Nexus between Contracting and Construction Professional Service Businesses: Empirical Evidence from International Market
Publication: Journal of Construction Engineering and Management
Volume 140, Issue 2
Abstract
The construction market around the world has witnessed the growing eminence of construction professional services (CPSs), such as urban planning, architecture, engineering, and consultancy, while the traditional contracting sector remains strong. Nowadays, it is not uncommon to see a design firm taking over the work of a traditional main contractor, or vice versa, of overseeing the delivery of a project. Although the two sectors of contracting and CPS share the same purpose of materializing the built environment, they are as different as they are interrelated. Much has been mentioned about the nexus between the two but little has been done to articulate it using empirical evidence. This study examined the nexus between contracting and CPS businesses by offering and testing lead-lag effects between the two sectors in the international market. A longitudinal panel data composed of 23 top international contractors and CPS firms was adopted. Surprisingly, results of the panel data analyses show that CPS business does not have a significant positive causal effect on contracting as a downstream business, and vice versa. CPS and contracting subsidiaries, although within the same company, do not necessarily form a consortium to undertake the same project; rather, they often collaborate with other CPS or contracting counterparts to undertake projects. This paper provides valuable insights into the sophisticated nexus between contracting and CPS in the international construction market. It will support business executives’ rational decision making for selecting proper contracting or CPS allies, or a proper mergers and acquisitions strategy in the international market. The paper also provides a fresh perspective through which researchers can better investigate the diversification strategies adopted by international contracting and CPS firms.
Get full access to this article
View all available purchase options and get full access to this article.
Acknowledgments
The work is supported by the Hong Kong Research Grants Council (RGC) General Research Fund (GRF) (Project No.: HKU 749312B).
References
Aldrich, J. (1995). “Correlations genuine and spurious in Pearson and Yule.” Stat. Sci., 10(4), 364–376.
American Institute of Architects (AIA), and AIA California Council (AIA CC). (2007). Integrated Project Delivery: A Guide.
Ansoff, I. (1957). “Strategies for diversification.” Harvard Bus. Rev., 35(5), 113–124.
Bale, J. (2010). CIOB’s professionalism: An inclusive definition of construction management, Chartered Institute of Building, Berkshire, U.K.
Brandenburger, A., and Nalebuff, B. (1996). Co-opetition: A revolution mindset that combines competition and cooperation, Bantam/Doubleday, Cambridge, MA.
Coase, R. (1937). “The nature of the firm.” Economica, 4(16), 386–405.
Construction Industry Council (CIC), and Dept. of Trade, and Industry (DTI). (2003). Survey of UK construction professional services 2001/2002, London.
Construction Users Roundtable (CURT) (2004). Collaboration, integrated information, and the project lifecycle in building design and construction and operation, Construction Users Roundtable, WP-1202.
Dainty, A., Grugulis, I., and Langford, D. (2007). “Understanding construction employment: The need for a fresh research agenda.” Personn. Rev., 36(4), 501–508.
Eastman, C. (1999). Building product models: Computer environments supporting design and construction, CRC, Boca Raton, FL.
Eriksson, P. E. (2008). “Procurement effects on coopetition in client-contractor relationships.” J. Constr. Eng. Manage., 103–111.
Flanagan, R. (2009). “Market entry and growth strategies in an international market.” Polish Contractors Federation.
Goodier, C. I., Soetanto, R., Fleming, A., McDermott, P., and Austin, S. A. (2006). “The future of construction procurement in the UK: A shift to service provision.” Proc., CIB W92 Symp. on Sustainability and Value Through Construction Procurement, P. McDermott and M. M. A. Khalfan, eds.,Univ. of Salford, 182–193.
Greene, W. H. (2002). LIMDEP econometric modeling guide: Version 8.0, Econometric Software, New York.
Jewell, C. A. (2011). “A typology of construction professional services firms—A consulting engineering perspective.” Ph.D. thesis, Univ. of Reading, West Berkshire, U.K.
Jewell, C. A., Flanagan, R., and Anaçç, C. (2010). “Understanding UK construction professional services exports: definitions and characteristics.” Constr. Manage. Econ., 28(3), 231–239.
Kale, S., and Arditi, D. (2002). “Competitive positioning in United States construction industry.” J. Constr. Eng. Manage., 238–247.
