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Building Mass Customised Housing through Innovation in the Production System: Lessons from Japan

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Abstract

In the paper we address the way Japanese housebuilders have developed innovative approaches to supplying highly customised housing. We draw on notions of path dependency to explore the evolution of Japan's large-scale industrialised housing suppliers, the way they have differentiated themselves from local suppliers, and their possible future evolution. We first outline how structural conditions influence the business strategies adopted by housebuilders in general. We then consider the evolution of the Japanese mass customised housebuilding industry, the innovations it has introduced across its production system, and how these have been shaped by the structural conditions within which the industry operates. Finally, we draw conclusions on the role of path dependency in shaping Japan's mass customised housing sector.
Introduction
In two extensive discussions on North American housebuilding, Harris and Buzzelli
(2002; 2003) argue that it is important to resist the commonly held view that the
housebuilding industry is `a law unto itself' because it has failed to follow a conven-
tional mass-production-oriented model for economic development. They suggest that
varied market conditions can create different, but equally efficient, industry responses.
Although mass production has not generally been a feature of housebuilding, it is
nevertheless well adapted to its business environment. As Harris and Buzzelli (2002,
page 38) put it, this ``challenges the view that the modern housing industry is backward,
and that it must be viewed through a single lens.''
The points raised by Harris and Buzzelli relate to notions of `path dependency' and
`embeddedness', the way technological development trajectories are reinforced by exist-
ing technologies and the impact of institutional, cultural, or environmental factors on
development paths. This question has been explored in relation to Japanese house-
building by Patchell (2002). He demonstrates how a combination of social, economic,
political, and geographical conditions has resulted in the coevolution of large-scale
industrialised housing suppliers and smaller, local, craft-based producers. Others
have discussed path dependency in relation to the transition towards free markets in
housing (for example, Zhou and Logan, 1996).
The purpose of this paper is to develop the points made by Harris, Buzelli, and
Patchell by focusing on the strategies adopted by Japan's large national housing
suppliers. In this paper we term these firms mass customised housing suppliers to
distinguish them from smaller local firms also producing customised homes, but using
traditional building techniques. The mass customised housing suppliers use `lean' and
`agile' production systems, including the extensive use of prefabricated components, to
deliver high levels of product choice at mass production costs (for a discussion of mass
customisation within housebuilding see Barlow, 1999; Barlow et al, 2003; Naim and
Barlow, 2003).
Our interest is in the way the Japanese mass customised housing suppliers have
differentiated themselves from local suppliers and the possible future evolutionary path.
Building mass customised housing through innovation in the
production system: lessons from Japan
James Barlow, Ritsuko Ozaki
Tanaka Business School, Imperial College London, South Kensington Campus,
London SW7 2AZ, England; e-mail: j.barlow@imperial.ac.uk,r.ozaki@imperial.ac.uk
Received 18 March 2002; in revised form 21 May 2004
Environment and Planning A 2005, volume 37, pages 9^ 20
Abstract. In the paper we address the way Japanese housebuilders have developed innovative
approaches to supplying highly customised housing. We draw on notions of path dependency to
explore the evolution of Japan's large-scale industrialised housing suppliers, the way they have differ-
entiated themselves from local suppliers, and their possible future evolution. We first outline how
structural conditions influence the business strategies adopted by housebuilders in general. We then
consider the evolution of the Japanese mass customised housebuilding industry, the innovations it has
introduced across its production system, and how these have been shaped by the structural conditions
within which the industry operates. Finally, we draw conclusions on the role of path dependency in
shaping Japan's mass customised housing sector.
DOI:10.1068/a3579
To do this, we draw on research carried out for a three-year project on the introduction
of mass customisation into the UK housebuilding industry. Part of the research inves-
tigated innovation in the production system to deliver customer choice over product
design and specification. This issue was explored in four visits to Japan (see appendix
for details).
