A flat world according to Thomas L Friedman is a world of specialized national economies trading freely with one another to create a thriving world economy. It's a new world in which international cooperation replaces competition and conflict. A similar evolution is taking place in the construction world.

A Flat Economic World

In Friedman’s book The World is Flat, he describes the emergence of a new competitive equilibrium across the entire economic landscape. He describes nations specializing in cheap labor, or natural resources, or banking services. Still other nations developed design and management skills while creating an educated middle class that became the world's most lucrative markets for the manufactured goods supplied by the nations specializing in inexpensive labor. The world began to trade rather than go to war. Advances in communication technology and workflow systems enabled and speeded up this market evolution. The walls were coming down and, as Friedman saw it, the world was becoming a level playing field, a flat world of specialization and international cooperation.

A Flattening Construction World

Our construction world is also beginning to show signs of flattening. The domestic construction industry has experienced profound changes over the past 30 years that require a shift in the way we see the marketplace and how we conduct business in this newly flattened competitive construction market. Three of the forces that are flattening the domestic construction world are:

1. The gradual evaporation of our skilled labor pool.
2. The commoditization of construction services.
3. The emergence of huge regional and national general contractors.

Let's look at these three main flattening forces and see how the principles of specialization and cooperation might apply in our business.

1. Shortage of Skilled Labor

The knee-jerk industry response to the skilled labor shortage has been to compete for available labor with higher wages, enhanced benefits, and other human resource techniques like showing interest and being nice. However, this response has been counterproductive because the shortage is industry wide and not just a recent local problem that can be solved by competing for scarce assets. The only effective long-term solution to the shortage of skilled labor is for contractors to cooperate. An example of cooperating rather than competing is participating in and supporting their industry associations such as:

• ABC: Associated Builders & Contractors - 23,000 members firms with 2 million employees.
• AGC: The Associated General Contractors of America - is the leading association for the construction industry.
• AIC: American Institute of Constructors - serves as the national qualifying body of professional constructors.
• ASA: American Subcontractors Association, Inc. - The ideals and beliefs of ASA are ethical and equitable business practices, quality construction, a safe and healthy work environment, integrity, and membership diversity in their ongoing efforts to recruit and train candidates for construction skilled labor careers.

Other examples of cooperating rather than competing:

• Supporting local community colleges in their building trades training programs and hiring the graduates.
• And finally, supporting political candidates who commit to trade school development and intelligent immigration policy.

This is a "flat world" response of cooperation rather than competition.

2. Commodity Pricing

As larger contractors manage growth they expand into the markets of smaller regional and local contractors and their efficiency of scale allows them to win work while their resources also enables them to bid jobs at or below cost if they need the work. This situation puts a continued downward pressure on construction services' pricing and is putting mid-sized contractors out of business at a rapid rate. In this emerging flat world of commodity-priced construction services, competing for work by low-bidding, particularly at cost or below, will not sustain a healthy industry in the long run. A flat-world option:

• Specialize - Forego competing on anything and everything and specialize in your best and most proven construction skill set (buildings, airports, roads, etc.). Most of the large general contractors do not provide in-house specialized services and will hire in-demand sub-contractors at premium prices when needed. That is the reality of the newly emerging flat construction industry

3. Regional and National Firms

Inevitable construction industry consolidation is a flat world reality that demands recognition and deserves serious consideration:

• Consolidate - In certain circumstances in this new flat world of construction services, it might be more lucrative and advantageous to allow your company to merge with a larger, better capitalized national company than try to compete with them in a commodity pricing world.

The World is Flat

As I pointed out in last week's message, national policy makers' resistance to the emerging flat world economy is causing most of the economic disruption we are currently experiencing. It is time for us to recognize the gradual systemic changes that are occurring in the construction industry and fashion an enlightened response. Resistance is not a solution.