Improving International Competitiveness

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I M P R O V I N G I N T E R N A T IO N A L C O M P E T I T IV E N E S S

By Robert C. West1 Honorary Member ASCE

A B S T R A C T : Recent data indicate U.S. design and construction firms have been

losing market share in international business. An ASCE task committee assessesthe impact of a global economy on U.S. firms and concludes that the firms maybe losing their competitive edge. The committee identifies factors that limit U.S.firms, including an insufficient supply of highly competent employees, increasedresearch spending by foreign firms, growth of foreign firms in the U.S. market,emergence of regional trading blocks, use of integrated project teams, reducedfinancial incentive for U.S. firms and individuals, and insufficient governmentsupport. Findings of the committee indicate U.S. firms may decline in domestic aswell as international business unless corrective measures are taken. This paperdiscusses the findings and recommended actions, including assignment of responsibility to the engineering profession, construction industry, educational system,and the government.

In 1988, William F. Carroll, who was then national president of ASCE,appointed a task committee to do the following:

to assess the new influences and pressures the global economy is ex

erting on the design and construction community generally and on the

practice of civil engineering specifically [and, if the committee de

cides,] to . . . recommend to the Board of Direction means by which

ASCE can continue to focus on this subject in the future, if an ongoing

effort is needed.

The assessment was carried out as directed and the resulting report was

presented to the Board of Direction on October 7, 1989. Background datafor the study came from several sources, including survey reports publishedannually by Engineering News-Record. These data show that U.S. designand construction firms have been losing market share in international business.

This fact leads to the conclusion that U.S. design and construction engineering is losing its competitive edge, not only abroad, but also in theU .S . when compared with foreign firms. This trend continued in the twoyears following completion of the report, as shown in Table 1.

In fulfilling its charge, the task committee identified seven areas of distinctnew influences: (1) demographic changes, (2) increased foreign research

and development, (3) foreign firms in the U .S . market, (4) emerging regionaltrading blocks, (5) integrated project teams, (6) reduced financial incentive,and (7) insufficient government support.

DEMOGRAPHIC CH NGES

American engineering and construction firms have one marketable product: human services that are based on engineering science and technology.

Presented at the October 22,1991, ASCE National Convention, held at Orlando,FL.

'Chmn. Emeritus, Sverdrup Corp., St. Louis, MO 63101.Note. Discussion open until September 1, 1992. To extend the closing date one

month, a written request must be filed with the ASCE Manager of Journals. Themanuscript for this paper was submitted for review and possible publication onNovember 8, 1991. This paper is part of the Journal of Professional Issues in Engineering Education and Practice Vol. 118, No. 2, April, 1992. ©ASCE, ISSN 0733-9380/92/0002-0107/$1.00 + $.15 per page. Paper No. 3006.

1 7

J. Prof. Issues Eng. Educ. Pract. 1992.118:107-112.

D o w n l o a d e d f r o m

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c i o n o n 0 8 / 2 5 / 1 3 . C o p y r i g h t A S C

E . F o r p e r s o n a l u s e o n l y ; a l l r i g h t s r e s e r v e d .



TAB LE 1 . Fore ign Design B i l l ings

Designer nationalityD

United StatesEuropeCanada

Japan

Others

Total

1989

Billions of

dollars2)

3.2

3.1

0.6

0.3

0.2

7.4

Percent of

billings3)

43.5

8.0

42.0

3.5

3.0

100

1990

Billions of

dollars4)

3.7

0.5

4.0

0.30.3

8.8

Percent of

billings5)

42.2

5.8

44.9

3.2

3.9

100

U . S . firms offering investigation, design, and/or construction services in theoverseas mark et m ust have a pool of experienced employees w ho are highlycom peten t in their area s of specialization if they are to com plete successfullywith foreign firms. Unfortunately, as a result of demographic changes thatbecame apparent in the 1970s and 1980s, the aging U.S. labor force maynot provide the needed supply of workers with superior engineering expertise who are willing to work both at home and abroad.

America's real wealth is its people, its human resources, and if it is tocontinue to be wealthy and to be able to sell services around the world andat home, the people must have the scientific and technological skills that aquality education can provide. T he dem ographics a re clear: unless the Un ited

States rapidly and significantly progresses in the engineering education ofblacks, Hispa nics, and w om en, it will not h ave a sufficient po ol of e nginee rsto compete internationally.

If the United States is to have new technologies to offer the world, itmust have a cadre of Americans who are prepared to contribute new findings; in part, this can be done by increasing the number of U.S. studentsachieving PhD degrees. The United States must strengthen its educationalsystem to produce superior students who are capable of completing scienceand engineering curricula through the doctoral level.

INCREASED FOREIGN RESEAR CH AND DEVELOPMENT

Foreign firms, particularly Japanese firms, are increasing research anddevelopment (R&D) expenditures. The 20 largest Japanese constructionfirms spend 1% of sales on R&D. They have campus-type research parksengaged in a wide rang e of activities fully coord inate d with their ope ratio ns.Presently Japanese construction firms have difficulty competing internationally because of the high value of the yen.

