Global overview of the heavy construction industry

The Heavy Engineering Construction industry is comprised of operators that provide new and existing
work for large construction projects, including major engineering projects such as the construction of new
ocean navigational channels, beach dredging, mass transit construction and land development. The
industry also includes specialty trade contractors, if they are primarily active in activities related to
engineering construction projects. Construction projects include waterworks, marine facilities
development and open space improvement
This industry performs activities on heavy and civil engineering construction projects. Typically, these
activities are not performed on buildings, but are rather inclined to focus on infrastructure-related projects.
The sector can be broken down into the following segments: water and sewer, conservation and
development, as well as power, communication and transportation infrastructure construction. More often
than not, the implementation of heavy and civil engineering construction projects goes hand in hand with
political decision-making, and government expenditure is an important driver of growth for the industry. As
a result, the sector is in somewhat of a downturn caused by cuts in government spending in many
countries. Over the next couple of years, public-private partnerships are projected to play an important
role in the heavy and civil engineering construction industry, both in emerging and developed markets.
Currently, being active in the Chinese market is the key to success for infrastructure construction
companies.
Heavy and civil engineering construction projects are often designed, financed and supervised by general
contractors. The worlds leading construction companies include Bechtel, Spains ACS Group, Frances
Vinci, Germanys Hochtief and Chinas CRCC (China Railway Construction Corporation).
According to a 2014 report by PriceWaterhouseCoopers, spending on global infrastructure will grow from
$4 trillion annually in 2012 to $9 trillion by 2025, with total spending during that period expected to reach
$78 trillion. Bloomberg.com's "Industry Leaderboard" estimates revenue of companies directly involved in
this industry at nearly $1.5 trillion annually.
The U.S. Bureau of Labor Statistics reports that total U.S. employees in the "Heavy and Civil Engineering"
subsector of the construction industry number over 918,000. Significant companies in this industry can
rack up annual revenues in the tens of billions. For example, Fluor Corp. generated $27.4 billion in
revenue in 2013. Privately held U.S. firm Bechtel, one of the world's leading civil engineering companies,
disclosed 2012 revenues of $38 billion. China Railway Construction Corporation added an eyebrowraising $95 billion to its top line in 2013.
The clients of heavy construction and engineering firms tend to be federal and state governments, cities
and municipalities. Procurement, the process by which such organizations bid out and award projects,
can be exceedingly complex and competitive at this scale. Profits are realized in some cases over a span
of years, and final profit margins can be slim, averaging just 2.5%.
To a greater degree than in related industries (e.g., residential construction), work proposals require
extensive estimates. Proposals based on companys best guess as to costs of labor, materials, and
subcontractors often get submitted years in advance of performance and are typically signed as fixedprice contracts. As a result, long-term revenue and profit in this industry involve inherent uncertainty. For
example, when discussing the risk of cost overruns in its 2013 annual report, Fluor Corp. stated that
approximately 20% of its backlog value was tied to fixed-price contracts. Needless to say, successful
companies develop fairly precise pricing and economic models to provide a margin of safety in project
proposals.
According to BMI Research, it is forecasted that the global construction sector to expand in real terms by
an annual average of 3.2% within the period of 2015-2024 to a nominal value of more than USD 6.0tn.
The driving force behind this are the Asian construction markets, which will cement the regions position

as the largest construction market in the world over the next decade, as governments look to develop
infrastructure that has seen years of underinvestment in an effort to unlock more sustainable economic
growth. While North America and Western Europe (NAWE) will expand at a relatively slow pace. Other
regions such as Latin America, Central Eastern Europe, the Middle East and North Africa as well as
Sub0Saharan Africa will register robust growth, as governments remain committed to infrastructure
investment.
http://www.bmiresearch.com/news-and-views/global-construction-outlook-2015-2024-cementing-asiasdominance

http://www.ibisworld.com/industry/default.aspx?indid=181
http://www.fool.com/investing/general/2014/10/23/the-heavy-construction-industryinvesting-essentia.aspx
http://www.statista.com/markets/941/topic/943/heavy-construction/

