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Hello!Instructions: Write a 750 to 1000 word multi-paragraph summary essay of the article which you will find on the attachment entitled, ““Factors Affecting International Construction” by Gunhan, S. and Arditi, D.” by following the format below in the attachment. Please focus on addressing the topics and points below while writing the summary.The article and the instructions for the paepr are in the attachment bellow..
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Factors Affecting International Construction
Downloaded from ascelibrary.org by Florida International University on 03/07/19. Copyright ASCE. For personal use only; all rights reserved.
Suat Gunhan1 and David Arditi2
Abstract: A construction company’s decision to expand into international markets must be based on a good understanding of the
opportunities and threats associated with international business, as well as the development of company strengths relative to international
activities. These factors were evaluated in this study by surveying the executives in charge of international construction of large United
States based contractors. The information was collected by means of two rounds of a Delphi survey, the results of which were used as
input in an analytic hierarchy process 共AHP兲. The findings indicate that track record, specialist expertise, project management capability
are the most important company strengths; loss of key personnel, shortage of financial resources, and inflation and currency fluctuations
are the most important threats relative to international markets; and increased long term profitability, the ability to maintain shareholders’
returns, and the globalization and openness of the markets are the most important opportunities available in international works. This
study is of relevance to practitioners as it systematically highlights the factors that affect international construction for the benefit of
executives of medium-to-large size construction companies who are considering expanding into overseas markets. It is of relevance to
researchers too as it demonstrates the successful use of the combined Delphi and AHP.
DOI: 10.1061/共ASCE兲0733-9364共2005兲131:3共273兲
CE Database subject headings: International factors; Construction industry; Delphi method; Change management; Project
management; Risk management; Foreign projects.
Introduction
Even though international construction is not a new phenomenon,
globalization provides the possibility of new opportunities to construction companies. Developing countries need new infrastructure and buildings and welcome specialized contractors from industrialized countries. The lowering of international barriers also
allows construction companies to conduct business in developed
countries such as the United States and the European Union. But
the international construction business is sensitive to world events
and it entails political, financial, cultural, and legal risks. Understanding the opportunities and threats associated with international markets and assessing a company’s preparedness for international ventures are crucial to the growth and sometimes the
bare survival of construction companies.
There exist several reasons for construction firms to expand
their business into international markets. These reasons include
stagnant domestic markets, spreading risk through diversification
into new markets, competitive use of resources, and taking advantage of the opportunities offered by the global economy. Technological advances, political reform, worldwide trends toward privatization and an increasing recognition of economic
1
Turner Construction Co., 55 East Monroe St., Suite 3100, Chicago,
IL 60603.
2
Professor, Dept. of Civil and Architectural Engineering, Illinois
Institute of Technology, Chicago, IL 60616. E-mail: [email protected]
Note. Discussion open until August 1, 2005. Separate discussions
must be submitted for individual papers. To extend the closing date by
one month, a written request must be filed with the ASCE Managing
Editor. The manuscript for this paper was submitted for review and possible publication on August 18, 2003; approved on May 11, 2004. This
paper is part of the Journal of Construction Engineering and Management, Vol. 131, No. 3, March 1, 2005. ©ASCE, ISSN 0733-9364/2005/
3-273–282/$25.00.
interdependence, represent the primary forces of globalization
共Hutton 1988; Kennedy 1991兲. The global economy has created
business environments that differ radically from those of the past.
Agreements such as the Uruguay Round in the General Agreement on Tariffs and Trade 共GATT兲 have fundamentally changed
the structure of the construction industry. The globalization of
construction markets now allows local construction companies to
compete internationally 共Han and Diekmann 2001兲.
