Development Model for Competitive Construction Industry in the People’s Republic of China

This paper identifies and analyzes the open-policy trend of the Chinese construction industry, which is characterized by trade liberalization, the underlying principle of the World Trade Organization (WTO). Compared to the construction industries in the United States, Japan, and the U.K., the construction industry in China is less developed in its legal framework, industrial structure, technological level, and international market share. To develop a competitive construction industry, the Chinese construction industry needs not only to accommodate appropriate international practice, but also to adapt and adopt it according to the market environment in China. A model to enhance the performance of the Chinese construction industry is proposed. The model consists of six modules: defining government’s role, opening up the construction market and establishing a competitive mechanism, promoting design institutes’ services and empowering professional bodies, encouraging technological innovations, upgrading employees’ educational level, and adopting multiprocurement routes. Recognizing China’s recent accession to the WTO and the attendant boost to its economy and industry development, the paper gives a timely evaluation of the post-WTO Chinese construction industry and proposes a model for its development. The model may serve the needs of academics, Chinese construction policymakers, construction enterprises, design institutes, and foreign contractors.     

Forms of Collaboration and Project Delivery in Chinese Construction Markets: Probable Emergence of Strategic Alliances and Design/Build

Changes in regulations to allow foreign contractors to qualify as wholly foreign-owned “construction enterprises” came into effect in September 2002 as one of the steps taken by the Chinese government to honor its World Trade Organization commitments. Emerging markets have a significant impact on the strategic planning of contractors; based on an electronic survey covering foreign contractors, clients (foreign investors), and design institutes, the design/build procurement route in conjunction with strategic alliances has been found to enable foreign contractors to enter the Chinese marketplace. The writers present a strengths, weaknesses, opportunities, and threats (SWOT) analysis to inform readers where opportunities for development might be found and to warn of threats to entry. The research also found that mutual trust, synergistic strengths and complementarities, market demand for services, flexibility for both parties, and minimum change of top managers were ranked as the top five critical success factors for strategic alliances between foreign contractors and design institutes. Finally, medium-sized, state-owned, and large-sized design institutes were ranked as the first, second, and third preferences, respectively, for strategic partnering by foreign contractors.     

Relevance of the Network Factor in Selection of Consultants

Consultant architects and engineers (AE) are usually selected based on their skills. Additionally, the selection of consultants may also be based on a series of attributes known as the “network factor.” Attributes of the network factor include the reputations of AE and past, ongoing, and future relationships with clients, contractors, and other consultants. The purpose of this study is to identify network attributes that are relevant to AE selection. Data from parties who select and hire AE (i.e., project owners and design∕build contractors) as well as data from AE themselves were collated from standard questionnaires posted to respondents. The results of the study reveal that the reputations of AE are the most important network attribute in determining AE selection. To increase the chances of AE being engaged as design consultants, it is important to have a reputation of being trustworthy, professional, and honest. In addition, design∕build contractors tend to select AE who have harmonious relationships with them, with the project owner, and with other consultants in the project team. Finally, the study also concludes that it is advantageous for AE to adopt agreeable personalities in professional contexts in order to establish harmonious relationships with clients, contractors and other consultants, thus increasing the demand for their professional services.     

Risks in Chinese Construction Market—Contractors’ Perspective

With China’s entry into the World Trade Organization (WTO), the Chinese construction market will be increasingly open and finally become part of the international market. Because of different social and economic systems, as well as different historical and cultural backgrounds, contractors are likely to encounter different risks in different markets. Based on questionnaires and case studies, this paper adopts an importance evaluation index and makes an importance evaluation of various risks encountered by Chinese contractors when contracting for projects in Chinese markets. This paper also makes comparisons between and analyses of the research findings and related available investigation results. The Cox–Stuart trend increase test method is applied in the current research, the results indicating that the variance corresponding to the importance index value tends to increase as the risk event importance decreases. This tendency shows that those investigated tend towards unanimity in terms of higher importance risk events. This paper also examines the reliability of the questionnaires by means of Cronbach’s Alpha Coefficient. The research shows that the main risk currently encountered by Chinese contractors in domestic markets includes owner’s irregular behavior and government departments’ interference in construction markets. China’s accession to the WTO has provided greater opportunities for international contractors to enter the Chinese construction market. Therefore the research results described in this paper can provide valuable data enabling international contractors to gain a better understanding of the potential risks in the environment of the Chinese construction market.     

