Shrinkage of the domestic construction market is causing anxiety in Japan. Many firms are now looking to scale back their operations. However a few, mainly consultants, are looking overseas for work that will take up slack.
There is a broad consensus among members of the two largest professional bodies for consulting engineers - the Engineering Consulting Firms Association and the Association of Japanese Consulting Engineers - that to improve overseas success most firms will need to forge symbiotic relationships with western allies.
As a rule they have little or no experience of working abroad for clients other than Japanese government lending and aid organisations. 'Japanese consultants are the least competitive in the global market, ' says Oriental Consultants senior vice president Akihiko Hirotani. 'Their share in World Bank projects is about 1% and in Asian Development Bank projects is 2% to 4%.'
To tap into private sector and non-Japanese international funding institution revenue streams, they will be forced to partner with other consultants equipped with the necessary skills and knowledge. Firms like Pacific Consultants International, Oriental Consultants, Nihon Suido and Nippon Koei are particularly keen to target World Bank, European Bank for Reconstruction & Development and Asian Development Bank schemes in which western firms are predominant.
There is a quid pro quo for western firms in liaising with Japanese counterparts.
Almost 20% of all untied international loans are Japanese funded, a total of £3.9bn in 1999.
A relatively small part of the total Japanese loan package - £35M - is administered by the European Bank for Reconstruction & Development. As economic conditions worsen at home the Japanese government is looking to cut back its overseas aid programme. EBRD is concerned that its own Japanese fund may suffer should Japanese consultants fail to win work on its projects and is looking for ways to increase their participation.
Best opportunities for UK consultants appear to be on schemes funded by the Japan International Co-operation Agency (JICA) and Japan Bank for International Co-operation (JBIC). JICA and JBIC aid funding, termed official development assistance, takes the form of bilateral grants for technical cooperation, tied grant aid, multilateral aid, and bilateral loans. In 1999, grants were worth £3.6bn, loans £3.4bn and multilateral aid £3.2bn.
JICA and JBIC funding fulfils two distinct roles. JICA is responsible for what it terms development studies - feasibility studies and master planning, surveying, mapping, basic design and risk analysis. JBIC funding is geared to project implementation, offering consultants work in detailed design, construction supervision, and financial supervision.
It is generally accepted that involvement at feasibility study stage will improve a firm's chances of winning work through JBIC.
Because both organisations are attuned to the high costs of project delivery and living in Japan, western firms working for them can expect to earn higher than normal fees. UK consultants will also be protected from risk, says JETRO construction director Takashi Nakamura. 'In third countries Japanese firms are always the risk takers, where UK firms will be advisers.'
Though JICA projects must be led by a Japanese consultant, up to 50% of the project team can be of another nationality. 'Few Japanese consulting firms can respond to all the requirements of a development study, ' says ECFA deputy secretary general Hidekazu Tanaka.
Familiarity with recipient countries is highly valued by JICA which is currently targeting Africa and South American markets. Japanese firms without incountry experience bidding for JICA contracts will benefit from partnership with consultants that know the market.
'In some countries, having a UK name will be a positive advantage, ' says Nakamura.
Japanese firms are also able to propose schemes to JICA, opening opportunities for western consultants to identify projects themselves and to secure funding through a Japanese intermediary.
Some 30% of JBIC funding is tied to Japanese companies.
Ron Marsh, construction promoter at UK government exports agency Trade Partners UK, believes the Japanese government is pressing JBIC to tie aid more closely.
JBIC selects consultants for special projects such as technical and financial reports direct from Tokyo. And procedures used to select consultants for untied loans further favours ties with a Japanese firm. JBIC will normally nominate four to five firms to bid for a scheme, with the recipient government responsible for final selection.
As with JICA, firms can approach JBIC with project proposals.
JBIC loans are far softer than those from a commercial bank.
In 1999, the average rate of interest was 1.36%, with a repayment period of 33 years one month and a grace period of nine years four months.
A small handful of Japanese consultants is looking at the possibility of using JBIC loans to pursue private finance-style projects. Masahito Yamanaka, managing director of one of Japan's largest consultants, Pacific Consultants International, believes that South East Asian countries like Thailand and Malaysia will be forced to privatise state controlled assets in pursuit of efficiency, under pressure from the World and Asian Development Banks. 'There is scope for international consulting consortia to take a lead role in organising finance, designing capital works, renewal and maintenance for major infrastructure including rail, roads and water.
At the same time, 'JBIC is looking to do more with its money, ' says Yamanaka. 'It is keen to pursue schemes in which private sector investors take a 51% or greater share of cost.'
Involvement of JBIC funds in any scheme that does get off the ground will not be PFI as UK consultants know it - JBIC is a government funding institution.
However, Yamanaka believes the low interest charged on loans and long pay-back period will make possible many schemes that UK consultants would consider marginal under normal commercial conditions.