Engineering and Construction


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Engineering and Construction

  1. 1. WORLD SCENARIO SERIES Engineering & Construction: Scenarios to 2020 Executive Summary 1
  2. 2. Other Publications in the World Economic Forum’s World Scenarios Series: Engineering & Construction: Scenarios to 2020 ■ The Kingdom of Bahrain and the World: Scenarios to 2025 ■ The Kingdom of Saudi Arabia and the World: Scenarios to 2025 Preface ■ The United Arab Emirates and the World: Scenarios to 2025 ■ Technology and Innovation in Financial Services: Scenarios to 2020 ■ Digital Ecosystem - Convergence between IT, Telecoms, Media and Entertainment: Scenarios to 2015 ■ The Gulf Cooperation Council (GCC) countries and the World: Scenarios to 2025 The E&C 2020 scenario report represents the How will these scenarios be used in the second ■ China and the World: Scenarios to 2025 conclusion of the first phase of the Engineering phase of the initiative? ■ India and the World: Scenarios to 2025 & Construction: Scenarios to 2020 initiative In the second phase of the Engineering & ■ Russia and the World: Scenarios to 2025 undertaken by the World Economic Forum through Construction: Scenarios to 2020 initiative, the Forum its Engineering and Construction Community and intends to bring these scenarios back to today’s Preface Centre for Strategic Insight. environment and consider their implications. For further information please visit our website Together with its stakeholders – including clients, Why the E&C 2020 scenario project? The World Economic Forum 2006 CEO Survey for the governments, academia and industry experts – the Engineering & Construction Community showed that there Engineering & Construction Community will use its is significant change going on in the business environment shared understanding of the future for further dialogue this community is operating in, underlining the need for a to identify proactive collaborative actions to shape the long-term, multistakeholder, industry-wide approach to future because the decisions we make today create deepen insights into the future of the E&C industry. tomorrow. As an independent international organization Historically, the E&C industry is not a shaper, but committed to improving the state of the world by responds to the needs of its customers. And most E&C engaging leaders in partnerships to shape global, companies plan strategically three to five years out, where regional and industry agendas, the Forum is ideally risks are mostly already defined and tracked. By looking positioned to convene the international and diverse ahead to 2020, and considering forces that are not yet group of individuals necessary to do so. on the radar screen, companies can not only be better prepared but also more proactive in shaping the future of We trust you will find this publication an informative, capital projects development. useful analytical tool. After reading these scenarios, we believe you will gain a valuable new perspective on news To gain a better understanding of the possible articles, industry information and general anecdotes. outcomes, along with the key trends and events that As Marcel Proust puts it, “The real voyage of discovery might shape them over the coming years, the World consists not in seeking new landscapes but in having Economic Forum and its Engineering & Construction new eyes.” Community set out to develop scenarios on the future focusing on “How could the business environment play out for the implementers of capital projects by 2020?” The scenarios presented here are four very different, The views expressed in this publication do not necessarily challenging yet plausible images of that environment in reflect those of the World Economic Forum 2020. They were constructed over a period of one year World Economic Forum and emerged from discussions and workshops with Professor Klaus Schwab 91-93 route de la Capite leading industry stakeholders from Asia, the Middle East, Founder and Executive Chairman CH-1223 Cologny Switzerland Europe, Latin America and North America. They combine World Economic Forum Tel.: +41 (0)22 869 1412 regional and global perspectives, and encompass both Fax: +41 (0)22 869 2744 E-mail: general building and large industrial segments such as oil, gas, chemicals, transportation and power. © 2007 World Economic Forum All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system. 2 3
