Dynamic Relationship between Domestic Construction Market Condition and Overseas Construction Business

Abstract

: This study undertakes a comparative analysis of the correlation between the condition of the domestic construction market and the expansion of overseas projects within construction companies, based on the vector error correction model. The analysis results verified that, in the post-IMF crisis period, domestic construction companies took on more overseas projects only when the residential construction market slowed down. Compared to the precrisis period, construction companies grew more responsive to the condition of the domestic market for residential construction, and they took on more overseas construction projects when the domestic market slumped. This is because the business portfolios of Korean construction companies' render them highly vulnerable to the condition of the residential construction market. When the domestic residential market slows down, the business condition of construction companies quickly takes a turn for the worse, and to cope with this, they turn to overseas projects to compensate for the slowing of the domestic market. As the analysis shows, expanding overseas construction projects as a way to turn around business condition amid a slow residential construction market actually undermines the management of the companies even further. In other words, shifting business focus toward an overseas market during a hard time might be useful for securing cash flow, but might not help to restore profitability. Thus, construction companies need to carefully manage their level of business diversification to ensure strategic flexibility.

Korean Developers in Vietnam: The Mechanism of Transnational Large-Scale Property Development and Its Planning

“…As the urbanization rate in Korea surpassed 90% and the housing supply ratio reached 102.3% in 2011, the domestic housing market became saturated, resulting in decreasing housing demand and reduced land available for development. Korea's domestic construction market especially struggled after the 2008 financial crisis and Korean construction firms actively entered overseas construction markets as a method of portfolio management [21]. As a result, Korean firms invested substantial project financing loans in overseas property development projects, primarily in transition countries, such as Vietnam, Kazakhstan, and China.…”