Social Design Engineering Series

SDES-2014-10

An overseas business paradox: Are Japanese general contractors risk takers?

Taichi Mutoh
Taisei Corporation

Makoto Kakinaka
Graduate School of International Relations, International University of Japan

Koji Kotani
Kochi University of Technology
Research Center for Social Design Engineering, Kochi University of Technology

21st October, 2014

School of Economics and Management
Research Center for Social Design Engineering
Kochi University of Technology
KUT-EMS working papers are preliminary research documents published by the School of Economics and Management jointly with the ResearchCenter for Social Design Engineering at Kochi University of Technology. To facilitate prompt distribution, they have not been formally reviewed
and edited. They are circulated in order to stimulate discussion and critical comment and may be revised. The views and interpretations expressedin these papers are those of the author(s). It is expected that most working papers will be published in some other form.

An overseas business paradox: Are Japanese generalcontractors risk takers?
Taichi Mutoh∗

Makoto Kakinaka†

Koji Kotani‡

October 21, 2014

Abstract
Japanese industries have struggled with stagnation after the collapse of bubble economy in the early 1990s, leading to overseas business expansion. This study examines
Japanese general contractors’ overseas operations over the post-bubble period. The
result shows that general contractors facing financial distress expand overseas business more aggressively, or are forced to do so, when the domestic construction market
shrinks. This result is in contrast to conventional wisdom that stronger entities expand
their territories of operations, and thus “overseas business paradox.” However, it canalso be considered a new scenario of industries’ evolution when economy matures in acountry.

Key Words: Overseas business expansion; financial status in a credit market; location
choice; general contractors; construction industry; Japanese economy∗

Taisei Corporation
Professor, Graduate School of International Relations, International University of Japan, 777 Kokusaicho, Minami-Uonuma, Niigata 949-7277, Japan (e-mail: kakinaka@iuj.ac.jp)‡
Professor, School of Economics and Management, Kochi University of Technology, 185 Miyanokuchi,
Kami-schi, Kochi 782-8502, Japan (e-mail: kojikotani757@gmail.com)†

1

Contents

1

1 Introduction

2

2 The construction industry in Japan
2.1 Construction business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 General contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Overseas business expansion of general contractors . . . . . . . . . . . . . . .

6
6
8
10

3 Empirical analysis
3.1 Methodology and data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Some preliminaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3.1 Financial status in a credit market . . . . . . . . . . . . . . . . . . .
3.3.2 Other control variables . . . . . . . . . . . . . . . . . . . . . . . . . .

12
12
18
19
19
22

4 Conclusion

24

5 Bibliography

25

List of Figures

29

List of Tables

31

1

Introduction2

Decisions of overseas construction operations are often difficult due to the uncertainties,

3complexities, and risks associated with differences of business cultures, although construction

4

firms have responded to new global competition by looking for new business opportunities in

5international markets, beyond traditional domestic markets (see, e.g., Han and Diekmann,

62001). Technological superiority and financial capacity have contributed to the success of7Japanese general contractors in international markets, particularly the Asian region (see8Raftery et al., 1998, Ofori, 2000). Strategic alliances with Japanese manufacturers through9

massive foreign direct investment, as well as Japan’s construction aid, accounting for a10large portion of bilateral foreign aid, have also facilitated market penetration of Japanese11

general contractors.1 Moreover, it is acknowledged that recent trend of demand shrinkage for
1

The Japanese government has played some important roles in promoting Japanese general contractors
in international markets by fostering technological and financial capacity (Raftery et al., 1998).

2

12construction in the domestic market after the collapse of the bubble period of the late 1980s

13

has encouraged Japanese general contractors to engage in overseas business, even though

14

they still keep the share of overseas sales at the low level due to their conservative business15

behavior against project risks.

16

One crucial issue is that for Japanese general contractors, the cost of financing needed17

to implement overseas projects is one of the most important factors determining their over-18

seas business expansion. Since the financing cost of a general contractor generally reflects

19

the evaluation on its current and expected future performances, including profitability and20

default risk, in credit markets, general contractors with high financial status have the ad-

21

vantageous position in terms of the project cost, so that they could be expected to engage

22

in overseas business in a more aggressive manner. Thus, this study addresses the empirical

23

validity of this conventional argument by examining how financial status in credit markets

24

affects the location choice of overseas business expansion for Japanese general contractors

25

over the post-bubble economy period from 1998 to 2010.

26

There have been many studies on overseas or international business activities in the

27

fields of international business, economics, regional science, and decision theory. Traditional

28

argument in the international management literature is that the motivation for foreign direct29

investment (FDI) by multinational enterprises is driven by the possible exploitation of firm-

30

specific advantages in various forms, such as ownership, location, and internalization (see31

Dunning, 1988, 1993). More relevantly to this paper, a large number of works have examined32

locational determinants of FDI for multinational enterprises with an eye on various aspects,

33

such as labor cost and quality, transportation and communication infrastructure, government

34

policy, and industrial agglomeration, at the regional or national level.2 Among them, some35

works, such as Woodward (1992), Kotabe (1993), Smith Jr. and Florida (1994), Head et al.

36(1995), Belderbos and Carree (2002), Fung et al. (2002), Zhou et al. (2002) and Cheng (2006)
2
See, e.g., Lunn (1980), Bartik (1985), Coughlin et al. (1991), Grubert and Mutti (1991), Friedman et al.
(1992), Hill and Munday (1992), Loree and Guisinger (1995), Cheng and Kwan (2000), Coughlin and Segev(2000), Nachum (2000), Shaver and Flyer (2000), Zhao and Zhu (2000) and Sun et al. (2002).

3

37

study location choices of FDI or overseas operations for Japanese investors.

38

Most of these empirical studies on overseas business expansion address manufacturers

39

of a country during its high economic-growth period, and do not consider the relationship40

between firms’ financial status (the cost of financing) and overseas operation. It should

41

also be noticed that the construction industry differs from others, since general contractors

42

are not entities that directly engage in FDI, and they usually receive orders of overseas

43

projects from firms (typically manufacturers) which make a decision of direct investment.

44

Thus, general contractors have played a significant role in constructing hard infrastructure45

for manufactures and in promoting economic growth in developing and developed countries.

46

Despite its importance, to the best of our knowledge, no empirical works exist on loca-

47

tional determinants of overseas business for general contractors.3 Furthermore, few studies

48

consider firms’ financial status as well as the case of a country whose economy reaches matu-

49

rity or even shrinks. Given this paucity, we examine overseas business activities of Japanese

50

general contractors by incorporating their financial status into the analysis, and seek to51provide important implications about organizational behavior and development policy. In

52particular, the novelty of our research lies in deriving a possible future scenario of indus-

53

tries in international business especially for a country whose economy reaches maturity. We

54

consider Japan as a representative case of “matured” countries, and the implication of our55

research is more valuable as many other countries are expected to follow the same type56

of paths in the near future Japan has been experiencing with respect to population and57

economic growth.

58

For our analysis, we use some measurements capturing overseas business expansion and59

financial status in credit markets for general contractors. Sullivan (1994) suggests that
3

There are some studies on the internationalization of the construction industry of a high-economic
growth period in some major countries, such as Strassmann (1989), Raftery et al. (1998), Ofori (2000) and
Han and Diekmann (2001). In addition, several studies have theoretically discussed an analytical frameworkof international entry decisions for construction firms in the field of decision theory (see, e.g., Hastak andShaked, 2000, Chua et al., 2001, Han and Diekmann, 2001, Dikmen and Birgonul, 2004, Ozorhon et al.,2006, Cheng et al., 2011). However, they do not empirically characterize the regional or spatial aspects ofinternational business operations.

