Diversification strategies of Turkish construction companies

The macroeconomic, political, legal and social environment where the construction company operates is one of the major determinants of its performance. In a highly competitive and unstable environment, one of the critical success factors is maintaining an adaptable organizational structure so that the company can satisfy changing needs of clients and survive in a dynamic environment. Moreover, in order to sustain competitive advantage, differentiation of services by offering innovative construction and management techniques is compulsory, which implies continuous improvement of value chains. However, increasing efficiency of a construction value chain for a continuous workload is usually contradictory to the objective of having a flexible structure to cope with instabilities of demand and supply. In most of the developing countries, due to instability of economic and political environments, construction companies have to optimize their investments to enhance production and management capabilities so that they should increase efficiency, but at the same time they should not lose their adaptability to market up and downs. Due to frequent ups and downs in the effective construction demand, the general aim of Turkish construction companies is usually not to achieve efficiency for a continuous workload, but to achieve flexibility, even at a cost. Sustainability of competitive advantage depends on the balanced level of flexibility and efficiency in turbulent markets. Within the context of this paper, related and unrelated diversification strategies of Turkish contractors will be investigated. The reasons and benefits of diversification will be discussed, based on the findings of a questionnaire conducted to analyze market strategies of Turkish contractors. Results show that, by investing in sectors other than construction (tourism, health, telecommunication, etc.), contractors aim to secure a stable cash flow and survive during recessions in the construction industry. Thus, unrelated diversification is utilized to achieve flexibility. Similarly, diversification in fields related to construction helps the contractors to ensure efficiency of construction works by increased control of price, quantity and quality of supplies. As flexibility and efficiency hardly coexist, the success of companies lies in maintaining a balanced portfolio. Finally, some critical success factors for diversification will be listed, and it will be discussed how innovative Turkish contractors can be in strategic management activities to generate adequate diversification strategies. It will be concluded that construction companies should find the optimum level of diversification in order to achieve synergy, increase efficiency and yet remain flexible