Globalization And Its Effects On The Construction Industry In Australia

Causes of Globalization

Discuss about the Globalization and Its Effects on the Construction Industry in Australia.

Globalization is a process of integration and interaction among the people, governments, and companies of different nations. The process is driven by international investments and trade and is assisted by information technology. Globalization has effects on the culture, environment, construction industry, economic development, political systems, prosperity and the human physical well-being of the societies in different parts of the world.

The construction industry has contributed significantly to the employment and economic growth in Australia. This industry has greatly changed in the last decade and has greatly moved in line with globalization. The rapid economic development has boosted demand for property in Australia, and the government has also provided an opportunity for the construction industry to grow. The significance of the construction industry can be seen clearly through the engagement in different types of construction such as residential buildings, office building, school, shops and institutions  (Adam, 2013, p. 237).

The concept of globalization does not apply directly to the construction industry in Australia, as the construction industry is not a commodity that can be traded across international markets. Nor does it extends itself internationally integrated production, this is because the production in the construction industry takes place on site, within any number of countries.  Nevertheless, there is no doubt that the construction industry has greatly changed in response to globalization. The main object of writing this report is to evaluate the impact of globalization on the construction industry in Australia. Various factors have been driving globalization in the construction industry over the past (Anson, 2016, p. 178).

The source of globalization lies in the advancement in information technology. The cost of travel, transport and all other costs of communication have dropped dramatically in past decades. It is very clear the availability of fast, cheap and reliable communications which allows globalization. Because this is the key to the integration of their international capital market (Barkham, 2014, p. 281). The efficient and reliable communication is very important in developing the multinational corporations because it is the rapid and cheap communication that enable the various parties to exploit their intellectual property efficiently in a variety of sites without necessarily losing the ability to maintain the control from the central location. Other factors that contribute to globalization include; the spreads of consumer knowledge concerning what is available which comes from travel and advertising, itself encouraged by the communities. It requires a peaceful environment to put in place economic agents to exploit the opportunities for globalization which is presented by the advancement in information technology (Black, 2012, p. 59). Globalization presents a unique opportunity for the engineering and construction industry in Australia in terms of greater opportunities for the local industries to acquire technological knowledge. Better access to finance and other resources concerning the construction projects, greater division and specialization of labour on the global level, and the strategic positioning for the established company for a more competitive market (Fitch, 2015, p. 294).

Construction Industry in Australia

The construction industry in Australia includes the units that are involved in the construction of buildings and other structures,alterations,additions,installations,reconstructions,repairs and maintenance  of the building and other structures. The divisions in this industry include; the construction services, residential and nonresidential building construction (Friedman, 2012, p. 563).

The construction industry plays a very important role in the economy of Australia. It includes a number of industry classes and groups, such as the roofing, bricklaying, electrical, plumbing, decorating and painting services. The figure below shows the contribution of the construction industry to the economy of Australia.

Fig 1: The contribution of Construction Industry to the economy of Australia

Facts about the construction industry in Australia

• The construction industry is the third largest contributor to the workforce numbers by offering approximately 1,040,000 employment opportunities to the people of Australia which is a9.8% of the total working population
• Construction services, construction of residential and non-residential buildings sit within the larger construction Division
• The total income from construction in has been steady since 2007-08
• The employment levels in this industry have remained relatively flat over the past eight years.
• Revenues from the construction industry contribute approximately 13.5 of total revenue in the economy
• The margins of profits within the construction industry are in line with the average for all the industries, with operating profit prior to the tax of about 10% of the total income
• There was 351,617 construction business in Australia as per the survey that was carried in June 2015.

Factors driving the Construction Industry

• Loan rates and housing availability median house prices in Australia’s biggest residential housing markets have skyrocketed over the past 5 years with the housing prices in Sydney increasing by 54.5% and at the same time processes in Melbourne increased by 25.6%.The growing property markets in Australia are driving increased demand  for the new residential constructions (Hampson, 2013, p. 28)
• Housing approvals

The Australian government has approved the construction of Residential buildings in order to facilitate the economic growth of Australia. Much of the growth in construction is attributed to multi-level apartment buildings, with most of the development being centered around Sydney, southern Queensland, and Melbourne and to a small extent, Perth. The growth in residential construction is also attributed to the efforts of the government to equip those areas with urban infrastructure.

• Commercial Spaces
• Retail turnover

Globalization presents a unique opportunity for the engineering and construction industry in Australia in terms of better access to finance and other resources concerning the projects, greater division and specialization of labour on the global level, greater opportunities for the local industries to acquire technological knowledge and the strategic positioning for the established company for a more competitive market.