4

60

among various indicators, foreign sales or revenues may be one of the popular indicators

61

measuring the degree of internationalization of an enterprise. By using the comprehensive

62

data set published by the Overseas Construction Association of Japan (OCAJI), this study

63

constructs three measures of overseas business operations for each general contractor in each64

country: (1) a binary variable indicating whether a Japanese general contractor receives at65

least one order of the project in a country, (2) a count variable taking the number of orders

66of the projects received by a Japanese general contractor in a country, and (3) the real value

67of the orders of the overseas project received by a Japanese general contractor in a country.

68

Concerning financial status in a credit market, our analysis adopts the market-based

69

evaluation, which is measured by the gap between the actual interest payment and the70

hypothetical one. The hypothetical interest payment is calculated by the interest payment

71that applies for a general contractor, assuming that it is the highest credible in a credit

72

market so that short- and long-term prime rates would be applied. This market-based73

financial status may reflect an evaluation of the credit worthiness of a debtor, including74

profitability and risk in current and future periods.

75

With the aforementioned data, we apply three regression models by taking the degree of76internationalization as a dependent variable, financial status and other necessary variables77

as independent variables. These three regressions are (i) logit, (ii) poisson and (ii) negative78

binomial. Each of the three regression analyses is carried out depending on which measure-79

ment we use as a dependent variable for the degree of internationalization among the three.

80

By doing so, we double-check the robustness of our qualitative results, while we keep the81

same set of independent variables for all three regressions.

82

Our empirical analysis finds that general contractors facing significant financial distress83

are likely to expand their overseas business in a more aggressive manner. Irrespective of84

the measurements we use for the degree of internationalization as a dependent variable, we85

confirm that the same qualitative conclusion holds for all of the three regressions. At first,

86

this appears to be in sharp contrast to the conventional wisdom that advantageous firms with5

87

good financial status expand their overseas business. However, our paradoxical result can

88

be meaningfully interpreted, when considering how Japanese business environment evolves

89

over time. We call this result “overseas business paradox” suggesting some possible future

90

scenario of industries’ evolution in a matured country.

91

After the collapse of the bubble economy in the early 1990s, the Japanese domestic

92

construction market has shrunk due to the long-run economic distress with the reduction of93

public spending. Accordingly, many construction firms come to be recognized as “zombies”

94

in the sense of Caballero et al. (2008), which need constant bailouts for their operation. In

95this type of situations, our results suggest that general contractors without sound financial

96

status are forced to receive orders of risky projects abroad for their survival, and otherwise

97

would be forced to exit from the market. The lesson from our paradoxical result could98

apply not only for the construction industry in Japan but also for some other industries

99

in developed and emerging countries whose economy is expected to mature. As domestic

100

markets become mature or shrunk, which is often observed in developed countries and may

101

be experiential in developing countries in the near future, firms struggling with the high102

financing cost in a credit market may be forced to take higher risks and to expand their103

overseas business more aggressively.

104

2

The construction industry in Japan

105

2.1

Construction business

106

Construction business in Japan stands for the business industry, which consists of firms,

107

called a contractor, making contracts on various building, architectural, and civil works

108

provided under the Construction Business Act. The Act classifies the construction business

109

into 28 types, and contractors are required to obtain license from either the Minister of Land,110

Infrastructure, Transport and Tourism or Prefectural Governors, depending on their business

6

111

type.4 Contractors are composed of main contractors, which contract a mega project (e.g.,

112

construction of large-scale airport, road network, dam, and skyscrapers), and subcontractors

113

and sub-subcontractors, which contract parts of projects (e.g., carpentry, plumbing, and114

painting) with main contractors.

115

The number of contractors (construction firms) has been in a downward trend due mainly

116

to economic distress and cuts in public spending on construction. According to the Ministry117

of Land, Infrastructure, Transport and Tourism, the number of contractors has declined by

118

15% from around 569,000 in 1997 to around 484,000 in 2011 (figure 1).5 Table 1 illustrates

119

the distribution of construction firms by the business scale as of 2011. Out of the whole120

construction industry, 98.8% of the firms are classified as medium- and small-sized enterprises

121

with the capital amount of 100 million yen or less, and only 1.2% of the firms are classified

122

as large-sized enterprises with the capital of 100 million yen or more. This implies that123

small-sized firms dominate the construction industry.

124[Figure 1 about here.]125[Table 1 about here.]126

The business formation in the Japanese construction industry can often be characterized127

as a “layered pyramid structure.” A main contractor (general contractor) contracts the128

project with an employer (owner of the project) and takes the responsibility for the entire

129

construction management to complete the project. It also issues subcontracts with special

130

contractors and material suppliers, depending on the necessity and prompt timing to carry
4

The Construction Business Act defines 28 kinds of business types, (1) general civil engineering, (2)general building, (3) carpentry, (4) plastering, (5) scaffolding, earthwork, and concrete, (6) masonry, (7)roofing, (8) electrical, (9) plumbing, (10) tile, brick, and block, (11) steel structure, (12) reinforcementsteel, (13) paving, (14) dredging, (15) sheet metal, (16) glazing, (17) painting, (18) waterproofing, (19)interior finishing, (20) machine and equipment installation, (21) heat insulation, (22) telecommunication,(23) landscaping and gardening, (24) well drilling, (25) fittings, (26) water and sewerage facility, (27) fire
protection facilities, and (28) sanitation facilities.
5
Among 28 types of business construction, over 30% of licensed firms have licenses of general building,scaffolding, earthwork and concrete, and general civil engineering. On the other hand, only less than 1% oflicensed firms are given licenses of well drilling and sanitation facility. Another remark is that the numberof construction firms holding only one license out of twenty eight is halved almost equally with the numberof those obtaining multiple licenses.

7

131

out the project efficiently. If needed, the subcontractors and the material suppliers issue

132

further subcontracts with other construction-related firms.

133

The formation of such a layered pyramid structure is more significant for large projects.

134

In the case of a megaproject, which is typically defined as a large-scaled investment with the135amount of more than one billion US dollars, the number of subcontracts to be issued by the136main contractor to subcontractors often exceeds over a few hundred. The responsibilities for

137

contractual performance are basically fulfilled between the parties. Thus, the owner of the138

project is not in the position to intervene any contractual issues incurred between the main139

contractor and its subcontractors. This logic remains valid to the lower-level contracts and140

it is usually used to risk avoidance to each layer.

141

2.2

General contractors

142

Since this study attempts to analyze overseas business expansion or embarkation for main143

or general contractors, this subsection describes their roles in the construction industry, given

144

the fundamental structure of the industry introduced in the previous subsection. In Japan,

145

the business style, known as the layered pyramid structure, has been playing an important146

role in the construction field for a long time. General contractors in construction business

147

normally engage in contracts of civil or building projects in lump sum with their employers

148

or owners and play a role as a main contractor to be responsible for the completion of the

149

projects. Among them, the five largest general contractors, Kajima, Obayashi, Shimizu,

150

Taisei, and Takenaka, are particularly called a “super general contractor,” which form the151

nucleus of the construction industry in Japan.6

152

The construction industry has expanded with a large number of general contractors

153

due to the large demand for construction during the rapid and stable economic growth154

period after World War II. Reconstruction in infrastructure and preparation for the 1964

155

Tokyo Olympic game can be considered as remarkable events during the post-war period
6

Takenaka is not included in our sample, since it is not listed in the stock exchange market.