In the next section we discuss the way key structural conditions, such as market
dynamics, the regulatory framework, and culture, influence the business strategies
adopted by housebuilders in general, along with their detail in Japan. Next we discuss
the evolution of the Japanese mass customised housebuilding industry and how this
has been shaped by the structural conditions within which it operates. In doing this we
take forward Patchell's findings on the coevolution of the two main housebuilding
sectors. Finally, we draw conclusions on the way in which innovation within the
mass customised housing sector has been stimulated by its changing operating envi-
ronment and the extent to which its possible future path is being shaped by current
conditions in Japan. Although this paper is not a comparison of the UK and Japanese
industries, some UK data are provided as a contrast.
Influences on housebuilders' business strategies
It has long been recognised that economic activity and its development pathways are
socially and culturally embedded (Granovetter, 1985). As Harris and Buzelli (2002;
2003) point out, a central theme to emerge from the industrial restructuring literature
since the 1980s is that there is no single development path leading to a preordained
best practice. Few industries have ever conformed to the ideal of mass production
(Sabel and Zeitlin, 1985; Scranton, 1987; 1994; Williams et al, 1992).
The housebuilding industry is no different. Its business strategies reflect the struc-
tural conditions
ö
market dynamics, regulatory framework, culture
ö
within which its
firms operate (Barlow and King, 1992; Eccles, 1981). These conditions include the
prevailing land-use planning and building control systems, the ways in which new
housing is financed, and cultural and historical factors such as the structure of land-
ownership and attitudes towards property ownership. One feature that is said to be of
particular importance in explaining the structure and strategies of housebuilding
industries is the way its production processes are organised. In housebuilding, unlike
most manufacturing activities, the site of the production process is geographically
variable, its location shifting as buildings are completed in a form of `assembly line
in reverse' (Ball, 1983; McKellar, 1993).
It has also been argued that construction as a whole is a supplier-dominated sector,
where most innovation originates from the suppliers of equipment and materials and is
less concerned with process innovation (Groa
¨k, 1992; Pavitt, 1984; Slaughter, 1998),
inhibiting productivity improvements and complicating the integration of new products
and components.
This combination of factors is said to be a key reason for the relative lack of large,
capital intensive firms in housebuilding and impedes innovation (Ball, 1996; Clarke
and Wall, 1996). This may be reinforced by inflationary conditions in housing markets
dominated by speculative housebuilding. Leijonhufvud (1977, pages 280 ^ 281) has
noted that inflation means that ``being good at `real' productive activities
ö
being
competitive in the ordinary sense
ö
no longer has the same priority. Playing the
inflation right is vital''. This is particularly characteristic of speculative housebuilders
(Barlow and King, 1992).
We will now turn to the Japanese mass customised housebuilding industry and show
that these axioms do not apply
ö
the industry involves centralised, highly capital-intensive
firms competing on their ability to innovate in their production processes.
10 J Barlow, R Ozaki
Key influences on housebuilding in Japan
With a population slightly more than double that of the United Kingdom, Japan
currently builds over six times the number of new housing units each year
ö
currently
around 1 million dwellings. Peak output (1728534) occurred in 1987 and was followed by
three years at a similar level. New housebuilding represents around 80% of total annual
domestic property transactions, compared with under 5% in the United Kingdom.
About half of all new completions are houses (figure 1) and over 90% of these are
detached houses (Management and Coordination Agency, 1993). Approximately 75%
of newly built detached houses are commissioned by individuals and built on their own
plot of land to replace their existing house once it has outlived its usefulness. We will
call this the replacement homes sector. These houses are usually based on standard floor
plans, but customised to a greater or lesser degree. This type of customer will almost
always also be the owner-occupier of the house. The remaining 25% of new houses are
built speculatively for sale, with purchasers being offered little or no choice over
specification and design.
(1)
Thus the dominant housebuilding model in Japan does not involve speculative
development, that is, purchasing land and building homes without an identified purchaser.
Most housebuilders build houses to commission from households.
