Construction Services Sector, 2007

U.S. Market Overview

The U.S. construction services sector comprises establishments engaged in the construction of buildings and engineering projects. This sector underpins the U.S. economy, as it provides the essential infrastructure needed for U.S. manufacturing activity – such as buildings, roads, airports, water development, and power stations – while supporting the services sectors that utilize this infrastructure and fund its development, such as tourism, retail, real estate, business and financial services.

The market potential for the U.S. construction sector is commensurate with the size and economic growth direction of the U.S. economy. The U.S. construction sector is the world’s largest, with spending set at $873.1 billion in 2003 (out of $3.98 trillion spent by the world’s fifty-five largest nations.) It is the seventh-largest employer in the United States, with 6.7 million workers in 2003. While the U.S. construction sector is known for its giant, integrated general contractors that operate worldwide, including such companies as Bechtel, Centex, Fluor and Kellogg Brown and Root, it is primarily comprised of small- to medium-sized enterprises that provide general or specialty services to local project owners.

According to U.S. Census data and Moody’s Economy.com, the value of U.S. construction put-in-place during the past three years totaled nearly $1.2 trillion on an annualized basis. However, the robust three-year growth in this sector that began in 2003 is softening. Residential construction fell nearly 13% between January 2006 and January 2007 as housing demand eased due to higher interest rates. The slump in residential construction is expected to continue through the end of 2007. This decline is somewhat balanced, however, by growth in the U.S. non-residential construction market. Non-residential construction rose 13.5% during this period, led by strong growth in lodging, office, and commercial construction.

For non-U.S. investors, entry into the U.S. construction market is primarily achieved through the acquisition of existing U.S. firms. For operational and regulatory reasons, and except for certain management and advisory services that can be supplied cross-border, foreign construction firms must establish or purchase U.S. entities, hire U.S. subcontractors, or be represented by U.S. joint venture partners in order to operate in the U.S. market. U.S. contractors operate in a similar fashion in foreign markets.

A number of major U.S. contractors are either U.S. corporate subsidiaries of foreign firms, or domestic-origin contractors in which foreign firms have purchased a majority share. Of the ten largest U.S. general contractors by revenue in 2003, three were owned by foreign parents. Seven of the world’s ten largest construction firms in 2005 (VINCI, Bouygues, Hochtief, Skanska AB, Kajima, Taisei, and China State Construction Engineering Corporation) own U.S. operations, as do 22 of the world’s 40 largest global contractors.