Expanding of the Overseas Business
Strategic Expansion of Overseas Business
The Comprehensive Strategy for the Rebirth of Japan, approved by the Cabinet in July 2012, pledged that the construction industry would receive new orders totaling two trillion yen or more in overseas markets per year by FY2021.3. Furthermore, the Infrastructure Systems Export Strategy, compiled by the Management Council for Infrastructure Strategy in May 2013, set a target of winning infrastructure system orders amounting to 30 trillion yen by 2020.
In this context, the company’s Medium-Term Business Plan ’12 set forth “further strategic global expansion” as a means for diversifying the earnings base. The Plan aimed to increase the ratio of overseas net sales in the construction business to 20 percent in FY2015.3 and to 25 percent to 30 percent in the medium to long term.
The company established priority regions to concentrate management resources in select areas. The three regions of Southeast Asia, North America, and the Middle East as well as Oceania were designated, as legal systems, business practices, and socio-economic infrastructure have been established to a certain extent and political and security risks were relatively small. The company decided to expand business strategically, considering the characteristics of each region, through M&As and joint ventures, drawing on the knowledge of local companies.
Obayashi Corporation entered overseas markets at an early stage. In Southeast Asia, the building construction business was carried out by creating local subsidiaries to conduct activities rooted in each region. On the other hand, the civil engineering business was conducted under the head office’s direct control. In North America, the company expanded its business by forging partnerships with experienced local companies or by incorporating local companies into the Obayashi Group.
The overseas business was formerly overseen by the Overseas Business Division, with businesses divided into the civil engineering and building construction businesses and by country (the civil engineering business was managed at the project level, except for North America). However, large-scale overseas construction projects, such as the construction of the Dubai Metro, led to losses that significantly impacted the company’s performance.
To counter such risks in overseas projects, the company promoted localization, integrated management of regional information and knowledge, and pursued greater and more stable profitability. To this end, it established the North American Regional Headquarters and the Asian Regional Headquarters under the Overseas Business Division in July 2010 and assigned officers in charge. This setup was designed so that the company could correctly gauge the risks and take measures against them, thereby reducing risks at the local level.
In North America, where there are continuous opportunities to win orders for public works projects, the company decided to further promote localization through M&As in FY2013.3 and beyond, and to increase contracts while reducing construction risks through partnerships with outstanding local general contractors. The company’s strategy for Asia was to work closely with the domestic sales and marketing department to understand the intentions of Japanese companies with regard to capital investments, thereby increasing contracts, in addition to increasing contracts from global companies.
The breadth of the customer base in Japan and the global network for information sharing were expected to be trump cards for winning contracts. In particular, the company aimed to diversify its business portfolio. Its strategy in the civil engineering business was to focus on large-scale public works projects, such as those requiring the use of shield tunneling excavation, where it can utilize its world-class technology. In the building construction business, it sought to focus on the building of production bases for Japanese companies with proven track records. It also set its sights on gaining contracts from global companies.
With regard to human resources, the company actively employed locally hired employees (national staff) to managerial and executive positions at overseas group subsidiaries. The company has created a personnel system, salary system, and career paths that are suited to the characteristics of each country, and has worked to improve future productivity and management capabilities by homing in on developing and retaining human resources who will become executive candidates.
(Reference: Special Contents > Global Presence)
Promotion of M&As and Growth of the North American Business
In the U.S. building construction sector, the company developed its business around M&As from early on, based on a policy of deepening market penetration by building partnerships with local companies. The company established James E. Roberts-Obayashi Corporation in 1978 as a joint venture with James E. Roberts, acquiring E.W. Howell in 1989 and Webcor in 2007. In October 2012, the company established and invested in JS Builders, which is engaged in the construction of low-rise housing complexes and small-scale commercial facilities in the San Francisco Bay area.
The civil engineering business is under the direct control of the head office and implements projects worldwide that require advanced technology. In the 1970s, Obayashi became the first Japanese company to win a contract for the San Francisco sewer system, a U.S. public works project. The company has long positioned the United States as an important base for its overseas civil engineering business and has performed mainly public works projects.
The U.S. construction market is large, and not only in terms of public investment. Replacement and repair of bridges as a measure against the aging and weakening of infrastructure is promoted, and new investment in highway and railroad construction has also been increasing. It was projected as such that the market would continue to remain stable for a while longer.
