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1 Globalisation and its effects on the Civil Engineering

Industry.
Overview
In general, globalization refers to a process of developing integration of economies
and societies through the cross-country flows of information, ideas, activities,
technologies, goods, services, capital, and people (Wangwe, 2013). According to Bertucci
& Alberti (2001), globalization development has steered the increment to rapidly
increasing complex interactions between societies, cultures, institutions and individuals
worldwide. Globalisation has transformed the world and national economy and had a deep
impact on the way we live and the construction industry has been part of this transformation
(Runeson & Valence, 2013). Globalization has been influence by policies that have opened
economies domestically and internationally and aid by technology which have been
dominated by new which are information and communication technology (ICT) (Wangwe,
2013). ICT is considered to be a key resource essential to achieving development goals and
has the potential to facilitate the transformation process in economies. According to
Bertucci & Alberti (2001), trade and investment liberalization, technological innovation
and the reduction of communication costs, entrepreneurship and global social networks are
four main driving forces which drive the globalization.

The Features of Globalisation


They are several key features of globalisation which are:
 Growth in trade – when the rate of growth has increased, therefore some of the
developing countries with shifted their means of trade in primary products to trade
in manufactures and services;
 Growth in foreign direct investment (FDI) and capital flows – proven faster
compare to both trade and output. However, most of the developing country shifted
their FDI to much shorter term and volatile investments in stocks and bonds.
Therefore, the financial globalization has been facilitated to monitor any
wrongdoing.
 Global production and consumption as established in increasing the
internationalization of the production, distribution and marketing of particular
goods as well as services
 Global competition involves both price and quality of goods and services.

Advantages and Disadvantages of globalization


Globalization have made more developing countries to grow. This is because
globalization ensuring that all markets are competitive and open to everyone. All countries
participate in international trade because this will enable them to exploit their positions of
comparative advantage. The positive effects of globalization for developing country is it
can create new opportunities, new ideas, and open new markets that an entrepreneur may
have not had in their home country. It is also creates greater to tap into more and larger
markets around the world and this would lead to more access to capital flows,
technology, human capital, cheaper imports and larger export markets. Besides, it would
also allow businesses for them and become part of international production network and
supply chains that are the main conduits of trade.
Other advantages of globalization includes advances in ICT and transformation of
the economy and mobility of professionals. The impact of ICT is considerable in all sectors
such as agriculture, manufacturing and construction as well as governance. It is considered
to be a key resources significant to achieve development goals and has the potential as a
means to ease the transformation proves in economies.
Besides that, globalization has enhance the mobility of labour especially of
professionals and skilled labour. Associated with ever increasing use of skill labour, it has
influenced training and skill acquisition to meet the standard requirements and demands
from global competition. Moreover, it also allow the use of highly skilled professional
without involving any physical movement due to the development of ICTs. Due to this
increased application of technology, it enable increase demand for lower cost professional
services without requiring them to migrate physically.
Despite of having such advantages; however, globalization also have its negative
impact for the developing country which it will take away any job opportunities to local
people as the work has been fulfilled by foreigner worker thushave a greater chance of
disease spreading worldwide, drug trafficking, crimes and threats to social security system
as well as growing socioeconomic inequalities among nations.
As for developing country, in order to minimize the adverse effects of globalisation,
they are advice countries to adapt certain polices including developing the local industry,
maintaining good governance, keeping performance monitoring systems, training labour
to cope with the challenges of an open economy and acquiring new technological skills.
This is supposed to help developing countries to grow, by allowing competition to break
down the inefficiencies of industries that were hidden behind various barriers to trade.

