THE ASIAN CONSTRUCTION MARKET AND TRENDS AMONG MAJOR CONTRACTORS: ANALYSES BASED ON

THE ENR'S SURVEYS AND OTHER DATA

Jun Iwamatsu, D.Eng.

Senior Research Fellow, Research Institute on Building Cost (RIBC) Nishi-shinbashi 3-25-33, Minato-ku, Tokyo 105-0003, JAPAN, Email: iwamatsu@ribc.or.jp

ABSTRACT This paper aims to examine the scale of Asia's construction market and its changes over time, as well as trends observed among the world's major contractors. Statistical analyses were based upon surveys conducted by the Engineering News-Record (ENR) and other statistical data published by international agencies and national governments over the years. Contractors' overseas advances were examined with a special focus on the international construction market, i.e., a market that is open to foreign firms. Contractors' characteristics were analyzed in terms of their project types, and the firms were categorized into groups accordingly in order to observe varying trends among countries. It was found that globally operating firms from the US and Europe are expanding their scope through mergers and acquisitions, while Asian contractors tend to focus on their domestic markets. Furthermore, the Asian firms show different tendencies in overseas advances depending on their country of origin. In the conclusions, suggestions are made to Japanese contractors regarding their future directions in the international market. Keywords: construction industry, international construction market, Engineering News-Record (ENR), the System of National Accounts (SNA), statistical analysis. INTRODUCTION According to the ENR's survey results from August 2013, published in The Top 250 International Contractors (hereafter referred to as the ENR's survey results), the Asian international construction market is worth US$ 138,814 million. Competitors in this market are European and North American major contractors, as well as contractors from Asia and Oceania (e.g., Japan, China, South Korea and Australia). Given that the total revenue of the 225 contractors operating in this market in 2005 was US$ 33,781 million, this market has grown 4.1 times in the last seven years, and it is expected to grow further. The World Bank's International Comparison Program (ICP) report from 2005, which surveyed 180 countries, is also a relevant source. According to this report, the construction industry's nominal expenditure in 25 major Asian countries and regions was US$ 1,615,266 million in 2005, which was approximately 30% of the global expenditure of US$ 5,293,992 million. The largest players in Asia at that time were China, Japan, South Korea and India, respectively. Based on these reports, Asia's international construction market in 2005 was calculated to be approximately 2.1% in the overall investment in construction. It is believed that this percentage has risen slightly in recent years.

Background and Objectives Depending on the extent of the country's economic development, construction markets vary widely in their characteristics and sizes from one country to another. However, in terms of gross product originating (GPO), the share that this sector has in their respective country's GDP ranges between 5 and 6% (see Figure 1). This coincides with the Petty-Clark Law described in The Conditions of Economic Progress (Clark, 1951), which discusses the structures of the industrial sector.1 Figure 1 used data from the United Nation's System of National Accounts (UNSNA) statistics to plot the ratios of the construction sector in various countries' GDP and coded them by continent, in 1970 and 2012. This data indicates that the nominal GDP of the world, consisting of 213 countries and regions, was US$ 72,689,733 million in 2012, of which 5.3% or US$ 3,895,477 million was contributed by the construction sector. This ratio has decreased slightly since 1970, when it was 6.3%.

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Figure 1: Ratios of construction by country and region, in 1970 and 2012 Note: These plots were made using the UNSNA statistical data. Each plot represents the ratio of each country's construction GDP to its overall GDP. The line indicates the regression line of all of the plots. Note that the GDP of the construction industry represents value added, and thus it is smaller than the industry's revenue.

On the other hand, the globalization of economic activities has evolved in recent years, driving exchanges of people and goods across the borders. The construction industry is not an exception to this trend. Although construction has traditionally been a location-based industry, services are procured internationally especially in large scale constructions or when advanced technical skills are required. In particular, among WTO member countries, they

                                                            1 Colin Clark, having measured the working population of each nation in time series, states that in countries where the manufacturing industry has come to occupy a share of 20% or more of that nation's overall economy, then that country's construction industry contributes approximately 5% to its GDP. (Chapter 9: The Distribution of Labour between Industries)

