Impact of Globalisation on Construction Industry

Impact of gentlemans gentlemanwideisation on Construction sedulousnessIn his book The Lexus and the Olive tree Thomas Friedman (2000) described the solid ground as becoming an increasingly interwoven place, and whether you atomic number 18 a lodge or a inelegant, your threats and opportunities increasingly derive from who you atomic number 18 connected to. Further more than than, it be inter home(a)ization as .a web- same structure .. An inexorable integproportionn of grocery stores, nation-states and technologies to a point in clipping never witnessed before- in a focusing that is enabling individuals, corporations and nation-states to r distributively more or slight the world far-offther, faster, deeper and cheaper than ever before. globularisation back up by an augmentd handiness of cheap penetrationible in bodation and design science has broken down to a far great extent the walls of protectionism and avocation barriers making it easier for some iodin in a remote city of Brazzaville (Congo) to do erupt bloodline transactions worry purchasing and selling of dish bulge outs in the world bourgeon market, engage in reciprocal venture enterprise, carryout worldwideisticistic procurance, import and export unspoilts and services from all oer the world without leaving the sitting room.This integration of markets and economies with the aid of in classation and engineering described in umteen writings as world(a)ization or free market prudence has created a huge probability for backup and enthr binglements worldwide. These investments on the another(prenominal) hand creates interdependency on individuals, companies and nation-states performance and mettlesome scotch risks which has had disastrous effects all over the world a plow the Latin Ameri preempt debt crisis in the late 1980s, the Southeast Asian era out of the late 90s and the recent world stinting recession.This presentation ordain inform what intern ationalisation means for everybody from the ordinary man in the street to the chief op erating officer of a local go with and up to a countrys economical and policy-making stability. fraction 2 will define globalisation, its features and what it means to everyone, it will in like manner explore the standing of the reflexion manufacture in the worlds economy. Section 3 will discuss the impact and challenges of globalisation on the verbalism and plan industry aided by a picture imaginary scenario. arriveTo discuss the impact of globalisation on look companies and their products, services and confounds.Section 2Understanding globalisationDiscussions of globalisation are currently imposing the intellectual and public discourse. It could mean various things to opposite hoi polloi then the multiple definitions attached to it. musical composition some view it as an curse trend towards de compassionateization and economic domination others view it as a multi brass section ted phenomenon that pa drills challenges and offers opportunities (Mahgoub, 2004). The French and other continental europeans for example see globalisation as a wise form of imperialism (from the US) or as a new stage of crownworkism in the age of electronics (Intriligator, 2004).Intriligator (2004) described it as major increases in worldwide alternate and exchanges in an increasingly open, integ scored, and borderless global economy, not and in traditional external trade in goods and services, but likewise in exchanges of currencies in not bad(p) movements in technology transfer in people moving finished and through international get off and migration and in international be given of information and ideas. Finally, Yeung (2009) considers globalisation as inescapably an integrating set of tendencies that operate on the global get over and step forward connections and flows across territorial borders and regions citing what it calls the ruthless penetration of global cu ltures epitomized by McDonalds, Hollywood movies, MTV, and internet as an example.Govindarajan and Gupta (2000) defined what globalisation could mean to three variant level of aggregationTo the entire world, globalisation refers to the aggregate level of economic interdependence among the various countries examplified by the fact that the total asset size of cross-border mergers and acquisitions grew by 15.5 per cent in 1996, 45.2 per cent in 1997 and 73.9 per cent in 1998 (UNCTAD, 1999)To a specific country, globalisation refers to the extent of the interlinkages amid that particular countrys economy and the rest of the world measured through exports and imports as a ratio of GDP, inward and outward flow of both inappropriate direct investment and portfolio investment, and inward and outward flows of royalty payments associated with technology transfer.To a specific industry, globalisation refers to the degree to which, within that industry, a attach tos competitive position w ithin one country is interdependent with its competitive position in another country measured by the extent of cross-border trade within the industry as a ratio of total worlwide production, extent of cross-border investment as a ratio of total jacket invested in that industry, and proportion of industry gross accounted for by shimmerers competing in all major regions of the world.Pre-historyBut of all