Japan Gradually Opening Up to U.S. Firms in Construction Projects : Inroads Made Primarily Through Joint Ventures, but American Contractors, Architects Say Pace Is Still Too Slow

A year ago, construction projects in Japan were virtually closed to American contractors, engineers and architects, although Japanese firms were rapidly increasing their participation in U.S. projects.

Then, under pressure from the U.S. government, the Japanese agreed last year to open the door to its construction market slightly. Since then, Americans have made measurable progress, primarily through joint ventures with Japanese firms. Still, some American industry officials complain that the pace is too slow.

Reports from Tokyo indicate that San Francisco-based Bechtel Group is close to winning the largest construction contract ever awarded a foreign firm in Japan. Bechtel, a giant, privately held engineering and construction firm, confirmed that it is negotiating for a $300-million to $370-million contract to help Fujita Corp. build two geothermal power plants in Japan. However, a company spokesman wouldn’t comment on the progress of the negotiations.

Japanese news reports say the signing of a contract is imminent. Bechtel would provide consulting services on a project to tap geothermal energy from volcanoes south of Tokyo. Fujita plans to spend $750 million to build the plants on Kyushu Island 550 miles southwest of Tokyo. Eventually, Fujita plans to build resorts and industrial parks to use the energy from the plants.

“It’s a start. But as with most things in Japan, you have to wait and see where it goes,” Charles Hoskins, national director of Japanese business development at Touche Ross & Co. in Los Angeles, said in assessing the progress of the Americans. Last year, when Americans were clamoring for contracts in Japan, they “didn’t have the capacity to do the work,” Hoskins said, citing ignorance of the language as one significant problem. The joint ventures “give them the bicultural experience,” he added.

Most Americans feel that “there really isn’t access to the large jobs,” although those large, governmental public works projects were supposed to be the means by which Americans would enter the market, said Sanford R. Goodkin, who has chaired seminars on the subject as Peat Marwick Main & Co.’s executive director of real estate. However, he said, there are issues of culture and American business training that come into play.

“American companies aren’t trained in terms of foreign enterprise. . . . American companies mostly are not oriented toward foreign penetration, with the exception being the large multinationals,” Goodkin said. American construction companies, in particular, will most often need a joint venture to go overseas, he said. “The average American construction company doesn’t have the political contacts, and they haven’t been at it long enough.”

Also, he added, Americans “are impatient” and the Japanese take a long time to do things. Those cultures are “always clashing” when it comes to measuring progress, he said. “I think it’s evolutionary.”

Still, the Japanese have recognized the “competitive pressure to have reciprocity,” said Jack R. Rodman, managing partner of Kenneth Leventhal & Co., which tracks Japanese investments in the United States, including joint ventures between Japanese construction companies and U.S. developers. Japanese construction contracts in the United States have risen to about $2.2 billion a year, while U.S. companies won only about $7 million in Japanese contracts last year, according to the Commerce Department.

Work Still Limited

The Japanese seem keenly interested in American technical expertise, Rodman said. He said American architectural firms appear to be making the most progress in Japan, winning contracts to design buildings and golf courses. Tokyu Land Corp., for example, has hired Richardson, Nagy, Martin, a Newport Beach-based architectural firm, to design and plan a $300-million residential development on the outskirts of Tokyo.

However, some American architects say American designers’ work in Japan is still very limited.

“There’s not a lot of desire on the part of the Japanese to open up their construction market,” said one architect. Design contracts for construction projects have become a kind of compromise for the Japanese, the architect said, adding that the strength of the Japanese yen compared to the dollar has made the hiring of American architects much less expensive for Japanese developers. “I don’t know whether there is as much reality to this as the Japanese would like the (U.S.) State Department to believe,” he said.

The joint ventures with the Japanese construction companies have expedited the process of obtaining a Japanese license, essential for bidding on certain projects. Since late 1987, two U.S. companies have won public works projects and two have been granted private jobs. Also, eight American companies have received Japanese general building contractor licenses in that period, according to Engineering News Report, a New York-based industry publication.

Tishman Realty & Construction of Los Angeles in March became the first U.S. company to participate in a private construction project in Japan. Through a joint venture with Tokyo-based Aoki Corp., Tishman Construction Corp. of Japan, a Tishman subsidiary, will help build a 400-room, $200-million luxury high-rise hotel in Osaka. The hotel will be operated by Westin Hotels & Resorts, a Seattle-based Aoki subsidiary.

Under the agreement, Tishman and Aoki will jointly oversee the construction, including design analysis, planning, scheduling and budgeting. Aoki will be general contractor for the project. Tishman will actively pursue other Japanese projects, said Richard Kielar, first vice president of Tishman Construction. “We are very interested in the Kansai airport project,” he said.

The U.S. government made American participation in the Kansai project--an international airport to be built near Osaka--a priority in negotiations before the announcement last year that the Japanese had agreed to open up their market. While not guaranteeing participation, the agreement gave American firms special access to 15 government-funded projects. American firms are particularly eager to take part in such public works projects because Japan may spend $60 billion to $200 billion on public works during the next decade, according to U.S. industry estimates.

Won Office Contract

Thus far, a French firm has won a contract to design the airport terminal. And Bechtel was awarded one of the first “software” design/engineering-type contracts, although it was a very small one.

New York’s Turner Corp. has also expressed “strong interest” in the Kansai project. Turner formed a joint venture with Kumagai Gumi Co., one of Japan’s “big six” general contractors, last June to pursue selected projects in the United States and Japan. In March, the joint venture was selected to build an $86-million office and residential complex in Tokyo for real estate developer Shuwa Corp. (A Los Angeles-based Shuwa subsidiary owns 37 office buildings, hotels and industrial parks in the United States.) Turner will have a 10% share of the Japan project.

Commerce Secretary Robert A. Mosbacher cited the Shuwa project as “a fine example of a private-sector developer stepping forward on his own initiative to honor the spirit of the U.S.-Japan agreement on major projects reached last May between our two governments. Most significant is that this private sector project is outside of that accord, but reflects most clearly our goal that American companies are given the opportunity to introduce their expertise and experience to all sectors of the Japanese market.”

While American firms press for a greater part in the huge airport construction project, two other public works projects have been announced with American participation. Bechtel was granted a $1-million consulting contract for the construction of the $9-billion Trans-Tokyo Bay Highway. Schal Associates Inc. of Chicago in November became the first American firm selected to build a public works project in Japan. Schal and eight Japanese partners won a bid to build a hotel and convention center near Tokyo.