  3. 3. Engineering & Construction: Scenarios to 2020 Partner Views “This E&C 2020 Scenario Planning process “The Forum’s E&C 2020 scenarios project has “The demand for new infrastructure in the emerging “Work accomplished through E&C 2020 should offers those of us who lead E&C companies a helped us to identify critical issues and uncertainties economies and for renewal of infrastructure in the provide considerable substance to the strategic unique opportunity to make our strategic planning that have the greatest potential to impact our developed economies is practically insatiable and planning activities of individual companies. The processes more effective, and allows us to respond company and our industry over the next decade. so is the demand for energy and communication. E&C 2020 process helps fill a significant gap as it more quickly and confidently to future changes in It has also highlighted the merits of industry Concern for the environment has created a provides a thoughtful, informed and analytical view our dynamic industry. This is a rare opportunity to collaboration providing all of us in the project with a whole new ‘environmental’ market with endless of the longer term future, a perspective that has not thoughtfully consider the longer term aspects of our forum and framework for shaping, rather than simply opportunities. typically been a part of our industry-wide thinking.” business environment and our client relationships; responding to, our future.” This presents E&C companies with unprecedented aspects that are difficult to tackle within our normal opportunities for growth in the traditional way and Alan L. Boeckmann Chairman and Chief Executive Officer, business and strategic planning horizons. We live in by way of privatization of infrastructure. Yet so great Steve Hanks President and Chief Executive Officer, Fluor Corporation a world that is full of uncertainty, and the E&C 2020 are the economic, social and political uncertainties Washington Group International process lets us tackle that uncertainty head-on in a that traditional planning is proving to be woefully systematic way that will help us make our resource inadequate. allocation decisions – and our response to unfolding E&C 2020 asks and studies what is most likely to events – more robust and effective.” happen and what has already happened that can create the future. It is a wonderful tool that can enable businesses to make their future.” Ralph Peterson Chairman and Chief Executive Officer, CH2M HILL Ajit Gulabchand Chairman and Managing Director, Hindustan Construction Company Limited 4 5
  4. 4. Engineering & Construction: Scenarios to 2020 Engineering & Construction: Scenarios to 2020 Introduction How could the business environment for implementers in urban areas in developing countries, compared to only There are signs suggesting we may be at risk of an Nature of demand Launch of the project Governors Meeting for E&C in Davos 2007 2007 of capital projects plausibly look in 2020? 6% in urban areas in developed countries3. Markets in the overall retrenchment from globalization such as rising The type of client influences the contractual developing world will consequently increase in importance geopolitical instability and the spread of political populism arrangements of capital projects: notably, whether the Project scoping and issue identification To answer this question, the project set out for the E&C industry. in Europe and the US. Will globalization progress and emphasis is more on schedule and price or focuses PHASE 1 ■ Identify focal question to synthesize the different perspectives of many support high GDP growth, or will there be retrenchment more on long-term social and environmental impacts. ■ Research publications, papers and other information Introduction Introduction stakeholders and build a shared vision of the future. To Though the pace of urbanization will be influenced from globalization? Industrial clients, government and public bodies, financial sources do so, over a period of one year we held discussions by factors including the rate of economic growth and institutions and developers each have their own objectives ■ Interviews with leading industry stakeholders and multistakeholder workshops in London, Jordan, rural development, the overall trend is set to continue and constraints. The market proportion of these entities in Regulatory context ■ Map key drivers Singapore, Paris and China, bringing together industry – and with it the challenge of providing infrastructure Building regulations, employment and environmental the E&C market will strongly impact the nature of demand. leaders, clients, academics, civil society and government to accommodate greater urban populations in a laws all have significant impacts on the E&C sector. Issue prioritization London & Jordan Workshops representatives from Asia, the Middle East, Europe, sustainable way. Governments increasingly use building regulations Who will be the clients for E&C services and what will ■ Determine predetermined elements and critical Latin America and North America. Discussions covered to impose environmental standards and to stimulate they value? uncertainties: the issues that will shape the future issues surrounding infrastructure in its broadest sense, innovation, while employment laws impact on the Ageing societies ■ Identify focal questions for the scenarios encompassing industrial as well as public projects. Opinions differ on how exactly demand for availability of labour. Regulations also strongly affect Scenario building infrastructure will change as societies age, but among market structure, the costs of doing business, country From these deliberations, two main dimensions emerged