SEARCHING PROCESS MODELING OF INTERNATIONAL - Poznań

F O U N D A T I O N S O F C I V I L A N D E N V I R O N M E N T A L E N G I N E E R I N G
No. 6 2005
Arvydas JUODIS 1 , Ala SISKINA 2 , Povilas STALIORAITIS 3 ,
1 Professor, Kaunas University of Technology,
Studentu str. 48 – 415, Kaunas, Lithuania, e-mail: arvydas.juodis@ktu.lt
2 PhD student, Kaunas University of Technology,
Studentu str. 48 – 415,Kaunas, Lithuania, e-mail: ala.siskina@ktu.lt
3 PhD student, Kaunas University of Technology,
Studentu str. 48 – 415,Kaunas, Lithuania, e-mail: p.stalioraitis@stud.ktu.lt
SEARCHING PROCESS MODELING OF INTERNATIONAL
CONSTRUCTION MARKET SEGMENTS
The development of globalisation processes has influenced all the countries of the
world and all areas of human activity. In terms of globalisation, there is increasing international
cooperation between companies and development of construction markets become
more rapid. This stimulates competition between contractors and forces them to
review their operation strategies. Taking the decision upon entering markets abroad it is
necessary to estimate and evaluate important factors and criteria.
The problem issue of this work is as follows: how to choose the right market segment
in construction industry?
This paper presents a new methodology developed for implementation and execution
of formalized market search and target segment identification process. The target
markets are identified according to the multiple criteria decision-making methodology
(Game theory and models for selection of the definite alternative solution based on the
highest efficiency).
The work was focused on the analysis of construction markets in 3 countries:
Germany, Lithuania and Russia (Kaliningrad region), which differ in many demographic,
economic and political terms. Such situation provides possibilities for more
effective capacity utilization in construction industry. Choosing the right way of entering
a host country market and selecting the target market segment benefits the company in
financial and legal aspects.
Key words: International construction, market segmentation, multiple criteria
evaluation
© Publishing House of Poznan University of Technology, Pozna� 2005
ISSN 1642-9303

72
1. INTRODUCTION
Arvydas Juodis, Ala Siskina, Povilas Stalioraitis
Construction activity is a complex process, including many participants,
areas of information and engineering. With the development of globalization
processes construction activities are becoming the subject of international economical
relations (Juodis 2001, Fridlin 1996, Raftery et al. 1998, Bon and
Crosthwaite 2000). Globalization phenomena provide new opportunities for
construction companies to develop (Porter 1990). Contractors construct buildings
not only in their own countries but in foreign countries as well. However,
due to this phenomenon larger competition occurs on both national and global
economical level. In some bigger European construction concerns construction
in foreign countries make more than a half of the total construction works
(Juodis 2001).
In economically advanced countries constructions make 8 – 10 % of gross
national product and the number of the employed makes approximately 4 – 9 %
of all the working people in the national economy. Great number of construction
are being carried out in the developing countries such as Asia, Africa, South
America which is quite an attractive constructional market for the construction
companies of the developed countries (Jaselskis and Talukhaba 1998). International
construction projects in many cases are more profitable than the national
ones as their value is much greater (Han and Diekmann 2001). In spite of the
fact that export of construction activities bears more risk elements compared
with activities on the national market (Hastak and Shaked 2000, Sloan and
Weisberg 1997) the biggest construction concerns in the world penetrate into the
markets of other countries. Aiming to decrease contractors’ risk related to construction
activities outside his home-country, different calculations are made and
major factors having influence on the final decision are evaluated. With regard to
Lithuania, construction contractors do not have much experience in expanding
their activities into new foreign markets (Juodis and Šiškina 2004). However,
international construction performance have a developing tendency, thus a practical
demand to evaluate potential decisions of export of constructional activity
occurs.
The aim of this paper is to present a model of construction markets and
search process of their segments by applying a method of multiple criteria
evaluation of alternative decisions.
2. SEGMENTATION OF CONSTRUCTION MARKET
In various countries different requirements for construction activities are
raised. Contractors distinguish their weak and strong points and only then adopt

