While bankers struggled to come up with more funds, the concrete stopped flowing and a massive turbine being readied for installation sat idle.

"The owners wanted us to continue working because they felt confident that things would be worked out," says Paul Hoffman, the company's vice-president and treasurer. "But if the owner defaulted, we wouldn't get paid and shutting down and demobilizing our force would be a huge expense for us."

Executives from many global companies were caught by surprise when Asia's currencies tumbled and stock markets crashed beginning in mid-1998. The meltdown was especially painful for firms like Black & Veatch, which had viewed Asia as an engineer's Shangri-la. The region had a young, growing population that was rapidly becoming more affluent, and developing a need for many infrastructure basics, such as mass transit systems, airports, hospitals, dams, and bridges. Hundreds of American firms in a wide range of engineering fields traveled to Asia vying for a piece of the action, swelling sales to Asia-Pacific countries by the top 400 U.S.-based contractors to $5 billion in 1996—second only to Europe among international markets.

For the most part, these companies had not faced severe financial dangers in a long time. That fact, combined with the soaring stock market, may have led engineers educated in the 1980s and 1990s to believe that the industrial world's economic prosperity was the norm.

Minimizing Risk
Yet the danger of a project collapsing under the weight of financial setbacks is a basic reality in any business venture, no matter how rosy the job may appear—a fact that engineering students need to grasp before their careers begin. International markets, in particular, are prone to economic volatility and large swings of fortune.

The Asia crisis is a perfect case study. Although in the early 1990s some economists predicted that Asian infrastructure construction would expand sixfold in the next 15 years, those forecasts have now been radically adjusted. According to a recent report by the Manufacturers Alliance, a policy research organization, business service exports to Asia, which had grown about 4 percent per year during the 1990s, will contract by 3 percent in each of the next two years. To be successful in this shrinking market, engineering firms must minimize risk while also being prepared to cope with occasional crises. "If you're going to be in international markets, there's no room for the faint of heart," explains Brian Harris, a senior vice-president and manager of international practice at Daniel, Mann, Johnson & Mendenhall (DMJM.)

Harris should know. The Los Angeles-based firm once had a longstanding practice to accept payment in U.S. dollars only to guard against the devaluation of less-stable local currencies. But intense competition for business, from both domestic and foreign firms, caused the enterprise to alter its policy. During negotiations for an airport design in Bangkok, Harris asked to be paid in dollars or at least be guaranteed an exchange rate. Thai officials refused. Harris contacted his firm's banking advisors, who said that all the economic indicators from Asia were positive. If DMJM passed on the project, some other firm would be sure to accede to the terms, so Harris signed the contract with no safety net for currency problems. When the value of the bhat plunged relative to the dollar, DMJM took the financial hit. "The Thai government said that being paid in dollars was an insult to the government, but in retrospect, look what happened," says Harris. More than a year later, the airport project is still on hold, DMJM is owed a substantial amount of money, and the firm has laid off roughly 60 people because of the Asian financial troubles.

Patience Pays
In coping with such setbacks and delays, patience is certainly a virtue. Minneapolis-based Ellerbe Becket had drawn up blueprints for a mixed-use facility of hotels, office buildings, and retail stores in Inchon, a suburb of Seoul, South Korea, but funding dried up before any construction began. The project ground to a halt, and although the company tries not to let its drafting progress get too far ahead of its payments, there is nevertheless a substantial amount owed to Ellerbe Becket for services rendered. While the firm knows that it could sue in Korean court to recover its money, CEO Bob Degenhardt notes that would be a counterproductive move. "We'd bankrupt our clients, which would do no good in the long run," Degenhardt says. "We'll sit on the bill and when the currency crisis gets resolved, we'll get paid and we'll start up again."

Of course, this strategy works only when a firm has strong relationships in a country. Degenhardt knows the owners in South Korea and feels confident that the project will resume soon. He didn't have that same feeling in Indonesia, where Ellerbe Becket had done only limited work and was less familiar with the political situation. When riots protesting the despotic regime of then Indonesian President Suharto broke out, Degenhardt pulled his staff out of the country. "It's the only country where we're not taking the long view of sticking it out," he notes.

