The big definitely are getting bigger in the international construction market. As infrastructure needs become more demanding around the globe, many top international contractors have expanded their roles to include developing and financing projects.
Increasing demands by public clients have led international contractors to become not just entities that build the project, but ones that will develop, plan and finance it, as well. This trend has aided an expanding market, but it also means that newer or smaller international firms will have to scramble to grow.
Overall, the international market continues to grow. ENRs Top 225 International Contractors had combined revenue of $167.49 billion from projects outside their home countries in 2004, up 19.8% over $139.82 billion in 2003.
While work seems to be plentiful, many contractors do not see a strong move in the market. Globally, business is "pretty much unchanged from last year," says Carlos Möller, head of international work at Germanys Bilfinger Berger Bau. Very large projects "are quite scarce [but] I dont think you can define a trend," he says.
Potentially boosting business, international funding agencies are shedding their former distaste for large projects, says Philippe Ratynski, chairman of Frances Vinci Construction. "In the last two years, [funding] is coming back to infrastructure," he says.
Ian Tyler, CEO of the U.K.s Balfour Beatty Construction Ltd. reports "a lot of innovation" in procurement, particularly in the U.K. public sector. He welcomes the more early inclusion of contractors in projects there, "and we are seeing it also in a few other places in Europe."
One reason for the market growth is the growing interest in build-operate-transfer (BOT) projects around the world, says Simon Hipperson, president of Swedens Skanska BOT. The U.K. still leads this sector, but there is strong interest globally, notably in Eastern Europe. In the U.S., the market is "very, very rapidly emerging," he adds.
The size and growing financial strength of a few large contractors has many international contractors concerned about being shut out of projects by behemoths that use their financial clout to secure BOT work. For example, some U.S. contractors looked with concern when a consortium led by Spains CINTRA and Ferrovial won the right to develop a 316-mile portion of the Trans-Texas Corridor highway project.
Such financial/construction consortia have become more common in recent years, and some firms are concerned. "Big construction companies are becoming bigger and even oversized and supported by the financial consortiums," says Lin Rongxin, president of China Civil Engineering Construction Corp. "Monopolization has strengthened in the international construction market in recent years."
This trend has caused consternation for international contractors that are not prepared to bring deep pockets into the fray. "Southeast Asia is our most disappointing market," says Vishwanath Banavali, deputy general manager for Hindustan Construction Co. He says his firm can bring high levels of expertise and competitive prices. But he says it is being shut out of some top jobs in the region that are being let "mostly on BOT."
Managing in Hot Markets
Like many large international firms, Germanys Hochtief is focusing on mature markets, the U.S. and Australia in particular. Its goal is "flatter cyclical fluctuations, lower risk and steadier cash flow, which display significant growth while achieving high margins over the long term and tying up less capital," says Chairman Hans-Peter Keitel.
Some firms have used the growing market to retool themselves and to regain their momentum. "We managed to recover from our severe financial difficulties in early 2000 with debt-equity swap and over-all restructuring of the company," says Dong-Jin Yeo, executive vice president of international business at Koreas Hyundai Engineering & Construction Co. "Since 2002, our financial situation has rapidly improved." The firm also has improved its credit rating. "With our financial health improving, we expect to be more competitive in the global market," he says.
Japans Kajima Corp., on the other hand, has sharpened its focus by splitting its international division in two, says Masafumi Fukuyama, general manager of the overseas subsidiaries management division. The division will "strategically manage our overseas subsidiaries operations by analyzing international market trends and allocating our human resources to where the market is strong," he says. The international division will focus on larger infrastructure projects that may be beyond the scope of local subsidiaries.
Looking geographically, "the Asian market is a little bit more difficult," says Möller. "There are no signs of large projects despite economic recovery." Frances Bouygues, however, is building a privately financed bridge in South Korea and is looking at a similar prospect at Pusan, according to Michel Cote, Bouygues Constructions deputy CEO. And Bouygues is preferred bidder for a port contract there.
Ratynski still sees "good opportunities" in China and is bidding for civil work on a nuclear plant. But conditions are "getting more and more difficult," says Cote. "They [propose] much more severe constraints for contractors. There are very limited projects."
Partly because of competition, China "is not really an obvious area for people to make their fortunes," says Tyler. "We are looking at China very, very carefully. Its a high-risk market," he adds. For building and infrastructure work, Hong Kong is "rather depressed," he says.
Australian infrastructure, however, is booming, accounting for about 25% of Bilfinger Bergers sales. Möller sees transportation infrastructure demand continuing for two to three years. He notes that Bilfinger Berger and Hochtief, between them, own five major subsidiaries in Australia and these firms are doing about half the major projects down under. This has caused other major international contractors difficulties in entering the Australian market. For example, Bouygues is struggling to get a toehold, says Cote.
Middle East Gusher
The recent spike in oil prices has fueled a major construction boom in the Middle East. "Current oil prices are generating fantastic profits and liquidity that are reinvested in the region in the form of infrastructure, tourism and other projects," says Wassim Merhebi, director of Lebanon-based Arabian Construction Co. This has caused firms to scramble to find qualified people in the region. "The cycle time is moving so fast that training new personnel has become a luxury one cannot afford," he says.
Much of the work is powered by the petroleum market. "Currently, more opportunities lie in countries like Saudi Arabia, Kuwait, U.A.E. and Libya," says Yeo of Hyundai E&C. His firm has been working on the South Pars Gas Field Development in Iran since March 1999 and most recently completed phases 4 and 5 of the project, a $1.6-billion on-shore gas plant, in record time, he notes.
Hyundai is one of many large contractors finding huge projects in the Middle East. Athens-based Consolidated Contractors International is working in a joint venture with Technip and Chiyoda on the QATARGAS Super Trains in Qatar, consisting of two trains, each with a capacity of 7.8 million metric tons/year, notes Samer Khoury, executive vice president. The firm "is focusing 70% on the oil and gas sector," he says. "With this price level, the oil companies will invest billions in the years to come both in the upstream/downstream projects."
In the Middle East, Dubai stands out. "The amount of construction just defies belief," says Tyler. And Qatar "is going to be a booming market for the next few years," he adds. But competition is tough, says Cote. For example, a Turkish-Japanese team recently undercut a European bid for the $3.5 billion Dubai metro by several hundred million dollars, he notes.
The Dubai metro project is one of Kajimas biggest recent projects, says Fukuyama. It involves the final design and construction of a 69-km metro light rail line. The project was awarded May 29 to a consortium including Japans Mitsubishi, Obayashi Corp., Kajima and Turkeys Yapi Merkezi.
In Africa, its "business as usual," says Cote. But, unusually, Bouygues won over $700 million of work through its successful bid for the continents first high-speed railroad in South Africa. Promises for more African international aid "could help" contractors, says Cote. But Bilfingers Möller is doubtful. He is steering the firm increasingly into the African private sector, notably in oil and gas.
Vincis local units are reporting nearly $400 million in African sales. But Ratynski complains of uneven competition, particularly from Chinese contractors. Established firms apply higher environmental and safety criteria and employ more local people, he claims. "When you work with a Chinese company, all the staff are Chinese...and so are the workers," he adds.
Chinese firms disagree with this assessment. China Civil Engineering Construction Corp. is moving toward more localized participation, particularly in the African market, says Lin. "Our principle is to [utilize] localized management and...