FOREIGN CONSTRUCTION INDUSTRIALIZATION AND ITS POTENTIAL EFFECT ON THE UNITED STATES CONSTRUCTION INDUSTRY

INTRODUCTION

Internationalization is a word in frequent use in Japan to describe that country's more activist stance on the world stage (1). The challenge of this statement is being met by Japanese automated building companies and to some degree by their Swedish and Danish counterparts, both in aggressive new technologies and market techniques. Industrialized housing is now moving from "architecture" to a "consumer product." Periodic new house models like new automobiles are introduced and marketed. The Japanese firm of Fujitsu, being deadly serious about internationalization, has opened a sales office and display room in Fairfield, New Jersey. Staffing of this business adventure has been by Fujitsu's top marketing executives. Additionally, Mitsubishi has opened a model home in the LosAngeles area to demonstrate their wares (2).

STATEMENT OF THE PROBLEM

The rush is on to tap the American pocketbook. Foreign factory home builders are offering the technology and software necessary to produce and market their developed housing products. Another problem even more frightening was a paragraph in the AIH/MHD News Lines (3) urging U.S. factory home producers to consider joint ventures in this country using Japanese technology and market systems.

THE EXISTING DILEMMA

According to a report issued by the Office of Technical Assessment (OTA) of the Congress of the United States in an article entitled "Technology, Trade and the U.S. Residential Construction Industry,"(4) anywhere between 10 to 35 percent of all new single family homes in this country are factory built or produced.' Considering this relatively low percentage, the statement was made that maybe the United States' home builders were missing the boat by not developing and exploiting the manufactured or industrialized home building segment of the construction industry. The long-term and short-term^-results of this neglect may create a boom for the importation of "prefab" houses from other countries who are now conducting serious research in the development of manufactured housing. Simply stated, the OTA warning was that United States' firms are not taking advantage of mass production devices employed in the manufacture of products.

United States' housing production factories in general employ unskilled to semi-skilled labor. These workers are expected to produce a product in facilities which are under-capitalized and below the standards of other production-type industries. When confronted with this statement, the housing industry would argue that with the wide swings and fluctuations within the housing industry and con­struction market, staffing and employment of skilled labor is too expensive and the industry would not be able to yield a reasonable profit.

Additionally, mortgages, seasonal changes and building code problems present apparent insurmountable obstacles and difficulties for the prefabricated housing companies in the United States. The OTA indicated that there exists a "mind set" in this country against quality, prefabricated housing because traditionally industrialized construction has been associated with low cost and low quality.

Two countries, Japan and Sweden, apparently do not believe or accept this negative "mind set" attitude of minimal facilities and unskilled workers that produce low-quality products. Japan can be used as an example - and warning - of a country who has attacked this prefabrication of housing with the same seriousness as their industrial counterparts did with the automobile production and marketing. The end result is that the Japanese are now producing and marketing a high quality product that is made by advanced production techniques. This activity by Japanese industries should alert housing producers and institutions of higher learning (both universities and technical schools) that we now have a serious problem developing and immediate attention is required before it may be irreversible. The very size and potential of the housing market in the United States becomes the impetus for foreign corporations and companies who have this technology to exploit the situation.

BACKGROUND

Automation in Housing and Manufactured Home Dealer in June, 1984, carried an article entitled "Japanese Factory Homes are Now 8 and 10 Years Ahead in Technology Marketing." 51 This article repeated the warning stated in the OTA report and reported that at the time of the article, Japanese prefabricated home producers were at least 8 to 10 years ahead of their United States counterparts in production technology and marketing service. A historical reference to the "Operation Breakthrough" attempt that was made in this country in the 1960s and early 1970s, which ended in failure because of lack of funding by the federal government, was included in the article. The Japanese government picked up on this concept in 1975 and made it successful with their own plan called "House 55." "House 55" was conceived to produce a factory-built home at about. 55 percent of the cost of a conventional site built house. This article further stated that many of the Japanese producers managed to obtain this goal, and one company claimed that its system would ultimately produce a structure at about 70 percent less than the. old Japanese "Post and Beam" construction method. Data and background for the article's comparison study of production techniques was obtained from visiting six major Japanese home factories, three housing laboratories and two model home villages. The study and comparison led the author of that article to con­clude that we had better learn from the Japanese and study their techniques and production methods in order to be competitive and remain ahead of their potential market effort in this country.

Interestingly, a comment was made that the Japanese at that particular time were not envisioning the creation of building production facilities or plants in this country, but rather they were investigating the market to determine if it would be feasible to export technology to interested parties in this country. The idea was put forth that maybe United States home producing firms should consider joint venture partnerships with Japanese firms. All Japanese firms interviewed were receptive to joint venture relationship with United States home producers. One Japanese firm stated that it was already in preliminary conversation with a U.S. builder of modulars.

