2012 KPMG Global Construction Survey:
Construction companies to meet infrastructure demand
The Great Global Infrastructure Opportunity surveyed 161 engineering
and construction companies around the world with revenue ranging from
US$ 250 million to more than US$5 billion.
“With increased scale comes complexity as global industry players
navigate a tough political, commercial, regulatory and governance
environment which will test their risk management ability to the maximum
extent,” said Geno Armstrong, KPMG’s International Sector Leader,
Engineering and Construction and a partner in the US firm.
Just over 40 percent of respondents globally anticipate that the
energy sector offers the greatest opportunity for revenue in the next 12
months.
Second behind energy were roads/bridges tied with residential at 24
percent, followed by rail and mining. Nearly 60 percent of respondents
from the Americas believe the energy sector will have the biggest impact
on revenues, followed by retail projects. Respondents from Asia Pacific
and Europe, Middle East and Africa (EMEA) also see energy as their
biggest revenue producers.
In Asia, respondents see the second biggest revenue opportunity in
the industrial sector, while in EMEA, roads/bridges ranked second. “The
demand for firms and individuals with sector-specific engineering and
construction skills will rise as [power] projects proliferate around the
globe,” said Peter Kiss, KPMG’s Global Head of Power and Utilities and a
partner in the Hungarian firm. “This should prove to be a major source
of income for the industry as a whole.” While 49 percent of respondents
expect their backlogs will grow from 5 percent to over 15 percent in the
next year, 71 percent of respondents cite economic uncertainty as their
biggest ongoing concern followed by a skills shortage (31 percent) and
thirdly, government deficits (30 percent). Sixty-two percent said that
they expect margins on current bids to remain unchanged from their
current backlog.
Fifty-seven percent said their revenues in 2011 increased from 2010,
with the Asia Pacific region seeing the greatest growth (72 percent)
followed by EMEA (53 percent) and then, the Americas (41 percent).
Creating Efficiencies
To mitigate risk, manage project complexity and effectively meet the
anticipated increase in demand, companies are seeking solutions to
address efficiencies in their procurement/supply chain.
Nearly 60 percent of respondents say improvement in this area will
improve profits and enhance cash flows. Almost 40 percent of respondents
say the primary cause of inefficiencies in their supply chains were
disparate processes and systems. Cost cutting still remains a challenge
for companies as well, with organisational culture seen to be culprit
for implementing the cuts for 61 percent of respondents globally, and 78
percent in the Americas.
And a surprising 17 percent of respondents globally said that cost
reduction was not a priority at all. Survey respondents acknowledge that
IT optimisation is critical to improving efficiencies, yet 50 percent
say that overhauling IT systems takes too long and costs dearly.
Others (30 percent) say that there are not enough ERP packages
available that are tailored to the construction sector.
“IT investment doesn’t come cheap,” said Douglas Gates, Principal,
KPMG in the United States, Advisory practice. “Nevertheless those brave
enough to fund major IT enhancements are now reaping the rewards of
great centralization and transparency across their supply chains.”
Risk Management with projects anticipated to become more complex,
maintaining margins and mitigating risk are major concerns for most
respondents.
Globally, 45 percent of respondents say that quantifying risks is the
chief concern; in the Americas, 52 percent of respondents say that
identifying risk is the main focus and nearly 50 percent said they want
to understand the link between strategy and risk. “Despite considerable
investment, risk management still comes up a bit short,” Armstrong said.
“Our survey revealed that nearly 54 percent of respondents said they
failed to identify upfront issues that later caused margin erosion and
only 36 percent believe that their project review processes are very
efficient.”
Barriers to Investment what respondents say may be the primary
barriers to public-private partnerships in infrastructure investment is
a perceived lack of policies, leadership and investment by the public
sector as well as a lack of initiative in the private sector.
Less than half (47 percent)of respondents believe government policies
will have a positive impact on investment, which is roughly equal across
all three regions, with Asia Pacific being the most positive (49
percent) followed by EMEA (47 percent) and the Americas (41 percent).
Moreover, respondents showed concern about the public sector’s
ability to drive infrastructure investment with 80 percent of
respondents globally saying that lack of leadership will hamper
investment.
And while respondents globally anticipate that energy (34 percent)
followed by transportation (33 percent) will likely attract the most
private sector investment for their companies, two-thirds see a lack of
private sector initiative as another barrier to investment.
Fifty-six percent of the America respondents see transportation as
having the biggest appeal for investment. “With austerity policies in
many countries constraining the scope for public sector spending, it is
vital to create an environment that encourages private sector
investment,” Armstrong said. Commenting further on infrastructure
investment, Nick Chism, KPMG Global Head of Infrastructure said: “As
governments around the world seek to create 21st century infrastructure,
they need to create an environment that encourages private sector
investment.
This means addressing regulatory and legislative barriers and showing
the kind of long-term will that transcends immediate political
popularity.”
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