Interactions between Business and Financial Strategies of Large Engineering and Construction Firms

Abstract

In this research study, selected indicators are set up to analyze the strategic performance of large international engineering and construction (E&C) firms from North America, Europe, and East Asia. The primary objective is to examine critical areas of corporate strategy that would affect the long-term prospects of E&C firms and provide guidance for their growth and survival. This paper focuses on the relationships between selected aspects of business strategies (internationalization and product/service diversification) and financial strategies (asset liquidity and capital structure). By analyzing data derived from financial reports and other public sources, it is deduced that internationalization is positively associated with current ratio but negatively correlated with book leverage. An opposite trend is found for the aspect of diversification. These results signal different risk management strategies for the respective modes of business strategies. It is thus suggested that if liquidity cannot be increased in the near term to support internationalization, firms should then concentrate on product/service diversification. Overall, the study confirms the importance of examining interactions between business and financial strategies.