International Trade in Services.pdf - DSpace at Khazar University

210 International Trade in Services
masonry; elements of buildings; and buildings and structures of buildings in general.
5 The construction service sector is in need of regulation,for example to uphold
minimum safety and environmental standards. The objective of reform is, first and
foremost, to make sure that these rules and regulations are appropriate and, second,
to design them so that they are no more trade restrictive than necessary.
Strengthening local competitiveness by fostering
an environment of local cooperation
A common weakness of the construction service sector in developing countries is
market fragmentation. Domestic companies lack the size and experience to take
on large projects. This is not necessarily an issue if large international contractors
are present and can provide the project management, financial solutions, and
experience that are necessary to undertake big construction projects. However, the
lack of permanently based companies can reduce competition for projects and
result in poorly functioning markets. While this absence of large actors may be
natural for a given market, policy makers may seek to nurture an environment
that allows for cooperation among companies, while carefully avoiding policies
that would facilitate cartel-style collusion.
Local companies have two essential strategies in competing for larger projects.
First, they can establish a construction consortium with local competitors or companies
with complementary capacity and expertise. This will allow local companies
to obtain the project management experience necessary to move up the value
chain. Both horizontal and vertical consortia can prove pivotal in building the
necessary expertise and capacity to take on major construction projects. Second,
by forming joint ventures with international contractors, local companies can
complement the expertise of these contractors by adding knowledge of local market
conditions and building practices and can leverage their access to human
resources with the financial strength, technical expertise, and experience of the
international contractors in managing large projects. Consortia or partnership
agreements and strategic alliances are not unique to efforts at cooperation among
companies from developing and developed countries; they are common in the
industry generally (UNCTAD 2000b).
A large share of construction service companies are run by families that are
often unwilling to dilute their control in exchange for debt financing. The role of
the policy maker is to facilitate cooperation, and this can be done by ensuring that
the formulation of tendering requirements is friendly to smaller players in government
procurement. The rules for the slicing and packaging of large contracts
are vital if consortia are to be able to compete for business effectively. Governments
will also manage smaller contractors by requiring less stringent credit
allowances and by making sure that these contractors pay their bills on time.