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OCR for page 23
2
U.S. Construction in
International Competition
The U.S. construction industry has fared poorly in this diffi-
cult climate of stagnant markets en c! growing competition. A more
detailed Took at the structure of the U.S. industry and some of
its principal competitors in international markets reveals erosion of
traditional technological advantages and failures to keep up in devel-
oping the skills needed for competition.
Available data indicate that U.S. construction firms in 1986
captured $22.6 billion in new contracts, almost 31 percent of the
international export market (see Table 3~. This amount represents a
decline of more than 40 percent in sales dollars since 1982.
U.S. design firms (engineers, architects, and construction man-
agers whose markets are driven by construction) working internation-
ally often provide some advantage for U.S. construction firms. These
firms garnered $917.8 million in 1986 billings, about 26 percent of the
market (see Table 4~. Again, these figures represent a sharp decline
from 1982, when U.S. firms captured 36 percent of a market made
fat by the spending of prosperous oil-producing countries.
THE U.S. INDUSTRY
The small number of U.S. firms competing in the global mar-
ket are generally very large employers (by construction industry
standards) and are key players in the international competition.
23
OCR for page 24
24
BUILDING FOR TOMORROW
TABLE 3 International Construction Shares, 1986
Nation of Number TotalAwards
Contractor of Firms $BillionPercentage
American 43 22.630.6
Japanese 29 9.412.7
Korean 14 2.63.5
European 126 33.745.5
Italian 35 7.410.0
French 18 7.19.6
British 17 7.09.5
German 17 5.57.5
Yugoslavian 6 1.41.9
Swiss 5 1.31.7
Dutch 7 1.11.5
Other 21 2.93.9
Turkish 9 2.23.0
All other 29 3.44.7
Total 250 73.9100.0
Source: Engineering News Record, July 16, 1987.
Note: Data are based on voluntary responses to a survey.
In 1983, U.S. firms involved in international contracting employed
45,000 Americans and 99,000 people of other nationalities.
Domestically, the construction industry consists of many small
firms that respond to externally determined demand!. Consolidations
are taking place across the industry, with foreign investors buying
large interests in some firms, and still other firms are closing shop.
Some people believe that these consolidations and mergers are
an attempt by the marketplace to sort the industry into two broad
categories: the all-purpose firms (not unlike their Japanese coun-
terparts), and the specialized "boutiques" (small, but highly spe-
cialized). Overlying this restructuring of the industry is a constant
struggle with a litigious society in which each party to a contract
has found itself confronted in a court of law. In such a climate,
too many organizations devote energies and management structure
largely to minimizing risks, rather than building new markets or
applying innovations.
OCR for page 25
U.S. CONSTRUCTION IN INTERNATIONAL COMPETITION
TABLE 4 International Design Shares, 1986
Nationality
of Designer
Number ,Forei~n Billing
of Firms $Million Percentage
American 49 917.825.9
European 106 1,958.455.3
British 26 481.413.6
French 15 306.38.6
Gennan 21 282.18.0
Dutch 8 259.37.3
Scandinavian 11 227.16.4
Swiss 8 174.74.9
Other 17 227.96.5
Canadian 14 204.05.8
Japanese 12 220.56.2
Korean 4 54.01.5
All other 15 185.15.3
TOTAL 200 3,539.9100.0
Source: Engineering News Record, August 6, 1987.
Note: Data are based on voluntary responses to a survey.
A Short Historic Perspective
25
Until the Industrial Revolution, construction remained little
changed from Roman times. Stone, brick, and timber were used
for buildings, and infrastructure was rudimentary.
By the end of the nineteenth century, a "second generation" of
essentially urban inventions (structural steel frames, the elevator,
electrical systems, sewer and water systems, indoor plumbing, cen-
tral heating, the telephone, the automobile and highway, and the
subway) was ready for worldwide diffusion and installation. Most of
the world's construction industry known today came into being to
integrate these inventions into individual communities.
After World War ~ and the subsequent boom and bust periods
of the 1920s and 1930s, construction capabilities increased to include
the building of national highways, large reclamation projects, and
dams for water control and power production. The U.S. Army Corps
of Engineers and the Bureau of Reclamation played major roles in
shaping and managing such projects. As the country matured so did
the industries of construction.
