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JAPAN CONSTRUCTION

Sekisui House responds to market forces both domestically and internationally

Interview - September 24, 2015

Mr. Isami Wada, CEO of Sekisui House sits down with Globus Vision to outline how Sekisui House is capitalizing on Japan’s aging society and the global demand for environmentally friendly building practices among others.

MR. ISAMI WADA, CHAIRMAN AND CEO OF SEKISUI HOUSE
MR. ISAMI WADA | CHAIRMAN AND CEO OF SEKISUI HOUSE

Japan is truly going through an exciting time at the moment. In a period of global economic recession, Japan is making the difficult choices to reorient its economy for a more globalized world with Abenomics. We are interested in learning the private sectors´ perspective on this transformation. What would you say has been the impact of Abenomics on the construction sector and on Sekisui House specifically?

Not only will I discuss the benefits we´ve received from Abenomics but our hopes for what we may achieve. Our country has experienced twenty years of continuing deflation, which has let the depreciation of land value and our largest talk for Abenomics was that this would stop the trend. The land value has stopped depreciating, in some areas it has started to pick up again, only in urban areas though. That is one effect, and also stock prices have gone up significantly, over 50% since the administration of Prime Minister Abe started the Nikkei 225 index was around 8,000 and now it´s over 20,000. Our targets are customers who are predominantly upper class, so the effect of the stock market has had a large impact on them and they have more ability to spend. First, not only have we expressed the facts of finally getting away of deflation and the rise of stock prices, we are now working on a growth strategy, looking toward to the continued tourism boom in the lead up to the Tokyo 2020 Olympics, this has led to a significant increase in construction. But unfortunately it has also led to the cost of construction materials going up, the fact that costs are rising is also one of the reasons that deflation has stopped. One thing that is clear is that we now have operations in North America, Australia, Singapore and China, and we used to have a very strong Yen, but the weakening of the Yen has led to an increase in the amount of overseas investments we are making. We now have about 40 sites in the US. In the perspective of the economic sector we have only praise for Abenomics.

As Japan’s leading homebuilder, Sekisui House boasts an impressive track record that includes building approximately 2.2 million houses to date. In fact, 2014 was another record setting year for Sekisui House in both sales and income. What would you attribute this impressive growth to?

We have three sectors in our business. The first is build-to-order residences divided into both stand-alone homes as well as rental properties. The second is the rehabilitation business, which are clients to whom we have sold stand-alone homes that we provide them with reform services. Also to the people that we´ve sold our rental properties too we offer services of managing their rental fees. So they get two businesses. The third is the development business; it can be divided into the urban development and construction of apartment property. That´s domestically and abroad. By clearly defining our three business branches, I believe, that was one of the keys to our success. Previously we had combined all those three branches into one business, but then each section kind of began to slow the other ones down, so by clearly defining each branch we were able to make them compete against each other and grow. I believe that the reason for growth is the strategy of defining these branches of business and having had this is as our medium term goal we were able to achieve the 2014 record breaking results. We´ve worked as 2015 will have further record breaking results.

The reason for our success is that if we had only concentrated on the building to order business then the economy was such that if the number of building declined, we would have been very severely hit by that. But because we have our rehabilitation and stock business as well it allows us to capitalize on diversify.

Now you also have ambitious plans for the future with your mid-term management strategy, which focuses on your customer-oriented corporate strategy of SLOW & SMART. Can you please outline your top priorities for growth, especially for international expansion, and why this strategy of SLOW & SMART is so important to Sekisui House’s success?

Speaking first of all regarding the domestic side, our principle is a way of thinking, but I believe that houses are something that people can continue to live in for forty or fifty years. It is our wish as a business that we are able to contribute to the residents having a happy life throughout all those times. That lets us understand and appreciate that our customers should be our top priority. It also gives us returns because when they need to reform the houses we see profit as well. So for fifty old years since the founding of our company this has been our main objective.

I found your top message about sustainability very interesting because you´ve outlined the KPIs for sales and projects, but also you´ve talked extensively about Sekisui House’s responsibility to society and alleviating some of the most systemic issues that Japan faces: an aging society, using houses that are already built, environmentally friendly practices, etc. Why do you believe that Sekisui House has a responsibility to Japan’s economic growth but also to this cultural shift that Abenomics aspires to instill in Japan?

As you said, we believe it is a major theme to deal with this societal situation and provide solutions to a large aging society, so I tell my team to come up with new services to adapt to this environment. For example, we provide homes for the elderly, we provide services along with these homes.  Also, since 1999 regarding the environment we have made the Environmental Future Plan. This has allowed us to go abroad with this concept. Another point is that when homes are lived in for a long time after twenty or thirty years, the family composition changes, lifestyle changes occur, so we´d like to contribute by making improvements to the homes through renovations and having the house continuously providing comfort to its inhabitants. We believe there are desirable results to happiness and we are pursuing them. We´ve listed many social issues from global warming to health issues as priorities for our future development, but we believe that the residential sector and residences can provide solutions to these issues, which therefore presents opportunities for our future growth. Indeed, we´ve set up a CSV strategy with six pillars including promoting net-zero-energy housing, preserving biodiversity, improving production and construction quality, extending the lifespan of houses and enhancing after-sales service, promoting diversity, developing   overseas business.  We are working now to meet the complex needs of society through this strategy.