8

156

for not only the construction industry but the entire Japanese economy. However, after the157

collapse of the bubble economy with a sharp decline of asset prices in the early 1990s, many158

contractors, including general contractors, have struggled with the downturn in construction

159

demands from private sectors and with the reduction in public investments associated with160

structural policy reforms. In fact, many contractors went into bankruptcy or kept alive

161

under the assistance of financial institutes, such as debt waiver, during the late 1990s and162

the early 2000s.7 These contractors who could survive by the relief were usually forced to163

execute radical management reforms, leading them to be more shrunk and conservative.

164

Such problematic firms could be observed particularly in the middle-scaled contractors or

165

smaller.

166

Since Japanese general contractors generally rely heavily on the domestic construction

167

market, they have a significant tendency that the share of domestic sales dominates that

168

of offshore market sales, unlike foreign contractors, such as Vinci and Bouryguos in France,

169

Hochtief in Germany, Skanska in Sweden, and Bechtel in the US, whose sales shares in170

overseas business are relatively large. Table 2 shows the worldwide rankings up to the top 20

171

general contractors in terms of sales in 2006 and 2010, taken by Engineering News-Record

172(ENR) that provides information for the construction industry worldwide.
[Table 2 about here.]

173

174

The share of overseas sales for the large-sized Japanese general contractors is around 10%,175

which is much lower than major foreign contractors. The low level of overseas operations

176

for Japanese general contractors can be explained by the argument that most of them could

177

maintain their business in the domestic market and thus they do not take a risk of foreign

178

projects aggressively. Recent trend of demand shrinkage for construction after the bubble

179

period may encourage Japanese general contractors to receive foreign projects, although most7

The construction industry has attained an increase in sales, since there was the unexpected demand
for the recovery, reconstruction, and nuclear related works as a result of massive earthquake in the Tohoku
region in March 2011. The upward trend can be anticipated for several years due to the additional andincreasing demands as well as new governmental policy to expand government expenditure.

9

180

general contractors still keep the share of overseas sales at the low level due to conservative

181

business behavior.8

182

2.3

Overseas business expansion of general contractors

183

The business expansion of Japanese general contractors to overseas markets started with184

the Seoul-Inchon railway construction in Korea (Joseon Dynasty) in 1897-1900, which was

185

undertaken by Kajima Corporation, one of the major general contractors.9 During the186

pre-war period, Japanese general contractors expanded overseas business operations mainly

187

for infrastructure development in Japan’s territorial region. After World War II, Japanese188

general contractors restarted to go abroad, Korea and Asian countries. At this stage, they189

were involved in overseas business expansion in a passive way under the war reparations.

190

Since the 1960s, they have gradually transferred their overseas business associated with

191

government foreign policy toward commercial based business. Their overseas business was

192

further expanded, along with the international construction boom, in the 1970s due mainly

193

to the demand from the middle-east countries backed up by oil money. The amount of the194order position in the overseas market was about 20 billion yen in the early 1970s, and it

195

achieved a sudden surge up to 500 billion yen during the decade.

196

The next boost emerged in the early 1980s when the amount of the order position rose197

from around 500 billion yen to the level of 1 trillion yen. The main reasons include overseas

198

expansions of Japanese manufactures through foreign direct investment (FDI) and infras-

199

tructure development through official development assistance (ODA) in developing coun8

Table 2 also presents that major Chinese general contractors record the low ratio of overseas sales.
However, differently from Japan, this is due mainly to the fact that Chinese economy has drastically been
growing in the recent decades. In addition, it should be noted that the ratio of overseas sales for most ofmajor Chinese general contractors has increased, although their domestic share is still high. This clearlyshows that major Chinese general contractors make the importance on both domestic and international
markets.
9
Okura-Gumi, a precursor firm of Taisei Corporation, currently being one of the major general contractors
in Japan, established its London branch in 1874. This might be the first overseas business base among
Japanese firms. However, the business formation of Okura-Gumi was not related to construction, but was akind of trading firm dealing with machineries and military weapons.

10

200

tries, especially in Asia.10 The success of Japanese general contractors can be attributed

201

to technological superiority, financial capacity, and formation of strategic alliances with lo-

202

cal governments and firms (see Raftery et al., 1998). In particular, ODA has been carried203

out continuously, contributing to Japanese general contractors’ order position despite the204

significant decline in domestic demand. Moreover, the Japanese government has supported

205

overseas contracting through informal pressures and coordination with the Sogo Shosha or206

private trading companies (see, .e.g., Strassmann, 1989).11

207

According to the data of overseas order position of Japanese general contractors, which208

is provided by OCAJI, the proportion of Asian countries is remarkably high. The order

209

position amounts to 986 billion yen out of the total amount of 1.35 trillion yen, and its

210

proportion reaches at 73% in 2011. Among Asian countries, the order position in Singapore

211

is the highest of 253 billion yen, which is 18.7% of the total order position. This is due to212

the fact that recently Singapore has many opportunities to receive the orders of projects,

213

including public works (e.g., construction of ports, roads, and subway), as well as private

214

sector business (e.g., hotels, condominiums, and skyscrapers).

215

Thailand and Vietnam subsequently follow with the proportions of the order position of

216

8.9% and 7.7% in 2011, respectively, due mainly to the high demand for construction through217

FDI and ODA. In particular, the order position in Vietnam has increased drastically as a

218

result of rapid infrastructure development, such as roads, bridges and airports, through ODA

219from Japan. The survey of Nikkei-Construction in 2012 shows that Vietnam is first-ranked

220

as a place where Japanese general contractors are paying special attention to boost sales

221

overseas.
10

The development of the construction industry in Asia during the 1980s can be characterized by threetrends: (1) more participation of private sectors in infrastructure projects, (2) vertical integration in the
packaging of construction projects, and (3) foreign participation in domestic construction, and these trends
can be attributed to the globalization and deregulation of markets (see Raftery et al., 1998).
11
Strassmann (1989) emphasizes on the role of government support with finance during the period after
the 1980s, particularly for Japanese, French, and Italian firms. In general, government supports take theform of export credits, tax preferences, trade promotion, tied foreign aid, and negotiating countertrade.
Raftery et al. (1998) also present important roles in promoting Japanese general contractors by fostering
technological and financial capacity.

11

222

3

Empirical analysis

223

This section conducts empirical analysis to discuss the role of financial conditions in mak-224

ing the location choice of overseas business operations for Japanese general contractors. We

225

first provide an explanation of the methodology and data in our estimation. After showing

226

several preliminary results, we present the results of our estimation and their implications.

227

3.1

Methodology and data

228

This study evaluates how financial status in credit markets affects the location choice of229

overseas operations for general contractors over the post-bubble period from 1998 to 2010.