At the end of World War IT, the physical restructuring of the
OCR for page 26
26
BUILDING FOR TOMORROW
worId's cities, many of which had been destroyed or damaged by the
war, was aided by such major government programs as the MarshaH
Plan and President Harry ~uman's Point Four program for Third
World countries. The devastated urban areas of the European conti-
nent, the Soviet Union, the Middle East, North Africa, many islands
in the Pacific, China, Korea, and Japan were much in need of "con-
struction" and "reconstruction." The United States alone retained
relatively undamaged physical facilities, an economic base, and the
resources to aid in this global program. During the war, the United
States had created the impressive organizational capacity of the mil-
itary construction arm of the Army Corps of Engineers and the Navy
Seabees. With the development of multinational corporations, which
became clients for construction projects in other countries, a further
incentive was added for other U.S. design and construction firms to
move into the international arena.
A "military" component to the Marshall Plan included the place-
ment of U.S. military bases on foreign soil to counter the perceived
Soviet threat. Most of the physical infrastructure for these mili-
tary bases was originally built by the engineering elements of the
U.S. armed forces, who were soon superseded by a number of the
larger and more aggressively profit-motivated private sector design
and construction firms. U.S. engineering and construction firms were
employed by European industry to undertake much of the reconstruc-
tion work for the private sector as well. In turn, a parallel effort was
begun by European firms who were reentering the market following a
period of dormancy during the war, and who were adopting many of
the techniques and much of the equipment of their U.S. counterparts.
This pattern persisted throughout the 1950s and 1960s, in both
military and civilian sectors, first in Korea and then in Vietnam.
The phenomenal growth of the South Korean construction industry
can be attributed in large part to the close working relationship
between the Corps of Engineers and its South Korean counterpart.
The Koreans were rapid learners and within a few years had put
together a number of large and capable construction companies.
These companies became especially prominent and successful in the
latter days of the construction boom in Saudi Arabia, and became a
very lucrative source of foreign income for Korea. To a much lesser
extent, the same pattern was followed in Japan and Taiwan.
The case of Saudi Arabia, and to a lesser extent other oil-
producing nations, in the 1970s is a special one and not likely to
be repeated. Oil and of! pricing made available an unprecedented
OCR for page 27
U.S. CONSTRUCTION IN INTERNATIONAL COMPETITION
27
amount of capital to Saudi Arabia and its neighbors for imports and
construction projects. The Saudis had enjoyed a close relationship
with the United States since the early phases of Aramco and dur-
ing World War IT. Because Saudi Arabia did not have any of the
requisite technological capability or project management expertise,
its national leaders turned to the United States. The result was
major participation by U.S. engineering and construction firms-
such as Bechtel, Fluor, and Ralph Parsons in contracts for plan-
ning, civil and mechanical engineering design, and some construction
management. The U.S. Army Corps of Engineers, familiar with
large-scale projects, was designated the overall project manager for
many military-related projects, working very closely with the Saudi
Arabian authorities. Practically all design and engineering projects
were awarded to U.S. design firms, since U.S. specifications were
being used. The construction projects were open to international
competition. Early involvement in a project usually increases the
odds of later work for the design and engineering team (see box), but
American design teams cannot ensure that the construction phase
will go to American firms when public funding is used. Once the
actual construction is under way, the products used in the building
can be purchased from a country other than the home country of the
design team.
In the past few years the Trade Development Program within
the U.S. State Department has provided critical funding for a large
number of feasibility studies by U.S. design and construction firms.
The financial support is given to those firms whose projects show
the prospect of a major return to the economy if they obtain the
contract.
Market Structure
Construction, the largest industry in the United States and the
major employer, is a relatively disaggregated and volatile market that
responds to interest rates and levels of general economic activity.
The industry's 1.2 million firms undertake more than $360 billion
in contracts each year and employ 5.5 million workers. When the
suppliers of materials, machinery, insurance, and design services,
and the operation and maintenance of all constructed facilities are
added to this total, the overall industry accounts for 17 percent of
the U.S. work force. Construction has traditionally made up some
55 to 65 percent of the nation's capital investment.
