Large international contractors are finding an abundance of
work in the global market. However, competition is ramping up, and, in many
cases, financing can be a problem, forcing even the largest and most
sophisticated contractors to be nimble in squeezing out the most value from
their processes.
On the ENR Top 250 International Contractors list, firms are
ranked based on contracting revenue from projects outside of their home
countries, measuring their presence in international commerce. ENR's Top 250
Global Contractors list ranks contractors based on total worldwide contracting
revenue, regardless of the projects' locations.
The ENR Top 250 International Contractors had $543.97
billion in contracting revenue in 2013 from projects outside their home
countries, up 6.4% from $511.05 billion in 2012. The Top 250, as a group, also
had $871.50 billion in revenue from domestic projects in 2013, up 7.1% from
$813.55 billion in 2012.
Interestingly, 56% of the Top 250's total domestic
contracting revenue came from Chinese contractors, which are benefiting from
China's huge infrastructure and rail program. Further, China's economy may be
moderating somewhat, but its industrial and buildings sectors are still
vigorous. Three Chinese contractors—China State Construction Engineering Corp.,
China Railway Construction Corp. Ltd. and China Railway Group Ltd.—each are approaching
$100 billion in total contracting revenue.
On a regional basis, Canada continued to be the big winner,
growing 24.4%, to $27.49 billion, in 2013 contracting among the Top 250.
International contracting revenue also was up 19.9% in central and southern
Africa, 14.6% in Latin America, 9.7% in the U.S., 9% in Europe, and 5.7% in
Asia and Australia.
Surprisingly, contracting revenue for the Top 250
contractors was off by 7.7% in the Middle East. Less surprising was that
international revenue fell by 6.5% in strife-torn northern Africa.
‘Extremely Fierce’
Looking at the international scene overall, "we have a
very positive view of the markets," says Johan Karlström, chairman and CEO
of Sweden-based Skanska AB. Markets outside Europe "can represent
excellent opportunities and prospects for growth, particularly in Asia and
North America, although in some regions competition is extremely fierce,"
adds Yves Gabriel, CEO of Paris-based Bouygues Construction SA.
With over half its sales in France, VINCI Construction SA
aims to increase international operations, says Jérôme Stubler, who recently
became CEO. His goal "is to develop networks of subsidiaries, headed by
local managers, that are able to carry out projects on a general contracting
basis, often as an extension of specialist activities already present or major
projects already carried out in these markets."
Germany's Bilfinger (formerly Bilfinger+Berger) has put its
construction units on the block. With civil engineering sales down 75% since
2008, Bilfinger lacks needed critical mass for international work, Chairman
Roland Koch said three months ago. He recently quit after issuing two profit
warnings in quick succession.
Under the temporary chairmanship of Herbert Bodner,
Bilfinger likely will continue exiting from international construction to focus
on engineering and services. Preferring to sell the contracting business as a
unit, Bilfinger expects a deal within a year.
U.K.-based Balfour Beatty plc is also in flux. After making
its own U.K. profit warnings this May, the firm ditched CEO Andrew McNaughton,
who has yet to be replaced. Then, merger negotiations with U.K. contractor
Carillion plc over the past month floundered as the firms disagreed over
Balfour Beatty's U.S.-based design unit Parson Brinckerhoff Inc. Balfour is set
on selling PB to reduce debt, while Carillion wants to hold on to the design
firm's revenues.
With a merger off the table, Balfour Beatty now "will
be refocused as an Anglo-American construction and specialist services
group," the directors say in a statement. While continuing in East Asia
and the Middle East, the firm's operations will be simplified and its risk
profile improved.
Collapses
Several large international contractors failed over the past
year. In June 2013, Alpine Bau, Austria's second-largest contractor, filed for insolvency
under the weight of massive debt. Fellow Austrian contractor PORR AG acquired
the Austrian and German offices of Alpine, and Turkey's Renaissance
Construction acquired Alpine's Swiss subsidiary.
E. Pihl & Son declared bankruptcy in August 2013 after
124 years in business. Pihl, one of Denmark's largest contractors, ranked No.
154 on last year's Top 250 list. It cited as reasons for its bankruptcy overly
aggressive international expansion and greater-than-expected losses on some
foreign projects.
Lakeshore TolTest Corp., Detroit, which ranked at No. 144 on
last year's Top 250 International Contractors list, collapsed this past April.
The firm reportedly fired 79 overseas employees and 135 subcontractors by
email, stranding the terminated employees in Afghanistan and forcing them to
use credit cards and petty cash to get home (ENR 7/29 p. 16).
The global market is growing, but contractors are facing
increased pressure from clients to deliver projects more economically.
"Clients, globally, have become increasingly cost-conscious," says
Atul Punj, chairman of India's Punj Lloyd. He says the key to success is
technology. His firm has been able to succeed by providing value engineering
and economically viable solutions at the outset of projects, he says.
"The contracting industry keeps getting more
competitive and profit margins keep shrinking, mainly driven by changing
procurement policies," says M. Sani Sener, CEO of Turkey's TAV Airports
Holding. "In today's environment, firms have to be technically competent
as well as being commercially competitive. No company can afford to charge a
premium based on purely technical advantages," he says.
Further, Sener says many clients are increasing the use of
alternate funding methods. "Public-private partnerships and various
versions of [build-operate-transfer, or BOT] schemes are getting increasingly
popular, especially for large infrastructure projects, as the cost of funding
for such projects increases," he says. Many transportation projects in the
Middle East are being financed through P3s and BOTs, he notes.
While Balfour Beatty struggles to make money in its home
market, foreign contractors increasingly are attracted by British prospects.
VINCI's Stubler reports 8.3% growth last year in the U.K., which is the firm's
"most important market outside France." For Bouygues, the U.K. is
also one of its largest non-French European markets, says Gabriel.
After its painful recession, the U.K. is "maybe the
market where we see the biggest shift," says Karlström. "We have
doubled our order intake in the first half [of 2014] compared to last
year," he adds.
Bechtel's largest U.K. project, the London Crossrail, is
more than half done, but there is "still a lot of interest on the part of
our clients in further investment," says David Welch, the firm's president
for Europe, the Middle East and Africa. Huge investments in railroad and
airports are in the offing, he adds.
French construction has been buoyed by residential
investment in the Paris region, where there is "considerable potential for
major infrastructure projects," says Gabriel. But apart from some
megaprojects, such as the Tours-Bordeaux high-speed railroad, the current
French market is generally flat, Stubler counters.
As western Europe's hottest market, Sweden has attracted
many international players, says Karlström. There seems to be enough work to go
around, although the outcome of this September's general election could affect
spending, he adds.
Germany's Spanish-controlled Hochtief AG continues major
restructuring of its European operations. "We … are going to further
optimize our processes, [such as] in the area of project and risk
management," notes CEO Marcelino Fernandez. To focus on building and
infrastructure, the firm has sold its airports and services divisions and is
getting out of real estate.
Source: ENR
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