230

To do so, we estimate the following empirical model:

231

OPi,j,t = α0 + α1 FISj,t−1 + α2 CSIZEj,t−1 +X

βk zk,i,t−1 + i,j,t ,k232

where OPi,j,t is the measure of overseas business operations of contractor j in country i at233

year t, FISj,t is the measure of financial status for contractor j at year t, CSIZEj,t is the234

measure of firm size for contractor j at year t, zk,i,t is variable k of country-specific factors in235

country i at year t and i,j,t is an error term with standard properties. In addition to FISj,t236

as our main independent variable, we include firm size CSIZEj,t , which is measured by the237

log of the asset of contractor j, as a contractor-specific factor since it is well acknowledged

238

that large-sized firms tend to be in an advantageous position due to the economies of scale239

and scope. This study uses the lag variables for all independent variables.

240

There are many studies on internationalization and globalization of enterprises over the241past decades, but how to measure the degree of internationalization of a firm appears to242

remain an unsolved issue. Among various measures, foreign sales or revenues may be a243meaningful first-order indicator of firms involvement in overseas business operations (Sulli-

244van, 1994). In this study, the model takes each of the following three measures of overseas

245

operations as a dependent variable, OPi,j,t , for robustness check of our empirical results. The
12

246

first dependent variable (OCD) is a binary variable which takes one if contractor j receives at247

least one order of the overseas project in country i and zero otherwise. The second (OCC)248

is a count variable which takes the number of orders of the overseas projects received by249

contractor j in country i. The last (OCA) is the log of one plus the total real value of the250

orders of the overseas project received by contractor j in country i in terms of the US dollar,

251

which is adjusted by the US Consumer Price Index (CPI).

252

In our analysis, financial status is regarded as the overall credibility or evaluation on each253

contractor in a credit market. When a contractor receives an order of the overseas project,

254

it generally needs to obtain the credit from banks for the deposit associated with the order.

255

The contractor with high credibility in a credit market tends to be offered bank loan with256

the low interest rate. In contrast, for the contractor with less credibility in a credit market,

257

banks tend to offer loan with the high interest rate due to the high risk premium. Thus,

258

financial status, or the credibility in a credit market, would influence the financing costs259

for each contractor. Our analysis captures financial status for each contractor by using the260

measure of market-based evaluation. For this purpose, we first construct the hypothetical

261

interest payment:

262

∗
S
L
Rj,t
= rtS Dj,t+ rtL Dj,t,263

where rtS is the short-term prime rate at year t, rtL is the average long-term prime rate over264

S
the past three years from the year t, Dj,tis the average of the short-term debt of contractor

265

L
j in year t − 1 and year t, and Dj,tis the average of the long-term debt of contractor j in year266

t − 1 and year t. This hypothetical interest payment can be considered the interest payment

267

Sthat applies for the contractor with the highest credibility in a credit market, taking Dj,t268

Land Dj,t
as given. Then we construct the measure of the financial status for contractor j

269(FIS):

270

271∗
FISj,t = rj,t − rj,t=∗
Rj,t − Rj,t,Dj,twhich is equivalent to the gap between the actual and hypothetical interest rates, where Rj,t

13

272

is the actual interest payment for contractor j at year t.

273

The value of FISj,t reflects general contractor’s financial status in a credit market. This

274

particularly reflects the credit rating, which is an evaluation of the credit worthiness of275

a debtor, including profitability and risk in current and future periods. The evaluation276

is made by a credit rating agency of the debtor’s ability to pay back the debt and the277

likelihood of default. If a general contractor entails the high credibility in a credit market,278

the actual interest payment is close to the hypothetical one, so that the financial status

279

FISj,t is relatively low. If a general contractor has financial problems, currently or in the280

future, due mainly to the expectation of low profitability, then the lender requests high risk

281

premium, so that the actual interest payment is higher than the hypothetical one. In this282

case, the financial status FISj,t is relatively high.

283

Concerning the country-specific factors to be expected to affect the decision of overseas

284

business operations, we include variables related to official development assistance from285

Japan to country i (ODAi,t ) and foreign direct investment inflow from Japan to country i

286(FDIi,t ), which are measured by the log of one plus real ODA from Japan to country i and the287

log of one plus real FDI inflow from Japan to country i, respectively. The overseas activities288

of general contractors are generally associated with the projects financed through ODA by289

public sectors or FDI by private enterprises, as mentioned in Raftery et al. (1998) and290

Ofori (2000), so that ODA and FDI are expected to enhance general contractors’ overseas

291

expansion. The model also includes trade flow between Japan and country i (TRADi,t ),292

which is measured by the log of one plus trade flow (export plus import) between Japan and293

country i.

294

In addition, we include the size of the economy of country i (ESIZEi,t ), which is measured295

by the log of real GDP, to capture how the economic size affects general contractors’ overseas

296

activities. More business opportunities for construction firms may exist in a large country.

297

However, large economies have already established hard infrastructure with the less demand298

for construction. Thus, the impact of the economic size on the overseas activities depends on

14

299

which one dominates the other. The model further includes the income difference between

300

Japan and country i (INCMi,t ), which is measured by real per capita GDP of Japan minus

301

that of country i, to capture how per capita income or skill difference affects the overseas

302

business activities. Moreover, the measure of political stability in country i (POLITi,t ) is303

included in the model to evaluate the impact of political risk.

304

Furthermore, the model includes the degree of Japanese general contractors’ concentra-

305

tion in country i (CONi,t ), which is defined by the Hirshmann-Herfindahl Index (HHI) for

306

each country and each year:

307

CONi,t =X

h2i,j,t ,j308

where h2i,j,t is the relative exposure of general contractor j in country i at year t, which309

is calculated by the amount of received orders by contractor j in country i divided by310

the total amount of received orders by all Japanese general contractors. The degree of the311

concentration provides general contractors with a signal of how Japanese firms have operated

312

in their business. If many of general contractors have already been under operation, they313

might believe that their own operation could also obtain the profit successfully. In this case,314

the impact of the concentration on the overseas business activities could be negative.

315

The data set of order position records published by the Overseas Construction Association

316

of Japan (OCAJI) is used to construct the panel data of the three measures of overseas

317

business operations (OPi,j,t ) during the sample period from 1998 to 2010. This data set of

318

OCAJI shows information about all overseas projects received by 65 membership companies

319(including most Japanese general contractors) with the details of the projects, such as the320

received contractors, the amount of orders received, country (location where to implement),

321

fund source, and executing agency in the country. There exist overseas projects received by322

non-membership contractors of OCAJI, like relatively small construction firms. However,323

most cases are covered in the data set, since firms with overseas business typically become a324

membership of OCAJI partly to collect information related to their business. In other words,

325

it can be considered that the results of our analysis may not change even if we include the
15

326

data of overseas projects received by non-membership contractors.

327

The contractor-specific data of financial position, such as asset, short-term and long-328

term debts, and interest payment, is obtained from Kaisya-Shikiho (Japan Company Hand-

329book) and Datastream. Concerning the country-specific information, the data of bilateral330

real official development assistance is taken from Creditor Reporting System (CRS), main-331

tained by the Development Assistance Committee (DAC) of the Organization for Economic

332

Co-operation and Development (OECD), containing information on international aid and333

activity-level aid. In particular, we use the committed amounts of bilateral ODA.

334

Although the disbursed amounts would be more appropriate, they are not available only335

for some donors, as DAC mentioned in users guide. The data of nominal FDI flows and336

nominal trade (import plus exports) flows are taken from the International Direct Investment

337

Statistics of the OECD and the Direction of Trade Statistics of the IMF (DOTS-IMF),

338

respectively. To construct real FDI and trade flows, we divide nominal flows by the US GDP

339

deflator, which is obtained from the World Development Indicators (WDI) of World Bank.