Impact of the Globalization on Civil Engineering Industry


As for the impact of globalization on the civil engineering industry, globalization
enables delivery of international finances in the implementation of major infrastructure
projects and allows companies a wider range of access in construction markets, which in
turn allows for more direct competition. Gunhan and Arditi (2005) claimed that,
globalization provides more possibilities and new opportunities to construction companies
around the world. The concentration of economic and the global construction in the
developed markets hinder the improvement of economies in the developing countries
which are focused on the role of construction in development.
With infrastructure, particularly concern to civil engineering, globalization have
influence in how civil engineers are adapting to trends like information modelling and
sustainability. Even though the concept of sustainability isn’t new to civil engineers, the
incentives to design civil aspects of a project as green is more a focus now than ever as the
implementation of green building rating (Green Building Index) which is an assessment of
benchmarking rating system that incorporates internationally recognised best practices in
environmental design and performance. Buildings are awarded GBI Malaysia - Platinum,
Gold, Silver or Certified ratings depending on the scores achieved. According to Kamar
and Hamid (2011), the adoption of sustainable construction and green buildings has
become an important issue in Malaysia and initiatives taken by the government and private
sectors to encourage the adoption of sustainable development and green buildings have
been done leads by the Construction Industry Development Board Malaysia (CIDB). They
have establishment a technical committee and eco-label task force to create guideline for
good practices in sustainable construction and green buildings and to develop eco-label
accreditation scheme for construction materials.
However, the implications of a technology-driven global economy for engineering
practice are particularly profound. The globalization requires engineers capable of working
in and with different cultures and knowledgeable about global industry with new
perspectives. It will create a new type of construction industry, high technology and
vertically integrated that will operate side by side but totally independent of the
conventional, low technology industry which are not just construct buildings but it will
initiate, design, construct and manage, produce the material and arrange the finance, it may
operate and eventually demolish the buildings. The creation of a global market means that
what used to be niche markets in national markets become large enough to allow
investments into research and development, and therefore prime targets for the research
intensive, high technology global firm. Small construction firms simply do not have the
resources to operate effectively in the global market.
2 Free trade agreement and its affect to construction industry

Overview
Free trade agreement, abbreviated from FTA, is an agreements between two or more
countries in order to reduce the trade barriers such as import quota, taxes and tariffs. It is
also can be defined as an economic theory which involves analysis and function of
importing and exporting goods without restriction between two or more counties in order
to ensure that the citizens from those countries have sufficient resources and goods thus
able to meet various level of needs and wants.
According to Ministry of International Trades and Industry (2015), Free trade
agreements are generally aimed to provide a solution to achieve faster and higher level of
liberalization that would produce effective market between the participants of free trade
agreements.
As stated by Komolavanij, Jeenanunta, Ammarapala and Chongphaisal (2008), Free
trade agreement is theoretically adapted from the Theory of Comparative Advantage which
is described by Robert Torrens in 1815 that implies the ability of a country to produce or
manufacture a particular goods at lower opportunity cost than other country.
Free trade agreement is the second degree of the preferential trading arrangement
that consist five forms which are:
1. Preferential tariff arrangement;
2. Free trade area;
3. Customs union;
4. Common market; and
5. Economic union
Thus, by adopting the free trade agreement, each participant counties is required to
remove their trade barriers among themselves.
Free trade agreement ensures the development of best economic policies to the
respective nation. For instance, companies; those who provide the consumer or their
costumers various items and good willingly to meet their demands as well as their wants.
In order to do that effectively, they will look for cheapest goods to increase supply.
Moreover it allow them to import these goods from oversea counties without any restriction
from government and taxes thus lowering the provisional cost in the domestic economic
market.

Characteristic and Features of Free Trade Agreement


As mentioned previously, Free trade agreement is a result of two or more participant
countries thus most of the time it has no fixed feature. However, as stated by Komolavanij,
Jeenanunta, Ammarapala and Chongphaisal (2008), there are three common characteristic
can be found in most of the free trade agreement, which are:
 The aim which is to ease exchange possible trade which can grow and
develop between the participants of the free trade agreement which do not
pose any fortress effect to the non-participant;
 Substaintial coverage of the international trade; governed by the rules of trade
by World Trade Organization (WTO) that will ensure that there’s no bad
impact to the non-participant of Free trade agreement; and
 A list of goods and services that eligible for tax reduction or duty-free and
method to reduce tax for each goods and services as well as the timeline
There are several features which free trade agreement generally promote which is
stated by Komolavanij, Jeenanunta, Ammarapala and Chongphaisal (2008) such as:
 Importing and exporting of goods and services without taxes or other trade
barriers such as quotas and subsidies for manufacturer;
 The absence of trade-distorting policies such as taxes, subsidies, regulations
or laws that give some companies, households, or manufacturer an advantage
over others;
 Unregulated access to markets as well as market information;
 Inability of companies to distort markets by misusing government-imposed
monopoly or oligopoly power or colonialism; and
 Basically it is a trade agreements which encourage free trade.
Advantages of Free Trade Agreement
In construction industry, material, man (labour) and machineries are three important
component that affect the development, progress and completion of the project. In order to
generate better profit, the contractor will need a various access in the market in order to
find the cheapest and optimum quality of these component without compromising the
integrity of the project itself.
As previously mentioned, free trade agreement is able to provide means for the
contractors and those who involve in construction industry in completing their project more
efficiently. There are several advantages which they can benefited from free trade
agreement such as:
 Increased production
 Better production efficiencies
 Lower price for Construction equipment and building products

