The international contracting market this year resembles nothing so much as a duck swimming on a pond: Calm with little going on above the water, but furious activity just below the surface, as international contractors merge and acquire others in a attempt to paddle into position in a quiet market.

The overall market is essentially flat, with international contractors wondering when and whether there will be major upticks in Asia and Latin America; if the rise in oil prices will pay large dividends in the Middle East; and what the future holds for the huge U.S. market. International revenue for ENR's Top 225 International Contractors fell 2.4% in 2000 to $115.9 billion from $118.7 billion in 1999. But this downturn can be attributed to U.K.-based Kvaerner PLC's absence from the list this year. Kvaerner was last year's second-ranked international contractor with $6.54 billion in international revenue.Click here to view tabular data.

One of the reasons for Kvaerner's absence may have been its decision to sell part of its U.K. operations to Skanska (see cover story). This move marks just one example of the frenzy of mergers, acquisitions and reorganizations going on throughout the international contracting sector.

European-based contractors continue restructuring for international operations. The French merger of well-known names, including Campenon Bernard and Dumez-GTM, created Groupe Vinci, with sales exceeding $15 billion. About a quarter of Vinci's foreign sales are through subsidiaries in France and Germany, with a similar share in Eastern Europe, Africa and French Overseas Territories. The prestressing specialist Freyssinet International contributes over $350 million, while the major projects division more than doubles that amount.

Going the other way, Philipp Holzmann shed about 6,000 staff to rebuild its finances. "We are back in the market," says Herbert Lütkestratkötter, board member with international responsibility. Last year, international sales accounted for 60% of the total and will continue rising to about 75%, he says. But Holzmann's international division has struggled, with the bulk of the firm's international work coming through subsidiaries in the U.S. and Austria.

To streamline its international work, Germany's Hochtief is transferring operational control away from the corporate core, which will focus on strategy, says Hanno Bästlein, head of international work. The building and civil divisions will remain functionally distinct, but they will be spun off into the new Hochtief Construction AG.

A poor home market and big acquisitions in the U.S. and Australia has raised Hochtief's proportion of international work from 20% 10 years ago to 80% of this year's forecasted sales of about $13.5 billion. Hochtief, like others, increasingly relies heavily on local partners and subsidiaries, handling only special projects from home. "Then it makes sense to move expatriates," says Bästlein.

Australia's Lend Lease Corporation Ltd. has fully integrated the London-based construction manager Bovis Group to broaden its geographical reach and gain access to global customers. "While we were strong in Asia Pacific, the problem we started to hit was, as the world globalized, more and more competition was coming into [our] market," says Ross Taylor, group president.

Increasingly, contractors are focusing on margins rather than sales. "It's not a matter of being big and beautiful, but producing profits," says Matts Wäppling, executive vice president of Skanska. And Bovis Lend Lease, aiming for long-term revenue streams, is expanding into facilities management and is on the lookout for possible acquisitions. It has picked up military facilities management work in the U.S., and Taylor expects long-term outsourcing through the U.K.'s Private Finance Initiative to "grow dramatically."

Financing projects through build-operate-transfer programs once again are coming to the forefront. For example, railroad work helped boost international sales for Fluor Corp.'s London-based subsidiary Fluor Ltd., notably the BOT contract for systems on the Dutch high-speed line, says Ron Oakley, president for infrastructure. As a railroad market, The Netherlands is "coming fast behind" the U.K., he says.

The Dutch railroad project is part of the trend of contractors investing in projects. BOT work accounts for 40-45% of the foreign business for Spain's Dragados Obras y Proyectos SA, says Executive Vice President Manuel García. Dragados has numerous highway and other concessions in Europe, Latin America, Canada and Africa.

A high proportion of Bouygues SA's international business is now BOT or design-build, says Michel Cote, chairman of the public works division. International business is compensating for a sluggish home market, especially in civil engineering, he says.

With few private sector opportunities in Germany, Bilfinger+Berger AG is looking for BOTs overseas, especially in Australia, where it has a local subsidiary. Generally, "we expect international business to increase roughly 4-5% this year," say Carlos Möller, B+B's executive director in charge of international work. "We have seen increases in oil exporting countries," he says, but "Asia is not recovering as quickly as anticipated."

Southeast Asia is "still very difficult," adds Cote of Bouygues. Keith Clarke, chief executive of Skanska Construction Ltd., London, sees the region as "somewhat fragile, except for Singapore." But Möller reports "a lot of investment going into to China, particularly Hong Kong." In China, "the challenge for us is to get into industrial construction for private clients," he says. He sees few interesting infrastructure opportunities, with World Bank-funded projects so competitive that "it doesn't make sense to go for them."

Competition increasingly is coming from Chinese firms, which "succeeded in raising and growing their capability," says Lütkestratkötter. Holzmann is working on a bank building in Beijing, and encouraging local investors. AMEC is "waiting for a number of [Chinese] petrochemical jobs to go ahead," says Peter Mason, chief executive of AMEC PLC. "It takes time for projects to happen."