Their overseas work is primarily for Japanese firms and work tied toJapanese foreign aid. Their plan to become better competitors appears to

be to invest in R& D in the expectation that with improved technology, theywill be able to offer so much more that the high value of the yen will beovercome.

This massive level of R & D expend iture by the Ja pan ese , which is 20 timesthat of U.S. design firms, could position them well ahead in engineeringdesign and construction technology worldwide.

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Foreign Firms in the U.S. MarketThe immediate threat to the U.S. home market is from European and

Canadian firms. In engineering design, European and Canadian firms haveincreased their billings in the North American market 300% since 1984. Inconstruction the Europeans billed almost $12 billion in 1988.

The N ational Constructors Association reports that the U nited States hasbecome the largest export market for Japanese design and constructionservices, with Japanese firms having been awarded an estimated $2.2 billionworth of new U.S. contracts in 1987. Work contracted to foreign firms is adirect loss to the U.S. design and construction industry. Additionally, theforeign firms have an increased opportunity to learn U.S. methods andthereby increase their competitive edge in other markets.

EMERGING REGIONAL TRADING BLOC KS

The size of the U.S. market for engineering design and construction is

so large that it is very attractive for foreign firms seeking to expand. Thisis not new, but what is new is that the home market of these foreign companies may be protected from U.S. expansion, or made so unattractivethrough bureaucratic procedures that U.S. firms are, or will be, placed ata competitive disadvantage. The formation of regional trading blocks, suchas the European Economic Community is a potential mechanism for protectionism that may be copied by other groups of nations.

The recent United States-Canada trade agreement is another example ofthis trend. How U.S. engineering and/or construction firms will fare underthis agreement is not yet clear. It is clear, however, that Canadian firmswill have increased access to the much larger U.S. market. Issues of engi

neering cross-registration may also become important. Just as U.S. firmshave some advantages within their own borders, the formation of multinational trade arrangem ents that give me mb er co untries a competitive edgecan only contribute to their problems of international competitiveness.

INTEGRATED PROJECT T EAM S

Large projects in which civil engineers participate, either as designers orconstructors, increasingly are being performed by teams. This is largelybecause owners are seeking a single point of responsibility for planning,design, and construction, and sometimes finance, training, and operation

as well.For many reasons, civil engineers in the United States are thereby placed

in a difficult position for their international market efforts. Foreign competitors have become increasingly skillful in marketing and performing onan integrated basis. Civil engineers from other countries have become quiteaccustomed to working in teams, while U.S. civil engineers are more accustomed to offering services by the traditional design-bid-build sequence,which results in the completion of most engineering duties before a contractor is chosen.

The actions of foreign gove rnme nts, including those of Euro pe and J apa n,in assisting with financing for such teams make it very difficult for U.S. civil

engineers to compete.

R educed Financial IncentiveIn 1991 there were fewer financial incentives to motivate U.S. companies

and individuals to work overseas than there used to be. For companies

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participating in integrated teams, even when projects are bigger, a company's overall involvement is usually smaller than before. For individuals,the overseas prem iums paid in salary and allowa nces, after considering theconsequences of current tax regulations, seem generally far less attractivethan before.

The result is that U . S . companies furnishing traditional engineering designand construction services are becoming less active in the overseas market,and it is increasingly difficult to find qualified U.S. engineers who want tolive and work overseas.

INSUFF ICIENT G O VE RNME NT SUPPO R T

The United States is falling behind governments of other leading worldnations in providing direct and indirect financial support to their nationalfirms in international trade. Many other countries provide relatively more

project grant seed mon ey, business development cost subsidies, direct marketing and sales support, below-cost project finance and mixed credits, andother market entry support to their national firms.

As a result U.S. companies are finding it increasingly difficult to win ininternational com petition. U .S . m arke t share is slipping, and the U. S . economy is losing the benefit of the substantial business that has been demonstrated to normally follow an up front involvement in the engineering ofmajor projects.

Major conclusions that can be reached include:

1. T he international market includes the U .S. m arket.

2. The federal government m ust secure equal competitive conditions for U .S .firms in all markets.

3. The United States must have more highly competent engineers and scientists.

4. Innovation and proprietary R& D by U.S . firms m ust be increased.5. U .S . firms must respond to client desires for integrated delivery of services.6. Quality is the key to com petitiveness.

D E T A I L E D C O N C L U S I O N S

In the near term the Europeans are the principal worldwide competitorsto U.S. firms both abroad and in the U.S. market. In the long term theUnited States can anticipate intense competition in innovative technologyfrom the Japanese because of the high level of R&D effort they have undertaken.

