The World Has Grown Smaller–But It's Still a Pretty Big Place

I was supposed to have written this blog entry in January, along with my usual ‘Happy New Year’ message and a few words for the year ahead. Unfortunately (or fortunately, depending on how you look at it), work requirements overtook my time, and I have not had the time to sit down and write the content. 

So I write to you now from the lounge at Dubai International Airport, waiting for my flight back to London after a fantastic few days attending a mission organised by the British Aviation Group (BAG) and UK Trade & Investment (UKTI) to meet the major airport companies in the UAE. Some mighty impressive plans underway, particularly the new Al Makhtoum International Airport, which will be a massive development capable of handling 240 million passengers per year when it is fully completed. 

One thing I love about visiting emerging markets (EMs) is the incredible enthusiasm people have in these countries for thinking big and getting things done—witness the Istanbul Grand Airport, on which my client Scott Brownrigg is the lead designer (click here for more info). IGA is currently the largest construction project in the world, and it will have the largest single airport terminal in the world when complete, and there is also a wider emerging urban district planned around it, all at an astonishing scale and pace. 

Perhaps it is because EMs are coming from a less well-developed base, and they are playing catch up with Europe, North America and Japan, but there is also a strong spirit of competition and entrepreneurialism operating in EMs. There can sometimes be a bit of a dark side to all this unbridled development, in the form of undemocratic approaches to compulsory purchase and public engagement (if there is any at all), flawed business cases for the financing of some projects, negative environmental impacts and, sometimes, a lack of thoughtful long-term planning.

But this is also good news for my clients and other firms from developed countries who can bring real expertise to the table, as EMs are moving so fast that they need external help. Many of them do not possess the experience, creativity and skills needed to plan, design, construct and operate some of the absolutely mind-blowing property and infrastructure developments they have planned. 

When you look at the demographic and economic data, all the globe’s future high-growth areas for the next 100 years are in recently developed countries (think China) and emerging markets (think Nigeria). In considering the long-term future of your business, the idea is therefore tempting to explore opportunities in these high-growth markets, either by exporting from your home country or by establishing a local presence.

The landscape in EMs has been changing over the last couple decades, though. Many global cities like Dubai, Shanghai, Singapore and Hong Kong, already have a much better choice of locally-based, high-quality international design, consulting and construction companies to choose from than they ever had before. In fact, the top global cities don’t even need to look outside their boundaries to hire world-class firms, as many such firms have branch offices in these cities now—we call these ‘glocal’ firms. It’s a perfectly sound strategy if you’re thinking about the next 20 or 30 years of your business and where the work will be coming from.

For firms that have the vision, aspiration, perseverance and patience to pursue international business growth, there are still tons of opportunities in all corners of the globe, in both developed economies as well as EMs. You just need to do your homework carefully, understand what your clients desire and require, plan comprehensively and then execute flawlessly. And know that there is help out there if you need it.

The international opportunity for AEC firms

2014 went very quickly, and here we are into Q1 of 2015. Have you set realistic targets for this year, and does international work factor into your plans?

It seemed that the world’s leading economies were firmly into a next stage of economic growth in 2014 after spending the previous six years in the worst financial crisis since the Great Depression. The evidence so far in the new year shows that it is not all smooth sailing though, and there are concerns emerging in some countries, particularly some in mainland Europe, the Middle East and Asia. Residential property sales seem to have peaked in the US and UK according to recent reports, but generally the level of business confidence in these countries is more positive than it has been over the last several years.

Despite the news at national levels, working in the international architecture, engineering and construction (AEC) industry it is more evident than ever that the future will be more about cities, rather than countries. As urbanisation and sustainable living trends continue to evolve, key metropolitan areas that provide a critical mass of networks and connectivity to business, industry, government, academia, living, tourism and leisure activities will drive the performance of many sovereign economies. 

