Japan’s 400-Year-Old Builder Seeks Profit Boost on New Demand

Takenaka Corp., the 400-year-old Japanese construction company founded by a shrine and temple carpenter, plans to focus on growth areas, such as hospitals, and Southeast Asia to counter declines in profits.

“We are at a point where we must consider ways to anticipate new demand going forward,” Masahiro Miyashita, 66, the first president in the company’s history who is from outside the Takenaka family, said in an interview on May 24. “I am going to try my best to work on boosting our performance in the next couple of years.”

Closely held Takenaka will explore new building and engineering techniques to help it win deals, said Miyashita, who became president in March after the Osaka-based company reported two straight years of profit declines. The company, which built Tokyo Tower, Tokyo Dome and Tokyo Midtown Complex, is seeing an increase in inquires since Prime Minister Shinzo Abe’s pledge to end deflation and boost the economy, he said.

Takenaka’s effort to reinvent itself coincides with a recovery in Japan’s construction industry after the March 2011 earthquake. Orders rose for a second straight year in the 12 months to March 31 after declining for four consecutive years, according to the Japan Federation of Construction Contractors. The recovery was helped by the government’s pledge to spend 3.8 trillion yen ($37 billion) for rebuilding and disaster prevention on top of 19 trillion yen already budgeted.

‘Tough Time’

Still, rising building costs as commodity prices surged and strong demand in Japan’s northeastern region after the quake pushed up prices of construction materials may hinder the effort, said Yoji Otani, an analyst at Deutsche Bank AG.

“The construction industry is facing a very tough time that is unprecedented,” said Tokyo-based Otani. “While this year, construction orders and investments are expected to grow as public spending increases and the private sector recovers, the most difficult challenge for Takenaka and other construction companies is margin squeeze due to labor and building material increases.”

Public works and orders from the private sector fell to 10.5 trillion yen as of March from 26.7 trillion yen in March 1991, according to the construction contractors federation.

‘Main Problem’

The Topix Construction Index, whose members include Kajima Corp. and Obayashi Corp., Japan’s biggest construction companies, has gained 22 percent this year after rising 32 percent in 2012. That compares with the 41 percent gain by the Topix Real Estate Index tracking 44 property companies.

“The main problem is that the construction companies can’t differentiate themselves from others,” said Deutsche Bank’s Otani. “Real estate companies tend to go with bidders that offered lowest prices. Keeping prices low is the only way the construction companies can get projects.”

This is not the first time Takenaka, founded in 1610, is trying to find ways to grow its business amid difficult times. After the Tokyo Olympics in 1964 and the oil shock in the 1970s, orders from the government were reduced, according to the company. That is when new building techniques, such as constructing high-rise buildings and structures that support large, empty spaces, were developed, it said.

Profit Recovery

Takenaka’s profit fell 55 percent to 5.3 billion yen in 2010 and declined 58 percent to 2.3 billion yen in 2011, the company said. In 2012, profit more than doubled to 6.1 billion yen after public spending rose in earthquake-affected regions.

The builder will focus to meet increasing demand to rebuild hospitals and nursing homes in an aging society following the disaster, Miyashita said.

“Making sure that hospitals are all safe and quake-resistant, and can be operated after disasters is a big issue going forward,” he said, adding that it will require developing and researching new engineering techniques.

The company, which has helped build projects overseas, such as Grand Hyatt Kauai Resort & Spa in Hawaii and Hotel Nikko San Francisco, will also seek opportunities in Southeast Asia, where it sees faster economic growth, Miyashita said.

Company founder Takenaka Tobei Masataka served Oda Nobunaga, who initiated the unification of Japan in the late 16th century, and decided to become a temple and shrine carpenter after the death of his master.

“We would like to keep our traditions, as well as our ability to innovate,” said Miyashita. “The two may seem to be contradicting of each other, but we have proven ourselves in the past by finding ways to make progress while maintaining our tradition. We must continue to do so going forward.”

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