Chapter 32: Study on Subcontract Decision-making of International Construction Enterprises Considering Spillover Effect
In the process of internationalization of construction enterprises, the international enterprises need to consider whether part of the contract should be subcontracted to the local enterprises to gain a competitive advantage in the international contractor market; thus, forming a decentralized project subcontracting structure. Assuming that the local subcontracting market has a monopoly characteristic, the owner has a quality perception difference for the products provided by different enterprises, and the spillover effect will occur in the cooperation of sub-contracting. The Hotelling model is used to study the impact of the sub-contracting strategy on international enterprises and the whole market. The results show that local enterprises choose to subcontract to reduce the cost, and can always improve their profit level, intensify market competition, squeeze the market share of international contractors and reduce their profits; international enterprises in the local market need to balance the cost reduction caused by the subcontracting and the negative effect of the quality level brought by the counterparty through sub-contracting, the differentiated competition equilibrium results appear in this model.