Construction : Foreigners Build New Base in U.S.

It was perhaps the grandest, most elaborate celebration ever held in Long Beach. There were 5,000 guests and 4,000 colored balloons; confetti was fired from cannons.

The occasion was the ceremonial ground breaking this summer for the Greater Los Angeles World Trade Center, and one of the featured guests was an elderly Japanese construction executive, Kazue Ono, a diminutive man with white hair and sparkling eyes.

In halting English, Ono told the crowd that “the dream of a World Trade Center” is finally becoming fact after three years of planning. Ono was there because his construction company, Kajima, is helping to plan and build the behemoth $550-million complex.

Similar ground-breaking ceremonies, where Japanese firms take center stage, will be played out across the country in the years ahead.

U.S. Firms Losing Ground

Foreign companies, especially those from Japan, are planning, financing and building mega-projects in the United States that stand as distinctive monuments on America’s urban landscape. U.S. builders, who once had exclusive bragging rights to the most impressive structures in the nation, are losing ground to competitors from overseas.

The result is perhaps the most concrete symbolism yet of the towering presence of countries such as Japan on the international business scene.

Powerful foreign construction giants--led by firms with the still unfamiliar names of Ohbayashi-Gumi, Kumagai Gumi and Kajima--are mapping plans for $100-million skyscrapers in Manhattan, redoing the face of Little Tokyo in downtown Los Angeles and building a $450-million automotive plant in Michigan.

The trade center in Long Beach is a joint venture between IDM, a well-known local builder, and Kajima, a 140-year-old firm known in construction circles around the world. Scheduled to be built in four phases, with structures as high as 35 stories, it promises to dominate Long Beach’s downtown skyline when completed sometime in the 1990s.

Fear and Resentment

This Rising Sun in the U.S. construction field is causing plenty of heat. Within the proud and occasionally xenophobic domestic construction industry, already buffeted by a downturn in building, there are various degrees of resentment, envy and fear. And it has become the latest sore point in already tense trade relations between the United States and Japan. In scenes reminiscent of past trade friction over automobile and steel imports, American companies are already charging that the Japanese don’t play by the rules. A few warn that the seeds already have been planted for a Japanese takeover of the U.S. construction services business.

The backbone of the U.S. construction industry is the private, often family-run contractor that rarely receives public recognition. Names that adorn the tops of high-rises generally reflect the owners or major tenants of the building, not the firms that built them.

But their legacy is undeniable. One standout Southern California-based builder, C.L. Peck Contractor, has built such unusual structures as the new Orange County Performing Arts Center, the Crystal Cathedral in Garden Grove, Fluor Corp.’s mirrored-glass headquarters just off the San Diego Freeway in Irvine, and the Forum sports arena in Inglewood, where the Los Angeles Lakers play.

In October, though, C.L. Peck agreed to merge with one of its competitors, Jones Bros., in part to survive the intense competition being provided by overseas companies. The new company will be known as Peck/Jones.

Construction companies handle everything from engineering and design to construction supervision. They vary from mom-and-pop builders to worldwide engineering and construction leviathans like Fluor in Irvine and Bechtel Group Inc. in San Francisco.

But Japan’s major construction companies--multibillion-dollar firms that operate worldwide--are hauling in major contracts today largely because their excellent credit ratings with cash-rich Japanese banks allow them to obtain loans at low interest rates.

Explosive Activity

What surprises, even galls, some American construction executives is the rate at which Japanese construction companies are getting new business in the United States. “The activity has exploded in the past couple of years,” said William Beddow, lobbyist for National Constructors Assn., an industry trade group.

After years of keeping a low profile in the United States, Japanese construction companies landed about $1.8 billion in American building contracts last year. Though less than 1% of the American construction pie, that’s still 18 times the level of four years ago and almost triple the 1984 amount, according to figures from International Construction Week, an industry newsletter.

Ohbayashi-Gumi surprised the American construction industry early this year when its San Francisco office landed a contract to build the $62.8-million Elk Creek dam in Oregon. Its bid undercut such notable American contractors as Bechtel and Morrison-Knudsen Corp.

Such developments can be tough to swallow for a domestic construction industry that isn’t used to a serious challenge on its own turf.

“Construction stiffs are particularly patriotic and macho,” said Jerve Jones, who will be chief executive of Peck/Jones when the merger is completed. The attitude “runs all through the industry,” Jones said, making the Japanese inroads “all the tougher to take.”

Warning Signs

Yellow flags are already being raised, warning that the Japanese are determined to be as successful in construction services as they have been in other basic American industries. Japanese firms now control major segments of the U.S. auto, steel, machine-tool and semiconductor markets.

“These guys (the construction industry) are next,” Senate Foreign Relations Committee staff member Bill Triplett said. “It’s the same game. No question about it. It all fits the same pattern.”

Some construction executives, however, don’t take the Japanese seriously. “There is a lot of World War II mentality still in this industry,” said an American executive with a Japanese construction firm. “They say: ‘Hey, we defeated them once before. Why do we have to worry about them now?’ ”

Japanese construction officials say the American market, contrary to public perception, is not easy for them to crack or understand. It is a local business, they say, where zoning laws, bidding practices and labor conditions vary from city to city.

“It’s tough for the Japanese,” said Shigeru Suzuki, an Ohbayashi executive who has worked in Hawaii and California for 11 years. “We don’t speak the language that well, and we don’t know the customers.”

German, Japanese Dominance

Of the dozens of foreign construction companies in the United States, the Germans and Japanese have been among the most successful. Together, they captured about half of the $7.8 billion in contracts awarded to non-U.S. firms last year, industry figures show.

