Contractors and Sub Contractors - Essay Example

Contractors and Sub contractors Supervisor] Contractors and Sub contractors Introduction: The recession of 2007 had a grave impact on almost all industries across the globe and the condition of the construction sector in Europe hasn’t been any different. With a decrease in average salaries of individuals working within the sector and an increase in job cuts the economic crises was one of the greatest challenges that construction sector faced since the Second World War. However recent years have seen an increase in the employment opportunities within the construction sector across Europe. It is expected that the construction sector would see an increase in its growth and experts suggest that there are no signs to suggest that this growth would decrease in the near future (Wearden & Fletcher, 2014). The economic recovery of the sector has brought with it not only opportunities, but also risks and pitfalls that can just as easily have negative impacts on construction companies trying to enter into the newly recovered market. This paper would analyze the opportunities and risks that construction companies face from entering into a market that is gradually growing with time. Challenges Difficulties due to difference in currencies: One of the greatest challenges that international contractors will face while entering European market would be the fluctuating exchange rates (Jones, 1992). With the difference increasing between Euro and other countries’ currency foreign contractors have a hard time in estimating an exact budget of a particular project. Moreover if exchange rate of Euro increases after an estimate is drawn the contractor may lose a large amount of money. Keeping this risk in mind contractors must be careful when dealing with Euro. They must convert the cost in their own local currency using up to date exchange rate and must acquire the needed Euros while the exchange rate is same (Jones, 1992). Language and cultural barrier: When dealing with European construction companies there contractors tend to encounter individuals that communicate in different languages. If suppliers would speak Dutch then sub contractors would be German, communicating with them all would be a tedious task for the contractors. English is one of the main languages that is used to communicate between and is spoken fairly well by all members of the construction community (Hendon et al., 1996). However even with English being used by many individuals there is still an issue with their accents and expressions causing great confusion while communicating. Translation of what is said or written in a document usually changes the context of the statement. This in turn causes problems regarding some technical and legal construction terms which are used to draft an agreement between the two parties (Hendon et al., 1996). Culture is another aspect that needs to be addressed. There is a tendency in most European countries where individuals are easily able to spot a foreigner. They can observe from an individual’s walk and his approach towards another individual whether that person is from Europe or not. Most individuals from Europe countries, such as Czechoslovakia, are not trustworthy of foreigners. Individuals in such countries usually need a great deal of convincing about the intentions of a foreigner before they can be persuaded into carrying out business with the opposing party. These countries also feel a certain disliking for individuals that communicate in English instead of the native language of that country (Hendon et al., 1996). While carrying out operations in a country or area where there are individuals from different cultural backgrounds it is important to understand the customs and the routine that they follow in order to conduct business within that area. For example it is considered good business etiquettes to shake hands with everyone when meeting or departing from a meeting (Hendon et al., 1996). Conservation of energy and environmental factors: The Kyoto Protocol saw some of the most developed countries of the world coming together and developing a plan to minimize the damage caused by carbon emissions. Among these nations were the nations of European Union. European Union took upon itself to take measures to reduce carbon emissions by decreasing the amount of energy that is utilized by various homes and offices. The intention of European countries to reduce energy consumption is not just environmental but is also financial. Europe consumes one fifth of world’s energy and in order to reduce the cost of energy that European countries have to bear their goal has been to reduce the consumption of energy (European Comission, 2011). Europe over the past decade or so has started investing heavily into conserving energy. Members of European Union have implemented a number of targets for themselves that would ensure that energy costs are minimized by the year 2020. Heavy investment is also being made by the European Union into trying and making renewable sources of energy a possibility throughout Europe (European Comission, 2011). Energy conservation is another important factor that contractors have to look into when carrying out the actual work. Considerations are to be made regarding the air conditioning system of the