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09/29/91

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Financing: a major challenge for engineers in the '90s

STANFORD -- For 100 years, Stanford civil engineers have built structures -- dams, bridges, buildings and sewage treatment plants. Now they must become bankers, politicians and property managers to stay competitive in the global building business.

That was the message Sept. 26 from speaker after speaker at a day-long seminar marking the department's 100th anniversary. About 250 civil engineering graduates, students, faculty and staff attended the prelude event to the university's four- day centennial celebration.

Asked to discuss the next century in civil engineering, most speakers from academia and engineering firms said social, economic and political changes -- rather than technological innovation -- were reshaping their field.

In highly industrialized areas such as Japan, the United States and Western Europe, citizens' concerns about the quality of life and the environment are driving the future opportunities for engineers. Instead of building sewage treatment plants, for instance, civil engineers are employed by manufacturing companies trying to redesign their production processes in order to reduce the "residuals" that have previously polluted sewage flows or smokestack plumes.

In developing areas, there are vast opportunities for public infrastructure and office, factory and housing contracts. Those contracts will go to those few firms who are skilled at providing a full range of services, including the ability to finance, design and operate the facilities at a profit for a number of years before turning them over to their clients, speakers said.

As a group, U.S. firms have been slow to develop the full- service approach, several speakers said.

Two speakers took advantage of the morning's newspaper headlines concerning the $78 million salary paid to the chairman and co-chief executive of Time Warner Inc. to explain what they felt was the major obstacle in the path of American engineering companies -- the short-range profit incentives of the country's financial systems.

"There's no person worth that kind of money," said Robert Medearis, a consulting professor of engineering at Stanford who owns a civil engineering firm in the Pacific Northwest and a joint venture firm for construction in the Soviet Union.

Medearis said engineers need to get active in politics to change policies that currently encourage companies to spend money on short-term profitmakers. He also urged his audience to forget U.S. banks and turn to pension funds or other "government pools" as a more realistic way to fund projects on a competitive basis in the global market.

"What has the chairman of Time Warner contributed to the GNP?" asked Pratrap Shirke, the chairman of Pan Gulf Group Ltd., a civil engineering firm based in India that does business in the Middle East and parts of Europe as well.

"We have to overcome the Wall Street mentality of 'next quarter's profit,' " Shirke said. "We will have to learn to take a reasonably longer term view on the financial side. This is where, I think, the Japanese companies will have an edge."

Shirke, a graduate of Stanford's engineering and business schools, supervised the building of an 8,000-unit housing project finished in India in 1981. The project included the financing and marketing of the units. More recently, he has been involved in building a four-star hotel for a U.S. hotel chain in Prague, Czechoslovakia, and he cautioned his audience against rushing in to fill shortages in Eastern Europe before a structure is in place.

"As soon as our project got publicity in Prague, there were four claimants to the ownership of the proposed site. One, the former owner whose property was confiscated by the communists; two, the tenants of the small building that existed on the site; and two government departments who claimed interest in the title. This, after supposedly negotiating with the highest authorities in the land!"

U.S. engineers cannot blame stock market investors and bankers entirely for their competitive problems in the world, Haresh Shah, chairman of the civil engineering department, said.

Unlike doctors and lawyers, U.S. engineers have not learned how to provide a "one-stop clinic," where the customer can get everything from financing to architectural design, construction and even operation of the facility after construction, he said.

"We've got to start pulling things together, and then we can still put our individual stamp on how we do it."

American firms, Shah said, also have to learn to bid on projects as small as $1 million in other countries if they wish to stay competitive. "I know of companies in the Far East who will bid on projects in San Francisco from $1 million to $1 billion."

Takeo Ohbayashi, vice president of Japan's largest construction company which was formed by his great-grandfather in 1892 -- a year after Stanford opened -- explained that his firm is so diversified that it can provide interior designers and furniture on the back end as well as architects and financing on the front end.

"The basis of our business overseas is our personnel; that is to say, the training of our staff is of utmost importance," Ohbayashi said.

Yoshio Yokoyama, who supervises heavy construction overseas for Ohbayashi, is an example. He came to Stanford in 1965 and said he learned there that engineering was more than "structural analysis, soil mechanics and hydraulics." It also involved "social and human sciences," which, he said, "gave me a clue to solve problems which had frustrated Japanese engineers."

Since 1965, the Ohbayashi company has sent 173 employees to gain graduate degrees abroad, with the largest number -- 25 -- coming to Stanford. In 1988, Ohbayashi Corp. endowed a professorship in civil engineering at Stanford, and it is funding Stanford research on active control of structural systems. Recently, it has built projects as diverse as sewage tunnels under San Francisco Bay, an interchange and bridge in New Orleans, the world's longest suspension bridge in Japan and an air traffic control tower offshore in Singapore. In 1989, it announced that it had developed a fully automated high-rise building construction system, in which a factory of robots climbs the building's steel support structure, floor by floor, eventually becoming the top story of the building.

Three key factors for the future of construction firms, Ohbayashi said, are to combine engineering innovations, such as his company's automated construction system, with in-house creative design and procurement of finance to meet the needs of clients.

One of the newer financial techniques, he said, is the "build-operate-transfer method, which is being adopted by the newly developing countries such as Thailand in constructing its road projects."

"Our problem is that we react to other people's insistence that projects be built," Medearis said of U.S. engineering firms. The Soviet Union's infrastructure is "non-existent," he added, and represents a major opportunity for those who can figure out how to finance it.

He and Shah urged engineers to become involved in politics.

"We have to start to think beyond the technology," Shah said. "Over the last 30 years, we've given over government participation to our colleagues in the schools of law and business."

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