APPENDIX B invasion of the Middle East A formidable new competitive force has put a whole new look on international construction in the past few years. International construction has become a significant source of income, a balanceof-payments factor, for oil-buying coun ing, and it varies, country to country. In an effort to size up the situation as it appears today, ENR visited the Asian countries from which the large and growing competition comes. tries around the world. For some develop Japan ing countries the use of construction to recapture petro-dollars has become a matter of national policy. American, European and Canadian companies, which once dominated thirdworld construction, have had Japan to compete with since its first forays into foreign reparations projects following World War II. Now, the U.S., Europe and Japan have to compete with Mideast companies working beyond their national borders, with occasional Russian, Yugoslavian and other castern bloc venturers abroad, and most recently with the entry of Brazilians into big-league overseas contracting. But the toughest new contenders in the fight for construction contracts in the Mideast, where most of the new business concentrates, are from Asian countriesdeveloping Asian countries. Their impact on international construction is strikingly apparent but difficult to quantify, for it is constantly chang Population: 113 million Gross Domestic Product: $555 billion It is useful to look first at Japan. Asia's most highly industrialized nation, it has been building abroad 25 years. A decade ago, Japan's giant firms-its Big Five-were variously involved abroad and ready for a bigger push (ENR 12/11/69 p. 36). Their work then concentrated in Southeast Asia. Taisei Construction Co. alone among the Big Five had a Mideast office-in Lebanon. Today there are 60 members of the Overseas Construction Association of Japan, Inc. (OCAJI). A list published this year of their overseas contracts totals 46 major jobs-almost half of them in Southeast Asia, with large concentrations in Malaysia and Singapore. But there is a shift-certainly in the dollar volume of work-toward the Mideast. They do quality work and look to joint venture on the more sophisticated projects. . competitors from Jeveloping countries trigger the economy with its 1978 boost of 30% in public works spending. They also keep looking abroad-and at "the remarkable progress" of the Korcans. For a while, when Korean labor rates were 40% of theirs, they looked for Koreans as subcontractors. But now, says Taisei's Sugasawa, Korea's rates are up to 70% of Japan's; and the Koreans are precluded by their government from subcontracting where they can compete as prime contractors instead. Next April 21-22 (tentatively) OCAJI will host in Tokyo a third annual meeting with the Overseas Contractors Association of Korea. OCAJI president Atsumi says the two groups have been close and have enjoyed “a great deal of cooperation." But the pronouncement out of last year's meeting that Japan's high technology would be joined with Korea's skilled manpower apparently hasn't amounted to much. The Koreans will meet again with the Japanese, but they also traveled abroad last month to meet with Canadians and Americans, whose management skills as well as technology they appear to prefer as more marketable. For the purpose of this survey of international construction's Asian competition, therefore, it is logical to look first at Japan, as the oldest in the field, the most highly industrialized. But Japan is not the leader. Korea is. Korea Population: 35.9 million Gross Domestic Product: $25.3 billion Per Capita Income: $496 The Koreans pictured on ENR's cover this week are learning to be welders. They are paid by Hyundai Construction Co., Ltd., to learn welding and another related trade by going to school six hours a day for three months. It's only six hours a day because the school runs two shifts. After three months of schooling, these workers learn on the job in Korea for three more months. Then, they are ready to be sent to the Mideast, where many observers rate the quality of Korean construction as the best. Hyundai training schools presently have over 1,500 students enrolled and will turn out about 5,000 in a year. And Hyundai, Korea's largest constructor, is but one of dozens of companies working overseas required by government decree to train at least some of the manpower needed to staff their overeas work. By the end of this year there will be 70,000 to 80,000 Korean workers 24 ENR November 23, 1978 abroad-all but about 5,000 of them in the Mideast and almost all of them in construction. (See "The Koreans are coming!" ENK 3/31/77 p. 16). With skilled, hardworking inanpower its stock in trade, Korea's construction industry captured $3.5 billion in overscas contracts in 1977, set S4 billion as its target for '78, and passed the S6-billion mark at midyear. The 1979 goal is $10 billion. *This means that in five fast and furious years of competing abroad Korea is now well ahead of Japan. And its $3.5 billion in foreign contracts in 1977-virtually all Mideast-compared impressively with $6.1 billion worth won by U.S. contractors in the Mideast that year. Korea may be the only nation in history to have a construction industry with 70% of its volume overseas-this despite a domestic construction boom that's keeping pace with an economy with growth estimated at 14% this year. Government support. A Ministry of Construction watches over it all, policing and promoting. Construction exports have become an integral part of Korea's economic development, its balance of payments and therefore its foreign policy. Mideast construction alone more than covers the cost of oil imports. And, increasingly, constructors are venturing into lands where Korea lacks but wants diplomatic relations. Korea's exports next year will total about $20 billion and half of that will be construction. Apart from their work in South Vietnam in the '60s, it all started abroad for Koreans in 1973 when Sam Whan