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Factors Affecting International Construction Suat Gunhan1 and David Arditi2

Abstract: A construction company’s decision to expand into international markets must be based on a good understand opportunities and threats associated with international business, as well as the development of company strengths relative to activities. These factors were evaluated in this study by surveying the executives in charge of international construction of la States based contractors. The information was collected by means of two rounds of a Delphi survey, the results of which we input in an analytic hierarchy process~AHP!. The findings indicate that track record, specialist expertise, project management ca are the most important company strengths; loss of key personnel, shortage of financial resources, and inflation and currency are the most important threats relative to international markets; and increased long term profitability, the ability to maintain sha returns, and the globalization and openness of the markets are the most important opportunities available in international w study is of relevance to practitioners as it systematically highlights the factors that affect international construction for the executives of medium-to-large size construction companies who are considering expanding into overseas markets. It is of re researchers too as it demonstrates the successful use of the combined Delphi and AHP.

DOI: 10.1061/~ASCE!0733-9364~2005!131:3~273!

CE Database subject headings: International factors; Construction industry; Delphi method; Change management; management; Risk management; Foreign projects.

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Introduction

Even though international construction is not a new phenome globalization provides the possibility of new opportunities to c struction companies. Developing countries need new infras ture and buildings and welcome specialized contractors from dustrialized countries. The lowering of international barriers allows construction companies to conduct business in deve countries such as the United States and the European Unio the international construction business is sensitive to world e and it entails political, financial, cultural, and legal risks. Und standing the opportunities and threats associated with int tional markets and assessing a company’s preparedness fo national ventures are crucial to the growth and sometime bare survival of construction companies.

There exist several reasons for construction firms to ex their business into international markets. These reasons in stagnant domestic markets, spreading risk through diversific into new markets, competitive use of resources, and taking a tage of the opportunities offered by the global economy. Tec logical advances, political reform, worldwide trends toward pr tization and an increasing recognition of econo

1Turner Construction Co., 55 East Monroe St., Suite 3100, Chic IL 60603.

2Professor, Dept. of Civil and Architectural Engineering, Illin Institute of Technology, Chicago, IL 60616. E-mail: [email protected]

Note. Discussion open until August 1, 2005. Separate discus must be submitted for individual papers. To extend the closing da one month, a written request must be filed with the ASCE Mana Editor. The manuscript for this paper was submitted for review and sible publication on August 18, 2003; approved on May 11, 2004. paper is part of theJournal of Construction Engineering and Manage ment, Vol. 131, No. 3, March 1, 2005. ©ASCE, ISSN 0733-9364/20

3-273–282/$25.00.

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interdependence, represent the primary forces of globaliz ~Hutton 1988; Kennedy 1991!. The global economy has crea business environments that differ radically from those of the Agreements such as the Uruguay Round in the General A ment on Tariffs and Trade~GATT! have fundamentally chang the structure of the construction industry. The globalizatio construction markets now allows local construction compani compete internationally~Han and Diekmann 2001!.

In the global economy, no market is forever safe from for competition. Even when companies stay at home, they even have to face foreign competition. The nature and directio international trade in construction depends upon the global d bution of construction activity as well as the distribution wealth. Although the economies of most countries are affecte the state of the industrialized economies, the demand for d and construction services in certain international markets ca high when it is low at home~Kangari and Lucas 1997!. Also, structures are expensive and can be financed most easily by tries with large savings or the capacity to borrow. While there a large number of United States and Japanese contractor undertake international work, there are also a large numb foreign companies doing business in the United States and lesser extent in Japan. The rate at which this shift toward a integrated global economic system is occurring has recently accelerating~Hill 2000!. All companies should plan for surviv and growth in a world of global competition~Root 1994!.

International construction is much riskier than domestic struction. The complex international environment is affecte diverse variables that are not part of the domestic markets that create risks never encountered in domestic conditions complex variables that affect the performance of constru companies in overseas markets need to be considered in th cision. Furthermore the threats and opportunities associated

target countries should be well understood~Hastak and Shaked

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2000!. The objective of this study is to evaluate the relative portance of company strengths associated with internationa pansion, and the threats and opportunities inherent in interna markets.

Methodology

The analysis is conducted at two levels~Fig. 1!. First, an interna analysis is conducted that consists of assessing a comp strengths associated with international construction. The str factors identified after a thorough literature review include pro management expertise, financial strength, specialist expe international-network, equipment/material/labor support, t record, and technological advantage~Friedman 1984; Quak 199 Pheng 1996; Crosthwaite 1998!. Opportunities and threats as ciated with international construction are then assessed in a ternal analysis. The likely threats were identified in the litera as inflation and currency fluctuations, interest rate incre shortage of financial resources, bribery in the host country, eign competitors in the host country, cultural differences, and of key employees~Friedman 1984; Strassmann and Wells 19 Arditi and Guiterrez 1991; Barco 1994; Ramcharran 19!, whereas the opportunities include chances to take advanta the globalization and openness of markets, availability of service areas, increased long-term profitability, chances to advantage of the privatization programs in emerging econo chances to take advantage of beneficiary international a ments, ability to maintain shareholders’ return, and chanc achieve technological advancement~CII 1993; Crosthwaite 1998 Raftery and Pasadilla 1998; Ramcharran 1998!.

