台科大營建系教材，海外工程，Part4

5. Working in the Foreign Land

1) Evolution of International Construction Projects:

(1) Stage 1: Movement of construction resources across the borders

Lack or insufficiency of construction resources in terms of material, working capital, and technologies prompted the host countries to accept foreign construction companies to come within their border. The local collaborators would act as sleeping partners or agents to recruit native labors, purchase bulk material, or approach the authority for more amicable working atmosphere. They may have chances to grow in strengths through the process to take over the projects and even to go outside of their own country following the paths their foreign partners ever experienced.

With the hope that they would finally out beat western contractors in international tenders, the construction companies in newly industrialized country (NIC) worked hard to train professionals, learn advanced technologies, and become apt to handle machines and plants over the years. But they're disappointed and confused now because the execution of construction projects no more stick at pure construction that the appearance of many un-engineering contractual stipulations is in favor with established big companies having strong link with the past.

As the share of cost apportioned to guard capital and accrue more profit become weighty, the values traditionally generated by technology, craftsmanship and labors for construction projects become less important. To work hard as the only way to thwart competitors from the developed economies isn't practical for NIC construction companies. When you're confident for the imminent success and only find rules of the game changed; what will you do? Change for another incarnation to imitate your competitors and wait for another decade to catch up?

Construction projects dealings are based on culture and custom, which includes the know-how of greeting ever evolving capitalism. The Asian NIC constructors will never learn so much, and the established western companies still retain privileges globally as contracts and systems for execution are rooted from their longtime practice.

(2) Stage2: Investment Security Overtrump anything else and in Favor of the Construction Industry Establishment

Requisition of construction resource may still be essential judged from the figures, but its relative share has been lower as none engineering part of cost rises in weight. In 21st Century, the investors don't like to face uncertainty and the professionals, now including commercial experts, know how to present risk free schemes to woo businessment. So the safe return of capital and schemed profit will overtrump anything else, then the concerned party's attention is placed in each phase starting from planning, design, construction, o&m and even marketing of the product as a sacrosanct word "assurance" will tell.

Under the new requirement the companies who know how to protect the juridical right of their investment will be those reputable enough to fascinate bankers, convince the investors and mobilized necessary certification. It's to say the new comers for contracting business will have problems to muster support like above for smooth project completion at least as the promptness is concerned.

It's a wonder that the main contractor today undertaking construction work of a big overseas project doesn’t need to own any construction resource and can have many choices to sub-let whole or part of the works in discretion. He may exercise control and deliver the work effectively similar to what Nike or Adidas have done over jerseys and shoes in the market; under the system the companies in less developed economies will provide labor and skill for substantial part of the works and share limited added values compared to those build up the norm, certify the doer's performance or assist in dispute resolution.

Unlike the capitalists of previous centuries having to plunder colonies or exploit residual value from proletariat for extra profit; the 21st century financier evolves, that they now can secure their capital and retain sufficient return through "possession" and "exchange" instead of creating merit in the course of production. 

This is applicable in the international contracting business where exploitation does exist as the establishment from "North Countries" implicitly holding the power to explain value, quality and acceptability of the project while fledgling constructors from "South Countries" struggle to become their sub-contractors.

2) Distribution of Added Value under the New Construction Market Order:

(1) "Labor" was most important element in forming a producing system, capitalist wanted to exploited it for maximum profit. For construction industry then came machine as it would be supposed to replace lot of human efforts in production. Engineering professionals would be vital in construction as to decide the performance of labor and machines and their surplus value; to certain extent the engineer is the "establishment".

But under the modern day project management system, bankers, notaries, law firms, inspectors, laboratories, certifiers, appraisers, unions, arbitrators and those who will assure the project be successful and such can hold positions and charge their cost relatively easy. It's no choice that the endorsement they offer is required to court moneymen will dominate the projects while the actual doers reduced to their subordinate.

(2) The redistribution of added values between technical and commercial professionals is possible because renowned international banks or institutions will seek opportunity to get involved in construction projects for possibility to offer financing arrangement.  The governments around the world, the ventures collecting toll or making profit from franchise always welcomes  loans. The "establishment", normally construction companies in western countries, are known to and more trusted by the banks or investment funds, so they can reach agreement with each other forming ventures for the projects.

The banks or investment funds may always prescribe, and it's not difficult for the western establishment to respond, that they will add specifications, standards, and contract terms familiar with into construction plans; inadvertently strengthen their positions in the projects, which, many NIC companies will feel not accustomed, and are actually excluded from competition.

