The Dynamics of the International Construction Industry since the Late 1970s

Abstract

This paper examines the geographical dynamics of the international construction industry since the late 1970s, in terms of the validity of Bon's internationalization hypothesis, using the results of the Top International Contractors (TIC) survey by ENR (formerly, Engineering News Records). ENR has conducted this survey every year since 1979. Researchers and industry watchers confirm it as the most important data source for this industry. Bon (1992) extended Vernon's product life cycle hypothesis (1966) to this industry. Following Bon's hypothesis, contractors in newly industrialized countries, which experienced large growth rates due to the increased domestic demand and the highly competitive labor-intensive projects overseas, eventually face shrinking domestic demand and increased labor costs, as their economy enter into a stable growth stage. These contractors try to make inroads overseas, by providing advanced construction services, utilizing the experience and technologies they have accumulated during their economic development. Given their cost competitiveness, they will establish a prominent position for themselves in this area, compared to contractors from advanced industrialized countries. TIC data was scrutinized and its dynamics inspected with ENR commentaries on TIC surveys, which include insights from managers of top international contracting firms. From trend analysis of TIC data, the history of international construction industry since the late 1970s can divide into five periods (-1981, 1982-1987, 1988-1991, 1992-2001, 2002-). Next, the adaptability of the Bon hypothesis was examined. Results of this analysis clarified that although to some degree, Bon's internationalization hypothesis fits the actual dynamics of international contractors, it does not possess sufficient explanatory power, especially for explaining industry dynamics after the 1990s. Then, this paper attempts to decipher why this is so. Three main reasons seem to exist for this lack of explanatory power. First, Bon does not consider mergers and acquisitions of local contractors from advanced industrialized countries in their host countries. Second, new contract forms such as BOT (Build-Operate-Transfer) and PPP (Private-Public Partnerships) have emerged and expanded rapidly. Third, not only geographical, but also cultural and social distances between the home and host countries of these contractors exert great effects on their competitiveness. These factors complicate these dynamics even further and deserve extended study.