On April 10, the Construction Association of Michigan (CAM) hosted a delegation of construction contractors from Russia.
The event was part of a program arranged by a national organization called the Center for Citizen Initiatives (CCI), based in San Francisco, CA. This group brought the Russian contractors to the United States to attend a total of 17 modules aimed at enhancing their business skills.
The event, part of CCI’s Productivity Enhancement Program (PEP), was held at the Construction Association of Michigan Training and Education Center (CAMTEC) in Bloomfield Hills, MI.
“The CAM session was one of 15 modules the Russian contractors were scheduled to attend during their stay in Michigan,” said Michael Lawson, manager of industry relations of the Construction Association of Michigan. “Our presentation focused on the importance of having an association to disseminate project information and provide services to its members.”
Dan Moss, of the Central Macomb County Chamber of Commerce, coordinated the program in Michigan.
“The PEP supports the development and stabilization of the Russian economy by bringing Russian entrepreneurs to the U.S. to learn vital management skills,” he said. “The participants are the new Russian business makers who are very interested in the American system of construction management.”
Although the CAM presentation taught the Russian contractors about the American construction industry, the participants in turn gave the CAM presenters an eye-opening account of construction in Russia.
During Soviet time the construction industry in Russia was a part of the centralized economy. The national government determined the supply of construction services for the country and allocated construction projects to coincide with government policies and priorities.
Since the fall of the Soviet Union in 1991, the industry has quickly privatized and modernized to become one of the most dynamic sectors in the Russian market. The strong demand for infrastructure development and Russia’s burgeoning middle class are currently fueling a construction boom across the country.
As a result, businesses are experiencing great pressure to continue to evolve and refine their operations in order to remain competitive in this lucrative environment.
According to official statistics there are 129,300 independent building companies in Russia. Additionally, there are thousands of building organizations within enterprises of various industry sectors.
The private construction sector is primarily represented by small and midsize firms that act either as general contractors or subcontractors for large companies, and often they assume the role of real estate developers as well.
Small businesses have successfully gained market share from the large companies that dominated the industry in the early 1990s by offering quicker project completions and by adapting responsively to market trends and fluctuations.
Government
Regulations
Registering a new business is a complicated process in the Russian Federation, requiring entrepreneurs to complete dozens of certifications and forms.
While the Putin Administration is providing more federal support for emerging businesses, it is difficult for many to keep abreast of the quickly reforming laws and the new bureaucratic processes and regulations.
Those in the construction market assert that the main obstacle to growth is the current state of the land market – only ten percent of construction companies participate in open auctions while the rest obtain sites under non-transparent processes.
Equal access for developers to land sites is an important component of a healthy real estate market as it encourages investment in the construction sector, leading to increased growth.
Federal authorities are making efforts to establish a civilized land market, and in some city governments, such as St. Petersburg, there have been policy reforms to allocate all land plots through public tenders.
Moreover, in recent years a growing number of independent and regional centers for small business development, market research and analysis, and technology research have appeared throughout Russia. These organizations will serve to assist businesses and help adapt during the period of reform.
Technology
Since, 2001, increasing the speed and quality of construction has become a major trend.
Most construction companies need to replace a substantial share of their obsolete or dilapidated construction equipment with new, high quality products.
In addition, the industry is increasingly favoring energy-saving techniques and equipment.
Though improving, domestic construction equipment production is not yet able to meet this demand, and thus the market for foreign equipment has grown to provide these high quality, ecologically safe products.
This trend is creating promising opportunities for foreign suppliers and investors. Across Russia, suppliers of construction equipment and machines are very optimistic about the future, and several have begun expanding their distribution networks and increasing the number of service centers.
Competition
The number of construction companies in Russia increased rapidly until 1997, after which growth began to slow due to fierce competition.
Today, the rapid development of the real estate market has led to great improvements in the quality of construction, and prospective buyers now expect contemporary buildings to be built with the latest materials and methods.
To remain competitive, construction firms are now actively visiting domestic and European construction exhibitions in Paris and Munich to learn of the latest development in the building industry.
Challenges
The principal challenges for construction companies are unreliable financing and government regulations.
The system of crediting small and medium-sized businesses is exceedingly complicated, thus constraining growth in the industry.
Under the current structure of construction project financing, bank capital accounts for as little as 10 to 20 percent; funds from private investors or individuals make up the rest. Construction companies also must face the task of adjusting to myriad federal and regional reforms on tax codes, zoning, land ownership regulations, and custom laws on foreign and interregional imports.
Forward-looking
Construction in Russia is undergoing a period of robust development.
New companies, new technologies, and new materials are emerging on the market every day.
Analysts predict that the demand for high-quality materials and imported machinery will continue to rise as more of the middle-class moves out of the pre-fabricated apartments and dilapidated offices and into new single-family homes and renovated office buildings.
In addition, corporate construction will become more common as companies increasingly order residential construction for their employees.
Regional professional associations and unions will continue to become an integral part of developing small business entrepreneurship and, with the aid of reform, construction companies will begin to explore new mortgage banking options as well.
“We are proud that the Center for Citizen Initiatives chose the Construction Association of Michigan to educate these Russian contractors on the importance of forming an association,” said Lawson. “For more than 120 years, CAM has been recognized by its members as the leading resource for construction information.” CEG
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