INTERNATIONAL COMPETITIVENESS

DEFINITION

• International competitiveness is the degree to which a country can, under free and fair market conditions, meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its citizens.
• A nation’s competitiveness depends primarily on keeping productivity growth rates equal to or greater than those of its major competitors. Productivity growth rate is directly related to a nation’s rate of investment on innovation (i.e. R & D).

FACTORS OF COMPETITIVENESS

• Project price
  • Continues to be a major factor, particularly for conventional projects in civil sector.
  • May be affected by (a) low labor cost, (b) low material cost, (c) low-cost financing, (d) low transportation cost (equipment, personnel, material), (e) superior productivity.
  • Contractors try to keep costs as low possible by using local materials and labor, wherever possible. Host governments also encourage the use of local resources.
  • Government support programs can also influence the competitiveness on contract bids by offering risk insurance, tax subsidies, and reimbursing bid preparation costs.
• Export financing
  • Firms usually require outside financing for international projects. Governments are a major source of financing. The Export-Import Bank of the United States, for example, provide loans and guarantees to assist export of construction services.
  • Many firms benefit from commercial targeting of official development assistance funds. These funds may be disbursed to the host country either in the form of grants or low interest loans. A high percentage of official assistance offered by some nations (i.e. Japan) to the developing countries are utilized through the multinational corporations.
    • Cost of capital tends to be relatively low in nations with high savings rate, growing economies, stable governments, and legal systems that provide for the enforcement of contracts. Japanese contractors have benefited from the access to capital they have enjoyed as a result of Japan's position as a major creditor nation.
• Technological and management capabilities
  • Innovation is a key element to improving the performance and competitiveness of the building and construction industry. The design, development, commercialization and effective diffusion of new building products, systems and services are key drivers for the growth of the  industry. Advanced construction technologies are advantageous in competing on projects that require special expertise.
    • IT has opened international business opportunities and thereby is considered as a major factor in competitiveness. It is reported that a company called Starnet International won a contract for designing and building a large dome in Beirut by developing a virtual reality video. McGraw-Hill (1995) reports that the advanced communications technology is enabling contractors in the industrialized nations to use lower-cost engineers and other personnel from outside their home countries without compromising quality.
    • IT may help to reduce the disadvantage of small firms in competing in international markets.
  • Some facilities the owners need are becoming increasingly complex that require greater technological sophistication to build them (i.e. new systems for communications and data transfer, better water treatment facilities, clean rooms, etc.). Technological issues are therefore becoming principal drivers of competition.
  • Major innovations are often generated by changes to materials and equipment arising from research and development (R&D) or significant improvements to design, engineering and assembly methods.
  • The quality of construction services offered may be an overriding competitive factor for complex projects. Large-scale projects require substantial management skills.
• Joint ventures
  • Joint ventures with local firms is a requirement for many international projects. Finding a right local company is a factor in competitiveness.
  • Joint ventures, when properly used, allow pooling of resources and facilities and spreading of risks.
  • It is a "gestalt": the whole is bigger and stronger than the sum of the sizes and strength of the parties who combine together to form it.
  • A joint-venture relates only to single project.
• Multilateral development bank financing
  • Multilateral development banks (MDB) provide credit to developing countries for procurement of works. Since the credit amounts do not always cover the total cost of the projects, the banks (i.e. WB, ADB, etc.) often seek co-financing for the works. Many foreign firms seek to increase their chances of winning MDB bids by offering the host country governments attractive export financing to supplement the MDB funds.

MEASURES OF COMPETITIVENESS

Coviello et. al (1997) have examined some measures of international competitiveness in an extensive study. They include:

• Performance: Performance by a company in comparison to others is considered to be a factor of competitiveness. The performance measures include:
  • Revenue earned by a company
  • The company's market share and profit level
  • The degree of efficiency in completion of construction projects
  • The effectiveness (in terms of scope, cost, and time) in completion of a construction project
• Potential: Potential of a company in comparison to others plays a role in competitiveness. The measures of this variable are:
  • The quality of project personnel
  • Relationships with other international companies
  • Formal and informal contacts with key construction markets
  • Quality of services
  • The degree of international reputation of the company
• Process: The authors recognize process as the third variable in measuring competitiveness. The measures of process variable includes:
  • The degree of international commitment and focus of the company
  • The degree of consistency in top management over time
  • The degree of the management's commitment to and role in managing key international relationships
  • The degree to which the firm's organizational structure and systems are geared toward global thinking

COMPETITIVENESS OF US CONTRACTORS

• US advantages
  • Broad construction experience overseas
  • High level of engineering technology, particularly for oil refineries, power plants, large industrial process plants
  • Effective project management skills
• US disadvantages
  • Projects where price is the critical deciding factor
  • Less generous government support compared to some other international competitors
  • In case of MDB financed projects, lack of a good understanding of procurement and bidding processes

THE WORLD BANK AND THE INTERNATIONAL MONETARY FUND

INTRODUCTION

• Known collectively as the Bretton Woods Institutions after the remote village in New Hampshire, U.S.A., where they were founded by the delegates of 44 nations in July 1944, the Bank and the International Monetary Fund (IMF) are twin intergovernmental pillars supporting the structure of the world's economic and financial order.
• The Bank is primarily a development institution; the IMF is a cooperative institution that seeks to maintain an orderly system of payments and receipts between nations.

