Major Industry Trends
The construction sector is in an interesting phase of its evolution, not quite yet global in nature, but with some players active in more than one national market and the largest players becoming involved in multiple projects in Europe, North America, and Asia, particularly China. The sector includes companies from the smallest to the largest. At the bottom of the scale are small house-builders, followed at the mid-range by regional and national companies capable of handling multiple projects within one country, to larger players with specialist interests, for example in shopping mall construction, or office blocks, operating in multiple countries. The industry has a clear overlap with civil engineering on infrastructure projects, particularly where groundworks and ground preparation for site construction are concerned.
The sector, of necessity, works in partnership with a range of other professions, such as architects, quantity surveyors, and structural engineering consultants, who may be external to the construction company, or part of the company. Legal and financial advice on contracts, joint ventures, and project financing, as well as on litigation are also essential services for the sector—the construction sector is associated with more than its fair share of litigation.
After a number of boom years, the global downturn started to have a real impact around August 2008, and had a severe effect on the sector across the developed world, in all areas except public works and infrastructure. By 2011, the construction sectors of most of the developed markets were still lagging behind other sectors, with severe repossession and vacancy rates in the US housing market and in a number of European countries preventing the sector from moving forward.
The housing sector crash that followed the bursting of the housing and speculative commercial building bubbles sent numbers of smaller house-builders into administrative insolvency while larger construction firms have implemented layoffs, which, in many instances, will damage their ability to go forward rapidly when the upturn finally arrives.
The stimulus packages that were implemented by governments globally all had as a common theme the idea of bringing forward or initiating major infrastructure projects to pump public money into the economy. However, infrastructure is not a market in which the smaller players can get involved so government programs have brought only limited relief to the vast bulk of the construction sector.
The industry also has a clear and very close relationship with related industries specializing in building materials, including cement, plastics, wood, steel, and glass, as well as innovative new product types, with particular strength, thermal, or low-maintenance properties.
The industry has always had a tendency to be national and local in its focus, rather than massively cross-border, though in Europe there is an increasing trend towards cross-border joint ventures in projects such as shopping mall construction.
There are huge difficulties in the way of construction companies moving outside their own national “turf.” Every country has its own planning laws, building materials laws, and building regulations for residential, office, leisure, retail, and industrial building. Moreover, construction is very materials- and skills-intensive, and bringing materials to the site and organizing the necessary skills, labor, and project management is a challenge for one location, never mind for multiple locations in multiple jurisdictions.
Cross-border construction projects provide a way of ensuring that local knowledge is applied and provides the incoming company with a way of acquiring a sufficient base of experience in the new jurisdiction’s regulations and requirements. These projects can be expected, over time, to result in a more international sector as various players build up the necessary network of relationships to make building outside of their home country feasible, and tendering for projects in foreign states a practical proposition.
For this reason, many international infrastructure projects tend to be project-managed by large civil engineering companies, who may use their own construction arms, or a range of large and smaller local construction companies, or some combination of all of these to get the job done.
While both the residential house-building and commercial office markets in the United Kingdom and Europe are in deep recession at present, 2009 was a vintage year for the launching of grand infrastructure projects in Europe and the United States. Italy, for example, has revived one of Prime Minister Silvio Berlusconi’s top projects, the Messina Bridge, which will have a central span of 3.3 km. Once completed, at a projected cost of €6.1 billion, the Messina Bridge will be the longest in the world, and will link the island of Sicily to the Italian mainland’s Calabria region. It is to be part of a €17.8 billion public works program announced by the Italian government in March 2009, designed to counteract the effects of the global slowdown on Italian jobs and the Italian economy.
The new spending is a supplement to the €16.6 billion on new infrastructure spending announced by the Italian government in November 2008, to include new schools, prisons, and a flood barrier for the ancient city of Venice. Before the original Messina Bridge project was canceled by the short-lived Socialist government, it involved a truly international consortium of construction and civil engineering companies, including Italy’s Impregilo, Condotte, Aci Consorzio Stabile, Cooperativa Muratori & Cementisti (CMC), and Impresa Grassetto, alongside Spain’s Sacyr Vallehermoso, and Ishikawajima-Harima Heavy Industries (IHI) from Japan.
One of the biggest construction projects in Latin America at present is the US$5.25 billion expansion of the Panama Canal to accommodate modern vessels that are longer and wider than was the case when the canal was originally built. The expansion program includes the construction of new locks on the Atlantic side, on the east side of the Gatun Locks, and on the Pacific side, to the southwest of the existing Miraflores Locks. It also involves the excavation of new access channels and the widening of existing channels, plus a modest raising of the level of Lake Gatun to accommodate the additional flows of water into the new locks at each locking. Already, three consortia of international companies have put in bids to construct the lock basins, which will take around half of the projected budget.