The scale and importance of the replacement homes sector are a reflection of two
important factors. First, the historically strong cultural attachment to the land in Japan
(Fukutake, 1989; Hendry, 1995; Kirwan, 1987; Woodall, 1992), reinforced by the post-
1945 redistribution of farmland (Zetter, 1986), has played an essential role in shaping
people's sense of private property rights (Shibata, 1990; Yoshida, 1990). Second, life-
time employment with a single employer was a feature of the high economic growth
rates from the 1950s to the late 1980s for much of the working population (Hendry,
1995). Together, these have meant that Japanese households tend to remain on the same
plot of land for generations. Although the house itself may be demolished and rebuilt,
as needs change, the land remains within the ownership of the family. The replacement
cycle in this segment of the housing market has historically been around twenty-six
years, creating a `scrap and build' culture.
One outcome of this model is reduced demand for second-hand and new specu-
lative housing. In addition, individual houses are regarded as consumer, rather than
investment, goods
ö
the investment value largely remains in the land (Ozaki, 1999).
Because of the Japanese preference for new homes, second hand values are little
more than the value of the land alone. The existing house is either considered to have
no value or it may even reduce the land value because of the cost of demolition.
423 000 individually commissioned: 141 000 speculative: Speculative for
75% of all houses (35%) of all 25% of all houses sale or rent;
completions) (12% of all completions) company rent
564 000 houses: 636 000 flats:
47% of completions 53% of completions
1 200 000 new completions:
98.5% of all housing market sales
Figure 1. The Japenese new homes market.
(1)
Speculative developers who plan and develop whole communities include railway companies
with large landholdings (for example, Tokyu Dentetsu) and real-estate companies (for example,
Mitsui Fudosan).
Building mass customised housing 11
The regulatory framework within which this system operates is relatively benign,
reflecting a political and administrative system in Japan that favours minimum inter-
vention in the economy (Alden, 1986). It is not necessary to obtain development
permission outside a City Planning Area, although development in these predomi-
nantly rural areas is infrequent. Elsewhere, a zoning system regulates the size and
form of building, but development permission is likely to be granted easily if the
scheme is in an Urbanisation Promotion Area. The relative weakness in planning
control is reinforced by the fragmentation of land holdings (Hebbert, 1992) and a
lack of national funding and manpower to create and enforce zoning restrictions
(Callies, 1994).
A final feature of Japan's housing market that needs mention is the property boom of
the late 1980s. This was partly stimulated by an acceleration in economic concentration in
Tokyo and other major urban centres, with demand for office space spilling over to land
zoned for housing. This resulted in inflationary pressure and the conversion of residential
sites into commercial development. The National Land Use Planning Act was modified in
1987 to control such speculative land transactions and land prices peaked in 1991 (Tochi
Riyou Kenkyukai, 1999). After this, Japan experienced sharp and continuous land price
decreases.
The origins of mass customised housebuilding in Japan
As a whole the Japanese replacement homes industry is comparatively fragmented and
has not seen the same trend towards concentration that has been a feature in the
United Kingdom since the late 1980s. There 55% of all private sector dwellings were
built by the eighteen largest housebuilders in 2000. In Japan the largest eighteen
companies accounted for only 19% of the market that year (Barlow and Ozaki, 2001).
The sector can be divided into three types of firm: over 80 000 local firms, account-
ing for more than 50% of completions, 150 regional housebuilders, who produce 20%,
and a small number of national suppliers, responsible for the balance (Iwashita, 2001).
Only sixty-seven firms were supplying more than 300 houses per annum in the late
1990s, but some of these were extremely large. The largest, Sekisui House, supplied
over 60000 houses and flats annually and Misawa Homes over 30000. In contrast,
the largest UK housebuilder built around 11000 dwellings in 2000, and the largest
in the USA built about 25 000.
The first suppliers of prefabricated housing appeared around 1960. Many of these
were established by manufacturing companies involved in industrial sectors unrelated
to construction. The sector grew rapidly from 1965 to 1975, stimulated by the initiatives
of the Housing Loan Corporation to promote mass production of low-cost houses.
