Foreign architectural and engineering design firms’ competitiveness and strategies in China: A diamond model study Zhen Yu Zhao a , Jian Zuo b, * , George Zillante b , Xiao Jing Zhao a a Dept. of Construction Management, North China Electric Power Univ., Beijing 102206, China b School of Natural and Built Environments, Univ. of South Australia, City East Campus, North Terrace, Adelaide, South Australia 5000, Australia Keywords: China Foreign architectural and engineering design firms Competitiveness Diamond model abstract There is an increasing number of Foreign Architectural and Engineering Design Firms (FAEDFs) operating in China as a result of the Chinese government’s efforts to open its construction market to the inter- national community. These FAEDFs face competition from both local and foreign rivals. This study aims to investigate the competitiveness of FAEDFs in the dynamic environment of the Chinese construction market. The diamond model technique is adopted to reveal the development mechanisms for the competitiveness of FAEDFs in China. Data used in the analysis comes from multiple sources including literature survey and interviews conducted at two major cities (i.e. Shanghai and Beijing). Key factors that need to be considered during the formation of strategies for FAEDFs in China are highlighted. The research indicates that there are a number of factors contributing to or impeding the development of the competitiveness of FAEDFs in China. The elements identified in the Diamond model analysis provide critical inputs for FAEDFs to formulate strategies to survive and sustain growth in China. Ó 2011 Elsevier Ltd. All rights reserved. Introduction The past decade has seen the rapid growth of Foreign Archi- tectural and Engineering Design Firms (FAEDFs) participating in the Chinese market. Some 70% of the top international Architectural and Engineering Design Firms had entered the Chinese market by the end of 2008 by means of either cooperating with domestic design institutes or establishing liaison offices (CEDA, 2009). The FAEDFs have a 10%e15% market share of the architectural and engineering design industry (CEDA, 2009). According to the official statistics, the market value of the foreign architectural and engi- neering design industry in China reached US$ 5.9 billion, 34.5% higher than the previous year (MOFCOM, 2011). Although an increasing number of FAEDFs have entered into the Chinese market they have not always been successful. Misunderstandings on the differences in operating a business within a different environment can lead to business failures in pursuing business ambitions. This is compounded by the external environmental dynamics. Year 2009 saw the number of FAEDFs dropped 14% whereas private domestic firms increased 23% partially due to the Global Financial Crisis (CEDA, 2011). It is imperative for FAEDFs to identify their own positions by understanding properly the local business environ- ment and to understand both their competitive advantages and weaknesses so that they can implement appropriate strategies to maintain and enhance their positions in the Chinese marketplace. Strategies need to be in place to meet the constant changing competition environment (Tan, Shen, & Yao, 2011; Wong, Ng, & Chan, 2010). This study uses a diamond model to analyze the FAEDFs’ competitive components and to determine their strategies when they undertake business in China. The specific objectives are: (1) to investigate the factors that facilitate or discourage the involvement of FAEDFs in the Chinese market; (2) to identify critical factors contributing towards the competitive advantage of FAEDFs in China; and (3) to highlight the strategies suitable for FAEDFs when entering the Chinese market. Research methodology Michael Porter’s diamond model is a useful technique to identify the factors that the enterprise has to consider in the business operation and the interactions between these factors with a consideration of the organizational structure, external competi- tion and strategic decisions. The diamond model comprises four major factors and two accessorial factors (see Table 1). As an effective strategic management methodology, the dia- mond model has been applied to analyze the competitive advan- tage of the construction industry (Korkmaz & Messner, 2008) and * Corresponding author. Tel.: þ61 883021914; fax: þ61 883022252. E-mail addresses: zhaozhenyuxm@263.net (Z.Y. Zhao), Jian.Zuo@unisa.edu.au (J. Zuo), George.Zillante@unisa.edu.au (G. Zillante), zhaoxiaojing134@126.com (X.J. Zhao). Contents lists available at SciVerse ScienceDirect Habitat International journal homepage: www.elsevier.com/locate/habitatint 0197-3975/$ e see front matter Ó 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.habitatint.2011.11.002 Habitat International 36 (2012) 362e370