OCR for page 28
28
BUILDING FOR TOMORROW
OCR for page 29
U.S. CONSTRUCTION IN INTERNATIONAL COMPETITION
TABLE 5 U.S. Construction Market by Sector, 1985 (in
$billions of new construction)
Market Sectors
Federal Industry b
Informationa Information
Residential
Office and commercial
Institutional
Hotels and motels
All other private
Subtotal
159 159
60 60
10 10
7 7
8
85
8
85
Industrial 16 54
Electnc power 16 20
Other utilities 17 17
Subtotal 49 91
State and local government 50 50
Federal government 12 12
Total 355 397
aU.S. Census Bureau data.
bConstruction Industry Institute (CII) adjustments to data,
based on the knowledge of their members. The CII estimates are
larger for the industrial market sector and the electric power
sector because of enforces accounts, that is work done by the
employed staff of industrial firms and therefore not publicly
bid or counted in census data which are largely based on records
of building permits.
29
The design and construction industry is organized around market
sectors that are widely different in terms of the type of customer,
the method of financing, the work force used, and even the level
of technology. Table 5 presents a common way of indicating these
market sectors.
The "residential" (housing) design and construction sector is
primarily made up of smaller independent builders. The largest home
builders and developers in the United States have no more than $2
billion of this $159 billion market. The balance of the business is
conducted by the thousands of firms with fewer than 100 employees.
The manufactured housing industry has grown to capture a
larger share of this market since World War IT (29 percent of the
OCR for page 30
30
BUILDING FOR TOMORRO W
market in 1980), but still is confined largely to housing units mar-
keted at the lowest end of the price spectrum (82 percent of all
housing units sold for under $50,000 in 1983~.
For several reasons the housing sector of the U.S. industry has
almost no experience in international markets:
. The small size of most companies limits available funds to
explore markets in other countries;
.
Home building technology is based primarily on wood-frame
construction, which is not the case in the rest of the world;
. Housing programs in most other countries are largely in-
fluenced by their governmental policies, and are not open to the
speculative building characteristic of the United States.
The sectors termed "office and commercial," "institutional,"
"hotels and motels," and "all other private work" are influencer!
by the availability of a combination of land and financing packages.
In recent years a large amount of investment capital from other coun-
tries has been placed into this sector. For example, the Los Angeles
Times indicates that 75 percent of the large, downtown once build-
ings in Los Angeles are foreign owned or controlled, which is up from
25 percent just eight years ago. As will be discussed, such investment
sometimes brings with it foreign constructors.
The heavy-construction sector ("industrial," "electric power,"
and "other utilities") generally involves the work of large firms,
many of which participate in the international arena. Foreign heavy-
construction firms, which tend to be large in size, are now looking to
this area in the Uniter] States as a source of market growth.
The federal, state, and local government sectors generally attract
firms that concentrate on government work because of the special
marketing skills, and sometimes special political visibility, needed to
gain work from governmental units. While government contracting
requires open bidding, it is not always possible or desirable for many
construction firms to bid on such work. Architectural and engineering
firms do not bid on government work (although from time to time
there is pressure from legislators to have them do so), but qualifying
for consideration on government design awards takes a very different
business strategy than getting design contracts in the private sector.
In general, the markets for work with government clients have become
increasingly price-competitive, reducing some firms' ability to invest
in new technology.
OCR for page 31
U.S. CONSTRUCTION IN INTERNATIONAL COMPETITION
TABLE 6 Major U.S. Contractors Working on a Global Basis (in $million), 1986
Construction Contracts
Foreign Total
Company
The M. W. Kellogg Company, Houston, Texas
The Parsons Corporation, Pasadena, California
Bechtel Group, Inc., San Francisco, California
Brown and Root, Inc., Houston, Texas
Lummus Crest, Inc., Bloomfield, New Jersey
Foster Wheeler Corporation, Livingston, New Jersey
Fluor Daniel, Inane, California
Santa Fe Braun, Inc., Alhambra, California
Stone and Webster Engineering Corporation,
Boston, Massachusetts
Jacobs Engineering Group, Inc.,
Pasadena, California
Kaiser Engineers, Inc., Oakland, California
Dillingham Construction Corporation,
Pleasanton, California
Fru-Con Coloration, Baldwin, Missouri
Kiew~t Construction Group, Inc., Omaha, Nebraska
5,085.0
3,823.3
3,439.0
1,818.3
1,760.0
1,219.0
985.3
630.0
428.0
275.5
267.7
169.3
159.5
147.2
Note: Of the total global construction market of $73.9 billion (available for bids
from outside of client country), 43 American firms obtained $22.6 billion (30.6
percent). The 14 firms shown in this list had more than 90 percent of the U.S.
volume.