In the global economy, no market is forever safe from foreign
competition. Even when companies stay at home, they eventually
have to face foreign competition. The nature and direction of
international trade in construction depends upon the global distribution of construction activity as well as the distribution of
wealth. Although the economies of most countries are affected by
the state of the industrialized economies, the demand for design
and construction services in certain international markets can be
high when it is low at home 共Kangari and Lucas 1997兲. Also,
structures are expensive and can be financed most easily by countries with large savings or the capacity to borrow. While there are
a large number of United States and Japanese contractors that
undertake international work, there are also a large number of
foreign companies doing business in the United States and to a
lesser extent in Japan. The rate at which this shift toward a more
integrated global economic system is occurring has recently been
accelerating 共Hill 2000兲. All companies should plan for survival
and growth in a world of global competition 共Root 1994兲.
International construction is much riskier than domestic construction. The complex international environment is affected by
diverse variables that are not part of the domestic markets and
that create risks never encountered in domestic conditions. The
complex variables that affect the performance of construction
companies in overseas markets need to be considered in this decision. Furthermore the threats and opportunities associated with
target countries should be well understood 共Hastak and Shaked
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / MARCH 2005 / 273
J. Constr. Eng. Manage., 2005, 131(3): 273-282
Table 1. Ratio Scale of Analytic Hierarchy Process 共Saaty 1999兲
Intensity of
importance
1
3
5
Downloaded from ascelibrary.org by Florida International University on 03/07/19. Copyright ASCE. For personal use only; all rights reserved.
7
9
Definition
Explanation
Equal
importance
Moderate
importance
Strong
importance
Very strong or
demonstrated
importance
Two activities contribute equally
to the objective
Experience and judgment slightly
favor one activity over another
Experience and judgment strongly
favor one activity over another
An activity is favored very
strongly over another, its
dominance demonstrated in
practice
The evidence favoring one activity
over another is of the highest
possible order of affirmation
Extreme
importance
Fig. 1. Flowchart of study
2000兲. The objective of this study is to evaluate the relative importance of company strengths associated with international expansion, and the threats and opportunities inherent in international
markets.
Methodology
The analysis is conducted at two levels 共Fig. 1兲. First, an internal
analysis is conducted that consists of assessing a company’s
strengths associated with international construction. The strength
factors identified after a thorough literature review include project
management expertise, financial strength, specialist expertise,
international-network, equipment/material/labor support, track
record, and technological advantage 共Friedman 1984; Quak 1991;
Pheng 1996; Crosthwaite 1998兲. Opportunities and threats associated with international construction are then assessed in an external analysis. The likely threats were identified in the literature
as inflation and currency fluctuations, interest rate increases,
shortage of financial resources, bribery in the host country, foreign competitors in the host country, cultural differences, and loss
of key employees 共Friedman 1984; Strassmann and Wells 1988;
Arditi and Guiterrez 1991; Barco 1994; Ramcharran 1998兲,
whereas the opportunities include chances to take advantage of
the globalization and openness of markets, availability of new
service areas, increased long-term profitability, chances to take
advantage of the privatization programs in emerging economies,
chances to take advantage of beneficiary international agreements, ability to maintain shareholders’ return, and chances to
achieve technological advancement 共CII 1993; Crosthwaite 1998;
Raftery and Pasadilla 1998; Ramcharran 1998兲.
The combined use of the analytic hierarchy process 共AHP兲 and
Delphi is an original approach that was explored in this study. The
AHP is a general theory of measurement. It is used to derive ratio
scales from both discrete and continuous paired comparisons. The
AHP enables decision makers to represent the simultaneous interaction of many factors in complex, unstructured situations. It
helps them to identify and set priorities on the basis of their
objectives and their knowledge and experience of each problem.
It reflects the simple, intuitive way to deal with problems, and it
streamlines the process by providing a structured approach to
decision making 共Saaty 1999兲.
The Delphi method, on the other hand, is an exercise in group
communication among a panel of geographically dispersed experts. Delphi replaces direct confrontation and debate by a carefully planned, orderly program of sequential individual questionnaires sent to a preselected panel of experts 共Brown 1968兲. The
series of questionnaires is interspersed with feedback derived
from the respondents 共Mitchell 1991兲. These questionnaires are
designed to elicit and develop individual responses to the problems posed and to enable the experts to refine their views 共Adler
and Ziglio 1996兲. The use of a statistical group response assures
that the opinion of every member of the group is represented in
the final response 共Dalkey et al. 1972兲.
