Insight

Is it time you shaped up and shipped out?

26 August 2013

The government wants UK construction firms to export more - and shipping complete projects en masse could be one way to achieve it. Elaine Knutt reports.

Could we be looking at flat-pack buildings, being shipped to India, Argentina, Africa? Or maybe it could be the actual manufacturing production lines inside the containers, the dies and presses needed to make cladding panels, universal beams and columns, simplified M&E kit for a click-and-connect building. They could be manufactured close to site on a temporary production line, then assembled on site to high degree of accuracy – with or without a UK management team.

Or maybe we’re looking at components for an even more revolutionary concept: an entire UK-designed school, hospital or prison designed and specified in BIM, and marketed government-to-government to overseas public authorities who licence the complete data set. It’s not only possible, it’s rumoured to be under discussion at the Ministry of Justice for exporting British prisons. If you hear the brand name “MOJ Global” in future, you heard it here first.

The flat-pack revolution is being championed by members of BuildOffsite, which is proposing to form consortia of UK design, offsite manufacturing and BIM specialists and has already met with potential clients in India and Argentina. A leading proponent is architect Bryden Wood, which is pioneering a similar approach (with project manager Mace) on the £1bn 15,000 home Project Gutenborg in St Petersburg.

Bryden Wood director Jaimie Johnston believes stripping down and re-assembling our approach to construction could usher in a new chapter in exports, by derisking overseas projects and side-stepping local supply chains and subcontractors.

“We can control a building by designing all the components to the nth degree, and not by expecting a contractor to hit a specification or deliver to a particular quality. One of the problems about contracting is we get bogged down with the incumbent supply chain and the usual players. But once people see it done at Gutenborg, I think they’ll think ‘that’s what we should be doing’.”

Building UK construction exports through BIM, design for manufacture and even “flying factories” sounds audacious, but it’s being discussed as a means of meeting the challenge set in the Industrial Strategy for Construction – and slashing the construction trade gap. Last year, the UK government set itself the target of doubling exports by 2020 across all sectors of the economy, and construction – at less than 2% of all UK exports – is a weak link in the chain.

Although we have a world-class reputation in BIM, sustainable construction and Olympic delivery – and currently more capacity than demand in our domestic market – the UK-owned industry remains resolutely parochial. Overseas contracting is, in fact, on an upward curve, but the £1.65bn of work delivered by British-owned contractors for overseas clients in 2011 is offset by the £1bn delivered by foreign contractors here, and BIS research in support of the Industrial Strategy shows that other countries have far higher construction exports relative to their overall exports.  

Three-fold rise in exports

Professional services presents a more optimistic picture: according to research by the CBI Construction Council the value of construction services exports has risen from £0.2bn in 2001 to £1.7bn in 2011 as British firms win work consulting on the eco-towns and prestige projects of emerging economies. But its research also suggests that worldwide demand for green buildings, mass housing and world-class architecture means that our architects, engineers, surveyors and project managers should collectively be targeting a three-fold rise in exports to £4.4bn by 2025.

UK trade in construction contracting (left) UK trade in architecture and quantity surveying services (£millions) (Source: BIS Analytical Paper, July 2013)

 

The products sector is also in Whitehall’s “could do better corner”, with exports running at around £6bn a year, but imports accounting for £12bn. While part of the deficit reduction strategy is to encourage multinationals to invest in new production facilities in the UK rather than elsewhere, the Construction Products Association is working with UKTI to identify as many as possible of the 20,000 non-exporting SMEs in the sector, and encourage them to consider exports.

“The UKTI does a lot of work to get people to export for the first time, but there are a lot of companies who are probably pressing ‘delete’ if they happen to get an email about it. We’re trying to identify the ‘invisible’ firms and get them to join the wider export fraternity,” says John Tebbit, CPA deputy chief executive.

The reasons Tebbit lists as to why product companies don’t export also apply to construction businesses as a whole: not knowing where the markets are; not knowing how to export; not having the money to export; and “finding it all a bit scary”. But, he says, the lessons of the recent past as well as forecasts about global economic growth should at least put exporting on the radar. “Fundamentally, if you’re a business, you need to plan for growth. Some might consciously consider exports and decide it’s better to concentrate on the home market, but it’s better to consider and reject it than not think about it in the first place,” says Tebbit. 

"We'd like to see an over-arching goal of tripling exports across construction [contracting, consultancy and products] by 2025"

Lucy Thornycroft CBI Construction Council

A compelling part of the argument is a CIOB-sponsored forecast published earlier this summer that highlights the cost of a stay-at-home strategy. Global Construction 2025 looked at anticipated construction growth rates over the next 12 years, forecasting that overall construction output will grow by 70% by 2025, but China, India and the US will account for almost 60% of all global growth. Meanwhile, construction markets in Western Europe will be almost 5% smaller by 2025 compared to 2007. If contractors want to go where growth is, they will have to look further afield.  

Graham Robinson, one of the lead authors of Global Construction 2025, believes that government and industry should adopt an exports mindset, but acknowledges the challenges for an industry that scaled back its overseas exposure in the mid-1990s. “There are some technological and management advantages that UK contractors can definitely offer overseas markets, but price isn’t one of them,” says Robinson. “When you’re competing against Korean and Chinese contractors, who is going to value technical factors above price?”