Getting the lay of the land
The Economist Intelligence Unit’s report ‘Hot Spots: Benchmarking Global City Competitiveness’, which was produced for Citi Group in 2012, ranks cities according to their demonstrated ability to attract capital, businesses, talent and visitors. They assessed 120 cities across the world and examined 31 indicators for each city. Indicators were grouped under eight categories:

  1. economic strength
  2. human capital
  3. institutional effectiveness
  4. financial maturity
  5. global appeal
  6. physical capital
  7. environment and natural hazards, and
  8. social and cultural character

While it is clear from the report that a rich cocktail of factors influence a city’s competitiveness, it is evident when you visit these global cities that the most highly ranked provide adequate infrastructure, environments and buildings for people to conduct their lives and business effectively, and that many are still lacking quite significantly in their built environment offer.

The 2012 EIU Hot Spots report was followed up with ‘Hot Spots 2025: Benchmarking the Future Competitiveness of Cities’, which looks at a comparison between how the 120 cities ranked in 2012 and how they might look in 2025. One of the key findings of the report is as follows: ‘The quality of a city’s physical capital is highly correlated with its overall competitiveness.’ 

The World Economic Forum’s ‘Global Competitiveness Report 2014-2015’ looks at 12 pillars of competitiveness, the second of which is ‘Infrastructure’. While WEF’s report looks at countries rather than cities, it makes for interesting reading as it classifies 144 countries by their overall stage of development, from being a ‘factor-driven economy’, through ‘efficiency-driven’ to ‘innovation-driven’. It will come as no surprise that the 37 countries that WEF considers to be innovation-driven also score the highest in the infrastructure pillar, with Hong Kong and Singapore being numbers one and two, respectively.

It is not just about economics, as we have witnessed with the rise in civil unrest and terrorist activities around the world over the last couple decades. Improving living conditions and creating opportunities to spread wealth are keys to stability in global cities of the future. The Social Progress Imperative tracks such activity in its ‘Social Progress Index’, which is an aggregate index of social and environmental indicators that capture three dimensions of social progress: Basic Human Needs, Foundations of Wellbeing, and Opportunity. The Index measures social progress strictly using outcomes of success, not how much effort a country makes. 

When comparing economic development as marked out in the WEF Global Competitiveness Report with the Social Progress Index, according to SPI, ‘There is a correlation with social progress, but it is strongest for the most competitive countries. At the middle and lower levels of competitiveness, there is a large amount of variation for social progress.’

Is your firm ready to go 'international'?
Reports such as these highlight both the opportunity and challenge to the international AEC community. Many of the global cities that rank highly in the EIU report’s economic strength category score relatively low in the physical capital and global appeal categories, which would tend to have a negative impact on overall economic and social progress. As these cities seek to become more competitive, they require the improvements to their physical environments that the top-ranked cities already enjoy and can use to propel their economies ever forward, not to mention the overall lifting of living conditions and incomes to maintain civil stability. 

In addition to capital funding to make their public- and private-sector projects happen, these global cities require the know-how that can be delivered by international designers, consultants and contractors. While local AEC firms in most markets bring significant strength in understanding local procedures, building regulations and practices, as well as key contacts within the local business community and government agencies, international AEC firms bring a much wider perspective on innovative solutions that have delivered effective results in other global cities.

Furthermore, international AEC firms bring a competitive ethos and aspirations that drive further innovation, particularly in developing solutions to meet increasingly complex financial models, new building methods and technologies, and sustainability requirements. 

Get out there
This year has been particularly active, as my work with my clients has taken me to a number of global cities, both physically and virtually. Working from my base in London and moving eastward, I have been to or been involved with clients and projects this year in:

  • Paris
  • Munich
  • Frankfurt
  • Prague
  • Zagreb
  • Warsaw
  • Bucharest
  • Istanbul
  • Moscow
  • Cairo
  • Doha
  • Abu Dhabi
  • Dubai
  • Yangon
  • Bangkok
  • Kuala Lumpur
  • Singapore
  • Jakarta
  • Ho Chi Minh City
  • Hong Kong
  • Manila
  • San Francisco
  • Los Angeles
  • Chicago
  • Boston
  • New York
  • (see the map of all the places I've ever worked by clicking here)

Visiting and doing business in these various world cities gives one quite a perspective on what is happening around the world. If you have ambitions to expand your AEC business internationally, the reports referenced above are great starting points for spotting where mega-trends are likely to have an impact, but you need to be careful not to get too caught up in the macro picture and miss the potential opportunities. Effective market research starts with knowing the specific questions to which you need answers.

