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On the global expansion trail

Hit by Japan's troubled economy, Nippon Koei is eyeing up overseas markets.

Japanese consulting giant Nippon Koei is 18 months into a five year business plan geared to shoring up its position in the domestic market and establishing a position - rare among homegrown consultants - as an uncompromisingly international player.

Based in Tokyo, Nippon Koei has, like its competitors, seen orders at home fall dramatically since 'Asian flu' gripped Japan's economy. Turnover last year was £258M, down from £400M in 1999 and a peak of £468M in 1995.

While many Japanese firms are retrenching, Nippon Koei is diversifying. It is adding new services to its portfolio, positioning itself to take on private finance projects, design build and engineer procure construct work, and project, construction and facilities management. And it is expanding worldwide.

Overseas projects make up around a third of Nippon Koei's workload. Some 390 of its 1,320 staff are employed overseas. The consultant already has outposts in Indonesia, The Philippines, Thailand, Sri Lanka, Nepal, Vietnam and Kenya. But in September it launched a stand-alone subsidiary company based in Reading - Nippon Koei UK.

Overseas sales are currently worth about £83M, with orders at nearly £89M, says deputy director general for overseas consulting Ichiro Mishina. Targeted overseas sales for 2004 are £105M, with new contracts expected to be worth £120M.

Nippon Koei also aims to shift its predominant geographical focus from South East Asia to Central and Eastern Europe, South America and Africa. Last year overseas sales - roughly one third of the firm's total £258M turnover from consulting - were 56% in South East Asia, 16% South West Asia, 9% Africa, 6% Central and South America, 4% East Asia, 2% Pacific region, and just 1% in the Commonwealth of Independent States and East Europe.

Meanwhile, some 95% of work carried out by Nippon Koei outside Japan is on schemes funded through Japanese government loans. 'We don't believe the overseas development assistance market will grow any further, ' says executive senior managing director Keisuke Sumikawa. 'In fact it is likely it will shrink. We want to increase the proportion of work done outside ODA.'

According to Mishina, Nippon Koei aims to achieve 30% of its overseas earnings from nonODA projects. 'We want overseas turnover to be split roughly £80M ODA and £25M non-ODA.'

'We want to do more work with the private sector and get involved in European Investment Bank, Department for International Development, European Bank for Reconstruction & Development, Asian Development Bank and World Bank projects, ' adds Nippon Koei UK managing director Mike Hart.

To help it break into these new revenue streams, Nippon Koei has acquired a core of engineers within NKUK with extensive experience of consulting internationally. Most in the 17-strong NKUK team have been in the industry for more than 15 years.

Newest recruit to NKUK, environmental engineering technical director Richard Snowdon, has been poached from consultant Halcrow where he headed the environment department. Director for environment Paul Driver formerly headed the environmental team at Mouchel.

Transportation director Brian Whelan joined from Halcrow, where he was chief executive for Asia. Water and wastewater director Alastair Morris previously ran Balfour Maunsell's Pakistan and Hong Kong offices.

And Hart was recruited to head NKUK after leaving Gibb where he was vice chairman. By the end of this year NKUK aims to have a 27-strong team in place.

NKUK is positioned to act in a lead consultant capacity. Its staff profile equips the firm to take on high value planning, project and construction management roles.

At the same time, its small team size means most design work will be put out to sub-consultants, or through the Tokyo office to relatively cheap but highly competent engineers in Malaysia and China.

As part of its diversification strategy, Nippon Koei is building a core of expertise in private finance and design-build-operate - it already has an embryonic PFI department up and running in Tokyo. NKUK is a key to supplementing and strengthening that capability in preparation for anticipated private sector opportunities.

The World Bank is pushing South East Asian nations such as Thailand to embark on privatisation as a means of combating inefficiency. Nippon Koei sees opportunities to get involved in managing existing assets and providing new infrastructure or services as and when governments start looking to the private sector. And in Japan itself, the government is drafting new PFI legislation, though industry watchers expect schemes not to be up and running for another three to five years.

Since it was founded in 1946, Nippon Koei has built on its core of dam and electric power engineering to include agricultural, river, road, rail, port and airport engineering, and urban and rural development services.

'Nippon Koei is still very active in power generation, water and agriculture, ' says director general for overseas consulting Yusaku Toya. 'But we believe that, globally, urban development will grow to provide significant opportunities.'

Meanwhile, the spotlight which is increasingly being turned on the environmental and social issues associated with large dam projects means that 'hydropower may take a lower profile in the future'.

NKUK is being structured to add new strengths in environmental, water and waste water, and integrated transport engineering to Nippon Koei's existing competencies. All schemes now involve environmental engineering to a greater or lesser degree, says Driver. Companies and lenders too, are now being called to account for their environmental performance.

Meanwhile, urban development will place ever heavier demands on potable water resources and sanitation systems. At the same time, installing new public transport and optimising existing infrastructure and services offer opportunities worldwide, in highly developed countries no less than in those where urbanisation is still underway.

NKUK hit the ground running, helping the Tokyo office on a list of Japanese ODA projects.

These include rehabilitation of existing water and waste water infrastructure for Peruvian cities Piura and Chimbote, water supply in Ho Chi Minh City region, Vietnam, study of water quality in the Sri Lankan Lake Lunawa and surrounding catchment, and improvements to the national highway in Papua New Guinea.

However, NKUK is also providing services, independently of Tokyo, for environmental projects funded by DFID and Shell. It is also bidding jointly with Tokyo for major non-Japanese aid projects, including supervision of the next phase in construction of Libya's colossal, governmentfinanced, Great Man Made River water distribution project.

Workload is set to grow dramatically as NKUK develops its own business - Hart is just back from visits to the European Bank for Reconstruction & Development and World Bank - and as Tokyo continues to draw on the UK firm's resources. Hart envisages close co-operation with other UK firms in outsourcing design arising from its own portfolio. At the same time, UK firms looking for inroads to the Japanese overseas aid market will find NKUK an invaluable point of contact, he predicts.

'NKUK is different from other UK firms - we're not in direct competition with them', says Hart, 'yet'.

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