Fall 20091.463Globalization of E&C IndustryFred MoavenzadehSession 2Fall 2009The engineering & construction industry is currently in a transition state. Forces from both the demand and the supply sides have made it necessary to re-examine strategies for growth and competitiveness.Fall 2009Constructed FacilitiesNaturalSystemSocialSystemTechnologicalSystemSetting ConstraintsEstablishing:• Limits to intrusion• Need for protectionSetting DemandEstablishing:• Policies• Regulations• Norms and StandardsEnabling Supply ProvisionProviding:• Know-how• Management• OrganizationFall 2009The Role and Importance of Construction in Economic Development• Construction Sector Contribution to Gross Domestic Product (GDP)• Construction Role in Gross Fixed Capital Formation• Construction Sector Contribution to Employment• Construction, Industrialization and Economic Growth Backward Linkages Forward Linkages Other ContributionsFall 2009Construction• Construction is known as the “engine of growth.”• By any standards it is a giant.• Some have recently called it a “sleeping giant.”• All indications are that it is reawakening.Fall 2009Two Sets of Issues of Concern to the Engineering & Construction IndustryI. How is demand for its output generated and affected by modern societies?II. How is the industry’s supply system shaped to cope with changing demand?Fall 20091288%9%4%8%9%12%10%6%5%2%5%12%13%3%-8%-12%-7%40-4-8-12% Change annual1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20062007 2008 2009Era of constant growth comes crashing downFigure by MIT OpenCourseWare.Fall 2009Total Value of Construction Put In Place873.09921.41023.491132.151194.941168.551070.25958.04020040060080010001200140020022003200420052006200720082009Source: US Department of Commerce Annual Value of ConstructionPut-in-Place in Current DollarsFall 2009Private Construction in 2004Total $999.76 Billion544.3211.7432.1861.2125.9512.888.088.576.613.0225.8214.7ResidentialLodgingOfficeCommercialHealth CareEducationalReligiousAmusement/RecTransportationCommunicationPowerManufacturingSource: Dept. of Commerce. Construction Put-In-Place. Details May NotAdd Total Since All Types of Construction are not Shown Separately.Fall 2009Construction Segments in 2009Total $958 Billion254.0224.0658.7658.4149.86108.0226.50820.19235.26720.08891.09483.652ResidentialLodgingOfficeCommercialHealth CareEducationalReligiousAmusement/RecTransportationCommunicationPowerManufacturingFall 2009RankFirm‘07 Revenue ($ Mil)2006200720082009TotalInt’l.1111Vinci, Rueil-Malmaison, France41,715.614,684.72223Bouygues, Paris, France32,062.012,090.03332China Railway Group Ltd. Beijing, China27,018.4867.24644China Railway Construction Corp. Beijing, China24,298.4416.45455Hochtief AG, Essen, Germany23,861.021,313.46568Grupo ACS, Madrid, Spain23,130.13,653.17776China State Construction Eng’g Corp. Beijing, China21,517.43,244.581087China Communications Const. GRP, Beijing, China20,004.64,177.9917911FCC, Fomento De Constr., Y Contratas SA, Madrid, Spain19,046.86,854.91081012Skanska AB, Solna, Sweden18,546.913,982.21191110Bechtel, San Francisco, California, USA17,696.011,742.01218129China Metallurgical Group Corp., Beijing, China16,906.8625.713121315Kajima Corporation, Tokyo, Japan16,413.23,006.514161417Obayashi Corp., Irving, Tokyo, Japan15,877.03,013.015141513Strabag SE, Vienna, Austria15,797.012,689.216111621Taisei Corp., Tokyo, Japan15,149.02,144.017231720Balfour Beatty PLC, London, UK14,986.06,469.018201816Fluor Corp., Irving, Texas, USA13,332.37,940.419221919Bilfinger Berger AG, Mannheim, Germany12,642.08,475.020152014Shimizu Corp., Tokyo, Japan12,603.31,342.818Eiffage, Asnieres-sur-Seine, FranceN/AN/ATOP 20 GLOBAL CONTRACTORSFall 2009A/E/C Firms Differentiation:Four Thrust Areas1. Technology of Assembly Design Construct2. Management of Assembly on Site Project Management3. Management of Organizations Specializing in Assembly4. Interaction of Assembled Systems with Socio-Economic Development and Environmental ProtectionFall 2009Product Design Process DesignManagementDesignFall 2009OwnersProduct DesignProcess DesignManagement DesignStruct.Arch.Geotech.Elect.Mech.Etc.Sub. 1Sub. 2Sub. 3Supplier 1Supplier 2Supplier 3FinanceBondingLegal BiddingContractingControlFall 2009Major Developments of the 1990’s Globalization and market economy World Trade Organization Financial markets and privatization Information technology and telecommunications World Wide Web and e-commerce Environment and sustainability Science and technology capability as an instrument ofeconomic competitivenessFall 2009Consequences: Increased demand for movement of goods and information Increased demand for human resource development Need for increased transparency in government’s regulatory systems Importance of a robust science and technology infrastructureFall 2009ChangeOn Demand Side: Client MarketsOn Supply Side: Technology OrganizationFall 2009I. TRADEII. ECONOMIC BLOCSIII. FINANCEIV. ENVIRONMENTV. TYPE OF WORKChanging Nature of DemandFall 2009I. TRADE- International trade in services.- International trade in construction services and products.- International trade in construction labor.TREND- Is toward further relaxation of barriers to entry into large construction markets.IMPLICATIONS- Increasing need to remain competitive on global basis.Changing Nature of DemandFall 2009II. Economic Blocs:1. North American (U.S., Canada, Mexico)2. European Economic Community3. Far East Centered in Japan4. MercusorTrends:1. Potential Future Bloc(s):Latin AmericaMiddle EastIndian Sub Continent2. Realignment of Firms Within Each Bloc via:Merger and AcquisitionJoint venturingStrategic Alliances3. Need to Expand GloballyImplications:Further Erosion of Control over Domestic MarketChanging Nature of DemandFall 2009III. Finance• Financial market is fully global• New financial packaging and instruments• Increased risk due to fluctuation in exchange rateTrends• Greater involvement by construction in financial packaging• Greater equity participation• Greater involvement in operation and managementImplications• A close relationship between financial firms and construction firms• Financial engineering and financial packaging servicesChanging Nature of DemandFall 2009IV. Environment• Prevention of further damage to environment• Correction of damaged environment•