AMEC is "pretty busy in Hong Kong and Singapore," says Mason. But senior Bouygues executive Ivan Replumaz fears Hong Kong's commercial building sector could slip into recession next year. Clarke agrees that Hong Kong "is still sound, but weak commercially."

"We are watching the Chinese market very closely," says Hochtief's Bästlein. The firm is tracking Southeast Asia through Australia's Leighton Holdings Ltd., which Hochtief took a controlling interest in this year. Leighton has opened the telecommunications infrastructure market for Hochtief. Its work last year for a 1,820-km, fiber-optic cable link between Brisbane and Cairns was followed by an 8,400-km line from Brisbane to Perth and work in Malaysia.

High oil prices are stimulating some more activity in the Middle East, but nobody expects a boom. There's a big gas program coming up says Fluor's Oakley. Bouygues is working on some gas projects in the Gulf, but civil engineering opportunities are scarce, says Cote. Meanwhile, a joint venture including Holzmann is arranging finance for a 1,000-Mw hydro plant on Iran's Bakhtary River, having secured a binding memorandum of understanding from the government last year, says Lütkestratkötter.

Increasing oil revenue also is being felt in oil-producing African countries, particularly Nigeria. For example, oil revenue is fueling work by B+B's long-standing Nigerian division in several markets, including a major sports stadium in Abuja, says Möller. Fluor notes oil exploration in offshore Nigeria is picking up.

South Africa remains difficult "but not that bad," says Bästlein of Hochtief, which owns 49% of Concor Ltd., Johannesburg, with some 6,000 employees. With traffic on its recently completed M4 toll motorway in southern Africa generating required revenue, Bouygues is looking for more opportunities, but they are "still a long way off," says Cote.

"Business in Africa is mainly linked to international funds...it's an artificial market," says Philippe Ratynski, Vinci's general manager for foreign subsidiaries. And with donors funding maybe 60% of work, long bidding lists mean "quality is not always the criterion," he says. While the North African market generally is weak, Egypt's privatization plans appear to provide construction potential, says Dragados' García.

Dragados has been able to exploit cultural and linguistic affinities, making it the most active international contractor in Latin America. In the southern cone, Chile is improving, but Argentina remains in deep trouble, notes García. He sees Brazil as "a country of opportunity," and expects business to grow there.

With long roots in Buenos Aires, Hochtief will stay in Argentina, but it is reducing its activities while the economy remains troubled. The region, especially Argentina, is "a very difficult market with a very difficult economy," adds Holzmann's Lütkestratkötter.

Bovis Lend Lease now has a "couple of hundred people" in Latin America, mainly in Brazil and Argentina, says Taylor. "A good way to get into these places is to follow our customers." He plans to start looking for possible acquisitions in the region in the next couple years.

Colombia remains blighted by security problems and economic weakness. But in neighboring Venezuela, Dragados is working on several projects, including the U.S.-designed $700-million Caruachi hydro plant. Bouygues is considering bidding for a Colombian tunnel BOT contract and is taking aim at a marine terminal project in Argentina.

In Europe, the Germans are among the hungriest for international work, driven by a weak home market. Meanwhile, "the French economy has been good and construction has been even better," says AMEC's Mason. And the U.K. has become a "sustainable market" with sophisticated clients, adds Skanska's Clarke. "The risk transfer is high, demands on us are high...and that's great," making it tough for new firms to enter the market, he adds.

In Western Europe, where traditional project delivery holds sway, "we've been offering project management and construction management services," says Taylor of Bovis Lend Lease. That's gives Bovis an edge in the market, he says.

Further east, preparations by former communist countries to join the European Union are fueling construction. Sweden's Skanska has "high expectation for growth" in the region, according to Wäppling. However, the company has downgraded its previous 9% annual growth forecast for Poland because of an economic slowdown. With "strong order intake" in the Czech Republic, Wäppling, expects the market to grow faster than his previous 4.6% annual forecast.

Vinci's view of Poland is more bleak. With prices falling, the market is at "the edge of a real crisis," says Ratynski. "The problem is that the regional market is very slow. Everything has been concentrated in Warsaw," he adds.

In Central and Eastern Europe, "local competition is there, so you have to be careful to let the local operations do the local business and support it with project development [and] high-tech solutions," says Lütkestratkötter. That advice applies even more strongly to Russia. "Russia is not easy, for sure," says Replumaz, of Bouygues, now putting up a 60,000-sq-m commercial development in Moscow.

Russia "has been tough during the last couple of years," says Wäppling. "It's picking up quite well...most of the growth is coming from foreign direct investment," he adds. Having pulled out of Russia two years ago, Germany's B+B may review its interest in the next year or two, says Möller. Adds Fluor's Oakley: "There are some decent opportunities [in Russia], but you have to understand the rules."