International International Business
IS THIS `ACTION PLAN' REALLY AN INACTION PLAN?
Japan's public-works market, worth $90 billion in fiscal 1994, is the world's biggest. It has also been one of the toughest for foreign construction companies and designers to crack. They face formidable competition from entrenched Japanese rivals--and deep reluctance by Japanese bureaucrats to award contracts to outsiders.
Seven months ago, U.S. and Japanese trade negotiators agreed to an Action Plan aimed at easing these obstacles by letting U.S. architects and builders bid for a slice of Japan's public-spending cornucopia (table). It has had little effect: U.S. companies still are having a hard time even finding out what projects Japan's secretive agencies plan to build, and the U.S. Commerce Dept. is preparing a complaint. If the plan fizzles, says a Commerce official, "that will have a big impact on negotiations in other areas." Adds a senior Senate trade adviser: "Everybody is a little pessimistic about what is going on in Japan right now, not just with construction but with the whole government."
Prior to the Action Plan, about a dozen U.S. companies won public contracts worth $1.2 billion from 1988 through 1992. The biggest was Bechtel Group Inc.'s $100 million share in work on the West Terminal at Tokyo's Haneda airport. Now, under terms of the Jan. 19 plan, qualified U.S. companies should be entitled to bid on contracts offered by 114 government agencies and public corporations above certain minimum values.
"OX-WALKING." So far, though, only 10 agencies and public corporations have published comprehensive lists of their year's construction outlays. An additional 100 would appear to have no projects that meet the minimum-size criteria. But experts say that as many as two-thirds are "ox-walking"--the Japanese term for foot-dragging. And in Japan's insular market, U.S. contractors say, project information is everything. Without the lists, foreigners are in a poor position to seek membership in bidding consortiums.
"We're learning about new projects through our own contacts," says Michitaka Yamaguchi, Japan representative of Baltimore-based design firm RTKL International. "The government agencies tell us they don't know how to apply the new guidelines, or even which projects they're expected to open up to bidding by foreign firms."
For design firms, the $650,000 minimum contract for foreigners limits them to relatively few projects. "The threshold for design contracts is way too high," says Dennis Cope, managing director of Japan operations for St. Louis-based Hellmuth, Obata & Kassabaum Inc. In most markets, a design contract covers all three design phases of a typical large project, Cope says, but under Japan's Action Plan, they are awarded separately. With design fees generally accounting for 3% of the total project cost, only very large Japanese projects will be open to U.S. design firms.
Although design contracts are only a small slice of such projects, they could be crucial opening wedges. That's because architects specify the materials that builders use. "We are in a position to generate business for a range of other U.S. suppliers," Cope says.
Other U.S. companies working in Japan are such top firms as New York's Parsons Brinckerhoff and Calif.-based Fluor Daniel and PAE International. They are eyeing huge upcoming projects such as the second Tokyo-Osaka highway and Nagoya's new Chubu International Airport.
TIES THAT BIND. Major barriers to outsiders, however, are the close ties between large Japanese firms and subcontractors. "The big construction firms really want to maintain harmonious relations in their project groups," says Parsons Brinckerhoff Vice-President Kenji Yagi. "U.S. or other foreign firms may not look too appealing to them because they don't know us well, and they think our approach is going to be quite different."
Compared with Japanese firms, according to Yagi, U.S. builders are better at applying new technologies. And U.S. builders are more cost-efficient, he says. Because of cost overruns at Osaka's Kansai International Airport, "we think the government will be much more concerned about keeping costs down on Chubu International," says Yagi.
That project, he believes, could give companies like Parsons and Bechtel the opportunity to show their cost-efficiency skills. But unless the new plan stirs more action to open the Japanese market, they may not get the chance.Alan Ohnsman in Tokyo, with Douglas Harbrecht in Washington