Corp. won a $24-million piece of road work between Jeddah and Khamis Mushayt, a job that wound up costing $30 million and probably cost the Koreans money. In those days, according to one Saudi hand, "the Koreans bailed out the Corps of Engineers" by bidding near if not under its estimates, when Americans and others were bidding well above. Trying to get Americans into the picture, the Corps at the time encouraged joint ventures, and Sam Whan found De Matteis Construction Co., New York City, for the $206-million National Guard headquarters buildings at Riyadh. Koreans have been taking hundredmillion-dollar jobs ever since-most of them lately as prime contractors. Sensing now that much of Saudi's civil works program is done and seeing much more architectural and sophisticated in (trial work ahead, Korcans are now actively seeking American joint ventures in the Mideast (while being wooed to joint venture with Canadians anywhere in the world). Organized effort. Korean Overseas Contractors Association (KOCA) executive vice president J. D. Chung lists 122 companics licensed by the government to work overseas under an Overseas Construction Promotion Law. Eighty-five are construction contractors and 80 of those actually have work abroad; six are consulting engineers; eight are in electrical-telecommunications areas. KOCA recommends contractors for overseas licenses and then the Ministry of Construction has a hand in deciding who qualifies for a specific project abroad. All who are licensed are capitalized to at least. $20 million. KOCA categorizes them as to their financial capability, then, just as contractors anywhere, they must qualify for and buy bid and performance bonds. The big difference is that it's a government bank whose guarantee is needed. The government therefore can control who bids any given job, can prevent more than one Korean firm from competing for a given job, and can prevent subcontracting or joint venturing where it would rather see a Korean as prime contractor. Bank guarantees, once granted, are as good as the credit of the government. With this kind of backing, Hyundai, the giant conglomerate of which construction is the largest part, went from No. 278 to No. 98 last year with the biggest growth of any on FORTUNE magazine's ranking of non-U.S. corporations. Miryung Construction Co. has boomed from its beginnings as a bus company with a small construction arm. Samsung Co., another huge manufacturing conglomerate, is only now building and flexing its construction muscle, having acquired Shinwon Construction and Development Co. Ltd., last July The biggest, in order, after Hyundai include Dong Ah Construction Co., Daelim Industrial Co., Sam Whan, and Chin Hung International Ganging up. And when no one of these companies is big enough to take the risk, Korean Overseas Construction Corp. (KOCC) can move in. This is a private corporation formed by 36 top Korean contractors. When KOCC bids and wins a contract (it has won over $1 billion worth since 1975), it assigns or subcontracts the work to one of its member companies and takes 1% of the proceeds from the job. This money covers costs of bidding other jobs and prospecting for work in more risky areas, such as Iraq or Nigeria. 20 ! The only apparent brake on Korean construction juggernaut is its ultimate limit on manpower-particularly engineers and managers. Construction labor is already approaching short sup ply, and the government restricts its use abroad to Korean companies. One industry source in Seoul told ENR that Korea can't possibly double its overseas work, as projected, without spreading its managers too thin. Thus the interes: in joint venturing with Americans or others who will help them develop managers. Over 30 colleges in Korea teach engineering and they are now jammed with students (42 students per professor, compared to 10 to 1 in the U.S.), all looking to earn big money abroad. By one estimate there are 40,000 graduate engineers, but too many of them are too new and inexperienced for overseas duty. To help fill the need for managers and highly trained executives, Chung-Ang University in Seoul has already put 680 men from 60 companies through an overseas construction managers program-a 200-hour after-work course (CPM, specifications, legal, shipping, Arabic)-flunking out another 150. Top executives get a 30-hour course, concentrated into one Friday-to-Monday weekend. AS KOCA's Chung says, summing it up: "We have entrepreneurial spirit, good labor, high productivity and government support." Still in a state of war, South Koreans are a serious people. They smile a lot, but they mean business. Taiwan Population: 16.1 million Gross Domestic Product: $17.3 billion Half of XSEA's work currently is over( seas, and most of that is in Saudi Arabia. Starting there with feeder roads and moving into highways, airports and onshore and offshore naval facilities, the company has contracted for $620 million worth of projects over the past three years, the largest of them in the $200inillion range. The company has an office and two highway projects in Jordan, and its president, H. C. Yen, looks toward working in more places, including the United Arab Emirates. Second in size among Taiwan's constructors abroad is BES Engineering Corp., which won its first Saudi Arabian job-Jeddah sewers-in late 1975. By 1976 it was bidding and winning jobs in the $40-million to $50-million range. BES has succeeded in contracting to build industrial parks designed for Saudi cities by Sinotech Engineering Consultants, also of Taiwan. Taiwan Power Co. has the S153million contract on a regional electrification project a job on which the Saudis rejected high European and Japanese bids. New Asia Construction & Develop ment Corp., among the leaders in domestic construction in Taiwan, has a Jeddah office and a job to build an office building there for the Saudi contractor REDEC. Earlier it set up a prestressed concrete plant in Jeddah for RSEA. Taiwan is a relatively high technology Asian country with engineers and constructors