31
6,945.0
6,408.9
7,079.0
3,540.6
2,335.0
1,847.0
6,075.3
710.0
1,625.6
982.3
945.5
1,121.6
672.5
1,262.5
Market segmentation and the preponderance of small firms pre-
clude much of the U.S. construction industry from international
business. Of the top 400 U.S. contractors listed in Engineering News
Record in 1987, 54 are involved significantly in international compe-
tition. The 14 largest firms account for more than 90 percent of U.S.
construction work abroad (see Table 6~.
Forty percent of the 500 largest U.S. design firms are involved in
international work. The 22 firms listed in Table 7 were responsible
for more than 85 percent of the work.
Construction Machinery
The United States has about 800 construction machinery pro-
ducers, many of which export (or manufacture abroad) machinery to
about 150 foreign countries. The primary markets are Canada, Saudi
Arabia, Australia, and many nations in Western Europe. The large
producers have quite extensive dealer networks around the world,
both for sales and service.
OCR for page 32
32
BUILDING FOR TOMORRO W
TABLE 7 Principal U.S. Design Firms Practicing on a Global Basis, 1986
International Billings
$30 million or more
Louis Berger International, Inc., East Orange, New Jersey
Daniel, Mann, Johnson, and Mendenhall, Los Angeles, California
DeLeuw, Cather and Company, Washington, D.C.
Gibbs and Hill, Inc., New York, New York
Harza Engineenng Company, Chicago, Illinois
Holmes and Narver, Inc., Orange, California
Metcalf and Eddy, Inc., Wakefield, Massachusetts
Morr~son-Knudsen Engineers, Inc., San Francisco, California
Under $30 million
Black and Veatch, Kansas City, Missoun
CRS Simne, Inc., Houston, Texas
Camp Dresser and McKee, Inc. Boston, Massachusetts
Dames and Moore, Los Angeles, California
A. Epstein and Sons, Inc., Chicago, Illinois
Gilbert Associates, Inc., Reading, Pennsylvania
Frederick R Harris Inc., New York, New York
Lester B. Knight and Associates, Inc. Chicago, Illinois
Charles T. Main Inc., Boston, Massachusetts
Pacific Architects and Engineers, Inc., Los Angeles,
California
Parsons, Bnnckerhoff, Inc., New York, New York
Skidmore, Owings and Merrill, Chicago, Illinois
Sverdrup Corporation, St. Louis, Missouri
Williams Brothers Eng~neenng Company, Tulsa, Oklahoma
aAE = architect/engineer; EA = engineer/architect; and CE = consulting
engineer.
~BAA-~
Note: Of the total global volume of $3,543 million in design fees available to
design firms from outside the client country, 49 American firms captured some
$917 million (25.9 percent) of this total. The 22 firms shown on this list were
responsible for more than 85 percent of the U.S. share.
Services
CE
AE
EA
EA
CE
EA
EA
CE
EA
AE
CE
CE
EA
EA
EA
AE
EA
EA
EA
AE
EA
CE
The value of U.S. exports of construction equipment was at its
peak of $6.3 billion in 1978 and has declined steadily to about $2
billion today. Similarly, U.S. employment in the equipment industry
reached its peak in 1979 at about 175,000 workers and has declined
by two-thirds.
Caterpillar Tractor Company of the United States is the world's
largest construction machinery producer, with Komatsu, Ltd., of
Japan following. There is at present substantial excess capacity
in the world's construction equipment industry, and cost-reduction
OCR for page 33
U.S. CONSTRUCTION IN INTERNATIONAL COMPETITION
33
measures, more efficient and less costly manufacturing methods, and
other similar measures are being undertaken by the producers. While
price competition will probably remain the dominant factor in the
industry, investments in research and development may yield fu-
ture advances. For example, the development of more automated
equipment extending the range of weather conditions under which
construction is possible may be forthcorn~ng.