are required by procurement agreement2 to make construction projects larger than certain thresholds to be open to foreign companies. According to IHS Global Insight, the Asian construction market is predicted to grow from 31% in 2005 to 46% in 2020 of the world market (AECOM, Davis Langdon). The main markets of this region in terms of scale are China, Japan and India. It is widely known, however, that the Near and Middle East and South East Asia have become prosperous as international construction markets in recent years. This paper focuses on Asia's construction market, which is expected to grow in coming years. Its objectives are to clarify the diversity and the situation of this region's construction market, with particular attention to the tendencies and characterstics observed among the world's top constractors in the Asian international construction market. Methods For the purpose of this study, publicly available statistical data from various sources as well as analytical articles by the ENR (a US based construction-related news agency) were used for analysis. The definition of "Asia" as a region differs among these statistical sources and the ENR, and therefore, this discrepancy had to be taken into account. The ENR conducts ongoing studies on the international activities of over 200 top contractors in the world. Each year, the agency surveys company revenues from the past year, compiles rankings by sector and market, and publishes them in one of their issues, often that of August. There exist two types of ranking. The "global" ranking compares companies using their overall revenues, while the "international" ranking lists them by their revenues in international markets outside their home countries. Although the original data from the listed companies is identical in both of the rankings, the latter ranking was used for this study. In addition to the companies' total revenues, the ENR data includes ratios of their revenues in different project types (e.g. general building, manufacturing, power, etc.), through which the characteristics of the listed companies are reflected. Later in this paper, these by-project revenues are used to classify the top contractors into distinct groups. ASIA'S CONSTRUCTION MARKETS The size of each country's construction market and its changes over time The following figures, which depict the changes over time of the sizes of construction markets in different continents and countries, were made using the UNSNA statistical data. The UNSNA consists of a set of derived statistics that systematically record the flow of a nation's economic activities (production, distribution, expenditures, capital accumulation, etc.) as well as its allocations (savings, debts, etc.). The UN has established a set of standards for the compilation of this data in order for the economic activities of different countries be comparable. The data used in this study is based on the 93SNA, which was adopted in 1993. The UN statistics indicate output values in terms of economic activity, but these values are calculated by subtracting the intermediate inputs from the gross output. The construction industry, which is the interest of this study, is defined in Section F of the International

                                                            2 Thresholds for each central government, sub-central government and public enterprise of the WTO member countries are given in the annexes of the procurement agreement. With regard to construction services, the thresholds are set at 5 million SDR (special drawing rights) for many countries (although they vary slightly from country to country).

  

Figure 2: Trends of by-continent construction GDPs (The UNSNA statistics; at constant 2005 prices)  

  Figure 3: Trends of construction GDPs in Asia by country and region (The UNSNA statistics; at constant 2005 prices)

Standard Industrial Classification of All Economic Activities (ISIC), Rev. 3. Intermediate inputs in said industry include construction materials as well as energy and services used at construction sites, and they amount to approximately 50% of the revenue. These output values, which are created by the construction industry, are used as data in Figures 1 through 3. Figure 2 shows the trends of construction output from around the world. The values in the figure are shown in US dollars at constant 2005 prices, and are classified by continent. Overall, construction outputs have been increasing since 1970. The trends seem to reflect the oil crisis, the Gulf War, the Lehman Brothers crash, and other global economic phenomena during this period. The construction GDPs in Asia are more or less consistently on the rise, and seem to have been affected little by the Lehman Brothers' crash. East Asia has the largest output in the region, although West Asia, South Asia and South East Asia show rapid expansions in recent years. Figure 3 shows the trends of construction GDPs in different Asian countries, which are listed in the legend by output size as of 2012. Japan maintained the top position for many years, but was overcome by China in recent years. India and South Korea follow those top two nations. Towards the bottom are small countries and underdeveloped nations. The most recent difference in output between the first and last nations is close to 1000 times, implying how diverse different nations' construction markets are in this region. While fluctuations exist, most countries have expended their markets over the 42 year period. However, Japan and South Korea with their sizable construction markets show decline. This phenomenon is related to the advances that the top contractors from these two nations are making in the international market. Asia's international construction market General trends in Asia's inter-national construction market can be extracted from the ENR's survey results. The agency's articles on its international rankings include, in addition the rankings themselves, a summary of 'how the top international contractors shared the 20XX market' (see Table 7 for an example). This summary is organized by region: the Middle East, Asia, Africa, Europe, US, Canada and Latin America/the Carribian. The regions men-tioned after the US are divided into smaller areas, probably because the ENR is a US based agency. Figure 4 depitcts the changes over time of the global international revenues and the total revenues from Asia alone. Note here that the region of Asia

Figure 4: Expansion of the international construction market (World and Asian markets)

Figure 5: By-country share in Asia's international construction market

in the ENR's data does not include the Middle East. As shown in Figure 4, the international market grew by approximately 4.4 times from US$ 116 billion in 2000 to US$ 511 billion in 2012. Similarly, the Asian market expanded by approximately 5.5 times from US$ 25 billion in 2000 to US$ 139 billion in 2012. Accordingly, Asia's share in the international market grew from around 20% in 2000 to 27.2% in 2012. Figure 5 shows the changes over time in the ratios of contractors from different countries in Asia's international market. Since 2000, this market has become a competing ground for contractors from major nations, including Japan, the US, China, Germany, France, South Korea, Spain, Italy, Australia and Turkey. As mentioned in the introduction, Asia's international market is estimated to have occupied around 2.1% of the overall construction market in 2005. This is a very small percentage. However, it would be interesting to study which countries are involved in which types of projects in this market. In order to conduct these analyses accurately, new sets of data are required, and therefore they will be postponed for a future study. CHARACTERISTICS OF GLOBALLY OPERATING MAJOR CONTRACTORS In the previous section, construction markets in Asian countries as well as the makeup of different nationalities in the same region's international market were discussed. This section uses the ENR's survey results to study the characteristics of such globally operating major contractors, using multivariate statistics (principal component analysis (PCA) and cluster analysis). The PCA of the top 100 contractors from the ENR 2013 International Ranking The ENR's rankings indicate the breakdown of each contractor's overall revenue into different project types (Figure 6 shows a part of such a list). These ratios show each contractor's areas of work. Using this data, the contractors' characteristics were statistically analyzed and classified. There are nine project types in the ENR's surveys, as shown in Table 1. It must be noted that the by-project type breakdown of one contractor's revenue listed in an international ranking differs from that of the same contractor in a global ranking. The former ranking uses the contractor's revenue from the international market, whereas the latter uses its overall revenue. The former data was used for this study.

