Sumitomo Corporation "Forming a Scrum" LIVE REPORTS Vol.2 Supplying Power to Build the Foundations for Our Lives
An Equipment Rental Model to Support the Construction Industry
Lowering Capital Outlay
Construction equipment requirements differ depending on the scope and nature of the project. Funding available for the purchase of equipment also varies from one project to the next. Even if a construction company invests heavily to purchase equipment, it may not be used in the next project. Furthermore, ownership of construction equipment naturally incurs day-to-day maintenance costs.
Construction equipment rental businesses provide solutions to such issues. Sumitomo Corporation launched its construction equipment rental business in Japan in 1990.
"The origins of our construction equipment business date back to the 1960s," explains Kazuhiro Yasuda from the Construction & Mining Systems Division. "Initially, our primary business was exporting machinery produced by Japanese manufacturers. Later, we started handling construction equipment sales to overseas sales dealers. In the process of conducting this business, we recognized a need for construction equipment rental services. You can rent well-maintained equipment only when it is needed, and you can also reduce your investment costs compared to purchasing. We realized that such a service would offer huge advantages for business operators."
Kazuhiro Yasuda joined Sumitomo Corporation in 1998. After spending more than seven years in the HR Division, he moved to the Construction & Mining Systems Division. Currently, Yasuda reports directly to the GM of the Construction & Mining Systems Division and is in charge of nearly 7,000 staff members including those in group companies. "My job is to generate agreement by listening to opinions in the field and optimizing operations across the group. This is a difficult job, but it is also very rewarding."
A Strong Potential Partner in the US
We expanded our construction equipment rental business in Japan through until the 2000s, but also harbored a long-cherished wish to do rental business overseas.
"The United States has the biggest construction equipment market," continues Yasuda. "Our strategy was to approach companies with construction equipment rental business experience and provide our know-how and financial capability, and to grow the business together."
In 2007 we sent employees to inspect construction equipment rental companies' outlets in the US. Employees who went to the States visited several hundred outlets, talked with the owners, and continued to search for potential partners. Sunstate, based in Phoenix, Arizona in the southwest of the US, emerged as the frontrunner in this process. "In this business, the key is how well you can manage the construction equipment to ensure that your product is in the best condition. The equipment at Sunstate was in very good condition, and their outlets were very well organized. They also had a very streamlined rental operation system, and our research indicated they had a good reputation in the industry. So we decided to offer a partnership business to Sunstate."
"I was very pleased and honored to get the offer from Sumitomo Corporation," recalls Mike Watts, Sunstate Executive Chairman, who established the company by himself in 1977 and expanded it to the point of employing 1,500 people. But he did not agree to the offer at once.
"We had a past partnership with a US company and we believed this partnership with SC would be just as beneficial and perhaps even more successful."
Mike Watts, who founded Sunstate in his twenties, is now chairman and takes responsibility for developing overall business strategy. "We certainly are not afraid to tell a customer no if it is something risky for us. It is always consistent with our guidelines and our culture. We need the courage to say no at times. That is my belief."
A Partnership Based on Common Corporate Culture
Patient Approach Overcame Barriers
"With the impact of the financial crisis in 2008, it wasn't the best time for us to start a new business in the US," remarks Yasuda. "But we didn't give up because we loved Sunstate's corporate philosophy." The attraction of Sunstate lay in the value it placed on its employees, and this total respect was naturally the most important element of its philosophy. The company encourages employees to actively express their opinions, provides growth opportunities such as training, boosts motivation, and fosters a high level of awareness among employees as members of the company. This corporate culture was a good match for Sumitomo's culture, which emphasizes human resource development, provides a wide range of training offers overseas study programs and work-life balance schemes and encourages employee growth. Yasuda notes that Mike also held the same view.
"Just like us, Sumitomo values people and is a company that runs its business with integrity," comments Mike. "That was the strong impression I had right from the start." A patient and devoted "marriage proposal" to another party with common values ultimately became the force that overcame the barriers. "In an economic recession like that, we were impressed by their patient approach. I was convinced that teaming up with a company with a similar culture and extensive global experience would be a great opportunity for us."
Partnership Brings Spectacular Results
The partnership agreement was concluded at the end of 2009. Initially Sumitomo was to participate in management as a minority shareholder, but as the relationship strengthened over time Sumitomo acquired 80% of the shares in 2013, becoming a true management partner. Since 2009 Sunstate has continued to expand, surpassing the total US construction equipment rental market growth rate to achieve a six-fold increase in sales in seven years. The number of outlets has also grown to sixty in nine states.