The combined use of the analytic hierarchy process~AHP! and Delphi is an original approach that was explored in this study. AHP is a general theory of measurement. It is used to derive scales from both discrete and continuous paired comparison AHP enables decision makers to represent the simultaneous action of many factors in complex, unstructured situation helps them to identify and set priorities on the basis of t objectives and their knowledge and experience of each pro It reflects the simple, intuitive way to deal with problems, an streamlines the process by providing a structured approa

Fig. 1. Flowchart of study

decision making~Saaty 1999!.

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The Delphi method, on the other hand, is an exercise in g communication among a panel of geographically disperse perts. Delphi replaces direct confrontation and debate by a fully planned, orderly program of sequential individual quest naires sent to a preselected panel of experts~Brown 1968!. The series of questionnaires is interspersed with feedback de from the respondents~Mitchell 1991!. These questionnaires a designed to elicit and develop individual responses to the lems posed and to enable the experts to refine their views~Adler and Ziglio 1996!. The use of a statistical group response ass that the opinion of every member of the group is represent the final response~Dalkey et al. 1972!.

The Delphi process was administered to solicit informa about the pairwise comparisons required by AHP. Experts asked to make relative comparisons between pairs of factors the AHP scale. The fundamental AHP scale of absolute value representing the intensities of judgments is shown in Tab Human ability to make qualitative distinctions is well represe by five attributes: equal, moderate, strong, very strong, an treme. Compromises can be made between adjacent attr when greater precision is needed. The totality requires nine secutive values. This scale has been validated for effectiven many applications and through theoretical comparisons many other scales~Saaty 1996!. Respondents are asked to tra form their real life comparisons to the nine-value AHP scale

Fifty four United States-based international construction c panies with minimum $10 million in revenue ranked in the 225 international contractors listed byEngineering News-Reco ~ENR! in 2000 were invited to participate in the Delphi surv Seventeen companies accepted the invitation and were s mail-in questionnaire. Twelve of the 17 returned the question administered in the first round, effectively constituting a rat response of 22% of the original population of 54 companies. sidering the fact that company executives were asked to re to an eight-page questionnaire composed of cumbersome pa comparisons, the response rate of 22% is quite satisfactory

All participants had positions at an executive level. They w either general managers or vice presidents in charge of in tional business development. The experts were first asked to duct pairwise comparisons of the strengths of their respe companies relative to international construction. For example respondent thought “project management capability” is six t more important than “financial strength” in conducting inte

Table 1. Ratio Scale of Analytic Hierarchy Process~Saaty 1999!

Intensity of importance Definition Explanation

1 Equal importance

Two activities contribute equally to the objective

3 Moderate importance

Experience and judgment slightly favor one activity over another

5 Strong importance

Experience and judgment strong favor one activity over another

7 Very strong or demonstrated importance

An activity is favored very strongly over another, its dominance demonstrated in practice

9 Extreme importance

The evidence favoring one activi over another is of the highest possible order of affirmation

tional business, the response would be

05, 131(3): 273-282

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6 Project management capability Financial strength

If a respondent thought “financial strength” is four times m important than “project management capability” then the resp would be

Project management capability 4 Financial strength The respondents were then asked to conduct pairwise com sons of threats and opportunities associated with interna construction.

In the second round, the questionnaires were remailed t same 12 respondents along with the median values of the r obtained in the first round. The experts on the panel were supplied with their own answers to the questions in the round. They were asked to reconsider their answers in the lig the information collected in the first round. Ten out of the original respondents responded to the second round.

Convergence between the responses obtained in the rounds was checked to see if consensus was achieved in opinions. Consensus simply means a general agreement sponses. Several studies have examined how many roun required for responses to stabilize. Brockhaus and Micke ~1977! report that most studies contain three or fewer iterati According to Dalkey et al.~1972!, the greatest change in gro performance between rounds is the decrease in response va ity from the first to the second round. Dietz~1987! reports tha forecasting error decreases over successive iterations, but th decrease between round one and three was only 10%. It ap that most changes in Delphi response occur in the first two ro and that not much is gained in conventional Delphi by itera more than twice. In fact, a highly suggestive outcome of Da et al.’s~1972! experiment was that answers were most accura round two and actually became less accurate on subse rounds. There is, then, a move away from multiple-round De toward a view that two rounds are sufficient. The numbe rounds needs to be as few as possible; otherwise fatigue an pressure will result in high panel attrition~Mitchell 1991!.

To assess the degree of convergence between two round significance of the differences between the means of the sta deviations obtained in each round were tested using thet-test ~Blalock 1972; Dalkey et al. 1972!.