  Figure 6: The first part of The Top 250 International Contractors (2013) ranking list

Table 1: Classification of nine project types used in the ENR's surveys Project type Project examples

General Building commercial buildings, offices, stores, educational facilities, government buildings, hospitals, medical facilities, hotels, apartments, housing, etc.

Manufacturing auto electronic assembly, textile, plants, etc.

Power thermal and hydroelectric power plants, waste-to-energy plants, transmission lines, substations, cogeneration plants, etc.

Water Supply dams, reservoirs, transmission pipelines, distribution mains, irrigation canals, desalination and portability treatment plants, pumping stations, etc.

Sewage / Solid Waste sanitary and storm sewers, treatment plants, pumping plants, incinerators, industrial waste facilities, etc.

Industrial Process / Petroleum pulp and paper mills, steel mills, non-ferrous metal refineries, pharmaceutical plants, chemical plants, offshore facilities, pipelines, etc. petrochemical plants, offshore facilities, pipelines, etc.

Transportation airports, bridges, roads, canals, locks, dredging, marine facilities, piers, railroads, tunnels, etc.

Hazardous Waste chemical, nuclear-waste treatment, asbestos and lead abatement, etc. Telecommunications transmission lines, cabling, towers/antennae, data centers, etc. Source: ENR, August 26 / September 2, 2013 issue

 

Table 2: Cumulative contribution ratios Comp.1Comp.2 Comp.3 Comp.4Comp.5Comp.6Comp.7Comp.8Comp.9Standard deviation 2,948 2,614 1,203 781 283 170 132 101 67Proportion of Variance 0.4904 0.3856 0.0816 0.0344 0.0045 0.0016 0.0010 0.0006 0.0003Cumulative Proportion 0.4904 0.8760 0.9576 0.9920 0.9966 0.9982 0.9992 0.9997 1.0000Note: Cumulative contribution ratios of the first and second principal components arrive at 87.6%. See the upper Figure 7.

Table 3: Principal component loadings on each principal component axis

Comp.1Comp.2 Comp.3 Comp.4Comp.5Comp.6Comp.7Comp.8Comp.9General Building 0.298 -0.511 0.790 Manufacturing 0.991 0.108 Power 0.992 Water Supply 0.981 0.106 0.122Sewage/Solid Waste 0.133 -0.158 -0.975Indust. Process/Petrol. 0.823 0.565 Transportation 0.479 -0.637 -0.601 Hazardous Waste -0.488 -0.868 Telecommunications -0.841 0.495 0.155Note: The biplot of the variable vectors in the lower Figure 7 was drawn using the weights indicated in this table. 

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Note: This is the result of a cluster analysis using complete-linkage clustering, calculating the Euclidean distances between objects, which are each contractor's nine by-project type sub-revenues (US$ million). 

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Figure 9: Classification of the top 100 contractors (Right: overall; Left: limited to Group C) Note: These figures plot the scores of the first and second principal components of the top 100 contractors. Each plot is accompanied by its ranking and a country code. The classification of groups is based on Figure 8 (C-2a and C-2d look overlapped when viewed on a two-dimensional plain). The classification of the 100 contractors is listed in Table 4.

Table 4: PCA scores and the classiffication of the top 100 contractors from the ENR's Top International Contractors 2013 ranking

2013 Rank

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1 GRUPO ACS Spain ES Europe 42,772 50,655 43,659 10,579 -10,142 B 2 HOCHTIEF AG Germany DE Europe 34,563 36,453 37,673 7,377 -8,394 B 3 BECHTEL U.S.A. US Americas 23,255 29,436 12,926 14,714 5,422 A 4 VINCI France FR Europe 18,420 50,339 18,854 4,344 -6,092 D 5 FLUOR CORP. U.S.A. US Americas 17,210 22,353 20,600 10,388 5,810 A 6 STRABAG SE Austria AT Europe 16,062 18,557 15,271 4,405 -7,045 D 7 BOUYGUES France FR Europe 14,196 33,885 14,538 3,574 -6,944 D 8 SAIPEM Italy IT Europe 13,771 14,039 NA 9,132 7,841 A 9 SKANSKA AB Sweden SE Europe 13,292 17,217 14,006 2,272 -4,842 D

