MENA key to expansion of global construction firms

Global construction, engineering firms look to MENA for growth.

A total of 46% of respondents were from Europe and MENA.
A total of 46% of respondents were from Europe and MENA.

Global engineering and construction companies are looking to the Middle East, Asia, Australia, Africa and India to expand internationally as they seek to increase market opportunities.

This is one of the findings from the new KPMG 2010 Global Construction Survey entitled ‘Adapting to an Uncertain Environment’.

The survey indicates that the lingering economic downturn and associated constraints have generated a growing movement among global engineering and construction companies to create stronger, more resilient business models that can weather change and manage risk.

According to the survey, 77% of respondents said they now have sophisticated systems to manage risk effectively. Many also said they are creating new integrated services offerings or expanding overseas to increase market opportunities.

The willingness of contractors to move into new markets, and possibly to evolve their value proposition, could be the difference between thriving and merely surviving. With margins unlikely to rise for traditional business, such a repositioning could be vital.

Close to half of respondents have forecast rising backlogs in 2011 that would come from pent-up demand; expansion into new services, such as power; or moving into additional geographies, such as the Middle East, Asia, Australia, Africa and India.

Asia Pacific demonstrated the most promising outlook in backlogs in 2011, with 21% of respondents confident of a significant increase.

Other findings include indications that few companies expect to lay off workers in 2011, while 31% said they will likely hire more direct labour in that period. Margins have taken a cut over the last year, as most respondents said they had to reduce prices.

However, the impact has been lessened due to cost-cutting measures. Looking ahead, more than 30% said they are bidding on new projects with lower margins, but that factor is offset by the sentiment that backlogs are predicted to rise dramatically.

KPMG partner and head of building, construction and real estate, Middle East and South Asia, Ernst Weber, said that engineering and construction companies that are making major improvements to their businesses will provide a strong foundation for future growth.

"The future is far from certain, but continuing to invest in risk management, expanding into new areas and building a skilled staff are critical steps that can help weather any change," said Weber.

The survey polled 140 senior leaders of major global engineering and construction companies in 25 countries to gauge their views on their business outlook for the sector.

Forty-six percent of the respondents were based in the Europe, Middle East and Africa; 30% from Asia Pacific and 24% from the Americas.

With signs of economic improvement on the horizon, engineering and construction companies are looking at ways of funding their geographic expansion and new offerings. Credit is still tight, with 47% saying that financing is still very difficult to obtain.

Many respondents, mostly those outside the US, consider public-private partnerships (PPPs) to be a good bet for the industry if there is government backing.

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