Performance of the Korea-based construction firms in the Middle East

South Korea, as a developing country, built up an extensive basic infrastructure during the 1960's. In doing so, it was able to develop a thriving construction industry, and to exploit its resulting international competitive advantage in this sector, especially in the Middle East market. The purpose of this study is: (1) to apply the concepts of conventional comparative advantage theory and of international differences in production functions, the product life cycle theory and technology-based concepts, demand based and intra-industry theories, and Dunning's eclectic theory of foreign direct investment to the international performance of Korean construction firms; (2) to describe various aspects of Korean construction firms overseas; (3) to determine the principal sets of variables that can be used to explain their competitive performance in a major foreign market open to all competitors; (4) to analyze the implications of the results for the theories reviewed, for the global construction industry, for developing-country construction firms, and for Korean firms. We hypothesized that the performance of Korean construction firms in penetrating the Middle East market would be determined by the relative price, the relative quality of the services provided, and the relative macro-economic indicators. We tested the above relationships with regression analyses in the form of log-log and Logit equations. We found support for the variables which are important factors determining the success in the Middle East construction market. The factors are: labor cost, productivity, cost of capital, the number of joint-ventures, and gross domestic product. Implications of this study are that: (1) theories of international trade in goods and the eclectic theory are relevant to the study of international construction services; (2) the factors determining the success of the Korean companies in the Middle East construction market are labor cost, surplus capacity, cost of capital, size of country, willingness to form joint-ventures or consortiums, and work experience; (3) Korea, as a newly industralizing country, developed a comparative advantage in infrastructure projects and its main competitive advantage is largely based on labor cost; (4) among various policy implications for Korean contractors, the role of joint-ventures is emphasized in order to strengthen the strategic alliance with local and other foreign contractors, and a global approach to conducting international construction business is stressed. Korean contractors need to differentiate their construction services and to look for international cooperation in order to cope with non-price competition, since they can no longer compete solely on price. (Abstract shortened with permission of author. )