Awarding Construction Contracts on Multicriteria Basis in China

China’s entry to the World Trade Organization (WTO) will allow both domestic and overseas construction firms to compete under the same market conditions. This development will lead to a more rigorous participation from overseas construction professionals in the Chinese construction market. Nevertheless, this participation can only be effective or successful when there is a proper understanding about the construction procurement practice in China. The Chinese construction practice has its own characteristics, such as governmental regulations, professional qualification systems, and procurement systems. These characteristics present a different practice in awarding construction contracts from that in the West. This paper investigates the characteristics of construction business environment in China and identifies the key parameters used in assessing contractors’ competitiveness for awarding construction contracts in the market. The parameters are useful tools for assisting contractors in identifying their strength and weakness, thus reengineering actions can be adopted for improving competitiveness. A case study is used to demonstrate how these multiple parameters are used in the process of awarding contracts in the local market.     

Collaborative Negotiation Behaviors in Thai Construction Projects

When construction contractors encounter difficulties and changes from what was originally stated in contract documents, fair and equitable adjustments are required. Owners use construction management (CM) consultants to act as primary negotiators on their behalf. Throughout project execution, seamless negotiations take place that are intended to improve the relationships that are critical to successful project delivery. This study investigates the collaborative behaviors between CM consultants and contractors acting as negotiators in adverse situations. Characteristics of collaborative negotiations are identified as being rational, goal-oriented, reactive, cooperative, and adaptive. Four negotiable situations were investigated: change orders, errors in drawings and specifications, differing site conditions, and delayed progress payments. The research for this study used a questionnaire survey of 83 project managers from 51 CM consultants and 32 contractor companies focused on building construction in Thailand. The results show significant differences in collaborative behavior between CM consultants and contractors. Contractors were much more aware of the outcome of negotiations, which could lead them to be less collaborative. Both parties strongly regarded rationality as normal practice. Adaptability to new approaches proved difficult in negotiations. This study also proposes strategies and tactics for better collaboration to achieve win-win results in negotiations.     

Labor Productivity Drivers and Opportunities in the Construction Industry

The study of labor productivity in the construction industry is gaining increasing attention as the industry faces multiple problems related to its workforce. This paper presents the results of a survey instrument applied to determine the relative level of relevance of construction labor productivity drivers and opportunities. Owners, general contractors, electrical contractors, mechanical contractors, consultants, and others participated in this survey. Management skills and manpower issues were identified as the two areas with the greatest potential to affect productivity according to survey respondents. Surprisingly, external factors, which are often cited as a major cause for reduced productivity in the construction industry, were considered to be one of the least relevant productivity drivers. These results suggest that respondents consider the improvement of labor productivity within their reach and control rather than determined by external conditions.     

Empirical Study of the Risks and Difficulties in Implementing Guaranteed Maximum Price and Target Cost Contracts in Construction

Over the past few decades, both the guaranteed maximum price (GMP) and target cost contracting (TCC) arrangements have been regarded as alternative integrated procurement strategies for clients to mitigate risks, minimize claims, integrate the diverse interests of a complex construction project, and offer incentives to provide value-added services. However, the adoption of GMP/TCC contracts may also generate significant risks and difficulties that merit considerable attention. This paper aims to provide a concise review of the potential pitfalls of the GMP/TCC scheme in general and identifies the key risk factors and potential difficulties associated with GMP/TCC in comparison with other procurement strategies in construction in particular via an empirical survey of clients, contractors, and consultants in Hong Kong. The survey data gleaned from 45 valid replies were analyzed using the mean score ranking technique, Kendall’s concordance test, and Spearman’s rank correlation test. The survey results indicated that “involvement of inexperienced or claim-conscious contractors in a project procured by a GMP/TCC contract” was considered to be the most significant risk factor; while “design development must keep pace with main contractor’s program for tendering the domestic subcontractors’ works packages” as the major difficulty in implementing GMP/TCC projects. The research findings derived from this study are particularly essential in assisting the contracting parties to mitigate the detriments brought about by potential risks or difficulties when embarking on GMP/TCC contracts. It has also generated valuable insights into developing effective recommendations for alleviating the barriers to GMP/TCC success for future construction projects.     

Guarantees for Contractor’s Performance and Owner’s Payment in China

This paper first analyzes the problem of default risk that contractors and owners often face in China, then stresses that establishing a construction contract guarantee system is a necessary and effective measure for solving this problem. Policy choice for establishing a construction contract guarantee system in China is presented in this paper by using the experience of developed countries for reference and taking Chinese domestic circumstances into account. Further discussion is included about how to protect contractors from default of payment of owners by exercising the right of legal mortgage in accordance with Chinese contract law.     

Change management and consulting in Chinese organizations.