The median values obtained in the second round of the D survey were used as input intoExpert Choice, a group meta de cision support software product based on AHP. Expert Ch calculated the relative weights of the factors. In paired com sons, the smaller element “i” is used as the unit and the larg element “j” is estimated as a multiple of that unit in the fo swi /wjd /1. An estimate of the ratiowi /wj is taken from a funda mental scale of ratings such as the scale in Table 1. After p ties are set for the criteria, pairwise comparisons are mad tween the ratings to set priorities for them under each crite and each of their priorities is divided by the largest rated crite Finally, alternatives are scored by checking off their respe ratings under each criterion and summing these ratings for a criteria. This produces a ratio scale score for each alternative scores thus obtained for the alternatives can, in the end, be malized by dividing each one by their sum~Saaty 1996!. This is how the relative weights are obtained in AHP.

According to Saaty~1999!, the consistency ratio of the resu should be 10% or less. If it is not, the quality of informat

should be improved—perhaps by revising the manner in which

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the questions are posed to make the pairwise comparisons reason why a Delphi survey was conducted to collect inform in this study was to ensure that the lowest possible consis ratio was obtained. The expectation was that convergence sponses will be reached through the Delphi process and th formation in turn will result in consistent findings. If these m sures fail to achieve consistency, it is likely that the problem not been accurately structured—that is, similar elements hav been grouped under a meaningful criterion. It is important consistency ratios in AHP modeling are below 10% as co tency reflects the quality of judgments.

Strengths of Construction Companies Relative to International Construction

The mean standard deviations of company strengths were puted for each Delphi round and compared with each other. of the differences in the standard deviations were in the exp direction, such that convergence occurred between the firs rounds in 20 pairwise comparisons out of 21. In order to tes statistical significance of the convergence, thet-test was used t compare the mean standard deviation in the firstsmSD1d and the secondsmSD2d rounds. The computedt statistic shows that th difference between the means is not significant at thea=0.01 level. The degree of convergence obtained in the second appears therefore to be sufficient for consensus.

The median values obtained from pairwise comparison company strengths were input into Expert Choice. An ov consistency ratio of 0.06 was obtained. This consistency ra less than the 0.10 threshold recommended by Saaty~1999! and proves that all judgments are logically consistent. The factor discussed in the following paragraphs in order of importanc

Track Record

The most important strength of a company relative to inte tional construction is “track record” with a relative weight 23.80% computed by Expert Choice. Companies with a s track record are considered to have a competitive edge. An rienced firm has either a ready solution or a cheaper one technical problem because it has encountered a similar probl the past and has invested in its solution. It has demons through previous performances that it has the organization technical know-how and experience to overcome technical lenges that may emerge in the course of a construction p ~Quak 1991!. United States based companies continue to s international market. According to the ENR’s list of the top international contractors, there were 64 United States based struction companies in the list in 1998, 74 in 1999, 73 in 2 and 79 in 2001, but only 34 appeared in the four consec years~The Top 225 International Contractors 1999, 2000, 2 2002!. Only 16 Japanese and 2 British companies were list the 4 consecutive years. It appears that not every company strong track record in international markets.

Track record is most important in specialist engineering tracts, project management contracts and large contracts. record in the form of reference projects markets a firm throug past successes, creates goodwill and provides the condition reactive entry strategy. Since some construction companie considering expanding into international markets for the time, it is expected that these companies may lack a suitable

record. A firm that lacks a suitable track record has to pursue an

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aggressive entry strategy, or find itself a strategic ally that sesses the necessary track record~Quak 1991!. On the whole, firm with a track record will be in a better position to market expertise to prospective international clients and consortium ners. The top AHP ranking of “track record” supports Ne ~1976! finding that a contractor’s overseas experience in wor similar scale and type is the most important criterion consid by consultants.

Specialist Expertise

The second most important company strength computed b pert Choice is “specialist expertise” with a relative weight 19.40%. In the international arena, United States based comp have a major share of the power, industrial/petroleum, haza waste, and sewer/waste markets. For conventional building well-known types of infrastructure, American construction fi do not have a cost advantage. For relatively conventional pro throughout the world, the high salaries of Americans make employment overseas prohibitively expensive. American fi that specialized in highways, dams, urban infrastructure, hou office buildings, and other traditional projects were able to contracts in the Middle East during the peak of the oil boom because of their higher costs, they can no longer meet the petition in shrinking markets.

Specialist technologies enable smaller companies to ca niche for themselves in the international market by competin specialist subcontracts or as a desired consortium partner~Quak 1991!. The provision of new technologies is a method for obt ing work in an environment where low cost pricing may favo local construction firm. To be competitive, knowledge of a spe character is to be incorporated in structures and equipment t novel to the receiving country. For example, the needs of en efficient buildings and the requirements of the telecommun tions age have to be addressed. Modern management m have to be used to achieve on-schedule and within-budget p completion of increasingly large and complex infrastruc projects. The need to provide current technologies to overc commodity type, low cost pricing is a major challenge in fore markets ~Sillars and Kangari 1997!. The special expertise f United States companies comes from technology based pr ~Strassmann and Wells 1988!. Results show that having a spec expertise can be one of the major strengths for a company looks for opportunities in international markets.