the clear implications for the E&C industry’s business competitiveness, the degree of market liberalization and through which to envision how the business environment for environment are that ageing societies will put pressure on the extent and impact of globalization. implementers of capital projects could plausibly look in 2020: Scenario development Singapore & Paris Workshops The first stage was to collect a wide range of the tax revenues available for infrastructure work and will ■ Develop conditions and triggers that lead • Will the corporate environment become more viewpoints on the factors that might shape changes to impact the available labour force. At what level of governance will regulations be defined to contrasting scenarios global, or will it evolve towards a multitude of the business environment in 2020. This was done through – local, national, regional, global? How stable will the ■ Develop challenging, plausible scenarios for 2020 local markets? a series of open-ended interviews with stakeholders, According to the United Nations, while now one in 10 regulatory context be – will regulations affecting E&C be • Will the demand – and E&C’s relations with its covering political, social, economic, technological, of the world’s population is aged 60 or above, by 2050 integrated into long-term development plans or vulnerable clients – be transactional or value-based? environmental, and supply and demand issues. that figure will have risen to one in five. There will be strong to the shifting priorities of changing political regimes? regional differences, but societies will age more rapidly in Dalian Workshop Participants at the workshops in London and Jordan developing countries than in developed countries. These two dimensions lead to four possible worlds: Climate change policies ■ Validate the scenario axes assessed these issues on their level of uncertainty and Climate change has become a top issue on the ■ Assess the relevance and validity of the scenarios their level of impact on the industry, and identified the global agenda, and climate change policies hold great The four critical uncertainties are globalization ■ Strengthen the storylines most significant predetermined elements1 and critical uncertainty in light of the long project cycles for capital and global economic growth, the regulatory uncertainties . projects. Since the Kyoto protocol on climate change context, climate change policies and the 2 entered into force in 2005, a broad range of countries has nature of demand. Scenario production made progress on carbon emission reduction, but the The two main predetermined elements are ■ Write up the scenarios in an effective protocol’s full execution has been hindered by a variety urbanization in developing countries and and compelling way of issues. Talks have already begun on what is to follow ageing societies. Globalization and global economic growth ■ Produce scenario publication and video Economic growth – especially growth in per capita the end of the Kyoto protocol in 2012. In parallel we see income – is the major driver of demand for infrastructure, other climate change initiatives such as the Asia-Pacific and the rate of globalization influences GDP growth Partnership on Clean Development and Climate, and the Urbanization in developing countries For the first time in history, in 2008 more than half through its impact on cross-border flow of products, Regional Greenhouse Gas Initiative. of the world’s population will be urban. With economic services, capital and talent. The average annual global E&C 2020 scenarios Governors Meeting for E&C in Davos 2008 2008 growth, population growth is the main driver of demand GDP growth between now and 2020 is estimated to reach What new climate change policies will be put in place, launch for infrastructure. The planet will have 1.1 billion more between 2.5% and 4%, depending on how globalization and by whom? How, and at what governance level, will people in 2020 than it did in 2005, of whom 71% will be progresses. they be enforced? How will they impact the demand for PHASE 2 Multistakeholder dialogue on industry implications to identify proactive collaborative and execution of capital projects? actions to shape the future. The four scenarios presented emerged through scenario building workshops in Singapore and Paris, and were tested and strengthened in the scenario affirmation Important determinants of the future business environment which are relatively certain to evolve in a particular direction, if not necessarily in their extent and timing. 1 The decisions we make today create tomorrow. Factors that are highly important in shaping the future business environment and that are highly uncertain in the way they will evolve. 2 workshop in Dalian. United Nations, World Population Prospects: The 2006 Revision, 2007. 3 6 7 8