However, much of the globe’s infrastructure spending is now being undertaken by emerging economies, and Western companies are fighting to gain contracts in countries such as China and India. In 2010, Indian Prime Minister Manmohan Singh said that India needed to double infrastructure spending from US$500 billion to US$1 trillion in the next five-year plan if the country’s plans to lift millions out of poverty are to be successful, beginning in 2013. Roads and highways are a particular focus of attention, and the government’s highways minister Kamal Nath has set himself a target of 20 km of roads per day from June 2010, meaning 7,000 km per year, and 20,000 km of work in progress. It could easily be the biggest and the most ambitious infrastructure roll-out in the world.
China has pledged to spend US$585 billion on infrastructure in 2010 and 2011. Projects include building a bridge almost 50 km across the Pearl River delta from Hong Kong to the city of Zhuhai, adjoining the former Portuguese colony of Macau. The bridge, costing about US$7 billion, and which for much of its length will soar 200 meters above the waterway leading to some of China’s busiest ports, is expected to be completed in 2016.
Market Analysis
Building Materials—Industry Trends
The building materials sector is extremely diverse and constitutes a sizeable chunk of the industrial base of developed countries. It includes a highly diverse range of suppliers, from cement manufacturers (an area that is under tremendous pressure to both innovate and to “green up”), to specialty glass and steel manufacturers, as well as providing a large market to white goods manufacturers, furniture manufacturers, paint and wiring manufacturers, and a host of other related industries.
One of the biggest boosts for the building materials sector is the seemingly endless raising of the bar by various national planning departments on “green” building. The green building materials market was worth some US$60 billion in 2009 in the United States alone, with the residential market being a major driver. One of the biggest segments of this market is the green floor-coverings sector, with renewable products such as woven floor coverings, bamboo, or cork being in huge demand.
Another growth area is concrete production from recycled materials, such as ash from power furnaces (source: Freedonia Group). Wood from proven, sustainable forests is another area that is set to boom, as are water-efficient plumbing fixtures and energy-efficient lighting fixtures, both of which should see double-digit growth every year to 2013, according to a Green Building Materials report by market analysts the Freedonia Group.
In the residential homes sector, construction companies are often pulled in opposing directions simultaneously by regulations when it comes to innovations in building materials. On the one hand, anything that helps to “green” a home, by improving its thermal efficiency, or lowering its energy consumption, is regarded as good. On the other hand, local planning offices tend to be very prescriptive on the kinds of materials that are regarded as suitable, and it can be an uphill struggle for new materials to gain acceptance.
There are ways around this. Australia, for example, has a Building Products Innovation Council, whose job it is to promote the most efficient and innovative use of building products across the sector, while still seeing that construction companies adhere to a consistent regulatory framework for building. The council includes senior representation from across the spectrum of the building materials and products side of the building industry, which ensures that the council stays abreast of new product innovations.
The construction sector is, in many ways, both an ideal test bed for scientific innovation, and a powerful economic driver of innovation; successful products can be taken up in enormous quantities on a worldwide scale. The range of innovation opportunities is as broad as the designer’s imagination. One company that specializes in building product innovation, DuPont, has products on offer that range from new materials to construct “storm rooms” to keep families safe in high-risk tornado and hurricane areas, to kitchen counter tops, such as its Zodiaq range, which incorporates quartz crystal to create an exceptionally durable and scratch-resistant surface. Many innovations address thermal loss from homes to make them more energy-efficient. Phase-change materials, for example, release or absorb large quantities of heat when changing state from one phase to the other. Companies such as BASF and Ciba, which specialize in surface coatings, have come up with micro-encapsulation waxes that enable glass manufacturers to incorporate phase-change materials into window construction (see, for example, www.esbits.com, from PCM Innovations).
Innovation need not be limited to new building materials; it can also be innovation in the way standard materials are used. The German Passivhaus standard (see www.building.co.uk) is a low-energy house, built around a set of principles applied to building design. There are some 15,000 Passivhaus builds in the world, and the design principle is promoted by the Passivhaus Institute in Germany. The core is a super-insulated, airtight envelope boosted by the use of glass to promote solar gain, and the result cuts heating requirements by up to 85%.
Home and buildings designers and planners have to think about both materials and the building regulations that are likely to appear in a world dominated by calls for action to cut carbon emissions. Current building requirements are likely to be amended further, almost year-on-year, to minimize the impact of the built environment on the planet, which means cutting emissions and energy usage. We are at the dawn of “smart” buildings, which react both to energy usage and to the needs of occupants, but many leading architects and designers are already thinking about zero-emissions buildings, or massively taller buildings, or buildings that are themselves virtual “cities”—all concepts that will provide a fertile ground for innovation in building materials.
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