The construction industry is becoming more global, allowing firms to find a steadier stream of work internationally when domestic markets dry up. However, the widening geographic footprint is forcing firms to come to grips with the added cultural, labor and logistical challenges, including unpaid bills.
"Globalization has happened—the game has changed," said Lee A. McIntire, chairman and CEO of CH2M Hill Cos., who spoke at the Global Construction Summit, which ENR hosted on June 6-7 in New York City for several hundred attendees.
The global engineer-constructor now is working in 119 countries, noted McIntire, who compared the industry's global expansion to buccaneers and pirates searching for treasure.
In reality, such quests are rarely easy. Firms working globally face currency issues, high expatriate costs, difficulties in repatriating profits, corruption risks, cultural miscues, and wear and tear on executives. Because getting paid is the leading challenge in working beyond borders, McIntire urged firms to have an end game in their global strategy.
Managing Growth Across Borders
While McIntire sees Latin America as the next decade's hot market, he noted new security issues and rising costs in CH2M Hill's design center in Argentina. The company intends to cut in half its global footprint. "The world will grow 4% to 6%, but there's only 50 countries we really want to be in," McIntire said.
At the start of 2013, the global economic upturn is less robust than expected, but construction should grow ahead of gross domestic product as Asian economies continue to modernize and the U.S. recovers, said Graham D. Robinson, a London-based industry consultant. Sub-Saharan Africa and Eastern Europe look strong, while North America construction activity is expected to grow at an average of 4.1% annually through 2025.
Keeping up with more complex procurement and supply-chain demands has been a challenge for firms. "We used to buy everything within five miles, but not anymore. This has required a new level of diligence," said Kathy Canaan, Fluor's logistics chief. Work by Turkish power project developer Calik Energy and its construction affiliate Gap Insaat in Turkmenistan for G.E. and other global clients "mastered us on logistics," added Ridvan Akturk, energy director. "It was tough."
Philip Ovanessians, Samsung Construction & Trading Corp. general manager of global procurement, noted "a changing dynamic" in sourcing materials, supplies and labor in emerging markets in Africa and Asia. Early on, as the firm considered a long-term commitment to work in Myanmar, the Korea-based contractor did resource surveys of local construction conditions and capabilities.
While United Rentals Vice President Frank Roth noted major cost savings through use of modular construction, Canaan cautioned that it can create added supply-chain demands for building and transporting modules. Global firms are using software tools to plan and manage procurement flow, said Ovanessians, "but the key is getting effective information inputted."
Roth noted that United Rentals is working to standardize online fleet-management dashboards for equipment sourced internationally. However, Terex Corp. CEO Ron DeFeo pointed out that changing regional regulations, such as diesel emission restrictions, make exporting equipment more of a challenge.
"It will impact the value of your equipment, and it will impact your supply chain," he said.
Owners Weigh In
Supply chain challenges are a “struggle” that a panel of owners said they seek contractor expertise to manage.
“Can you get the materials in place to let the workers work?” asked Brett Henderson, Chevron’s upstream director in Europe, Eurasia and the Middle East.
In selecting firms, owners also measure contractors' ability to bring both competency and “chemistry” to global projects, particularly in emerging markets, panelists said.
“Do they respect and understand the other side?” said Grant R. Stevens, senior managing director of developer Hines India.
Irv Kieback, Procter & Gamble corporate engineering director, said he wants firms to “bring us something unique,” while James Ellis, DuPont global engineering director, pointed to investment in a “localization strategy” and a commitment not to tolerate “arrogance” by expats toward local firms and entities.
Watch the Balance Sheet
While construction sector expansion strategy will still include cross-border acquisitions, AECOM CEO John Dionisio and KBR chief William Utt hinted that their global growth going forward would be more “organic.”