However, as Patchell (2002) notes, although national policies provided the potential for
a mass market, local housebuilders were not disadvantaged by these polices because
demand was amplified across all market sectors. To this day, traditionally constructed
houses using `post and beam timber' frames constitute nearly 80% of all custom-
built houses (Iwashita, 2001). The imposition of a national building code also benefited
local builders by imposing stricter standards and raising quality.
The second phase in the evolution of the mass customised housing suppliers
occurred between about 1975 and 1985, when housing demand fell and firms began to
move away from a mass production model towards one offering wider variation
around standard house types. The relationship between the housebuilders and compo-
nents suppliers was initially problematic because it was unclear who was responsible
for the risks of carrying stocks of components (Iwashita, 1990). Furthermore, the
smaller housebuilders were able to provide flexibility in housing design for their
customers through the use of the post and beam construction method, and provided
12 J Barlow, R Ozaki
competition for the national builders who were seeking to move towards a more
customised model (Patchell, 2002).
However, it was after the mid-1980s and during the 1990s that mass customisation
emerged as a viable strategy for the large national housebuilders. This was achieved by
the development of financially viable production and supply-chain processes to enable
high degrees of variation in housing. It was also underpinned by innovation at the
customer interface in relation to design, sales, and marketing. We discuss this in detail
in the next section.
Mass customisation was able to develop during this period for several reasons.
First, throughout the 1980s and 1990s the housing market was encouraged by the
Japanese government, first in order to satisfy US insistence that it stimulate its
domestic demand and later to boost the deflationary Japanese economy. Both these
policies openly promoted the prefabrication methods of the national builders (Patchell,
2002). Second, the large firms were able to take advantage of their size to develop
process innovation and achieve economies of scale and scope. Third, rising customer
expectations in relation to quality, design, equipment, and energy efficiency, provided
the national housebuilders with an opportunity to develop their production systems to
meet this demand.
The national suppliers therefore changed the dynamics of the industry, an outcome
being considerably increased competition for the local and regional housebuilders. As
one commentator noted, the unhappiness of many Japanese with their homes at this
time, in comparison with what they knew to be available, was taken as evidence by the
large firms of a large market awaiting them (Ikegami 1997, page 18; cited in Patchell,
2002).
The local and regional housebuilders were not completely disadvantaged during
this period, though. Patchell (2002) explains how this sector's production system was
rooted in conventional building techniques, but these firms were able to adopt some of
the economies of scale and product differentiation strategies of the national house-
builders by developing purchasing and advertising networks. This, however, meant
there was a trade-off between maintaining a degree of independence and product
standardisation.
Process and organisational innovation also occurred at the site assembly end of the
supply system. According to Iwashita (1990), the increased housing demand from 1987
and shortages of labour at construction sites made it hard for smaller housebuilders to
employ sufficient staff. This led to the emergence of `super subcontractors' (Iwashita,
2001). These are vertically and horizontally integrated networks of suppliers of major
building elements, exterior finishing, and carpentry works, who work directly under
contract for a housebuilder. However, the super subcontractors are not tied to a specific
firm and smaller housebuilders also use their services. The development of super sub-
contractors allowed many housebuilders to outsource the construction function altogether.
In the next section we will discuss the innovations introduced by the mass custom-
ised housebuilders during the 1980s and 1990s.We are particularly interested in the way
the structural influences discussed above have impacted on the industrial development
pathway of these firms. We will then return to the path-dependency issue and consider
what the future holds.
Delivering customised housing
ö
innovation across the production system
Patchell (2002) has argued that the mass customised housing suppliers have adopted a
`quasi-standardisation' approach which controls the cost of components through con-
straints on variety of choice, even though they actually appear to offer extensive choice.
This perspective, however, downplays the extent to which these firms have developed
Building mass customised housing 13
advanced production systems, along with sophisticated management of the customer
interface, which is able to deliver highly desirable products to this segment of the
market. Before we describe the methods developed by Japanese mass customised
housing suppliers to achieve this, we will first describe the levels of choice they offer
their customers.
