Primary navigation:

QFINANCE Quick Links
QFINANCE Topics
QFINANCE Reference
Add the QFINANCE search widget to your website

Home > Sector Profiles > Construction and Building Materials

Sector Profiles

Construction and Building Materials Industry


Major Industry Trends

The construction sector is in an interesting phase of its evolution, not yet quite global in nature, but with some players active in more than one national market and the largest players becoming involved in multiple projects in Europe, North America, and Asia—particularly China. The sector includes companies from the smallest to the largest. At the bottom of the scale are small house-builders, followed at the mid-range by regional and national companies capable of handling multiple projects within one country, to larger players with specialist interests—for example, in shopping mall construction, or office blocks, operating in multiple countries. The industry has a clear overlap with civil engineering on infrastructure projects, particularly where groundworks and ground preparation for site construction are concerned.

The sector, of necessity, works in partnership with a range of other professions, such as architects, quantity surveyors, and structural engineering consultants, who may be external to the construction company or part of the company. Legal and financial advice on contracts, joint ventures, and project financing, as well as on litigation—the construction sector is associated with more than its fair share of litigation—are also essential services for the sector.

The global crash of 2008 was felt hardest in the construction sector as funding for the vast majority of projects simply dried up in advanced markets. This had a severe effect on the sector across the developed world, in all areas except public works and infrastructure. Much of the European and US construction sector was still experiencing difficulties at the start of 2013, but by the end of the year things were looking brighter. Accountants KPMG publish an annual survey of senior executives in global construction companies. The survey for 2013 found the industry to be in the best shape it’s been in since the 2008 crash. Executives reported rising order books and margins that were a lot healthier than they have been. KPMG points out, however, that this poses some serious challenges for the sector, which has to make some fine—and largely subjective—judgment calls on how much to invest in gearing up their business capacity. Too much, and they will find themselves with idle resources. Invest too little, and they could miss what could well be a coming wave of opportunities to tender.

KPMG advises the bigger firms, particularly those with an international reach, to ensure that they invest heavily in their ability to manage mega-projects more efficiently than in the past. This means focusing on the recruitment of key people. They also need to ensure that they have an enterprise-wide view of risk, and that they make it an integral part of the construction process. Pushing for standardized processes is an important way of driving risk management and efficiencies across all of a company’s projects. Above all, companies need to develop close, long-term working relationships with clients.

The construction industry has a clear and very close relationship with related industries that specialize in building materials, including cement, plastics, wood, steel, and glass, as well as innovative new types of product with particular strength, thermal, or low-maintenance properties.

The industry has always had a tendency to be national and local in its focus, rather than cross-border, although in Europe there is an increasing trend toward cross-border joint ventures in projects such as shopping mall construction.

There are huge difficulties in the way of construction companies moving outside their own national “turf.” Every country has its own planning laws, building materials laws, and building regulations for residential, office, leisure, retail, and industrial building. Moreover, construction is very materials- and skills-intensive, and bringing materials to the site and organizing the necessary skills, labor, and project management are a challenge when just one location is involved, never mind for multiple locations in multiple jurisdictions.

Cross-border construction projects provide a way of ensuring that local knowledge is applied and provide the incoming company with a way of acquiring a sufficient base of experience in the new jurisdiction’s regulations and requirements. These projects can be expected, over time, to result in a more international sector as various players build up the necessary network of relationships to make building outside the home country feasible and tendering for projects in foreign states a practical proposition.

For this reason, many international infrastructure projects tend to be project managed by large civil engineering companies, who may use their own construction arms, or a range of large and smaller local construction companies, or some combination of all of these, to get the job done.

The KPMG survey found that second-tier construction companies—those with a turnover of less than US$1 billion—reported the strongest order books. This is probably a direct result of the increased agility that comes from their smaller scale and their ability to recruit staff more rapidly than their bigger competitors when demand picks up. Large companies, having shed significant amounts of capacity through the downturn, are more reluctant to start hiring strongly again.

One of the latest studies of the global construction market, “Global construction 2025,” published by Oxford Economics and sponsored by accountants PwC, looks ahead to 2025 and forecasts that the volume of construction output globally will grow by more than 70%, to US$15 trillion worldwide by 2025, with the lion’s share of the work (60%) coming from just three countries, China, India, and the United States. However, the report also predicts a slight contraction for the construction market in Western Europe, which the authors expect to shrink by 5% by 2025. China overtook the United States to become the world’s largest construction market in 2010, and even with the slowdown that has now been written into the Chinese government’s latest five-year plan, it is likely to increase its global share from the current 18% of world construction spend to 26% by 2025.