The Delphi process was administered to solicit information
about the pairwise comparisons required by AHP. Experts were
asked to make relative comparisons between pairs of factors using
the AHP scale. The fundamental AHP scale of absolute values for
representing the intensities of judgments is shown in Table 1.
Human ability to make qualitative distinctions is well represented
by five attributes: equal, moderate, strong, very strong, and extreme. Compromises can be made between adjacent attributes
when greater precision is needed. The totality requires nine consecutive values. This scale has been validated for effectiveness in
many applications and through theoretical comparisons with
many other scales 共Saaty 1996兲. Respondents are asked to transform their real life comparisons to the nine-value AHP scale.
Fifty four United States-based international construction companies with minimum $10 million in revenue ranked in the top
225 international contractors listed by Engineering News-Record
共ENR兲 in 2000 were invited to participate in the Delphi survey.
Seventeen companies accepted the invitation and were sent a
mail-in questionnaire. Twelve of the 17 returned the questionnaire
administered in the first round, effectively constituting a rate of
response of 22% of the original population of 54 companies. Considering the fact that company executives were asked to respond
to an eight-page questionnaire composed of cumbersome pairwise
comparisons, the response rate of 22% is quite satisfactory.
All participants had positions at an executive level. They were
either general managers or vice presidents in charge of international business development. The experts were first asked to conduct pairwise comparisons of the strengths of their respective
companies relative to international construction. For example, if a
respondent thought “project management capability” is six times
more important than “financial strength” in conducting international business, the response would be
274 / JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / MARCH 2005
J. Constr. Eng. Manage., 2005, 131(3): 273-282
6 Project management capability
Financial strength
Downloaded from ascelibrary.org by Florida International University on 03/07/19. Copyright ASCE. For personal use only; all rights reserved.
If a respondent thought “financial strength” is four times more
important than “project management capability” then the response
would be
Project management capability
4 Financial strength
The respondents were then asked to conduct pairwise comparisons of threats and opportunities associated with international
construction.
In the second round, the questionnaires were remailed to the
same 12 respondents along with the median values of the results
obtained in the first round. The experts on the panel were also
supplied with their own answers to the questions in the first
round. They were asked to reconsider their answers in the light of
the information collected in the first round. Ten out of the 12
original respondents responded to the second round.
Convergence between the responses obtained in the two
rounds was checked to see if consensus was achieved in expert
opinions. Consensus simply means a general agreement in responses. Several studies have examined how many rounds are
required for responses to stabilize. Brockhaus and Mickelsen
共1977兲 report that most studies contain three or fewer iterations.
According to Dalkey et al. 共1972兲, the greatest change in group
performance between rounds is the decrease in response variability from the first to the second round. Dietz 共1987兲 reports that
forecasting error decreases over successive iterations, but that the
decrease between round one and three was only 10%. It appears
that most changes in Delphi response occur in the first two rounds
and that not much is gained in conventional Delphi by iterating
more than twice. In fact, a highly suggestive outcome of Dalkey
et al.’s 共1972兲 experiment was that answers were most accurate on
round two and actually became less accurate on subsequent
rounds. There is, then, a move away from multiple-round Delphi
toward a view that two rounds are sufficient. The number of
rounds needs to be as few as possible; otherwise fatigue and time
pressure will result in high panel attrition 共Mitchell 1991兲.
To assess the degree of convergence between two rounds, the
significance of the differences between the means of the standard
deviations obtained in each round were tested using the t-test
共Blalock 1972; Dalkey et al. 1972兲.