This article discusses cultural and social conditions that influence organizational and management practices in China. These cultural and social conditions are shown to shape efforts to compete in China's emerging market as well as efforts of consultants to provide assistance to Chinese organizations. Recommendations are provided to guide consultants who wish to help Chinese organizations manage change. (PsycINFO Database Record (c) 2010 APA, all rights reserved)     

Risk Assessment Model of Tendering for Chinese Building Projects

This paper presents a risk assessment model for tendering of Chinese building projects on the basis of identification and evaluation of the major risk events in the Chinese construction market, investigations and interviews from which the factors inducing the risk events were determined, questionnaires on building projects within China’s borders, and the logistic regression method. The findings show that, to a certain extent, the risk of tendering for projects and the risk of a contracted project can be assessed through analysis of factors such as owner type, source of project financing, existence or lack of past cooperation between contractors and owners, the intensity of competition for tendering, the reasonableness of the bid price, and the degree of support from the contracting company to its projects. The model can serve as a supplementary tool for Chinese contractors in making decisions for project tendering within Chinese borders. At the same time, it is of reference significance for international contractors, enabling them to further understand the risks in the contract market for Chinese building projects.     

Incorporating Contractual Incentives to Facilitate Relational Contracting

Construction projects are undertaken by many parties, all with their own goals and motivations which may not always be aligned. Furthermore, they are governed by contracts, which do not necessarily produce win-win outcomes. The aims of this study are (1) to compare the views of contractors, clients, and consultants on factors facilitating and deterring relational contracting (RC); and (2) to investigate the use of contractual incentives to increase the effectiveness of RC. Structured questionnaires were sent by post to randomly selected construction industry players in Singapore to find out factors that enable RC and the barriers that impede the formation of RC. The results show that RC can be facilitated by having top management support, alignment of project objectives, relationship building, and most importantly, appropriate contractual incentives. In most instances, contractors gave a lower level of importance to many of the factors than clients and consultants. It is concluded that more contractual incentives should be provided in contracts in order to evoke the desired relational approaches.     

Relationship between Organizational Sizes and Contractors’ Risk Pricing Behaviors for Weather Risk under Different Project Values and Durations

A problem that always annoys building employers and their consultants when drafting building contracts is whether it is more cost efficient to retain certain risks with themselves or to transfer the same to contractors, and it has long been a difficulty to accurately estimate the cost for transferring risks to the other contract party. It is a very common market practice to remove contractors’ entitlement to extension of time due to inclement weather, and in view of the significant impacts that inclement weather posed on construction progress, it would be helpful to assess the associated costs for such risk allocation exercises in order to ensure that it is a cost-effective transaction. The costs for these potential weather-caused delays are priced by contractors in their returned tenders. This risk-pricing behavior is affected by the contractor’s risk perception and risk attitude. However, merely working out contractors’ risk perception and risk attitude patterns is inadequate, as they may vary in accordance with different organizational sizes and project backgrounds. Therefore, further studies should be carried out on the implications of project information, such as project value and contract period, on different-sized contractors’ risk behaviors. In this research, a questionnaire survey was conducted to investigate the weather-risk-pricing behavioral patterns of various-sized contractors under different given project scenarios. The survey revealed that the impacts of project value and contract period (and, thus, the intensity of work and scale of exposure to weather risk) were significant on contractors’ risk behaviors, and these impacts varied in accordance with different organizational sizes. The medium-sized contractors’ pricing behaviors were rather constant under different project values and contract periods, while both small and large contractors behaved differently when the intensity of work and scale of risk exposure varied. Despite the fact that contractors of various sizes behaved differently in some given scenarios, the number of days of delaying cost allowed by them in returned tenders were generally less than the actual number of days of inclement weather affecting work.     

Performance and Strategy of Chinese Contractors in the International Market

The past decade has witnessed the steady growth of Chinese international contractors (CICs), who have become important and influential players in the international market. The enormous development demands worldwide, especially in developing countries, attract CICs to engage in the market. Similarly, the strong support from the Chinese government plays an important role for the expansion of Chinese contractors globally. Some leading CICs perform very well in certain fields and countries. This brings the competitiveness of CICs to the attention of the international community. The strengths, weaknesses, opportunities, and threats (SWOT) approach was adopted in order to analyze CICs’ strengths, weaknesses, opportunities and threats in international construction markets. Literature from various sources was reviewed in the first instance, which is followed by an interview survey with 42 CICs employees. A SWOT strategy matrix is used to establish a framework that can help CICs to select suitable business development strategies in overseas markets. The applicability of the strategy framework was tested through the case study of two CICs. The strategies to reinforce their positions in the international market were studied based on the SWOT analysis. The results indicate that CICs are on their way to becoming major competitors to other overseas contractors. In essence, the research results offer a valuable reference of practices that construction firms need to master in order to survive and grow in the international market.     

