［ Kibe-log ］

Director
Representative Executive Officer
President and CEO

Kibe Kazunari#7

INFRONEER’S VIEW OF ”DX”
Dear Stakeholders, I am Kazunari Kibe, the President and CEO of INFRONEER Holdings Inc.

Thank you very much for reading the "Kibe-Log" again.
Today, I would like to share my thoughts on Digital Transformation (DX) in the construction industry.
When you hear the word DX, you may think of the digitization of various business tools, operations andmanufacturing processes, and the transformation of business models and entire organizations using digitaltechnology. Of course, that is true, but I believe that the essence of DX lies in the "X".
"X" means "Transformation," or in other words, changing the rules. The essence of DX is to change the rules
using digital technology.

Japanese companies that have failed to change the rules.
The wave of digitization has come many times in the past. However, in each case, only the tools have been
digitized, and there have not been rule changes in operations, manufacturing processes, or business ingeneral.
Since the mid-1990s, the widespread use of personal computers has made e-mail communicationcommonplace. However, I think it has been the mere replacement of traditional telephone
communication with e-mail and it seems questionable whether the productivity of the organization has
really increased and whether the return on investment has been worth it.
The same is true for enterprise backbone systems. Over the past 30 years, paper-based workflows havebeen gradually replaced by backbone systems. However, Japanese companies have not been thinking
about sharing their backbone systems, and each company has been striving to introduce its own backbonesystems.

-1-However, since there is not much difference between companies in terms of accounting systems, there
should be more thought into sharing such systems within the industry.
In fact, in the early 2000s, when I was a general manager in General Planning Division of Maeda
Corporation, I asked another company in the same industry to develop financial backbone systems
together and use them in each company since all general contractors' backbone systems are similar, and I
thought it would be more efficient to jointly develop and share them.
However, the head of the general contractor we approached was negative about the idea, saying, "We
don't want our company's information to be seen." What I proposed was a mere joint development ofsystems and not sharing management data. They probably thought that if they shared the systems with us,
their information might not be secure.
Cloud services have developed significantly since then, but at that time, there was no concept of sharing
services.
Since the 2000s, disruptive Internet services have emerged one after another, especially in the U.S. The
cloud service that AWS pioneered is a good example. These services are real rule changers using digitaltechnology.
Looking back with a sense of self-discipline, there were ample opportunities for Japanese companies toimplement "X (Transformation)" in the 2000s and 2010s. What didn't work was the fact that management
was not able to implement "X". The reason why it did not work was the lack of commitment to "X" by themanagement.
Japanese companies have competitive advantages in building up from the bottom up, mainly on thefrontlines. But if we want to change the rules in a real sense, we need to reverse our way of thinking, andinstead of building up from the bottom up, we need to set goals and think about what we need to do toachieve them. This can only be done if management is committed.

"The cage of norms "* in which the construction industry is trapped.
*Quoted from "The Fate of Liberty." by Acemoglu and James A. Robinson (2020)
So why were executives unable to commit? I am sure there are many circumstances that vary from company-2-

