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Contractors increasingly
eyeing overseas market
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In
an effort to cope with shrinking orders for domestic public
works projects, Japanese general contractors have been looking
overseas to generate the orders necessary to survive. According to the Japan Federation of Construction Contractors, 54 domestic general contractors that are members of the federation, received a total of about 700 billion yen in orders from foreign countries in the first half of fiscal 2006--about twice as much as for the same period the previous year.
Many of these orders have come from the Middle East, much of the cost of which is being met with petrodollars, prompting contractors to set up offices there.
One such project is a 68-story, 360-meter-tall office building under development in Dubai.
Taisei Corp. began construction of the Almas Tower in 2005. When completed, the building is expected to be a draw for tourists, and is one of a number of projects in the United Arab Emirates aimed at allowing Dubai to diversify into the tourism industry in an effort to ease its dependence on oil money.
According to the Overseas Construction Association of Japan, Japanese construction firms received 194.3 billion yen of orders from the Middle East in fiscal 2005, just behind North America with 209.3 billion yen, with the rest of Asia securing 630.4 billion yen.
In fiscal 2006, Kajima Corp. and Taisei won a 540 billion yen order for the construction of a highway in Algeria, while Shimizu Corp. received a 54 billion yen order for a project to build a luxury condominium in Dubai.
Japanese construction firms have been eager to establish bases abroad.
Taisei's efforts began about four years ago, with the firm setting up sales offices in India, Russia and Libya as part of its efforts to increase its presence in the Middle East, North Africa and Eastern Europe.
Obayashi Corp. established Obayashi Vietnam Corp. in Hanoi in July 2006 and an office in Dubai.
These moves overseas have been largely spurred by a sharp decrease in orders for domestic public works projects.
Orders for public works projects peaked at 4.33 trillion yen in the second half of fiscal 1995, but only reached 971 billion yen in the first half of fiscal 2006, falling below 1 trillion yen on a half-year basis for the first time.
However, firms involved in overseas construction ventures are not immune to risk. Between 1996 and 1999, the Asian currency crisis halved orders received from overseas by Japanese general contractors.
These firms have therefore tried to reduce such risks by strengthening ties with local contractors to gain a better understanding of local labor management practices and to make it easier for them to participate in bidding for projects.
Kanji Hayama, president of Taisei, which has jointly worked on the Almas Tower project with a local construction firm, said, "We want to work with other foreign firms on [overseas] projects."
In July 2005, Obayashi, Kajima and a Turkish construction firm formed a joint venture to construct a new transport system in Dubai.
But despite some early successes for major Japanese construction firms abroad, many smaller companies dependent on domestic public works projects have failed to make a breakthrough overseas.
According to the Research Institute of Construction and Economy's analysis of 41 general contractors' half-year earnings reports for the fiscal period that ended in September, overseas success helped the five biggest firms, including Kajima and Taisei, to increase orders by 4.9 percent from the same period in 2005, while those for the next five also increased, by 1.3 percent.
However, those outside the top 10 all received fewer orders from overseas compared to the same period the previous year.
The aggressive sales drive overseas by major domestic firms is expected to further widen the differences between domestic construction firms.