European Construction Industry Business Outlook Survey 2012–2013

Industry Dynamics, Market Trends and Opportunities, Buyer Spend, and Procurement Strategies in the Construction Industry

Overall, 41% of respondents expect ‘no change’ in their revenue growth in 2012

Of all the respondents across the European construction industry, 41% expect ‘no change’ in their revenue growth in 2012. The European construction industry has experienced a decline in growth for three years due to the recession in 2009 and the European debt crisis. According to Euro Construct, European construction output will decrease by 0.3% in 2012, in comparison to a contraction of 0.6% in 2011. Difficulty in obtaining finance, the downgrade of several European economies by credit rating agencies, austerity measures, and low government spending are critical factors affecting the growth of the industry.

Expected increase in M&A activity in the European construction industry in 2012

Executives from the European construction industry anticipate increased levels of consolidation over the next 12 months, with 52% of respondents anticipating either a ‘significant increase’ or an ‘increase’ in M&A activity during 2012.

China, Russia, and Brazil are considered important emerging markets for growth

Both buyer and supplier respondents identified China, Russia and Brazil as important emerging markets for the growth of the European construction industry. China emerged as the most promising emerging market for the European construction industry, as expressed by the highest number, 39%, of respondents. China has started to invest significantly in projects such as water conservation projects, power-generation stations and substations, high-speed railways, roads and other infrastructure.

Key business concerns for the European construction industry

‘Market uncertainty’, ‘responding to pricing pressure’, ‘reducing demand for products and services’, ‘rising competition’ and ‘cost containments’ are some of the immediate business concerns for the European construction industry. ‘Market uncertainty’ emerged as a leading challenge for the European construction industry for 2012–2013, as expressed by the largest share, 67%, of industry respondents, while the second-largest share, 50%, of respondents identified ‘responding to pricing pressure’ as important.

Average annual procurement budget of buyers is expected to increase

The average size of the annual procurement budget for European construction industry buyer respondents is projected to be US$56.9 million in 2012. The survey reveals that the procurement budgets of buyer respondents are expected to increase by an average of 1.5% over the next 12 months. In total, 53% of respondents expect ‘no change’ in their procurement expenditure in 2012, while 31% expect an increase. This rising procurement budget could be due to the buyers’ increasing capacity, new project undertakings, distribution network enhancements, R&D investment, and partnerships with other companies to achieve operational synergies.

Key areas where European construction industry buyer respondents plan to increase expenditure

Survey respondents from construction contractor and developer companies plan to increase their investments in ‘interior outfitting’, ‘interior decorative finishing’, ‘research and development’ ‘building materials’ and ‘structural and architectural components’ for 2012. A total of 25% of construction buyer companies plan to invest in ‘interior outfitting’ product solutions, and these companies are making plans to expand their product offerings.

Critical factors for supplier selection by construction contractors and developers

‘Quality’, ‘level of service’, ‘price’ and ‘supplier’s reputation for reliability’ are considered important factors for supplier selection by buyers, while ‘supplier’s CSR reputation’, ‘proximity of supplier operations’ and ‘supplier’s environmental record’ are considered important by fewer respondents.

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