340

As other country-specific variables, the data of real GDP and real per capita GDP are taken

341

from the WDI, and the measure of political stability is taken from political risk rating of

342

International Country Risk Guide (ICRG). Moreover, the short-term and long-term prime343

rates are taken from the Bank of Japan.

344

Our unbalanced panel data set consists of 16145 observations with 36 contractors and345

72 countries during the sample period from 1998 to 2010, due to incomplete data of some346

country-specific and contractor-specific variables. Tables 3 and 4 present the lists of general

347

contractors and countries in the sample used in our empirical analysis, respectively. To es-

348

timate our empirical model over the panel data, we employ the three measures of overseas

349

business operations (OCD, OCC, and OCA) as a dependent variable. The first measure

350(OCD) is a binary variable capturing whether or each general contractor has business oper-

351

ation in each country. Thus, we apply the logit regression, which is typically used to model

352

dichotomous outcome variables. In the logit model, the log odds of the outcome are modeled

16

353

as a linear combination of independent variables.

354[Table 3 about here.]

355[Table 4 about here.]356

The second measure (OCC) is a count variable capturing the number of orders of overseas

357

contracts for each general contractor and each country. Many studies, including those on

358

FDI location choice, have applied count data models (Smith Jr. and Florida, 1994, Wu, 1999,

359

Coughlin and Segev, 2000, Zhou et al., 2002, Roberto, 2004, Yavan, 2010). Since each general

360

contractor has many countries where it has no operations, the dependent variable contains

361

many zero counts and takes non-negative integer values. Given the fact, we apply the Poisson362

models and negative binomial models (NBMs) as an alternative model for robustness check.

363

As mentioned in Greene (2011), the preponderance of zeros and discrete nature of the364

dependent variable suggest that the Poisson model appears to be suitable. In addition,

365

Arauzo Carod (2005) suggests that the Poisson model could mitigate the zero-problem, where366

the data of no operations contains relevant information, since the independent variables

367

containing many zeros could help explain the reason why general contractors do not receive368

any orders of contracts in some specific countries. However, the assumed equality of the369

conditional mean and variance can be considered the major shortcoming of the Poisson370

regression models. Among many alternatives, the most common is the negative binomial

371

models (NBMs). The NBM is an extension of the Poisson regression model by introducing

372

an individual, unobserved effect into the conditional mean.

373

The third measure of overseas business operations (OCA) captures the total real value374

of the orders of overseas projects received by each contractor in each country. For this375

dependent variable, we apply ordinary least squares (OLS) for the estimation. However,376

in our data set, for each contractor, there are many countries in which it does not receive377

any orders of contracts, as mentioned in the previous discussion. This kind of zero-contract

378

amounts is considered as a corner solution outcome in the context of economic theory, where
17

379

typical OLS estimation may not be appropriate. To mitigate this issue, we estimate our

380

empirical model by applying the standard censored Tobit model or type I Tobit model.

381

All estimated models include the year and contractor dummies to control for the year- and382

contractor-specific effects.

383

3.2

Some preliminaries

384

As a preliminary investigation, this subsection first examines the characteristics of de-385

pendent and independent variables used in the estimation. Then we briefly discuss the386

relationship between overseas business operations and financial status in a credit market.

387

Table 5 shows the summary statistics of our main variables and table 6 presents the388

correlation matrix. First, the size of the contractor (CSIZE) is positively correlated with389

overseas business operations (OCD, OCC, and OCA), so that large-sized general contractors

390

tend to engage in overseas business expansion. Second, bilateral ODA, FDI flows, and trade391

flows (ODA, FDI, and TRAD) are also positively correlated with overseas operations. This

392

implies that overseas business expansion might be promoted through foreign aid and FDI

393

from Japan and trade with Japan. Third, the economic size of a country (ESIZE) is positively

394

correlated with overseas business operations. Japanese general contractors tend to expand

395

their business toward relatively large-sized countries. Fourth, the concentration measure

396(CON) is negatively correlated with overseas business operations, so that general contractors

397

tend to expand their business toward the countries where other Japanese contractors have398

already been under operations. Fifth, more relevantly to the objective of this study, financial

399

status in a credit market (FIS) appears to be uncorrelated with overseas business operations.

400[Table 5 about here.]401[Table 6 about here.]

402

Table 7 presents the average of several variables related to overseas business operations

403

and financial status over the sample period (OCD, OCC, OCA, total asset, the ratio of the
18

404

amount of contracts to total asset, and FIS). It is easily observed that large-sized general

405

contractors, such as Kajima, Obayashi, Shimizu, and Taisei, have received a large amount406

of contracts in foreign countries. At the same time, their spread between the actual and407

hypothetical interest rates is relatively small so that their financial status is advantageous408

in the credit market. On the other hand, the relatively small-sized contractors have received409

a small amount of contracts, and their financial status is relatively low. However, once we410

adjust the amount of contracts by using the size of general contractors (total asset), the411

simple analysis in table 7 may fail to show a clear relationship between financial status and412

overseas business operations, as in correlation matrix of table 6. To carefully discuss how

413

general contractors in our sample decide their overseas business in relation to their financial

414

status in a credit market, we conduct empirical analysis by applying some econometric415

methods in the next subsection.
[Table 7 about here.]

416

417

3.3

Results

418

This subsection shows the results of our estimations to evaluate general contractors’

419

location choice of overseas business operations and discuss how financial status affects their420

decision. Table 8 shows the results of our empirical models with OCD, OCC, and OCA as421

the dependent variable.
[Table 8 about here.]

422

423

3.3.1

Financial status in a credit market

424

The result consistently shows that the coefficients on financial status (FIS) are signif-

425

icantly positive for all measures of overseas business operations. Since the high value of426

FIS implies the low evaluation in a credit market due mainly to the low profitability or the427high default risk, the result suggests that less credible general contractors tend to expand
19

428

overseas business operations by receiving orders of overseas projects. Given the argument429

that overseas business operations are risky in general, less credible general contractors tend430

to take a higher risk than highly credible ones.

431

Several possible explanations can be considered on this result related to financial sta-432

tus and overseas business operations. The first factor originates from Japan’s experience433

of a long-term macroeconomic stagnation after the collapse of the bubble economy in the434

early 1990s. The construction industry in Japan generally depends on public infrastructure

435

projects, such as roads, bridges, and highways construction projects. However, the long-436

term economic distress, along with some other factors such as aging society with increased437

social security burden, has caused local and central governments to face a drastic increase438

in public debts. Due to this budget problem, the governments have been unable to keep a439high level of public spending and have been enforced to cut public spending, particularly on

440

infrastructure development. Public opinion against the unnecessary infrastructure has also

441

supported this policy.

442

Such an environment with weak business sentiment associated with a long-term economic

443

distress has reduced the demand for construction from public institutions as well as private

444

enterprises in domestic markets. This would reduce firms’ profitability and increase their445

business risk in the construction industry, including general contractors. To mitigate this446

issue, some general contractors have been encouraged to seek for the opportunities of their447

business expansion in foreign countries with the expectation of higher profit. This tendency

448

may be amplified more significantly for general contractors struggling with low profitability449

and high default risk, which is assumed to be captured by our measure of financial status

450(FIS). That is, less credible general contractors (high FIS) are more likely to expand overseas

451

business operations (high OP).

