How to make construction central to the region's recovery?
Creation Business Consultants MD, Scott Cairns, advises what firms can do to push for market growth
Like many other sectors, construction is facing challenges in the Middle East. Project delivery delays, supply-chain issues, manpower limitations and fee restructuring have all contributed to a slowdown.
However, this vital sector still has the power to lead the region’s recovery and emerge in a stronger position post-pandemic.
What’s crucial is that construction companies plan for the next phase now by adapting their model to prepare for growth and capitalise on future opportunities, such as the rescheduled Expo and major infrastructure projects in places like Saudi Arabia.
Focus on technology
Digital transformation is one crucial step companies can take now. The transition to digitise operations has accelerated across all sectors in recent months, starting at a government level.
Authorities introduced new technologies and procedures to facilitate business continuity, including various engineering processes. But it’s up to companies to take this further if they want to remain competitive and avoid the pitfalls of another cash crunch.
Construction has been arguably slower than other industries to embrace the widespread use of technology, and there needs to be more focus on increasing efficiency with digital solutions.
For example, web-based platforms that support remote working and collaboration between stakeholders, the development of apps to monitor progress, machine learning to mitigate risks, drone surveys, and 3D modelling tools to execute more of the physical work off-site.
Expanding capabilities through collaboration
There have been a number of mergers and acquisitions in the region lately. Most notably, for the construction sector, the news that Meraas will become part of Dubai Holding.
The Dubai Media Office talked about the two companies combining “a complementary suite of services and expertise” and certainly M&As are a good way to solidify interests and expand service levels as opposed to cutting costs and reducing capabilities.
There are also opportunities to forge less formal alliances, creating the benefit of shared overheads and resources, as well as opening up previously untapped revenue streams from a new client base.
Excellence in the supply chain
Clients want partners who look after their supply chain; it’s seen as a differentiator if contractors take steps to create a sustainable environment that prioritises the wellbeing of all parties.
It was already a growing trend and has become more apparent in the wake of COVID-19. Rather than applying an aggressive commercial approach forcing down supplier prices, it pays to invest in long-term relationships based on mutually beneficial terms.
Some of the moves being taken include appointing independent auditors to assess the workplace conditions on-site and rewarding suppliers for good performance. This is where contractors can demonstrate to clients how value is being added in a more holistic way.
Restructuring to retain control
If the recent crisis has proved anything, it’s that there’s always a leaner way of doing things. While most businesses have moved quickly to preserve liquidity and cut spending, it’s important to take a deeper look at the overall structure.
The more streamlined things are made now, the more agile you’ll remain as conditions improve.
For example, combining multiple trade licenses and business activities together can save a significant amount of money, and groups that operate across the whole region with more than one local sponsor may be paying way above the odds for corporate sponsorship fees.
Saving in these areas, rather than making personnel cuts and losing good staff who will be integral in the future, should definitely be examined.
Benefits of a buyer consortium
Building a buying consortium with like-minded businesses is a good way to combine purchase requirements and obtain discounts based on economies of scale.
Different models are available for collaborative procurement, including buyer cooperatives and consortiums.
Additionally, it could prove more cost-effective to ask for input from the contractor earlier on in the project than usual and benefit from their insights into price point and local availability.
For those companies that have purchases of goods or services making up the majority of their COGS, the magnified buying power of joining a consortium could squeeze a few percent off this cost.
The results should flow directly to the EBITDA of the business, which depending on the size, could result in an additional return to shareholders in the hundreds of thousands of dollars.