Though, the contractors from "South Countries" will be assigned to do the real work but only under the established contractors from the "North Countries". It's a crucial fact tat the overhead and profit obtained from the drudgery work is limited and the risk tremendous; over long time or after many contracts that the best of NIC contrators going abroad can only get mere survival.

(also see
 http://mtkaoforum31.blogspot.com/2020/05/blog-post_24.html  
in this blog)

3) Chances for Taiwanese Construction Industry to go for Overseas Market

(1) Possibility exists that a NIC contractor like the one from Taiwan may be able to join the club of international contractors offering conditions allow them to share high added value in overseas projects, however, they have to bring loans at least for their part and still they need assistance from established company or face more uncertainty throughout the process.

Usually the loans offered for foreign construction projects must be earmarked with the commitment from the local government to guarantee safe return of the loans; this tends to be a little difficult when diplomatic relationship not existed between the governments.

Should Taiwanese contractors or engineering firms not able to offer loans are willing to work as the subcontractors of international joint ventures, they need to prove they will be able to save money, keep quality and speed up the progress for main contractors. And it means they have to contend with other NIC contractors or even the local ones of third world for playing secondary role.

(2) It must be admitted that to play the role of constructors in strange country, Taiwanese company cannot be as efficient as the natives to organize local labor force or purchase cheap material. Money is also something that the contractors from developing economics no more feel they are short of. 

Taiwanese contractors may be slightly better off in competition with locals, for their technology and experience in certain projects are good, but it's diminishing.

The sub-contracting system in Taiwanese construction industry is a problem that the resources are thinly distributed among many sub-contractors and leasers. Market is highly fragmented that the main-contractors owns no resource except limited number of engineers, and when they need to work abroad they don't have anything to move out: professionals or skill labors, forgetting about permits and licenses required to work in alien land.

So it seems like that only consulting companies can go to take meager amount of overseas design contract as much of planning and design works can be done remotely in Taiwan.

Of course, the engineering works done must conform with standards and norms such as BS, DIN, or JIS wanted by main contractors and not CNS or American codes usually followed in Taiwan. 

Supervision will be another challenge because the owner or international main contractor wouldn't pay as much of Taiwanese expatriate will cost. So it requires that a competent local partner's collaboration.

The purpose to work in overseas countries shall be reviewed. Will the business expanded to cover foreign countries allow to fetch overheads, profits or service charges as required? Or will it increase the sales of home country made product, construction plants or permanent equipment indirectly? 

The calculation can be simple and only to become meaningful when contract amount become significant. 

4). Adjustment Imperative for Company System and Policy

(1) Consideration shall be given to the overseas allowance, vocation, compensation for tax incurred in foreign country, care of spouse and education of children for the expatriate sent to foreign land in addition to their regular salary and bonus in home country.

(2) People sent to foreign land will face challenges and can very likely be working in desolated situation; and only elite of each discipline shall be assigned to solve the quandaries.

However, two problems always appear in a company undertaking overseas works: 1. sectionalism exists in the concerned departments, chiefs tend to send less qualified people;  2. After distinguished performance in overseas projects, many expatriates coming back home only to find out "good" positions having been occupied by people of inferred capability.

There must be a fair policy and under it a mature personnel management system covering domestic and overseas projects. The chief of department must be a stakeholder for success or failure of the projects the company undertaken.

(3) The percentage of overseas sale amount may be just a few related to total company revenue, but efforts to spent for operation in different country, such as accounting, tax report, currency exchange, law and rules abiding, local standards and codes compliance, contractual administration, procurement, and financing arrangement can be great in headquarter. 

The prejudice that the supporting team of the Company usually has had is the reluctance to pay un-proportional attention to the meager sales amount in single different country.

There's problem other than huge cost spent for scant contract amount: the branch or project managers of overseas contracts may not have the knowledge or authority to recruit right  and sufficient local assistance. Unavoidable the suffering becomes deplorable at last; again to drag down the momentum to pursue the overseas business.

(4) The exploration and subsequent operation of overseas construction market call for the company to provide money, know-how, credited work experience and ready to deploy talented people for whatever the projects undertaken; but ironically big company and their follow managers only to think of overseas business at times when they feel jobs in hands aren't enough.

It takes time to obtain a contract, and the resources shall be paid out at any moment. Therefore the company to develop overseas work shall be big enough to dedicate for what they will have in hands given the short mobilization time. People have to realize the contracting business will not come only to fit your schedule.

The construction companies in Taiwan long suffered from overdue subcontracting system and resulted market fragmentation. The cruel fact is they don't have sufficient resource to go foreign land. 

Sometimes only sole determination of the strategy makers of a company to go for abroad could be tragic. 