FOREIGN FIRMS IN THE U.S. MARKET
The U.S. construction community faces a new challenge in terms
of both cooperation and competition. With the general slowdown
in other parts of the world, design firms and contractors from other
countries see the very large American market as an attractive way
to maintain or increase their business opportunities. As Case Study
2 illustrates, companies from Europe, Japan, and South Korea have
been developing working arrangements in this country for some time.
In the five years from 1978 to 1982, the number of foreign design
and construction firms entering the U.S. domestic market grew an-
nually at rates of almost 8 percent and 13 percent, respectively (see
Table 83. Revenue of foreign firms in the United States increased
TABLE 8 Foreign Design and Construction Firms in the United States
Category
Number of U.S. Affiliates
1978 1980 1983
Design and engineering services
Construction
40 53 58
45 70 82
U.S. Income to Foreign
Owned firms ($millions)
1978
1980 1983
Design and engineering affiliates669694892
Construction affiliates
European1,1423,8965,394
Canadian61243144
Japanese245081
Other3174151,308
Construction total1,5444,6046,927
Source: U.S. Commerce Department, Bureau of Economic Analysis.
Note: By 1985 the Japanese construction volume in the United States had
increased to more than $1.5 billion, making Japan's penetration of the U.S.
market the most dramatic.
OCR for page 34
34
BUILDING FOR TOMORRO W
during that same period at an annual rate of 35 percent. Japan's
volume has shown stunning growth, reaching more than $~.5 billion
by 1985. While total foreign work in the United States is only about
2 percent of the domestic market, it ~ concentrated in the large and
technically complex areas of work that have been the mainstay of
U.S. international business. Experts in the field find the situation
alarming.
OCR for page 35
OCR for page 37
Representative terms from entire chapter:
construction firms
U.S. CONSTRUCTION IN INTERNATIONAL COMPETITION
CASE STUDY 2:
JAPAN'S ONBAYASHI GUMI: DOING CONSTRUCTION IN
THE UNITED STATES FOR 20 YEARS
35
In the early 1920s, the California-basec! F]uor Corporation in-
vited executives of a Japanese construction company to America to
study acivancecl U.S. construction technology. Today, this company
is back, bringing advanced Japanese construction technology with it.
Over the past 20 years and more, Ohbayashi Corporation has built
clams, tunnels, offices, and residential projects in the United States.
Founded in 1892 by Yoshigoro Ohbayashi, the company has been
among the Big Five Japanese construction companies, which include
KaJima, Taisei, Shimizu, and Taken aka Komuten. (Today, with
Kumagai Gumi, they are the Big Six.)
Ohbayashi is among the world's most experienced dam builders.
Its finisher] clams number in the sixties. It has been a leader in the
development of ro]Ier-compacted concrete dams, as wed as the use of
deep concrete cut-offwaRs to con trod subsurface seepage.
Ohbayashi spends significant sums of money on research and
development. It has one of the finest research facilities in Japan,
the Ohbayashi Technical Research Institute, where the firm deve]-
ops clean rooms for hospitals and semiconductor factories; super-
strong concrete for nuclear reactors; concrete for use in underground
continuous walk; computer software for complex engineering ca~cu-
lations, analyses, and simulations; polymers that prevent cave-ins;
energy conservation systems; and other technologies. The firm has
developed a dynamic suspension method that substantially mitigates
damage to a building during an earthquake.
Ohbayashi has built a reputation for modifying existing techno]-
ogy to fit the job at hand. For example, it replaced the shied on
its tunnel boring machine with a backhoe-]ike excavator on a major
project in Phoenix, Arizona.
Ohbayashi's adaptation of the New Austrian Tunneling Method
(NATM) improves on that technique. The NATM process uses rock
bolts driven into the circumference of the tunnel to provide rein-
forcement. Concrete ~ then sprayed on the tunnel waR with an
Ohbayashi-deveJoped concrete distributor robot.