Choice
The amount of choice offered depends on the firm, their market orientation, and the
construction technology used, but unlike housebuilders in many other countries,
Japan's mass customised housing suppliers offer choice across their entire product
range and not simply those at the upper end of the market. Typically a firm will offer
up to 300 standard designs in terms of elevations and floor plans, which can then be
adapted by the customer. Medium or larger British housebuilders, in contrast, might
offer a core portfolio of thirty standard floor plans, with little or no opportunity for
adaptation (Hooper and Nicol, 2000; Nicol and Hooper, 1999).
Customer choice in Japanese housebuilding relates mainly to floor plans and internal
specification. Sekisui House, for example, offers around twenty-two house models, each
with about fifty different floor plans. These can be built in either steel or timber frame,
finished externally in various prefabricated cladding systems, and their interiors can be
adapted to three basic design concepts (Japanese,Western, or hybrid). Finally, customers
can choose between different specifications of interior fixtures and fittings.
Japanese housebuilders offer a large range of internal `fit out' options from which
the purchasers can customise their home. Firms maintain supply agreements with
manufacturers of white goods and bathroom, lighting, and storage products. These
provide the standard range from which customers can choose. This is generally
updated every six months. In addition, some optional items
ö
such as ventilation
systems
ö
are included in the price of the house, but can be rejected by customers if
they wish. If customers are not satisfied with the standard range of fittings, they are
able to choose from other manufacturers, although the housebuilder will charge a price
premium on the item.
Choice is restricted, however, by four factors. First, exterior cladding choices are
controlled in order for housebuilders to achieve economies of scale in construction
processes, by building and planning regulations, and by the size and shape of the plot.
Second, there is the obvious constraint imposed by income, the starting point for all
discussions with potential customers. Third, housebuilders are adept at managing
customers' choices by making suggestions and holding approved predefined lists of
fixtures and fittings. Fourth, the size and orientation of the plot is critical. Orientation
is especially important because Japanese households prefer the living and traditional
`tatami' rooms to face south (Ozaki, 1999; 2001).
(2)
Nevertheless, the permutations of
design, construction technology, interior design, and specification are large compared
with those offered by housebuilders in most countries.
Supporting production system
Providing high levels of choice over design and specifications, and at the same time
delivering homes on time and to a high quality, has required significant innovation
across the entire production process. Underpinning the mass customised approach is
the way the large suppliers have been able to use of standardisation (the complete and
consistent interchangeability of parts) and preassembly of components and complete
subassemblies (such as timber and steel-frame systems and external cladding), to move
(2)
Traditionally, Japanese houses consisted of tatami straw-matted rooms, and the walls were made
of paper and were removable (Ozaki, 2001).
14 J Barlow, R Ozaki
from a focus on economies of scale in production towards economies of scope. The
latter involves the introduction of processes that facilitate the production of a variety of
models using the same machinery and material inputs. We describe the underlying
production and supply-chain processes elsewhere (Barlow, 1999; Barlow et al, 2003;
Naim and Barlow, 2003). The salient point is that these firms have been able to move
housebuilding away from the traditional `assembly line in reverse' model towards one
where the bulk of production takes place within the factory.
To help achieve this, major component suppliers have been encouraged to invest in
dedicated housing production systems (Bottom et al, 1996; Gann, 1996; Gann et al,
1999). Long-term relationships with suppliers help to inform product development and
collaborative R
&
D with key suppliers is common. Together, these production-technology
and process innovations have enabled the mass customised housing suppliers to exploit
opportunities for improving productivity and quality, improving managerial control and
coordinating processes more effectively.
Thecustomerinterface
The introduction of standardisation and preassembly within the production processes
has been coupled with the development of a sophisticated approach to managing the
interface with the customer (Barlow and Ozaki, 2001; 2003).
Customisation inevitably means that housebuilders spend considerable resources at
the `front end' of the customer relationship. Once a decision has been made to
purchase, firms might spend three or four planning sessions with customers, which
can last up to four hours each. However, purchasers sometimes liaise with the designer
as many as ten times and one company said there could be two meetings a week during
the design phase.