452

The second factor affecting the relationship between financial status and overseas business

453

operations is related to the financing of infrastructure and industrial projects. General

454

contractors typically need to obtain credits from financial institutions when they implement

20

455

an overseas project. The financing cost is crucial when a general contractor obtains credit456

in a credit market. Credible financial status enables a general contractor to obtain credits

457

at the low financing cost and to implement the project with the low cost. Thus, credible

458

general contractors have the advantage in competitive bids or more generally, the sealed bid

459

process, which is often applied in construction contracts, since competitive bidding aims at

460

implementing the project with the lowest costs and stimulating competition by preventing

461

favoritism. This argument implies that less credible general contractors (high FIS) are less462

likely to expand overseas business operations (low OP), in contrast to the discussion in the463

first factor.

464

The positive association between FIS and OP in our estimated results suggests that the465

first factor dominates the second, so that less credible general contractors (high FIS) are

466

more likely to expand overseas business operations (high OP) in total. Our findings appear467

to be in sharp contrast to the argument of the world history showing that stronger entities

468

have expanded their territory of operation. We call our paradoxical finding in this paper469“overseas business paradox.” Since the early 1990s, the domestic construction market has

470

shrunk due to the long-run economic distress with the reduction of public spending. In

471

this situation, general contractors without sound financial status would be forced to receive472

orders of risky projects abroad for their survival, although their financing cost is relatively

473

high. The lesson from our paradoxical argument could apply not only for the construction

474

industry in Japan but also for some industries in developed and emerging countries whose475

economy is expected to mature in the near future. As domestic markets become mature or

476

shrunk, which is often observed in developed countries and may be experiential in developing

477

countries in the future, firms struggling with the high financing cost in a domestic credit

478

market may take high risks by expanding their overseas business.

479

Caballero et al. (2008) suggest that Japanese banks have been involved in sham loan

480

restructurings which kept credit flowing to otherwise insolvent borrowers, which is called

481“zombies.” Zombie firms have obtained subsidized credits from banks through various finan-

21

482

cial assistances, such as debt forgiveness, interest rate concessions, debt for equity swaps,483

the reduction in interest payments, and moratoriums on interest payments. By constructing

484

several measures of zombieness based on the subsidized credits over the period from 1981

485

to 2002, they present that during the 1990s and the early 2000s, the zombie problem was486

more serious for non-manufacturing industries, particularly the construction industry, than487

for manufacturing industries. A possible reason for the cross-industrial differences includes

488

the intensified global competition, where manufacturing firms could not be protected easily

489

by their banks.

490

Another reason may be that the construction and real estate industries had a significant

491

negative impact of the collapse of asset prices, including land prices (see Caballero et al., 2008,

492

for the details of the zombie problem). The zombie-related arguments imply that if banks had493

not provided subsidized loans, zombie contractors would have paid higher interest payments

494

and thus have been characterized as the higher value of our financial status measure (FIS).

495

In this case, the balance of the first and second factors, mentioned in the above discussions,

496

determines how financial conditions would have influenced the location choice of overseas

497

business operations for zombie contractors.

498

3.3.2

Other control variables

499

Table 8 also presents the estimation results related to other control variables, CSIZE,

500

ODA, FDI, TRAD, ESIZE, CON, INCM, and POLIT, all of which are expected to affect501

general contractors’ location choice. The coefficients on the firm size (CSIZE), as another502

contractor-specific control variable, are significantly positive for all models, which implies

503

that large-sized general contractors tend to engage more in overseas business expansion.

504

Possible justification for this result includes that large-sized general contractors implement505

projects in various fields of construction-related services so that they can comply with the506

requirement of projects’ employers in foreign countries.

507

Concerning country-specific control variables, the coefficients on official development as-

22

508

sistance (ODA) and foreign direct investment (FDI) are significantly positive for all models.

509

Bilateral foreign aid by Japanese government and foreign investment by Japanese firms, par-510

ticularly Japanese manufacturers, would encourage general contractors to expand overseas

511

business operations. It is well known that one of the main targets of Japan’s foreign aid

512

is to promote infrastructure development in recipient countries. One possible obstacle for

513

Japanese general contractors to receive the contract order is that under the current regu-

514

lation of ODA from Japan, the tender procedure is open for any nationalities if the bidder515

satisfies the criteria given by executing agencies in the host country, even though the fund516

comes from Japanese government. Such a circumstance causes Japanese firms to face the517

intense competition against international bidders, especially Chinese and Korean firms with518

the cost-related advantage.12

519

However, some projects require advanced technology, and Japanese firms generally have520

the advantage in construction technology and experiences. Thus, some grant aid projects

521

are the exceptions from the open tender system, so that only Japanese firms are eligible to522

implement these projects. The positive association of ODA with overseas business operations

523

in our empirical analysis suggests the positive role of foreign aid from Japan in helping

524

Japanese general contractors’ expansion of their business to foreign countries, although the525

open tender system intensifies the competition with foreign contractors.

526

In addition to foreign aid from Japan, the positive association of FDI with overseas

527

business operations implies that direct investment of Japanese firms is also one of the cru-

528

cial factors for Japanese general contractors’ behavior. It should be noticed that the party529

to engage in foreign investment is not contractors themselves, but manufacturers, such as

530

automobiles, electrical parts, textile, and retail dealers. Foreign investment of Japanese man-531

ufacturers creates business opportunities to Japanese general contractors. When Japanese
12

Another problem is the financing issue related to the fact that for most of infrastructure development,
covering all costs through ODA is almost impossible. Thus, Japanese firms are recommended to establish new
business schemes, including operation after completion of the construction, and other alternative financing
schemes, such as Public Private Partnership (PPP), where private business venture is often funded andoperated through a partnership of the recipient government and private enterprises.

23

532

manufacturers set up new factories or facilities, they often order new construction to Japanese533

general contractors although they are free to choose non-Japanese firms. This is due mainly534

to the motivation to mitigate various risk factors, including the construction period and the535

quality of buildings, through the long-term reliance established between general contractors

536

and manufacturers. In particular, the manufacturers that start business in a specific country537

without proper knowledge and information tend to order Japanese general contractors as a538

kind of inward security.

539

For other country-specific control variables, the analysis presents that the coefficients540

on bilateral trade flows (TRAD) are significantly positive for all models. Intensified trade541

activities with Japan increase the demand for construction and its maintenance, which would

542

inspire overseas business expansion for Japanese general contractors. In addition, the model543

also shows that the coefficients on the size of economy (ESIZE) are significantly negative.

544

This result supports that Japanese general contractors tend to expand their overseas business

545

operations in small-sized countries. Moreover, the coefficients on the concentration measure

546(CON) are significantly negative, so that Japanese general contractors are likely to expand

547

their overseas business in the countries where other general contractors have already been

548

under operations. In other words, Japanese general contractors may be characterized as a549

follower of other successful firms in each country. Finally, the analysis fails to show clear

550

evidence that the difference in per capita income (INCM) and political stability (POLIT)

551

have the impact on contractors’ overseas business expansion.

552

4Conclusion

553

Since the collapse of the bubble economy in the early 1990s, Japan has experienced a554

long-term economic distress, which has caused Japanese business society to emphasize the555

importance of overseas business expansion for their survival. The construction industry is556

no exception to this trend. Focusing on the role of market-based financial status in a credit

24

557

market, this study has examined location choices of Japanese general contractors’ overseas

558

business expansion over the post-bubble period from 1998 to 2010. The conventional wisdom559

suggests that firms with the high corporate performance tend to take advantage of overseas

560

business expansion. However, in sharp contrast to this argument, our results have shown clear

561

evidence of the paradoxical argument, “overseas business paradox,” i.e., general contractors

562

facing financial distress tend to expand their overseas business in a more aggressive manner.

