The international design market has been sluggish for several years, with Asia and Latin America experiencing spasms of economic turmoil. The market doldrums have had an impact on ENR's Top 200 International Design Firms, with 2000 revenue little different from that reported by the Top 200 in 1997. But in 2001, the year covered in the current Top 200 survey, firms experienced something of a rebound.
Total design revenue for projects located outside the home countries of the Top 200 hit $17.65 billion in 2001, up 9.3% from 2000. This rise came despite the decision by last year's No. 2 ranked firm, the Dutch design firm alliance NEDECO, not to participate in the current survey. Instead it allowed its constituent units, such as Fugro, DHV Group and Delft Hydraulics, to file on their own behalf.
Among market sectors, general building enjoyed a surprising surge in 2001, up 28.6% over 2000. Revenue from design work on petroleum projects also boomed in 2001, up 24% from 2000. Other winners were: industrial process work, up 8.1%; hazardous waste, up 7.7%; sewer and wastewater, up 4.1%; and transportation, up 1.2%. However, markets sectors having off years in 2001 included: water, down 4.3%; manufacturing, down 5%; telecommunications, down 6.4%; and power, down 12.7%.
The Top 200 enjoyed gains in all regions in 2001. Several regions enjoyed double-digit revenue increases, led by the Middle East, up 18.7%. North American work increased 16.8%, with the U.S. alone up 15.4%, and Canada, up 14.1%. The two largest markets, Asia and Europe, saw more modest gains of 3.1% and 9%, respectively, but they remain well below their Top 200 historic highs.
Many of the leading European design firms are keeping healthy by balancing their international markets. Arup Group Ltd. is among the more bullish firms. "There's a lot of business around and it's occurring for us in most parts of the world," says Deputy Chairman Michael Shears. "There's been growth in pretty well all of our sectors, but there's been very, very big increases in the infrastructure business worldwide."
With about 80% of its business in the U.K., WS Atkins has enjoyed a buoyant home market, says David Howell, director. The U.S. has been more difficult, although the firm's public-sector work is active. The already weak private sector has not been helped by recent corporate scandals, he adds. Even so, Atkins expanded its U.S. operations with the recent purchase of Hanscomb, the Atlanta construction management firm.
"We are seeing a decline in opportunities in work for development banks and increased work for private developers," says Rainer Bothe, chief financial officer of Lahmeyer International. "But they [often] have their own engineers." Lahmeyer has shifted its focus to thermal powerplant rehabilitation and renewable development as hydro demand dwindles. Interest in renewables "is coming, especially in Korea and Brazil," he says.
Mott MacDonald Group "had a great year last year," says Chairman Tim Thirlwall. "But this year it's difficult to predict. We are seeing a slight softening in the U.S." On May 16, Mott acquired London-based Franklin+Andrews, a project management and management consultant. Its 700-person staff raises Mott to a total of 7,000 in 100 countries and annual sales of nearly $600 million, about half internationally. "Our ambition is to become a global company and we are moving along that route," says Thirlwall. As well as making Mott bigger, the acquisition is increasing its spread of work from the core design. The firm already generates about 15% of its sales by providing non-engineering services, funded mostly by international development agencies.
Denmark's COWI AS also raised its game this year by acquiring former local rival Kampsax AS. The merger creates a regional leader with 2,800 employees and sales approaching $275 million. "Core business areas complement each other well, both in Denmark and in the international marketplace," says group Chief Executive Officer Klaus Ostenfeld. Kampsax focuses on development planning, geographical information systems, environmental work and building.
Geographically, Asia continues to be weak. Arup's Shears detects some recovery in Thailand and more pronounced growth in South Korea. "We are seeing signs of a pick-up since the economic crisis of 1997," agrees Thirlwall. Even Indonesia is "looking slightly better," he says. Slow regional recovery spotted by Lahmeyer is offset by increasing competition by firms from Australia, Japan and New Zealand, says Bothe. To deal with this, "we are trying to team up with high-quality consultants from the region," he adds.