It took more than just Sumitomo's investment contribution to achieve these outstanding results, reports Michiya Akita from the Construction Equipment Rental Business Department, who went to the US in 2013 to assist in managing the Sunstate operation. "What made the difference was our know-how in construction equipment rental operations. Rather than taking a shareholder's stance toward controlling the business, we provided expertise while respecting our partner and engaging in business together. This attitude led to a trusting relationship and business growth."
With Sunstate's solid business base in the US and Sumitomo's global business experience, the relationship between the two companies achieved a truly ideal win-win situation.
Michiya Akita joined Sumitomo Corporation in 2009. He worked in the Japanese construction equipment rental business and later moved to the Sunstate project. He tells us he is fulfilled when he really feels his work has been helpful. "I have gained valuable experience since joining the company. Now my goal is to give this experience back to the company."
Scope for Further Growth
Seven years on from the initial collaboration, the Sunstate-Sumitomo partnership is now moving into a new stage. The core leaders of the current partnership are the current CEO, Chris Watts, who took over the business from his father Mike, and Yujiro Okuni, who has supported Chris as a member of Sumitomo's staff since 2014.
Chris has set a goal of becoming the best in the construction equipment rental business in the US. Right now the company sits at number seven in market sales rankings. Its operating territory still covers just nine out of the fifty US states. This indicates that the business still has great potential for growth.
"I believe that our team has the potential to achieve levels of service that none of our competitors can match," says Chris. "Through mutual support, we can definitely expand the business in the future."
Working alone, the path to the top of the industry was a tortuous one, but now the route is gradually becoming visible. Okuni is also supporting Chris's vision: "There is scope for growth if we can further strengthen our solidarity and move ahead toward our common goal. We will continue to pursue sustainable business growth without losing our culture of valuing people. We also aim to be the top in service quality and become essential to the US construction equipment rental business. That is our next challenge."
Chris Watts, the current CEO, joined Sunstate 20 years ago and learned the rental business from scratch. He visits branches even now and places importance on listening to people in the field and hearing their frank opinions. He is a reliable leader who inspires the trust and respect of his employees.
Yujiro Okuni, who joined Sumitomo Corporation in 1999, has been Vice President at Sunstate since 2014. He talks about watching the 2015 Women's Soccer World Cup Final between the US national team and Nadeshiko Japan together with Chris. "The US won the game and I gave Chris a polo shirt with the final scores on it as a memento. We have different nationalities and sometimes we do "compete" during work, but we share a belief in fair play. This friendly rivalry creates great memories."
Taking the Values of the Construction Equipment Business to the World
Expanding the Business Domain
Sumitomo operates construction equipment rental businesses in Japan and the US. The issue now is how to expand our business globally. Akita has been given the mission of devising a road map. "One of the objectives of my going to the US was to learn about the rental business operation that Sumitomo and Sunstate developed together," he says. "In the future, we need to use the Sumitomo Group's global network to identify more countries and regions where we can base operations."
Leveraging the partnership developed over the past seven years and its rental business know-how, Sumitomo will work with Sunstate to expand into countries outside the US. Akita is looking forward to exploring such opportunities.
A Relationship of Trust that Goes Beyond Individuals
Another issue is how to extend a solid partnership fostered through face-to-face relationships into a corporate relationship.
"Our relationship of trust should not rely solely on individuals," explains Yasuda. "In any business, contact people constantly change. If that destroys the relationship, everyone's hard work comes to nothing. Deep trust fostered on a one-to-one basis needs to be developed into trust at the corporate level." Yasuda and his team are now working on this challenge.
Building the Foundations for Our Lives
Construction equipment can be described as power that supports human civilization. Roads, railroads, bridges, buildings, and apartment blocks are all built with enormous power generated by various forms of machinery. In this sense, a business that provides construction equipment is a business that creates the foundations for our lives and enriches everyday living. One of the construction equipment business models that Sumitomo is currently developing aims to expand business through partnerships generated by patient efforts between people and to offer strong support for everyday living through such business. Sumitomo employees continue to work on implementing this model with a commitment to the global spread of values created through the company's successful initiatives in the US.photo