Project Management Capability

The third most important strength that a company should ha international competition is “project management expertise” a relative weight of 16.90% computed by Expert Choice. importance of project management expertise in international struction was also observed by many researchers. For exa according to Strassmann and Wells~1988!, the principal Ameri can competitive edge is not in using familiar building methods well known types of structures. Rather, it lies in efficient pro management. American contractors win contracts abroad only because of their experience with advanced technologie also because of their organization and management skills cording to ENR~The Top 225 International Contractors 200!, United States based companies undertook $1,468.2 million w of construction management-for-fee work and $2,857.5 mi

worth of construction management at-risk in international markets

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in 2001. This constitutes 19.5% of the total international vol of work undertaken by the United States companies listed i top 225 international companies by ENR.

International projects are likely to be very complex, includ conditions such as multiple ownership, elaborate financial p sions, and different political ideologies. These projects are difficult to manage than domestic projects as the risks invo are more numerous and less predictable. Very often, the exp that is required to bring these projects to fruition requires a breed of project manager who is both businessman and te cian. The business role is of great importance as project fina has already become an important factor in export project d opment than technological excellence~Stallworthy and Khar banda 1983!.

International Network

An international marketing network enables a firm to secur formation on technology, forthcoming projects, buyers, pote competitors, and potential coventurers. This information allo construction company to formulate an appropriate compe strategy~Quak 1991!. ”International network” was rated four with a relative weight of 13% computed by Expert Choice formal or informal association with a local construction comp financial institutions that fund overseas projects, local gov ment agencies in charge of construction investments can le valuable information. Similarly, engaging the services of a l consulting firm that can systematically scout the local ma and submit periodic reports is sometimes considered a worth investment.

Construction firms interested in exploring foreign markets participate in overseas trade missions in order to establish national contacts. These trade missions are generally organiz trade associations or by the government. Trade missions e participants to have first-hand knowledge of the operating ronment in a foreign land and, where appropriate, allow bus contacts to be made.

Construction firms may also contract with nonconstruction lated companies from their own country to build in oversea cations. This arrangement can be realized easily if overseas tors, having dealt satisfactorily with a particular contracto their domestic market before, indicate a preference for their eign development to be built by the same contractor~Pheng 1996!. It follows that an effective marketing network should clude not only foreign parties but also local parties intereste investing and/or constructing overseas.

Technological Advantage

Technological advantage is defined by the extent of the kn edge and expertise used in technically sophisticated projects factor was ranked fifth with a relative weight of 11% compu by Expert Choice. The demand for sophisticated projects su chemical plants, refineries, power plants, and industrial c plexes in the international market emphasizes to the mer sophisticated technology~Neo 1976!. Also, globalization is ac companied by an increase in the rate at which new technol are introduced, changing the strategies required by industry bers to remain competitive.

Technology is often one of the most effective weapons enables a construction company to penetrate into foreign ma This is particularly true for projects in developing countries wh

there is an urgent need to possess the best and the latest. The new

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technologies in less developed countries are provided by co nies from industrialized countries where research and dev ment have been emphasized more~Pheng 1996!. The possessio of advanced technologies has been an advantage in the in tional market, evidenced by the large market share of the co nies based in more advanced countries. Despite the entry b that many developing countries impose on foreign firms to pr their infant construction industry, United States, European, Japanese construction firms continue to dominate these m as a result of their technological edge. For example, in 2001 United States, European, and Japanese construction comp combined market share was 71% in the Middle East, 70% Asian countries, 79% in Africa, and 89% in Latin America~The Top 225 International Contractors 2001!.

Financial Strength

According to the literature, financial strength is one of the im tant company strengths in international construction. The ge wisdom dictates that the stronger a company’s financial pos the better its capacity to carry out far-reaching and ingen strategic plans. It can also take higher risks with prospec higher returns. It enjoys a higher credibility and reputation am its clients and suppliers. For these reasons, Warsawski~1996! considers the financial strength of a company to be an impo strategic asset. According to Pheng~1996!, the ability to provide attractive financing packages to potential clients will often de mine which international contractor will win the contract, and first prerequisite to secure attractive financing packages fro nancial institutions is a solid balance sheet. Despite the gen acknowledged importance of a construction company’s fina strength in international competition, this factor was rated s out of seven with a relative weight of only 8.10% computed Expert Choice. The reasoning of the respondents may be th investor in a construction project is the owner and not the tractor. The contractor pays subcontractors, material dealers others out of the monthly payments received from the ow Therefore the financial strength of a construction compan closely related to the strength of its working capital and to adequacy of its cash flow but the size of the contractor’s wor capital is significantly smaller than the owner’s investment in project ~Price 1995!.