building. The purpose of installing an air conditioning system within an European building is to place the occupants of the building in a comfortable position. Moreover emphasis is placed on the structure of the building in a manner that it helps in the maximization of usage of natural light (European Comission, 2011). Safety considerations: Health and safety has been one of the fields where recent development has been made by the European Union. A new legal framework has been established that is expected to cover maximum risks that individuals face at a construction site. The framework also provides tends to achieve this with the implementation of minimum number of regulations (European Commission, 2014). Laws regarding safety provided to workers at a site vary from country to country. Providing safe working environment to the workers has been one of the main priorities and conditions that have been put forward by most European countries to construction contractors that are willing to work within those countries. Violation of safety protocols defined could even lead to legal action being taken against the contractor and architect of the project. Regular inspections are carried out by governing bodies that ensure there is no violation of the safety rules that have been imposed by the government of the country. In some countries of Europe such as Germany and Italy, a safety supervisor is employed who overlooks the implementation of all the safety measures necessary and is responsible for ensuring that no accident occurs at the site (Singh et al., 1999). Competition: There are a number of local contractors within Europe with whom the construction companies feel comfortable working with. Moreover these contractors don’t face any major hurdles that contractors from foreign countries face in Europe. With high competition in these countries a new entrant would find it extremely hard to make an impact in the market. Moreover there is a cultural trend that prevails throughout Europe where companies tend to base their business on the relationships that they create with contractors. Making a stable relationship with construction companies takes a great deal of time and money. From this it is clear that contractors have to spend a great deal of time within Europe and increase their number of contacts before they can start obtaining contracts of any significance (ECORYS, 2011). Power of Unions: Powerful unions in Europe are not unheard of and negotiations with unions could either make or break a project. Any company within countries such as Italy, Germany and France are likely to have a union even if the total number of workers working within that region is less than 15. If a contractor has the desire to work in Europe they have to adhere to the demands of the worker’s union. Meetings and coordination with unions are considered essential to ensure the delivery of project on time (Erne, 2008). Contracts between unions and contractors usually last for a time period of 3-4 years and cover a number of aspects that are related to the work force. Unions leverage their position within the project to include minimum salary of their choice, basic training required to execute a particular task for the project, number of paid and sick leaves that are available and the pay that they receive for working overtime. Strikes and shutdown of operations within these countries are considered normal and little or no surprise is shown by the contractors operating within these regions (Erne, 2008). Historical reconstruction: Reconstruction of historical landmarks has been one of the prime businesses that contractors are receiving in Europe. From medieval castles in Prague to maintenance of cathedrals in Milan they all are receiving a great deal of interest from their countries (EuroAce, 2014). The renovation and reconstruction of these structures may be obtained with certain ease but the overall cost of the entire project, in some cases, outweighs the benefit that contractors receive. Furthermore, the reconstructions of these landmarks are strongly monitored by the government and influence of the government officials cannot be kept out of the project (EuroAce, 2014). Opportunities More investment in construction: Since the recession in 2007 there has been a great deal of uncertainty that has prevailed over the European construction industry. With trends that were seen the next few years there was no surety if countries within European Union could have reached the same peak that it once had prior to the economic crises of 2007. However recent years have seen the construction industry steadily increase in growth. The greatest growth in demand for construction within Europe has been seen in Germany, France and United Kingdom (Malleson, 2014). Latest reports released by Euro-Construct suggest that during the coming two year period, which is from 2014 till 2016, output generated from construction industry of Europe would increase. Statistics suggest that the current growth of 0.9% is all set to increase to 1.8% by 2015 and by 2016 the sector would see a growth of approximately 2.2% (Malleson, 2014). Western Europe, comprising of countries such as Germany, France, United Kingdom and Belgium are likely to see a steady growth of about 1.2% whereas Scandinavian countries of Denmark, Sweden, Finland