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Are one stop shops key to cracking the global market?

As UK-centric consultant Mouchel battles with its banks, Halcrow prepares for life as part of US giant CH2M Hill’s world and URS gets ready to consign the Scott Wilson brand to history, the benefit to UK firms of consolidating with global giants seems all too apparent. But is such a path guaranteed to be paved with gold?

URS Scott Wilson certainly believes so. Its new strategy director Stephen Wells is evangelical about URS’s takeover of Scott Wilson. The Scott Wilson brand is being phased out in January, and it’s not looking back. “The acquisition of Scott Wilson significantly expanded URS’s business outside of North America and the company now has a much larger global reach with a network of offices in more than 40 countries. It has allowed URS to penetrate strategically important geographies including India and China – two of the world’s fastest growing economies,” he tells NCE this week.

He also believes many more – beyond CH2M Hill and Halcrow – will follow the URS approach. “The industry continues to consolidate,” he says. “We will continue to maximise and enhance our market position in the global engineering and environmental sector. We now have the experience, resources and capabilities to provide the full range of services needed to plan, design, construct, operate and maintain major projects anywhere in the world.”

It is exactly the same thinking behind last month’s CH2M Hill takeover of Halcrow. CH2M Hill director Jacque Rast – who will take over as chief executive of Halcrow when the deal completes in November – told NCE that the deal was a “game-changer” with Halcrow’s “world-class” design and consultancy skills a perfect fit with CH2M Hill’s programme and project management capability. Like URS, CH2M Hill can offer a one-stop shop to global clients.

It works as a design and build contractor in a number of markets in the US, including transport, water, environmental remediation and energy. It also carries out operations and maintenance work in water and transport. Rast said she would be looking to bring those skills to Halcrow, once the planned takeover completes in November.

“What we will look to do is take those skills and work with Halcrow to bring that competency,” she said.

But do clients truly want such a service? One of Britain’s biggest clients – Olympic Delivery Authority chairman John Armitt – says it could work for some circumstances, particularly when in the UK right now there is more emphasis is on efficient design rather than celebratory design.

“What clients want will be key. If you put the purity of the architecture before everything else then you’re less likely to go to a one-stop shop. If on the other hand you place the importance on the operational value then a one-stop shop might be more appropriate,” he says.

Armitt also points out that to compete internationally, the one-stop shop model is the well-travelled option.

“For the consultants it is also a question of do I want to be a company working in the UK or do I want to be a global firm?” he says.

“If you’re in France, for example, traditionally a broad range of services sit within these major construction companies so to compete with them you’d be more likely to be a one-stop shop.”

As the industry heads into what appears to be a very tough 2012 for UK construction, there is also safety in numbers, and in a diverse client base – regionally and by sector. Mouchel’s high profile struggles stem from its near-reliance on UK highways work, a market that is facing fierce pressure on costs.

Cost consultant Turner & Townsend’s Autumn UK market intelligence report – published this week – suggests tender prices in UK infrastructure will grow by just 3% next year, but this increase is driven almost entirely by increases in raw material costs – not profits.

“Profits continue to be suppressed, and in some cases below zero to maintain order books and turnover,” it says.

It also warns that 2012 could become known as year of the insolvency as – ironically - the recession nears an end.

“Historically, as the construction industry starts to recover from a recession the number of insolvencies within the industry starts to rise,” it says.

This often happens because contracts won in a recession period are generally at artificially low levels due to increased competition. These then become challenging as the industry starts to recover and prices begin to rise with it.

Coupled with that, with a reduced workflow and increased costs, modestly capitalised suppliers find that positive cash flows that they rely heavily on are worsened.

Last week’s declaration from Network Rail that it intends to cut payment times from 56 days to 21 days is great news, but there are plenty of big clients out there that make suppliers wait longer even than 56 days.

Going global is a great way to insulate against the pain of UK austerity.

Atkins, for example, last week told analysts that it expected to double its revenues in the Middle East over the next five years, with the work coming in at an underlying margin of 10%.

Arguably Britain’s only truly global consultancy with 17,500 staff, it will have 2,000 of them working on projects in the region by March 2012, a 29% year on year increase.

Its confidence stems from a booming transport and property sector: NCE sister title MEED forecasts that $1 trillion (£630bn) worth of contracts are to be awarded between now and 2016 in the region. Atkins estimates that there is £3.2bn per annum in consultancy fees up for grabs, to which it aspires to a 10% share. It’s a big pie, and surely worth going global to get a slice of.

Readers' comments (4)

  • All very well, but where lies the final decision making power and where are the profits, if any, distributed. Surely, the recent take-overs of the last few years have diluted the strength of UK professional engineering?It would seem that only ATKINS, Mott MacDonald and ARUP remain to carry the flag.

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  • Mark Hansford

    Hi Alexander - it will be interesting to see how long the firms you mention do remain to carry the flag. Hard to see how anyone is "safe" at the moment.

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  • Is this consolidation / one stop shop phenomenon really such a new trend? The big consultants (Mott MacDonald, Arup,Atkins, Bechtel) have pursued the "massively multidisipilnary" model for decades. More recently, all have made aquisitions and pushed their organic growth to diversify their skills base further. It a reflection of what is happening in many other industries - with flat growth, how else to proceede other than to find new markets? And how else to do this than by diversifying and expanding capability to move forward on as many fronts as possible?

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  • Ross Roberts

    Given that the global construction and engineering market was worth $2,276 billion in 2010 and the biggest player (Hochtief) had revenue of $27 billion, the largest company has a 1% market share. In most industries it is considered to be an excessively fragmented market if the largest firm has less than 20% share. We've got a lot of consolidation yet to come.

    Sources:
    http://enr.construction.com/toplists/InternationalContractors/001-100.asp
    http://www.businesswire.com/news/home/20110929006003/en/Research-Markets-Global-Construction-Engineering---Performance

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