10 CHINA COMMUNIC’S CONSTR. GROUP LTD. China CN Asia 11,187 47,327 20,311 3,218 -5,982 D 11 TECHNIP France FR Europe 10,347 10,547 14,802 6,327 6,172 A 12 CONSTRUTORA NORBERTO ODEBRECHT Brazil BR Americas 9,265 14,922 16,036 1,831 -2,020 D 13 SAMSUNG ENGINEERING CO. LTD. S. Korea KR Asia 8,652 10,681 9,237 4,258 4,684 C-114 FCC, FOMENTO DE CONSTR. Y CONTRATAS SA Spain ES Europe 8,355 14,870 8,504 949 -3,764 D 15 HYUNDAI ENG. & CONSTR. CO. LTD. S. Korea KR Asia 7,814 12,535 15,725 958 392 C-2a16 BILFINGER SE Germany DE Europe 6,819 11,101 6,451 1,703 1,296 C-117 BALFOUR BEATTY PLC U.K. GB Europe 6,048 13,277 5,388 -279 -2,384 C-2b18 PETROFAC LTD. U.K. GB Europe 5,685 5,685 7,367 2,571 3,604 C-119 ROYAL BAM GROUP NV The NetherlandsNL Europe 5,557 9,785 5,911 102 -2,832 C-2b20 SINOHYDRO GROUP LTD. China CN Asia 5,473 20,120 12,299 -1,225 -916 C-2a21 CONSOLIDATED CONTRACTORS GROUP Greece GR Europe 5,379 5,379 4,385 1,428 1,223 C-122 PCL CONSTR. ENTERPRISES INC. U.S.A. US Americas 5,296 6,842 5,862 -22 -807 C-2b23 OHL SA (OBRASCON HUARTE LAIN SA) Spain ES Europe 5,098 6,864 3,459 190 -2,495 D 24 CHINA STATE CONSTR. ENG’G CORP. China CN Asia 4,988 81,367 8,553 -477 -2,175 C-2b25 CHINA NAT’L MACHINERY INDUST. CORP. China CN Asia 4,948 5,533 12,073 -868 693 C-2a26 DAELIM INDUSTRIAL CO. LTD. S. Korea KR Asia 4,808 8,677 2,831 1,246 2,536 C-127 SALINI SPA Italy IT Europe 4,423 5,360 2,526 -1,151 -942 C-2c28 GS ENGINEERING & CONSTR. CORP. S. Korea KR Asia 4,412 8,471 4,324 808 1,834 C-129 KBR U.S.A. US Americas 4,330 6,070 10,359 709 1,488 C-130 ABEINSA SA Spain ES Europe 4,305 5,506 3,934 -1,841 139 C-2a31 LEIGHTON HOLDINGS LTD. Australia AU Oceania 4,172 23,483 1,472 -689 -164 C-2d32 JGC CORP. Japan JP Asia 4,009 4,602 4,065 1,192 2,657 C-1

