Profile of a Two-Tier Industry

The Japanese construction market is the largest in the world. In 1992 Japan's construction investment as a percentage of gross national product (18.2 percent) was the highest among advanced industrialized countries, exceeding England (12.4 percent), Germany (11.7 percent), France (10.8 percent), and the United States (8.5 percent) by a wide margin. On a per capita basis, construction spending in Japan ($3,480) was double that in the United States ($1,630) and in the European Community ($1,690). From 1984 to 1989, the Japanese construction market expanded by 27 percent—ranking second only to late-developing Spain among Western nations—and between 1987 and 1993, the Japanese market expanded by nearly 50 percent. Construction investment in 1993 was estimated to be just under ¥90 trillion, compared to ¥2.5 trillion in 1960. Throughout this period, government spending on construction played a significant role, accounting for over one-third of total construction investment, on average.^[5]

Other measures of growth include the number of construction firms and construction workers. In 1955, for example, there were fewer than 62,000 registered construction contractors; by March 1992, there were 522,450 licensed contractors registered with the Ministry of Construction. And whereas the construction industry employed 4.7 percent of the country's workforce in 1955, by 1980 construction workers outnumbered individuals employed in farming and forestry. In 1992 Japan's 6.2 million construction workers represented 9.6 percent of the workforce—rich source of campaign support for ambitious legislative candidates, as we shall see.

During the 1980s stagnant domestic demand impelled many Japanese construction firms to look overseas for new markets. (The "ice age" in domestic construction, a product of the worldwide oil shock of the late 1970s, lasted until 1986 and slowed the average annual increase in public and private investment in construction from 21 percent a year, between 1970 and 1978, to 0.01 percent a year, between 1978 and 1986.) As a presence in overseas markets, Japanese firms rose from a seventh-place ranking in 1981—behind American, South Korean, French, West German, Italian, and British contractors—to second place in 1989. Though U.S. firms retained first place in the

international rankings, their margin of preeminence declined precipitously, from $478 billion in 1981 to $181 billion in 1989. And Japanese construction in companies made great in roads in the North American market, winning 40 percent of the overseas orders in North America in 1987. Much of this work serviced the construction needs of longtime Japanese clients who invested in North America during time frenzy of foreign direct investment that followed the appreciation of the yen after the 1985 Plaza Accord. Japanese contractors also made impressive gains in the construction markets of Southeast Asian countries by providing design and consultancy services for large-scale projects, many of which were funded by generous Japanese foreign aid (Chittiwatanapong 1992).

Apart from its size and rate of expansion, time most striking facet of Japan's construction industry is its two-tier structure. At the top are a small number of large general construction contractors, time major zenekon ; at the bottom are more than 500,000 small firms.^[6] The largest zenekon possess the technological capability to design and construct innovative skyscrapers, factories equipped with "clean rooms" for the assembly of sensitive high-technology products, fast-breeder nuclear reactors, and even projects for outer space, and they are among the world's leaders in the building of tunnels and underground facilities, the use of robots in construction, and the use of prefabricated modular devices transported directly to the construction site. In 1991 four of the five largest construction companies in the world were Japanese (Levy 1993, 24). In contrast, the multitude of small-scale firms, many of which are inadequately capitalized, possess technical capacities only slightly superior to those of medieval builders (Watanabe 1982, 272). Be it in urban Yokohama or rural Shikoku, many workers at construction sites still don the traditional garb—billowing knee-length trousers and boots split into two parts between the big toe and the other toes—and shinny up flimsy wooden poles, rather than modern ladders.

The elite of Japan's general contractors are the Big Six: Shimizu Corporation, Taisei Corporation, Kajima Corporation, Takenaka Corporation, Obayashi Corporation, and Kumagai Gumi (see Table 1). Together, the aggregate net sales volume of these six firms exceeded ¥10.3 trillion in 1993. Collectively, they employed more than 73,000

full-time workers. In 1993 Shimizu, which reported sales of ¥2.17 trillion, held the top spot for sales, while Kajima employed the largest number of workers (nearly 15,000). Each of the Big Six admninister extensive overseas branch offices and subsidiaries, and several own or hold substantial interests in domestic affiliates specializing in road paving, residential land development, and other construction services.^[7]

Beneath the elite six are the "quasi-large-scale" general construction contractors. In 1993 Fujita Corporation, Toda Corporation, Hazama Corporation, Tokyo Construction, and Mitsui Construction had the largest sales volume in this second tier. Nishimatsu Construction, Sato Kogyo, and Tobishimia Corporation were among the leaders in large-scale civil engineering works. A group of a dozen or so firms, including Penta-Ocean Corporation, Konoike Construction, and Aoki Corporation round out this second tier of large zenekon . Although smaller in terms of revenues and workforce than the Big Six, these second-tier zenekon possess the technologival sophistication to construct super-high-rise buildings, clean rooms, offshore energy developments, computerized buildings, and urban redevelopment projects. All of these firms are active internationally, and some of them—notably Nishimatsu, Penta-Ocean, and, especially, Aoki—realize a major share of their sales in overseas markets. In the case of Aoki, overseas markets accounted for nearly one-third of the firm's sales during 1993.

Beyond this small circle of major zenekon are more than half a million small firms, and the gulf between the two groups is wide indeed. In 1991, for example, construction firms capitalized in excess of ¥100 million (0.09 percent of registered firms) took in over half of all revenues from completed projects, while firms capitalized between ¥50 million and ¥100 million (1.16 percent of registered firms) reaped about 8 percent of the revenues from completed projects. In contrast, roughly 80 percent of the registered construction firms were capitalized at under ¥10 million, and nearly 40 percent of all construction firms were individually owned and operated. These petty contractors operate in a Hobbesian world, lacking modern machinery, stable management systems, or cozy ties with major banks. In 1982, for example, nearly three-fourths of bankruptcies reported among construction firms involved contractors capitalized at ¥10 million or less

(Nakamura 1982, 104). In order to survive, many of these contractors depend on the prepayment system for privately as well as publicly funded projects, whereby contractors routinely receive 20 to 40 percent in advance.

Subcontracting is more prevalent and more multi-layered in Japan's construction industry than it is, for example, in the United States. On any project, "a carpenter subcontractor may subcontract rough framing to a second-tier subcontractor, who, in turn, might subcontract roof joists to a third-tier subcontractor who, in turn, may hire a fourth-tier subcontractor to distribute the joist" (Levy 1993, 14). These subcontractors tend to have lower skills and offer relatively lower wages and fewer employee benefits. Frequently, firms at the very bottom tier of these subcontracting networks employ substantial number of unskilled illegal aliens, many of them from other Asian countries ("Demand Grows" 1988). Although some formerly small-scale firms, such as Chisaki Kogyo of Hokkaido and Fukuda Corporation of Niigata, managed to expand and to establish substantial regional or nationwide operation, most tend to remain small, local concerns.