Look inwards and outwards to stay competitive
SOUTH Africa has not recovered from the global financial crisis, and the indications are that the road to recovery will be long. The continuous decline of the country’s GDP speaks for itself. Although the two largest economies in Africa (South Africa and Nigeria) have announced that they are no longer in recession, there is uncertainty about their ability to maintain growth.
Governments have tried to anchor investment in infrastructure, but there are limits to what they can achieve.
Other issues have exacerbated the problem, such as confidence in the South African market, which has declined significantly since the recent credit rating downgrades. In addition, many of the major commodities-based markets in which the consulting engineering industry operates, such as Angola, Mozambique and Nigeria, have been hit hard.
In these circumstances, it is important for engineering practices to ask what they need to do internally to improve efficiencies. They need to establish how to do things better, faster and at lower cost.
Then they need to look at market opportunities and their client base. Engineering companies need to retain their existing clients, particularly their most profitable ones. There are challenges to approaching new clients when the market is depressed.
It is also important to consider diversification. Are there any potential growth markets in which the company is not trading? Is the company using its skills to their full potential, or are new skills and competencies required?Next, the value chain needs to be scrutinised. Can a traditional consulting practice move up or down the value chain?
Are there things that the practice can do to move it closer to client bodies, such as sharing some of the development risk or developing its own projects where traditionally this may have been seen as falling outside the company’s risk profile? Can it fulfil some of these functions to replenish its pipeline? And if it goes down the value chain, are there functions it could consider that would enhance its offering?
Disciplines A horizontal view of the business is good for establishing what disciplines can complement and support the engineering practice to enable it to enhance its value offering. With a growing need for power, transport and water infrastructure, the needs in Africa are great. Although there are many financiers and enough capital to do address these needs, little is being done to bring projects and financiers together.
Financiers are looking for projects that have been tested for viability. Typically, funding for a feasibility study is the stumbling block with many potential projects. A cleverly considered funding model, using the skills and competencies that exist in an engineering practice – and working with the right partners – can bridge the gap and assist projects in becoming bankable and attractive to investors.
Ultimately, a holistic view of the business is underpinned by one important factor: is the market on the business’s radar growing? Are there viable opportunities to take advantage of ? If there are, it is necessary to work through the due diligence of that market, the barriers to entry, the existing players, the business’s competitiveness, and its value offering.
Most importantly, a business must be agile to stay competitive in an uncertain market – in other words, it must be able to respond to market challenges and adapt to them quickly.
The South African engineering industry is in a state of flux, whether because of changing regulations environment or shifting market conditions. Engineering practices have to find ways to identify changes quickly, internalise them, and respond to them. They no longer have the benefit of developing long-term plans.
Two years ago, it was possible for engineering businesses to come up with 12-month financial targets. Rapid economic change has seen planning reduced to six months and then three. You need to be agile to remain profitable; assumptions made today may not be relevant in six months.
If this picture seems bleak, there are some positives. Some countries have remained relatively stable, such as Botswana, Uganda and Tanzania. The government continues to drive the infrastructure programme. An analysis of government versus private sector spend shows that the government is increasing its spend, whereas the private sector remains cautious. The government may have fewer resources, but it is keeping up the momentum.
Transformation is another positive initiative by the government to encourage new entrants into the market, such as black-owned and women-owned businesses. This is an opportunity for the engineering and related industries to help strengthen and grow the sector.
In addition, the mining sector has begun to turn, and clients are starting to review the feasibility of some projects.
Economic recovery will not happen overnight, and engineering companies will have to find ways to adapt and adjust to this new reality. Not doing so could have lasting and irreparable consequences.
Richard Vries is the group chief executive officer at GIBB, one of South Africa’s leading blackowned multi-disciplinary consulting engineering companies.