The Hong Kong market, once a design hotbed, is now generally seen as difficult. "The economy isn't good and there are a lot of consultants charging too little for the work and margins are tight," says Thirlwall. But while Atkins also reports slackness, "there have been indications that work is starting to pick up," says Howell. Hong Kong remains a major base for Arup, but "we can see a tightening of the market," says Shears.
China continues to show promise, but "it's a question of getting the equilibrium right," says Shears. "Competition is severe and fee levels are a lot lower than in Hong Kong." Dutch firms concur. "We're doing a lot, [but] it's difficult to earn money," says Thijs van Praag, managing director of the NEDECO alliance. Atkins has about 150 people in China, including those at its Beijing "center of excellence" providing services for the U.K. and elsewhere. In China itself, Howell reports significant building and planning prospects.
But China's internal design capacity, especially in power projects, makes entry difficult for foreigners, says Lahmeyer's Bothe. He sees increased local competition in other markets. COWI is working with local partners on two bridge engineering contracts. "We see an increasing market," says Ostenfeld. Mott also is considering joint ventures to grow in China, says Thirlwall. It won a contract to advise Zhejiang Urban Development Project on a $400-million plan to improve facilities in Zhejiang province's major cities.
Traditionally viewed as a difficult market, India's currently heightened political instability makes it less likely to attract investors, says Thirlwall. Mott was among foreign firms to pull out its expatriate staff briefly at the height of war-like posturing between India and neighboring Pakistan early this summer. But getting the last payment on Indian government contracts can be difficult, notes van Praag of the NEDECO alliance. "Several members have financial difficulties," he adds. But COWI's recent acquisition of Kampsax has opened new doors. Kampsax runs a local business providing mapping service for clients in other countries.
Hard oil prices are raising the Middle East's profile for design firms. Business "is looking quite good, especially in the oil and gas sector," says Thirlwall. Focusing more on building and transportation, Atkins retains a significant presence, mainly in the Emirates, says Howell. "That's helped us, [although] there was a slight dip after 9/11."
COWI has won two contracts for road links in the Persian Gulf area against "tough competition with Americans and others," says Ostenfeld. The firm is working on studies for 45-kilometer causeway between Qatar and Bahrain, including embankments and bridges. COWI also is studying a 22-km road between Kuwait City and the Subiyah development area.
As a traditional French market, Arab North Africa provides "quite good" business in transportation and building work for France's largest transportation specialist, EGIS subsidiary Scetauroute, says Managing Director Rémi Cunin. The rest of the continent, meanwhile, "will continue to be an important market for European consultants," says Bothe. "There is a lot of rehabilitation of infrastructure."
With a well-established office in Tanzania and work elsewhere on the African continent, "business is OK there, purely based on international donor organizations and banks," says COWI's Ostenfeld. But southern Africa, especially Zimbabwe, remains difficult, reports Shears. Arup's once-busy Harare office "is now struggling to find work to do," he says.
In Western Europe and the U.K., construction "will enjoy its best period of sustained economic growth for over a decade," says a report by Construction Forecasting and Research, London. It forecasts output rising 3.8% this year. Government spending is boosting potential orders, but private industrial and commercial sector orders are falling.
From that strong base, Arup is spreading elsewhere in the European Union. "We see our European business growing....for the next 10 years," says Shears. Arup has offices in Germany, Spain, Poland and Moscow, and recently opened offices in Amsterdam and Milan.
Germany's persistent construction recession is hitting COWI. Conditions for its Berlin-based general design firm "are extremely tough," says Ostenfeld. After the good times during the city's reconstruction, "the last couple of years have been bad." But last year's investment in a Berlin transportation specialist has paid off "very well," he says.
With French national highways largely completed, the transportation market is shifting to local road and railroads, says Cunin. And new opportunities are emerging from the out-sourcing of engineering services by the state railroad company, he says. Scetauroute is looking at build-operate-transfer highway contracts. The firm is targeting Ireland, Portugal and Greece. And through its German sister company, Dorsch Consult, Munich, the firm hopes to win a slice of Germany's emerging highway concession business.