Impact of globalisation on the construction supply chain: Challenges and responses in Victoria

Low trade barriers and increased access to global markets allow Australian contractors to procure foreign construction materials and products easily. Domestic manufacturing industries struggle to compete if these imported goods are cheaper or of superior quality, resulting in job losses and business closures. Job losses trigger government intervention in the market to preserve the local industry. Despite previous academic research in this area, there is no comprehensive investigation of the responses of different categories of firms and the government to the globalisation of the construction supply chain. This research aims to establish a framework that will clarify the procurement strategies of firms in the construction supply chain in view of globalisation and economic nationalism in Victoria. Five research objectives were articulated: (1) To analyse the drivers of offshore procurement of materials, (2) To analyse the drivers of local procurement of materials, (3) To model firms' responses to the import of materials, (4) To model the responses of the local manufacturing industry (including the Victorian Government) to the import of materials and (5) To develop a framework that will explain the rationale behind firms' procurement strategies. Data was collected through 46 semi-structured interviews with a cross-section of industry professionals and an in-depth analysis of 28 regulatory and legislative documents. The findings indicate that developers, head contractors, subcontractors, and suppliers leverage the global market to import lower-cost construction materials, leading to price pressure and import competition for local manufacturers grappling with high input costs. In contrast, local procurement is driven by the regulatory impact of the Local Content Policy and buy-local sentiments, mainly in public projects. In response to increasing imports, manufacturers adopt a range of responses such as cost-cutting, product differentiation, import substitution and lobbying for local content. The findings of this research were summarised in a framework comprising procurement drivers, a description of alignment between institutional requirements and firms' objectives, the extent of alignment between firms' objectives and institutional demands, strategic responses at the firm level and institutional work at the field level. The procurement drivers were rationalised using institutional theory which revealed that the cost-cutting culture is endemic in private and public sectors. However, the Local Content Policy restricts the cost competition to local construction materials in public projects. Seven summary findings were deduced to show the rationale behind firms' strategic responses for private and public projects, applicable to cases with a local content law in the construction supply chain. These summary findings indicated that firms' strategic responses depend on the extent of alignment between institutional demands and firms' objectives, and the strength of institutional requirements. Institutional work examined the collective and intentional response of firms, industry groups and the Victorian Government to the import of construction materials. In contrast to the categorisation of maintaining work in existing literature, the findings revealed that maintaining work for the local content law is divided into establishing and implementing. In addition to the seminal classification of disrupting work in the literature, two new sub-forms adopted by head contractors due to cost pressures and inconsistent implementation of the local content law were discovered. This research contributes to knowledge in construction management by clarifying the strategic responses of firms when faced with conflicting pressures from globalisation to import materials and economic nationalism to buy local. The findings also contribute to institutional theory and institutional work by adopting a bi-directional approach showing the influence of institutions on firms and the reciprocal effect of firms on institutions. The findings of this research h ve practical implications for key stakeholders in the construction supply chain – firms benefiting from access to the global market (head contractors, subcontractors and suppliers), those challenged by import competition (manufacturers), organisations that lobby for local content (industry groups and trade unions), and the Victorian Government and its agencies. Head contractors are vital because the Local Content Policy is mainly implemented through the construction sector. There is a conflict of interest for head contractors who prefer to import cheaper materials. Yet, regulators who enforce the Local Content Law may not fully understand the market challenges confronting head contractors, which leads to a preference for cheaper overseas materials. Besides, head contractors, subcontractors and suppliers have not engaged in previous inquiry panels, which strengthened the Local Content Act. Therefore, head contractors, subcontractors and suppliers that bid for public projects should participate more in manufacturing industry forums, such as panels of inquiry, to share information with those who set the rules. Manufacturers contend with price pressure, import competition and high input costs. Manufacturers who import a proportion of inputs and raw materials are more competitive against imports than those who do not. Thus, manufacturers should consider importing inputs or offshoring production tasks to improve their competitive advantage, especially in private projects. In addition, small and medium-sized (SME) manufacturers are the primary targets of the Local Content Act. Nevertheless, they cannot challenge and report non-compliant head contractors when their materials are swapped with imports due to fear of exclusion from future jobs. Therefore, the findings recommend that SME manufacturers join industry associations focused on supporting SMEs, which will provide a stronger platform for them to challenge non-compliance and protection from reprisal attacks. The findings indicate that head contractors are more likely to achieve the agreed minimum content if there is consistent monitoring, enforcement and audits by relevant public agencies. The LJF Commissioner is vital to achieving local content and is statutorily empowered to perform advocacy, monitoring, enforcement and audit functions. There is inconsistent monitoring, enforcement and audit, resulting in the replacement of local materials. Besides, the data suggests that the LJF Commissioner is under-resourced and lacks the political will and real power to confront large, non-compliant head contractors. Consequently, the LJF Commissioner should request more resources from the Victorian Government and seek the backing of the supervising Minister to enforce compliance robustly as mandated by the local content law. In turn, the Victorian Government should empower the LJF Commissioner to achieve its mandatory functions as specified by the Local Content Act. Without an effective regulator, the benefits of the Local Content Act will not be fully realised.