• With Japan’s population decline, a labor-intensive Japanese construction industry is facing a labor shortage.
  • Japanese construction companies are looking at augmented reality (AR) to eliminate labor waste.
  • The Japanese construction industry has an opportunity to convert labor shortage problem into fuel for AR technology advancement.


Last week, we covered Virtual Reality (VR) and how a couple of Japanese companies are pushing VR technology into the future. This week, we will give Augmented Reality (AR) some love. Before we start, in case you are unfamiliar with VR and AR, here is a quick overview of what they are:


Virtual Reality:

VR involves the creation of a virtual world. This usually means forgetting all about everything around you with a set of goggles on your head. Everything you see is “make-believe”.


Augmented Reality:

AR is a hybrid between reality and VR. The idea is to place virtual things inside the real world. Pokemon Go, one of 2016’s most popular apps, is a perfect example of this. Players look at the real world through their smart phones, where virtual monsters appear to be walking around on real streets. The objective is to “catch ‘em all”:

Source: New Yorker

Today’s Construction Industry

The world view of Japan’s future is gloomy at best – with population decline/aging being a major concern. This raises the issue of a looming labor shortage, which will presumably hit the not-so-automated construction industry hard. This is where AR technology development comes in.

One obvious AR technology application in construction would show customers what their remodelled home would look like before the remodelling actually happens. If we take another step into the future, the same AR technology can save big money and big time on big projects.

Having worked in construction management for a brief moment (NBA stadium renovation), I have a little bit of field experience in this area. Believe it or not, building plans are still printed on paper and kept in an office. Project managers, superintendents, and subcontractors routinely consult these paper drawings every day. AR technology in construction almost sounds like a fairy tale at this point as the image of current technology applied in the construction industry is something like this: Superintendents walking around the jobsite with an iPad, looking at digital copies of the same drawings that are in the office.


“Measure twice, cut once.”

– Every Carpenter, Ever


A tremendous amount of effort is poured into document management on major projects. Drawings get updated and changed all the time. It is crucial that every subcontractor is up-to-date with their building plans. Not being up-to-date costs millions of dollars, and time is precious. The real world consequence is that subcontractors are glued to their emails to double and triple check that their crew is working off of up-to-date drawings.


“Double check the drawings. Triple check the drawings. Measure twice, check the drawings again, cut once.”

– Every subcontractor, Ever


Or at least the quote above is what I think every subcontractor should be saying.

Even with eyes glued to the computer for drawing updates, rework on material is part of the routine. Most subcontractors have a habit of figuring out ways to adjust in the field. Adjustments are particularly common for miscellaneous things like steel handrails: The handrails would leave the steel shop and arrive at the jobsite, only to be sent back to the shop for adjustment for various reasons (change in staircase dimensions, for instance). For those that are wondering: Yes, making adjustments is a labor-intensive process. What AR technology brings to the table is problem prevention and identification.

Imagine this at the construction site:

Source: Affinity VR

Tomorrow’s Construction Industry

According to Nikkei Asian Review, companies like Obayashi (TYO: 1802), Shimizu (TYO: 1803), Hazama Ando (TYO: 1719), and Sumitomo Mitsui Construction (TYO: 1821) are developing AR technologies for the construction industry. Shimizu is developing AR tools similar to what we see in the image above.

Now, let’s go back to our steel shop for a moment. We can have our shop supervisor carry one tablet and check on the handrail during production. This supervisor can cross reference the handrail with up-to-date bill of materials and drawings over the cloud and make sure the handrail meets specifications before it leaves the shop floor. Then, we can have our field supervisor also carry a tablet, scan the handrail, and have the tablet highlight exactly which part of the building the handrail needs to go to.

Another interesting AR application for construction would be one that identifies deviations from drawings. If concrete stairs are poured out of specification, AR applications can help identify the problem early on so subsequent tasks (like handrail production) can be paused – limiting the loss of time and money.


Investor Takeaway

Japan faces many challenges. Within the Japanese construction industry, the population decline is particularly worrisome. However, there is some good that can come out of this. In its fight to remain profitable, the Japanese construction industry is forced to look at AR technology in order to reduce labor intensity. Much like Japan’s necessity for earthquake-proof structures made Japan the leader of earthquake-proof construction, it is well-reasoned to assert that the necessity for industry-wide labor intensity reduction would make Japan one of the top contenders for AR construction technology in the near future. With that backdrop, investors should consider following some of the larger Japanese construction companies that are developing AR technology.

Kenkyo Investing
Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.