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33 LEND LEASE GROUP Australia AU Oceania 3,842 11,645 2,865 -674 -897 C-2b34 CHINA RAILWAY GROUP LTD. China CN Asia 3,800 81,806 10,013 -821 -1,450 C-2d35 SK ENGINEERING & CONSTR. CO. LTD. S. Korea KR Asia 3,707 6,718 3,034 425 1,779 C-136 SAMSUNG C&T CORP. S. Korea KR Asia 3,521 8,345 5,785 -1,332 -24 C-2a37 CB&I U.S.A. US Americas 3,504 4,415 6,202 776 2,372 C-138 TECNICAS REUNIDAS Spain ES Europe 3,259 3,475 4,130 342 2,050 C-139 KIEWIT CORP. U.S.A. US Americas 3,239 9,601 1,610 -581 867 C-2c40 DAEWOO E&C CO. LTD. S. Korea KR Asia 3,210 7,639 3,818 -236 1,484 C-2c41 DANIELI & C. OM SPA Italy IT Europe 2,700 2,850 2,000 114 1,918 C-142 MCDERMOTT INTERNATIONAL INC. U.S.A. US Americas 2,680 3,084 4,649 98 1,906 C-143 CITIC CONSTR. CO. LTD. China CN Asia 2,636 2,964 6,310 -1,176 -645 C-2d44 FOSTER WHEELER AG U.S.A. US Americas 2,619 3,415 2,926 -659 1,311 C-2c45 GRUPO ISOLUX CORSAN SA Spain ES Europe 2,605 3,814 1,883 -1,707 119 C-2a46 POSCO ENGINEERING & CONSTR. S. Korea KR Asia 2,565 6,685 3,606 -599 1,074 C-2c47 OBAYASHI CORP. Japan JP Asia 2,557 15,598 846 -1,454 -611 C-2d48 LARSEN & TOUBRO LTD. India IN Asia 2,517 11,091 2,382 -872 711 C-2c49 ACCIONA INFRAESTRUCTURAS Spain ES Europe 2,483 4,272 3,510 -1,279 -698 C-2d50 KAJIMA CORP. Japan JP Asia 2,352 14,156 2,968 -1,583 -347 C-2d51 CHINA METALLURGICAL GROUP CORP. China CN Asia 2,296 31,523 3,152 -951 616 C-2c52 MAIRE TECNIMONT Italy IT Europe 2,263 2,419 603 -459 1,311 C-2c53 CHINA RAILWAY CONSTR. CORP. LTD. China CN Asia 2,147 84,642 4,898 -1,223 -852 C-2d54 SEPCOIII ELECTRIC POWER CONSTR. CORP. China CN Asia 2,099 2,283 1,741 -2,042 249 C-2a55 JACOBS U.S.A. US Americas 2,087 4,104 3,346 -544 1,388 C-2c56 CHINA GEZHOUBA GROUP CO. LTD. China CN Asia 2,009 7,507 5,992 -1,874 58 C-2a57 TOYO ENGINEERING CORP. Japan JP Asia 1,960 2,433 2,691 -727 1,313 C-2c58 SACYR VALLEHERMOSO Spain ES Europe 1,941 4,723 1,296 -1,430 -572 C-2d59 MOTA-ENGIL Portugal PT Europe 1,904 2,458 1,911 -1,230 -797 C-2d60 VAN OORD The NetherlandsNL Europe 1,887 2,196 2,498 -1,105 -100 C-2d61 SEPCO ELECTRIC POWER CONSTR. CORP. China CN Asia 1,880 3,056 878 -2,049 264 C-2a62 ASTALDI SPA Italy IT Europe 1,848 3,028 1,826 -1,245 -639 C-2d63 BESIX SA Belgium BE Europe 1,794 2,750 879 -1,450 -599 C-2d64 RENAISSANCE CONSTR. Turkey TR Asia 1,758 2,007 2,342 -1,331 18 C-2d65 CHIYODA CORP. Japan JP Asia 1,729 2,883 2,071 -728 1,340 C-2c66 CONSTRUTORA ANDRADE GUTIERREZ SA Brazil BR Americas 1,690 4,063 3,100 -1,363 -241 C-2d67 SHIMIZU CORP. Japan JP Asia 1,501 13,507 1,536 -1,759 240 C-2d68 ARABIAN CONSTR. CO. SAL Lebanon LB Asia 1,481 1,535 1,111 -1,713 -286 C-2d69 WORLEYPARSONS LTD. Australia AU Oceania 1,465 1,808 406 -966 1,158 C-2c70 TAKENAKA CORP. Japan JP Asia 1,413 10,588 1,765 -1,954 149 C-2d71 CHINA CIVIL ENGINEERING CONSTR. CORP. China CN Asia 1,411 1,548 6,541 -1,452 -493 C-2d72 SHANGHAI ELECTRIC GROUP CO. LTD. China CN Asia 1,407 1,935 NA -2,064 296 C-2a73 JOANNOU & PARASKEVAIDES GROUP U.K. GB Europe 1,343 1,343 1,250 -1,617 -217 C-2d74 ED. ZUBLIN AG Germany DE Europe 1,343 4,059 NA -1,857 -21 C-2d75 TAIKISHA LTD. Japan JP Asia 1,320 2,299 NA -1,603 723 C-2d76 TAISEI CORP. Japan JP Asia 1,295 13,336 758 -1,746 -110 C-2d77 PUNJ LLOYD LTD. India IN Asia 1,293 2,163 761 -1,201 865 C-2c78 PORR AG Austria AT Europe 1,247 3,817 1,944 -1,693 -274 C-2d79 ENKA CONSTR. & INDUSTRY CO. INC. Turkey TR Asia 1,243 1,384 1,024 -1,543 199 C-2d80 PENTA-OCEAN CONSTR. CO. LTD. Japan JP Asia 1,211 3,788 662 -1,697 -183 C-2d81 CHINA GEN. TECH. (GROUP) HOLDING LTD. China CN Asia 1,208 4,268 1,712 -2,054 335 C-2d82 CHINA NAT’L CHEMICAL ENG’G GROUP China CN Asia 1,194 8,726 5,063 -1,536 729 C-2c83 THE ARAB CONTRACTORS (O.A.O. & CO.) Egypt EG Africa 1,191 2,731 853 -1,665 -242 C-2d84 CHINA PETROL. ENG’G & CONSTR. CORP. China CN Asia 1,166 2,336 2,402 -1,148 1,051 C-2c85 TEKFEN CONSTR. AND INSTAL. CO. INC. Turkey TR Asia 1,159 1,402 753 -1,263 778 C-2c86 CHINA INT’L WATER & ELECT. CORP. (CWE) China CN Asia 1,084 1,116 1,482 -1,967 182 C-2d87 SNC-LAVALIN INC. Canada CA Americas 1,079 3,022 643 -1,681 473 C-2d88 HANWHA ENG’G & CONSTR. CORP. S. Korea KR Asia 1,024 3,148 8,563 -1,881 317 C-2d89 CGC OVERSEAS CONSTR. GROUP CO. LTD. China CN Asia 1,017 1,044 1,579 -1,751 -94 C-2d90 POLIMEKS INSAAT TAAHHUT VE SAN TIC. AS Turkey TR Asia 981 981 1,938 -1,711 101 C-2d91 SINOPEC ENG’G (GROUP) CO. LTD. China CN Asia 959 5,122 2,034 -1,319 934 C-2c92 DONGFANG ELECTRIC CORP. China CN Asia 926 6,837 987 -2,079 329 C-2d93 URS CORP. U.S.A. US Americas 914 3,310 1,796 -1,477 811 C-2c94 ANT YAPI INDUSTRY & TRADE JSC Turkey TR Asia 884 958 968 -1,844 -59 C-2d95 QINGJIAN GROUP CO. LTD. China CN Asia 880 5,754 598 -1,848 -48 C-2d96 SHANGHAI CONSTR. GROUP China CN Asia 870 20,822 943 -1,807 -77 C-2d97 COMSA EMTE Spain ES Europe 861 2,332 836 -1,773 -55 C-2d98 CHINA PETROLEUM PIPELINE BUREAU (CPP) China CN Asia 812 4,036 1,172 -1,446 846 C-2c99 SHIKUN & BINUI - SBI INFRAST. LTD. Israel IL Asia 811 811 1,075 -1,749 -89 C-2d

100 BAUER AG Germany DE Europe 771 1,053 777 -1,886 209 C-2dNote: This table is a result of analyzing the top 100 contractors ranked in 'The Top 250 International Contractors' of the ENR's August 26 / September 2, 2013 issue.