The absence of large development sites which can accommodate show areas and
sales facilities means alternative methods of enticing the customer have had to be
adopted. In Japan's small speculative housebuilding sector, potential house-purchasers
are generally directed to development sites by advertising or estate agents. The mass
customised housebuilders instead use the following four approaches: show villages,
company-specific customer centres, word-of-mouth sales, and repeat business. Show
villages, which first emerged in 1966, allow housebuilders to display their show homes
collectively. There were 405 show villages in Japan in 2000, containing about 5000
houses. Some are large, with fifty or more houses. Housebuilders also maintain large
numbers of sales offices or customer centres. Sekisui House, for example, has 200 sales
offices across Japan and, at any one time, 600 show homes.
Great stress is placed on word-of-mouth sales and repeat business. This is achieved
through high levels of after-care service, a reflection of the Japanese notion that a
continuing relationship is part of the sale. More pragmatically, after-care service
provides valuable feedback for product development and may lead to word-of-mouth
referrals and higher brand loyalty. Apart from follow-up visits within the first year of
occupation to check and deal with any problems, the long-term relationship involves
routine inspection and maintenance, the construction of extensions, and internal and
external remodelling. Japanese housebuilders will continue to visit their customers
and carry out surveys to capture their experiences of living in the home ten or even
twenty years after the sale.
Word-of-mouth referrals are high, compared with the United Kingdom, where rates
are generally below 5%. Mitsui Home, for example, currently receives 30% of its sales
in this way (60% are from show homes in housing parks and 10% from advertising or
other sales promotion). At the time of the interviews, the company aimed to increase
the ratio of the word-of-mouth introductions to 60 ^ 70%.
Building mass customised housing 15
The mass customised housing suppliers are now spending increased effort on using
the after-sales period to gather useful data for product development. A tool used by
some firms are local `clubs' bringing together their purchasers and holding seminars on
how to get the most out of the home. Large housebuilders are also beginning to use
their websites to gather customer feedback, providing advice to existing purchasers and
generating sales of household products. They also capture the knowledge and experi-
ence of site-assembly teams and sales personnel. Sales personnel feed their knowledge
of changing customer needs via regular meetings with designers and site-assembly
teams are used as a resource for improving the buildability of homes.
The future evolution of mass customised housing suppliers
Patchell (2002) argues that both the large national housebuilders and those operating
at the local or regional level are constrained by path dependency in different ways.
The former have sought growth through heavy investment in economies of scale and
scope, which has necessitated a geographical expansion in return for forfeiting local
responsiveness. The latter are constrained by local traditions, materials, and relations,
which afford some competitive advantages at the expense of their spatial scope of
activities. Patchell also argues that the local embeddedness of smaller housebuilders
has meant that the national firms face a challenge of spatial organisation
ö
they
have had to create a sales-and-distribution infrastructure that is able to interact with
customers locally.
Although there is some truth in this analysis, inasmuch as the mass customised
housing suppliers cannot design as freely as their local competitors who are able to use
their carpentry and assembly skills to tailor-make a house to an individual's needs, this
downplays the extent to which the former have been able to achieve a high degree of
design flexibility and minimise the associated costs. As we saw above, the mass
customised housing suppliers have been able to develop sophisticated customer-inter-
face and production systems to address the problems of coordinating the range of
potential design choices available to purchasers. This approach is, however, costly in
terms of sales and marketing expenses. About a fifth of Sekisui Heim's workforce are
full-time sales people, and more than a third in Sumitomo Forestry, a more upmarket
housebuilder. In the United Kingdom, sales staff might represent under 10% of total
staff in a medium or larger housebuilder, including agency staff. Along with the heavy
investment in manufacturing capacity and R
&
D, this ensures that the operating profit
margins of Japanese housebuilders are therefore very low, generally around 2^ 3%, and
comparable with those of typical construction contractors (Barlow and Ozaki, 2001).