the divergent definitions and interpretations surrounding globalisation, one thing is sure globalisation is not a new thing. Some economists and historians has suggested that present day globalisation is little more than a re rung to the world economy of the late 19th and proto(prenominal) 20th century, of the century from the congress of Vienna in 1815, the period 1870 to 1913 and from the bam of world war 1 in 1914 to the fall of the Berlin wall in 1989 (Intriligator, 2004, Friedman, 2000, Hutton, 2008). At that time borders were relatively open and there were substantial inter national capital flows and migrations of people, when the major nations of Europe depended critically on international trade as part of the compound system (Friedman, 2000, Intriligator, 2004).What differentiates this era from the past era of globalisation is the sheer number of people and countries obscure and the intensity drive by several unprecedented readings likeTechnological advancesTechnological advances has displace fundamentally the cost of everything from transportation, communication, data processing, information storage and retrieval and human resources development. Tools like internet and mobile phones has enhance the way countries and industries relate to apiece other expressing everybody closer. It has also contributed to rural developments by empowering emerge nations to brand nearly in the international arena for partners, investors and best monetary deals for their single projects thereby reduce the level of under-developments and poverty and at the s ame time providing substantial potential opportunities for MNCs and investors from the authentic nations. many an(prenominal) companies locate different split of their production, research and marketing units in different countries but compose figure out them in concert through videoconferencing, internet and emails traffic liberalizationthe 1946 General proportionateness on Tariffs and Trade (GATT) adopted by many nations has been the describe to a series of reductions in the tariffs levied on manufactured goods thereby opening different markets and fostering trade around the world. The agreement which later evolved into the World Trade Organisation (WTO) has been accredited to the rapid developement of the BRIC nations(Brazil, Russia, India and China) whose manufactured products like heavy machineries, technology transfers and consumer goods are being sold worlwide rescue-in lots of exotic reserves and an increase in their Gross Domestic Production (GDP) and an proceedso us trade tautologic to some countries like China. Also successive rounds of multilateral trade negotiations, together with regional arrangements such as the European Union,the North Ameri mess give up Trade Agreement, and the Australia-New Zea background Closer Economic Relations agreement, have been major forces for international liberalization (Hufbauer and Warren, 1999)Economic liberalizationThe gradual elimination of restrictions on outside(prenominal) Direct Investments dress in place after WWII liberalised international capital movements. Foreign Direct Investments (FDI) means the amount of investment a company from country A can make in country B. These investments could be in the form of acquisitions, phrase ventures, anxiety and consultancy, technological transfer or simply structure a production unit in a foreign country. The most profound effect has been seen in developing countries, where one-year foreign direct investment flows have increase from an modal(a) of less than $10 billion in the 1970s to a yearly average of less than $20 billion in the 1980s, exploding from $26.7billion in 1990 to $179 billion in 1998 and $208 billion in 1999. FDI into developed countries in 2004 rose to $636 billion, from $481 billion in 1998 (source UNCTAD cited by Jeffery P. Graham, 2005). It has been made possible by the elimination of restrictions by the receiving countries, cheaper and easier rile to information technology and low global communication be.OthersOther factors likeimmigration which has witnessed lesser restriction overdue to lower travelling costeconomic shifts in balance and governments policiesindustrial revolutionbetter bend material and equipmentconvergence of ideology experienced at the end of the mothy war with the survival of capitalism over socialismsocial welfare reformscontributed a lot in differentiating the era of globalisation we live in now to the era before WW 1 II and have seen the construction and engineering vault of heaven experience a radical growth as never seen before.Construction and engineeringThe construction industry today is a global industry which according to Krisen Moodley et al, (2008) means the operation of contractors and consultants across international markets, in a globalized context with supply chains, specialists, plant and equipment sourced across the world. This ingredient will identify the place of the construction industry in a global environment.Global construction industry.The global construction industry consists of the procurance of new projects, increasing commitment for the provision of services, equipment, components, materials, primary(prenominal)tenance, finance, operations and research development (Krisen Moodley, 2008). Private sector participation is actively sought in the in