Japan does not respond to economic trauma with dramatic shake-ups and rapid transformations. A decade of acute economic decline could be expected to cripple the construction industry in any western nation, bringing about major revisions in its structure and behaviour. Since Japan's economic 'bubble' burst in the late 1980s, 20% has been wiped off the value of the domestic construction market.
But the 550,000-odd firms involved in construction, employing 10% of Japan's workforce, have tightened their belts and pursued business as usual.
The sector has been buoyed by Japan's huge public works programme - government funded schemes have been the industry's mainstay since the war.
Even the 'Asian flu' that decimated economies across South East Asia in 1997/98 had limited repercussions on Japan's contractors and consultants. While workload for Japanese companies in neighbouring Asian countries halved, at home the government set about powering through the slump, maintaining and increasing levels of public investment.
Despite renewed predictions that the yen will crash, market analyst, the Economist Intelligence Unit (EIU), last month anticipated a new package of government spending worth £288bn to be introduced late this year.
The government is to issue bonds worth around £590bn next fiscal year - 'a staggering amount by any measure and equivalent to nearly 20% of GDP', the EIU notes. Public works spending is to be maintained at £55.6bn in 2001/02.
Japan experts expect GDP growth of 1.4% in this financial year, rising to 1.8% in 2002, 2.4% in 2003 and 2.7% in 2004. It has the world's second largest economy, four times greater than the UK. It accounts for between 13% and 15% of world GDP.
Japanese construction firms are not cheerful about future prospects though. Government spending has racked up a national debt close to 130% of GDP, increasing at 6% annually The country's normally undemonstrative voters are calling on the state to rein back.
The Ministry of Construction is proposing to cut the public works budget by 6% to 7% a year over the next five to seven years, says Takashi Nakamura, construction director at Japan External Trade Organisation (JETRO) and seconded from the ministry itself.
Meanwhile, the Tokyo-based Japanese Research Institute of Construction & Economy predicts investment in the large private sector housing market will fall by 3.9% over the coming year as the cost of borrowing rises.
At the same time, it is expected that the introduction next month of more stringent disclosure standards is likely to expose bad loans made by Japanese banks and trading houses over the last decade. In recent years it has become clear that many companies are not, and perhaps will never be, able to repay money borrowed, chronically undermining public confidence in financial institutions and Japanese corporations.
After years of having it relatively easy, Japanese contractors and consultants are facing dramatically shrinking workloads. 'There are too many contractors and consultants for the domestic market, ' observes Nakamura. He estimates that contracting capacity is already, 'in the region of 20% surplus to requirement'.
Contractors have resolutely resisted change. Many are family-owned affairs and most - certainly all of Japan's largest firms including the top four, Takenaka, Shimizu, Obayashi and Kajima - have traditionally provided construction clients with a 'one stop shop' service.
It has been a matter of pride to provide all necessary contracting capabilities in-house, whether it be for tunnelling, ports and harbours, railway, roads, water infrastructure, power or bridge building. Design has been provided as a 'free' complement to construction.
Although Japan has some large and renowned engineering consultants, this sector is tiny in comparison to that of the UK, for example.
High costs compound the Japanese construction industry's problems. Though falling, average outturn costs are reckoned to be twice those in the UK - itself no shining example of construction efficiency. Japan ranks as the world's most expensive country in which to build.
Japanese contractors produce work on time and to a high standard, says Gibb Japan project co-ordinator Graham Lane.
'But there is huge inefficiency in project planning, co-ordination and procurement.'
It is estimated that as much as 99% of construction work is done on a lump sum basis, with clients honour-bound to cover cost and time overruns. Adversarial relationships are almost unheard of in Japan.
There are further reasons for Japan's extraordinary construction costs. Client-contractor relationships are described by Bovis Lend Lease's Japan office manager John Dickison as 'collusive'.
Public and private sector contracts are generally bid by invitation. Where open tenders are invited they are 'effectively a farce. Public works contracts are stitched up', Dickison concludes.
His view is widely shared by other expatriate engineers working in Japan. The absence of real competition allows and encourages inflated prices.
And subcontracting is rife. It is not uncommon for work to be sublet up to seven times on public works projects, reports Arthur Hawtin, director of quantity surveying firm Currie & Brown's Tokyo office. Each subcontractor will cream off a 'management fee' of up to 10% project cost.
Lack of competitiveness in the construction sector is unchecked by government - value for money is measured through unemployment figures - officially 3%, and, unofficially, around 8%. A proportion of all public works projects is earmarked for local firms.
Japanese firms are, in short, in singularly bad shape to survive lean times ahead. They must downsize, divest themselves of non-core activities, dramatically improve efficiency and find new business opportunities, says Nakamura.
'Specialisation is starting to take place - firms are looking to their strengths in power, water, transportation or, in some cases, engineering design. People realise marginal businesses should be wound down and some work ought to be outsourced, ' he notes.
Implementing such dramatic change poses a challenge, though. Firms are starting to look at European business models. There will be some scope for UK firms to get involved in implementing cultural and organisational change, believes Engineering Consulting Firms Association deputy secretary general Hidekazu Tanaka.
In parallel, UK firms will be able to make inroads into the Japanese construction market with overseas investors. Since 1990, non-Japanese holdings in the private sector have grown from less than 5% to nearly 20%.
Foreign investors have gained access to Japan thanks to the fluctuating yen, as new business sectors such as information technology have grown, and through deregulation of sectors including water and telecommunications.
Further liberalisation of the telecoms, energy, transport, distribution and housing sectors is to take place later this year.
As clients, non-Japanese firms will generally favour firms offering western-style consulting and project management services.
Meanwhile, Japanese firms will increasingly look overseas for knowledge of how to tackle emerging markets.
The government is currently drafting private finance initiative legislation. It is still unclear exactly what Japanese-style PFI or public private partnerships will look like, but consultants there believe the first schemes will be announced in 2003/04.
Legal and financial expertise are urgently needed, says senior managing director at Tokyobased consultant Nippon Koei, Katsuyoshi Wada.
Japanese consultants are excited by the prospect of working directly for clients - they have historically worked for contractors only. 'Consultants have relatively little experience of working closely with clients and investors, ' says Oriental Consultants senior vice president Akihiko Hirotani. 'They have little idea of added value, value engineering, cost saving or risk management and reduction.' Demand for project and construction management expertise will grow rapidly in the next five years, he believes.
Other opportunities are emerging in maintenance, property and facilities management.
Following the devaluation of land prices four years ago, the relative value of structures and buildings on the land has increased. Environmental engineering skills are increasingly in demand, as is expertise in remediating contaminated land.
'There are 400,000 identified contaminated sites in Japan.
There will be many more that are invisible, ' comments Lane.