But the Japanese are the most noticeable. German construction companies, like other European and Middle East firms in the United States, have acquired established U.S. construction companies.

Thus, builders like Jones Group in North Carolina or Ray Wilson Co. in Pasadena have maintained American identities even though they have European owners. Japanese companies, on the other hand, prefer to establish U.S. subsidiaries, staffed largely by executives from Japan.

But that’s not what bothers the Americans.

Rather, they contend, foreign construction companies have free reign in American markets, while U.S. firms are effectively barred from bidding on huge public-works projects now being planned in Japan.

The most notable current controversy involves an $8-billion plan to build Kansai International Airport near Osaka. Work on the project’s first phase, a $4-billion effort to build a man-made airport island in Osaka Bay, is proceeding without American help though many U.S. firms want the work.

“The Kansai situation is just not fair,” complained one U.S. executive for an international construction company, summing up the frustrations of his colleagues who believe that the clubby relationships between Japanese businesses result in the exclusion of American firms.

Some Americans Pleased

Despite the dispute over the Kansai airport, some American construction companies welcome the Japanese entry into the United States.

Local economies benefit, they say, because actual construction work--laying the bricks, for example--is done by American workers hired by subcontractors. But that fact sometimes gets lost in the rhetoric.

“The perception is the boat will pull up to Long Beach and a lot of Japanese workers will get off to do the work,” said Michael Choppin, chairman of IDM, the American joint-venture partner on the World Trade Center.

Moreover, when Japan and American construction firms team up, it can be a formidable and mutually beneficial combination. U.S. firms gain access to cheap financing, while the Japanese gain the experience they need to land big projects on their own.

Out of such convenience was born the partnership for the trade center, which is sponsored by the Port of Long Beach. Kajima obtained bargain-basement financing for the $107-million first phase, IDM has the primary responsibility for supervising construction development and the Port of Long Beach contributed the property, valued at $29 million.

Japan’s major construction companies have had offices in the United States for years, even decades, but their operations for a long time had been limited in scope and confined largely to Japanese clients. Now, faced with an energy-related construction downturn worldwide, the major Japanese firms are thinking bigger here.

So far, the greatest effort has been in--but not limited to--Manhattan, California and Hawaii.

$1 Billion in Projects

Kumagai Gumi is leading the way in New York, where it is planning or building seven projects valued at more than $1 billion in partnership with a well-known New York builder, the Zeckendorf Organization.

The most notable are plans for a $384-million office tower at the southern tip of Manhattan and a $500-million office complex on the West Side site of the pre-1968 Madison Square Garden between 49th and 50th streets. Kumagai Gumi is also big in hotel construction in Hawaii, where it is helping to build a $360-million, 1,244-room Hyatt Regency hotel.

Ohbayashi and Kajima have also spruced up Los Angeles’ Little Tokyo, turning it from a well-worn old neighborhood into a center for new hotels, apartments, office buildings, restaurants and shopping malls.

The latest commercial venture is Hotel Tokyo, a $14-million, 11-story inn that Ohbayashi is building in partnership with Taiwanese investors, according to Suzuki, who is president of Ohbayashi America Corp. in Los Angeles.

The World Trade Center in Long Beach is clearly tying its fortunes to the brisk Pacific Rim trade that has made the adjacent ports of Long Beach and Los Angeles the busiest trading posts on the West Coast. If the master plan is followed, the trade center ultimately will have four office towers from 25 to 35 stories and a hotel with up to 600 rooms.

(Construction on the trade center has yet to begin, though ground-breaking ceremonies took place four months ago. Project spokesmen insist that building will start soon, after a last round of cost-cutting and the award of final construction-permit approvals.)

Social Cleansing

The Japanese influx is clearly helping cleanse downtown Long Beach, which was once a magnet for X-rated movie theaters and a model of urban decay.

Just down the street from the planned trade center is a hole in the ground--where the Pussycat movie theater once stood--that will ultimately be filled in with a $130-million hotel and office project known as Shoreline Square. Those owners and builders include the American subsidiaries of Taisei, another large Japanese construction firm, and Marubeni, one of Japan’s largest trading firms.

But domestic resentment of such inroads into construction seem certain to increase as long as American contractors believe they are excluded from projects in Japan.

The Kansai airport flap has the attention of politicians and bureaucrats on both sides of the Pacific. It was the subject of congressional hearings this summer and a recent trip to Japan by a delegation of U.S. construction executives.

The Americans’ chief complaint is that the Japanese do business in a close-knit system in which construction contracts are awarded through a Japanese version of the good-old-boy network, not open bidding.

“It’s tough enough for young Japanese firms to compete,” said Beddow, the National Constructors Assn. lobbyist. “For foreigners, it’s almost impossible.”

The Japanese reply that their system is, in fact, open. The problem, they say, is that foreign firms don’t take the time to learn it.

Belief in Efficiency

The Japanese also generally believe that they operate more efficiently. For example, they detest scheduling delays, a familiar problem in the United States, said Yukuo Takenaka, a Japanese-born American and an executive with the Peat, Marwick, Mitchell consulting firm in Los Angeles.

“The Americans always have excuses why a project is behind schedule,” Takenaka said. “That doesn’t cut it over there.”

Nevertheless, the Reagan Administration and vocal members of Congress, led by Sen. Frank Murkowski (R-Alaska), are leaning hard on the Japanese government.

“The Japanese will probably have to make some accommodation,” Takenaka said, “but it won’t be because of merit. It will be because of political pressure.”

Some executives say privately that one compromise may be an informal quota system that sets aside a certain percentage of Kansai airport work for foreign contractors. Ironically, it would be very similar to affirmative-action set-asides that have been used to provide jobs to minority contractors in the white-dominated American construction industry.