5). Assignment of People to Run Overseas Works.

(1) In different countries, traditions, work conditions, and market competition are not the same; so people to be assigned for business can be unique. In general, personality of a representative is more important than his education; cultural adaptability than language, and impulsive energy than professional experience. 

There're political and diplomatic handicap Taiwanese people working overseas will have had; and under the circumstance maybe people of special trait will be able to do something unusual to overcome the difficult. 

(2) It take time to get the jobs, especially the good ones. Patience shall be the highest virtue for chief of concerned departments, end even the company head, to evaluate the performance of business people. It means that, for example, the annual assessment given to the overseas representatives shall not be translated into demands to force those evaluated to sign contracts whatever he has chances to sign.

For the same consideration that the people in headquarter shall not be hasten to recall representative(s) from foreign branches or even delete them after not getting satisfactory business and profit.

6). Mental Readiness for Construction Companies to undertake Overseas Business

(1) Before going for specific project, the Company must make sure it will have people experienced enough to go for the project; or it will have fair chances to recruit qualified people from the industry.

(2) The company management shall be knowledgeable for overseas projects operation; and is willing and passionate to develop business prospect in foreign lands. It is better that the decision makers will have overseas experiences themselves.

(3) The company employees realize the need to develop overseas business as only means to extend market and enhance technology; and the people are willing to adjust themselves to reinforce expertise, learn foreign language and change work attitude for overseas projects.  

They understand any domestically market protection is temporary, and only the industry essentially strong and internationalized, are their life long professional guarantees.

(4) For operation in strange country, the company management mentality shall be open. But it's easy saying than doing; the feeling of superiority toward the locals are hard to fend off and remains qualm of Taiwanese management. 

Anyway, an idealistic team shall be consist of agent, sponsors and partners through the intimate cooperation of local employees.

A capable and trustworthy agent or sponsor will obtain in time information, establish the links with authority, and acquire competitive local resource for the Company. Above all, they shouldn't sacrifice the Company for slim benifit to continue the agentship for minimal commissions.

In almost all the countries, the implementation of the projects, engineering or construction, require minimum participation of the local partner(s); a good one will offer the assistance to reduce the cost, solve licensing and authoritative problems, and truly to share the financial overburdens resulted from the unbalanced payment schedule.

The employment of locals, especially, in the branch office for business pursuance and project supporting is vital; the salary and promotion must be better than local market practice to ensure loyalty and reliability of the natives.

As people from Taiwan in strict sense will only work as passerby ultimately, trust and confidence must be rendered to the locals as they're there maybe forever. Even slight discrimination will be incubated and turn out to become source of disloyalty and misconducted behavior in the future.

And for a system that must be built on fraternity and egalitarianism, the decision makers in far-flung headquarter must have responsibility too.

7) License, Registration, Special Permit for Foreign Contractor.

(1) For ownership on land, housing and factory.

(2) For business operation to sign the contract

(3) To import the machine, permanent equipment and material

(4) To hire local engineers of required qualification and numbers

8) Acknowledge of difference and handicaps:

(1) Handicap in language.

(2) Difference in cultural perception.

(3) Difference in applicable code and standard.

(4) Difference in executing safety and environmental protection rules

(5) Difference in Tax code application and interpretation.

(6) Difference in labor management.

(7) Hindrance or inconvenience caused by entry visa and work permits for expatriates.

9) Unmanageable Risks:

(1) Politic risks (regime change, war, commotion, nationalization, sanctions,    embargo)

(2) Exchange and currency risks

(3) Economic risks (inflation, interference in manufacture and transportation system)

(4) Natural disasters (flood, typhoon, earthquakes, avalanches)

(5) Legal risks (change of law, unpredictable adjudication)

(6) Cultural Risks-incoherent mental and behavioral model between host country people and foreign contractor.

10) Manageable Risks (with care and monetary provision):

(1) Construction schedule and completion date.

(2) In time delivery of construction material and equipment both in quality and quantity.

(3) Contractual risks

(4) Safety and security of expatriates (persons, property, accidents).

(5) Free flow of capital.

6. Conclusions:

1) Design and construction technologies are prone to natural science while marketing and management of construction companies closer to culture science. An engineer blurs the division line of both and eager to explore more humanities within the business will have more successful career.

2) As modern construction projects take more trades, disciplines and resources for its more complicated feature. The participants are imposed more risks by more demanding clients; only the construction companies with reasonable scale will survive and thrive facing demanding clients. Under the circumstance, the young talent have better to choose more sizable company for a brighter future. It's an international trend.