Page 30 - Deconstructing risk
P. 30

Business model
and strategy
challenges

Construction is an industry in flux: ambitious firms pursue
growth in new markets, but must also contend with new
competitors and risks

      The way business is conducted                                    much lower composite risk score. This             “The availability of capital is linked to
                                      has significantly evolved,       suggests that industry players are             the economic slowdown and we see
                                      and global corporations          increasingly recognizing the benefits          that it’s a lot to do with oil prices,” says
                             have altered the macroeconomic            of portfolio diversification. While they       STFA’s Akkaya. “The government in
                             environment. To survive, companies        are wise to the complexities of taking         this region [the oil-producing Middle
                             must find a favorable position in the     on new business, there is clearly much         East] has difficulties in creating capital
                             shifting landscape. Consequently,         to gain from exploring new avenues. In         availability for new projects, which is
                             construction players must be flexible     other words, it is often worth the risk.       why many are on hold.”
                             and focus on efficient operations and
                             new market opportunities.                 Access to capital                              Diversifying the business model
                                                                       “Capital availability, funding and liquidity”  "The construction market is facing
                                A distinguishing feature of this       is ranked highly both by the construction      intensifying competition from new
                             megatrend is that the risks are hugely    industry overall and in individual regions,    and emerging players. Strategy
                             interconnected. “The threat from new      demonstrating that access to funding           is key,” says one respondent. An
                             and emerging competitors” ranks           will always be precarious. However, a          element of competition is welcome in
                             second overall; “capital availability,    few respondents report that, for them,         a market like construction, providing
                             funding and liquidity” ranks third;       the current situation is stable.               an impetus to grow and diversify. The
                             and “macroeconomic environment                                                           flip side is that a saturated industry
                             uncertainty and inconsistency”               “There is a lot of investment and           creates many challenges.
                             comes fourth. What’s more, their          funds coming in. This is good and bad,
                             causes and effects are intertwined.       because on one hand you have more                 As LeMay adds: “Competition is
                             These results also show widespread        equity left, but on the other we have          both a risk and an opportunity.”
                             concern: respondents in all               more competitors,” says Ferrovial's
                             geographies feel threatened by these      San Millan. In fact, the common opinion           Traditionally, major competitors were
                             challenges. North America stands          is that, while cyclical, the financial         like-minded companies, often based in
                             out, however, with five risks in the      environment is currently sustainable for       the same country and line of business.
                             top ten from within this megatrend,       many construction players.                     As global markets have developed,
                             and “capital availability, funding and                                                   however, new entrants have appeared
                             liquidity” in first place overall.           “Access to capital is pretty good           and shaken up the industry.
                                                                       at the moment,” says one executive.
                                Construction companies are             “We’ve got a pretty low interest-rate             “There is certainly a threat from
                             increasingly expanding into new           environment, and the banks are keen            global competitors. In order to
                             markets to grow and remain                to get involved in infrastructure.”
                             competitive, so it’s not surprising that
                             “necessity for increasingly diversified      Stuart Olson’s LeMay concurs: “We
                             business models” makes it in to the       have limited issues from a funding
                             top ten risks for the industry overall,   perspective with access to capital.”
                             and is closely tied with “the threat
                             from new and emerging competitors”.          Working in certain regions does
                                                                       bring more struggles, however. In oil-
                                “Challenges to enter new high-         rich countries, the recent downturn in
                             growth areas”, however, receives a        price per barrel has resulted in lower
                                                                       economic activity.
28 willistowerswatson.com
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