Equipment, Material, and Labor Support

Friedman~1984! lists equipment and field resources as a prim strength for construction companies. A contractor’s capabi with respect to qualified personnel, equipment, and plant co tute important factors considered in the assessment of pot bidders in international construction~Neo 1976!. However, this factor was ranked last with a relative weight of only 7.20% c puted by Expert Choice. The little importance attached to factor by the respondents may be explained by the fact that construction companies operating overseas typically procure equipment and materials from local markets. Similarly, while administrative personnel are members of the company who porarily reside in the host country, most of the operational sonnel is probably hired locally.

Threats Associated with International Construction

The inclusion of overseas markets into a company’s portfolio

evitably brings along a certain element of risk and uncertainty.

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’

Indeed, operating abroad presents very substantial risks su commercial risks, currency risks, and investment risks, par larly to those firms unprepared to cope with numerous unfam customs and legal requirements that can frustrate even th organization and management~McConville 1996!. Project financ ing for international construction also harbors completion r operational risks, and political as well as regulatory risks.

Convergence occurred between the two rounds of the D process in 20 pairwise comparisons out of 21. The comput statistic shows that the difference between the mean standa viation in the firstsmSD1d and the secondsmSD2d rounds is signifi cant at thea=0.01 level, indicating that the experts changed t minds considerably between the first and the second ro Given the recommendation that convergence after the se round is typically negligibly small, a third round was found to unnecessary.

An overall consistency ratio of 0.09 was obtained with Ex Choice, which indicates that the respondents’ judgments are cally consistent. The factors are discussed in the following p graphs in order of importance.

Loss of Key Employees

Losing experienced and talented staff is the most important t associated with international construction with a relative we of 24.60% computed by Expert Choice. A company’s personn probably the most important resource in a competitive env ment and key to its success.

A construction company performs two different types of ma gerial tasks:~1! tasks with a technological content such as pro planning, management, selection of construction method, es ing, budgeting, and control; all of these tasks require a solid gineering background and~2! tasks with business content such financial management, marketing, accounting, procureme products, and services. The distinction is not always clea Tasks of marketing or procurement may sometimes requ good understanding of engineering, while project managem on the other hand, may require proficiency in business me ~Warszawski 1996!. Besides these factors, international const tion business requires additional talents in individuals. For language, familiarity with the region, ability to adapt to fore cultures, and strong emotional characteristics are desired po factors.

Construction firms’ primary asset is their people. They ar the front lines building a structure and interacting with sev parties on a daily basis. They create the source of compe advantage. When considering international expansion, pers planning is one of the core elements of strategic planning. It i easy to find the right people when needed. Losing talented employees in a specific overseas assignment may hamper munication with local entities, exacerbate the clash of cult lead to misunderstandings of the risks involved, and consequ may influence the project in a negative way.

Shortage of Project Owners’ Financial Resources

The second most important factor is the “shortage of project ers’ financial resources” with a relative weight of 19.10% c puted by Expert Choice. There is no shortage of internat construction work needed, only a lack of capital, or a lac ability on the part of owners to balance financial resources ag construction needs. Finance for construction work may c

from a variety of sources such as the World Bank, supranational

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bodies such as the Commission of the European Economic munities, national governments, local authorities, and public porations. Any one of the numerous private undertakings or viduals may also initiate a project or provide funds~Cox 1982!.

‘Financial engineering’ has become very important in inte tional contracting~Arditi and Guttierez 1991!. It involves bidders adding in their bid package a financial plan for the project. Th a trend that started in the 1970s in countries with limited finan resources or in oil-rich countries short of cash. Because not the World Bank and its subsidiary development banks had en money to fully finance all the worthy projects, the export–imp banks of various industrialized nations jumped in with additio financing for some jobs on the condition that the contract g the financing bank’s co-nationals. But that, too, fell short, and call went out to the commercial banks to add their money to government funds. The ability to secure sizeable low-inte loans from financial institutions to fund large overseas pro has now become an important part of international construc

Inflation and Currency Fluctuations

This factor was rated third out of seven, with a relative weigh 13.30% computed by Expert Choice and is closely related t overall state of the economy in the host country. Contractin international markets involves the frequent transfer of fu across national boundaries. Currency fluctuations are of part interest for construction companies from industrialized coun operating in developing countries. A possible implication o declining local currency in a developing country is that cost imported materials, plant, and equipment will increase, the thinning the amount of anticipated profit. It may also increase costs of loan repayments and interests incurred by local o tions for foreign debts~Neo 1976!.

The consequences of inflation in the host country also ha serious impact on the cost of a construction project. Some o recently emerging Eastern European countries and some Latin American and African countries have experienced infla above 100% per year. Forecasting inflation is very difficult. in the interest of construction companies to collect and rigoro evaluate detailed financial information. Embassies, banks, nomic magazines, financial newspapers, and discussions w dividuals with knowledge of the subject are usually the bes formation sources~McConville 1996!. Accounting practices procurement methods, the timing of purchasing decisions, co tive bargaining agreements with local unions, and overall flow management have to be adjusted in the light of the an pated rate of inflation.

