Why the Construction Industry is looking for growth overseas

(This is an article I wrote for the UKTI’s Autumn 2010 edition of Springboard Magazine)

The UK construction industry is simply huge. Employing some 3 million people across a multitude of disciplines in more than 300,000 different companies, the industry has an annual turnover of more than £100bn and accounts for almost 10 per cent of the UK’s GDP. And despite being one of the sectors hardest hit by the recent economic downturn, output in the construction industry experienced its biggest rise since 1963 in the second quarter of 2010 with a jump of 6.6 per cent on the previous quarter, according to the Office for National Statistics.

With such a dramatic rebound from what had been a poor start to the year the construction industry’s performance has exceeded even the most optimistic forecasts from economists -stimulated by strong performances reported from some of the UK’s biggest construction firms.

Balfour Beatty, for instance, has seen a rise of 32 per cent in first-half profit and has recently won a £460m contract to develop a part of Heathrow Airport’s new Terminal 2 building. While housebuilder Tailor Wimpey has returned to the black in the wake of a desperate housing market to return a profit of £19.6m for the first six months of the year, against a loss of £68.9m a year ago.

Tempting though it may be to get over-excited about these latest figures economists are erring on the side of caution. However, what is undisputed is the pivotal role the construction sector performs to the UK’s economic and social development. From improved transport infrastructure and sustainable development to enhancements in social housing, schools and hospitals, the construction industry’s all-round contribution and responsibility as one of the key economic driving forces to UK Plc cannot be underestimated. But it’s not just in the UK where the construction sector plays a prominent role.

UK contractors, engineers, designers, component and product manufacturers have an enviable, worldwide reputation that is second to none for working overseas. This is a tradition that dates back to the days of Industrial Revolution when Britain was the workshop of the world and gave rise to the founding fathers of modern construction in the shape of Messrs Stevenson and Brunel et al. At the same time British construction companies consistently rank in the top rankings of world league tables for engineering, architecture and commercial practices. Take Balfour Beatty as an example.

Not only is Balfour Beatty the UK’s largest international construction, engineering and services contractor it is also the 19th largest construction company- and the number one rail infrastructure contracting firm- in the world. With an increasing presence in a number of overseas markets, including the US, Germany and Singapore and an order book standing at some £9bn, over half of Balfour Beatty’s revenue now comes from outside the UK with over 30 per cent generated by their operations in the US and a further 15 per cent from the rest of the world.

Carillion is another major British player performing well on the world stage. Employing 50,000 people Carillion is one of the UK’s leading support services and construction companies turning over some £5bn with operations throughout the UK, Europe, Canada, the Middle East, North Africa and Caribbean. Along with fellow UK-based Balfour Beatty, AMEC and Costain Group, Carillion ranks among the top 20 of global construction firms.

But it’s not just engineering consultancies, architecture and commercial practices that are making waves overseas, product manufacturers and suppliers are also playing a key part in the overall makeup of the construction industry. Generating over £40bn annually to the UK economy, many of these companies are world leaders and over £5bn of construction products and materials are exported out of the UK every year.

However, despite their success, UK firms cannot rest on their laurels. The sweeping cuts in public spending announced by the new Chancellor George Osborne have forced many construction firms who depend to a large extent on public contracts such as schools and transport infrastructure, to focus on the increasingly lucrative – and increasingly competitive – opportunities for growth in new and emerging markets.

Indeed, having enjoyed the lion’s share of of the global construction market the developed world’s share is expected to sink from 65 per cent to just 45 per cent, according to the Global Construction 2020 report by Global Construction Perspectives. As the economies of Brazil, Russia, China and India – where Balfour is helping develop Mumbai’s metro and Delhi’s airport – continue to develop at phenomenal growth rates, the next ten years promises to see the emergence of a number of new markets that will prove increasingly seductive for UK construction firms keen to make their mark and assert their place. And with the downturn in the property market across the Gulf states, organisations are already starting to look to other markets.

