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Construction services in emerging economies pose a different set of procurement challenges

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by Sakthi Prasad
24 July 2014

In this globalized world, companies are always looking to expand their presence in various countries. Typically, a company expanding into a country with a long-term plan would need to build new factories as well as office space. Once a boardroom decision is taken on expansion, relevant category managers would then begin to scout and validate various providers of construction services.

Buyers - both public and private - procure construction services through a competitive bidding process. A bidding process would follow once category managers narrow down the list of suppliers. This mode of selection usually creates a price war as contractors aim to undercut each other to win the bids.

However, even if a buyer manages to obtain the best or least price, successful completion of project on time is not guaranteed. There could be many shortcomings in quality and performance.

Another important factor to be noted is that the bidding process to procure construction services in emerging countries vastly differ from developed economies. Category managers should be aware of these differences as there is no "one size fits all" type of solution.

For example, in 2012, Reuters had reported how New York-based investment bank Goldman Sachs's proposed construction of a new office in Bangalore, India, faced string of obstacles including shoddy construction, corruption, poor sanitation and an on-site tomb. (http://in.reuters.com/article/2012/10/23/goldman-india-bangalore-office-idINDEE89M04U20121023)

Besides quality issues, unethical practices such as bribery have also become critical to complete the construction projects and category managers should be aware of how best to deal with such delicate situations. These are some of the hidden challenges that should be addressed by procurement teams.

In order to preempt such quality as well as ethical issues, it would serve well if category managers evaluate the past experience of construction service providers; focus more on factors such as technical design, environmental management system, and maintenance costs. They should also check on health and safety mechanisms.

In his webinar scheduled for August 6, Beroe's engineering and construction industry expert, Raj Manohar, will discuss various parameters of contractor selection in emerging markets. He will also present case studies to demonstrate win-win situation for both buyers and service providers.

Key Takeaway

  • Key parameters that procurement managers should consider to successfully execute a construction project
  • Case-based scenarios to create a win-win situation for both buyers as well as construction service providers
  • Factors impacting the bidding process and how to create maximum opportunity
  • Evolution of bidding process in emerging nations and the future outlook.
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