experienced in industrial plants, nuclear facilities and refineries, as well as heavy, civil works construction. As a nation, however, Taiwan is limited in the number of countries with which it has diplomatic relations. Stephen D. Bechtel, Sr., in Seoul on his Philippines company's business earlier this fall, told ENR: "These people [the Koreans] and the Taiwanese are the hardest working people in the world." He was referring principally to domestic construction in the two countries, but the description applies as well to their work abroad. Americans in the Mideast rate Taiwanese close to the Koreans in productivity and quality of work; Koreans rate the Taiwanese as major competitors. The principal Taiwanese competitor company is Rei-Ser Engineering Agency (RSEA). Ret-Ser means Retired Service men; and RSEA, formed 22 years ago by the government to provide training and jobs for veterans, still has over 7,000 armed forces veterans anong its 12,100 employees. About 1,600 are engineers. Populatim: 43.8 million Gross Domestic Parluct: $17.5 billion. Filipino contractors are running to There are a few large Filipino contractors and some smaller ones now in the Mideast, but they are still at the stage of working as subcontractors. Construction & Development Corp. of the Philippines (CDCP) is Southeast Asia's biggest contractor and is into Saudi Arabia on two projects for more than $200 million. But on one it is subcontractor to REDEC and companies with (vernment support deploy construction workers overseas, and FCIC executive vice president Gregorio Vigilar says that on a scale of 10, giving Koreans 10 and Taiwanese nine points as the top two Asian contractors in the Mideast, Filipinos rate seven points and can improve to eight points because of their knowledge of English. Somewhere lower on his scale are the contractors from India and Pakistan. India Population: 629 million Gross Domestic Product: $87.8 billion Harcharan Singh Dugal, four-term "India enjoys good will in the Gulf, partly for supporting displaced Palestinians.... The Gulf States were once administered from Bombay. India has traditional, historical and proximity ties. ... India can export 1.5 million trained technicians without hurting its home economy. Engineers come at one-quarter to one-third the cost of U.S. or European engineers. India can supply hardware, steel, plywood, tiles, plumbing." ... On the minus side, Dugal says Indian foreign competitors, except for special Almost three years ago Dugal's BIA 28 ENR November 23, 1978 Bombay. OCC lists general contractors and State-run companies. Contracting-as Large contracts won by public companies are sometimes divided and subcontracted to private companies. A given public company, such as Engineering Projects (India) Ltd., may be a combine of manufacturing and construction units. Industrialized as it is, India has constructors experienced in steel plants, atomic facilities, refineries, chemical and fertilizer plants and waterfront work. Those companies, such as Products & Equipment Corp. and National Projects Construction Corp., lay heavy stress on their ability to do turnkey work on industrial plants. They stress their technology and want to supply their manufactured products more than their manpower. Still, other companies continue to seek jobs that are labor intensive to which they can bring relatively cheap labor. A recent government enforcement of a year-old decree increasing what Indian workers must earn abroad is being contested by Indian contractors as diminishing their main competitive edge. Doubling past rates, the new wages would put Indians' pay above Koreans', according to the contractors protesting the move. Indian manpower goes abroad in huge Contractor Dugal in New Delhi sums Population: 72.4 million Gross Domestic Product: $11.5 billion For construction in Pakistan, overseas Jne five-year-old pubic company, National Construction Co. (Pakistan) Lad. (NC), bases its overseas operations in Abu Dhabi, where it has done major work. Its biggest claim to fame is its $166.7-million joint venture contract with George A. Fuller Co., New York City, on the Peace Hawk project of the Royal Saudi Air Force. Another public company, Mechanized Construction of Pakistan, has had projects including about $100 million in irrigation projects in Iraq. Two other Pakistani companies working abroad-Gammon Pakistan Ltd. and Conforce Ltd.-round out the list. In total, Pakistanis claim over $500 million in contracts. So, Pakistan, with a large population that includes skilled construction workers as well as engineers, is trying with some success to compete for construction business. It is, more significantly, a big source of West Asian workers for the Mideast, Moslems eager to visit their holy cities in Saudi Arabia, and to earn that big overseas pay. Thailand Population: 43 million Gross Domestic Product: $15.9 billion This Asian country is supplying good construction workers, but has not yet won any construction contracts. However, it shouldn't be long before it does. The planes heading west out of Bangkok can be as full of uniformed construction workers as those from Manila, Taipei or Seoul. The Thai government estimates there are already 40,000 Thais in the Mideast, and they are mostly in construction. Industry sources say over 1,000 workers fly westward each month, many who have been recruited by U.S. companies. Last month, following many months of discussion, members of the Thai Contractors Association incorporated a $5-million combine organized to undertake $50 million worth of work and sent a delegation to the Mideast to look for jobs to bid. Thailand has the same strength in construction as the Philippines and Korea, thanks to the presence of the American military in years past. To a significant extent, therefore, out of Asia to compete in the Mideast come a number of construction organizations, as well as individual workers, that were given their starts by Americans. They're a new power to be reckoned with in international construction. |