all gamut of project phases-financing, construction, operation, etc. specially in major capital-intensive radix projects. The build and consultancy services traded are knowledge - base and broad(prenominal) time lever-added, with the materials most frequently traded as both resource-specific or technology-dependent (Drewer, 1990).Globalisation pressures have created more opportunities for contractors to enter international construction market which are valued at approximately $3.4 trillion out of which, only 3.4% of its potential volume ($116 billion) is in truth open to a in full international competitive market and being done by international foreign firms (Seung H. Han et al, 2005). As examples, in Dubai, the consultants, contractors, labour, technology, materials and equipment are sourced from across the world, while the iconic Wembley stadium in London had an Australian contractor, multinational designers, Dutch leaf blade contractors, American security specialists and a range of international materials suppliers (Krisen Moodley, 2008). Major projects like the Suez Canal in 1959-1969, the Panama Canal in 1900-1914, the New Hong Kong Airport, the acquit Tunnel and the Three Gorges Dam in China were carried out by contractors and consultants from different countries.Migration of the construction industrys major players was prompted by international trade and the pursuance by countries with sufficient non construction resources to satisfy their construction requirements. The oil abounding countries of the Middle East were major promoters of this trend during the 1970s and 1980s although it actually started centuries ago during the era of industrialisation. One form of industrialisation then was prefabrication, which is based on the industrial manufacture of building components off-site or adjoining the site. As long as the late 19th century, the British were move prefabricated housing to Australia and Africa, and in 1830s, the manning portable Colonial Cottage for Emigrants was being produced and shipped to sites around the world (A.B.Ngowi, 2005).Globalisation and constructionEarlier success in trade liberalization spar ked an expansion of trade and FDI, increasing the demand for cross-border capital flows. This has change magnitude the pressure for liberalization of capital markets, forcing more and more countries to open their capital accounts which in turn led to liberalization of Foreign Direct Investments and privatization tournaments (Dieter Ernst, 2002) providing Global corporations with a greater range of choices for market entry and better access to external resources and capabilities.Today with the aid of globalised economy, technological advancements, free market and heathenish harmonization, more construction firms are shifting their strategies towards achieving global market assigns through joint ventures, acquisitions and FDI bringing in exchange, technological advances associated with formidable construction technology, enhanced management systems for scheduling, material tracking, subcontractors organisation, and financial capability which enable them to obtain good and low inte rest finance from major financiers, added Raftery et al, (1998).Institutional, legal and economic reforms that aided the globalisation of the construction and engineering industry include unified bill system as well as business measure, consumption tax and VAT, economic liberalization, relaxation in foreign blondness (allowed up to speed of light%) in many countries, end to the non-discrimantion for domestic and foreign companies in play for public works, deregulation and liberalization measures in housing market especially the abolition of cost controls and land engagement intensity controls, privatization programmes and employment of foreign labour and 100% equity in Build Operate and transpose concessions (Raftery et al, 1998) amongst others.Section 3DiscussionIf cash, commodity and creativity are the key ingredients selected for a country to succeed in the changing global economy, as described by Lyons (2010), what does the construction and Engineering need to succed in this leaderless globalisation system?. The global finance maret from where the industry obtains financing for its activities is so interdependent that it poses a huge threat and opportunity to the industry. A brief ilustration could be helpful in explaining this interdependence and its effects.Case scenarioThe Salisbury sports club, hearthstone of Zimbabwean cricket team in capital of Zimbabwe, constructed by the British colonial masters in the days of Rhodesia, once had a capacity of 26,000 people in 1956. 