The construction industry is experiencing unprecedented growth and transformation on an international scale as more companies look for new markets to expand their operations and diversify risk across different regions of the world. The global construction sector is working to meet the challenges and demands of these multinational and international clients, which includes the evolution of performance guarantees that are required in several different world geographies.
However, growth and innovation come with their own set of challenges. The skilled labor shortage, which persists in many regions throughout the world, leads to increased competition for qualified workers. Global supply chain disruptions, geopolitical uncertainties, and fluctuations in material costs, also make it difficult to successfully deliver the projects on time and on budget. Addressing these issues worldwide requires contractors to take a strategic approach adaptable to changing conditions.
International projects often require collaboration between multiple teams from different countries with diverse cultural backgrounds. Effective communication, understanding of local regulations, and cultural sensitivity are crucial for successful project execution. In response, companies are investing in multi-cultural training and enhancing their global operations with the latest communication technologies. This approach increases efficiency and significantly reduces risk, improving the position of companies in the international environment.
In addition to training and technology enhancements, many construction companies are implementing centralized controls and procedures in different areas of their operations to take advantage of economies of scale and to avoid duplication of efforts. We have seen companies implementing global procurement processes and others have implemented financial discipline and controls at the corporate level. International cash flow controls are paramount for international companies to help control the cost of money, especially when interest rates are at record highs. These procedures and controls create a more efficient company through the integration of different regional operations.
The construction industry’s growing global perspective elevates the importance of one product with a worldwide application: Performance guarantees.
Performance guarantees, in many regions, continue to be the preferred mechanism of owners to secure the delivery of projects from contractors on time and within budget. Having a guarantee provided by a third party to the contract brings an additional level of comfort to project owners, lenders, and stakeholders. These guarantees historically have taken different forms and are bound by local rules and legislation. Some countries have adopted on-demand instruments, while others have conditional instruments. These can be supported by banks or by insurance companies.
With the globalization of the construction industry, banks, insurance companies, beneficiaries, and principals (or insureds) are paying more attention to concepts such as aggregation – the total exposure of a company to the insurance company – total liability, global indemnity agreements, etc. All these concepts are evolving from regional liabilities to worldwide liabilities, especially for insurance companies and their reinsurers. The banks are changing their appetite to support these types of guarantees, due to regulations and the impact of the cash reserves required by regulatory agencies that impacts on their financials. The surety providers are expanding in territories and markets previously dominated by banks but are paying attention to the impact of a modern, multi-regional/global construction industry.
With awareness comes opportunity. By understanding the landscape, challenges and cultural differences, contractors can begin to implement centralized processes and internal controls that will enable them to become a global player. Even regional companies who are thinking of expanding, can start to look beyond their original territory of operations to new locations and new challenges.
At American Global we have always viewed the industry through a global lens and continually collaborate across geographies to identify opportunities and implement new services, technologies and solutions to support client’s needs worldwide. To find out more, visit: https://americanglobal.com/
