Growth in complicated times: PwC’s 19th Global CEO Survey in focus – implications for CEOs in the Engineering & Construction sector

27 April 2016

At a global level, we’re seeing a marked decline in confidence amongst CEOs in Engineering & Construction (E&C) companies. Highlighted by PwC’s 19th Annual Global CEO Survey, this builds on the pessimistic mood a year ago, when only 28 percent of CEOs were encouraged by growth prospects for the global economy. That’s dropped to 23 percent this year. What’s particularly interesting is that last year many CEOs in E&C companies were quite optimistic about prospects for their own businesses. This year, that’s also dropped quite significantly (from 41 per cent to 27 percent).

It feels like reality is starting to bite, in terms of the global economic outlook’s impact on day-to-day work-winning and order book issues. The slowdown we’re seeing in some of the developing economies is a key factor here. Many of these countries, which have had a significant construction spend in recent years, are closing the tap and becoming more challenging. And it’s not just China and Brazil. The downturn in commodities has hit construction activity in countries from the Middle East to Russia and Australia.

Our survey shows how government responses to debt levels and deficits are giving particular cause for concern. That’s understandable. A large proportion of construction spending is impacted by public sector investment in infrastructure.

Conversely, viewed from a UK perspective, prospects for the construction sector are comparatively bright. There’s a catch-up needed in infrastructure spend and the industry is in a healthier place than it was a year or two ago. I’m sure there’s a level of nervousness among UK CEOs with extensive operations overseas, but there are still a lot of domestic opportunities around.

There’s a strong feeling in the UK that Chinese money continues to be looking for a safe haven and there are still signs of assets being bought up. Some projects may take longer to get off the ground, and funding routes may be a little less clear than they were before, but I don't think that’s likely to have a massive impact on UK confidence. Certainly the sense I get is that people feel there’s enough work around. The residential market is relatively strong, interest rates are low and some of the bigger infrastructure projects like HS2 and the Thames Tideway Tunnel will soon be getting underway.

Turning back to our survey, another interesting message for the E&C sector is around technology. It’s fair to say companies in this industry haven’t always been leaders in adopting technological innovation. But we’re starting to see a shift. Eighty-eight percent of CEOs now plan to make changes in how they use technology. For example, Building Information Modelling (BIM) is being more widely adopted to improve efficiency through a project’s lifecycle (rather than just managing build costs). Technology will also increasingly impact off-site manufacturing. 3-D printing is a case in point. But, at a lower level, more companies are also using hand-held devices to record progress and improve billing processes.

E&C companies still face challenges when it comes to engaging with their clients (at the right level) on the whole issue of technology. This needs to change. It’s important that stakeholders start to recognise the full extent of what E&C companies can do, rather than simply seeing them as contractors who come in, do a job and move on.

This leads into another key issue: our survey shows that 72 percent of CEOs in E&C companies are concerned about a lack of skills. During the financial crisis a lot of engineers left the industry and now recruiting people of the right calibre, with relevant skills (and must-have digital capabilities), is emerging as a major challenge. If they’re going to attract the skills they need to grow, companies urgently need to improve how they communicate their technology know-how to the new generation of millennials.

Another important finding from this year’s survey is the noticeable step-up in disquiet about bribery and corruption – and its impact on business growth. This year, 65 percent of E&C CEOs identified this as a threat (up from 57 percent in 2015). Why is this? Along with increasing regulatory scrutiny of how work is won, companies are now much more keenly aware of the fragmented nature of their supply chains – and the risks these can create.

Summing up, the downbeat tone of this year’s global survey is out of step with the UK industry, where the fundamentals remain largely positive. The risk, of course, is that tough conditions elsewhere encourage more overseas competitors to enter the UK marketplace. That’s an eventuality companies certainly need to be ready to address.

Jonathan Hook | Partner, global Engineering & Construction leader;

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