GCC formwork companies are diversifying amid high competition
To boost their performance in a highly competitive market, formwork companies operating in the GCC region are changing the way they do business by adopting a more sustainable and consultative approach
In Deloitte’s GCC Powers of Construction 2017 report, Cynthia Corby described the region as having a “solid” projects pipeline with more than $2tn worth of developments in the planning stage, adding that construction is the largest sector, with a project pipeline valued at more than $1tn.
Corby, who is audit partner and infrastructure and capital projects leader at Deloitte Middle East, stated: “Whilst business conditions are tougher today and project activity has been slowing down since 2015, the construction industry in the […] region will sustain its workflow going forward. This will be driven by economic and demographic needs, initiatives associated with the Saudi Vision 2030, Abu Dhabi Economic Vision 2030, [and] Dubai Plan 2021 […], as well as tourism-related projects and the commitment from governments towards infrastructure investment.”
She went on to point out that in the Gulf, Dubai – driven by efforts towards building a tourism industry and delivering Expo 2020 – continues to be regarded by contractors as a “bright spot”, owing to having more projects either under development or in the pipeline than other markets.
Although being seen as the “bright spot” in the regional construction industry reflects well on the city, its appeal as a market is said to be posing as a challenge to companies in the formwork sector.
At an industry roundtable hosted by Construction Week in Q4 2017, Chris Jardine, managing director for the UAE at RMD Kwikform Middle East, said: “Contractors in the UAE seem to be picking up work with small profit margins, and I think that’s compounded by other regional markets – such as Saudi Arabia, Oman, and Kuwait – being down. This situation has created excess capacity in the formwork supply chain.
“I read somewhere that the Dubai property market has been a ‘shining light’ in the region, but I think it’s been more of a beacon, attracting regional suppliers into the market.”
Steven Magowan Robinson, business development manager for the Middle East region at MFE Formwork Technology, expressed his agreement with Jardine at the event, explaining: “There are now so many competitors in the market, even in our niche section [of residential developments].
“When we’re pricing projects, we’re up against five or six aluminium formwork companies, which [wasn’t the case] in the past. But there’s really only Dubai in the UAE that is [pushing ahead with high volumes of] building work. The market is tight for us all. The days of big margins are long gone, and will probably never return.”
To stay competitive in what is fast becoming a saturated formwork market, MFE is “now focussing on the reusability of [its] products”.
“Contractors are trying to cut their overheads so that they can price to win projects,” said Robinson. “As such, we’re trying to help them to reduce their outgoings so that they can [succeed] and, in turn, give us work. This means working in a more consultative capacity than we have in the past. The sales focus has changed from quality and speed to reusability and long-term returns on investment. That seems to be where [market requirements] have migrated over the last couple of years.”
Echoing Corby’s assessment of the different Gulf markets, Joe Farina, general manager of Meva-KHK Formwork systems, tells Construction Week: “The UAE remains the busiest market in terms of gross domestic product. However, each country within the GCC has its own medium- to long-term economic strategy, such as UAE Vision 2021 and 2030, and Saudi Arabia 2030.
“The common goal in all these countries’ strategies is diversification, [which will] in turn create opportunities for the construction industry, with growth of leisure and tourism being a good example.”
Also acknowledging the significant impact of Expo 2020 Dubai on the industry, Farina notes that the upcoming mega event is creating “a lot of focus on deadlines and completion dates across the construction and infrastructure landscape”.
Meva-KHK, according to Farina, witnessed “positive and strong” demand for formwork systems and services in 2017, specifically in the market sectors it operates in. But, like his peers, he recognises that the GCC market is not without its share of challenges.
Indeed, he identifies three issues that he thinks are affecting formwork companies doing business in the GCC: political instability, disagreements over payment terms, and the teething troubles of a new tax system.
“Political stability is important to enable businesses to operate effectively and to plan long term,” says Farina, adding that when it comes to the second issue, industry stakeholders need to work better at making payments “against contract terms and conditions in order to sustain supply of products and services to the client”.
Elaborating on his point about value-added tax, Farina explains that companies currently have to contend with initial set-up costs, in addition to the ongoing administration requirements of the new tax system.