563

The lesson from our paradoxical results could apply not only for the construction industry

564

in Japan but also for some other industries in developed and emerging countries. In other565

words, our empirical finding is interpreted as a possible future scenario of industries’ evolution

566

when the economy of a single country matures. This type of economic maturities may be

567

observed in developed countries and be experiential in some emerging countries in the near568

future. Then, our results imply that less credible firms with low profitability and high default

569

risk in domestic markets have stronger incentives of overseas business expansion for their570

survival. This result is quite inconsistent with what has happened in territory expansion of571

world history, i.e., stronger entities expand their territories. However, it is our belief that572

what we find in this paper could be considered a new path of how industries can evolve in573

globalized international business.

574

5

575
576

577
578
579

580
581
582

583
584

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List of Figures
1

Transition of the number of licensed construction firms . . . . . . . . . . . .

29

30

Figure 1: Transition of the number of licensed construction firms

30

664

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667
668
669
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List of Tables
1
2
3
4
5
6
7

672
673

8

Distribution of contractors by capital, March 2011 . . . . . . . . . . . . . . .
Worldwide ranking in sales among construction firms . . . . . . . . . . . . .
List of general contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . .
List of countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correlation matrix of main variables . . . . . . . . . . . . . . . . . . . . . .
Numbers of countries and contracts, amount of contracts and financial status(average over the period 1998-2010) . . . . . . . . . . . . . . . . . . . . . . .
Locational choice of international operations . . . . . . . . . . . . . . . . . .

31

32
33
34
35
36
37
38
39

Table 1: Distribution of contractors by capital, March 2011
Amount of capital

Number of contractors

Proportions

Less than 5 million yen
5 – 10 million yen
10 – 100 million yen
100 – 1000 million yen
1 – 10 billion yen
Over 10 billion yen

220,828
66,462
190,683
4,282
1,027
357

45.7%
13.7%
39.4%
0.9%
0.2%
0.1%

Total

483,639100.0%

Source: Ministry of Land, Infrastructure and Tourism

32

Table 2: Worldwide ranking in sales among construction firms
Name of firm

Country

Sales

Offshore sales

Offshore sales ratio

FranceFranceChina
Germany
Spain
China
China
Sweden
USA
China
Japan
Japan
FranceAustria
Japan
Japan
Spain
China
Japan
USA

32,69924,96021,296
19,795
18,527
17,327
16,147
15,722
15,367
14,734
14,176
13,981
13,97013,502
12,673
12,462
11,894
11,628
11,293
11,274

11,065
9,576
658
17,599
3,004
415
2,956
12,347
8,931
3,381
2,069
2,151
2,010
10,799
1,343
1,779
2,155
907
1,649
6,339

33.8%
38.4%
3.1%
88.9%
16.2%
2.4%
18.3%
78.5%
58.1%
22.9%
14.6%
15.4%
14.4%
80.0%
10.6%
14.3%
18.1%
7.8%
14.6%
56.2%

China
China
China
FranceChina
FranceChina
Germany
Spain
USA
Australia
France
USA
Spain
China
Sweden
Japan
Japan
Japan
China

76,20673,012
48,86845,11140,41830,671
29,90528,97920,631
19,714
18,51017,72917,194
16,05915,883
14,635
14,403
14,394
13,67513,005

3,424
3,158
4,871
16,557
7,134
12,432
1,514
27,424
6,562
12,5003,648
2,853
11,565
7,457
4,010
11,632
1,162
2,106
1,916
1,654

4.5%
4.3%
10.0%
36.7%
17.7%
40.5%
5.1%
94.6%
31.8%
63.4%
19.7%
16.1%
67.3%
46.4%
25.2%
79.5%
8.1%
14.6%
14.0%
12.7%

Year 2006
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Vinci
Bouyguos
Chinal Highway Engineering
Hochtief
Grupo ACS
China Railway Construction
China State Construction Engineering
Skanska
BechtelChina Communication Construction
TaiseiKajimaEiffage
Strabag
Shimizu
Obayashi
Fcc. Fomento
China Metalhurgical
Takenaka
Fluor

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

China Railway Construction
China Railway Group
China State Construction Engineering
Vinci
China Communication Construction
Bouyguos
China Metalhurgical
Hochtief
Grupo ACS
BechtelLeighten Holdings
Eiffage
Fluor
Fcc. Fomento
Sinohydro
Skanska
Shimizu
KajimaObayashiShanghai Construction

Year 2010

Source: Engineering news-record (ENR). Notes: Sales and offshore sales are in terms of million US dollars

33

Table 3: List of general contractors
Name of general contractor
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36

Ando Corporation
Aoki Corporation
Daiho Corporation
Fujita Corporation
Fukuda Corporation
Hazama Corporation
Hitachi Plant Technologies
JDC Corporation
Kajima Corporation
Kandenko
Kinden Corporation
Kitano Construction
Kumagai Gumi
Maeda Corporation
Nakano Kubota Construction
Nippon Road
Nishimatsu Construction
Obayashi Corporation
Ohki Corporation
Okumura Corporation
P.S. Mitsubishi Construction
Penta Ocean Construction
Sato Kogyo
Shimizu Corporation
Sumitomo Mitsui Construction
Taisei Corporation
Takenaka Civil Engineering & Construction
Tekken Corporation
Toa Corporation
Tobishima Corporation
Toda Corporation
Tokura Construction
Tokyu Construction
Toyo Construction
Wakachiku Construction
Zenitaka Corporation

34

Table 4: List of countries

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36

Code

Name

AGO
ARE
ARG
AZE
BFA
BGD
BHR
BRA
BRN
CHL
CHN
CIV
CMR
COL
CRI
DOM
DZA
ECU
EGY
ETH
GAB
GHA
GIN
GMB
GNB
GUY
HKG
HND
HRV
IDN
IND
IRN
IRQ
JAM
JOR
KEN

AngolaUnited Arab Emirates
Argentina
Azerbaijan
Burkina Faso
Bangladesh
BahrainBrazilBruneiChile
China
Cote d’Ivoire
Cameroon
Colombia
Costa Rica
Dominican Republic
Algeria
Ecuador
Egypt
Ethiopia
Gabon
Ghana
GuineaThe Gambia
Guinea-Bissau
GuyanaHong Kong SAR, China
Honduras
Croatia
Indonesia
India
Iran
Iraq
Jamaica
Jordan
Kenya

35

37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72

Code

Name

KWT
LBN
LKA
MAR
MDG
MEX
MLI
MNG
MWI
MYS
NER
NGA
NIC
OMN
PAK
PAN
PER
PHL
PNG
PRY
SAU
SEN
SGP
SLE
SLV
SUR
SYR
THA
TUN
TUR
TZA
UGA
VNM
YEM
ZAF
ZMB

KuwaitLebanonSri Lanka
MoroccoMadagascar
MexicoMali
Mongolia
MalawiMalaysia
Niger
Nigeria
Nicaragua
Oman
Pakistan
PanamaPeru
Philippines
Papua New Guinea
Paraguay
Saudi Arabia
SenegalSingapore
Sierra Leone
El Salvador
Suriname
Syrian Arab Republic
ThailandTunisia
TurkeyTanzania
UgandaVietnam
Yemen
South Africa
ZambiaTable 5: Summary statistics
Variable
OCD
OCC
OCA
FIS
CSIZE
ODA
FDI
TRAD
ESIZE
INCM
POLIT
CON

Observation

Mean

16145 0.086
16145 0.636
16145 0.230
16145 0.011
16145 12.656
16145 3.757
16145 2.144
16145 6.839
16145 25.158
16145 2.055
16145 64.296
16145 0.720

36

Std. dev.