to company, but I feel it is because executives are trapped in a "cage of norms". I feel this even more strongly
because the construction industry we are working in is a significantly regulated industry bound by "businesslaw".
As I have mentioned in my previous Kibe-log articles, the construction industry, which is centered oncontracting, has been constructing facilities, buildings, and infrastructures in response to the demands ofthe government and other clients. However, since the late 1990s, the construction industry which hastraditionally been engaged in contracting has found itself at a crossroads in the face of a long-term decline
in public fixed capital formation and declining profit margins due to overheated competition.
In order to change the rules, we have been expanding our business domain to include not only contracting
but also structuring and investing in infrastructure projects, as well as post-construction operation,management and maintenance. To achieve this, we are focusing our business on social infrastructure suchas roads, airports, and water supply and sewage systems. In a nutshell, this is what the INFRONEER isworking towards. However, having worked for many years in a contracting structure with the government
at the top, general construction companies still have a strong sense of being subcontractors, and still thinkthat they must not speak out against the client. Recently, the construction companies have been working
on a proposal-based bidding system, which is a new concept in the construction industry. In addition,although proposal-based bidding has increased recently, the national and local governments often
determine specifications in detail for public works projects, and there is not a strong atmosphere forconstruction companies to submit proposals that go beyond those specifications.
In fact, when Maeda Corporation, a member of the INFRONEER Group, raised its hand for the Aichi Toll
Road concession, we were asked by an official of the Ministry of Land, Infrastructure, Transport, andTourism (MLIT), "Did you forget what MLIT has done for you?” Of course, that was a joke, and they
supported us from beginning to end. If some companies are too concerned about higher authorities, they
may cancel their bids in order not to irritate the government.
Even though toll roads are owned by Aichi Prefecture, roads are extremely important to the MLIT. The
former Japan Highway Public Corporation was divided into the National Expressway Company (NEXCO)
and settled. It is not surprising that MILT is wary of concessions, a form of privatization. This would be
another "cage of norms".
Under this circumstance the INFRONEER Group has been promoting innovative measures not seen in theconventional construction industry, such as the introduction of a "cost disclosure method" that discloses
the cost of construction projects to the client including concessions for roads and airports. Our toll roadconcession projects are not only in Japan, but have also spread to Ghana, Africa.

-3-The fact that we were able to move forward with such edgy initiatives was a result of the management teamat that time taking on new challenges without getting caught in the "cage of norms. It is not enough yet,but of course I too intend to remove the "cage of norms" and continue stepping on the accelerator toward
the "X" of INFRONEER.

INFRONEER's "X" started from infrastructure
In order to promote the "X" of INFRONEER, we have begun to shift our business model by utilizing digitaltechnology.
One such example is data-driven operation and maintenance in concessions.
Six years have passed since the operation of the Aichi Toll Road started and a variety of data is beginningto be accumulated. In July 2019, together with Accenture, we started a wide-ranging analysis of datautilization in road operations in order to study what can be done with this data.
Data utilization is difficult to achieve without purposeful analysis, but even at this point in time, we aremaking interesting discoveries one after another.
For example, in toll road maintenance and management, it is necessary to periodically repair road surfaces
and bridge piers. These repairs can range from large-scale (several hundred million yen), medium-scale(several million yen), and small-scale (frequent) repairs.
These repairs have been done as scheduled based on the past experience. However, as we dig deeper into
the data, we are beginning to understand details such as where major repairs should be done earlier, where
they can wait longer, where small-scale repairs should be done more frequently, and when repairs to theroadbed and bed beneath the pavement should be done.
Repairing a road is a time-consuming and costly process of bidding and ordering. To be honest, we repeatseveral thousand bids and orders per year. Simply optimizing the timing of these repairs can be of great
benefit to the operator.
This kind of data utilization is not limited to toll roads.
We are currently building a maintenance and management system for Aichi toll roads. This system should-4-

be applicable to all social and public infrastructures that INFRONEER is involved in their operation, suchas airports, water and sewage systems, exhibition halls, arenas, and so on.
The data that can be obtained for each infrastructure is of course different, but the content to be simulated
by utilizing the data is the same, such as early detection of infrastructure problems, realization of carbon
neutrality based on energy conservation, reduction of cost for operation, maintenance, and management,etc.
If this is the case, the quality and cost of maintenance and management would be greatly improved if acomprehensive system for infrastructure management is created, data to be input for each infrastructure isdetermined, and on-site managers can check the data using an app.
If we succeed with "X" in the maintenance and management of the infrastructure, I believe that thissuccessful experience will spread to existing businesses in Maeda Corporation and Maeda Road eventually.
The term "DX" is widely circulated, but actual DX must be accompanied by rule changes. To achieve this,company executives need to be freed from the "cage of norms. It may not be a major rule change that willtransform the energy of the world, but we will continue to move forward with our "X".
We hope you will look forward to the future of INFRONEER.

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