BIG PICTURE

BIG PICTURE

The global construction industry is evolving. Growth opportunities in emerging markets, new funding mechanisms, and customer demands are driving the industry’s players to diversify, both geographically and in terms of their offerings. Today’s high performers have diversified more than most, developing more efficient and customer-focused operating models to help them.

To compete, companies will need to maintain new approaches to risk management and capital allocation, operational efficiency, and supply chain management. They will need to develop novel ways of attracting, retaining and deploying a mobile and multilingual workforce with relevant skills.

As the industry continues to evolve from B2B to B2B2C—these strengths will become even more critical differentiators for the high performers of tomorrow.

PwC has sponsored a new report – Global Construction 2030 – which forecasts that the volume of construction output

will grow by 85% to $15.5 trillion worldwide by 2030, with three countries, China, US and India , leading the way and accounting for 57% of all global growth.

The benchmark global study, the fourth in a series from Global Construction Perspectives and Oxford Economics, shows average global construction growth of 3.9% pa to 2030, outpacing that of global GDP by over one percentage point, driven by developed countries recovering from economic instability and emerging countries continuing to industrialize.

China construction growth is to slow considerably with a slump in housing and the first ever decline in housing output for China will be registered this year. But, its transition to a consumer and services driven economy provides opportunity for growth in new types of construction in healthcare, education and social infrastructure, as well as retail and other consumer end-markets. The abolition of China’s one-child policy adds impetus to the long-term view.

The construction market in India will grow almost twice as fast as China to 2030, providing a new engine of global growth in emerging markets. India’s urban population is expected to grow by a staggering 165 million by 2030, swelling Delhi by 10.4 million people to become the world’s second largest city.

“Whilst there is an interesting relationship between the top three countries, it is important not to forget that we see significant weakness in Brazil and Russia, whilst we see extraordinary growth in Indonesia. In Latin America, we expect Mexico to overtake Brazil, whilst Indonesia will overtake Japan by 2030, says Jeremy Leonard, Director of Industry Services, Oxford Economics.

When it comes to Europe, whilst it won’t recover to reach pre-crisis levels until 2025, the UK is a stand-out growth market, overtaking Germany to become the largest in Europe and the world’s sixth largest construction market by 2030.

“Construction is likely to be one of the most dynamic industrial sectors in the next fifteen years and is utterly crucial to the evolution of prosperous societies around the world. The numbers within this report are huge and that translates as creating vast numbers of new jobs and creating significant wealth for certain countries across the globe”, says Fernando A. González, Chief Executive of global building materials company CEMEX.

Technology is being cited as the boom that the construction industry needs in the midst of fears that the sector is vulnerable to economic collapse during the current post-Brexit climate. The hope is that embracing technologies will help improve efficiencies, reduce costs and also further progress health and safety levels.

Technical challenges specific to the construction sector have a role in the slow pace of digitization. Rolling out solutions across construction sites for multiple sectors that are geographically dispersed—compare an oil pipeline, say, with an airport—is no easy task. And given the varying sophistication levels of smaller construction firms that often function as subcontractors, building new capabilities at scale is another challenge.

However, none of this is going to get easier. Projects are ever more complex and larger in scale. The growing demand for environmentally sensitive construction means traditional practices must change. And the shortage of skilled labor and supervisory staff will only get worse. These are deep issues that require new ways of thinking and working.
KPMG jointly surveyed both project owners and engineering and construction companies on a number of current issues to understand whether their views are aligned or whether there are marked differences.

Findings

The industry is yet to fully embrace technology

Despite a rise in project complexity and associated risks, a mere 8 percent of respondents can be categorized as ‘cutting-edge visionaries.’ And just over 20 percent say they’re aggressively disrupting their business models.

Data volume is rising exponentially — but many are struggling to make sense of information
They may have an impressive range of platforms and tools, but most respondents feel they lack the resources and skills to provide useful insights. And almost three-quarters don’t use advanced data analytics for project-related estimation and performance monitoring.

Integrated, real-time project reporting is still a dream rather than a reality
Most executives in the survey say their organizations are held back by manual processes and multiple systems. Just 20 percent have a single, fully integrated project management information system (PMIS) across the enterprise.

There’s more to come from mobile

Although mobile technology has huge potential for construction projects, less than one-third of respondents say their organizations use it routinely — and a similar proportion have no mobile platforms.

A majority of executives in this year’s survey feel their organization’s project controls are “optimized” or “monitored,” but this hasn’t halted the continued high rate of project underperformance. The inability to drive consistency across projects is part of the problem: just 27 percent say their companies have truly consistent controls globally. Respondents also recognize the benefits of Earned Value Management (EVM) as a way to measure cost and schedule performance; but a sizeable proportion — 41 percent — still don’t use it.

To benefit from trends in the construction industry, Accenture recommends that companies look at adopting new construction industry strategies to better position themselves to manage the supply side and capture the increased demand.

The international consensus on sustainable economic development gained momentum in 2015, culminating last December in Paris with a broad global accord on reducing the level of greenhouse gases.

While business groups, development banks, and governments have all pledged significant increases in funding and research for sustainable infrastructure, the scale of the challenge is enormous: from 2015 to 2030, global demand for new infrastructure could amount to more than $90 trillion,1almost double the estimated $50 trillion value of the world’s existing stock. That means we will literally be rebuilding our world over the next 15 years.

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www.assets.kpmg.com
www.mckinsey.com

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