Editor's Comment: Top 200 shows return to growth
By Chris Sleight19 July 2011
One of the most reassuring aspects of the 2011 edition of our annual league table of the world's 200 largest construction companies is that it clearly shows the construction recession is over. Revenues for the largest contractors increased just over +2%, employment in the industry was up more than +7% and profitability, as measured by the average operating margin, rose more than a percentage point.
But as ever, a global figure belies some very different regional trends. The most striking is the strength of the Chinese market, which has seen three Chinese contractors take the top places in the league table, with a lot of clear water between them and the fourth placed company. But elsewhere there are strong signs of the buoyancy of other developing markets, with a growing number of Indian contractors making it into the Top 200 ranking, for example.
For every winner there is always a loser of course, and the countries that seem to be suffering at the moment are the traditional powerhouses of the industry, such as the US, Europe, and to a lesser extent, Japan.
This is most striking for the US contractors, which are having a lousy time as their domestic construction market enters its sixth year of recession. Seven US companies dropped out of the Top 200 ranking this year, and those that remain represent a 13.2% share of total revenues - a slice of the pie that is as low as it has ever been. Add to this a meagre operating margin of just 2.58%, and the difficulty facing US construction companies becomes clear.
The main European contracting groups are also losing small slices of their overall share of the Top 200's revenues, although not to such a great extent, and they are also maintaining healthy profits. The most surprising of group within Europe is the Spanish contractors. With the home market on its knees - Spanish construction output has fallen more than -40% since the peak in 2007 - contractors should be collapsing left and right.
Far from it. Although they have slipped down the rankings, Spain's contractors command a respectable 6.7% of the Top 200's revenues and have some of the best profit margins in the industry.
The secret here is that the country's large contracting groups managed to diversify away from their domestic market long before the recession hit. Many took sideways steps into other areas like energy, utilities and road concessions, as well as moving into other markets in Europe and the wider world. The result has been that they have weathered the storm.
It is a lesson that comes too late for many US contractors that were over-reliant on their home market, or even one sector - the US house building fraternity is the obvious example. And it is also fair to say that diversifying into new markets is not something that is within reach for many contractors - how could a medium-sized contractor in the mid-west suddenly decide it wanted to build roads in India for example?
But the large US companies that have come through unscathed - Bechtel, Fluor and their like - demonstrate the value to their fellow countrymen of being in many markets and many sectors. It may also be a lesson the contracting giants in China need to learn, because one day their home market will slow down too.
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