Min

Max

0.281
0.000
1.000
3.805
0.000 116.000
0.868
0.000
7.130
0.012 −0.008
0.162
1.052 10.416 14.899
2.135
0.000
8.579
2.190
0.000
8.794
2.393
1.605 12.413
1.741 21.257 29.743
1.139 −0.859
4.043
8.951 35.500 90.000
0.329
0.081
1.000

Table 6: Correlation matrix of main variables
OCD
OCC
OCA
FIS
CSIZE
ODA
FDI
TRAD
ESIZE
INCM
POLIT
CON

OCD

OCC

OCA

FIS

CSIZE

ODA

FDI

TRAD

ESIZE

INCM

POLIT

CON

1.00
0.54
0.86
−0.03
0.23
0.11
0.31
0.31
0.20
−0.11
0.11
−0.36

1.00
0.65
0.01
0.15
0.11
0.24
0.22
0.16
−0.06
0.06
−0.24

1.00
−0.04
0.24
0.06
0.29
0.29
0.18
−0.13
0.14
−0.33

1.00
−0.22
0.00
0.02
0.01
0.01
0.00
0.00
0.00

1.00
−0.01
−0.03
−0.02
−0.02
0.02
0.00
0.00

1.00
0.14
0.06
0.24
0.53
−0.40
−0.21

1.00
0.82
0.74
−0.41
0.29
−0.59

1.00
0.84
−0.61
0.37
−0.64

1.00
−0.39
0.07
−0.43

1.00
−0.61
0.22

1.00
−0.23

1.00

37

38

Number ofcountries
3.5
1.1
2.2
9.6
0.4
10.2
1.2
0.2
11.9
1.6
5.7
3.3
6.5
4.9
1.3
1.2
7.3
9.6
0.6
0.5
0.2
7.9
3.0
14.5
7.9
15.0
0.2
1.0
4.4
4.4
5.6
2.3
2.3
1.8
1.3
2.5

Contractor

Ando Corporation
Aoki Corporation
Daiho Corporation
Fujita Corporation
Fukuda Corporation
Hazama Corporation
Hitachi Plant Technologies
JDC Corporation
Kajima Corporation
Kandenko
Kinden Corporation
Kitano Construction
Kumagai Gumi
Maeda Corporation
Nakano Kubota Construction
Nippon Road
Nishimatsu Construction
Obayashi Corporation
Ohki Corporation
Okumura Corporation
P.S. Mitsubishi Construction
Penta Ocean Construction
Sato Kogyo
Shimizu Corporation
Sumitomo Mitsui Construction
Taisei Corporation
Takenaka Civil Engineering & Construction
Tekken Corporation
Toa Corporation
Tobishima Corporation
Toda Corporation
Tokura Construction
Tokyu Construction
Toyo Construction
Wakachiku Construction
Zenitaka Corporation

17.8
3.8
3.8
104.3
2.2
47.3
6.8
0.3
117.8
3.4
47.6
4.5
29.3
22.4
10.8
2.6
35.5
77.5
1.1
0.8
0.2
23.9
19.9
83.5
125.0
120.6
0.5
1.6
5.8
10.9
45.8
3.1
10.1
13.7
1.6
6.9

Number ofcontracts
6,261
1,598
7,289
20,592120
18,013
3,809
355
117,682
402
6,248
3,008
26,02425,801
2,402
492
47,15876,490
396
1,890
210
66,766
19,942
88,181
28,578102,338
152
2,759
14,371
4,641
8,651
2,070
4,427
5,346
1,050
2,020

Amount ofcontracts(A)
186,130
534,900
140,388502,337
164,081
162,088
230,044420,363
2,061,538
380,015514,32270,624
697,031566,771
79,722140,266
709,949
1,953,846
107,059
405,434
96,736426,938
716,534
1,907,692
393,761
1,961,538
80,767
216,301
253,144
252,035
648,316
36,579
175,838
208,378
128,909240,747

Total
asset
(B)
0.034
0.003
0.052
0.041
0.001
0.111
0.017
0.001
0.057
0.001
0.012
0.043
0.037
0.046
0.030
0.004
0.066
0.039
0.004
0.005
0.002
0.156
0.028
0.046
0.073
0.052
0.002
0.013
0.057
0.018
0.013
0.057
0.025
0.026
0.008
0.008

Contract toAsset ratio(A)/(B)
0.95
0.06
0.89
1.61
1.01
2.52
0.83
0.80
0.70
1.42
2.60
1.61
1.23
1.00
0.93
0.11
0.13
0.06
0.67
1.83
2.85
1.30
0.92
0.34
3.73
0.48
3.04
0.69
0.91
0.61
1.30
1.00
1.37
1.71
1.42
1.08

FinancialstatusTable 7: Numbers of countries and contracts, amount of contracts and financial status (average over the period 1998-2010)

39

10.882**(4.539)0.860***(0.132)

FIS

13.005***(1.489)
16145
0.134

Constant

Observations(Pseudo) R-squared

CONC

POLIT

INCM

ESIZE

TRAD

FDI

ODA

CSIZE

OCD
LOGIT

Dependent variable

0.406

16145

15.006***(5.136)
1.221***(0.166)0.081***(0.025)0.095***(0.023)0.415***(0.057)−0.387***(0.048)0.071(0.070)−0.001(0.005)−3.117***(0.194)−9.944***(2.138)

0.243

16145

8.907***(2.385)19.038***(6.693)0.500**(0.213)OCC
POISSON

0.608

16145

19.038***(5.041)0.500***(0.182)0.078***(0.027)0.216***(0.035)0.202**(0.085)−0.161**(0.069)0.015(0.086)−0.001(0.005)−3.214***(0.290)−6.475***(2.092)16145

18.889***(2.405)20.733***(5.954)1.423***(0.216)

NBREG

16145

19.729***(6.666)
0.975***(0.217)0.065**(0.030)0.199***(0.026)
0.369**(0.057)−0.308**(0.049)0.022(0.076)−0.008(0.006)−3.136***(0.195)−6.475***(2.092)

0.090

16145

−1.798***(0.375)1.790***(0.524)0.162***(0.033)OCA
OLS

Table 8: Locational choice of international operations

0.222

16145

1.790***(0.528)0.162***(0.031)0.009**(0.004)0.040***(0.004)0.078***(0.007)−0.091***(0.008)0.016*(0.008)0.001(0.001)−0.522***(0.026)0.075(0.392)

0.093

16145

−31.830***(3.470)24.497***(9.333)2.101***(0.308)

TOBIT

0.265

16145

22.407***(8.315)
1.868***(0.269)0.095**(0.040)0.161***(0.038)0.660***(0.090)−0.616***(0.076)
0.092(0.113)−0.001(0.009)−5.127***(0.302)−14.506***(3.577)