Construction firms hang tough in grim market

Published:  18 June, 2010

UK: Despite dismal conditions seen in the sector, UK construction companies are displaying a high degree of confidence in the viability of their business models, according to a survey by business and financial advisors, Grant Thornton UK.

Over 90% of the construction industry executives surveyed believe their business models are robust enough to allow them to "succeed over the next 18 months". An identical number also believe that their business models proved "resilient" in the economic downturn.

The report also points to hopefulness regarding the state of demand for construction products and services. Nearly half of respondents (47 %) expect to see 'full economic recovery' in their industry within the year, with 70% confident that construction will recover within 18 months.

However, while construction businesses may be satisfied with the overall shape of their business models, many are looking to make significant changes, particularly to the markets and market segments they target.

According to the report, 62% of construction businesses plan to make significant changes to target markets, 52% to their cost structure (fixed, variable and other costs) and 25% to their supply chain.

Kathryn Hiddleston, head of construction at Grant Thornton said: "Construction executives' confidence in their existing business models is quite a surprise but possibly reflects the fact that many made some dramatic cuts over the past year and are still standing, despite a significant number having to shrink to survive in a smaller market. It is also probable that constructors are only just starting to think about where they go from here after two years of focusing on survival.

"Few sectors in the UK have suffered more in the recession than that of construction which saw many building companies slash costs and workforces viciously as a result. Construction activity fell precipitously from pre-2008 levels in virtually all sectors, with perhaps the partial exception of public infrastructure projects, a situation likely to change further through plans from the new coalition government.

"While corporate leaders may not feel their business models need to be overhauled, most plan to make significant changes such as adjusting their cost structure, focusing on new target markets and expanding into overseas markets.

"Many constructors are increasingly experimenting with the model of partnering with local government authorities that already have land for development to develop major social housing projects as they seek to reduce costs and increase their build volumes."

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