Opportunity for the local industries to acquire technological knowledge

Globalization has presented an opportunity to the Australian construction companies to acquire the technical knowledge which is applied in the construction industries in other parts of the world. The construction companies have greatly gained from the technological knowledge that has been gained. There is enhanced project outcome through the understanding of the most important devices and applications which are currently available. With the introduction of Building information Technology various parties who are involved in the  execution of the construction project can collaborate through the entire building and infrastructure cycle-right from the design phase to the planning stage to construction phase and management, that is achieved through the provision of BIM cloud-enabled tool which enables the architects, professionals, and  clients to work as a team the figure below is an illustration of a cloud-based collaboration services of various parties involved in construction (Jiayuan Wang, 2016, p. 349).

Positive Impacts of Globalization in the Australian Construction Industry

Fig 2: cloud-based collaboration services of various parties involved in construction globally

With the introduction of Building Information Modelling and other technologies presented an opportunity for the construction industry in Australia to come together with other nations to discuss technology, innovation and the internet of things related to construction (Kawano, 2018, p. 450).

Strategic positioning for the established company for a more competitive market

As the term globalization is defined as a process of integration and interaction among the people, governments and companies of different nations. It has been a great opportunity for the different established companies within Australia to have an opportunity to be strategically located for more competitive global market where they can effectively compete for global projects. Companies such as Parkview Group (Australia) Pty Ltd, John Holland Pty Ltd and Thiess Pty Ltd has had an opportunities to compete for various global projects such as United Nations projects. With the strategic position of the Australian construction companies it has been much easier for them to develop further and improve on the quality of services which they usually deliver which has resulted to high quality of construction projects in Australia (Li, 2016, p. 414).

Achievement of economies of scale

Globalization has allowed the Australian construction firms to achieve economies of scale as they are not restricted to the local home market. The demand elasticity constants facing single firms increase with globalization. Globalization has allowed the construction firms to lobby the various parts of the world who supply the construction materials at a lower price at the same time having high quality. This has also had a positive impact in the manufactures and producers of the construction materials to work in an extra mile to meet the set standards of the construction materials in order to meet the expectation of the contractors who can be preferred to buy from other countries thus there is an overall increase in the quality of the construction materials produced in Australia (Ofori, 2011, p. 205).

Greater specialization and division of labour on global level

Globalization has led to any construction firms in Australia to special on what they can perform best in order to be in a position to compete effectively with other construction companies offering the same services or products. For instance the construction companies that are mainly involved in the consultancy have specified in the consultancy services to ensure that they meet the global standards and position themselves strategically so that they can be able to compete well for international projects (Osman, 2011, p. 349). The construction companies that are involved with the direct construction at the construction sites have also specialized with the site constructions works by applying the modern construction technologies that are applied in other parts of the word. With that specialization it has led to the overall improvement of the construction industry in Australia. The figure below shows how various parties in construction industry have subdivided and specialized their work in order to meet global standards.

Fig 3: division of labour

Improved procurement in construction

Globalization has greatly changed the way procurement in construction industry was carried out in Australia. There has been great improvement on how procumbent is carried out. In the current procurement in construction industry bides are invited from various parts of the world to present their bids. Which in turn has resulted to be selection of suppliers and contractors who can greatly help in delivering quality services band products to the construction industry of Australia. The traditional method of procurement has been completely done with as most of the clients and construction firms are opting for the modern procurement management which ensures that the parties who are appointed to carry out various tasks during the construction are well qualified and are in a position to deliver as per the agreement in the contract (Robertson, 2010, p. 520).

Access to high quality construction materials and services

Globalization has a significant impact on the factors of production. Which are the foundation of intergradation in the construction industry among nations. With globalization Australian construction Industry has been able to acquire high quality materials from other parts of the world such as Asia. Some of the naturally occurring materials which are not available in Australia can be obtained from the countries that are endowed with them at an affordable and friendly prices due to the integration which Australia might have developed with that nation (Rodney Haddow, 2016, p. 41).

Development of better Domestic policies in construction industry

The Government of Australia in its bid  to attract increased foreign investors in the local Australian market it is carrying out further reforms to in institutions ,particularly in the finance and banking sectors where it is adopting  certain measures  such as;

• Relaxing barriers or removing them completely in the tax repatriation of profits
• Adopting a tax policy which is transparent through a way of granting equal tax treatment to the local and foreign construction companies
• Accepting double taxation relief with other nations
• Providing preferred interest rates for the joint ventures in the situations where there is equity majority by the local companies. Guarantee the safety of their foreign investments.
• Reduced imposed ceiling on the foreign equity on the development and construction firms.
• Accepting bilateral agreements with foreign governments.

The above-mentioned measures that have been put in place by the government of Australia due to the globalization will bring about benefits such as the interaction of local and foreign construction companies and thereby complement each other. Although the domestic companies tend to have better knowledge and experience of the local working conditions  they take care of the materials and labour ,the foreign construction companies bring about the joint ventures and their highly trained expertise in technology, management, and finance  know-how, thus creating a robust, healthy environment for the local private companies.