So he believes the industry needs strong central government support, perhaps through government-to-government treaties between UK plc and developing nations. ”If we had a UK-Indonesia treaty, that could introduce our industry to opportunities in Indonesia and we would promote the use of their expertise. The treaty could set out how UK companies would team up with local parties, or have a commitment to deal with any regulation or red tape.”  

But what else should industry and government be doing to develop a more export-oriented industry? The Action Plan in the Industrial Strategy refers to the UKTI and industry exploring appetite for working in consortia to take on overseas projects and a new marketing campaign under the “Great Britain” slogan, as well as the CPA project above. Delivering these measures will be the responsibility of the new Construction Leadership Council.

But at the CBI Construction Council, the answer to the question starts with setting more ambitious  targets. “We’d like to see an over-arching goal of tripling exports across construction [contracting, consultancy and products] by 2025, with year-on-year growth targets to be developed by the CLC. We see the launch of the strategy as the start of an enabling process, a starting point around developing bold, targeted actions,” says Lucy Thornycroft, head of construction and manufacturing.

She agrees with Tebbit that low awareness and visibility of the support available to construction SMEs is a significant barrier — in a cross-industry survey the CBI conducted last year, three quarters of SMEs were unaware of the work of UK Trade & Investment and UK Export Finance. And where firms do know of their existence, there’s often a perception that it’s bureaucratic, inflexible and suited only to major corporates. “I hear that applying for credit is quite tortuous,” says Robinson.

But the CPA’s Tebbit says that UK Export Finance has undergone a “phenomenal” change in culture the past few years. “They’re saying, ‘we are here to finance your exports’,” he says. “So if you’re exporting to a distributor, they’ll give you credit against the distributor not paying for the goods, so you’ve got no risk, or they’ll finance a performance bond if you’re making something to order, so that you’re not using up capital to make the stuff in the first place.”

More receptive

Contractors are more likely to need export finance as part of a build-and-finance package, and here contractor Kier agrees that the door is now wedged open. “It used to be quite draconian, there were restrictions that a high percentage of the work had to be done in the UK. You still have to state your case, but they have become more receptive,” says Dave Parr, business development director for the infrastructure and overseas division.

Kier is one of only four UK-owned contractors taking on overseas contracts, the others being Laing O’Rourke, Balfour Beatty and Carillion. In 2012/13 it turned over £80m (in its Hong Kong, Middle East and Caribbean markets), and plans to hit £200m by 2016/7. It’s currently bidding in all three markets as well as undertaking a desk-top study of opportunities in Africa. Parr supports the Industrial Strategy’s stress on establishing JVs overseas, pointing out that it already works in JVs with Laing O’Rourke, Kaden and Spanish contractor Ossa in Hong Kong.

"You do business with people you like and trust, so the critical step is getting someone out there to build trust and relationships"

John Tebbit, Construction Products Association

But he believes that UK contractors’ reduced presence overseas is partly due to cultural and socio-economic factors as much as the business case: working overseas has lost its “exoticism” appeal as travel is now part of everyone’s lifestyle anyway, dual careers make it harder for couples and families to relocate, rising living standards in developing nations have eroded the salary advantages; and many countries such as Saudi Arabia and Kuwait now have “localism” agendas where foreign firms have less ability to bring in expats. Rebuilding our overseas presence, therefore, is about accepting that the landscape has changed.

But Tebbit points out that some issues remain the same: “You do business with people you like and trust, so the critical step is getting someone out there to build trust and relationships. What we and UKTI can do will help, but exporting still relies on getting a good salesperson out there.”

The CBI is keen to revisit the Bribery Act – reports in the FT earlier this summer suggest the government is minded to review it. “It’s a particular concern for us, it’s a barrier for all small and mid-sized businesses because of the perception of additional risk. We’re very keen for it to be looked at closely,” says Thornycroft.

But when it comes to encouraging contractors to work overseas or lobbying for action on the  Bribery Act or other issues, who is taking the lead? While the products sector has a champion in the CPA, its contracting counterpart, the UKCG, deals exclusively with UK issues. Director Stephen Ratcliffe told CM that members can subscribe to British Expertise (a private membership organisation for exporters) to represent their interests in overseas markets. But British Expertise says in fact it only has two contractor members – Kier, and Lagan Construction of Northern Ireland.

Referring to the UKCG, Graham Robinson laughs. “The clue is in the name!” he says. “A lot more could be done, but there is a question about who is in the best position to do it – the contractors’ organisations do tend to be a bit inward-looking.”

With the economy at last showing some signs of life, it would be easy for businesses and institutions alike to focus on responding to the opportunities and pressures that brings rather than taking on, literally, fresh territory. But the fact that exporting featured in the Industrial Strategy shows that it’s no longer just a fringe affair: in the coming years we will need to export to keep our competitive edge, to build demand in line with capacity and foster innovation.

BIM won’t be the magic bullet: after all, other countries are catching up fast. But if our early mover advantage allows us to rethink how we can export buildings and the products and professional services that go with them, then it could usher in a whole new era of exports.

 

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