THE WORLD BANK

• The World Bank offers loans, advice, and an array of customized resources to more than 100 developing countries and countries in transition.
• The World Bank is the largest provider of development assistance, committing about $20 billion in new loans each year. The Bank also plays a vital role in coordinating with other organizations (private, government, multilateral, and non-government) to ensure that resources are used to full effect in supporting a country's development agenda.

WHAT DOES IT DO?

• The World Bank is helping countries to strengthen and sustain the fundamental conditions they need to attract and retain private investment. With World Bank support (financial and non-financial) governments are reforming their overall economies and strengthening banking systems. They are investing in human resources, infrastructure, and environmental protection which enhances the attractiveness and productivity of private investment. Through World Bank guarantees, the MIGA's political risk insurance, and in partnership with the IFC's equity investments, investors are minimizing their risks and finding the comfort to invest in developing countries and countries undergoing transition to market-based economies.

WHERE DOES THE MONEY GO?

• The World Bank raises money for development at the lowest rates by tapping the world’s capital markets, and, in the case of the IDA, through contributions from wealthier member governments.

WHO OWNS THE BANK?

• The World Bank is owned by more than 180 member countries whose views and interests are represented by a Board of Governors and a Washington-based Board of Directors.

THE INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA)

• IDA is the World Bank’s window for lending on very soft terms. The credits, provided to countries with less than $925 per capita income, are interest free. They are very long-term (35 to 40 years, including 10 years grace), carrying only an annual administrative charge of 0.75 per cent.
• IDA lends, on average, about $5-6 billion dollars per year for different types of development projects. Most of the projects include components of physical development that require the engagement of consultant, contractor, or both.

THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (IBRD)

• The IBRD provides loans to developing countries that are capable of paying near-market interest rates. It accounts for about three-fourths of the Banks annual lending. It raises almost all its money in financial markets by selling bonds and debt securities to pension funds, insurance companies, corporations, banks, and individuals around the world. Loans have to be repaid in 15 to 20 years. There is a grace period of three to five years before the payment of principal begins.

MULTILATERAL INVESTMENT GUARANTEE AGENCY (MIGA)

• Affiliated with the World Bank, the objective of the agency is to supplement national and private agencies supporting direct investment through their own investment programs. It encourages investment by providing viable alternatives in investment insurance against non-commercial (political) risks in developing countries.
• The agency provides insurance of investment in countries restricted or excluded by the policies of other national insurers or through specific policies adopted by governments.

THE INTERNATIONAL FINANCE CORPORATION (IFC)

• The IFC is the source of loan and equity financing for private sector projects in the developing world. It participates in investments only when it can make a special contribution that complements the role of market operators.
• IFC charges market rates for its products and does not accept government guarantees.
• IFC finances projects in all types of industries, from agribusiness to mining, from manufacturing to tourism. To be eligible for IFC financing, projects must be profitable for investors, benefit the economy of the host country, and comply with stringent environmental guidelines.

THE INTERNATIONAL CENTER FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID)

• It is an autonomous organization with close links to the World Bank. The center provides facilities for the conciliation and arbitration of disputes between member countries and investors who qualify as nationals of other member countries. Recourse to ICSID conciliation and arbitration is entirely voluntary. But once the parties have consented to arbitration under the ICSID convention, neither can unilaterally withdraw its consent.
• ICSID publications: Investment Laws and Investment Treaties.

GENERAL CONSIDERATIONS FOR PROCUREMENT USING WORLD BANK FUNDS

• Economy and efficiency of implementation of projects
• Provide opportunities to the eligible bidders from all member countries to compete for the works financed by the Bank
• Encourage the development of domestic contracting and manufacturing industries in the borrowing country
• Maintain transparency in the procurement process
• Publication of procurement notice in UN Development Business in order to notify the international community
• Pre-qualification of bidders
• Invitation to bid
• Selection of lowest responsive evaluated bid
• Award of contract

THE INTERNATIONAL MONETARY FUND (IMF)

• The IMF was created to promote international monetary cooperation; to facilitate the expansion and balanced growth of international trade; to promote exchange stability; to assist in the establishment of a multilateral system of payments; to make its general resources temporarily available to its members experiencing balance of payments difficulties under adequate safeguards; and to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

References:

Coviello, N. E., Ghauri, P. N., & Martin, K. A-M. (1997). International competitiveness: Empirical findings from SME service firms. Journal of International Marketing, 6(2), pp. 8-27.

McGraw-Hill (1995). ENR (August 28), pp. 32-34.