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Blog/April 4, 2016

Six Global Trade Strategies for Today’s Engineering and Construction Firms

six-global-trade-strategies-for-todays-engineering-and-construction-firmsA relatively new concept for many U.S. design and construction firms, today’s global business environment has grown significantly over the last 10 years, and along the way, has pushed companies of all sizes to begin thinking globally.

A seemingly simple proposition, the idea of doing business beyond domestic borders is actually quite complicated. Today’s global economy and political outlook remain uncertain and possibly even disconcerting. According to McKinsey’s latest economic outlook, executives across the globe are concerned about China and how its growth might affect the world economy.

Many of today’s business challenges and opportunities facing corporate leaders are global in nature and therefore demand leadership with a truly global mindset. To ensure that your firm is positioned to manage these challenges while also taking advantage of the opportunities associated with global trade, here are six strategies that all companies can benefit from—regardless of company size or type:

  1. View competitors as potential collaborators. Despite the overall trend for large multinational engineering and construction firms to shift focus onto high-growth emerging markets, FMI expects to see increasing competition from international organizations working within the U.S. in the coming years. Hugh Rice, senior chairman of FMI, states, “Although the U.S. design and construction market slowed significantly during the Great Recession, we still see many foreign companies with a lot of interest in expanding their presence in the U.S. That’s particularly true of the European and Asian firms (including Japanese, Chinese and Korean companies).” Though larger firms might muscle in on smaller-size contracts, smaller ones can prove complementary on a larger contract where they bring niche capabilities or knowledgeable staff to the table. Likewise, smaller companies may offer specialized staff or capabilities to a larger project that a firm is looking to shepherd.
  2. Understand the cost and risk barriers to entry. Companies considering doing business on a global scale need to have strong balance sheets and solid bonding capacity as well as a deep understanding of the risks involved. The cost of entry is typically much higher than anticipated. Risk management becomes a prime factor in strategic planning, and the intricacies of risk allocation often present new ground for contractors to cover when doing business in a new country. Public-private partnerships (P3s), in particular, can be very challenging and often bring with them greater risk in terms of a longer life cycle, larger scale of liability, and heightened vulnerability to changes in external dynamics as the project progresses.
  3. Think strategically and understand your connection points to the world. Strategic thinking goes beyond the creative process of understanding and adapting to a changing environment. It also encompasses a different perspective and approach to dealing with the current and future environments we are all operating in – as individuals and organizational leaders. “Many of the leaders we work with are realizing that one source of enduring competitive advantage is their ability to read their environment clearly, make sense of it, and respond – to think strategically,” says Jake Appelman, director of FMI’s Executive Coaching Practice. Don’t lose sight of the big picture by trying to solve all challenges at hand. Be ready to respond to rapidly unfolding scenarios while also retaining a clear vision over which judgments should be made.
  4. Collaborate and innovate. Many of today’s international design and construction jobs are highly complex, huge, and collaborative in nature and therefore cannot be run in a silo-type manner. New emerging technologies, as well as owner demands, are pushing design professionals and contractors to work as a cohesive team from the outset, communicating and approaching projects more holistically. As part of this effort, it is key to build strategic alliances with reliable partners and to develop a deep network of companies that are team players, open-minded and innovative.
  5. Position your firm for success in multiple markets. In this sluggish recovery, no one is taking their backlogs for granted. As many firms reorganize and rebuild, bringing on new staff a few years after deep cuts to their operating budgets, the opportunity arises to diversify into new markets and geographies, reducing risk and resting profitability on a larger base for the future. “Diversification means investing in areas you can control – the work types, the kind of business you do – but adding geographical areas to it,” states a senior executive at a world leading construction group.
  6. Create new adaptation strategies and core competencies. Finally, in order to adapt to ongoing globalization trends and succeed in the long term, companies should consider the following adaption strategies:
  • Develop a deeper understanding of financing alternatives.
  • Niche marketing: Find the pockets of prosperity and aggressively pursue work in those areas.
  • Work with diverse teams and adapt quickly to changing social and political environments.
  • Strive to become a firm driven by design execution and yield productivity.
  • Invest in talent. Continue to develop technological skills.
  • Empower the younger generation of leaders to shape their own destiny (“star-making”).

Today’s global design and construction industry is changing rapidly. Barriers to global trade have been reduced significantly, enabling capital, labor, goods, and technology to flow freely across borders and increase business opportunities exponentially across the globe. However, globalization has also vastly increased the complexity of the design and construction business environment; changing customer demands and new funding mechanisms are driving industry players to diversify, seeking mergers and acquisitions in new markets around the world to gain access to new expertise and project opportunities.

To compete in today’s dynamic and interconnected business environment, design and construction firms – both home and abroad – will need to stay focused on key trends shaping their external environment. They must also remain nimble and agile in order to respond quickly to change and opportunity. Being agile and adaptable requires a deep understanding of how different markets operate and calls for an organization that is sensitive to the cultural values of other regions or countries.

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