Kim, H., and Reinschmidt, K. F. (2011a). “Association of risk attitude with market diversification in the construction business.” J. Manage. Eng., 66–74.
Kim, H., and Reinschmidt, K. F. (2011b). “Diversification by the largest US contractors.” Can. J. Civ. Eng., 38(7), 800–810.
Kunst, R. M. (2009). “Econometric methods for panel data—Part II.” 〈http://homepage.univie.ac.at/robert.kunst/panels2e.pdf〉 (Oct. 22, 2013).
Levin, A., and Lin, C. (1992). “Unit root tests in panel data: Asymptotic and finite sample properties.”, Dept. of Economics, Univ. of California, San Diego.
Li, H., Lu, W. S., and Huang, T. (2009). “Rethinking project management and exploring virtual design and construction as a potential solution.” Constr. Manage. Econ., 27(4), 363–371.
Lu, S. L., and Sexton, M. (2006). “Innovation in small construction knowledge-intensive professional service firms: A case study of an architectural practice.” Constr. Manage. Econ., 24(12), 1269–1282.
Lu, W. S., Li, H., Shen, L. Y., and Huang, T. (2009). “A SWOT analysis of Chinese construction companies in the global market.” J. Manage. Eng., 166–176.
Lu, W. S., Liu, A. M. M., Rowlinson, S., and Poon, S. W. (2013a). “Sharpening competitive edge through procurement innovation: Perspectives from Chinese international construction companies.” J. Constr. Eng. Manage., 347–351.
Lu, W. S., Ye, K. H., Flanagan, R., and Jewell, C. A. (2013b). “Developing construction professional services in the international market: A SWOT analysis of China.” J. Manage. Eng., 302–313.
Maddala, G. S., and Wu, S. (1999). “A comparative study of unit root tests with panel data and a new simple test.” Oxford Bull. Econ. Stat., 61, 631–652.
Mintzberg, H., and Quinn, J. B. (1992). The strategy process: Concepts and contexts, Prentice-Hall, Englewood Cliffs, NJ.
Nguyen-Hong, D. (2000). “Restrictions on trade in professional services.” Productivity Commission Staff Research Paper, AusInfo, Canberra.
Office for National Statistics (ONS). (2007). UK standard industrial classification of economic activities, Palgrave Macmillan, Basingstoke, U.K.
Pearce, D. W. (2003). “Environment and business: Socially responsible but privately profitable?” The challenge of change: Fifty years of business economics, J. Hirst, ed., Profile Books, London, 54–65.
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors, Collier Macmillan, London.
R Development Core Team. (2008). R: A language and environment for statistical computing, R Foundation for Statistical Computing, Vienna, Austria.
Reina, P., and Tulacz, G. J. (2011). “The top 200 international design firms.” Eng. News-Record, 267(3), 35–48.
Rubin, D. K. (2011). “Design-firm CFOs relate post-recession strategies.” Engineering-News Record, 266(12), 18.
Rubin, D. K., and Reina, P. (2009). “Balfour Beatty buys PB for $626 million.” Engineering-News Record, 263(10), 8–9.
Tam, C. M. (2000). “Design and build on a complicated redevelopment project in Hong Kong: The Happy Valley Racecourse redevelopment.” Int. J. Project Manage., 18(2), 125–129.
Tuiacz, G. L., and Rubin, D. K. (2004). “The ‘alternative’ mainstreams.” Engineering-News Record, 252(24), 34–36.
Williamson, O. (1991). “Comparative economic organization: The analysis of discrete structural alternatives.” Admin. Sci. Q., 36(2), 269–296.
Winch, G. (1989). “The construction firm and the construction project: A transaction cost approach.” Constr. Manage. Econ., 7(4), 331–345.
World Trade Organization (WTO). (1991). “Service sectoral classification list.”.
WTO. (1998). “Construction and related engineering services: Background note by the Secretariat.”, Geneva.
Ye, K. H., Lu, W. S., and Jiang, W. Y. (2009). “Concentration in the international construction market.” Constr. Manage. Econ., 27(12), 1197–1207.
Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 140 • Issue 2 • February 2014
Copyright
© 2013 American Society of Civil Engineers.
History
Received: Jun 16, 2013
Accepted: Oct 1, 2013
Published online: Nov 7, 2013
Published in print: Feb 1, 2014
Discussion open until: Apr 7, 2014
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.