Searching process modeling… 73
a decision whether to develop their activities in foreign countries or not (Ofori
2003). On this basis market segmentation and risk analysis of future activities
are performed (Alarcon and Bastias 2000).
The schema of segmentation of construction market according to different
criteria is shown in Fig. 1.
CUSTOMER
PUBLIC
OFFICES
COMPANIES
NON-PROFIT
ORGANIZATIONS
PRIVATE
SECTOR
SEGMENTATION OF CONSTRUCTION MARKET
ECONOMY
INDUSTRY
AGRICULTURE
SOCIAL AND
CULTURE
DWELLING
INFRA-
STRUCTURE
WORK SPECIALIZATION
OF CONTRACTOR
EARTHWORK
ENGINEER NETWORKS
CONSTRUCTION
WORKS
FINISHING
PLUMBING
ELECTRIC WORKS
TECHNOLOGICAL
WORKS
Fig. 1. The segmentation of construction market
ORDER OF
WORKS
NEW
CONSTRUCTION
MODERNIZATION
RECONSTRUCTION
RESTORATION
THE PLACE OF
CONSTRUCTION
FOREIGN COUNTRIES
DISTRICT
CITY
The following major factors are evaluated most often:
� course of coordination of a building project,
� local/national regulations, rules and law acts;
� climate/weather conditions;
� geological/seismic conditions,
� language of agreements and other documentation,
� price and productivity of labour force,
� if resources are required,
� quality of construction material, conditions of their provision and period;
� rent prices of mechanisms and equipment,
� local traditions and festivals,

74
Arvydas Juodis, Ala Siskina, Povilas Stalioraitis
� local infrastructure;
� local communications lines and access to them;
� conditions of project financing and settlement for the works performed;
� taxes, insurance etc;
� attitude of state institutions towards the companies from other countries.
3. ANALYSIS AND SELECTION OF CONSTRUCTION
ALTERNATIVE MARKETS
With the developing political and economical integration processes in
Europe and in the whole world an opportunity for Lithuanian companies to notice
and evaluate the differences, existing in the practical implementation of construction
projects, has emerged. Therefore, a new developing trend – firm’s operating
under contract in foreign countries, appeared for construction companies
of Lithuania. It is a very important and multidirectional function of strategic
development of management. Some construction companies of Lithuania have to
deal with international performance issues of construction activities.
For Lithuania potential market of constructional activities is the market of
European Union countries as due to the developed relations they are close from
the point of view of geography, climate, law and history. However, Lithuania is
in such a geographical location that it has to evaluate the close market of Eastern
countries. Firstly, it is a matter of Russia. Both constructional markets have advantages
and disadvantages.
Construction activities in western European countries are so far complicated
for construction companies of Lithuania. A fierce competition prevails in
this market as construction works of high quality and other aspects are characteristic.
Contractors of Lithuania and other Baltic countries may offer lower prices,
rapidly increasing labour productivity and quality.
Lithuanian companies have many advantages in the construction market of
Eastern countries, because they already have working practice, are well aware of
the mentality and activity conditions in these countries. In the mentioned countries
a lot of common constructional materials, mechanisms satisfying the requirements
for quality, are used. Therefore, a problem is that the level of fulfillment
of financial commitments is rather low. Thus, settlements for the works
performed are usually made behind time.
Block scheme of determination of a segment of optimal house-building
market for a company is shown in Fig. 2.

Searching process modeling… 75
THE PLACE OF CONSTRUCTION ECONOMY
LITHUANIA
GERMANY
RUSSIA (KALININGRAD)
DEFINDING THE GOAL
INITIAL DATA COLLECTION
INITIAL DATA PROCESSING
SEGMENTATION OF CONSTRUCTION MARKET (Fig. 1)
GAME THEORY (SAVITCH‘S
CRITERION)
SELECTION OF OPTIMAL
DECISION USING
MULTIPLE CRITERIA
EVALUATION METHOD
APARTMENT HOUSES
BRICK HOUSES
WOODEN HOUSES
FRAME HOUSES
METHOD OF DETERMINATION
PRIORITY OF ALTERNATIVES
BASED ON THE CRITERION OF
PROXIMITY TO AN IDEAL POINT
OPTIMAL CONSTRUCTION MARKET AND SEGMENT
Fig. 2. The block scheme of definition of optimal construction’s market segment for the
construction company
Segmentation of construction markets was performed according to the following
two factors: geographical location and type of construction (Fig. 1). According
to the geographical location 3 market segments were distinguished: construction
market in Lithuania (R1), Germany (R2) and Russia (Kaliningrad region)
(R3); according to the type of construction 4 segments are distinguished:
apartment houses (S1, S5, S9), one-family brick houses (S2, S6, S10), one-family

76
Arvydas Juodis, Ala Siskina, Povilas Stalioraitis
wooden houses (S3, S7, S11) and one-family frame houses (S4, S8, S12). Segments
of alternative construction markets of the house-building are shown in Fig. 3.
1
R1
R3
R2
2
4
S1
3
S12
5 6
S2
Fig. 3. Structuring housing markets
In Fig. 3 the following marking signs are used: R – alternatives of international
construction markets, S – segments of international construction markets
(Table 1).
Table 1. Structuring international housing markets
Notation Alternatives of construction’s markets segments
S1 Apartment houses in Lithuania’s construction market
S2 One-family brick houses in Lithuania’s construction market
S3 One-family wooden houses in Lithuania’s construction market
S4 One-family frame houses in Lithuania’s construction market
S5 Apartment houses in Germany’s construction market
S6 One-family brick houses in Germany’s construction market
S7 One-family wooden houses in Germany’s construction market
S8 One-family frame houses in Germany’s construction market
S9 Apartment houses in Russia (Kaliningrad) construction market
S10 One-family brick houses in Russia (Kaliningrad) construction market
S11 One-family wooden houses in Russia (Kaliningrad) construction market
S12 One-family frame houses in Russia (Kaliningrad) construction market
S11
S3
S4
S9
S10
16
S5
S8
15
7
8
S6
S7
14
13
9
12
10
11

