Why Do They Acquire Each Other? Nexus between International Contracting and Construction Professional Service Businesses

Abstract

In recent years, the international construction market has witnessed the growing eminence of construction professional services (CPS) while the traditional contracting sector remains strong. Today, it is not uncommon to see a design firm taking over the work of a traditional main contractor, or vice versa, of overseeing the delivery of a project. Much has been said about the nexus between the two business sectors in the international market, but little has been done to articulate it using empirical evidence. This study examines the nexus between contracting and CPS businesses by offering and testing lead-lag effects between the two in the international market. A longitudinal panel data composed of 23 top international contractors and CPS firms from the Engineering News-Record's top lists over the past 12 years was adopted. Surprisingly, it is found that CPS business does not have a significant positive causal effect on contracting, and vice versa. CPS and contracting subsidiaries in the same company do not necessarily form a consortium to undertake the same project; rather, they often collaborate with other CPS or contracting counterparts to undertake projects. The research provides fresh insights to the diversification strategies adopted by international contracting and CPS firms.