The Engineering, Procurement and Construction sector is undergoing an interesting phase with factors like digitization and fluctuating oil prices influencing its growth and development. Companies in the EPC sector, especially are trying to break free from the predictable cycles of growth and decline and find ways for profitable and consistent performance.
As per a report by PWC there are three distinct trends shaping the market in 2017 and to maintain sustainable success. Let’s take a look at these trends and what they mean for the sector:
EPC Industry Trends
1. Contracting Gets Challenging
The contracting and sub-contracting process is changing drastically, leading to fresh difficulties for management teams. There is a clear shift to lump-sum, turnkey (LSTK) contracts – where the EPC companies take the cost risk (lump sum) and assure operational readiness (turnkey). Both private and public sector clients have become far savvier about project cost requirements and leveraging the highly competitive bid-market. Thus, the trend for EPC Turn Key Projects and contracts is rising and will continue to and accelerate over the next couple of years.
Another shift in the contracting domain is the approach to project definition. Customers have started breaking larger projects into smaller, discrete projects and tasks. This helps the clients to get a better price, albeit they must exercise a more scattered responsibility of project management. It allows buyers to source their work from the best cost proposition.
An interesting phenomenon here is the move to public–private partnerships (PPPs), particularly in the US market where this trend is somewhat new. It helps government agencies upgrade and repair infrastructure without investing in the capital to fund these projects. Partnering with E&C firms that invest their own capital to participate in exchange of some trade-off (share in revenue or other benefits) – creates a win-win situation.
2. Market Consolidation
The second trend is related to M&A. The past couple of years have seen a drop in the volume of mergers and acquisitions in this industry because of market uncertainty. It is predicted however that consolidation will bounce back for various reasons.
Economic downturn in the past few years has impacted smaller firms (less than US$6 billion in revenue) more than their bigger and more diversified peers. The smaller firms are now taking various steps to reduce overhead and streamline cost structure. Some of these may strive to realize their debt covenants through 2020. Smaller companies may position themselves for acquisition.
Owing to the uncertain climate, EPC players and infrastructure developers are also showing interest in diversifying their assets and investing in other be it Renewable Energy, Wind, Power as part of their growth strategy and also to create more value.
3. Competition Grows From EPC Players In India, China, Korea
Engineering contractors and firms in fast developing economies have built up internal expertise and experience in the past decade. As they have achieved growth targets in their home markets, they now seek outwards to compete against global players.
Firms in rapidly growing economies have spent the past decade focusing on their home markets, steadily building up cash positions and internal expertise. Now, as growth eases in their home markets, they are expanding outward and seeking to compete against established global players.
These companies bring scale and labor benefits to traditional, on-site projects creating a fiercely competitive market with reducing margins.
For EPC firms, there has been a distinct change in business model. Innovative funding mechanisms, rising investments and ready availability of engineering expertise have caused many global companies to enter emerging markets to realize their growth potential. Rishabh Engineering has the right mix of business-savvy, technology and experience to play an important role as your partner to expand into emerging markets.
We are a Multi-Discipline Engineering Services Company. We offer high quality engineering support solutions to EPC leaders operating in Oil & Gas, Petrochemicals, Power, Fertilizers and Water/ Wastewater industries in global market.
Our collaborative engagement and delivery models, allows our team to work at your location or remotely from our India facility. Call us on 1-877-RISHABH (1-877-747-4224) or Contact Us for your engineering support service needs.
ASME B31.3 2016 Edition: Key Changes In The Standard
The American Society of Mechanical Engineers (ASME) is a non-profit…
What to look for in a Piping Design Company
Some of the world’s most reputed corporations turn to contract…