The report points out that by 2050 there will be two billion additional city dwellers, and that with city planners increasingly emphasizing sustainability, the construction sector will face major challenges and will need to find innovative products and solutions.

Back to top

Market Analysis

Building Materials—Industry Trends

The building materials sector is extremely diverse and constitutes a sizable chunk of the industrial base of developed countries. It includes a highly diverse range of suppliers, from cement manufacturers (an area that is under tremendous pressure to both innovate and to “green up”) to specialty glass and steel manufacturers, as well as providing a large market for white goods manufacturers, furniture manufacturers, paint and wiring manufacturers, and a host of other related industries.

One of the biggest boosts for the building materials sector is the seemingly endless raising of the bar by various national planning departments on “green” building. According a report on Forbes.com, which cites a research report from Navigant Research, the worldwide market for green construction materials will grow from US$116 billion in 2013 to in excess of US$254 billion by 2020. Europe, with its emphasis on reducing emissions, will probably be the largest regional market, accounting for around 50% of global demand for green building products by 2020. TechNavio produced a report, “Global green building material market 2012–2016,” in which it forecast demand growth globally to be around 17.9% compound annual growth rate.

According to one of the leading green building and sustainability consultants, Jerry Yudelson, who publishes an annual “Top 10 megatrends” for the global green building industry, 2014 will see green building growing strongly in the United States. “Green building is the tsunami of the future that will inundate the entire real estate industry,” he says. More and more commercial buildings will be aiming to be zero net energy buildings, and Yudelson expects to see a sharp pickup in the trend to retrofit green design into existing buildings.

Another growth area is concrete production from recycled materials, such as power station ash, according to a report by the Freedonia Group. Wood from proven, sustainable forests is another area that is set to boom, as are water-efficient plumbing fixtures and energy-efficient lighting fixtures, both of which should see double-digit growth, according to a Green Building Materials report by market analysts, the Freedonia Group.

In the residential homes sector, construction companies are often pulled and pushed in two opposing directions simultaneously by regulations when it comes to innovations in building materials. On the one hand, anything that helps to “green” a home by improving its thermal efficiency, or lowering its energy consumption, is regarded as good. On the other hand, local planning offices tend to be very prescriptive on the kinds of materials that are regarded as suitable, and it can be an uphill struggle for new materials to gain acceptance.

There are ways around this. Australia, for example, has a Building Products Innovation Council, whose job it is to promote the most efficient and innovative use of building products across the sector, while seeing to it that construction companies adhere to a consistent regulatory framework for building. The council includes senior representation from across the spectrum of the building materials and products side of the building industry, which ensures that the council stays abreast of new product innovations.

The construction sector is, in many ways, both an ideal test bed for scientific innovation and a powerful economic driver of innovation; successful products can be taken up in enormous quantities on a worldwide scale. The range of innovation opportunities is as broad as the designer’s imagination. One company that specializes in building product innovation, DuPont, has products on offer that range from new materials to construct “storm rooms” to keep families safe in high-risk tornado and hurricane areas, to kitchen countertops, such as its Zodiaq range, which incorporates quartz crystal to create an exceptionally durable and scratch-resistant surface. Many innovations address thermal loss from homes to make them more energy-efficient. Phase-change materials, for example, release or absorb large quantities of heat when changing state from one phase to the other. Companies such as BASF and Ciba, which specialize in surface coatings, have come up with microencapsulation waxes that enable glass manufacturers to incorporate phase-change materials into window construction (see, for example, esBITS from PCM Innovations).

Innovation need not be limited to new building materials; it can also be innovation in the way standard materials are used. The German Passivhaus standard (see http://www.passivhaus.org.uk/standard.jsp?id=122) is a low-energy house built around a set of principles applied to building design. There are some 15,000 Passivhaus builds in the world, and the design principle is promoted by the Passivhaus Institute in Germany. The core is a super-insulated, airtight envelope boosted by the use of glass to promote solar gain, and the result cuts heating requirements by up to 85%.

Home and buildings designers and planners have to think about both materials and the building regulations that are likely to appear in a world dominated by calls for action to cut carbon emissions. Current building requirements are likely to be amended further, almost year on year, to minimize the impact of the built environment on the planet, which means cutting emissions and energy usage. We are at the dawn of “smart” buildings, which react both to energy usage and to the needs of occupants, but many leading architects and designers are already thinking about zero-emissions buildings, or massively taller buildings, or buildings that are themselves virtual “cities”—all concepts that will provide fertile ground for innovation in building materials.

Back to top

Further reading on the Construction and Building Materials industry

Websites:

Back to top

Share this page

  • Facebook
  • Twitter
  • LinkedIn
  • Bookmark and Share