Especially for environmentally friendly practices, this is something that has become very popular and very trendy to talk about recently, but in fact Sekisui House has been a pioneer of these practices back in 1999 when you adopted your Environmental Future Plan. How are you capitalizing on these new trends, especially as you expand internationally?

We actually did not adopt this strategy of environmental future declaration in order to allow us to expand abroad. We believe the residences are something that is for the long term, it´s for people to stay in one place, we felt that it came with a responsibility of contributing to society in this way. Actually when we began this policy the media said "Oh it´s just one company, what can I do?" They kind of made fun of us, and now this is becoming an important element of the housing sector, but it was something we committed ourselves to years ago, before it was a trend. Back in 2008, it was the starting point, because there was a G8 summit in Toyako, Hokkaido and we did an exhibition of the Zero Emission House. The G8 figures held a tea party there and this was reported in the media and received quite a large reaction. This was the start of our global expansion.

Can you outline some of the products in the future that Sekisui House is performing? You could have your first green zero eco-friendly houses, as you are also part of the GE Japan for your Tohoku factory. What can we expect? How are you shaping the construction sector in the world?

It was our first experience working with GE for this Tohoku factory and this was because there was the 3rd   United  Nations  World  Conference  on  Disaster  Risk  Reduction in the Tohoku region and our factory was chosen as the base for it. At the time, there were no large scale barriers and we talked to GE to enable it. The smart city project is something that is very important for us to focus on in the future.

Can you outline this smart city initiative for us? How do you feel you can continue to dominate the housing market here in Japan and internationally?

In Japan, the electricity supply is a key factor that determines the improvement or worsening of the economic growth of the country. Since the earthquake this is something that has received a lot of focus and I believe the smart city and smart grid solutions are very important factors in providing inexpensive electricity to Japan.

What would you highlight as the biggest challenges you are facing as chairman and CEO as you work to grow in Asia and North America? What types of construction are you focusing on?

Australia is particularly an environmentally conscious country so this is something that we´ve done to adapt to them and also US people are very conscious of the environment. We have gained very good reputation in the US. We have put a lot of effort into the environmentally friendly properties so we believe this is the future of Sekisui House.

Sekisui House enjoys a very strong brand domestically, but as you grow internationally how are you working to communicate this environmentally friendly attitude, one of the strengths of your brand? What are your communication strategies in order to grow your brand’s strength and value internationally?

We see communication as vital to creating a strong brand internationally. I believe that first of all we must show what we can do, then that would lead to positive communication. That´s the system we are trying to work by, for example in Sydney everybody is talking about our new building, the Central Park redevelopment, which implements state-of-the-art environmentally friendly building features. In Singapore as well with the environmentally conscious we have seven projects being developed that are very famous, which has contributed to us cultivating a good reputation and very strong brand in Singapore and likewise in the US. We believe that these results will be followed by communication hopefully through media.

Do you feel that you have a role and responsibility in this communication that Japan is now taking? Do you feel like an Ambassador for Japan as you develop these amazing buildings around the world?

A lot of Japanese companies are going to international operations because they feel there is no more room to go within the domestic sector. But this is not how we operate. We wanted to bring these environmental technologies that we´ve built up over our fifty-year history, in order to create satisfaction for the people of the world and we believe that achieving satisfaction for the people of the world is the pillar of our operations. We are not in it just for achieving profits for the short term. Our corporate philosophy is make people feel happy that we are there for them.

What would you say to the international community who maybe are still hesitant about investing in Japan or partnering with leading firms such as Sekisui House?

I believe that one of the Japanese people´s virtues is their serious attitude and their earnest attitude. I believe that this international character is something that should be understood better abroad and I think that this is something that could be understood if people come to Japan, we hope to increase opportunities for people to visit Japan. The same goes for us visiting abroad, increasing mutual understanding, which always seems to make the business partnership much smoother. For example, with our overseas partners we always bring them to the Ritz-Carlton Kyoto, which we own, and by experiencing it the first time they really appreciate the Japanese virtues. The same with our guests from Australia, Singapore, the US. We believe that it´s not just about principles, people have to actually experience the real thing and then they will understand. Although it may seem like a long way round, it´s actually probably the shortest path to achieve sustainable business partnerships.

One of the seven key priorities of the G20/B20 is to try to find synergies between trade, investment and the real states sector. Given your experience here in Japan and internationally what advice would you give these leaders about how to achieve that?

The countries of G20 have barriers between them so I hope that the politicians will play a role at relaxing and moving those barriers. Another important point I believe, often a right message to the Japanese youth. A problem that I see among Japanese is that they are very inward looking now. I always encourage them to take risks, go out and have courage to do so. I hope that the leaders also join me at sending out this message to the Japanese people.     

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