As the discussions of new influences show, much has changed and ischanging for U.S. engineering and construction firms relative to foreigncompetition. In analyzing these influences, the task committee came to sixconclusions on what must be done if the firms are to compete successfullyin the new global m arke tplace. T he nee d for action is clear, but tha t actionis not the responsibility of any one person or organization. A cooperative

effort is needed involving ASCE and the civil engineering profession generally with engineering firms, the construction industry, the federal government, the educational system, and the nation as a whole.

• The international market includes the U.S. market. For too long engineers thought of the international market as being overseas. They

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. F o r p e r s o n a l u s e o n l y ; a l l r i g h t s r e s e r v e d .



must change their mindset to recognize that the international marketincludes the United States. Today, U.S. firms compete internationallyin their home towns, because European and Japanese firms have expanded strongly into the North American market.

• The federal government must secure equal competitive conditions forU.S. firms in all markets. Especially with the emergence of regionaltrading blocks (e.g., Europe 1992), it is essential that the federal government actively pursue international trad e agreements that grant U.S .firms equal conditions to compete in all markets of the world. Foreigngovernment protection of, and subsidies to, their domestic firms shouldnot be permitted in their home markets if they want access to the U.S.market.

• The United States must have more engineers and scientists of highquality. To compete successfully in the global marketplace, the UnitedStates must have a work force with superior technical skills. This means

that the U.S. must make a major effort to improve the quality of theoverall educational system in the country and, in particular, make rapidand significant progress in attracting blacks, Hispanics, and women tothe profession of civil engineering.

• Innovation and proprietary R& D by U.S. firms must be increased. U.S.design and construction firms must launch programs for developingproprietary research and development programs. These programs mustrely on the resources of the firms. By marketing unique, proprietarytechnological solutions, these firms will achieve a com petitive advantageover their competition, domestic and foreign. Through R&D they canmake sure that they will continue to have a competitive product soughtby buyers.

The Civil Engineering Research Foundation (CE RF) should be calledupon to assist the U.S. design and construction industry to improve itscompetitive position by funding and conducting research studies thatwill advance the profession's technological capabilities and result in thedevelopment of new design and construction methods, materials, andproducts and integrated systems.

If U.S. firms rise to the challenge of investing in R&D as a meansof gaining competitive advantage, they still face domestic barriers thatdiscourage innovation. Chief among those barriers is excessive litiga

tion, which penalizes firms that innovate and rewards ones that pursuerisk-avoidance as a primary business strategy.

• U .S . firms must respond to client desires for integrated delivery ofservices. Given this market dem and, U .S . engineers must improve theirteam participation skills and abilities. Firms must increase their abilityto market team solutions involving finance, operations, and maintenance as well as traditional engineering services. Civil engineers havealways been leaders of major projects and are best equipped to continuein this role as the delivery of services required for total project implementation becomes even more integrated.

• Quality is the key to competitiveness. AS CE 's fundamental focus mustbe on stimulating qua lity in civil engineering , not only in the constructedproject, but also in the way technological, financial, and human resources are used in the entire process of creating and implementingprojects. This is possible only if there is quality in education, R&D,

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TABLE 2. Roles and Responsibilities for improving United States InternationalCompetitiveness in Design and Construction

Neededimprovements

0International reci

procityManpower and edu

cationInnovation and pro

prietary researchand development

Integrated servicesQuality

ASCE(2)

C

L

C

CL

CERF(3)

C

s

L

——

Firms(4)

—

S

L

LL

Academia(5)

—

S

—

—s

Individualengineers

and scientists(6)

—

S

—

—s

Federal

government

(7)

L

—

—

——

Note: C = Communications role; L = leadership role; and = support role.

and management in U.S. firms.Ensuring the future international competitiveness of the U.S. civil

engineering community will require the coordinated efforts of manyentities. ASC E is one of them. Roles and responsibilities for improvingUnited States international competitiveness in design and constructionare set forth in Table 2.

The accompanying matrix shows the key entities and the roles theyneed to play in responding to the major conclusions reached by the taskcommittee. These roles vary from a leadership role, to a supportive orcoalition role, to a communications or public awareness/education role .

ASC E must take a leadership role in addressing issues of manpower,education, and quality of engineering services. These issues are basicto the profession, and they must be a high priority of ASC E during thecoming years and into the new century. Additionally, ASCE shouldurge the Civil Engineering Research Foundation to take a leadershiprole in stimulating innovative research and development in the United

States.

ACKNOWLEDGMENT

The writer used some of the data and charts that appeared in a reportby the Society's Task Committee on International Competitiveness, whichincluded Chairman Douglas C. Moorehouse of Woodward Clyde Group,Inc. , Oakland, California; John W. Hernandez of New Mexico State University, Las Cruces, New Mexico; Dana E. Low of Tarns Consultants, Inc.,New York, New York; and the writer. ASCE staff assistance was providedby Curtis C. De an e, managing director of the Washington office. T he com

mittee repo rt is entitled Improving international compe titiveness: Un itedStates engineering in the global m ark etp lace . Fre e copies of the full re por tmay be secured from the ASCE Washington office.

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Improving International Competitiveness