The median values obtained in the second round of the Delphi
survey were used as input into Expert Choice, a group meta decision support software product based on AHP. Expert Choice
calculated the relative weights of the factors. In paired comparisons, the smaller element “i” is used as the unit and the larger
element “j” is estimated as a multiple of that unit in the form
共wi / w j兲 / 1. An estimate of the ratio wi / w j is taken from a fundamental scale of ratings such as the scale in Table 1. After priorities are set for the criteria, pairwise comparisons are made between the ratings to set priorities for them under each criterion,
and each of their priorities is divided by the largest rated criterion.
Finally, alternatives are scored by checking off their respective
ratings under each criterion and summing these ratings for all the
criteria. This produces a ratio scale score for each alternative. The
scores thus obtained for the alternatives can, in the end, be normalized by dividing each one by their sum 共Saaty 1996兲. This is
how the relative weights are obtained in AHP.
According to Saaty 共1999兲, the consistency ratio of the results
should be 10% or less. If it is not, the quality of information
should be improved—perhaps by revising the manner in which
the questions are posed to make the pairwise comparisons. The
reason why a Delphi survey was conducted to collect information
in this study was to ensure that the lowest possible consistency
ratio was obtained. The expectation was that convergence in responses will be reached through the Delphi process and this information in turn will result in consistent findings. If these measures fail to achieve consistency, it is likely that the problem has
not been accurately structured—that is, similar elements have not
been grouped under a meaningful criterion. It is important that
consistency ratios in AHP modeling are below 10% as consistency reflects the quality of judgments.
Strengths of Construction Companies Relative to
International Construction
The mean standard deviations of company strengths were computed for each Delphi round and compared with each other. Most
of the differences in the standard deviations were in the expected
direction, such that convergence occurred between the first two
rounds in 20 pairwise comparisons out of 21. In order to test the
statistical significance of the convergence, the t-test was used to
compare the mean standard deviation in the first 共␮SD1兲 and the
second 共␮SD2兲 rounds. The computed t statistic shows that the
difference between the means is not significant at the ␣ = 0.01
level. The degree of convergence obtained in the second round
appears therefore to be sufficient for consensus.
The median values obtained from pairwise comparisons of
company strengths were input into Expert Choice. An overall
consistency ratio of 0.06 was obtained. This consistency ratio is
less than the 0.10 threshold recommended by Saaty 共1999兲 and
proves that all judgments are logically consistent. The factors are
discussed in the following paragraphs in order of importance.
Track Record
The most important strength of a company relative to international construction is “track record” with a relative weight of
23.80% computed by Expert Choice. Companies with a strong
track record are considered to have a competitive edge. An experienced firm has either a ready solution or a cheaper one to a
technical problem because it has encountered a similar problem in
the past and has invested in its solution. It has demonstrated
through previous performances that it has the organization and
technical know-how and experience to overcome technical challenges that may emerge in the course of a construction project
共Quak 1991兲. United States based companies continue to share
international market. According to the ENR’s list of the top 225
international contractors, there were 64 United States based construction companies in the list in 1998, 74 in 1999, 73 in 2000,
and 79 in 2001, but only 34 appeared in the four consecutive
years 共The Top 225 International Contractors 1999, 2000, 2001,
2002兲. Only 16 Japanese and 2 British companies were listed in
the 4 consecutive years. It appears that not every company has a
strong track record in international markets.
Track record is most important in specialist engineering contracts, project management contracts and large contracts. Track
record in the form of reference projects markets a firm through its
past successes, creates goodwill and provides the conditions for a
reactive entry strategy. Since some construction companies are
considering expanding into international markets for the first
time, it is expected that these companies may lack a suitable track
record. A firm that lacks a suitable track record has to pursue an
JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT © ASCE / MARCH 2005 / 275
J. Constr. Eng. Manage., 2005, 131(3): 273-282
aggressive entry strategy, or find itself a strategic ally that possesses the necessary track record 共Quak 1991兲. On the whole, a
firm with a track record will be in a better position to market its
expertise to prospective international clients and consortium partners. The top AHP ranking of “track re …
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