Demand for Infrastructure Fuels Growth of International Construction Projects

By Magaly Olivero
AIG

Rising demand for transportation and energy infrastructure around the globe has spurred an increase in the volume of international construction projects. Click here to view our infographic now.

This trend similarly increases the opportunities and exposures of property owners, architects, engineers, contractors and manufacturers from nearly every continent.

“In order to compete, companies need to start expanding their presence abroad,” said Matthew Schardt, multinational energy and construction casualty leader at American International Group Inc. The global construction industry is growing at unprecedented levels. “Companies that haven’t gone international yet must have it on their radar,” he said.

Increased complexity stemming from these large, multinational construction projects has necessitated world-class risk management solutions. More global projects mean more risk. It’s more important than ever for construction firms to engage with providers that can help them make informed decisions about the protection they need locally and abroad.

Global insurance organizations such as AIG provide an array of products and can adapt coverage to address a client’s multinational needs.

Emerging markets command attention

Rising populations, mass urbanization and fast-paced development in emerging markets are fueling demand for improved infrastructure and construction services.

According to the World Economic Forum, global infrastructure demand is $4 trillion annually. In less than a decade, emerging markets have gone from posting a third of the world’s construction work to just over half the industry’s total revenue. Industry experts predict that in the next decade nearly two-thirds of all construction activity will occur in these rapidly developing nations.

Leading the way is China, home to seven of the world’s 20 largest global construction firms. China’s urban populations are due to increase by more than 300 million by 2030. The mass migration of people to cities has created a robust demand for transportation, housing, energy and other infrastructure projects.

“A lot of what is driving construction growth in China is the fact that they are spending up to 12 percent of their gross domestic product on infrastructure,” Schardt said.

Even countries with smaller populations, such as Malaysia, are investing in state-of-the-art infrastructure and seeking expertise from outside vendors to gain what Schardt calls “value for money.”

“They want a strong product and strong return on their investment, so they’re looking for whoever can provide the greatest value for their citizens,” he said. “That knocks down some of the borders between countries and makes it a competitive environment for all contractors to bid abroad.”

Crossing international borders

Large domestic firms have become subcontractors to multinational companies that operate across borders. Production is taking place in numerous countries. A project’s supply chain can involve multiple nations. Some firms bring their own workforce to support large-scale projects in Africa, Latin America and the Middle East.

Examples of the interconnectedness of these global projects are plentiful. Consider the Makka (Mecca) transportation project in Saudi Arabia, where a Chinese construction company excavated and laid the tracks, a German firm built the power supply system, and a New York design firm owned by a British corporation consulted on engineering and construction.

“Projects are no longer bound by borders,” Schardt said.

Managing risks on a global scale

Schardt believes that the pace of global construction projects will continue to increase. “With this tremendous need to upgrade infrastructure occurring all over the world,” he said, “we are just at the beginning of a very big and ongoing trajectory of growth.”

Global construction projects pose risk management challenges. Many issues stem from complying with local tax and regulatory environments – as well as from cultural norms – that can vary greatly across countries.

“AIG can provide local coverage and on-the-ground resources to meet the unique needs of our clients, wherever their next construction project takes them,” Schardt said.

“The future of many businesses lies in their global capabilities,” Schardt said. “But you need to manage that risk sustainably in order to participate on that global scale. Above all else, companies are interested in protecting their workers and keeping them safe.”