Ohbayashi did its first work outside Japan in Cambodia, bui]~-
ing an agricultural center. since then, it has done much work in
Southeast Asia, including bui]
36
BUILDING FOR TOMORROW
for technical supervision of construction work on the Shanghai Inter-
nationa] Airport
Ohbayashi came to the United States in 1966, opening an office
in Honolulu, Hawaii, and registering to do construction there In the
same year, it began construction of the Surfrider Hotel in Waikiki as
a construction manager The hose] was finisher! in 1969 It also built
the Princess Kaiu~ani Hotel in Honolulu, which was completed in
1970 Both hotels had Japanese owners, and the genera] contractors
under construction management by Ohbayashi were Americans
In 1972, a subsidiary company, Ohbayashi Hawaii Corporation,
was estab~ishecl to engage in read estate rleveJopmerlt in Hawaii Since
1972, this fully owned subsidiary has been cleveloping read estate com-
piexes throughout the islands Also in 1972, Ohbayashi came to the
West Coast and established its wholly owned Ohbayashi America
Corporation (OA C), a genera] contractor, in Los AngeJes OAC is
currently involves] in a Jow-income housing complex for the Los An-
geles City Redevelopment Authority and is developing a Jarge-scaie
shopping centerin the Little Tokyo area OAC's major local affl]i-
ates are 2975 Wilshire Company, for office rental management, and
James E Robert, Inc. for condominium en c] apartment development
in northern California
In 1974, after two years in Los Angeies, OAC won a hose] con-
struction contract, Kyoto Inn, located in San Francisco The owner,
Kin tetsu, also owns a Japanese railroad company Following the ho-
te] project, OAC undertook banks, offices, restaurants, and housing
contracts, mostly for Japanese clients
In 1976, Ohbayashi participated in developing a ~arge-scaie resi-
dentia] complex near Seattle, Washington This was a joint venture
with Tokyo Corporation The 11,000-acre site in Mill Creek includes
a golf course, shopping center, and 3,200 housing units
In 1979, Ohbayashi Corporation formed a joint venture with a
local company to bid for a San Francisco sewage tunnel project, the
first U S public work Ohbayashi was to undertake Expertise in soft
ground, using the earth pressure balance shield] tunneling method,
led to success in biclding on this project The method cut costs
substantially, compared to alternative methods The owners were
the city and county governments of San Francisco Ohbayashi's San
Francisco office became its headquarters for heavy construction in
the United States and in 1981 the heavy division successfully bit] the
Strawberry Tunnel in Utah, a federally funded project
In 1982 a New York City office opened, and in 1984 it won the
U.S. CONSTRUCTION IN INTERNATIONAL COMPETITION
37
construction contract for a 17-story building for a Chinese maritime
company.
In 1985, Ohbayashi established a subsidiary in the Southeast
named Citacie] Corporation, headquartered in Atlanta. This was
established from scratch, staffed and operated by Americans. An
open-shop (i.e., nonunion) contractor, Citade]has been activein the
region, completing five projects. The stafl.is American; the ownership
is Japanese.
In 1986, Ohbayashi was selected as a construction manager for
the big Toyota manufacturing plant in Kentucky. It is the largest
project Ohbayashi has undertaken in the United States, entailing
supervision of five American genera] contractors.
In 1987 the company beat U.S. competitors to win construction
of tunnels for flood run-off in San Antonio, Texas.
Japanese personnel in U.S. Ohbayashi offices tote] 30 to 40 peo-
pie. Some have studied engineering or management in this country.
Eiji Noma, genera] manager in New York City, who studied at
the University of Chicago in the late 1960s, says it is more diBicuit
now to get Japanese profession ads to work in the United States. It is
no longer their "hardship post" with perquisites and bonus pay, but
rather an expensive place to live when paid in dollars, no better than
living on yen at home. "That gap of income has narrowed, while
hardships never lessened," says Noma. Still, every year four or five
Ohbayashi people come to stubbly in the United States, usually in the
heirs of engineering or management.
An Ohbayashi manager states the company* U.S. business ok
jectives succinctly:
J
.
To satisfy tradition e] Japanese clients needing commercial or
industrial buildings in the United States. To serve the needs of its
Japanese clients is more important than to make money here.
. To compete and to do joint ventures with Americans for heavy
construction work where Ohbayashi may have useful tunneling or
dam-building expertise.
In 1986 Ohbayashi contracted for $226 million worth of construc-
tion in the United States.