54 years later it can only pass water 10,000 so the government decides that the stadium capacity needs to be increased to 35,000 to reflect the current passion of cricket in the country. Zimbabwe with an inflation rate of over 900%, can neither afford to finance the project by itself or borrow from the international market and as such, its options are quite a limited. It posted an open tender process invitation for the project on their website with favorite(a) procurement met hod being FDBOT (Finance, Design, Operate and transfer) for a period between 25-30 years. One major obstacle apart from the economy, pointed out by contractors evoke in the project is that there still exists restrictions on the ownership of land and public infrastructures in the country so the parliament in capital of Zimbabwe had to remove these restrictions to attract foreign investors to their project.Being a major project of over 300m, the winning consortia led by Arup Engineering was made up of Barclays bank investment banking (supported by Chinese investment stemma, pension fund from canada and mutual fund from the US), Masuita electrical company from Japan and Usiminas Steel company from Brazil. With the restriction lifted and the contract signed, the project started with the major contractor Arup bringing in technological prowess, management know-how and the money. Local construction industries were used for their taste of the area and provision of cheap labour while plan ts and equipments were supplied by a company from neighbouring South Africa.10 months into the project, while the individual zimbabwean involved with the project was just about getting to reap the benefit of a steady job and income, the Thailandese government posted a glum economic expectation and insinuated doubt on the countries capacity to pay back loans from the world bank. This less than expected prediction sent a wave to the stock market in the Asiatic region prompting investors to start cast away Thailandese bonds and taking their money to invest elsewhere. The question is what has Thailand economy got to do with cricket stadium in Harare? Well, this massive sales made asian bonds as a whole lose almost 50 to 60% of their value which means that banks (including Barclays) and funds including (Pension funds from Canada) which invested in those bonds lost a considerable amount of their investment. But unconsciously, in a rush to put their money in a secured investment, the inv estors pushed the price of commodities up especially mark that rose from 250/tonne to 435/tonne.It wasnt long before the stadium project in Harare grinded to a halt. Reasons being that Barclays is the red and are currently public speaking with the Qatari Investment group for bailout which if it fails, they could end up being have by the taxpayers, the pension fund has suffered huge losses and are restructuring their management and this new team are reviewing all investments, the doubled price of nerve means that Usiminas cannot deliver at the contracted price and wishes to revise the damage of the contract, the delays meant that expected date for the inaguration of the stadium was delayed by what could be one year and brings with it a substantial loss of fund from patronisers, the government of Harare are helpless, they have no control over immediate or future event concerning the project.AnalysisAlthough this is an imaginary scenario, it reflects what globalisation can bring to an industry like construction (expectations and pit falls) and how helpless the feeling can be when the table turns. All because of the interdependent global economy, trade and capital liberalization.ChallengesGlobalisation represents a major challenge and at the same time an unprecedented opportunity for the construction and engineering industry in equipment casualty of greater access to finance for concession projects etc, greater accessibility to FDI, greater specialization and division of labour on a world-wide level, greater opportunity for the local industry to acquire technological know-how and strategic positioning for the realised company for a more competitive market.According to YIP et al (2006), companies with an established source of competitive advantage from its home or other existing country markets often finds it easier to increase global market share by adding new countries rather than by trying to increase share in existing countries. This gives them competitiv e edge in an increasingly globalised market open to stiff global competition. rival stretched in all areas of the industry from products and services to quality of those products and services, cost, time and process innovation.ScaleAlthough in a globalised construction market, there seems to be something for everyone, most projects are large scale construction which only the large technologically qualified contractors can carry out due to, sometimes added prequalification requirements in the bidding process, one which requires firms to raise having secured real amount of contracts with comparable magnitude and complexity which in turn, precludes medium-size operators or contractors.GrowthThat the industry has gone global does not mean fatter pockets. Although rationalisation of production and the spread of technology including pressures for continual innovation globally will lead to increased productivity and efficiency it also drive costs down. Research has shown that profitab ility declines (fig.1) as companies begin to internationalise their business due to the difficulties of learning how to do so especially in different heathen setting. It gradually increases as the objective, of increasing market share, is achieved.ProtectionismConcerns has risen as to the challenges globalisation poses to the construction and engineering sectors in uphill economies because of the divergence or polarisation of profits worldwide where bigger foreign industries backed by their governments and financial institutions witness a rapid growth while the locals industry play