Editor's Comment: The international industry
By Chris Sleight14 November 2012
Construction is an industry like no other, in more ways than one. The first point to make about the sector is how big it is. It accounts for about 10% of GDP worldwide, giving it a value of US$ 7.5 trillion or so.
But the second most striking thing about the industry is how fragmented it is. If you consider that the largest contractor in the world, China State Construction & Engineering Corp (CSCEC) had sales of US$ 72.6 billion last year, then isn’t it striking that the market leader has a share of less than 1%? Is there any other industry where this is the case?
With further reference to iC’s league table of the world’s largest construction companies, there are close to 250 companies in the industry with sales over US$ 1 billion per year. What an odd industry where you can have annual sales as high as US$ 1 billion and be ranked a lowly 250th among your peers. And odder still that this US$ 1 billion in revenues represents only about a 0.01% global market share.
The reason for this is of course that it is not a particularly globalised industry. While there are plenty of projects that are bid for by international players and multi-national consortia, the lion’s share of construction work is carried out at a very local level and it is a labour-intensive business. Although it would be classified as residential R&M work, and therefore counted as part of the global construction industry, CSCEC would not be particularly interested in fixing the roof on my house in the southern suburbs of London. For that kind of work you’re looking a local trades people working only a few kilometres from their own homes.
Be that as it may, at the other end of the market, the truly international part of the construction industry is getting bigger, with growth in cross-border work outstripping the wider construction market.
All this is revealed in this month’s News Report, which analyses statistics from European International Contractors (EIC), the trade group representing European contractors working outside their national borders. In an otherwise flat global market, this group saw the value of international revenues last year increase almost +11% last year.
But the fact remains that at about US$ 203 billion, the value of international work for these Europeans was only about 2.5% of the global total. In fact more than half of these international revenues were achieved in other European countries, and you can argue about exactly how international it is for say a French contractor to carry out work in Belgium.
This also points to the potential for greater globalisation in the construction industry. At € 73.4 billion (US$ 95 billion) the value of international work within Europe last year accounted for about 6% of total activity. That would tend to suggest that there is potential for other markets around the world to become more open, if the kind of barriers to trade and the free movement of goods and services that used to exist in Europe were removed.
But why is this important? The reason is that numerous examples throughout history show that increasing internationalisation and the removal of trade barriers not only benefits the customers – more competition means better products at lower prices – but also benefits the wider community because of the increase in business it stimulates.