Interest Rate Increases

This factor closely follows “inflation and currency fluctuation with a relative weight of 12.80% computed by Expert Cho International construction companies looking for financing h to struggle among five major financing sources: National ex credit agencies, international financial institutions, comme banks, investment bankers, and counter trade. Sometimes sixth source, they reach into their own company’s treasury investment. Of these mechanisms of financing, the one tha played the most important role in the success of certain int tional companies like the Japanese and Italian firms is the spective export–import banks. However, for United States c panies, mainly two factors have prevented the effic

functioning of the export–import bank: budget restrictions and

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higher interest rates. Interest rates play a crucial role in the cess of international construction companies. While Japanes Italian firms were benefitting from their respective export–im bank interest rates, higher interest rates prevented the ef functioning of the export–import bank for United States com nies. The other factor related to the export–import bank which affected United States contractors’ competitiveness, the lower interest rates in the early 1980s at which overseas petitors were borrowing money from their respective governm tal agencies. Some competitors were offering mixed credits low interest from their export–import bank. Others were defer loan payments or granting abnormally long payback pe ~Arditi and Gutierrez 1991!

Foreign Competitors in Host Country

Foreign competitors in host countries are potential threats for entrants into the market. Over the past 10–15 years competit the international construction industry has increased dramat as new contractors have entered the industry from less deve countries and as workloads have dropped in the major marke the changed environment, international contractors face a plex situation in which success only partially depends on p competition, and other factors which differentiate a contrac product from that of competitors become more crucial~Seymou 1987!. Korean firms chose a cost leadership strategy and substantial inroads into the Middle East market through ag sive cost cutting on labor-intensive infrastructure projects. nese companies with their enormous resources of skilled power, provide an example of a strategy based on cost ~Miles 1995!. Participation of new contractors especially fr developing nations may affect the international competition addition to the new entrants from less developed coun United States and European construction companies have a been major competitors. For example, while the United St based companies had 16% of the Middle Eastern, 15% o Asian, 27% of the African, and 38% of the Latin American m kets undertaken by the top 225 international companies liste ENR, European construction companies had 50, 29, 47, and of these markets respectively in 2001~The Top 225 Internation Contractors 2002!. This factor was rated fifth out of seven with relative weight of 11.90% computed by Expert Choice.

Cultural Differences

Doing business across national boundaries requires inter with people and their institutions and organizations nurture different cultural environments. Values that are important to group of people may mean little to another. In brief, there e among nations striking and significant differences of attitude lief, ritual, motivation, perception, morality, truth, superstiti and an almost endless list of other cultural characteristics~Jain 1996!. This factor was rated sixth out of seven with a rela weight of 9.10% computed by Expert Choice.

Difficulties encountered in international projects often their genesis in the differences between the cultures of the fo contractor and the other parties~owners, subcontractors, mate dealers, etc.! in the host country. Kangari and Lucas~1997! rec- ommend that the importance of cross-cultural relations shou well understood before one undertakes a foreign operation. ies conducted in the United States have suggested that diffe in national culture do influence the choice of foreign investm

~Fisher and Ranasinghe 2001!. However, social and cultural is-

05, 131(3): 273-282

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sues manifest themselves in a variety of ways and it is impo not to generalize in a manner that can lead to mistakes. Maw ney ~2001! suggests that people are individuals and that the ference between two individuals of the same nation can be b than the assumed difference between one national trait an other. Much of the advice on overcoming cultural differences ters on keeping an open mind and not seeing different wa doing things as being absolutely right or wrong, since cult and norms vary enormously.

Bribery in Host Country

Even though questionable ethical practices in foreign coun are reported and denounced in many studies, this factor was last with a relative weight of only 9% computed by Exp Choice. Ethical considerations with an emphasis on bribery foreign corruption within the guidelines of the Foreign Corr Practices Act are noted by Barco~1994!. The Foreign Corrup Practices Act puts heavy penalties on attempts to bribe fo officials in order to obtain contracts. The industry does not lo for permission to bribe, even though bribes may be custom though perhaps illegal, in many host countries and although may be viewed as legitimate tax-deductible business expen some European countries including Germany~Strassmann an Wells 1988!. Corruption and bribery are very emotive words the developed world markets. While corruption was not toler in the developed world~in theory at least! the attitude was differ ent when working outside home markets. For many years payment of bribes by the international arms of companies to rupt local officials in pursuit of international projects was c doned by many governments, even though this was banned w their home countries. It was viewed as a cultural difference therefore unavoidable. Development banks such as the W Bank have a clear anticorruption policy which is applied to t projects although this is a relatively new phenomenon. Corru and bribery are now more clearly viewed as a criminal act and construction companies all over the world are forced to a such practices as some are caught up in legal investiga ~Mawhinney 2001!.

Opportunities Associated with International Construction

While the new global economy confronts construction compa with threats to their survival, it also presents unprecedente portunities for growth and profits. International trade has b growing at twice the rate of gross world product for several cades, and international flows of services have grown more idly than flows of tangible products~Root 1994!.