catch up. Globalisation to E C means gradual eating away of barriers that hinder foreign companies from participating in local markets hence eliminating the feature between local, regional and national markets. It means that international firms with capability continues to pass over local markets leaving local consultants and contractors underdeveloped and in most areas out of the business. This might lead to protectionism or trade war as we are beginning to see with the currency war going on between the US and China.VulnerabilityAlso critics has underlined the perceived loss of sovereignty of national governments and political leaders due to the continuous influence of the investors (including MNCs) and international financiers in state affairs in an effort to protect their respective interests. unwashed vulnerability due to the fragility and interdependence of the international economic system, and the scattering of wealth created through globalisation which has seen more nations grow faster than others. While globalisation has been spearheaded by the cross-border operations of transnational corporations, the spatial transfer of business and industrial practices is by no means unproblematic. There remain significant place-based institutional limits to the globalisation of business cultures and economic practices. For example, while capital can be transferred almost effortles s across space, labour remains passing place-bound and locally embedded (Yeung, 2009)Finance and economyShift in economic balance brought by globalisation means different challenges for developed and uphill markets. While the developed-world are expected to cut back their fiscal deficit, emerging world are to maintain low debt-to-GDP ratios, their undervalued currencies, low-cost labour, high savings rate, exports and investment in infrastructure to sustain global uncertainties.Globalisation has favoured construction industries from developed contries, constraining the involvement of lesser developed industries as they pretermit access to cheap financial markets and technology, making it difficult for them to compete. They can only show advantage perhaps in the area of labour deployment.regional instabilityGlobalisation has increased the risk of major regional and global instabilities due to the interdependence of economies. Its negative effect is devastating for the construction and engineering sector as witnessed by the recent global economic meltdown. Many countries like Spain, Italy, Portugal and Greece that sustained a major part of their economy on the construction industry suffered heavily and have been finding it hard to reconstitute their respective economies ever since. The scars of the negative effect of economic interdependence could still be seen in those countries and others in the middle east like Dubai where make full of buildings remain uncompleted and the completed ones remain empty because the banks cannot lend to tainters, buyers cannot buy houses, the builder cannot sell hence cannot pay either the borrowed loans or the building contractors.Local contractorsIn Spain for example the recent economic meltdown pressure one third of local contractors to close down while the remain ones are with a considerably reduced portfolio because of their interface with major international contractors and consultants with global reputation and work p ortfolio that simply went burst when their cash flow seized. Some fortunate international contractors and consultants including David Langdon had to be absorbed by bigger and more stable companies to remain in the business.Impact on businessesCompetitionGlobalisation forces down the price of construction services by reduce the ability of firms to obtain excess margins through competitive pressure. Also, in the face of a margin squeeze, firms seek to reduce cost through the use of best available technology these cost reductions are in turn passed on to consumers in the form of lower prices. Companies in developed markets throe from slower economic conditions are looking even more desperately to emerging markets, where more robust economies, substantial oil revenues and major deficits in the existing infrastructure spell opportunity, thereby fostering competition . Additionally, certain mature markets also seek to recruit offshore and bring in talent to meet demand on domestic proj ects (Hook, 2008).CostsGlobalisation allows construction and engineering firms to achieve economies of scale as they are increasingly liberated from the size constraints of their home markets. In technical terms, the demand catch coefficients facing individual firms increase with globalisation (Hufbauer and Warren, 1999). They will also need to lobby to lower barriers that protect their suppliers, so they can take advantage of the law of one price in stimulus markets. If inputs remain high or suppliers are unreliable, firms will be forced to relocate to countries where purchased input prices are lower and quality higher, finalised Hufbauer and warren, (1999).ProcurementGlobalisation has changed the way procurement is done. Participation of foreign contractors in domestic markets in the 1970s was as a result of pressure from donor agencies as a price for accepting their aid or funding, their projects. Today, advocates for trade not aid are thanking