Continuing, the article stated some of the disadvantages that the Japanese systems or technology would have to overcome before these exported products would be acceptable in the United States. First, the duplicity of our building code structure that allows many codes to exist, i.e. HUD code and local implemental codes. This is opposed to the single code situation that exists in Japan where it is easier to simplify construction and impose overall strength requirements on the product. Another advantage enjoyed by the Japanese producer is the financing structure set and enforced by the government. The program of mortgaging is controlled so that the first 50 percent of the home costs 5.5 percent (government dictated) and the balance is financed at the prevailing market rate. At the time of the article, the cost of a mortgage was about 9 percent. This was slightly below home interest rates in this country. If the United States used the same financing scheme, this country would see a rapid expansion of home building. Even with these several built-in obstructions inherent in the systems, it would take only minor modification to adapt the end product to the United States market. The final result will be that the Japanese could be as successful in this country, as they are in their homeland, in the production of high quality housing, advanced marketing methods and construction methods.

Comparing the prefabrication industry of Japan to ours, they can be considered "a teenager in longevity" to the U.S. producers who have been around some 40 years. Predictions contained in the article stated that factory produced homes in Japan will capture between 30 to 50 percent of the home market in that country. A very striking item of note conveyed was related to the size of the companies in Japan actually involved in the home factory production. These companies are big firms - corporate conglomerate giants with capitalization measured in the billions of dollars by United States' standards. Firm names include Daiwa, Panasonic and Nippon Steel. Additionally, 97 percent of all industrialized homes were produced by 10 companies, all of whom were in this corporate giant classification. All these top ten companies have almost unlimited financial and technological power. Comparing this situation with the U.S. marketplace, the largest manufacturer in this country builds approximately 15,000 units per year while in 1983 Misawa Homes Ltd. factory built and sold 29,500 units. On top of this, three other Japanese companies accounted for an additional 77,000 factory produced units.

Japanese factory built homes are considered to be beautiful, super-strong and carefully detailed. with regard to interior millwork. When the "House 55" project got underway, the Japanese Ministry of Construction laid down precepts that they wanted a cheaper house and a structure that was well insulated, fuel efficient, fire safe and strong enough to be able to withstand Japanese earthquakes and typhoons (140 mph winds). These goals have been met by the Japanese home building industry. Beyond the goals set, several companies, i.e. Misawa, Darwa and Sekisui have developed and constructed laboratories where a full size house can be tested against all climatic conditions. The laboratories are capable of testing a full size model against wind and rain hitting at 140 mph. Because of these laboratories, Japanese have been able to produce a house that does not leak under the stated test conditions. To meet the other requirements imposed by the Ministry of Construction, laboratory conditions can subject a full model house to the dumping of a heavy snow load beside applied raking forces that would be equal to an earthquake of 7.5 on the Ritcher Scale.

Three model home villages test and display various house models. In these displays, the article noted that careful attention was given to the exterior and interior details. There were no sticking doors, no gaps in mitered corners and woodwork and finishing details left nothing but a favorable impression on the buyer. In terms of architectural style, there were very few models that would not be accepted by the American home buyer with minor design changes and revisions.

Customization was possible within one Japanese factory. This company has virtually unlimited designs by the use of some 900 panels which would produce 2,000 designs. Also, in the selections of materials, finishings, floor plans, etc., a prospective buyer can sit behind a salesman seated at a computer terminal and the salesman can run through selected floor plans until the buyer finds one that suits him. They could put the house together room by room and wall by wall using information that is prestored in the computer. In two hours or less, a technically skilled salesman would be able to customize a home on the computer screen for the buyer. When complete, the order is electronically sent to the factory and the home is started on the assembly line.

The Japanese companies are vertically integrated so they can provide a starter house, add or subtract to it as the needs of the family change, remodel as required and even take it on trade if the buyer decides to move up.

The materials employed and used in the Japanese factory-built home are the traditional materials

of wood, steel, concrete with the possible exception of a new "ceramic" material invented by Misawa. All plants are infinitely more automated than anything presently in use in the United States.

CONCLUSION

A warning for things to come to the automated builder is obvious from the several articles cited The question now posed to the American home factory builder, their suppliers and our educational system, is in which direction do we proceed? We have three choices: we can keep the present system as it now exists and choose to ignore the industrialization and marketing of housing as now being developed in Japan or Sweden; we can encourage the joint venture of United States companies with Japanese companies so we could use their developed technology and marketing concepts, somewhat similar to what has occurred with segments of the automobile industry; or, we, as constructors and educators can develop programs and technologies equal to and superior to those now in place in the referenced countries. The only logical conclusion to the stated dilemma is that the construction industry needs to implement programs of research and systems development that in a reasonable period will allow this country to regain a competitive business posture. Rather than buy the technology from abroad and then continue payment on licensing fees, this segment of construction industry could reverse the situation. Monies could flow into this country for our industrialized construction expertise rather than the secondary position of purchasing the construction technology we now employ.

RECOMMENDATIONS

To create or implement a successful program for the reversal of our dependence on foreign tech­nologies an marketing concepts for the industri­alized builder, the following recommendations are made:

CITED REFERENCES

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