The oil-rich and fast-growing nations of Angola and Nigeria, for instance, both have significant infrastructure requirements combined with a low construction skills base. While Vietnam has greatly benefited from international investment in recent years and has aspirations to emulate the success of neighbouring China. Such is the extent of investment in the country Davis Langdon place Vietnam as the world’s fourth fastest growing construction market with spending within the sector expected to hit $1.4bn by 2015.

In South America, Brazil has the greatest need. With a population growing at 2m a year and a ‘new’ middle class of some 20m demanding more housing and improved infrastructure combined with the fact that the country will play host to the 2014 football World Cup and the 2016 Olympics, which UKTI estimates will require 80 projects, Brazil presents arguably the greatest markets for UK firms. Yet despite Halcrow, Balfour Beatty and Mott MacDonald all having a presence there, Brazil remains relatively untapped for UK firms.

Closer to home, Turkey is currently Europe’s sixth-largest economy with a fast-growing population that analysts predict will propel it to become the third largest economy in Europe by 2050. As the gateway from Europe into Asia, Turkey – according to the UK Government – offers British firms “multi-billion pound construction opportunities”. In their 2009 report, Building Turkey: Opportunities for the UK Construction Sector, the UKTI highlighted a plethora of infrastructure, regeneration and tourism projects that are in the pipeline, plus the construction of around 600,000 homes. “We’ve been finding very strong interest in British firms forming JV’s with Turkish contractors,” says Graham Hand, chief executive of British Expertise. “Turkish contractors bring a value-for-money proposition, but British firms can supply a more sophisticated design aspect.” Dominic James, also of British Expertise, goes a step further to suggest that UK-Turkish partnerships could provide a catalyst for UK firms to tap into the Central Asian market.

“There’s a thirst for knowledge about these Central Asian countries and how to get into them. We’re seeing increasing stability there and good governance is gradually spreading.” With investment from the European Bank for Restructuring and Development into the region, the likes of Uzbekistan, the Kyrgz Republic, Tajikistan, Turkmenistan and Mongolia are all benefiting from 40 projects a year worth $300m and James recommends working with a UKTI adviser “who can go through your business’s balance sheet and work out whether it makes sense.”

While the emerging markets offer a number of opportunities, India remains and will continue to be a major market for UK businesses looking for rich pickings for some time to come. “With a massive infrastructure deficit that needs be addressed urgently in order to sustain the levels of economic growth and cope with increasing migration to the cities, India plans to invest some US$500 billion in its infrastructure to 2012 and double this between 2012 and 2017, says Fraser Addiscott, UKTI Head of Global Infrastructure & Cross-Sector Projects.

“The road building sector, for instance, has been identified as a priority $50 billion opportunity for UK business, using innovative financing and delivery platforms based on PPP models. Other infrastructure opportunities are also emerging for high-speed rail links connecting major cities which mirror the road projects. While some US$7.7 billion has been earmarked to upgrade 25 airports in addition to plans for over 200 port projects – valued at over US$11 billion.”

Although some British firms may initially struggle to compete with locals for many construction projects in some regions, , the UKTI strongly advises construction firms to consider finding a local partner as a pre-requisite when operating in less well-regulated or unfamiliar markets such as Turkey and South Africa.  That said, the UK’s global reputation within the areas of architectural services and project management will ensure significant demand for firms.

“ UK engineering consultancies, architectural and commercial practices lead Europe and command a top 10 ranking in world league tables both in terms of reputation and quality of services,” says Addiscott. “The UK’s world class infrastructure value chain spanning construction, mass transport, environment and water, energy, engineering, financial services, creative industries and beyond is well placed to play a leading role in delivering innovative infrastructure projects from concept to completion, bringing a long experience of partnering, an ability to maximise value and world-class technology.”