globalisation for creating opport unities for investment exemplified by the Chinese investment in infrastructure in Africa which according to McRae (2010) is much larger than all Western aid programmes put together- real trade not aid. FDI still remains the favored method but other means in which foreign investors whitethorn acquire an effective voice in an enterprise rather than through FDI include subcontracting, management contracts, turnkey arrangements, franchising, leasing, licensing and production sharing (UNCTAD, 2002)CommoditiesGlobalisation also have a huge impact on the factors of production which Bryan (2010) considers as where the real integration of the worlds economy begins. Bryan identified commodities, capital and labour as crucial towards understanding structural economic issues. On commodities it means that most natural resources and manufactured commodities like steel, aluminium, bauxite, crude oil, iron ore, with a global common price attached to it are expensive to producers in countries with weaker currencies. obviously put, commodity prices are too high in emerging-market countries which mean they use fewer commodities than they would and too low in developed-world countries which means they use more commodities than they should. Furthermore the fact that commodities prices are set in truly global markets where nations have little power over prices suggests that financial tension will build earlier and with greater volatility.Growth and cooperationGlobalisation has brought growth to emerging countries that has invested substantially in the built environment building and infrastructure and has a huge dependency on imported construction services like the Asian countries. It brought huge profits as well to the contractors involved write up for around 33% of their international earnings in 1996 (ENR, 1997). There is far more cooperation, consumer value changes, and the blurring of business borderlines in this global environment as global construction has to create and ma nage new forms of relationships with suppliers, producers, clients, financiers, governments and third sector groups (Moodley et al, 2008). The more usual arrangement for large projects now being for contractors, developers and financiers to form consortia in order to seize these players respective expertness, in addition to reducing project risks. This formation of strategic alliances would be an effective way of overcoming flunk or draw-backs that a firm may be exposed to in the increasingly competitive domestic or international setting (Raftery et al, 1998). For the local industry, it provides an opportunity to work with and comply with international standards, increase their efficiency and quality of work hence preparing them to be more competitive.Domestic policiesGovernments in a bid to attract increased foreign privy sector equity into domestic construction markets are carrying out further institutional reforms, specially in the banking and financial sectors and adopting ce rtain measures likeRemoving or relaxing barriers in the tax repatriation of profitsAdopting a transaprent tax policy by way of granting equal tax treatment to foreign and local companiesAdopting double revenue relief agreements with other countriesOffering preferential interest rates for joint ventures where there is equity majority by local partnersEntering isobilateral agreements with foreign governments to guarantee safety of foreign investmentsRelaxed imposed ceilings on foreign equity on construction and development firmsThese policies as described by raftery et al (1998) brings in advantages like the interaction of foreign and local partners complementing each other. while the domestic associates having better understanding of the local working conditions takes care of the sources of labour and materials, the foreign firms bring into the joint venture their higher expertise in finance, technology and management know-how, creating a healthier, robust environment for private s ector investment.Section 4ConclusionThis paper analysed the origin of the new era of globalisation the world lives in today, defining what it means to different aggregations. Construction as an industry has contributed enormously to the worlds economic growth with its estimated value of US$4trillion but has suffered equally when the world economy went burst due to its global interface with the financiers of their worldwide activities. Globalisation brought far more cooperation, consumer value changes, and the blurring of business borderlines in this global environment as consultants, contractor, designers, financiers, governments, labour, material suppliers, technology suppliers, plant and equipment specialists all converge in a new form of relationship aimed at a better working environment towards delivering a common project.Deregulations, affordable technology, trade liberalization and economic market policies has been the main drive for globalisation and the same vehicle has been responsible for driving many construction firms, especially from developed countries, through Foreign Direct Investments (FDI), joint ventures, acquisition etc into local and domestic construction markets both in developed and emerging countries. The impact has been huge from high profits and stronger multinationals to technological trans