The Top International Contractors and Design Firms: Going From Feast to Famine
The global construction market had been booming in 2007 and through midyear 2008, and large international contractors and design firms reaped the benefits. The demand for big-ticket projects, from petroleum production facilities and powerplants to major infrastructure upgrades and signature buildings, made the demand intense for world-class contractors with the size and expertise to deliver these projects. As a result, big firms around the world were scrambling to grow, either organically or through acquisition, to meet this demand.
For many firms, this booming market has come to a screeching halt. The faltering U.S. stock market and failure of many major financial institutions has caused a tightening of credit that is jeopardizing projects on a broad scale. Unlike the Asian financial meltdown of 1997, the South America economic woes of the late 1990s or the soft buildings market and the post-9/11 U.S. recession of 2001-2002, the market downturn is not a localized phenomenon but one on a global scale.
The scope of the earlier hot market can be seen from the revenue figures provided by ENR’s Top 225 International Contractors. The Top 225, as a group, generated $310.25 billion in 2007 revenue from projects outside their respective home countries. This is a startling 38.3% increase over 2006’s mark of $224.40 billion. The Top 225 had total contracting revenue in 2007 of $826.96 billion, a 27.1% increase over 2006’s figure of $650.66 billion.
The story was pretty much the same regardless of the region. North Africa showed the biggest percentage increase in international work for the Top 225, rising 75.3% to $13.17 billion. The Middle East continued to show astounding strength, growing 52.0% to $62.89 billion. Other big gainers included Europe, up 34.2% to $96.45 billion; Asia, up 37.9% to 55.40 billion; the U.S., up 26.8% to $36.91 billion; Latin America, up 41.3% to $19.25 billion; and central and southern Africa, up 48.3% to $15.42 billion. Only Canada, up 3.6% to $8.28 billion, and the Caribbean, down 10.7% to $2.01 billion, bucked this huge trend.
The size of the bull market also can be seen in the revenue figures reported by ENR’s Top 200 International Design Firms. The Top 200 generated $43.02 billion in design revenue from projects outside their respective home countries in 2007, a 31.7% increase from 2006. The Top 200 also capitalized on their local markets, enjoying a 17.6% increase to $57.37 billion in 2007 from projects in their home countries.
Not all of this increase can be attributed to hot markets. ENR asks non-U.S. firms to provide their revenue in U.S. dollars and requests that the currency conversion rates in effect on Jan. 1 of the survey year be used to provide the dollar amounts.
In 2007, the euro, Japanese yen, and several other currencies surged against the dollar. Between Jan. 1, 2007, and Jan. 1, 2008, the Euro had risen 11% in value from $1.32 to about $1.47, the value that was used by survey participants for this year’s survey. This boosted the Top 225’s revenue for many international contractors who were paid in euros. The Japanese yen rose about the same between January 2007 and January 2008. Thus, currency fluctuations played a role in the dramatic increase in revenue for both the Top International Contractors and Top International Design Firms.
One major change in the world market is how international it has become. This year’s Top 225 has contractors from 35 different countries, while the Top 225 used to be dominated by U.S., European and Japanese firms. The list now has groups of firms on the list based in China, Turkey and the Middle East. Only 35 U.S. contractors are on this year’s Top 225, a record low for ENR’s Top International surveys.
This trend also is present, if less pronounced, on the design side. The U.S. dominance of the Top 200 International Design Firms list has shrunk in the past few years from 101 U.S. firms on the Top 200 in 2003 to 78 this year, as Asian and Pacific Rim firms assert themselves in the international market.
Banks Tighten Reins
Even before the world financial crisis, European firms reported some concerns about the financial climate. “Most of our business derives from government spending and by regulated entities…we are less directly affected by private-sector markets,” says Ian Tyler, CEO of the U.K.’s Balfour Beatty Construction Ltd. “What will happen over the next 12 months, I don’t know.”
Many international contractors saw increasing wariness among lenders to finance projects months ago. “Globally, we have a problem with financial institutions,” says Michel Cote, deputy CEO of France’s Bouygues Construction SA. Banks now are more wary of project financing than before, he says.
On Hold
The global financial woes continue to affect the market. One of the hottest global markets has been the petroleum sector. But the economic meltdown has caused the price of oil to drop by nearly two-thirds from highs above...
