An ongoing comparative study of three US and three European construction majors, with data collected by face-to-face interview with top-management at each firm, has allowed us to make the following provisional observations.

The US companies examined so far have grown and internationalized largely by assisting the US government's post World War II reconstruction agencies and US private companies with their internationalization efforts across the globe. The need for competent individuals to be mobilized and deployed on a project-by-project basis has shaped them into becoming project oriented companies that provide, by and large, an integrated EPC and/or Project & Program Management service. In order to mitigate risk, US companies have tended to diversify horizontally, competing in a portfolio of different markets (i.e. power, transportation, oil & gas).

Most European companies grew first domestically and then internationalized in the direction of their ex-colonies. Each of the companies examined appears to have been strongly influenced by its unique host societal institutional context, making the European sample much less coherent than that of their US counterparts. European companies exhibit however obvious similarities, which, especially in recent years revolve around their involvement with private finance.

The widespread use of PPP/PFI contracts in European countries has seen European construction majors becoming keen to adopt the role of quasi-owner of assets. Less horizontally diversified than their US counterparts, European construction majors appear to prefer managing the risks by vertically integrating. We could argue that European construction majors have embraced private finance, having one of the two following goals:

• Finance, construct and operate
• Finance, construct and sell once the project is operational.

The former goal is pursued by companies whose primary objective is to participate in and structure concession agreements that would create workload for the company's operating units active across the various stages of the asset's life-cycle (e.g. construction, operations & maintenance, etc) and the latter, to cash in on the project's net present value while avoiding the continuous political risk that was addressed in the 11/27 posting, Infrastructure Investment and the Problem of Political Risk.

During their evolutionary path of growth, US construction majors appear to have developed organizational core competencies related with 'client and relationship management', EPC integrated service provision and project/program management. European construction majors appear to have developed organizational core competencies related to the life-cycle management of the built asset and most notably organizational core competencies at the front end of the asset's life-cycle, such as capital management and the structuring of concession contracts.

To transfer their organizational core competencies across the globe, US companies have tried hard to standardize processes and skills to achieve transferability and coherence in corporate-wide management systems, as well as developing generic and transferable methodologies for managing projects. Well developed network-like knowledge management systems, coupled with personnel mobilization practices, allow these companies to replicate processes and redeploy organizational competencies from project to project across different geographic locations.

Organizational core competence transfer and redeployment is slightly different for European companies. The mode of internationalization here has more frequently been through joint ventures that have evolved into strategic partnerships or acquisitions of local companies (from minority stake to majority stake) and the subsequent development of local offices, which would then offer integrated service according to the model of the parent company, amended to fit the idiosyncrasies of the local market. We should note that core functions in European construction majors are much more decentralized at a local office level as opposed to US companies where a degree of centralization exists in core functions that contain skills transferable across markets, most notably construction and procurement.

Two key questions arise from this research's preliminary findings:

• Why did US and European construction majors adopt such a different approach towards PPP/PFI, how has this shaped their strategies and in what comparative position with respect to their international rivals does this leave them?

• What are the differences in the internationalization tactics that US as opposed to European construction majors have used, and how have their different levels of embededdness affected their permanence of operations in the various 'local' markets they have chosen to compete in?

More to come...

Posted by izoiopoulos at December 18, 2006 9:32 AM