Convergence occurred between the two rounds of the D process in 20 pairwise comparisons out of 21. The comp t-statistic shows that the difference between the mean sta deviations in the firstsmSD1d and the secondsmSD2d rounds is no significant ata=0.01 level. The degree of convergence obta in the second round appears therefore to be sufficient for co sus.

An overall consistency ratio of 0.03 was obtained with Ex Choice, which indicates that the respondents’ judgments are cally consistent. The factors are discussed in the following p

graphs in order of importance.

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Increased Long-Term Profitability

The most important opportunity that companies may have i ternational construction is “increased long-term profitability” w a relative weight of 28.70% computed by Expert Choice. A m reason for diversifying a company’s activities is to take advan of market peaks in an area while fighting slumps in another panding a company’s activities to overseas locations pres that some markets in some overseas locations offer profitab portunities when domestic markets are not doing particu well. Whereas it can be argued that in this era of globalization interdependence, the economic conditions in major industria countries often dictate the economic climate in many othe tions, it would be realistic to acknowledge the fact that not the ripple effect takes time to reach all nations, there may al important local differences that may generate altogether diff local conditions. Expanding to the international market app therefore to be a good way to survive slumps in a country~do- mestic or overseas! and increase profitability in the long term.

This result is fully in accordance with Crosthwaite’s~1988! findings. According to Crosthwaite~1998!, the responses of th British construction companies surveyed with respect to their sons for operating overseas indicated that the top ranked res was to increase “longterm profitability.” This is broadly in l with previous research in this area by Seymour~1987! and Abdu Aziz ~1994!, and their work was not purely restricted to Brit companies.

Ability to Maintain Shareholders’ Return

The second most important opportunity is the “ability to main shareholders’ return” with a relative weight of 19.10% comp by Expert Choice. This finding supports Seymour’s~1987! find- ings which identifies the maintenance of shareholders’ return major reason for operating overseas and the work of Neo~1976! who argues that shareholder opinion is important in the choi overseas markets. A defensive strategy adopted by major co nies is to operate in more than two countries so that recess one country can be offset by boom periods in others. The lin reasoning is that a contractor’s interest in multienvironmen more effective in protecting the shareholders against adverse ing conditions in one geographical area~Neo 1976!.

Ability to Take Advantage of Globalization and Openness of Markets

Many economists agree that increasing openness and glob tion bring all around benefits~Raftery and Pasadilla 1998!. This factor was rated third out of seven with a relative weigh 16.40% computed by Expert Choice. The growing acknowl ment of the advantageous effects of open markets, howev invariably accompanied by an intensification of global comp tion as nations better integrate into the world economy~Miller 2000!. While globalization increases competition within g graphical borders, it also provides increased access outwar markets previously inaccessible. It is important for construc companies to recognize this changing environment~Sillars and Kangari 1997!.

The growth of multinationals has been an important facto the internationalization of construction. Multinationals have

vested billions of dollars in new foreign operations, much of it

05, 131(3): 273-282

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requiring construction input. Multinationals are reported to o use the same construction companies that built their dom projects~Mawhinney 2001!.

Construction has always been an important part of a coun economy as it contributes significantly to the gross dom product. It is not surprising that it is now considered to be important part of the global economy particularly since globa tion allows multinationals to invest in a large number of co tries, encourages the formation of financial institutions that vide favorable loans for construction projects in foreign la and allows and sometimes forces contractors to be active in than only one country.

Availability of New Service Areas

The new economy brings great opportunities for expansio construction services as a result of increasing demand in m facturing ~textile, electronic, and auto assembling plants!, power ~hydro-electricity, transmission lines!, water supply~dams, rese voirs, desalination and portability treatment plants, indus waste plants!, sewage/solid waste~sanitary treatment plants, i dustrial waste plants!, industrial process~steel mills, refineries food processing sites!, and transportation~airports, bridges, road canals, piers!. This factor was rated fourth with a relative weig of 10.90% computed by Expert Choice. According to ENR’s m ket analysis, manufacturing, power, water supply, sewage waste, industrial process, and transportation collectively co tuted 64% of the total market held by the top 225 internati companies in the four years 1998 to 2001~The Top 225 Interna tional Contractors 1999, 2000, 2001, 2002!. Investments in infra structure, power, and manufacturing are considered the pre site for economic growth~Ramcharran 1998!. The major market in the transitional economies of Central and Eastern Europe the developing countries of Latin America, Asia, and Africa, characterized by massive investments in infrastructure, p and manufacturing, thus creating major opportunities for inte tional construction companies.