  5. 5. Global environment Market regulation Level and source of demand Client relationships Climate change Natural resources Workforce Technology and innovation The Race While the global economy continues to ■ No global agreement on ■ Strong international ■ Competitive globalization sees ■ International competition to attract ■ Global GDP growth, powered by BRIC countries, ■ Adversarial, tense ■ International companies’ ■ Industry R&D is inefficient integrate and grow, security concerns climate change due to competition for access more trade integration but investment leads to fragmented supports the demand for capital projects. relationships among industry competition for talent and expensive. and lack of trust afflict relationships nations’ fear of becoming to scarce energy and raw wary international relationships. legal frameworks and frequent ■ Supply of E&C services has grown faster than demand players and with clients. supported by immigration ■ Innovation and between both nations and businesses. uncompetitive. materials. ■ Reliance on bilateral and changes in regulatory context. due to increased capacity of developing country players. ■ Transactional relations policies. knowledge sharing With companies from the BRIC countries ■ Adaptation, not regional agreements. ■ Emergence of private, speculative investors with governed by a tight contractual ■ Serious labour shortage: hampered by concerns establishing a strong global presence, mitigation: dealing with the short-term, high-margin investment strategies. regime, litigations and claims. industry is not attractive to over trust, strict intellectual and investors in capital projects having a effect not the cause. ■ Private investment in public infrastructure: no ‘partnerships’, talent. property rights protection speculative and short-term mindset, the privatization with government consent. ■ Underinvestment in and the highly competitive E&C market is in a fiercely competitive human capital in the environment. race. industry. The Collaborative Globalization gathers pace amid ■ Global agreement on ■ Technological progress ■ Stable geopolitical environment ■ Strong drive for internationally ■ Strong global GDP growth supports the strong demand ■ Relationships between E&C ■ Some materials are in ■ Few restrictions on labour Leap geopolitical stability and international climate change policy is is rapid due to substantial fosters collaboration and harmonized regulation. for capital projects. firms and clients are more structural shortage, or mobility. collaboration; regulatory harmonization operational. R&D efforts with one set of intensifies globalization. ■ Self-regulation plays a key role as a ■ Demand exceeds supply due to high government open and collaborative. economically not viable due ■ Cross-industry high demand and environmental awareness enable a ■ Strong GDP growth leads to intellectual property rules. ■ Strong trade and market triple bottom line mindset dominates. spending and private investment. to carbon pricing. and competition for collaborative leap in E&C. State agencies, increased CO2 emissions, ■ E&C industry evolves towards integration through multilateral ■ Emergence of the ‘consortia client’ and shift towards ■ Adoption of alternative talent. research institutes and shifting coalitions but steps are taken to a more innovative culture. cooperation. triple bottom line investing. energy and material ■ Industry develops of specialist companies combine to tackle decouple GDP growth ■ Strong adoption of Public-Private Partnerships sources. innovative image, becoming novel and ambitious projects for clients from energy consumption (PPPs) for the development and operation of public more attractive to talent. who value sustainability, spurring multiple and from CO2 emissions. infrastructure. innovations and systems-level thinking. The Zero-Sum Wars, shortages and economic recession ■ Failure of climate change ■ Immigration policies are ■ Globalization stalls amid ■ Local regulation dominates, ■ Slowdown of GDP growth leads to downturn in the E&C ■ Transactional relationships ■ Prices of commodities ■ Low levels of innovation Game fuel a worldwide upsurge in nationalism, coordination at a global restricted to specific skill geopolitical instability. strongly implemented and enforced. industry and a buyer’s market. due to short-term nature of are not under pressure but as the industry finds it with mounting security worries and the level. sets and sectors. ■ Rise of the politics of fear. ■ Political populism leads to regulatory ■ Governments without natural resource reserves and liquid clients’ investment horizons. highly volatile. difficult to allocate resources politics of fear locking countries and ■ Forms of energy that are ■ High levels of unemployment, uncertainty. banking systems cannot invest significantly. ■ Sourcing of materials to R&D, training and business environments into a zero-sum most readily available locally decreasing enrolment ■ Private investors lose faith in PPPs, though states and equipment is highly education. game. Slumping demand, cost-conscious are used, irrespective of in engineering and science initiate new partnerships on security issues. constrained. clients and the increasing difficulty of impact on environment. studies. working internationally