(3)
The question is how the organisational and spatial coevolution of each house-
building sector will develop in the future. Despite the persistent economic problems,
Japan still has over 1 million housing starts per annum. However, downward pressure
on the housing market is evident and some have estimated that the total number of
starts will drop to 750000 to 900 000 per annum by 2010 ^ 15 (Cohen and Gaston,
2002). This is partly a result of uncertainties over the future market for replacement
housing. The need for a larger house or desire to replace an outdated style remain the
primary drivers for this market. One effect of Japan's rapidly ageing population, and a
reduction in the number of children leaving home in their twenties, has been a trend
towards larger, three-generation homes (Ozaki, 1999).
(3)
Housebuilders supplying the replacement homes market do, however, benefit from extremely
favourable cash flow, receiving 40% of the final price on commencement and a further 30% once
the house has been erected.
16 J Barlow, R Ozaki
There is, however, concern amongst housebuilders over the long-term impact of
rising unemployment, the introduction of temporary or part-time employment con-
tracts, stagnating earnings, and low expectations about future growth prospects. Under
these circumstances housebuilders are worried that an increasing number of Japanese
owner-occupiers will turn to renovation rather than replacement. Another issue is the
environmental impact of the replacement homes, `scrap and build' model. The Japanese
government wishes to raise the average lifespan of new housing and there is currently
discussion about `zero energy housing', `100 year life housing', and the increased use of
recycled materials.
These factors, together with the low profit margins discussed above, are leading
many mass customised housebuilders to seek new business strategies. One is to try to
raise their market share. Some interviewees felt there was scope to win business from
the numerous smaller firms. Several firms have begun to offer new houses at lower
prices, although others have indicated they will not compete in this market.
Another strategy for the mass customised housing suppliers has been to seek to
rationalise their portfolio of housing designs to raise profitability and improve produc-
tion efficiency. Sekisui House, for example, reduced the number of product models
from 110 in 1997 to 50 in 2000. The challenge is to find ways of rationalising product
ranges, while still offering the flexibility and choice offered by competitors.
Third, a number of housebuilders are attempting to compensate for the decline in
new housebuilding by becoming involved in refurbishment for their existing customers.
These include large national firms and local builders, as well as building products
manufacturers. All maintain detailed customer databases which include the design
and technical specifications of the house. Some also see potential in offering repair
services after major events such as typhoons, severe storms, flooding, and earthquakes.
The ability to organise large-scale production processes, coupled with the strength
of their brands and all-pervasive emphasis on lifetime customer relationships, may
ensure that the mass customised housing suppliers are able to carry out these three
strategies and offer greater competition for the smaller local firms. However, a
continuation of recent mergers and acquisitions, and vertical and horizontal alliances
and integration throughout the housebuilding industry as a whole, may lead to the
expansion of regional or larger local housebuilders and act as a counterweight to
the expansion strategies of the mass customised housebuilders.
Conclusions
The example of Japanese mass customised housing suppliers refutes the view that indus-
trial development does not occur in housebuilding.These firms, as well as the smaller local
housebuilders, have adapted to their environment. The emergence of the mass customised
suppliers was a unique response to the structure and condition of the Japanese housing
market and its social circumstances in a period of rapid economic growth.
Part of this has involved
ö
as Patchell (2002) has pointed out
ö
the coexistence and
coevolution of large industrialised firms and small local traditional builders. The flexibility
that local builders have in terms of design and planning
ö
and their local connection,
which is very important in Japan, especially in rural areas
ö
is a huge advantage in the
competition between industrialised national and local craft housebuilders. However, these
two types of firms have influenced each other and the competition between them has
helped them to evolve. Large national housebuilders have relied on innovation across the
production process to match the local connections of small firms. Although competi-
tion between the two sectors may increase as the scale of housebuilding declines,
the emergence of supplier relationships, a consolidation of firms in local ^ regional
Building mass customised housing 17
housebuilding, and the introduction of tighter regulation to increase quality suggests
that the two sectors will continue to evolve in tandem.
More generally, we argued that the impact of house-price and land-price inflation is
said to be an important structural condition explaining the lack of innovation in
housebuilding industries. Japan's mass customised housing suppliers show how product
and process innovation has occurred despite high rates of land-price inflation in the late
1980s, because the majority of housebuilding is nonspeculative. Because housebuilding
in this segment of the Japanese housing market does not involve land development, as
the plots are already in the ownership of the housebuilder's customer, firms supplying
this market have been obliged to innovate to reduce production costs and also develop
new products to differentiate themselves and compete.
