A Comparative Analysis with Overseas Competitors

Factors that create and influence competitive advantage for engineering and construction contractors, and architectural and engineering consultants when they operate internationally

Competitive advantage can be defined as an edge over competitors achieved by offering the customers greater value for their money. In other words, competitive advantage encompasses all the conditions that enable a firm to offer good quality services at an affordable price to such an extent that the said firm becomes more desirable by the customers over other rivals. In the construction industry, a contractor, architectural consultant, or engineering consultant can be said to have competitive advantage over the competitors when their construction-related services are offered at more competitive prices without any compromise on quality. This essay seeks to explore the factors that create and influence the competitive advantage for UK-based construction firms over their overseas competitors. For students who are looking for business dissertation help, understanding all these factors can provide the most valuable insights into strategic placing within the construction industry.

Competitive advantages in the international scene revolves around three main factors, namely costs, financing, and technology.

Costs

Labor is one of the chief determinants of the overall project costs. Indeed, labor accounts for up to 70 percent of total project costs in the developing countries. To cut labor costs, a typical construction firm considers hiring most of the workers in the host country. It would be very costly to fully hire UK workers for a project in say African countries. An Engineer in most of the developing countries in Africa earns less than half the salary of a UK engineer on a similar job. The same applies to casual laborers. PayScale reports that the current average hourly pay for construction laborers is about 8.97 GBP. For a developing country like Kenya, construction workers earn below 2GBP per hour. For a UK contractor to have competitive advantage over its rivals, the firm may consider establishing subsidiaries in low-wage countries. A good example is the London-based TechnipFMC which has bases of operation in Algeria, Angola, Cameroon, Congo, Egypt, Gabon, Ghana, Mozambique, Nigeria, Tunisia, Australia, China, India, Indonesia, Malaysia, russia, Singapore, Thailand, Vietnam, Azerbaijan, kazakhstan, Kuwait, oman, Qatar, Saudi Arabia, and United Arab Emirates, among many others. To further reduce labor costs, a contractor should seek to automate some construction processes.

Financing

There are basically two conditions for which Engineering and Construction firms from the industrialized world can bid for Third World projects - i) when the construction projects are overly technical for the local firms to handle, and ii) when the firms can offer attractive financing packages. Most of the developing countries may not be able to mobilize the required financial packages for mega projects. As such, such mega projects are outsourced to firms from the industrialized world. For a construction firm to have a competitive advantage over the rivals, it must not only be technically competent, but also have adequate access to financing. Construction firms which have experience working with both international lending agencies and private financial institutions are better placed to win overseas construction projects. In fact, the developing countries increasingly ask foreign contractors to submit financing proposals as they bid for construction projects. Companies with limited financial resources will therefore find it very difficult to win contracts. As of now, commercial banks are already over-exposed in countries which have good investment opportunities. When a contractor wins a new job, the firm has to bring together imaginative financial packages on a project-specific basis. It is therefore needful for any Engineering and Construction Company to have in depth knowledge and experience of the rapidly evolving international financial markets. The more experienced with such financial instruments the better placed the firm is in winning overseas contracts.

Technology

To be successful in the construction industry, the company must have highly competent engineering advice. It is no longer enough for a construction firm to be well versed in only one aspect, say structural engineering of prestressed concrete. The more diversified the company is technologically the higher its chances of winning jobs. A firm should ideally be able design and manage all types of construction projects. Even so, specialization is still key in any given construction firm. Whenever evaluating a potential bidder, the client normally questions whether that particular firm can handle the job at hand. The client will usually consider the technical qualifications of the firm before awarding the contract. In other circumstances, clients will require construction firms to prequalify before bidding for a job. The technical expertise for any construction company can largely be tied to its experience. Experience in this case is not necessarily in that particular country where the construction will take place. Experience in the home country also counts.

Technology in construction firms also spills over to computer applications. To be successful in the international scene, a construction firm must have a proven track record of use of technology in its construction projects. A firm which has completed some projects using Building Information Modelling (BIM) is better placed to win jobs than a firm which has never used BIM. Expert use of computer aided design also sets construction companies ahead of the rest. The winning company will ideally have experience with the best software for maintaining online databases, issuing change notices, updating bills of quantities, compiling drawings, estimating project costs, scheduling construction activities, tracking material use, accounting and controlling costs, performing engineering calculations, etc.

In addition to the above three main pointers to competitive advantage of construction firms, other competitiveness indicators for the different stakeholders are as follows: For shareholders, competitiveness indicators include profitability, growth, productivity, and equity-asset ratio; for employees, competitiveness indicators include health and safety, wage level, work hours, and power of unions; for clients, competitiveness indicators include time and cost predictability, quality of product, life cost, and service; for the society, competitiveness indicators include environmental consciousness, business ethics, corporate social responsibility and inclusion.

In conclusion, construction firms will have a competitive advantage over their rivals if they can reduce labor costs, have access to adequate finances and employ the latest technology in their projects.

References

Porter, M. (2004). Competitive advantage. Free.

Sanchez, R., & Heene, A. (2010). Enhancing competences for competitive advantage. Emerald Group Pub.

Schleifer, T., Sullivan, K., & Murdough, J. Managing the profitable construction business.

Smyth, H. (2009). Property companies and the construction industry in Britain. Cambridge University Press.

Zhao Xianbo, Hwang, B., & Low, S. (2015). Enterprise Risk Management in International Construction Operations. Springer.

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