The PCA reduces the large amount of diverse information contained in data to a smaller set of composite variables. Its aim is to capture as much information as possible with as few composite variables as possible. In other words, it is a method to reduce and simplify information. Using the aforementioned ENR data of the 100 contractors' by-project type revenues in the international market, the PCA extracted information regarding the relationships among these 9 project type groups and among the 100 contractors. The calculation of the contribution ratios (see Table 2) shows that the first principal component is 49.0% and the second 38.6%, together contributing 87.6% of the total information. Table 3 on principal component loadings and Figure 7's biplot further indicate that the following three project types are related to this contribution: industrial process, transportation and general building. In other words, the differences of revenue in these 3 project types explain the discrepancies among the contractors much more than do the other 6 project types. These project types are responsible for large revenues in the international construction market. Figure 7 shows that the axis of the industrial process / petroleum is almost perpendicular to the axes of the other two project types. This division can be interpreted as two roughly different approaches that the construction firms take in their choice of projects. Furthermore, a cluster analysis was run to calculate the distances among the contractors based on the score of each principal component of each contractor (100x9 matrix), which was obtained through the PCA. The contractors were then divided into groups based on their values. Figure 8 is a dendrogram that shows these distances between the contractors. Figure 9 plots the four groups (A through D) that were identified in Figure 8 on a plane along two principal component axes. Group C, with the largest number of contractors, was further broken down separately. Figure 9 shows that the by-project type revenues within each group are similar among the contractors, and these contractors' revenues are comparable in size to one another. On the other hand, the by-project type revenues and their sizes differ greatly from one group to another. These characteristics of those contractors

Table 5: The size of the classified contractor groups and the medians of their principal component scores

No. ofFirms

Sum Total Revenue (US$ million)

Comp.1. Median

Comp.2.Median2013 INT'L TOTAL NEW Int’l

TOTAL 100 458,763 1,118,505 525,094 -1,163 144A 4 64,583 76,375 48,328 9,760 5,991B 2 77,335 87,108 81,332 8,978 -9,268C 86 220,970 751,041 284,455 -1,271 204D 8 95,875 203,981 110,979 2,745 -5,412

C-1 13 59,944 81,208 69,034 808 1,918C-2a 10 36,061 70,634 60,310 -1,774 194C-2b 5 25,731 122,916 28,579 -279 -2,175C-2c 19 37,870 116,056 43,118 -951 934C-2d 39 61,364 360,227 83,414 -1,681 -100Note: Data was extracted from Table 4. 

 

Table 6: Relationship between the classified contractor groups and their home countries

A B C D C-1 C-2a C-2b C-2c C-2dTOTAL 4 2 86 8 13 10 5 19 39

Africa 1 1Americas 2 10 1 3 1 4 2Asia 50 1 5 8 1 12 24Europe 2 2 22 6 5 2 2 2 11Oceania 3 1 1 1Australia 3 1 1 1Austria 1 1 1Belgium 1 1Brazil 1 1 1Canada 1 1China 22 1 6 1 5 10Egypt 1 1France 1 2Germany 1 3 1 2Greece 1 1 India 2 2 Israel 1 1Italy 1 4 1 2 1Japan 10 1 2 7Lebanon 1 1Portugal 1 1S. Korea 9 4 2 2 1Spain 1 6 2 1 2 3Sweden 1 The Netherlands 2 1 1Turkey 5 1 4U.K. 3 1 1 1U.S.A. 2 8 3 1 4Note: Data was  extracted  from Table  4. The  right hand  side  shows  the 

breakdown of Group C. 