spell tough times for E&C companies. The Aspirational Amid international tensions and economic ■ No global agreement ■ Selective and temporary ■ Retrenchment from globalization ■ Strong local market regulations. ■ Slowdown of global GDP growth and decrease in ■ Governments catalyse ■ Local governments want to ■ Local community aspirations Communities difficulties, globalization stalls. As on climate change, but immigration is aimed due to international economic ■ Protection of domestic industries international capital flows constrain demand for E&C collaboration to spur reduce their dependence stimulate innovation. societies look inwards, visionary leaders governments place high at skill and knowledge tensions. considered to be strategic for services. increasingly sophisticated on imports. ■ Limited cross-border emerge at the head of aspirational value on sustainability of the transfers. ■ Societies and governments focus economic and policy development. ■ Governments take the lead in identifying infrastructure development for meeting ■ Developing countries innovation and knowledge communities who see E&C as strategically built environment. ■ High emphasis is placed on on improving their local situations. needs to improve the standard of living and stimulate complex infrastructure restrain export of sharing. important for local socio-economic ■ Emphasis on locally building of local human local markets. requirements. materials to ensure supply ■ Research agencies are development. They catalyse collaboration relevant environmental capital. ■ Governments and investors are sensitive to long-term, ■ Local governments have strong for local needs. established in partnership between businesses and academia to find issues. locally inspired value creation, sustainable influence on capital projects. between academic innovative solutions to local infrastructure infrastructure and local job creation. institutions, E&C firms and needs caused by environmental and social ■ Governments with limited resources attract the private clients. change. sector to participate in infrastructure development through attractive partnership frameworks. 9 10 11
  6. 6. Engineering & Construction: Scenarios to 2020 Engineering & Construction: Scenarios to 2020 Conclusion and Next Phase Project Team The aim of these scenarios has not been to predict Much is uncertain about the business environment in The scenario project team includes the following individuals: the future, but rather to sketch the boundaries of the which E&C companies will execute capital projects in the plausible. These scenarios will have had their desired future. But we trust that by stretching your minds in new Project Leaders: Kristel Van der Elst, Associate Director, Scenario Planning Team effect if they have succeeded in teasing out some directions, we will also have inspired a transformation from Roger Van der Marel, Project Manager E&C Community Conclusion and Next Phase Project Team underlying issues and helping you to envisage and reflect a reactive to a proactive approach. With that in mind, we on what could happen. On reading these scenarios, you now embark on the second phase of the project, where Core Team Advisers should ask yourselves: the focus is on shaping a positive future. This second Viktoria Ivarsson Roy Antink phase will involve both Engineering & Construction Shaun Kirby, secondee of KPMG Fiona Paua community-specific and multistakeholder workshops Johanna Lanitis Alex Wong • Which world would I prefer to live in? throughout the year, some as elements of the World Sandrine Perrollaz • What can I do to bring that world into existence? Economic Forum’s Regional Meetings and some as stand- • If another world came about, what would it mean alone events. Scenario writer: Andrew Wright for me? • What would I need to do to fare well in each world? The Forum is uniquely qualified to bring together the Editors: Nancy Tranchet An awareness of the worlds described in these various stakeholders of capital projects to analyse barriers scenarios offers the potential to help the many to success and opportunities for collaboration, both Creative design: Kamal Kimaoui stakeholders in capital projects – E&C companies, on a global approach and from more detailed regional – Geneva governments, owners, financial institutions, international perspectives. Working together, we aim to ensure that and non-governmental organizations – to build strategies we continue to implement capital projects that support that are flexible and robust enough to withstand diverse economic growth and improve the state of the world. possible futures. They offer a context for interpreting one- off media headlines or experiences which may give you, the decision-makers, a competitive edge by raising your sensitivity to early signals of emerging fundamental trends. World Economic Forum 12 13
  7. 7. The World Economic Forum is an independent international organization committed to impro- ving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas. Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests. (