Obayashi Corporation therefore resolved to further increase contracts for infrastructure projects by leveraging the synergy of its credibility, technological capabilities, and management skills in large-scale construction projects with the knowledge of local companies, and acquired Kenaidan in Canada in March 2011. Kenaidan is an Ontario-based company that performs mainly civil engineering work and has had a track record as a joint venture partner. Kenaidan needed a financial foundation to ensure its survival and stable growth into the future. On the other hand, Obayashi hoped to develop its business in Canada where there is a strong momentum for infrastructure investment. Therefore, Obayashi decided to conduct an M&A with Kenaidan in order to enter the PPP market, which is expected to grow in particular.
In addition, in November 2014, the company acquired Kraemer North America. Kraemer is a construction company based in the Midwest of the United States, and has been mainly in the business of bridge, road, and railroad construction. It has a proven track record and reputation for advanced technological capabilities, especially in the bridge construction field. The company’s acquisition of Kramer was expected to lead to a further increase in contracts for infrastructure projects through synergies between highly superior tunnel technology and Kraemer’s bridge technology and expertise as a local company. The scale of the Obayashi Group’s business in North America was also projected to expand following the acquisition, through opportunities for collaboration with companies such as Webcor and Kenaidan.
(Reference: Special Contents > Global Presence > Introduction of Overseas Offices: North America)
Localization in Asia
Obayashi Corporation has taken varied approaches to the building construction business in Southeast Asia, depending on the country. In Thailand, Indonesia, and Vietnam, locally based Group companies (Thai Obayashi, Jaya Obayashi, and Obayashi Vietnam) have worked collaboratively with the sales and marketing department in Japan to help Japanese companies enter the local market, focusing their efforts on winning contracts for construction work from these companies, as well as from global companies. In Singapore and Malaysia, however, the company’s overseas offices directly developed business and received many orders from non-Japanese companies and orders for real estate development projects of local companies.
Although the company had long recognized the importance of localization in overseas business development, localization in Southeast Asia was further promoted after Southeast Asia was identified as a priority region in the overseas business strategy in the Medium-Term Business Plan ’12.
The company further increased the ratio of orders received from local companies and also increased the number of projects in which construction management is performed solely by local national staff. In particular, civil engineering work conducted under the company’s direct control requires an in-depth understanding of the climate and politics of the region. Obayashi collaborated with outstanding local partners who are well versed in local conditions and combined their knowledge with the company’s experience and technology to develop its business.
Against this backdrop, the company established the Myanmar Office in April 2013 and made a full-fledged market entry in Myanmar, which was rapidly proceeding along the path to democratization. Japan had resumed its official development assistance (ODA) for Myanmar, and it was expected that private-sector companies would enter the market, and that demand for social infrastructure would lead to long-term construction investments. In January 2014, the building construction business in Singapore was transferred to a local subsidiary, Obayashi Singapore. In the building construction department, group subsidiaries had taken control of most of the key markets in Asia.
In October 2013, in Indonesia, a joint venture consisting of Obayashi Corporation, local company PT. Jaya Konstruksi, and another company, was awarded a contract as a sponsor (managing company) for the surface section CP103 (approximately 3.8 kilometers) of the Jakarta Mass Rapid Transit (MRT) Project (Phase 1).
The project, funded by a yen loan from Japan, was to construct Indonesia’s first MRT system, including a subway, which connects the southern suburbs of Jakarta with the city center (approximately 15.7 kilometers) to alleviate serious traffic congestion in the Jakarta metropolitan area.
Prior to gaining the joint venture contract, in May 2013, the company was awarded a contract for two subsurface sections of the project, CP104 (approximately 1.8 kilometers) and CP105 (approximately 2.1 kilometers), as the joint venture subcontractor. The surface section CP103 constituted the third section.
In China, the company founded the local subsidiary Obayashi (Shanghai) Construction in September 2003, and marketing activities were conducted. Due to constraints arising from differences in legal systems and China’s strict regulations on overseas corporations, allowing foreign companies to obtain only a second-class license to construct medium-sized buildings, however, Obayashi liquidated the subsidiary and withdrew from the Chinese market in March 2011.
Starting Anew in Australia and Business Expansion in Oceania
Obayashi Corporation launched its construction business in Australia in 1986 and was involved in many domestic projects, including Stadium Australia, which was the main venue for the Sydney Olympics held in 2000. The local market then shrank, leading to the company’s decision to temporarily suspend its Australian business activities from 2003. However, the Oceanian construction market later picked up, backed by strong investment in infrastructure such as roads and subways. The region turned into a promising market that could reap the benefits of the company’s superiority in advanced technology and construction experience. The Australian government demonstrated eagerness toward public investment, and this factored into the forecast that the construction market would see continued growth. On the basis of such projections, the company reopened its Australian office in Sydney in May 2012 and won contracts for a sewer system and other projects.