are discussed below, based on the details of the analysis listed in Table 4. (Tables 5 and 6 are compiled using extracted data from Table 4.) Table 5 lists the characteristics of each contractor group, while Table 6 organizes the same groups by continent and country. Interesting facts are observed from these tables. According to Table 5, the total revenue of the top 100 contractors (based on the 2013 ranking) was US$ 458,763 million in the international market. Given that the revenue of the top 250 contractors was US$ 510,876 million (see Figure 4), the top 100 contractors account for 89.9% of that market. The contractors that belong to Groups A, B and D are all major companies that rank towards the top. While the number of contractors in each group is small, their total revenues are sizable. As shown in Figures 8 and 9, Group A includes two American giants, Bechtel and Fluor Corp., which have strong footholds in the area of industrial process / petroleum. Group B includes the two top ranking contractors, namely Grupo ACS from Spain and Hochtief AG from Germany. However, since Grupo ACS bought the German company in 2011, it is assumed that the former's revenue includes that of the latter.3 The revenues of Group D's contractors in the international market are slightly inferior, but they include a few companies that have strong performances in the areas of general building and transportation, as does Group B. As shown in Table 6, with the exception of one Chinese and one Brazilian firm in Group D, the rest of the contractors in these three groups are from Europe and the US. Asian companies are almost nonexistent in these group types. Group C includes 86 contractors. The subgroup C-1 consists of the top ranking contractors, followed by C-2 that is made up of a wide range of contractors that ranked 15th and lower. The top Asian contractors are ranked mostly in the following order: China, South Korea and Japan. As shown in Figure 6, while most of the Asian contractors belong to either C-2d or C-2c, the C-2a, 2b and 2d types are especially dominant among the Chinese and the C-1 type among the Koreans. Korea's three major companies, except for Hyundai Engineering & Construction (ranked 15), belong to the C-1 type. Japan's largest firm, JGC (ranked 32), also belongs to this type, which is strong in the area of industrial process / petroleum. On the other hand, Japan's five major globally active general contractors all belong to the C-2d group. As will be discussed in the next section, it is interesting to observe that these C-2d type Japanese contractors share a common characteristic with the major Chinese firms in that they all have low overseas work ratios (i.e. their operations are mainly based upon domestic demands). The above analysis is based on data from the international construction market of 2012. If past tendencies of the same market were to be included in the analysis, it is possible that more detailed characteristics of the construction firms from different countries might be revealed. Domestic and overseas markets for major global contractors The analyses discussed above focused on overseas revenues. Needless to say, however, the same 100 contractors have revenue from their respective domestic markets, as shown in Table 4. The ratio of each firm's overseas revenue was calculated, and this data was used to create Figures 10 and 11.

                                                            3 The same supposition affects the interpretation of Table 5. While the data listed in the rankings of the ENR's publications must be correct as values, calculating total values may have caused some overlapping of data, i.e. the scoping problem in consolidated accounts.

Figure 10 is a plot of the 100 contractors using overseas revenue and overseas work ratio. The continent coding clearly shows that the European firms generally have high overseas ratios. Nonetheless, contractor's tendencies differ greatly from one country to another. For example, two US major firms have high overseas ratios at around 80% while two French companies are at around 40%. European firms' overseas advances include their neighboring countries within the European Union (EU), and therefore this factor must slightly reduce their actual overseas ratios.4 However, Figure 5 shows that many of them in fact have advances across continents. The US has work exchanges with its neighbor Canada, but their contractors also work far from home, in Asia, including the Middle East (See Table 7). In contrast, the overseas work ratios of the Asian contractors vary widely. As mentioned earlier, Figure 11 shows that Japanese and Chinese firms have low rates of overseas projects, while Korean companies divide their work more or less evenly between home and abroad. Turkish, Israeli and Lebanese firms have slightly higher overseas ratios. In the case of China and Japan, their enormous domestic markets must be a contributing reason for this phenomenon. South Korea's domestic market is not as big, and this explains their more eager advances abroad. With regard to destination markets, they differ by their nationality. China's main destinations are Africa and Asia, South Korea's are the Middle East and Asia, Japan's is Asia, Turkey's are Europe and the Middle East, and Australia's are Asia and the US, in the order of overseas revenue size among the 250 ranked firms (see the highlighted area of Table 7).

                                                            4 The ENR's 2012 survey results indicate that the combined overseas revenue of the 58 European firms was US$ 254,990 million, of which 32.6% or US$ 83,111 million consisted of work outside their countries but within the EU. The rest was from projects outside of Europe, which included many regions from around the world: Asia (22.8%), the US (14.9%), the Middle East (10.3%), Latin America (9.5%) and Africa (7.0%). (See Table 7)

1000 2000 5000 10000 20000 50000

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Log of International Revenue (US$ million)

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10CN

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13KR

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GR

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80JP81CN

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87CA88

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IL

100DE

 

Greece (1)

Israel (1)

U.K. (3)Lebanon (1)

Italy (5)

Turkey (5)

Portugal (1)

Sweden (1)

U.S.A. (10)The Netherlands (2)

Spain (9)

Germany (4)

Belgium (1)

Austria (2)

S. Korea (9)Brazil (2)

Egypt (1)

France (3)

India (2)

Canada (1)

Australia (3)

China (23)Japan (10)

0 20 40 60 80 100

INT'L Revenue / TOTAL Revenue x100 (%)

 

Figure 10: Relationships between the overseas revenue and the overseas work ratio

Note: Plotted data was obtained from the ENR's 2013 top 100 contractors.

Figure 11: Comparison of overseas work ratios between countries

Note: Data source, same as Figure 10. The number behind the country name indicates the number of contractors.