Wood and trees
If there is one time when you need to run counter to the phrase ‘can’t see the wood for the trees’ it is in business development in the AEC industry. Seeing the long-term market growth potential (e.g. the wood) is your first step in developing a strategic business plan and penetrating new markets, but focusing on the trees (e.g. the clients who are actually going to hire you, and the real projects they plan to deliver) is where you need to get to fairly quickly in order to generate the income stream to justify your expansion plans. This means building relationships one target client at a time and securing the business one project at a time. And doing so internationally requires quite a level of planning, effort and dedication, more than most firms can imagine until they get into it. 

There is plenty of help out there for both SMEs and large practices, from government services such as UK Trade & Investment and the US Commercial Service, to experienced private sector consultants such as myself. Please contact me (richard.nelson@abyssglobal.com) if you require any advice or insights on international expansion, I'm happy to help.

Sincerely,
Richard

Links to the research reports referenced above, as well as a few other useful reports:

  • Economist Intelligence Unit/Citi — Hot Spots: Benchmarking Global City Competitiveness (link will open PDF file)
  • Economist Intelligence Unit/Citi — Hot Spots 2025: Benchmarking the Future Competitiveness of Cities
  • World Economic Forum — Global Competitiveness Report 2014-2015
  • Social Progress Imperative — Social Progress Index report
  • Global Construction 2025 — global construction forecast report by Global Construction Perspectives and Oxford Economics (full report requires purchase, but you can download the exec summary and other samples for free)

  • Transparency International — Corruption Perceptions Index 2014, the latest in TI’s annual reports which measure the perceived levels of public sector corruption worldwide, an essential read for anyone doing international business.
  • Urban Land Institute — ‘Emerging Trends in Real Estate’ reports
  • The Wealth Report — annual report produced by Knight Frank that offers some very interesting perspectives on global residential and commercial property, as well as spending patterns of the world’s wealthiest individuals. Of particular interest are their forecasts on global cities.
  • World Bank Group ‘Doing Business’ website — provides objective measures of business regulations for local firms in 189 economies and selected cities at the subnational level, including rankings of the ease of doing business against a number of topic areas, two of which are ‘Dealing with Construction Permits’ and ‘Registering Property’.

© Abyss Global Ltd.

When is the best time to expand internationally?

Now that many of the world’s economies are growing again following the worst financial crisis since the Great Depression, many firms in the architecture, engineering and construction (AEC) industry are considering—or reconsidering—whether the time is right to expand internationally.

The short answer is that any time can be the right time. One could put forward a business case for expansion in any market climate, but it all depends on your expectations, level of confidence, available resources, preparation and dedication. 

International expansion can be highly rewarding for AEC firms. It can diversify your revenue stream, provide rewarding design and innovation opportunities, support staff growth and development, take the firm in new directions, and help satisfy the financial expectations of the firm's shareholders.

However, if you haven’t pursued international growth before, or if your international initiatives haven't borne the fruit you had hoped, you can improve your chances of success by following a few key steps:

1. Temet Nosce: ’Know Thyself’, for those who have never taken Latin or seen the film ‘The Matrix’. This means having an innate sense of your practice’s purpose, its mission, its reason for being, and its capabilities and limitations. You need to understand what kind of ambitions your leadership has and what it is you are actually capable of offering to clients overseas. You also need to have that key person or people identified who will own the effort–to the point of being ready to relocate overseas if necessary. 

Many firms dream up fantastic plans of international expansion, but when it comes to that first trip, and catching a flight on a Friday night or Saturday morning to attend meetings at the start of the workweek in the Middle East (Sunday), and being gone for one or two weeks each month, suddenly all the ‘family gathering’ and ‘school play’ excuses start coming out, not to mention the lump in the CFO’s throat when they see the costs, and then the trip gets abandoned. 

We all have our priorities, but make sure you know why you want to pursue international business, who can really commit their time, and how much time and money the firm is ready to put on the table, before you elevate everyone’s expectations.

2. Do your homework: If you want something badly enough, you can create a business plan to justify any initiative–but be ready for the board to poke so many holes in it that it will look like Swiss cheese. You can argue that in any market, whether growing, stagnating or declining, there is always some level of demand for design and construction services, and there are firms out there who will service whatever work is available. Since AEC firms provide a service, you can tailor it to suit just about any clients or market conditions anywhere in the world. 

