helping contractors grow global footprint
Construction companies headquartered in countries with very large economies have grown more in total revenues in recent years than European contractors. As a rising economic superpower, China has a very strong economic platform from which to pursue global projects. Already, Asian firms in Engineering News-Record’s (ENR) Top 250 International Contractors have increased their revenue from international work by 6.1 percent in 2018.
CHINA YET TO REALIZE ITS POTENTIAL
Although China dominates the list of the largest global construction contractors, looking strictly at revenue generated outside of a contractor’s home country, only three Chinese companies make the top 10. It is truly a sleeping giant in international contracting, but conditions within its border could wake up that giant at any moment.
INTERNATIONAL CONSTRUCTION MORE APPEALING TO THE EU
The eurozone on the other hand is made up of several smaller economies, and as a result, European contractors are becoming more inclined to take on projects outside of their home country. In fact, seven of the top 10 in ENR’s 2018 Top 250 International Contractors are European contractors, from countries including Spain, Germany, France, Austria, and the UK.
THE SWINGS AND ROUNDABOUTS
Turkey ranks highest in the number of construction contractors among European countries in the list of international players, but its international construction revenue decreased due to reduced oil and gas construction spending and diplomatic challenges with Russia. This indicates that global trade and geopolitical factors—as well as raw demand for construction services—can affect a country’s prospects for cross-border success.
For contractors based in the UK, however, they may find they have an edge due to a regulatory requirement for business information modeling (BIM) in government contracts. This advanced technology puts them further ahead of other regions in terms of their ability to adopt construction-integrated manufacturing.
SLOW BUT SURE U.S. MOMENTUM
The U.S. is absent from the list of top 10 contractors doing business internationally. San Francisco-based Bechtel fell from the fifth spot in 2017 to twelfth in 2018, recognizing that growing competition demands means developing “leaner, more effective project delivery strategies”.
While Bechtel experienced revenue shrinkage from $39.4 billion in 2013 to $25.9 billion in 2017, it has pointed out that contractors must be able to identify and adjust to external factors, such as commodity prices, to improve their position on the international scene. Their exposure to risk from the oil and gas sector may have been complicated not just by volatile oil prices, but by Chinese competition specifically in the Middle East and North Africa region. This highlights that U.S. contractors can be affected by trade embargoes, sanctions, and other restrictions on commerce with certain countries.
But U.S. contractors have built some momentum—according to ENR its international revenue increased by more than 12 percent to $60.14 billion. The U.S. construction market has huge, untapped potential, and contractors have a large potential upside in terms of their ability to dominate—currently less than 20 percent of the ENR Top U.S. contractors pursue work internationally.
FINANCE/HR SOFTWARE NOT ENOUGH TO SUPPORT GLOBAL GROWTH
Technology is now key to global success, but the construction industry has been slow to adopt broad software suites that enable central management and visibility of the enterprise. Most larger contracting firms implement finance and human resources modules from an enterprise resource planning (ERP) software vendor, but that alone won’t enable them to manage a complex global enterprise with robust governance or even the risk profile, margin, and cash flow of major projects in a consistent fashion.
Most of the actual business operations essential to international success in these multi-billion-dollar enterprises are still housed in disconnected systems. This includes Excel spreadsheets containing essential project details, making it difficult for a management team to identify and mitigate emerging risks. Distributed, disconnected records of project activity cause delays in visibility of performance against contractual obligations and does not facilitate predictable consistent project delivery processes to be executed across the enterprise.
VISIBILITY, SPEED, AND ACCURACY ONLY COME WITH FULL ENTERPRISE INTEGRATION
Few contractors can demonstrate seamless functional interplay between core business elements that are required to consistently and safely deliver projects on time, on budget, with low risk and to a high quality. The processes and systems should integrate all functions in the business to allow them to work in harmony to facilitate predictable project outcomes. Consistent project cost control templates should be deployed globally so that project performance can be controlled by local and centralized management from one consistent version of the truth. Global visibility, speed and accuracy of project performance measures are critical. With full enterprise integration, data flows between functions seamlessly.
DISRUPTIVE TECHNOLOGY IS A MUST
Technologies such as BIM, artificial intelligence (AI), equipment automation, and the internet of things (IoT) are changing the way international contractors do business. Construction scheduling software such as 4D BIM scheduling can solve complex problems in real time. It also has the capability to intelligently address construction schedules for smoother project scheduling. This enables contractors to detect conflicts before they occur, improving delivery times and delivering quality and cost savings.
IoT holds transformational potential. During projects, construction equipment may soon be remotely operated in hazardous environments or when skilled operating engineers are in short supply. The location and usage of equipment may also be tracked to reduce shrinkage in the field and capture hours of usage against a contract, eliminating manual accounting. IoT technologies can help in materials replenishment, enabling manufacturing-style just-in-time (JIT) replenishment in the field.
IOT IN THE AFTERLIFE: NEW SERVICE OFFERINGS, NO LUMPY BUSINESS PROBLEMS
But the greatest potential for IoT will come after project completion, when it can monitor structural members, mechanical systems, and project integrity to support high-margin warranty, service, and maintenance contracts. IoT sensors can also automatically update the databases that underpin BIM on the condition of the structure over its lifecycle. New service offerings such as maintenance and service contracting can extend the revenue profile of a project over the entire lifecycle of the asset, reducing revenue volatility and “lumpy business” associated with large projects. These new service offerings often deliver margin of about 14 percent, much greater than the 3 percent contractors generally see on project activity.
HOW TECH IS USED AND IMPLEMENTED WILL DETERMINE GLOBAL DOMINANCE
Contractors that are able to leverage new technologies such as AI, BIM, Automation, and IoT, have the potential to transform their operations to execute on projects in new ways. The first step for most however is to get control of their business by having a robust set of integrated business processes and systems to allow the organization to deliver projects in a predictable, consistent way. Having achieved this the new technologies can be integrated to this solid foundation to enable the business to become a dominant international player.
This approach will allow international contractors to reduce cost, improve project delivery metrics, and de-commoditize themselves by working more collaboratively with project owners, and carrying out business in new ways will differentiate them from their competitors. Barriers to success will come not just from the ability of competitors in other countries to deliver traditional construction projects, but from their ability to radically transform their operations to lower cost, add value, and mitigate risk.
about the author
Kenny Ingram is the global industry director for the following industries: construction, contracting, engineering, infrastructure, and shipbuilding. In addition, he is heavily involved in other project and asset lifecycle industries including oil and gas, energy, utilities, and defense. Kenny has been with IFS for 16 years and has worked in the business systems marketplace for more than 20 years.
Modern Contractor Solutions, September 2019
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