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.