The questions you need to answer for yourself are: Which markets make the most sense for you to invest in? How well do you know the markets? What is a realistic business plan? What levels of existence are you prepared to accept year on year (and what is your walkaway position if it all goes wrong)? 

If you are excellent at what you do, with the references to prove it, and you can clearly match your differentiated offer to what your international clients need, then you should be in a better position to succeed. If you don't really have the product excellence or differentiating factors (great design, unique delivery capabilities, technological processes, etc.) to offer international clients, you may be wasting your time, as having a good relationship with someone only goes so far when they have to put their neck on the line.

Firms fail when they cannot clearly articulate their offering in a way that demonstrates advantages and gives clients confidence in them. I've done it myself: I started my firm in the middle of an abyss (that 'worst financial crisis since the Great Depression' that I referred to earlier), but it's been successful (so far) because I've been able to demonstrate specific unique value to my clients.

3. Develop a plan: No war, chess match or football game (English or American) has ever been won without a plan. And business is war between competing firms; it's a zero-sum game in which someone wins and someone loses, as there is only one contract up for grabs. Creating an international business development and marketing plan can be a fairly straightforward process, but the details are far from easy, and you will need qualified professional help. 

Here's a simplified outline for a typical BD and marketing plan:

  • Internal business audit - actual vs. goal for sales, profitability, ROI, other key performance indicators as appropriate
  • External market audit - PESTLE analysis, market research, competitor research
  • SWOT analysis
  • Mission, vision, values, philosophy
  • Goals & Objectives
  • Strategies
  • Tactics, tools & resources
  • Implementation plan
  • Budget
  • Monitoring and measurement plan

Quite a lot of detail goes into each section (which would be the subject of several lengthy articles, or even a book, of which there have been dozens written). The point is you'd better be prepared with a solid plan, especially if you need to convince your board, and either your bank or external investors, to make the investment.

I find it hard to answer the question “Which is the most important part of the plan?”, as it is something that needs to be done holistically—one part shouldn't  really stand on its own; it needs to be an integrated and comprehensive piece of work. 

That being said, for me the sections on Strategies, Tactics and Implementation are critical, because that is where the action is that will determine your success or failure. All the rest is important for research and planning purposes, and it must be done, but without the proper actions being implemented, it’s just an academic exercise that will gather dust on the virtual shelf.

4. Commit the resources: It all comes down to time and money. You have to put in the effort to achieve the rewards, it’s that simple. One flying visit to a foreign country organised by your overseas trade agency to meet a few business contacts is highly unlikely to result in any contracts. After all, this is a people business, and it takes a while to win people over—'three cups of tea' as they say in India—unless you are fortunate enough to operate in that rarified atmosphere in which your firm is in demand on a global scale, but this accounts for only a privileged few practices. 

Clients hiring an international firm understand that they are taking some added risk over hiring a local firm, but they are doing so because of the 'promise' of better results or competitive advantage or any number of high-level strategic factors. Therefore, you'd better be able to communicate your ability to deliver the goods—and then do it!

There are myriad activities that take place before introduction meetings with clients, and then between those first meetings and closing deals. In fact the introduction and deal-closing meetings might account for as little as five percent of the overall effort. Many firm principals, particularly those with fee-earning responsibilities, just do not have enough time, or necessarily the right skills, for the other 95% of activities, which have become increasingly complex over the years. 

This is where your business development team comes in, to deliver the effort that is required to research and target the appropriate clients, help build relationships with them and their trusted advisers, raise their awareness of your firm and its capabilities, follow up on and continue tracking the progress of potential opportunities, and position your practice in their minds in order to eventually secure the work.

Staying out of the abyss
Success will ultimately depend on the demand for your services internationally from your existing and target clients. But you still need to follow the simple steps above to ensure you have an understanding of that potential demand, how you can meet it profitably, that you can articulate your unique offer to clients, and that you can implement the appropriate strategies and tactics to win your share. 

Please feel free to contact me if I can be of any help. 

Sincerely,
Richard
© Abyss Global Ltd.