2.3.1 Increased production


Free Trade enables Malaysia to increase in the production of items and good as well
as providing services which they have on advantages on. With this, they are able to take
advantage of efficiencies generated from the scale economies and thus increased the output.
International trade will undoubtedly increase the size of the market therefore lowering the
average costs. Hence, the production of construction goods such as reinforcement bars,
cements for concrete mix, and other important element in the construction is thus increased.

2.3.2 Better production efficiencies


Free trade improves the efficiency of resource allocation. Higher efficient of
resources will increase the rate of productivity and therefore will increase total domestic
output of goods and services. In construction industry, the resource allocation is very
important. This is to ensure that there is no wastage occurs or short of hand especially
during construction process. This is because if there is any wastage or short of hand it may
affect the cost as well as the completion period of the construction or project.
2.3.3 Lower price for construction Equipment and building products
Under Free trade agreement, the construction equipment and building products will
received duty-free treatment upon entry into force of the agreement. For example, drilling
and boring equipment, prefabricated structural component, pre-stressed structural
component, machineries such as crane tower, bulldozer, etc will have a lower price rate.
Therefore, this will reduce the overall cost of the construction.

Disadvantages of Free Trade Agreement


While there is several advantages by applying free trade agreement in Malaysia, they
also capable to cause issues, especially to the construction industry. Several apparent
disadvantages which will affect the construction industry are:
 Lower labor’s price
 Destruction of environment
 Loss of Domestic Industry

2.4.1 Lower Labor’s price


The main problem of lower labor’s price is that it cost job opportunity in the
construction industry. This is because since there is no or lower trade barriers, it allow they
to take the employment of cheap labor and most of those cheap labor are foreigner. This
can be seen mostly at the construction site in Malaysia whereby most of them are from
Bangladesh, Indonesia, Myanmar and other poor countries. Due to this, a little or few
number of companies are reluctant to employ local labor because most of them cost more
expensive compared to these foreigner.

2.4.2 Destruction of Environment


Free trade can lead to pollution as well as other environmental problem as the
domestics companies fail to include the cost of environmental costs in the price of goods
which they trying to compete with companies that exported the same goods to Malaysia
which operating under weak environmental legislation in other country.
2.4.3 Loss of Domestic Industry
Free trade agreements often damage domestic industries by exposing them to
competition from foreign producer and manufacturer with lower costs. As previously
mentioned, due to employment of foreign labour in construction industries, a number of
local labour or worker are keep decreasing as they replaced by these foreign worker.
Besides that, domestic supplier and vendors need to compete with the international supplier
and vendors which perhaps providing a same good or even a better product at same or
lower prices. Thus, this pretty much will distort the development of domestic industry.

Solution and Ways to Overcome Disadvantages of Free Trade Agreement


In order to overcome disadvantages that are previously mentioned, there are several
solution that can be taken into consideration. First of all, the government will have to play
a major role in preserving and enhancing the domestic industry to develop and thus
competing with the foreign industry by slowly or progressively reduce the barrier on their
free trade. This can be seen in automobile industry whereby Malaysia slowly reducing the
tariff on both local and foreign car product in order to prepare the domestic industry such
as Proton and Produa to compete with the likes of Toyota, Honda, Hyundai, etc.
Besides that, providing incentives that will bring about new method or technology
in the construction industry that global market demands can also be one of the solution.
Thus, by ensuring that the domestic industry has the comparable advantages among the
participants of the free trade agreement, this will boost the competition among them and
lowering the likes of domestic industry to lose wholly.
Moreover, the trend these days in construction industries is that they are towards to
skilled labour-based industries. Thus, by providing more training and development institute
where the local employees can learn and obtain required skill and technique to serve this
industry, it will provide a better chance for them to be employed and thus able to compete
themselves with the foreign worker or labor for employment.
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