Modern promotion trends in construction industry and how to remain aware of them
11 Jul 2017 - Posted by smart Posted In : Business Development,
The construction sector in the US and Canada has grown along with the private sector growing its investment footprint in both highway and commercial projects. Other investment projects like water & sewerage, public safety that have been steered by the local and federal government funds have been declining with time.
Most Engineering and Construction companies are trying to interpret the information that is coming out of the new US administration regarding the proposed infrastructure spending program.
Let us look at three pertinent trends that are reshaping the market in 2017
1.The continuing market consolidation
The first trend will have to do with M&A. The volume of Mergers and Acquisitions in Engineering and Construction has dropped due to the rising uncertainty between buyers and sellers. Buyers have been noted to watch the oil prices and spending on infrastructure, as they hope to buy when the price reaches the bottom. Sellers, on the other hand, are trying to hold on until a rebound happens in the market. However, the long-term out lookers expect to see market consolidating and bouncing back for two solid reasons. The downturn that has occurred recently has impacted smaller firms negatively compared to the bigger firms. Multiple steps like cutting overhead costs and restructuring the price structure has left nothing unturned for many E&C (Engineering and Construction ) firms. Although the prices of oil has stabilised, E&C firms will not benefit for the next few years until when the capital will find its way to energy companies planning cycles and be evident in the capital structures.
Two, larger companies are facing pressure from analysts, shareholders and other market participants to create more value. Consolidation is a great solution to a flat market. Companies will be seen to diversify in this time and stabilise their revenue streams to make acquisitions E&C firms expand in their services.
2.Competing E&C players from Korea, India and China will grow
Another major trend is the global growing of firms. Rapidly growing economies have focused on their own markets to build up cash positions and their own expertise. Now, as home markets growth increases, they are expanding outward to compete with global firms.
The expansion of these companies will require them to purchase assets and build capabilities. They will begin to bid for large projects in developed markets, adding a new layer of pressure and competition for established players.
The Chinese and Korean companies can go for mega projects where modular elements can be done at home and shipped to either the US or Canada which is the job site for assembly. This is due to their lower cost that attracts most buyers. Established players will win contracts but they will have lower margins than what they previously got.
3.Contracting will get tough
Management teams are getting new challenges as contracting is changing in many ways. Clients in private and public sectors and becoming sharp on the actual costs of projects as they look to benefit from the bidding competition. Eventually, they tend to demand LSTK contracts, over the next year, we expect the trend to continue.
LSTK contracts are becoming the fishing ground for top E&C firms, but many have not adapted completely. Some firms are soaking in the risk but not monitoring effectively the additional contingency costs.