Dominating the industry both at home and abroad is the drive towards making a low carbon future. And those UK firms with expertise in sustainability will continue to be in demand. Global Construction 2020 revealed that while carbon emissions have reportedly fallen in the UK and US, they are increasing by up to 5.5 per cent in emerging markets. All of which means these newly emerging economies will need to invest in more sustainable buildings and technology – an area where British firms excel.

With a focus on delivering efficient and sustainable solutions, the UK excels in maximising investment value across the whole lifecycle of the project with UK infrastructure companies ranked among world leaders in master planning, consultancy, design, project management, engineering, low carbon solutions, security and professional advice (legal, insurance, PPP/PFI), according to Addiscott. This, combined with the relative weakness of the pound against the dollar, will ensure that UK providers will prove an increasingly attractive proposition both in terms of expertise and competitiveness.

Domestically the latter half of 2010 may prove sluggish compared to the first half. However, overseas opportunities promise to provide an increasingly viable option for UK construction firms who are prepared for the challenges ahead and ready to invest in new, relatively untapped markets. With public spending cuts likely to affect many within the industry in addition to minimal GDP growth forecast until 2020, international expansion has become considered by many as a need-to rather than a like-to-do for many organisations.

Indeed, as Addiscott rightly points out, industry commentators are unanimous in saying that we are living in an era of unprecedented investment in infrastructure on a global scale. “From meeting growing energy demand to managing the impact of urbanisation and providing for an aging population, this investment is essential to long-term economic growth and our ability to responding to some of the greatest challenges we face,” he says.  In doing so, all of this needs to be balanced with reconciling economic and social needs in ways which are integrated, sustainable and financially viable. And with the Organisation for Economic Co-operation and Development (OECD) estimating that some USD$40 trillion could be spent on infrastructure projects worldwide up to 2030⁺, the opportunity for UK companies involved in infrastructure is massive.

Furthermore, while there continue to be opportunities in the more familiar markets such as Saudi Arabia, Qatar or India, these are gradually being caught up by the innumerable prospects being laid on the tables of the Vietnam’s, Turkey’s and Brazil’s of this world. And the great news for UK construction firms is the fact there is less competition for contracts in these lesser-known markets. As Turner & Townsend Asia director Duncan Stone, says “Smaller markets can be much more welcoming to foreign investment because they don’t have the resources or expertise that bigger countries do.”

⁺ Source: KPMG

About yourcareermatters
CareerMatters was founded as part of MacKenzie-Cummins Communications in 2006 by Paul MacKenzie-Cummins MICG (Member Institute of Careers Guidance), regarded as one of the UK's leading career's advice and guidance writers and specialist PR consultant for the UK recruitment industry. Since 2006 Paul has been the leading advice writer for Monster.com and CareerBuilder.com - the two biggest careers website in the world -tackling all aspects of workplace and management issues, job seeking, career change and hiring trends. In 2006, 2007 and 2008 his writing contributed to Monster winning the Best Employment Advice on the Internet Award for an unprecedented three times beating the likes of The Guardian, Learn Direct and Personnel Today on each occasion. And his work was a runner-up for the same award in 2009. In 2009 Paul was a nominee in the prestigious HR Journalist of the Year Award and Recruitment, Retention & Motivation Journalist of the Year Award. Paul has been commissioned to write more than 500 careers advice and guidance articles for a number of lpublications, from regional and national newspapers to industry publications and various career-specific websites in the UK and USA. Recently, Paul was the Technical Editor for career psychologist Dr Rob Yeung's Job Hunting & Career Change for Dummies (John Wiley & Son, 2007). Dr Yeung is better known as the TV psychologist for Channel 4's Big Brother and the BBC's Who Would Hire You? series. Clients include: Monster.com CareerBuilder.com MSN Careers (Europe) TheLadders TotalJobs SalesTarget.co.uk IntaPeople Recruitment Lifetracks/YouthNET MediaSalesJobs The Press Gazette

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