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Explaining the Development of Business Management Theories on International Projects


Learning Outcome:
LO.1 Explain and demonstrate the development of business management theories on international projects. (IC).
LO.13 Develop the ability to construct robust arguments whilst drawing upon theory (IC)

1. Introduction
Strategic decisions must also consider tactical concern. Theory ultimately delivers its value through application in the practical field. Thus far, extensive sources of theories have been introduced but the specific industrial context has been left out. This is done intentionally because the field of strategy by itself is full of convoluted arguments as we have seen. As civil engineers we surely would also appreciate the fact that the construction industry is filled with numerous specificity and not typical at all. Some of these unique factors, which deserve special attentions in applying any kind of strategic concepts that have been reviewed, are presented in this section.

2. Characteristics That Affect Strategy .

An Overview from Global Market in the Construction  Industry In general, the construction industry has low barriers to entry, creating a high degree of  fragmentation. To paint a rough picture of this highly competitive and fragmented nature of the industry, consider the U.S. market whereby about $700 billion of construction is put into place on an annual basis (Flanagan, 1998). The two largest players, Bechtel and Fluor Daniel, each has a stake of only around 1% of the domestic market volume as of 1998. In the international market, the top 225 international contractors, ranked by the Engineering News Record, secured a revenue level of $116.4 billion in 1998. Yet, Bechtel and Fluor Daniel each accounted for only $6 billion (5.2%) or $5.3 billion (4.6%) of this pie (Engineering News Record, 1999), let alone the total global construction volume.

All these facts point towards a vastly different picture compared to some manufacturing industries such as automobile or home appliances, whereby top players retain relatively large market shares. Concerning specific operating issues, human capital remains as a key asset, especially within the service sectors of construction. Obviously, there is also a heavy reliance on labor for the physical construction process, although automated construction methods are constantly pioneered by mostly the Japanese contractors. Imperfect communication and coordination among parties also gives rise to misunderstanding and a consequential litigious nature of the business. Dispute resolution methods has been an important area to explore both in practice and research. Insurance and various types of bonds (bid, payment, and surety) serve as important tools of the trade for risk sharing, transfer and avoidance. Next, consider the simplified value system shown in Figure 2-2 that is typical for most sectors of the industry. Except for upstream activities of suppliers which are product-based, it is observed that other activities within the value system are primarily process-oriented.

The differences between a product- and a process-based industry can be crucial in terms of the nuances in operations, marketing, technology, 'product' design and value added. This is the reason why models such as Porter's value chain, the development of which is implicitly referenced to mostly other industries, do not fit perfectly with construction. For example, although "inbound" and "outbound logistics" have clear meanings for the value chain of a manufacturing company, they do not have similarly clear-cut equivalents for an engineering design company or even a contractor.

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