Contractors’ Competition Strategies in Bidding: Hong Kong Study

Selecting an appropriate competition strategy in bidding is the ambition of most contractors. The multiple requirements of clients encourage contractors to consider other strategies to deliver additional benefits besides offering a low-price bid. Offering low bids will reduce contractors’ profits and potentially make development less attractive. Contractors need to understand their specific resources that generate competitive advantage and accordingly develop strategies to win contracts. This paper reports the findings from a recent survey on competition strategies in the Hong Kong construction industry. Thirteen typical bidding strategies, their used frequency in bidding, and their effectiveness for winning contracts of different types and between different groups of contractors are studied. The analysis of findings is explored to provide local contractors and clients with new insights into competition strategies in bidding.     

Chinese Contractors in Africa: Home Government Support, Coordination Mechanisms, and Market Entry Strategies

Africa is a traditional overseas market for Chinese contractors. Since the launch of “going out’ national strategy in the new century, and with the support and control of the government and subordinate agencies, associations and banks, and innovative approach such as Angola Mode, Chinese contractors’ presence in the emerging African market continues to grow. Based on original empirical data collected through interview and questionnaire surveys, this paper analyzes the mechanisms the Chinese government has established to facilitate Chinese contractors’ entry into Africa and the perspectives of Chinese contractors about the African market in terms of opportunities and threats. Regression analysis based on existing datasets indicates that despite perceived opportunities and threats, Chinese contractors’ performance in Africa in terms of business revenue actually hinges upon the availability of construction capital. The study also reviews the market entry modes used by Chinese contractors, concluding that they prefer to establish a long term presence and opt to commit large resources. Overall, the paper summarizes evidence about the status and innovative approaches of Chinese contractors in penetrating the African construction market, and also characterizes the potential of the African construction market for Chinese contractors.     

Transportation Agency Use of Owner-Controlled Insurance Programs

Controlled insurance programs are highly efficient risk control mechanisms. With a controlled insurance program, the interest of the owner, designer, construction manager, contractors, and consultants are covered by one insurance arrangement. This paper describes the current state of practice regarding the use of owner-controlled insurance programs by transportation agencies. Departments of transportation that have used controlled insurance programs for their major projects (construction costs greater than $100 million) report that they were satisfied with the results. But contractors are cautious because, when an owner’s controlled insurance program administrator fails to perform, it is the contractor who incurs the residual consequences of increased business cost, and those consequences can extend far into the future.     

Internationalization of Chinese Construction Enterprises

Thirty-five international contractors from China were included by the Engineering News Record in the list of the Top 225 International Contractors in 2000. Although Chinese international contractors are increasingly playing a significant role in the global construction market, relatively few studies have been completed on their historical background and foray into the international arena. Apart from seeking to fill this lacuna, this paper also provides an analysis of the these 35 Chinese international contractors to evaluate their achievements using the following performance indicators: International Revenue/Total Revenue, International Business Distribution, Overseas Management Structure, Involvement in Specialized Fields, and Overall Index of Internationalization. The analysis identified the top ten Chinese international contractors who are truly global in outlook. The study also suggests that the traditional multinational enterprise theories may not explain the development of Chinese international construction firms adequately.     

Critical Success Factors for Competitiveness of Contractors: China Study

Gaining or maintaining a “contractor’s” competitive advantage is not easy as it is determined by a large number of factors. Identification of critical success factors (CSFs) allows one to reduce the vast number of factors to some manageable few but vital ones. Based on the CSFs, contractors’ limited resources such as money and manpower can be allocated and aligned appropriately for yielding a maximum outcome of overall competitiveness. This paper describes the CSFs identified from a survey study carried out in Mainland China. The ranking analysis of the survey results shows that 35 factors are rated as critical for determining the competitiveness of a contractor. Factor analysis reveals that the 35 CSFs identified can be grouped into eight clusters, namely, project management skills, organization structure, resources, competitive strategy, relationships, bidding, marketing, and technology. The CSFs in this study provide a vehicle for guiding a contractor in managing its resources in order to improve competitive advantage. The study also provides insights into the management of competitiveness for contractors that are operating in the particular context of the Chinese construction industry.     

Coordinating Building Systems: Process and Knowledge

The coordination of mechanical, electrical, and plumbing (MEP) systems to detail their configuration is a major challenge for complex buildings and industrial projects. Specialized consultants and contractors design and construct these systems. Computer tools can assist with this activity, but fragmented responsibility for these systems and the knowledge required for their design, installation, and operation make this difficult. This paper reports initial results from a research project to develop a computer tool to assist in coordinating MEP systems. It describes current practice, a revised work process using a computer tool, required knowledge, and development of a prototype system. These results confirm the feasibility of capturing the distributed knowledge required and of developing a computer tool to assist with MEP coordination, along with the potential to implement the tool and significantly improve this important project process.