Posted by: Jaring | September 9, 2009

Factors Affecting International Construction; Challenges & Opportunity of Singaporean based company in going abroad

Abstract

This paper presents discussions about the key factors driving international markets and opportunities and challenges that a company in Singapore would face going abroad. The first topic will be elaborated in first half of this paper, while the second one will be discussed later. The international markets discussed in this paper are limited to the only construction industry and more specifically about construction of oil and gas infrastructure. Furthermore, company in Singapore sampled on the discussion of second topic is also working on offshore oil and gas industry.

Keywords: International Construction, Singapore, Oil and Gas Industry

Introduction

International markets or international construction could not be separated with the term of globalization. Ngowi, et al (2004) gives the definition of globalization as a situation where political borders become increasingly more irrelevant, economic interdependencies are heightened, and national differences are accentuated due to dissimilarities in societal cultures and central issues of business, is not new though. Meanwhile, they also comes out with the definition of international construction as where a company, resident in one country, performs work in another country, and has work in NICs (Newly Industrialized Country) and/or LCDs (Least Developed Countries). However, the term of international construction is not limited to a company which performs some works in another country only; international construction could also be meant that a situation of industry that a company is receiving and working for some works owned by a client from another country. More examples about this phenomenon are explained further in a discussion of Singaporean’s company.

International construction happens due to two major factors, these are internal and external factors. Internal factors mean some driving factors available on a company that supports it to compete not only in its domestic region. In other hand, external factors are some factors outside of a company that stimulates or encourages the presence of international construction and supports domestic companies for establishing themselves in international markets.

Internal Factors

To be able to compete in international markets, a company needs to equip itself with several capabilities which internationally adequate for entering the competitive markets. As the international construction industry is concerned mostly with large scale construction, only large technologically qualified contractors are allowed to enter into overseas contracts (Raftery, et al, 1998). In addition, Gunhan and Arditi (2005) have been researched several strength factors inside a company that makes it enter the international markets easily. The most important strength factor for a company to enter the markets is track record. The company has to come to the markets with specialist expertise that distinguishes it with the others. Later, project management capability becomes the third most important strength factor needed by a company. In addition, a company has to create or maintain international network, its financial strength and equipment, material and labor support.

External Factors

The presence of international markets or constructions is also influenced by external factors. Economic booms such as the one resulting from sale of oil probably becomes one of external factors which stimulate the international construction; as oil-rich countries created substantial construction demand (Ngowi, et al, 2004). Another factor encouraging international markets comes from the government. On their paper, Raftery, et al (1998) pointed out several roles of government that can be conducted. Those are (1) removing or relaxing barriers in the repatriation of profits, (2) adopting a transparent tax policy especially by way of granting equal tax treatment to foreign and local companies, (3) adopting double taxation relief agreements with other countries, (4) offering preferential interest rates for joint ventures where there is equity majority by local partners, and (5) entering into bilateral agreements with foreign governments to guarantee safety of foreign investment.

Opportunities that a company in Singapore would face going abroad

In earlier part of this paper, it has been stated that international construction means not only a company work outside of its domestic region, but also a company which works for international project owned by a client outside of its country.

Exploration and production of petroleum in South East Asia is one of the busiest activities in the world compare to same activities performed in another part of the world; especially for offshore industry. With its strategic position in between offshore of Indonesia and Australia and also not so far to the Middle East region, Singaporean’s company working on this industry has enormous advantages. In addition, there is well-known university in Singapore which is also concern in this particular industry. The combination of these two factors created conducive environment for attracting international projects entering to Singapore. As an indication, there are several Singaporean based companies which are very active on performing this industry, such as Keppel, Sembawang Shipyard, and Jurong Shipyard.

Challenges that a company in Singapore would face going abroad

With some limitations of area and population, Singaporean’s company also faces some challenges in competing to the international markets. Again, our discussion on international markets for this particular topic is limited to companies in Singapore which are working for international project owned by clients from outside of Singapore. Limited shore length of Singapore due to its limited country’s area becomes one of challenges need to be faced by Singaporean’s companies working on offshore industry. For efficiency and ease for transportation reason, a fabrication yard for constructing offshore oil and gas infrastructure needs to be situated nearby shore line. Next issue risen from this need is a conflict between the needs of area for fabrication yard and the needs for providing recreational area in the beaches. Another challenge faced by companies in Singapore is about the limited population which affects to manpower supply. They have to invite high-skilled and qualified manpower from outside of Singapore for completing the projects. The disadvantages of this phenomenon is that they have to spend more in their expense for paying salaries of expatriate people worked for them; they would spend less money if they employ only the local Singaporean.

References

Raftery, John, et al. 1998. Globalization and construction industry development: implications of recent developments in the construction sector in Asia. Construction Management and Economics (1998) 16, 729-737.

Gunhan, Suat and Arditi, David. 2005. Factors Affecting International Construction. Journal of Construction Engineering and Management ASCE. March 2005.

Ngowi, A.B. et al. 2004. The globalization of the construction industry—a review. Building and Environment 40 (2005) 135-141.

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Responses

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