Searching process modeling… 77
4. EVALUATION OF SEGMENTS OF CONSTRUCTION
MARKETS
Methodology of neural network systems (Parvar et al. 2000, Dikmen
2001, Dikmen and Birgonul 2004) is used for analysis of international construction
markets and preparation of decisions. In this paper performed optimal discovery
of construction market segment applying a method of multiple criteria
evaluation. This method is also employed in dealing with other construction
tasks (Zavadskas et al. 1996). Initial data are provided in Table 2. They are received
from calculations or experts’ survey.
4.1. Selection of optimal market by applying Game theory according
to Savitch’s criterion
The theory of a game is a special class of mathematical models for making
decisions under specific circumstances (Zavadskas et al. 1996). Selected alternative
in such a way leads to the most effective solution to be made. By applying
Game theory, effectiveness of the project under implementation depends on the
specialist’s, who makes decisions, chosen strategy. In Game theory chosen alternatives
(variants) are analysed as strategies of a specialist who makes decisions
(Zavadskas et al. 1996).
In Table 2 alternatives of house-building market segments Ai and the criteria
of their evaluation Kj. are presented.
While searching for proper construction market segment different evaluation
criteria are used (Dikmen and Birgonul 2004). In this case six criteria were
chosen: K1, K2, K3, K4, K6 whereof belong to the group of technical and economical
index. Special measurement units characterize them. Criteria K5 is an
index, which has no dimension, thus scores characterize it.
Normalization of initial matrix data is performed according to the methods
of scale transformation. Optimal variant is calculated according to Savitch’s
criterion, the aim of which is to minimize losses. Mathematical expression of
Savitch’s criterion is provided in the following formula (4.1) (Zavadskas et al.
1996):

A 1
A2
A3
A4
A5
A6
A7
A8
A9
A10
A11
A12
Alternatives
Lithuania’s market: Apartment houses
Lithuania’s market: Brick houses
Lithuania’s market: Wooden houses
Lithuania’s market: Frame houses
Germany’s market: Apartment houses
Germany’s market: Brick houses
Germany’s market: Wooden houses
Germany’s market: Fame houses
Russian (Kaliningrad) market: Apartment houses
Russian (Kaliningrad) market: Brick houses
Russian (Kaliningrad) market: Wooden houses
Russian (Kaliningrad) market: Frame houses
Table 2. Primary data of alternatives according to various criteria
Average
price of
construction,
€/m 2
K1
695
521
348
434
904
678
452
565
487
365
243
304
Average
price of
work
force,
€/h
K2
1.64
1.64
1.64
1.64
13
13
13
13
1.15
1.15
1.15
1.15
Average
price of
mechanisms,
€/h
K3
14.25
14.25
14.25
14.25
112.5
112.5
112.5
112.5
10.7
10.7
10.7
10.7
State’s
investment
in
construction,
%
K4
45.8
45.8
45.8
45.8
51.0
51.0
51.0
51.0
36
36
36
36
Constructi
on’s law
welfare
and
reliability,
index
K5
10
8
7
5
10
8
10
10
9
7
6
4
Structure of
construction
accomplishe
d works,
mil. €
K6
919.6
919.6
919.6
919.6
288876
288876
288876
288876
644
644
644
644
78
Arvydas Juodis, Ala Siskina, Povilas Stalioraitis

Searching process modeling… 79
Ku (2) = S1 * { S1i /S1i �S1 � mini max cij � cij = maxi U ij - U ij } (4.1)
� ij , i = , m
1 ; j = 1,
n
Having made calculations saddle point was not received. In this case several
alternative solutions acquired equal values. The following algorithmic calculations
may be used for detecting the effective variant:
1. Equivalent variants are included into a new matrix and the calculation is
made in an analogical way,
2. One or two criteria are put into and the calculation is repeated in an analogical
way,
3. Solution according to the simplex algorithm of a linear programming is
made.
In this case the calculation algorithm No. 1 was applied. As the calculations
have been performed it was discovered that in case of evaluating according
to Savitch’s criterion the best construction market segment is A7, i.e. a Lithuanian
construction company should aim at building single wooden houses in
Germany.
4.2. Selection of optimal market by applying a method of determination
priority of alternatives based on the criterion of proximity
to an ideal point
The method of determination of prefer ability of alternatives consists in
the formation of a generalized criterion Kbit on the grounds of deviations of alternatives
from so-called ideal criterion made up of the most appropriate criteria
of the compared options. The most effective solution may be found in different
ways, e.g.:
1. By evaluating theoretical significance of criteria,
2. By evaluating subjective significance of criteria,
3. By evaluating complex significance of criteria,
4. Considering the significance of criteria of equal substantiality.
Our work includes subjective weight value of criteria. The subjective values
of the criteria’s significance are determined on the basis of expert estimates
using the method of a pared comparison. For this purpose the measurement scale
of the interval [0; 2] was defined. The values (0; 1; 2) are possible in the measurement
scale. In case both criteria are equally important, they are given 1 score
each. If one criterion is more important than the others, it is given 2 scores and