and Norway would see the greatest growth in entire European continent (Malleson, 2014). With the above provided numbers and the fact that the European market is stabilizing with time it is safe to assume that European construction industry has much more to offer than those prevailing in United States and other parts of the Globe (Malleson, 2014). Exposure: Another advantage of practicing contract jobs in the field of construction in Europe provides competitive advantage, as it allows constructors to practice their profession at internationally recognized institutions. As a result, these contractors get exposure to internationally recognized contractors and adopt their style. The adoption of such styles tends to lead to an increase in the diversity of work that these contractors can do and the architectural styles that they can work with (Malleson, 2014). Certifications and accomplishments achieved in Europe add extra value to the career of contractors across the globe. This is because European standards are established after thorough research and development activity which reduces the chances of errors in the judgment of these institutions pertaining to standards and controls. Reduction in errors within projects tend to lead to production of near perfect outputs of each products and reduction in the amount spent rectifying mistakes made during any of the planning or construction phases of the project (Malleson, 2014). High standards: The basic benefit of practicing construction contracts in Europe is that, it allows contractors to learn the European style of construction. With the rich architectural background that is present throughout the continent, European architecture and construction is considered as being one of the best in the world (Hendon et al., 1996). In this context, practicing construction contracts in Europe allows contractors to learn the European standards of construction and engineering which bring improvement in the work related performance of contractors. Better performance and better results of projects tend to improve the reputation of the contractor which in turn helps in attracting a greater number of construction companies (Hendon et al., 1996). Working with high standards set by European Union could improve the quality of end product that is obtained. Regular practice of implementing these standards could help improve the overall performance of contractors. Implementing same high standards learned in Europe in other parts of the globe, could help contractors gain an excellent reputation worldwide (Hendon et al., 1996). Training with European architects: Working with European architects tends to help contractors in understanding how they operate in different scenarios. European architecture usually comprises of old buildings where an individual could observe some buildings being from the colonial era whereas American architecture is usually based on tall buildings and skyscrapers. Working with European architects tends to increase the knowledge that foreign contractors have regarding European culture and architecture (Hendon et al., 1996). Responsibilities that European architects have are also in some situation different from those architects who are from different parts of the world. For instance in Germany architects are in partly responsible for implementing a safety plan that would ensure that workers at a site are not in harm’s way and their health is not compromised either (Hendon et al., 1996). This helps the contractor in understand what the tasks that an architect can execute are and what tasks are beyond the requirement of an architect (Hendon et al., 1996). Renovation of landmarks: As mentioned the renovation of Landmarks in Europe has been one of the major construction works that has been handed to contractors. These works tend to be at times much more costly than other projects and government interference is also greatly noticed in these projects. However there is also some incentive provided by the government to contractors that tend to work on these projects. The greatest incentive that contractors obtain for such projects is the reduction of taxes. Governments consider that such projects are of great significance not only to the economy of that country but also for the social well being of the community. Therefore, in an attempt to appeal to private companies to take up these projects governments reduce VAT, income and gift taxes from such projects (Council of Europe, 2003). Restoration of historical buildings also provides great chance of studying the ancient architectural structures that were implemented during a particular era. Furthermore completion of such projects increases the credibility of contractors. Increase in credibility not only helps improve the reputation of the contractor but also helps build relationships with large construction companies that in time can become some of the largest customers of the contractor (EuroAce, 2014). Contractors could even increase their portfolios and include various renovation projects that have been executed by the contractor. Increase in the portfolio of the contractor could help attract more construction companies which in turn would increase the overall revenue (EuroAce, 2014). Working on construction projects would not only increase the experience of