Prior to its renewed involvement in Australian projects, in November 2011, Obayashi Corporation signed a contract for the Waterview Connection Tunnels and Great North Road Interchange project in New Zealand and participated as an alliance member alongside the client, local contractors, and designers. New Zealand laws and regulations require registration of a local office, and accordingly, the company created the New Zealand Office in Auckland.
In November 2016, the company entered into a business cooperation agreement with Australian company Built Pty Limited. Headquartered in Sydney, Built was founded in 1998 and had been engaged in the building construction business mainly in major Australian cities. With this agreement, Obayashi aimed to strengthen its competitiveness and expand its business scale in Australia by mutually leveraging Obayashi’s technological capabilities and financial strength and Built’s experience and expertise.
Large-Scale Projects in the Middle East
In the Middle East, Obayashi Corporation concentrated efforts on winning mainly large-scale construction projects in Qatar, the United Arab Emirates (UAE), and other countries where the political situation is relatively stable and financial resources are abundant.
In Dubai in UAE, Obayashi was a member of a consortium of five companies that constructed the Dubai Metro urban rail network which has a total length of 75 kilometers, consisting of viaducts and tunnels (including 45 stations, depots, and multi-level car parks). In September 2009, the Red Line (Phase 1 construction) was inaugurated, and in September 2011, the Green Line (Phase 2 construction) was completed and commenced service. The Dubai Metro is the longest fully automated, unmanned rail system in the world. However, an increase in the contract amount to cover the rise in construction costs was not approved due to differences in opinion with the client regarding the scope of contractual responsibility, including design responsibility. As a result, the company posted a large loss for the fiscal year ended March 2010. The Dubai Management Office, founded in 2007, was in charge of the negotiations for the Dubai Metro construction project, coordination among joint venture members, and management of profits and losses. Its role ended with the completion of the project. The company continued to identify the Middle East as a priority region, and in July 2011, the Dubai Management Office was reorganized into the Middle East Office to expand the company’s overseas business.
In May 2012, Obayashi Qatar was founded, and in May 2013, a joint venture with HBK Contracting Company was awarded a contract for Phase 3 construction of the Msheireb Downtown Doha project, a large-scale redevelopment project in Qatar’s capital of Doha. The project was Obayashi’s first in Qatar. It was implemented by Msheireb Properties, a real estate development group subsidiary funded by the Qatar Foundation, and involved the redevelopment of an old commercial district in central Doha. In Phase 3, buildings were constructed, such as offices, residential units, a hotel, commercial facilities, and a mosque.
Training Global Talent and National Staff
The construction industry is a community-based industry, and the success or failure of local business, be it in Japan or overseas, depends on a company’s ability to build a solid network of partner companies, clients, designers, suppliers and subcontractors, and local staff. In particular, in the overseas construction business, the company’s goal is to train national staff (locally hired staff) who will become future executive candidates, and to promote the further localization of overseas subsidiaries to create a business model that handles both Japanese and local businesses. Therefore, it is important to train not only Japanese employees stationed overseas but also staff of local subsidiaries.
International staff must understand the legal systems, business practices, lifestyles, ways of thinking, and values of the respective countries they are involved with. Obayashi Corporation seeks global leaders who have the skills necessary to promote overseas strategies and who can demonstrate leadership and lead the organization. The Global Leadership Training Program is designed for selected associate-level employees who have been with the company for around four to ten years to teach them basic knowledge necessary for global business and to make them aware of the issues they will individually face.
Several young staff members from overseas group subsidiaries are also selected every year to receive Japanese language training locally and are then dispatched to Japan for a period of one to three years. The purpose of the training is for national staff to learn Japanese construction techniques and establish human network in Japan. The training also enhances motivation, as personnel who complete the training are often subsequently promoted to executive positions in group subsidiaries.
For example, Thai Obayashi, which was founded in 1974 and was preceded by Obayashi Corporation’s representative office in Bangkok, has continuously sent national staff to Japan since 1977 to instill the Obayashi DNA. In 2003, President Sompong Cintawongvanich, a Thai national with experience working at Japanese construction sites, was appointed the first non-Japanese president of an Obayashi local subsidiary. Through collaboration with Obayashi Corporation, Thai Obayashi has grown to become a leading company in the Thai construction industry. In recent years, contracts from non-Japanese companies account for 80 percent of Thai Obayashi’s sales. This is a concrete example of a successful targeted business model.