Firms with geographical and occupational diversity can more easily abandon work in a country to hedge against a regional slowdown. Global giant Bechtel, which has $11.3 billion in revenues, sidesteps the effect of regional slowdowns by not specializing in any single region or project type. It can help manage projects ranging from mines to auto factories. DMJM also seeks a broad geographic base, and therefore has not been crippled by the crisis in Asia, which accounts for only about 10 percent of the firm's $200 million in annual revenues. Harris is counting on other countries, such as Bulgaria and Romania, to replace the lost Asian business.

Aside from lost revenues, the net effect of the Asian crunch may be to strengthen the resolve of companies that can make it through the slow period. That's proven by Black & Veatch's experience. It finally got the go-ahead on the power plant project in June 1998, after a delay of about eight months. Black & Veatch's concessions were a key part of getting the project moving again: The firm accepted a deferred payment schedule that improved the developer's credit line, which helped him gain new financing. At the very least, the experience toughened the firm for the marketplace battle among the survivors. "Even if there is the same number of international competitors, those people will be chasing fewer projects," says Hoffman.

Only time will tell if engineering companies learn any lessons from the adversity they are facing during the current Asian financial crisis. Those who do survive the instability should be in a good position not only to rebound when the region recovers, but to apply their newly learned survival skills in the world's next volatile market.

Warren Cohen is the Midwest correspondent for U.S. News & World Report.

Reversal of Fortune

For Chee-Huat Tan, a mechanical engineering student from Malaysia, the financial crisis that saw his country's currency plummet could not have come at a worse time. Tan was eager and ready to begin his studies at Mississippi State University last January, but had to wait until the fall semester before his family was able to afford to send him to the United States.

The economic crisis not only brought financial difficulties for Tan, it also cost him eight months of his life as he "hung around looking for jobs." With his country's depressed economy, "no one was hiring," he says.

And yet Tan is lucky. Many of his compatriots in Asia's hardest-hit countries have had to give up their plans and hopes to study in the United States. In the face of the crippling economic crisis in South Korea, Indonesia, Malaysia, and other Asian countries, some schools are reporting drops of up to 20 percent in foreign student enrollment and are having to scramble to fill empty classroom seats.

A significant drop in foreign student enrollments can have a serious impact on a school's bottom line because non-residents typically pay more in tuition than their domestic counterparts. Foreign students spend $7.1 billion annually on tuition, room and board at U.S. schools, according to the Institute of International Education (IIE). Engineering programs can be particularly affected: IIE statistics show that roughly 85,000 of the nearly 460,000 foreign students in the United States are studying engineering,

There is help available for foreign students hurt by the economic crisis. Mississippi State has arranged for delayed tuition payments from some students, and helps others obtain additional grants and loans to finish up the semester or a degree.

On a national level, IIE and the Freeman Foundation, a philanthropic group with interest in Southeast Asia, established ASIA-HELP, the Asian Students in America-Higher Education Loan Program, last April. The group, armed with $7.75 million in donations, financed 1,400 zero-interest loans to students from Indonesia, South Korea, Malaysia and Thailand. In addition, the U.S.-Asian Business Council set up the Asian Student Assistance Awards Program, which provides grants of between $1,000 and $5,000 to students nominated by schools that pledge to match the grant for the 1998–99 academic year.

Foreign students also received some help from the U.S. Immigration and Naturalization Service, which last June agreed to allow students from Indonesia, Malaysia, the Philippines, South Korea, and Thailand to work off-campus. The INS also lifted restrictions on working hours and allowed students to drop below a full-time course load to take authorized employment. But those on scholarships aren't eligible, and students must get approval from their university before taking off-campus jobs.

—David Brindley

Photograph by David Portnoy,  courtesy of Black Star

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