Availability of Beneficiary International Agreements

Globalization and bilateral and multilateral free trade agreem have resulted in increased business opportunities for constru firms throughout the world. New opportunities are offered agreements such as the Uruguay Round in the GATT an North American Free Trade Agreement. Developments in Ce and Eastern Europe and former Soviet republics, and eme markets in Asia and developing countries, as well as chang the European Union have fundamentally changed the structu the construction industry~Hastak and Shaked 2000!. The devel opment of free trade blocs has increased the construction and realigned the construction industry by encouraging acq tions and joint ventures, or opening new branch offices in for countries~Han and Diekmann 2001!. This factor was rated fift out of seven with a relative weight of 9.6% computed by Ex Choice.

Ability to Take Advantage of Privatization Programs in Emerging Economies

Privatization transfers the ownership of state property into hands of private individuals, frequently by the sale of state a through an auction. Privatization is seen as a way to unlock

in economic efficiency by giving new private owners a powerful

280 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT

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incentive—the reward of greater profits—to search for incre in productivity, to enter new markets, and to exit losing ones~Hill 2000!. This factor was rated sixth out of seven with a rela weight of 8.9% computed by Expert Choice.

Privatization has grown worldwide since the early 1980s ginning in Great Britain and expanding in the 1990s to deve ing countries. More than 100 countries have privatized previo government-owned businesses~The Top 225 International Co tractors 1999!. The foreign investor is an important elemen privatization efforts. Especially in developing countries, the l of available capital is usually insufficient to drive the desired of market expansion, and these economies are often depend foreign investment to support and sustain a privatization pro ~Miller 2000!. It follows that privatization creates opportunit for construction companies to undertake projects in other c tries, not only for local owners but also foreign owners or m nationals.

Increased Chances for Technological Advancement

Construction technologies have historically been slow to dev The acquisition of and ability to apply such new technologie of particular importance in international construction~Quak 1991!. Joint ventures or alliances can be a good solution for struction firms to access specialized technology, enhance technological know-how, and develop new technical areas surprisingly, this factor was rated last with a relative weigh 6.30% computed by Expert Choice. Indeed, a construction pany whose motivation in bidding for international work is acquire technological expertise will probably not be the win bidder because international bidders are called because the enous construction industry lacks the technology to carry highly sophisticated projects~CII 1993!.

Conclusion

In today’s economic system, no market is isolated from the g markets. Globalization brings new opportunities to construc companies. However, for companies that consider interna work, these markets also entail many risks. This study sens United States - based construction companies to possibiliti the international markets by highlighting the importance of c pany strengths associated with international expansion, an threats and opportunities inherent in international construc The combined use of AHP and Delphi is an original approach was successfully explored in this study. The results obtaine limited by the small size of the sample that consisted of 10 o 54 United States - based companies listed in the top 225 in tional contractors by ENR. But the data provided by the De study to the AHP process yielded results that are consiste measured by the consistency ratios that were always belo threshold of 0.10 specified by Saaty~1999!. The results can b summarized as follows: 1. As much as 73% of the company strengths reported b

spondents to be of importance in international constru included track record in similar international work in past, specialist expertise in a particular line of work tha quires sophisticated know-how, the capability of delive project management services, and a network of contact can supply critical information about international proje Expanding business into new countries will help to esta

new and more extensive networks and to improve the com-

05, 131(3): 273-282

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pany’s track record. A company that never had internati business experience should consider alliances in order t tain the necessary track record and establish the nece networks for future works.

2. Loss of key personnel, shortage of financial resources, tion and currency fluctuations, and interest rate increase the most important threats~70%! associated with intern tional construction. The most important threat appears t the loss of key employees with special talents and skills as knowledge of foreign language and ability to unders different cultures, in addition to technical and manage skills. “Financial engineering” has become an important pect of international projects and the ability to secure equate financial backing may be one of the most impo award criteria for some projects. The inflation and inte rates as well as the monetary policies in effect are gove by local economic conditions. These factors are beyond control of construction companies but companies’ estima purchasing, accounting, and personnel policies must b justed in anticipation of the future trends in this respect.

3. Increased long term profitability, the ability to maint shareholders’ returns, the openness of the markets, an availability of new service areas are the most important portunities~75%! offered by international markets. Profit the main motivation of business and the prospect of creased profitability and thus improving shareholders’ re is the most important driving factor in the decision to exp into other countries. The recent globalization of the w economy creates new fields of work in virgin territories forces construction companies to undertake projects in nations if they want to survive and grow while compet with contractors from other countries threatening them in international as well as their domestic markets.

To survive and prosper in the global economic system, struction companies need to develop special strategies. Ope overseas offers new opportunities but also brings many threa conduct business in international markets, construction comp should develop specific strengths. A construction company’ cision to expand into international markets must be based good understanding of the opportunities and threats asso with international business, as well as the development of pany strengths relative to international activities.

Executives of most medium-to-large construction compa have to consider operating overseas some time or another study is of relevance to practitioners because these exec need to be cognizant of the factors highlighted in this pap order to make informed and rational decisions. The study relevance to researchers too in that it combines Delphi with in an innovative way. This combination may become the nor future studies as it has proved to significantly improve the qu of the data plugged into the AHP system, hence achieving co tency ratios below 10%.

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