U.S. market increased by 12 percent from 2003 to 2004 and 11 percent from 2004 to 2005. This rate slowed slightly in 2006 to 8.5 percent (USCB, 2006b).
The global construction market has also been growing in response to the need for infrastructure and housing in developing nations such as China and India, along with continued investments in high-income countries. Data on the overall size of the global industry are limited and not very reliable, but Engineering News Record data collected from multiple sources show that the global construction market grew from $3.4 trillion in 1999 (ENR, 2000) to $3.9 trillion in 2004 (Tulacz, 2005), a growth rate of 14.7 percent over a five-year period.
The U.S. share of international work (work performed by a company not headquartered in the country where the construction is done) has been declining. In 2005, U.S. construction companies listed in Engineering News Record “Top 225 International Contractors” had revenues of $34.8 billion, or 18.4 percent of the international work done by the largest 225 international contractors (ENR, 2006a). This percentage is down from 36.5 percent in 1985, although it has remained relatively stable for the past 10 years.
One of the most significant challenges facing the U.S. construction industry is the supply of workers, both field employees and professional employees. Fewer people are interested in working in the construction trades, which has raised problems for the consistent delivery of quality facilities. Significant efforts are being made to recruit new design professionals into the industry, but these efforts face many barriers, including a negative perception of the construction industry and low salaries relative to other industries. The limited recruitment of new design professionals, combined with an aging population of experienced engineers who are approaching retirement, is making it difficult for the industry to find employees to design and manage the construction of facilities.
This paper focuses on offshoring of design and construction management services in the construction industry. However, there is no universal definition for offshoring (Trefler, 2005), and the definition is important. The American Society of Civil Engineering (ASCE) has defined offshoring in the construction industry as “the practice of acquiring architectural/engineering services from sources outside of the United States” (ASCE, 2005). But, because some level of design services have historically been performed in other countries for international construction projects, this definition seems incomplete. For example, if a power plant is being constructed by a U.S. contractor in India, some design work has historically been performed in India, and some design work may have also been performed in the country of the large equipment suppliers. Therefore, I propose that we use the following definition:
Offshoring of design services in the construction industry is the relocation of work that is typically performed in one country to design professionals in the same company in another country, or to a different company in another country, to reduce wage rates.
Sometimes offshoring is performed through offshore outsourcing, that is, when a company hires an external company to perform a service in another country. At other times services are performed by company employees located in a company office in another country. Large international construction companies work in many international locations and have set up offshore offices to perform services on their international projects. Many of these services would not typically be performed in the United States, and thus they are not covered by the definition of offshoring, which considers