Strategies for contractors to sustain growth in the global construction market
Introduction
Construction firms have long sought success in the global construction market through “diversifying revenue sources and project portfolios” as well as “securing global competitiveness.” The volume of international contracts has contributed to firms' sustained growth by mitigating the impact of the domestic market's cyclical nature. This has ensured a level of financial security through increased global activities (Low and Lim, 2000, You and Zi, 2007). In spite of the importance of international construction, the uncertainty and dynamic changes surrounding global construction pose serious threats to global contactors. Over the last decade, the international construction industry has changed drastically in terms of key products and emerging markets, quality-focused competition rules for the selection of contractors, the variety of delivery systems requiring the ability to cover the entire services of a project phase, financial resource diversity such as contractor's project financing, a shift of the leading contractors in revenue rankings, among many others (Momaya and Selby, 1998, Ofori, 2000, Dikmen and Birgonul, 2004, Han et al., 2005).
As more construction firms expand into these rapidly changing overseas markets in order to capitalize on opportunities, intensified competition often leads to excessive burdens for bid participation. For example, in order to modernize their construction industries, overseas countries or clients in global construction markets—particularly in developing countries—require project financing, a high level of technology, and a foreign firm's advanced experience, knowledge and management skill (Mahalingam & Levitt, 2005). This requires contractors to be capable of managing many dimensions of construction projects including design, engineering, procurement, and construction. In simple terms, as contractors have more opportunities to balance their growth by entering new overseas markets, completing international projects requires significant management skills and sustainable strategies due to their inherent challenges and the enormous level of uncertainties under rapidly changing market conditions.
A great deal of previous research has been conducted on strategies for the international construction around emerging regions. An example of this research is Paek and Kim (1993), which analyzed the market circumstances of Eastern European countries in 1990s. Recently, research on the Chinese construction market has increased and drawn worldwide attention to how to successfully perform construction projects under different customs (Fang et al., 2004, Shen et al., 2006). As well, due to the dynamic changes of the international construction market, trend analysis has also been a main research theme. Bon and Crosthwaite (2001) investigated future market trends based on their annual worldwide surveys during the last decade. Bayraktar, Ahmad, and Bangaru (2007) analyzed the international construction market by using ENR (Engineering News Record) source data, which showed a regional distribution of market trends. This class of research provides insights into the international construction by suggesting market outlooks that will be critical parts of the international construction industry. However, from a more practical business perspective, it is useful to identify the basic strategies for how firms can proactively respond to changing circumstances in order for them to achieve more sustainable growth in challenging international construction.
Toward this end, this research focuses on the following key objectives: (1) analyze global construction trends to identify critical issues in the rapidly changing market conditions; (2) investigate successful firms' strategies obtained from cases of global construction firms during the last decade, by focusing on diversification strategies of global contractors to sustain their growth in terms of market diversification plus product diversification, and lastly, (3) benchmark the critical strategies that support growth, which in turn can provide a strategic guideline for expansion into the global construction market.
Section snippets
Framework of analysis
This paper adopts a conceptual framework based on well-established previous models, including Porter's 5 forces model (Porter, 1980), Porter's diamond framework (Porter, 1990) and Dunning's eclectic paradigm (Dunning, 2000). Porter's 5 forces model analyzes a firm's competitiveness in terms of the “threat of potential entrants,” “bargaining power of suppliers,” “bargaining power of buyers,” “threat of substitutes,” and “rivalry among existing firms.” Yates, Mukherjee, and Njos (1991) applied
Market trend analysis
The current volume of the world construction market is approximately US$ 4.6 trillion as of 2006 and is expected to grow at 4.6% annually until 2011 (Global Insight, 2007). In terms of the regional breakdown of this market, Asia accounts for 37% of the global market volume with US$ 1.7 trillion, followed by Europe (US$ 1.42 trillion or 31%) and North America (US$ 1.057 trillion or 23%). When looking at the outlook based on the Global Insight forecast, Eastern Europe will see the highest annual
Strategies of leading global contractors
As discussed above, construction contractors are sustained by the positive momentum of the expanding international construction market, but also are faced with threats as market conditions change rapidly (Han et al., 2007). Therefore, it is essential to identify the key features of the successful firms which lead international construction so as to benchmark their useful growth strategies. To that end, ENR statistics for 10 years from 1995 to 2005 were analyzed in order to cluster the similar
Common foundations
Table 5 shows a summary of the three clusters with respect to “growth rate of overseas revenue” vs. “level of specialization”. The authors attempted to draw the common basics across the groups of global firms. The results of this research have shown that, in particular, group I increased their portion of overseas revenues during the last decade and diversified their offerings more than others on the list. This led these firms to increase earnings from high-technology products as well as from
Summary and conclusion
Firms' strategies in the changing global construction have been the subject of research in various areas, most of which is focused on the influential success factors in a specific market and how they are interrelated. This paper aimed to present the successful firms' common foundations of growth strategies rather than to provide specific cases of an individual global construction firm. The authors first identified the major and emerging trends of the international construction which have
Acknowledgements
This research was supported by the Korea Science and Engineering Foundation funded by the Ministry of Education, Science and Technology (2009-0081326).
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