Responsiveness to customers'individual needs is becoming increasingly important as a
market winner throughout developed economies. Menu-driven approaches to the supplyof
goods and services, whereby certain features are selected and products are tailored from a
relatively standardised core of parts, are now common in many retail sectors. Japanese
housebuilders
ö
and in particular those involved in mass customised supply
ö
have
extended this philosophy into the new homes market. Competition between firms is largely
on the basis of levels of choice and service, rather than their ability to manage the
building process more effectively or secure development land in the right place and at
the right point in the market cycle, as is the case with speculative housebuilders. This
requires much closer integration of market intelligence with design and product develop-
ment.The Japanese mass customised housing system amply demonstrates how this can be
achieved in housebuilding.
Acknowledgements. The research was supported by the Engineering and Physical Science Research
Council (EPSRC) and Department of the Environment, Transport and the Regions under the
LINK-MCNS Programme.The research was carried out in collaboration with the Logistics Systems
Dynamics Group, Cardiff University. We thank our colleagues on the research project Ralph Barker,
Paul Childerhouse, David Gann, Se
¨verine Hong-Minh, and Moh Naim. Some of the material in this
paper draws on work carried out for a Department of Trade and Industry mission to investigate
customer focus issues in Japanese housebuilding, led by the authors. We are grateful for the help
received from the British Embassy in Tokyo.We also thank our mission colleagues for their valuable
insights and our numerous interviewees in Japan. Additional research was carried out with support
from the EPSRC through the Built Environment Innovation Centre.
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Appendix
Principal visits made in Japan
Interviews in Japanese housebuilding companies and organisations were carried out with
personnel at an appropriate level, generally managerial or directorial. Interviews lasted
between one and three hours, with an interpreter present in many instances. In addition,
one of the research team is a Japanese national. The interviews were supplemented by
documentary material, including company reports, sales literature, technical manuals, and
other company documentation. The principal companies and organisations visited were:
ABC Housing Senri Housing Park (December 2000)
Housing Loans Corporation (February 2000)
Misawa Home (December 2000)
Mitsui Home (February and December 2000)
Sekisui Chemical/Sekisui Heim (February, July and December 2000)
Sekisui House Comprehensive Housing R
&
D Institute (February and December 2000)
Sekisui Industrial/Sekisui House (December 2000)
Sumitomo Forestry (July and December 2000)
Taisei Prefab Construction (December 2000)
Toto (February 2000)
Urban Development Corporation (February 2000).
ß 2005 a Pion publication printed in Great Britain
20 J Barlow, R Ozaki
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This article examines the Japanese house industry to show how interactions between customers and manufacturers influence both the design of houses in Japan and the locational attributes of the house industry. The particularities of place and the processes of personalization challenge the joint imperatives of product differentiation and economies of scale. National builders are forced to modify their differentiation strategies in order to compete with the flexibilities of local contractors. In turn, local contractors must respond to production and service innovations introduced by national builders. Materials and equipment suppliers, positioned as intermediaries, link these two types of firms. This coevolution of firm flexibilities is modeled here along five dimensions: system constraints, internal flexibility, interaction processes, quick response through the value chain, and modularization. The model reveals how national and local contractors respond to the need for interaction and highlights the relation between production processes in space and patterns of consumption in localities.
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The improvement of the urban capital stock in Japan is caught between the high price of land (and housing) and local and national fiscal constraints. In recent years rising land prices have been underpinned by the relatively recent system of planning controls and by a wide array of subsidies: suppliers of urban development have not been charged the full cost of infrastructure; while the demand for housing and development has been supported by the protected capital market and by many forms of direct and indirect assistance. Since 1980, the stringent budgetary situation has helped to reduce the rate of increase of land prices. But higher local taxes and more expropriation of the land needed for development remain politically unacceptable.