptcy. At that time, the size of the Takamatsu Corporation was still quite small with around USD 500 million in turnover. Aoki’s turnover was bigger than ours. However, when the bubble burst, many general contractors in the construction industry had invested heavily into the real estate sector, and lost a lot of money. We had an opportunity to acquire some of those companies whose turnover in terms of sales was much larger than ours. We acquired Aoki at that time, as Aoki was devalued. We then acquired the other companies. Some companies that were in trouble, came to us and asked if we would be interested in buying them.
The basic foundation of our M&A strategy began with Aoki Corporation that had financial difficulties. Following that, we acquired Mirai Construction Co.,Ltd. which also was having financial difficulties. These were great opportunities for us and allowed us to consolidate our growth. On the other hand, later on we began to acquire companies that had not financial difficulties, but that we thought were interesting or could create a strong synergy within our group. For example, Kongo-Gumi Co., Ltd. is said to be the oldest company in the world and has operated for over 1,400 years. It traces its origin to the year 578AD, when three Korean craftsmen were invited to Japan to build the Buddhist temple Shitenno-ji in Osaka, which still exists today. They also participated in the construction of many famous temples and other buildings throughout Japanese history, such as Osaka castle, which was constructed in the 16th century. We acquired that company in 2006. They had started to build modern buildings; however, this was not going well, and eventually they went into financial difficulties. We decided to acquire them as we believed it was necessary to support such a historic company.
Another interesting and special company that we acquired is Shimada Gumi Co., Ltd. They carry out excavations of archaeological sites. They excavate the ancient tombs of the ruling members of the area. When we do research for our construction, we sometimes find ancient remains, which we must report to the government. We then must wait a few months for the excavation to be complete before we can start building. There are estimated to be approximately 460,000 sites especially in the western areas of Japan, with around 9,000 excavations taking place every year, and Shimada Gumi Co.,Ltd. is one of the foremost companies in that field.
In other cases, some of the companies that we acquired were family-owned businesses which did not have a successor and therefore were in trouble. Our company is a family business, so we want to support those companies that have the same values as us.
An on-going challenge that we have seen for Japanese construction companies is the departure of skilled workers, due to age or moving between firms. Already, this past year in Japan, one quarter of construction workers were 65 and older. How have you approached the challenge of transferring technical expertise to the next generation?
Solving this problem is a big issue in our industry. In the construction field especially, the recession of 2008 was a very difficult period. Like other construction companies, we refrained from recruiting fresh talent to our workforce. As a result of this, the demographic of our employees in their 30s and 40s is lower. On the construction site, the civil engineers and the heads of the site are usually aged from their late 40s to early 60s, while many of the employees are in their late 20s, or fresh graduates. It is difficult for us to transfer the skills and knowledge of our experienced workers to the younger generation. The generation gap can make it difficult for communication. The construction site hierarchy is like a pyramid. The manager of the construction site is at the top. However, our employees also have to deal with the employees of the contractor and the sub-contractor. It is not just the technological transfer that is the issue. Having to solve communication issues due to the nature and the structure of this industry is also a big problem.
One major solution that has been proposed to address this problem is to embrace new digital technology. However there has been some resistance especially from the construction industry, which can be viewed as being very traditional in its activities. As part of your 2025 medium-term strategy, you want to invest in what you identify as key construction technology ventures. What impact do you see digital transformation having on the construction sector in Japan?
The introduction of digital tools will greatly aid the transfer of knowledge from the skilled worker to the unskilled worker. The introduction of software and hardware such as robotics and drawing technology, as well as the adoption of IoT, are our initial improvement targets. In the meantime, the introduction of unmanned technology such as robotics makes the work pattern easy to repeat on the construction site. However, it has a limitation, as the mainstream construction industry still uses many older 2D maps and not all the maps have been upgraded to 3D yet. This has become an obstacle to the introduction of robotics. The initial setup and process also requires another type of skilled worker. This is always an issue when introducing a new system to the construction site. Integration of the operational processing in the Japanese construction industry is not an easy task, as the customs and pyramid structure of the industry are deeply rooted in the spirit of Japanese craftsmanship. This is also an obstacle that we are facing.
For our company, it is very important to start the digitalization of the type of work with the highest cost burden. We want to initialize this digitalization in those areas. For example, when it comes to precast concrete, right now we are cooperating with other major general contractors as part of a construction association. This is our first priority when it comes to digitalization, as it is easy to implement.
