Preparing for New Challenges

Emerging trends in urbanization, globalization, rising water and energy demand and infrastructure renewal all indicate a new global demand for construction in the coming years, especially in emerging markets. But, for construction companies, capturing increased demand will depend on their ability to manage the supply side needed to satisfy it.

Over the next decade, the global construction industry is expected to experience significant growth, particularly in the rapidly emerging economies of Asia, Latin America, the Middle East and Africa. Construction in emerging markets is expected to double during this period and will become a $6.7 trillion business by 2020, accounting for some 55 percent of global construction output, according to the “Global Construction 2020” report published by Global Construction Perspectives and Oxford Economics.

Increasing urbanization requiring companies, to meet the burgeoning construction needs of developing megacities will be one of the key trends fueling this growth. Independent research found that megacity populations are projected to increase by 20 percent by 2020. Accelerating globalization is another trend, as  research shows that not only will emerging markets double in size, but developing countries will grow by 36 percent. And, technology will play yet another major role in a potential global construction boom.

New technologies will drive greater sector innovation, enabling the reinvention of buildings and infrastructure, increased use of pre-manufactured modules, improved infrastructure monitoring for better predictive and corrective maintenance and new modeling systems  for the most efficient planning methods.  Although these developments will offer companies a wealth of new opportunities, they are just three of a number of trends that will impact the construction industry – bringing both opportunities but also plenty of challenges.

The Marketplace Ahead

Increasing funding and talent challenges, alongside growing energy and living standards needs will increasingly impact the construction marketplace in the years ahead. For instance, companies will increasingly need to draw project funding from a wide range of sources. In economically ailing developed countries, there will be growing scrutiny of public infrastructure investments. Although emerging economies are not facing the same budget deficit difficulties, they, too, will be pushing for more public-private sector partnerships. Access to capital from both public and private sponsors will become more challenging.

The war for talent will intensify as changing demographics and an aging workforce impacts talent hiring and staff retention in developing countries, and the need for qualified engineering talent grows globally, creating strong competition between construction companies in emerging and developed markets. Competition in general is expected to intensify as the growing appetite for specialist construction services attracts new, more nimble entrants and forces companies to diversify along the infrastructure value chain.

With regard to energy and living standards trends, an ExxonMobil report cited that pressures on energy will increase as global energy demand is expected to be 30 percent higher in 2040 compared to 2010, with the consumption of renewable energy requiring broader, more efficient infrastructures while providing opportunities to diversify within the energy landscape. Growing populations will mean increased responsibility relative to public health and sustainability. It will create a greater need for water and waste management, and there also will be a need for smart mobility in intelligent cities. Aging populations also will increase the need for more health services – all of which represents opportunities for the construction industry.

Companies will need to better position themselves to capture these opportunities. Construction industry high performers have been adopting three fundamental building blocks of high performance market focus and position; distinctive capabilities; and performance anatomy. More industry players will need to take these into account if they are to play a major role in satisfying the changing demands.

The essence of market focus and position in construction is targeting the right business at the right moment in the right market. Leading companies have bolstered their competitiveness by securing strategic positions in high-growth emerging markets, such as Brazil, India, Russia and China, capitalizing on domestic infrastructure opportunities. They also have morphed from pure construction firms into general, project management companies, providing full-service across the infrastructure value chain, from raising and structuring funding, through handling design to construction and lifetime operations and maintenance.

High performers also have developed distinctive capabilities by becoming highly efficient financial managers, providing dedicated teams focused on improving risk management and capital allocation. They do this while streamlining internal processes to ensure group-wide access to cash, improve debt/EBITDA ratios, and accelerate assets rotation as construction cycles change. At the heart of their performance anatomy is a balance between providing a highly efficient operating model with an approach to talent management that makes the most of collaboration. Companies that want to join their best performing peers need to take notice of this set of capabilities.  Construction companies need to establish new approaches to market positioning, risk management and capital allocation, operational efficiency and supply site management to capture growing opportunities and continue on the road to high performance.

Jordi Roca is managing director of the Construction Industry Group for Accenture, a management-consulting and technology services firm. He can be reached at jordi.roca@accenture.com.

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