contractors but would also ensure that they obtain a great deal of profit from such projects. However this can only be achieved in situations where the project is well managed by project managers and progress is constantly monitored by the contractors (EuroAce, 2014). Travelling Opportunities While Working in European Countries One of the most important benefits of working in the European Countries is that contractors can travel to different countries and destinations in Europe. The primary reason behind this is that European countries are well connected with each through rail, road and airways. Moreover, European companies are also well spread in European countries, other than the country of their origin. This benefit of travelling opportunities can in turn provide contractors to meet other professionals and contractors from different European backgrounds and develop business relations with them. On the other hand, the travelling opportunities also enable the contractors to look for possible business opportunities in different parts of the Europe. Since the formation of the European Union, business entities in the European Union zone have interlinked in an effective manner, which has yielded a new bunch of opportunities. Moreover, the fact that the economies in European Union zone are also interlinked also provides a number of opportunities in different parts of the Europe. These benefits are considered extremely important by contractors from other parts of the world, who wish to spread their operations in more than one country in Europe. Travelling opportunities also enable contractors to improve their skills in the field of construction by way of travelling to different countries in the European region and getting to know different construction skills and requirements in those countries. This enables contractors to be well equipped with the skills set and requirements in the region in which they operate (Farley, 2011). Conclusion: During present economic turmoil across the globe, Europe has still flourished as a growing economy. With improved GDPs and improved outlook of economies across Europe, it is considered as one of the most lucrative markets for construction industry. Due to financial stability in majority of the Europe, building and development of infrastructure is increasing on yearly basis. In this respect, Europe presents enormous opportunities to constructors from all over the world. Seeing as the rest of the world is still recuperating from the economic crises of 2007 contractors from foreign countries have little or no option but to invest in construction industry of European countries. There is no doubt that great deal of benefits can be gained from the European construction market. However contractors have to be cautious of their approach. Associated with benefits there are a great deal of risks involved. Some of the greatest risks are the cultural and language barriers, stiff competition from those already well established in the market and environmental considerations that need to be taken into consideration while executing the project. Risks stated in this paper can be easily mitigated using proper planning and risk management techniques. Opportunities can also be exploited provided contractors are willing to prepare themselves before they start a new venture in any of the European countries. List of References Council of Europe, 2003. Parliamentary assembly. [Online] Available at: http://assembly.coe.int/ASP/Doc/XrefViewHTML.asp?FileID=10311&Language=en [Accessed 31 January 2014]. ECORYS, 2011. Sustainable Competitiveness of the Construction Sector. Research. Rotterdam: Danish technoligical Institute Danish technoligical Institute. Erne, R., 2008. European Unions: Labors Quest for a Transnational Democracy. New York: Cornell University Press. EuroAce, 2014. Renovate Europe. [Online] Available at: http://www.euroace.org/Resources/Projects/RenovateEurope.aspx [Accessed 31 January 2014]. European Comission, 2011. Saving Energy. Research. Luxembourg: Publications Office of the European Union European Comission. European Commission, 2014. Health and safety at work. [Online] Available at: http://ec.europa.eu/social/main.jsp?catId=148 [Accessed 31 January 2014]. Farley, J., 2011. The Benefits of Working Overseas as a Contractor. [Online] Available at: http://news.clearancejobs.com/2011/04/03/the-benefits-of-working-overseas-as-a-contractor/ [Accessed 31 January 2014]. Hendon, D.W., Hendon, R.A. & Herbig, P.A., 1996. Cross-cultural Business Negotiations. Westport: Greenwood Publishing Group. Jones, E.R., 1992. Impact of fluctuating foreign exchange rates on contract prices. Research. Washington D.C: Department of Defense Department of Defense. Malleson, A., 2014. European construction industry – the coming years. [Online] Available at: http://www.thenbs.com/topics/PracticeManagement/articles/europeanConstructionIndustry.asp [Accessed 31 January 2014]. Singh, A., Hinze, J. & Coble, R.J., 1999. Implementation of Safety and Health on Construction Sites. Rotterdam: CRC Press. Wearden, G. & Fletcher, N., 2014. UK economy grows by fastest rate since financial crisis – as it happened. [Online] Available at: http://www.theguardian.com/business/2014/jan/28/gdp-data-uk-growth-recovery-osborne-business-live [Accessed 28 January 2014]. Read More