Recession Puts Top International Firms into Survival Mode
The construction industry has entered a recession that has affected virtually every region and market. The downturn has had its most immediate impact on the design professionals on the front end of projects. For the world’s largest engineers and architects, this means now is a good time to reexamine their services and strategies.
Only a short time ago, the world market was one of the hottest most large design firms had ever seen. Many firms worried market sectors were close to overheating, putting pressure on staff, costs and materials supplies. The scale of the 2007-2008 boom can be seen in the design revenue reported by ENR’s Top 200 Design Firms. The Top 200 generated $52.62 billion in design revenue in 2008 from projects outside their respective home countries, a rise of 22.4% over 2007’s $42.99 billion.
The recession also has caused many international contractors to scramble. But even while most markets are slumping, many firms are facing the market downturn with record backlogs to cushion them after several or more years of frenetic demand.
For large international contractors, the scale of the boom market in early 2008 can be seen in the revenue figures for ENR’s Top 225 International Contractors. The Top 225 as a group generated $390.01 billion in revenue in 2008 from projects outside their home countries, a 25.7% increase from $310.25 billion in 2007.
However, this boom came to a crashing halt in late summer 2008 when the U.S. housing bubble burst, inflicting economic distress on financial institutions. The resulting contraction in the credit markets caused projects around the world to be canceled or deferred, sending the industry into a recession.
The recession has taken its toll on projects around the world. For example, in the past, “80% of our turnover was from the commercial real estate market in Russia, but after the credit crunch, most of the projects at this market were terminated or postponed,” says Erman Ilicak, president of Turkey’s Renaissance Construction. He says his firm is fortunate to have branched out into industrial work and moved into other geographic markets. Ilicak says Renaissance now has a $1.5-billion backlog in Libya and is moving into the Saudi market.
“The construction industry in the Middle East was negatively impacted by the financial crisis as well as the stopping or slowing down of many construction projects owned by the private sector,” says Samer M. Arafa, executive vice president of Al-Arrab Contracting Co., Saudi Arabia. “Dubai seems to have been more affected by the financial crisis due to the big exposure to private-sector development projects,” he adds.
Big, diverse design firms, however, generally are surviving the crisis. “I believe we will come out of it stronger than we went in,” says Lars-Peter Søbye, chief executive of Denmark’s COWI A/S. Stimulus packages around the world “are more or less exactly where we have our core competence. We are short-staffed at the moment,” he adds.
For many firms, diversity is the key. “We are fortunate we are in many markets that have felt less of an impact from...