80
Arvydas Juodis, Ala Siskina, Povilas Stalioraitis
the other gets 0 scores accordingly. Applying a conjugated comparison method,
results of defining criteria importance are provided in the Table 3.
Table 3. The values of criteria importance
Criteria K1 K2 K3 K4 K5 K6 AKr
Coefficient of
importance q
K1 - 2 2 2 1 2 9 0.3
K2 0 - 1 0 1 1 3 0.1
K3 0 1 - 0 1 0 2 0.067
K4 0 2 2 - 2 1 7 0.233
K5 1 1 1 0 - 1 4 0.133
K6 0 1 2 1 1 - 5 0.167
30 1.000
According to the calculation results of the Table 3 priorities of criteria by
the means of their significance are entered: K1(q) � K4(q) � K6(q) � K5(q) � K2(q)
� K3(q)
Criteria have different measurement units. Thus, applying vector normalization
method must normalize the matrix of the initial data. The relative proximity
of the compared alternatives of all comparable variants to an ideal variation
is determined by the expression (4.2):
K
L
bit , i �
�
i
� �
Li
� Li
,
�i;
i � 1,
m
(4.2)
The Utility Degrees Ni of compared alternatives can be calculated according
to the formula (4.3):
N
i
K bit,
i
� �100%,
�i;
i � 1,
m (4.3)
K
bit,
max
The results of calculation, e.g. the distance Li + between every alternative
and ideal alternative and distance Li - between every alternative and negativelyideal
alternative as well as generalised criterion Kbit,i and Utility Degree Ni , are
presented in the Table 4.
The most appropriate alternative is that one for which value Kbit,i is the
largest.

No. Alternative
Searching process modeling… 81
Table 4. The sequence of alternative priorities
Distance between
i-th and ideal
alternatives Li +
Distance between
i-th and negatively-idealalter-
natives Li -
Kbit,i
criterion
value
Utility
Degree
Ni, %
Priority
rank
1. A1 0.1675 0.1495 0,4716 71,94 11
2. A2 0.1489 0.1681 0,5303 80,90 8
3. A3 0.1251 0.1919 0,6053 92,34 3
4. A4 0.1483 0.1683 0,5309 80,99 7
5. A5 0.1827 0.1343 0,4236 64,62 12
6. A6 0.1554 0.1616 0,5097 77,75 10
7. A7 0.1092 0.2078 0,6555 100 1
8. A8 0.1352 0.1895 0,5978 91,19 4
9. A9 0.1502 0.1668 0,5262 80,27 9
10 A10 0.1399 0.1771 0,5587 85,23 5
11 A11 0.1248 0.1922 0,6063 92,49 2
12 A12 0.1442 0.1728 0,5451 83,15 6
Having performed all the calculations it was discovered that the most suitable
construction market segment for a construction company is A7. It means
that it is purposeful to build wooden houses in Germany.
5. CONCLUSIONS
Search for new international construction market segments is a relevant
multiple aspect task, which requires evaluation of different factors and activity
conditions. Right decisions enable to decrease risk of construction activity. In
order to solve these problems the model of construction market search process
by applying the multiple criteria method of alternative construction markets
evaluation is proposed in this paper.
Upon applying this method it was defined that Lithuanian construction
companies should aim at building wooden houses in Germany. The result is determined
by the following factors:
� as the payment for work is higher in Germany, Lithuanian construction
companies may successfully compete in this market,
� legal regulation of constructions is favorable in Germany, thus it determines
good activity conditions for Lithuanian construction companies,
� house-building market is quite large in Germany. Approximately 50 per
cent of all constructions belong to house building, which creates good conditions
for development of single wooden houses construction.

82
Arvydas Juodis, Ala Siskina, Povilas Stalioraitis
By applying the proposed model of construction market selection process
it is possible to analyse different international construction markets by evaluating
specific factors and activity conditions. Obtained solutions allow decreasing
the risk of activities of construction companies in foreign countries.
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