If U.S. Builders Get Into Japan, Can They Win?
The Reagan Administration made hard-fought, limited progress last week during the visit of Japanese Prime Minister Noboru Takeshita toward getting Japan to lower artificial barriers to competition for its construction projects.
It’s a high-stakes battle because Japan plans to build $60 billion worth of airports, bridges, roads and other public works within the next decade. And it’s only fair that U.S. companies get a shot at such jobs, because Japanese companies have enjoyed more than $4 billion worth of construction contracts in the United States in the last two years--including jobs from the federal, state and local governments.
But the business may not come easily. In fact, there are many who question whether U.S. companies can cut it competitively, including the U.S. Congress’ Office of Technology Assessment, which recently issued a study of international competition in construction and other service industries.
The report was not kind. “You see in the U.S. construction industry some of the same characteristics you saw in the automobile and steel industries 15 years ago,” says John Alic, senior associate of the Office of Technology Assessment.
What’s he talking about? A familiar complaint: Japanese firms invest in research and development, American firms do not. Ohbayashi Corp. and Shimizu Construction have 200 people each doing research in construction techniques and building materials, Kajima Corp.--builder of the Mazda plant in Flat Rock, Mich.--has more than 300. Meanwhile, of the U.S. firms, only Bechtel Corp.--with 200 in R&D--does; any research at all.
“The Japanese companies take a very long-term view,” says consultant William Ralston of SRI International, which advises the U.S. industry.
It’s an important business. Not only is $80 billion in construction contracts awarded annually to international firms--$25 billion of them in the United States--but the contractor often serves as advance man for other industries. That is, if Bechtel builds a building, the heating controls may be by Honeywell. But if Ohbayashi gets the job, Hitachi may get the wiring.
Of course, U.S. companies don’t really ignore technology. They may not call it research, but U.S. firms lead in using and developing programs in computer-aided engineering and design.
U.S. Share Could Fall
Furthermore, says Robert Davidson, executive vice president of Parsons Corp., the system is different. The U.S. engineering contractor’s strength lies in project management--in picking and choosing among the best techniques and equipment developed by others and supplying them to the customer. They buy rather than make.
But what if those who make don’t want to sell? What, that is, if direct competitors develop the skills Americans need to buy? Austrian and German construction firms excel in tunneling techniques, for example, and the Japanese have developed an edge in boring and grinding techniques and innovated with robots on construction sites.
The U.S. share of construction markets, already slipping because more countries are competing, could really fall if jobs are won with skills the Americans can’t touch. It wouldn’t be the first time. Too often, says Eric von Hippel, a professor at Massachusetts Institute of Technology and author of a forthcoming book, “The Sources of Innovation,” U.S. companies are superior in advanced sectors of an industry, but development and innovation occur at lower levels.
Moreover, markets of the future in developing countries are going to favor companies that have their own technology or techniques to teach--as American firms building air bases in Vietnam in the 1960s taught the Koreans, who served as laborers then but are powers in world construction now.
What’s the upshot? The present battle over Japanese public works will be resolved, probably with U.S. and Japanese firms forming joint ventures. That way U.S. firms can get business, while Japanese politicians retain the right to hand out the jobs or patronage.
But, beyond the immediate, U.S. engineering and construction companies might invest a dollar or two in research. Otherwise the current trade deficit improvement will be a short-lived phenomena.
