Globalism & the construction industry
Monday, July 16, 2018 from Floor Covering Weekly
Construction is one of the few industries in our economy that has been sheltered from globalism. Often it isn’t feasible to export or import construction jobs, while construction materials — steel, lumber, concrete, gypsum — are typically expensive to transport relative to their cost. On the positive side, this makes it challenging for foreign competitors to break into the U.S. market. However, it also makes it difficult for U.S. companies to do business abroad.
This situation is changing. Technological developments are reducing the economic friction across international borders. Political pressures to erect trade barriers in an effort to protect local industries are growing within the U.S., but also are present in other countries. Ultimately, however, economic considerations of where a product can be produced the most cost-effectively are likely to prevail. Construction has an increasing number of complex, valued-added elements that require specialized skills to design and produce, and therefore that are more feasible to export and import than traditional construction commodities. Even many construction products traditionally thought of as commodities — steel, specialized metals, engineered lumber products — have seen increased consolidation in their production to take advantage of scale economies. Also, construction components are increasingly being prefabricated, preassembled and modularized offsite. The benefits from offsite production can include reduced cost and time of assembly, improved quality, and better health and safety outcomes. One consequence of offsite production is that the ability to transport these components is designed into the process.
While these developments may make U.S. construction activity more vulnerable to foreign competition, more importantly they make U.S. building product manufacturers, distributors, developers, architects and engineers more competitive in the global marketplace. So, greater competition domestically should be more than offset by increased opportunities internationally. The global construction marketplace totaled in excess of $10 trillion last year, according to IHS Global Insights. The U.S. accounted for about 12 percent of global construction. Fully half of this spending was in Asia (30 percent in China alone), 20 percent in Western Europe, 15 percent in North America, with the remainder split between Central/South America, Middle East/Africa, and Eastern Europe.
These shares of global construction activity will continue to shift in the future, but in balance they are not likely to favor domestic U.S. construction. Countries with faster-growing economies are likely to see increasing shares of the global construction market. Economic growth — and therefore demand for additional facilities — is largely determined by a combination of how much the workforce of a country is increasing, and how quickly the productivity of that workforce is improving. Developing countries generally rank higher along both of these dimensions. So, for example, the most recent economic growth forecasts from the International Monetary Fund predict that the world economy will grow annually on average by an estimated 3.9 percent over the 2018-2019 period.
However, India is projected to grow an average of 7.6 percent, China 6.5 percent and the Middle East/Africa 3.6 percent. In contrast, growth in the U.S. is projected at 2.8 percent, the Euro Area 2.2 percent and Japan 1.1 percent. So, while the construction industry may be dealing with globalism later than most, the winds are beginning to shift, and opportunities are increasingly presenting themselves for companies that have a vision and strategy for meeting global needs.