Created in 2014, JOIN is Japan’s first and only government-private sponsored fund that specializes in overseas infrastructure investment. Working in collaboration with Japanese companies, banks, institutions and government, it is tasked with promoting PPP infrastructure initiatives in countries around the world. CEO and President Takuma Hatano explains JOIN’s approach to expanding the horizons of Japanese infrastructure companies to the global stage and what gives Japanese projects an edge in this competitive market
As head of a Japanese corporation with global scope, what is your evaluation of Japan’s foreign policy?
In the area of geopolitics, Japan and Prime Minister Abe have performed quite well. The basis of Japan’s security depends on alliances with the US and other nations, but this government is very much prepared to take global leadership and work towards international cooperation. Of course, we think about Japan first but given this globalized economy, no particular country can put itself first while also ignoring the rest of the world. Trade is a global asset that every country should be able to enjoy. It’s the same with global warming, this planet is a public asset. Although this is being challenged by China, Russia and now the United States. But in that respect, Japan has done a very good job.
What opportunities do you see coming out of these traditional alliances?
Infrastructure development is one of the most important items on the agenda of every government – both in developing and advanced countries. And Japan has supported the development of infrastructure for developing countries through Official Development Assistance (ODA). And now, we want to push Japanese companies out of the national market onto the international markets in both developing and developed countries like the United States. Our two countries have already started a dialogue and I think infrastructure will create a new market for Japanese foreign direct investment in the United States. This is definitely a significant area of collaboration between the two countries because whatever the priority is for a government, infrastructure is always a basis of sustained economic growth. This is a very good time to reevaluate how Japanese companies design their corporate strategies.
How does JOIN suggest Japanese companies redesign their strategies?
We have only three years of experience, but our mission is very important in the sense that we must change the infrastructure industry in Japan and its overall approach to business. There is still a huge domestic market in Japan, but those who seek future growth have to make the shift towards internationalization and globalization. JOIN wants to support these companies’ activities through joint investment with them.
Are you looking at specific opportunities in the US at the moment?
JOIN’s focus is on new investment, and the US has a huge infrastructure network. I don’t think that Japan’s collaboration is limited to any one particular area, as our technology is strong and can be applied broadly. We can work together with American government and American companies in several areas to improve the country’s infrastructure.
What gives Japanese infrastructure a competitive edge in the global market?
There is a massive global infrastructure market, especially in developing countries, but unless the host government or the people choose to select Japan’s system or Japanese investment, it simply won’t work. There are many reasons, but a major challenge is that Japanese equipment and the systems are more expensive. But when it comes to maintenance costs and life spans of the infrastructure, Japanese products are superior. The initial costs of projects led by countries such as China or Korea are less than Japanese projects, but sometimes project maintenance cost can even exceed the initial investment. That means Japanese infrastructure has advantages over other countries in terms of the total life-cycle costs.
How do you explain that to potential clients?
This can be difficult to evaluate at the time of concession or competition. So, we have to show our history of projects and demonstrate the high-quality of our projects in terms of infrastructure, safety and maintenance. It helps that Japan is already well known for its high-quality products. However, from a user’s viewpoint, sometimes the priority is different. We can adjust the projects, although never compromising fundamentals such as safety or environment, to better fit a specific market. It’s like the cars built here, there are luxury cars and more affordable cars but they are all fundamentally sound. At the same time, we should focus on markets where our advantages will be appreciated so we aren’t always competing with China. If you look at high-speed rails, for example, China’s projects are cheaper than Japan’s and their quality is improving, but when it comes down to the whole package – the safety, ease of maintenance and cost of maintenance – we have an advantage. But at the end of the day, it’s the choice of the client.
What’s one challenge that Japanese overseas infrastructure faces?
One the difficulties, and in particular with the railway projects, is that the European standard is the de facto international standard. The Japanese standards are very rigorous but they are also very different. Yet, because of that de facto standard, it is costly for Japan to compete with China or European companies. China has a European system. Japan sets the de facto standards in areas like machine industries or semiconductors, but since we are latecomers in the area of infrastructure exports this is something we have to deal with. One way to overcome this is through international alliances with European companies, particularly when entering the US market.
What are Japan’s targets for overseas investments and exports and how is JOIN helping to achieve those targets?
JOIN’s focus is investment. Of course, we try to use the Japanese equipment in our various projects but the main purpose is to promote Japanese companies to do business abroad. The projects should be commercially feasible without having to use Japanese equipment. At JOIN the target is not volume, but how many companies are making investments abroad. We are the investment fund and we expect to reach $10 billion within the next two years or so. That’s feasible, but that’s just a small amount.
What needs to change to inspire more Japanese infrastructure-related companies to go abroad?
The reality is that so far Japanese companies have made investments in all the eligible sectors. But the number of companies in the market is very limited, something that needs to be overcome. What is the constraint? What are the difficulties? It is not the fund money – they have a huge liquidity. It’s also not for a lack of technology. So, a mindset of risk aversion is what we need to overcome, and changing it is an important target of Abenomics. It’s a lack of expertise in global business approaches as well. Most of the companies in these industries have been highly protected in the domestic market, but this is a time of transition. Even international companies that have infrastructure business sections have not gone on to become big international developers. It’s totally different from telecommunications and engineering companies, which are major players abroad. So, it’s not the technology and it’s not the money – it’s the people. But the mindset is changing – maybe in ten years from now, it will be very different.