Competing in the Global Market
From 1971 to 1985 the U.S. engineering/construction (E/C) industry lost approximately half its international market share. Although recent trends show some recovery, global competition continues to grow and strengthen. A greater emphasis on global thinking by U.S. firms will be required for sustained competitiveness and growth in the international construction arena.
Considering the slow-growth economic forecast for the U.S. construction industry, U.S. firms cannot afford to ignore opportunities in other countries. Development of strategies and technologies that respond to current and future customer needs will make both, the owner companies and the E/C firms, more competitive in the international marketplace. It is imperative for U.S. firms to plan for the future, which often will include the formation of international alliances. Awareness of the needs of global customers and an understanding of the key elements determining the success of international alliances are the subjects of this publication.
Customer Needs
E/C customers are keenly aware that there is an ever-changing global marketplace and that sharp and growing international competition exists in every business field. Sustained competitiveness in an increasingly diverse and demanding world is the fundamental concern of every corporation, irrespective of its nationality. Discussions with the world’s top companies surfaced hundreds of future directions and concerns. The importance of visionary leadership is the most consistently recurring theme. Sensitivity to environmental issues permeates all considerations, and sustainable development is a worldwide subject in search of specific answers. Integrated project leadership and implementation teams, technological innovation and greater cost effectiveness are insistent demands that will affect the E/C industry. The often contradictory needs were grouped into a “hierarchy” that allows assessing their impact and developing responses.
Alliances
The level and intensity of competition is growing dramatically throughout the world, raising the standard for competitive success. The interviews with international companies suggested a need for new approaches to international business relationships. One of the most promising strategies is the teaming and long-term relationship with foreign companies. Through such alliances, both owners and E/C firms can address many of the identified needs and meet future competitive challenges.
For many years, companies in Europe and the Asian Pacific Rim have practiced a spirit of cooperation and teamwork among competitive construction firms and with their governments. The number of alliances between American, Asian, and European firms (in all industries) grew thirty-fold during the previous decade. This trend will likely continue well into the twenty-first century.
Alliances are formed for many reasons. The analysis of the most prevalent benefits yielded a “hierarchical” relationship similar to the one for customer needs, allowing cross-matching with many future client expectations. Through a comparative study of how alliances operate in Asia, Europe and the U.S., the task force developed an Alliance Implementation Model that assembles the key elements of success.
They are (1) the ultimate customer, who use and consume the final products and (2) direct E/C Clients. The needs and expectations of ultimate customers can be grouped in five basic areas.
- Leadership
- Social acceptability
- Cost effectiveness
- Innovation
- Organizational effectiveness
The research created a hierarchy of future needs that provides an overview of the many forces that drive global strategies. (RS30-1, p. 5)
E/C firms will need to become lean and flexible in providing the diverse services required for concept development, innovation, design, and construction. In order to provide these services, E/C firms will obtain supplemental services through a network of specialty firms working as partners.
Examples of these expectations include the following, while the complete discussion may be found in the research. (RS30-1, p. 9)
- Share the client’s vision of the future.
- Understand the client’s products, processes, and markets.
- Contribute new technologies that add value to the client’s products and processes and support the client’s environmental objectives.
There are many actions that E/C firms can explore individually to be responsive to the needs of international clients. These include:
- Identify compatible values and philosophy
- Sustain long term relationship
- Become a partner
- Prepare to provide additional services
- Develop a compatible quality philosophy
- Establish global partners and alliances
- Develop environmental responsiveness
- Develop new technologies
- Utilize information technology
- Educate to work in a new client-contractor environment
The common objective of any alliance is to strengthen the competitiveness of all parties while remaining independent and unique. General guidelines for an alliance include: (RS30-1, p. 26)
- The alliance produces a comfortable atmosphere built on trust.
- The purpose for the alliance is clear.
- Cooperative spirit exists among alliance partners.
- The risks are identified and affordable.
- The alliance complements the strengths of each partner.
Key evaluation points that will impact forming and maintaining alliance relationships are listed below. In addition the research details selection criteria, challenges/risks and lessons learned in forming alliances. (RS30-1, p. 27)
- Staffing with qualified personnel
- Documentation of the agreement
- Time required to form the alliance
- Prime movers and initiators of the alliance
- Strategies and marketing plans
- Confidentiality of proprietary information
- Organizational structure
- Executive-level commitment
- Proper timing of alliance initiation
- Selection of participants
Provides input of key characteristics for forming alliances in this competitive, and fragmented region. A few examples are shown here with the details included in the research. (RS30-1, p. 31)
- European firms prefer continuity of personnel to maintain and strengthen the level of trust as opposed to US practice of short-term rotating personnel.
- European firms may be more inclined to form alliances or joint-ventures with several contractors to build relatively small projects as opposed to American construction firms who are used to competing and averse to sharing.
Provides input of key characteristics for forming alliances in this rapidly emerging region. A few examples are shown here with the details included in the research. (RS30-1, p. 33)
- Asian countries have large variety and profound differences in languages, cultures, and customs.
- Fundamental cultural differences between East and West have historically been a barrier to the participation in Asian markets.
- Asian firms use a minimum amount of documentation to define the terms of their alliances.
RS30-1, Implementing an International Construction Alliance
Includes a five-step model for implementing an international construction alliance. (RS 30-1, Appendix A)