Is collaborating with these digitally focused overseas companies something you are pursuing?
Yes. We are looking for opportunities like this. Right now, we have investments in California and New York. It is very important for us to look for new technologies to introduce to our construction site, so that we can improve our processes. We have met with representatives from companies in California. When we talk about the use of 3D printing in the Japanese construction industry, it is still a small project, however, it is growing in popularity. Due to the labor shortage, it is necessary for us to enter these field.
You reported that in 2019, that more than 25% of your sales contributed to your SDGs which is not something that you see very often from a construction firm. What do you believe to be some of the key technologies that your company is adopting to reach sustainable development goals? How did you reach this 25% figure?
We offer construction that is 15% more earthquake resistant than the provisional standard requirement in construction law. The anti-seismic measures of the friction dampers account for a lot of the percentage. Wind power generation and solar panel installation are also part of our sustainable development goals, as is the use of biomass products.
With regards to concrete and carbon neutrality, more than 30% of the global energy consumption and more than 30% of the global carbon dioxide equipment emissions are attributed to buildings. This makes this industry the single most significant industry in terms of emissions. In Japan, there are many opportunities. The Japanese government promotes the building of infrastructure designed to withstand natural disasters. The Great Tohoku earthquake of 2011 resulted in our company getting a lot of business in the rebuilding of the infrastructure that was damaged or destroyed. Now the government’s policy is that buildings have to be stronger than they were before the earthquake occurred.
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We are currently considering the development of an underwater bulldozer owned by Asunaro Aoki Construction Co., Ltd. The bulldozers that we currently have are remotely controlled. The new bulldozer that is considering development will be autonomous and able to carry out the task independently. The current version can operate at depths of seven meters, and we are working on increasing this depth. This in-water bulldozer is not only applied to disaster prevention. It also contributes to the maintenance of water environments.
When we consider overseas disaster prevention, technology alone is not enough. We need to establish an operation and develop an environment that will provide assistance to those that are using the technology.
You earlier mentioned your synergy with Shimada Gumi who carry out excavations. It is quite an interesting synergy as in some environments, the approach to construction is very delicate. Do you have interest in replicating this success in the United States and other advanced nations who have a need for maintaining and repairing their infrastructure?
In terms of the excavation business in Japan, ancient sites are well protected. I think that countries such as England and France that have old histories have similar regulations when it comes to excavations. A lot of knowledge as well as government supervision is required. It would be quite difficult for us to tap into these markets in other countries. That being said, Kongo-Gumi Co., Ltd. were requested to help in the construction of a temple in China.
We can see that in your recent history, your company has been acquiring companies through M&A activities here in Japan. Right now, you have 19 companies in your group. You are currently looking to expand overseas especially to the US, and also introduce disaster prevention technology in Southeast Asia. As a strategy for going to these countries, are you also looking to carry out M&As in these countries, or are you mostly focused on joint ventures with local partners?
We are looking for joint ventures with local partners. When considering Asia, we will need to work closely with the local companies who can provide local labor. This can cause some delays. We will also have to work with Japanese manufacturers to tap into these markets. However, it is very risky when establishing operations in some overseas markets, so we need to assess the risks. We want to export our expertise and technological know-how when it comes to disaster prevention to these overseas markets, but we must ensure the conditions are right for us.
This year your company is celebrating its 105th year anniversary. Imagine that we come back five years from now and have this interview all over again. What would you like to tell us? What are your dreams for this company and what goals would you have liked to accomplish by then?
As I mentioned, we have recently grown into a group of 19 companies. While each individual company grows in their own field, we want to integrate our technology and our people to create more synergy within our group, and to add more value to each company. We also want to expand our technology for the benefit of society. We have individual clients for the Takamatsu Corporation, and Asunaro Aoki Construction Co., Ltd. has clients in the civil engineering field, as well as doing work for the government. We also have corporate customers. For those different sectors, we not only provide the technology, but we also act as a consultant to find solutions. Our original philosophy is C and C; Consultation and Construction. Before we can offer solutions to our clients, we first need to be more integrated. This will allow us to offer better solutions. My goal is for this integration to be completed in the next five years. I want the synergy between our construction and civil engineering sections to increase. For example, Asunaro Aoki Construction Co., Ltd. has strength in civil engineering projects. Currently there is a huge civil engineering project at the center of the city, which will provide a lot of opportunities. We want to integrate our companies so we can take those opportunities. We want to combine our real estate operations with our construction and civil engineering operations. That is my goal for the next five years.