Global Construction Industry Overview

The macroeconomic environment and consumer trends are making a deep impact
on the construction industry. Over the next decade, the global construction industry
is expected to grow and nowhere more strongly than in the rapidly emerging
economies of Asia, Latin America, the Middle East, Africa, and Eastern Europe.
Fuelled by urbanization, globalization, infrastructure renewal and the burgeoning needs of
developing megacities, construction in emerging markets is expected to double within a
decade and will become a $6.7 trillion business by 2020, accounting for some 55 percent of
global construction output, according to the Global Construction 2020 report published by

Global Construction Perspectives and Oxford Economics.1 To take full advantage of the
opportunities these trends and generate market growth will require adopting new business
approaches. Construction companies will need to learn how to better position themselves to
manage the supply side and capture the increased demand. For instance, companies will
increasingly draw project funding from a wide range of sources. In economically ailing
developed countries, there has been increased scrutiny of public infrastructure investments.
Although emerging economies are not facing the same difficulties with budget deficits, they
too are pushing for more public-private partnerships. Access to capital, for both public and
private sponsors, is becoming more challenging. In this context, construction players have
the opportunity to diversify the upstream infrastructure value chain mainly by promoting
and financing infrastructure and/or building alliances with investment banks and
infrastructure funds. Construction companies must also respond to growing customer and
end-consumer demands for sustainable built environments and harness technology to drive
innovation, especially in energy efficiency. Competition is also expected to intensify as the
growing appetite for specialist construction services attracts new, more nimble entrants and
forces all players to diversify along the infrastructure value chain.

https://www.accenture.com/t20150523T042717__w__/usen/_acnmedia/Accenture/ConversionAssets/DotCom/Documents/Global/PDF/Industries_2/Accenture-Achieving-HighPerformance-Construction-Industry.pdf

The construction industry is in progress of recovery which will be difficult and

heterogeneous by country. Growth in the construction sector remain slow and
piecemeal, with the sector expanding by 3.5% in 2014 and set to grow by 4% in
2015. Structural weaknesses mean however that the sector remains risky with a
fairly bad outlook. Price pressures remain high for an increasing number of
companies, and the sector can still be considered a two-speed one since sales in
emerging markets rose twice as fast those in mature ones in 2014.
Complexity is added into the mix as the sector is affected by strong cyclicality and
cross-country differences. Recovery of the construction sector in the UK has reached
a plateau, while growth in the sector could be negatively impacted in oil exporting
countries as low oil prices put brakes on infrastructure investments. Heterogeneity
of housing price trends among countries some recent housing bubbles have burst
(US, Spain), others are slowly deflating (France), inflating (China) or just threatening
to burst (Australia) add to the complexity of sectorial assessment. Nevertheless,
recent developments show a tenuous recovery in progress in smaller economies,
and a real one in the US.

The Malaysian construction industry is generally classified into residential

construction, non-residential construction, and civil engineering construction or
infrastructure.
The construction industry has proven to be one of the more resilient industries in
Malaysia, which has managed to survive several economic downturns over the past
two decades. One of the primary reasons for the ongoing strength of Malaysias
building industry has been the performance of key sub-sectors. The non-residential
building activity had been held a 34.8 per cent share of all construction spending
during the first quarter of year 2015; in comparison, civil engineering contributed
30.5 per cent, residential building 29.9 per cent, and special trades 4.8 per cent.
https://www.buildingshows.com/market-insights/malaysia/malaysian-institute-ofarchitects-says-construction-industry-to-grow-10-5-in-2015/801798372

As the economic recovery continues to sputter along, construction companies

eager to land any available projects have found themselves bidding outside their
normal scope of work. Maritime construction is one such industry that has seen an
increase in contractors who may not typically work on marine-related projects,
thereby increasing the likelihood that individual projects may fall outside their skill
set.
While contracts in marine construction present opportunities for income, they also
present potential risks which can negatively impact a businesss bottom line.
Contractors who work almost exclusively in the maritime construction business
generally understand the unique risks, and recognize the need for specialized ocean
marine insurance coverage.
http://www.marinelink.com/news/construction-marine345861.aspx