The Metal Construction Association
(MCA) released a report based on data, analysis, surveys and interviews with industry leaders, prepared by FMI Corp., Raleigh, N.C., which identifies the leading trends expected to most influence the nonresidential construction industry throughout the near future. These trends are important to consider as your companies continue to adjust their strategic plans.
Here are the top takeaways from the report:
Talent Shortages and Management Succession Challenges
At the height of the recession, 30 percent of the commercial construction industry lost its jobs, causing a lack of skilled workers as business improved. Recruiting and retaining employees is key to attract the next generation to the construction business, which is perceived as tough, dirty, dangerous and low paying by a high-tech and careeroriented generation.
Greater Use of New Technologies
With more prefabrication, modularization, use of robotics and 3-D printing, construction is becoming more standardized and computerized. Commercial construction relies more on manufacturing where assemblies and modules are erected in the field rather than constructed on-site. The need for shop and building information modeling (BIM) skills are needed.
Productivity Improvements Needed for Profitability
While the use of BIM, prefabrication, modularization and green construction are necessary in construction manufacturing, at the contractor level, technology and planning are paramount to being profitable. Continuous improvement of procedures and processes is a challenge as construction firms lack the people and training to provide needed focus in this area.
Changes in Construction Delivery Systems
A slow shift is being seen from the traditional design-bid-build or hard-bid approach to more collaborative or alternative delivery methods that were gaining popularity before the recession. While construction manager at risk is allowed in most states, a shift toward integrated project delivery (IPD) is not easy. While IPD offers benefits to all parties, it requires more sophisticated owners, designers, suppliers and contractors to realize its full benefits. In addition, owners-particularly in the public sector-are required to use certain delivery methods.
As baby-boomer leaders reach retirement, the industry faces a change in ownership among 50 percent of construction firms. As this group transitions out of senior roles, gaps that cannot be filled by the younger generation appear. Motivating the next generation can be a challenge and the industry needs to enhance its image and implement effective recruiting development and succession planning.
International Debt Problems
Although the U.S. has been enjoying a resurgent economy, several European countries are struggling. After years of rapid growth, China is also experiencing a slowdown in its economy, threatening the savings and investments made in a more bullish atmosphere in the last few years. With technologies that level the playing field and improved global communications and transportation routes expansion, globalization is shrinking the planet, bringing all markets closer together. The construction industry is not immune to global changes; however, it is difficult to predict what those changes will be.
Forming Partnerships with Customers
Customer-centric orientation is returning. Manufacturers and suppliers must match their marketing and delivery methods to the needs of the contractor and become partners in the process. By evaluating customers in terms of lifetime values, manufacturers and suppliers can view these relationships in a somewhat different light and focus on long-term activities that provide benefit for both parties.
To survive the recession, companies had to achieve positive cash flow in the new demand reality. This focus on efficiency created lower-cost structures. Once the market started to inch its way toward recovery, profit margins soon returned to prior levels, despite the lower volumes; this has gone a long way toward repairing damaged balance sheets.
Growth through Acquisition
The demand for attractive companies to purchase is high. Industry stakeholders are looking to realize overhead efficiencies and maximize nontraditional margin enhancements. Those companies realizing profitability in this way are well-positioned to prosper as the construction market improves. These same firms will also consider acquisitions as a viable growth strategy, as they may be able to bring operating efficiencies to targets unable to achieve them independently.
For manufacturing distribution, 2015 was a year of large company consolidation. Market conditions led to unprecedented merger activity among large players. Today, a seller can receive what the company deems a fair price, while a buyer feels there is still enough business ahead to make a decent return on the investment. Add into the mix debt markets that are flush and accommodating, and we have a recipe for significant deal activity.
Mergers and Acquisitions Activity Benefit Buyers and Sellers
Pace and scale of activity are both up with both strategic and financial buyers. With demand high and the supply of attractive companies low, one would expect prices to increase, and they have. High-quality companies that hit the market today are fetching attractive prices. But in many ways, it is a buyer’s market too. Long-term demographic trends foretell a good amount of growth left to go in housing, and commercial forecasts are positive as well.
These same market studies are predicting the nonresidential construction industry to return to peak levels in 2017. Though the market is highly dependent on economic factors such as interest rates, consumer spending and housing, growth has been consistent over the last five years.
We are encouraged by the upward momentum for our industry and, armed with these leading trends, are prepared to continue this success moving forward.
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Karl Hielscher is executive director of the Metal Construction Association. Hielscher has more than 25 years’ experience in the metal construction industry and was president and CEO of a Metl-Span, Lewisville, Texas, for more than 20 years.