Is China Over for California (and U.S.) AEC Firms?

One of the first interviews for The 2011-2012 AEC Market Guide to California was with a project manager for one of the largest OPM (Owners’ Project Manager) firms in the state. In discussing the current condition of the California AEC industry, he said with a certain resignation, “Anyway, the only firms making money are the ones working in China.”

An exaggeration, perhaps, but there’s a seed of truth as well. In January, The New York Times published an article under the headline “China Boom Benefiting Smaller U.S. Architecture Firms.” It described how a 17-person Seattle architecture firm – Stuart Silk Architects – landed a dream project in China. The client chose Silk’s firm primarily because a representative liked a home that the firm designed in Palm Springs. The Chinese developer quickly hired Silk to design three villas in a new community with properties selling for the equivalent of $7.5-million to $15-million (U.S. dollars). The three homes soon became nine.

The Times wrote:

Mr. Silk’s 17-person firm is among scores of small to midsize architectural practices across the United States that are enjoying a startling boom in Chinese projects — whether in spec mansions for sudden multimillionaires or quarter-mile-high skyscrapers. Although a handful of big firms, like Skidmore, Owings & Merrill of Chicago and HOK of St. Louis, have extended global tentacles for generations, it has been only in the last half-dozen years that Chinese projects have gushed down to their smaller brethren.

These firms are grateful for the commissions, and not only for the obvious reason — that the Chinese work has helped fill the void left by a listless American economy. More intriguing, the architects say, is that Chinese developers and even government agencies are proving to be better clients than their American counterparts. They say the Chinese are more ambitious, more adventurous and even more willing to spend the money necessary to realize the designs. This thrills the architects, who have artistic undercurrents that often struggle to find an outlet.

Smaller West Coast firms were also the focus of an article published a month later by the online news resource DailyFinance. Entitled “China Beckons West Coast Architecture and Building Firms,” the article notes that West Coast firms of all sizes and types are positioning themselves as “international experts” to win work in China.

China’s construction growth, fed by a thriving economy and a massive population movement from rural to urban areas, will dwarf that of the U.S. over the next 10 years. This should give building companies with a West Coast presence a chance to offset the effects of sluggish domestic demand by hawking their expertise overseas.

China’s residential and commercial building stock will surge 61% between 2010 and 2020, compared to a 7% growth rate in North America and an 8% increase in Western Europe, Pike Research said in a report.

With the success that U.S. firms are having in China, it’s not surprising that competition is increasing from fellow Western firms. Andrew Nathaniel Mayer, an American architect living and working in China, blogged of the Times story, “The New York Times finally caught up to what savvy architecture firms in the U.S. have known for at least the past decade: there is a lot of work to be had in China.”

Mayer’s excellent resource on Chinese real estate and construction is China Urban Development Blog. In his piece about the Times article, he adds:

…yet the NYT piece glosses over some of the difficulties U.S. architecture offices face when seeking work in China, especially if they do not already have a presence in the country or some other kind of local connection. Sure enough, just last year (and previously mentioned on this blog), some American architects found themselves caught up in scams related to bogus projects in China, perhaps blinded by the hype promoting the country as an architectural free-for-all.

In an e-mail interview for The 2011-2012 AEC Market Guide to California, Mayer said that small firms, despite their relative success recently, are still at a competitive disadvantage compared with their larger peers when pursuing work in China. He also sees the market tightening for U.S. firms, though not disappearing altogether, as he wrote in the e-mail message:

When it comes to western or American AEC firms working in China, I would have to say that the larger corporate firms have an edge up in entering the market due to their resources and reputation. Chinese firms are getting smarter now and moving up the value chain quickly, so I foresee less need for ‘Western expertise’ in the future.

That being said, China is still open to qualified companies, provided those firms play by China’s rules and partner up with local joint venture companies. No part of China is off limits to western firm involvement, but the interior parts of the country are the areas booming at the moment.

“International Opportunity” is one of the trends identified and detailed in The 2011-2012 AEC Market Guide to California, to be published by The JAGG Group. The Guide offers suggestions for how firms can break into or increase their success in international markets, as well offering information on the countries and regions most likely to provide the greatest opportunities for California AEC firms in the coming years.

For more on this subject, and many others  click on the “Buy Now” tab on the www.aecinsight.com home page and order your copy of The 2011-2012 AEC Market Guide to California. The book will be available in late August.

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