Table 7: Overseas destinations of contractors from different countries in the international construction market, as of 2012

Contractor Nationality

# of Firm

INT'L Revenue

(US$ million)

By-region ratios of the contractor's overseas advancement Middle

east Asia Africa Europe

United States

Canada Lat. Amer

/Carib AMERICAN 33 71,517.0 16.7 31.7 3.7 11.4 NA 26.4 10.1 CANADIAN 3 1,236.9 14.7 5.7 23.1 24.0 15.6 NA 16.9 EUROPEAN 58 254,990.2 10.3 22.8 7.0 32.6 14.9 2.8 9.5 British 3 12,177.3 14.3 27.6 6.9 16.5 32.6 1.1 1.0 German 4 43,496.0 4.3 51.7 1.6 15.9 23.0 2.7 0.8 French 4 43,244.6 4.8 13.9 11.7 47.3 9.4 6.4 6.6 Italian 17 30,934.7 28.1 12.3 23.9 17.7 2.0 2.2 13.9 Dutch 2 7,444.1 4.9 10.9 2.2 79.3 0.0 0.7 2.0 Spanish 12 72,889.3 6.1 28.0 2.0 22.0 18.9 2.7 20.3 Other 16 44,804.2 15.9 2.9 5.2 58.8 12.5 0.8 3.9 AUSTRALIAN 4 10,197.1 11.7 45.6 0.6 9.2 20.9 10.0 2.1 JAPANESE 15 21,016.8 11.1 67.2 3.1 2.4 11.0 1.5 3.7 CHINESE 55 67,065.3 13.9 35.8 38.0 2.4 0.9 0.0 9.0 KOREAN 15 41,389.7 64.5 23.6 6.6 0.7 1.4 0.3 2.8 TURKISH 38 16,804.4 31.0 17.9 13.8 36.3 0.0 0.0 1.0 BRAZILIAN 4 11,898.9 0.2 0.0 19.4 3.6 2.0 0.0 74.8 ALL OTHER 25 14,759.9 55.0 15.8 16.3 5.6 0.1 0.3 6.9 ALL FIRMS 250 510,876.2 17.9 27.2 11.1 20.0 8.6 5.4 9.8 Note: This table was created from the ENR's tables titled 'How the top international contractors shared the 2012 market' in the agency's issue dated August 26 / September 2 of 2013. The total percentage of the component rates on each line sums up to 100%. The numbers indicating high shares are marked in bold. (See text for reference.)

CONCLUSIONS Large European contractors are rapidly expanding their revenues through active mergers and acquisitions, while also sustaining their levels of global participation. One such example is how the Spanish Grupo ACS made Hochtief AG (Germany), Turner (US) and Leighton (Australia) its subsidiaries in 2011. In addition, they are increasing their presence in Asia's international construction market. Although Asian contractors from China, South Korea and Japan are generally less aggressive (see Figure 5), the Koreans are active in the enormous Middle Eastern market and the Chinese have a share of approximately a half of the African market. In addition to the fact that China has a vast domestic market to start with, many of its contractors are incrementing their overseas revenues year after year (See Table 4). The Japanese contractors, on the other hand, have been suffering from the continuous reduction of their domestic market for the past 20 years. Their advances in the overseas market have also been struggling. According to the analyses conducted by Endo et al. (2013), which also used the ENR's surveys, European and US firms with high overseas ratios generally have comparable project type breakdowns in their domestic and overseas revenues. The Japanese, in contrast, have reduced their work in the building sector and instead have shifted their focus to civil engineering and infrastructure projects abroad. Endo et al. (2013) therefore concluded that the Japanese are using a strategy of reutilization abroad, 'to take advantage of technologies that have already been employed in Japan for their overseas projects. Such technologies include long span bridges, undersea tunnels, water and sewerage treatment and bullet trains.' The strengths of the Japanese lie in their technical skills and research and development capabilities, which have been refined over the years. Many of such capacities are undoubtedly in need in Asia's other construction markets. Based upon this study, a few recommendations can be made for Japanese construction companies. First, rather than competing with the Chinese and Koreans for the lowest prices,

Japanese contractors must focus on investing their resources into the sectors in which their technical strengths can be advantageous. Second, they must overcome their weaknesses by improving their contract management abilities at an international level. Furthermore, they should study how European and US companies handle mergers and acquisitions, and consider those options with firms from host countries and competing nations. To this end, Japanese firms must closely follow international tendencies, carefully analyze other nations' construction markets, and establish highly diverse management styles by actively incorporating foreign employees into their operations.

REFERENCES

AECOM (2013) Asia Construction Outlook 2013. AECOM, http://www.aecom.com Clark, C. (1951) The Conditions of Economic Progress, Vol. 2. 2nd edn, MacMillan & Co.

Ltd., London. Davis Langdon (2012) World Construction 2012. Davis Langdon,

http://www.davislandon.com Endo, K., Bock, T., Linner, T., Iwamatsu J. and Iturralde, K. (2013) A study of general

contractor’s management strategies: A time series analysis of the ENR top international contractors 225. Proceedings of the Creative Construction Conference 2013, Budapest, Hungary, July, pp. 132-143.

Engineering News-Record (annual reports from 2000-2013) The Top International Contractors. Engineering News-Record.

Engineering News-Record (annual reports from 2000-2013) The Top Global Contractors. Engineering News-Record.

World Bank (2005) Measuring the real size of the world economy: The framework, methodology, and results of the international comparison program--ICP. The World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/13329/ 9780821397282.pdf