Mr.

GLOBALISATION AND ITS IMPACT TO THE CONSTRUCTION INDUSTRY OF DEVELOPING COUNTRIES

Doni Afila

MSc Engineering Project Management Programme

School of Civil Engineering, University of Leeds

E-mail: cen4da@leeds.ac.uk

1. INTRODUCTION

The reach of globalisation, through free trade, world-wide production and capital investment, generates different implications to different industries, in different regions. Its influence to the global economy and the macro-economy condition of countries impacts the industries within. It has raised issues on investment, market entry (and competition), and also technology development.

Particularly in the construction industry of developing countries, globalisation remains a big question. Benefits to the industry in that respective group of countries are still far from clear. The study of Raftery et.al. (1998) on construction industry in Asia suggested that although three positive trends (i.e. larger private sector participation, increasing vertical integration and increased foreign participation) present, there is short term concern regarding the growth of imported construction services at the expense of the indigenous sectors of the developing countries.

How globalisation influences the construction industry in the developing countries is furthermore explored in this study. The following sections try to answer either globalisation represents the biggest opportunity or the greatest threat to it.

2. THE MEANING OF GLOBALISATION

Globalisation means the production and distribution of products and / or services of a homogenous type of quality on a world-wide basis (Fernandez Jilberto and Mommen, 1998). It may have different meanings and implications to different countries or regions. Globalisation may also be defined in economic terms, that is, in terms of trade liberalization, including the breaking down of tariff and non-tariff barriers, and the freer flow of capital, technology, finance, goods and services across national boundaries (Bhalla, 1998). Fernandez Jilberto and Mommen (1998) explained that globalisation refers to the multiplicity of linkages and interconnections between states and societies which make the present world, and represents two distinct phenomena: scope (or stretching) and intensity (or deepening).

The process of globalisation has been allowing countries to extend their outreach through trade and production activities, and it has been accelerated as a result of various factors such as technological developments, but especially the policies of liberalization that have swept across the world (Khor, 2001). It might then provide benefits to one party, but also exposes disadvantages to another. Mucchielli et.al. (1998) advised that, for countries and firms, globalisation is characterized by openness of economies and a global market in which firms’ strategies focus on efficient resource seeking along with synergies and standardization in market offerings. Globalisation reflects the disappearance of trade barriers and state regulation (Fernandez Jilberto and Mommen, 1998). It is furthermore suggested that the most important aspects of economic globalisation are the breaking down of national economic barriers, the international spread of trade, financial and production activities, and the growing power of transnational corporations and international financial institutions in these processes (Khor, 2001).

The globalisation model fundamentally underpins that liberalizing trade and investment and unfettered competition in the global economy lead to growth, prosperity, and democracy (Cavanagh et. al., 2002). Globalisation often described as the result of economic and technological forces that have simply evolved over centuries to their present form. The model of globalisation has been interpreted into several forms, namely the General Agreement on Tariffs and Trade (which later gave birth to the World Trade Organisation), NAFTA, the Maastricht Agreement, the Free Trade Area of the Americas Agreement, and a few others. These instruments of economic globalisation are arguably to bring the most fundamental redesign of social, economic, and political arrangements (Mander, 2001). Cavanagh et. al. (2002) explained that the globalisation model is based on the following assumptions:

- Hyper-growth (the achievement of even more rapid and never ending economic growth) is good and essential.

- Privatization and commodification should be encouraged.

- Economic and cultural homogenization worldwide is necessary to create efficiency.

- Export-oriented trade and investment is best (especially in regard to Third World countries).

- Corporate activities should not be regulated and capital should enjoy unrestricted movement across nation-state borders.

- Increased corporate concentration is “a good thing”.

- Most public health, social, and environmental programs already in place should be dismantled and privatized.

- Traditional powers of democratic nation-states and local communities should be replaced by global corporate bureaucracies.

The rise of globalisation is affected by a number of structural drivers of change. It is depicted in Figure 1, and described below (Johnson and Scholes, 2002):

- Increasing convergence of markets: Customer needs and preferences are becoming more similar.

- Cost advantages of global operations: This might be achieved in industries in which large volume and standardized production is required for optimum economies of scale, and by central sourcing efficiencies from lowest-cost suppliers across the world.

- Activities and policies of governments: Almost all trading nations function with market-based economies and their trade policies have been tended to encourage free market between nations.

- Global competition: If the levels of exports and imports between countries are high, it increases interaction between competitors on a more global scale.

Figure 1. Drivers of Globalisation

Source: Johnson and Scholes, 2002

Yip (1989) furthermore explained that drivers of industry globalisation, which is