Competition for global contracts

Globalization presents an opportunity for the Australian construction companies to compete with other global construction companies in the international, multinational and global markets for the available projects. With that many of the Australian construction companies have greatly improved in their performance in order to reach the international class where they can be able to compete for global contracts and with that globalization has generally improved the performance of the construction companies of which most of them currently are international class.

Unequal treatment of construction firms by the government and financial institutions

Concerns have been raised with the challenges posed by globalization. In the engineering and construction industry in Australia, there has been a divergence of profits whereby the bigger and well-established construction companies are well backed by the government and other financial institutions to compete globally for international projects which have resulted to their rapid growth. The government has also allowed the penetration of other well established foreign construction companies to penetrate the local and regional markets leaving the local contractors and other construction companies undeveloped. With that unequal treatment if the government and other financial institutions have led to the local construction companies to collapse (Uwakwhe, 2012, p. 54).

Regional instability

Globalisation generally has increased the risk of major global and regional instabilities because of the interdependence of economies. Its negative impact is disturbing for the engineering and construction industries as observed by the modern global economic collapse. Australia sustained a major part of their economy on the construction sector suffered.

Globalisation unstabilised the economy of a given region for instance Australia or New Zealand in that their governments are depending upon the finance from the international financiers such as world bank in order to initiate their projects which in turn greatly affects the construction industry locally as most of the construction project remains incomplete or are built at a slower rate than the expected rate at which they were to be constructed.

Unfair Competition

It has been observed in Australia that globalization has forced down the price of construction services through the reduction of the ability of the construction firms to obtain excess margins through competitive pressure. At the same time the in the face of the margin squeeze, firmly pursue to minimise the cost by use of the available technologies, the reduction cost is, in turn, passed to the clients in the form of low prices which has costed the undeveloped construction companies. Most of the Construction firms that are not well established finds it very difficult to compete with the well-established companies who enjoy the economies of scale. Due to that Globalisation has led to the collapse of small and unestablished construction companies.

Vulnerability

There has been perceived loss of sovereignty of the national government and the political class due to the continuous influence of the foreign investors in the construction industry. Most of this investor and the international financiers have put a lot of efforts in protecting their own interests without Taking care of the people of Australia. Shared vulnerability because of the interdependence and fragility of the international economic system, the circulation of wealth developed via globalization

Conclusion

In conclusion, this paper analyses globalisation and its impacts on the Australian construction industry. Globalization is a process of integration and interaction among the people, governments, and companies of different nations. It has both positive and negative impacts on the construction industry in Australia. Some of the positive effects of globalization on the Australian construction industry include; improved procurement process in the construction industry. Development of better policies in the construction industry which facilitates the movement of foreign construction investors and companies to invest and boost the construction sector of Australia.

With globalisation, there has been Achievement of economies of scale as the Australian firms have had an opportunity to carry out construction activities in other global markets outside Australia. Most of the Australian Construction companies have had an opportunity to compete for the global contracts with the development of globalization. That has been a great opportunity for most of them to establish and develop (Zuo, 2016, p. 372).

There has been greater specialization and division of labour on a global level. That was aimed at ensuring that the staff and the professionals who are employed by the different construction firms meet the international standards so as to position their companies in the competitive global market.

Globalization has a significant impact on the factors of production. Which are the foundation of intergradation in the construction industry among nations. With globalization, Australian construction Industry has been able to acquire high-quality materials from other parts of the world such as Asia. Some of the naturally occurring materials which are not available in Australia can be obtained from the countries that are endowed with them at affordable and friendly prices due to the integration which Australia might have developed with that nation.

Globalization has both positive and negative impacts on the construction industry in Australia. Some of the Positive impacts include; greater specialization and division of labour on a global level, Achievement of economies of scale, improved procurement in construction, better policies in the construction industry while the negative impacts include; Inequality treatment of construction firms by the government and financial institutions, unfair competition, local instability, and vulnerability.

Some of the negative impacts of globalization unequal treatment of construction firms by the government and financial institutions whereby the government and other financial institutions concentrate all the resources on the well-established construction firms to compete globally for international projects which have resulted to their rapid growth. 

The government at the same time has allowed the penetration of other well established foreign construction companies to penetrate the local and regional markets leaving the local contractors and other construction companies undeveloped. With that unequal treatment if the government and other financial institutions have led to the local construction companies to collapse.

Globalization has forced down the price of construction services through the reduction of the ability of the construction firms to obtain excess margins through competitive pressure. At the same time the in the face of the margin squeeze, firmly pursue to minimise the cost by use of the available technologies, the reduction cost is, in turn, passed to the clients in the form of low prices which has costed the undeveloped construction companies. Most of the Construction firms that are not well established finds it very difficult to compete with the well-established companies who enjoy the economies of scale. Due to that Globalisation has led to the collapse of small and unestablished construction companies.

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