Japan: a fusion of precision, productivity and profit

Nick Heald

Country Director

Asia

Japan’s construction market is crowded with opportunity, so long as investors and operators remember that respecting hierarchy and maintaining honour remain key to turning a healthy profit. Equally, the country is now being compelled to adapt and update its traditional delivery models to better echo international best practice.

While Japan has a global reputation for order, efficiency and cutting-edge technology, thanks to headline stealers such as the Bullet train and residential units bought from catalogues, its 126.5 million population is falling fast, meaning reduced fiscal revenues and an ageing workforce.

Honour over efficiency

In Japan, contractors rule the roost, with the biggest five accounting for 95 percent of all major capital projects and programmes across the country. Their word is their bond, so a Japanese contract will invariably be significantly less comprehensive than its international equivalent. However, it is not uncommon for project deadlines and budgets to be more generous than is necessary to ensure delivery on commitments and avoidance of dishonour.

This risk-averse approach prevails across the Japanese contractor fraternity, with any scope to positively impact the client-contractor relationship very much determined by the quality of the relationship between the respective CEOs.

When it comes to logistics, productivity and deadlines, Japan’s reputation for efficiency has more to do with a focus on pre-fabrication and repetition than anything else.

While this approach allows for straightforward cost oversight, it does mean the architectural landscape lacks flair, a situation compounded by the fact that seismic considerations demand a more robust engineering process than would be called for in many other markets.

The tide is turning

Seismic engineering has got smarter, so rules have been modernised regarding how tall buildings can be, allowing for more innovative construction practices. This has seen low-rise buildings demolished to make way for one high-rise replacement, serving to increase both the floor plate and the returns to be had.

Furthermore, Japan’s world-leading power stability means it constitutes the perfect location for data centres, demand for which is huge and ever-growing, as evidenced by the likes of Amazon Web Services (AWS), Google, Microsoft Azure and IBM SoftLayer cloud service providers currently expanding their presence in the premium Tokyo and Osaka markets.

The Japanese Government’s drive to actively court both foreign investment and labour to assist in its ambitious infrastructure building programme, means the construction sector is becoming exposed to alternative ways of working, such as the use of Public Private Partnership frameworks.

With Japan looking to raise annual tourism from 15 to 60 million people by 2030, as well as hosting major international events such as the deferred Tokyo Olympics and the Osaka World Expo, there is a clear acknowledgement in the corridors of power that Japan needs to be less insular to prosper.

The recent legalisation of gambling in Japan is a prime example of this, which has acted to focus international investors’ attention on the hospitality and leisure sector.

This comes in the form of ‘integrated resorts’, which see casinos rubbing shoulders with non-gaming amenities, such as hotels and conference facilities.

Underpinning these developments are monetary easing, fiscal stimulus and structural reforms spearheaded by long-serving Japanese Prime Minister, Shinzo Abe. Known as ‘Abenomics’, they are bold and far-reaching by Japanese standards and although Shinzo Abe has stepped down, these will help to revitalise the economy and restore pride to the nation.

Permanent change

As more big projects in Japan are funded by international interests and costs increasingly scrutinised, it is anticipated over-resourcing will be kept in check and bottom lines positively impacted. Prioritising cost management in this fashion will greatly assist Japan in its quest to recapture the heady economic days of the 1980s.

To flourish in the uniquely relationship-oriented Japanese market, a willingness to disregard great chunks of conventional wisdom upheld as sacrosanct elsewhere is essential.

Patience is still considered a virtue here, such that those parties equipped with a ‘when in Rome’ attitude will be those best placed to successfully navigate the project and cost management challenges, to take full advantage of Japan’s increasingly benevolent investment landscape.

For further information contact:

Nick Heald
Country Director

t: +81 (0) 80 9163 4590
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