Engineers on the lookout for new prospects

IBISWorld estimates that the engineering consultancy services industry’s revenue grew at an average annualised rate of 8.7% over the five years to 2008-09. The pace of revenue growth is estimated to be slowing during 2008-09. The evidence of recessionary conditions in several of the world’s largest economies, the instability on the local and international share markets and the scaling back of demand for resource commodities in China have shaken investor confidence in the Australian resources, manufacturing and commercial property markets.

While the demand for consulting engineering services has continued to climb marginally associated with ongoing work on several large scale resource and transport developments, new work on engineering design, preplanning and feasibility assessments is stalling.

The industry has undergone substantial structural change during the past decade, driven by several key factors, including: the globalisation of the consulting engineering market; the outsourcing of services by public authorities and private companies; the rise of the large scale multi-disciplined professional services company; and the diversification in the range of services the industry is capable of supplying.

Similarly, the trend towards the creation of multi-disciplined professional organisations has become a feature of this industry over the past decade, with firms offering a “one-stop-shop” for clients, ranging across all categories of engineering services (mechanical, chemical, industrial power, environmental, etc.), along with architectural design services, quantity surveying, land and geophysical surveying services, drafting, and construction management.

IBISWorld forecasts that industry revenue will grow at an average annualised rate of 2.0% over the five years to 2013-14, lagging marginally behind the projected pace of Australia’s GDP growth. Industry growth will grind to a halt in the next two years as global economies weaken or recede, and investment into mineral and energy developments is scaled back. It’s not all doom and gloom, however, as other demand drivers remain at historical highs and government privatisation programs and infrastructure development help return the industry to robust growth levels in the second half of the outlook period.

Demand conditions in the mining and energy market, and the non-residential building market, are expected to contract moderately over the first half of the outlook period in response to the current global credit squeeze, however investment is likely to return to these markets in the latter years of the outlook period.

The larger firms are expected to continue to generate revenue from work on international consulting contracts, notably in the South East Asian market, although competition from large scale European and North American consultancy firms will remain intense. However, the pace of industry revenue growth is forecast to strengthen from the middle of the outlook period, reflecting the return to synchronised cyclical growth in the building markets and improved demand conditions in the infrastructure markets.

Key Success factors for operators in the industry:

• Ability to accommodate environmental requirements. Activity in the environmental management field is one of the fastest expanding segments of industry activity and successful firms have moved to establish their capabilities in this field.
• Establishment of export markets. Development of significant export activities, which can be risky but which gives firms an advantage over those depending totally on the home market.
• Access to highly skilled workforce. Firms must be able to attract and retain a skilled workforce.
• Ability to compete on tender. Firms must display a capacity to win contracts on tender while ensuring an adequate cashflow and profit margin is maintained.
• Having a good reputation. Maintaining a reputation for quality and efficiency is essential in generating repeat business with clients and capturing long-term contracts.
• Ability to quickly adopt new technology. Technological advancements (production and construction technologies) impact on the capacity of firms in this industry to efficiently compete in most markets.

Robert Bryant is the general manager of business information firm IBISWorld.