International Expansion Strategy in the Construction Industry

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Presentation held at the 3rd Pan European conference on Strategic Sales and Proposal management in project driven businesses, organized by Marcu Evans in Berlin, 23-24th January 2012. The presentation gives a briefing on the common steps for international expasion for contractors, typical mistakes and some case studies based on my experience. Enjoy!

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International Expansion Strategy in the Construction Industry

  1. 1. INTERNATIONAL EXPANSION STRATEGY IN THE CONSTRUCTION INDUSTRYCostanzo GRAFFISales – Head of DepartmentTecnimont Civil Construction SpA (Maire Tecnimont Group)Strategic Sales & Proposal ManagementIn Project-Driven Business 2012Hotel Concorde Berlin,23 - 24 January 2012
  2. 2. ABSTRACTInternational Expansion Strategy in the Construction Industry • Why to expand in the international market • Critical Steps: strategy and experience • Available tools • Typical mistakes • Case Studies • Lesson Learnt Dr COSTANZO GRAFFI’s CAREER SUMMARY Sales, Head of Department - Tecnimont Civil Construction S.p.A Costanzo Graffi has developed an international Sales and Proposal management experience by working for business development and tenders for infrastructures engineering and EPC contracts with the Maire Tecnimont Group for almost 6 years. Previously he worked in the technical consultancy for infrastructures asset management with Scott Wilson Ltd in the UK. He holds a PhD in Pavement Engineering (2002) and an MEng in Civil Engineering (1999). 2
  3. 3. MAIRE TECNIMONT PROFILE a leading Engineering, Main Contracting and Licensing Group operating worldwide in the Oil, Gas & Petrochemicals, Power, Infrastructure and Civil Engineering sectors advanced skills in EPC and Process Engineering services for complex turnkey projects in different countries and regions safety culture and zero incident target key competences in licensing and Intellectual Property strong technology orientation and innovationculture specific focus on environment with key competences in renewable and research activities in nuclear energy 3
  4. 4. GROUP’S LEADERSHIP Some 140 polypropylene and polyethylene plants delivered worldwide and a share of approximately 30% of global polyolefin capacity installed in the last six years, including a 40% share in LDPE The largest gas treatment plant ever awarded in Abu Dhabi (UAE) on a LSTK basis (US$4.7 billion) More than 230 power plant projects executed or under construction in Italy and abroad, with an installed capacity of more than 20,000 MW Designing more than one-third of the high-speed railway network in Italy and acting as the EPC contractor for the first automated metro system in Italy World market leader in urea technology, with more than 250 plants licensed worldwide. A market share of more than 50% in licensing grass-roots urea plants and in urea revamping technology, and a market share of more than 35% in licensing urea granulation technology World market leader in licensing hydrogen technology, with single train capacity up to 180,000 Nm3/h World market leader in licensing Sulphur Recovery and Tail Gas Treatment Technology with design capacity of single train up 1,500 t/d 4
  5. 5. KEY MILESTONES (1/2) 1972 Incorporation of FIAT ENGINEERING 1977 2002 Creation of the first JV Acquisition of FIAT Avio between ICB and Tecnimont 2004 1990s Acquisition of Tecnimont acquires 50% of the Fiat Engineering Indian company renamed as (later MAIRE ENGINEERING) Tecnimont ICB Pvt Ltd (TICB) Oct 2005 Nov 2007 Dec 2007 Sept 2008 Listing on the Acquisition of 100% of TICB Maire Engineering 2005 Italian Stock India, now fully owned and merged into Maire Group Exchange integrated in the Group Tecnimont, acquires Tecnimont forming a unique E&C 1973 Tecnimont ICB: operating company Incorporation of Over 5 decades of excellence TECNIMONT Among the largest E&C companies in India 1966 Incorporation of Centre of Excellence for the Group - engineering centre/EPC contractor MONTEDISON for selected projects 1963 Giulio Natta Nobel Prize for chemistry Benchmark quality & cost efficiency Highly skilled personnel Electrical & Instrumentation (E&I) 1884 1888 installation excellenceEDISON MONTECATINIPower Supply Mines and Chemicals then focused on Fertilizzanti(G.Fauser) Polipropilene (G.Natta) 5
  6. 6. KEY MILESTONES (2/2) 1974 Kinetic Technology Int. - KTI 35 years of international experience in process engineering 1988 Mannessmann acquired KTI 1999 Technip Italy acquired KTI Jun 2009 Oct 2009 Jun 2010 Mar 2011 2011 - 2012 Incorporation of Acquisition of Acquisition of Incorporation of Reorganization of MET NewEn Stamicarbon Technip KTI Tecnimont Italian HQs Civil Construction 1947 New Milan Offices: Incorporation of 2 Towers +1 Service STAMICARBON Building (tot 69,000 Chemical and Feritilizer sqm) licensing About 2,000 employees when fully operational 1937 Effective competences Dutch State Mines – DSM integration and cross fertilization among BUs research centre for services work to coal mines 6
  7. 7. EXTENSIVE INTERNATIONAL PRESENCE:GROUP’S EMPLOYEES About 5,300 employees, half of whom are employed outside Italy Presence in more than 30 countries with over 50 operating companies Italian headquarters: Milan Presence of Maire Tecnimont Group* Figures as of 30 September 2011 7
  8. 8. COMMITMENT FOR HEALTH AND SAFETY Maire Tecnimont safety performances: zero incident targets Environment, Health and Safety Management System as core value and personal commitment Integrated HSE Management System constantly reinforced, diffused, checked and upgraded with results considerably higher than international standards* Key Performance Indicator** Source: International Association of Oil & Gas Producers. Report No 439, May 2010. Safety Performance indicators - 2009 data. Contractor aggregated data. 8*** Source: CII – Benchmarking & Metrics. Safety Report 2007. Aggregated data 2006 (BMM 2007 02 December 2007).
  9. 9. 2010 ENR TOP LISTS: GROUP’S RANKING AMONG THE TOP INTERNATIONAL CONTRACTORS Maire Tecnimont confirms its competitive positioning in the EPC market worldwide 2010 “Top 225 International Contractors List”* • General ranking: 36th • Ranked 10th in the “Top Ten By Market” for Power sector • Ranked 8th in the “Top Ten By Region” for Latin America area “Top 200 International Design Firms List”** • General ranking 46th*Based on contracting revenue from project outside home country.**Based on design revenue from projects outside home country. 9With a circulation of nearly 300,000 copies, ENR is one of the most important US journals for the construction industry
  10. 10. FINANCIAL HIGHLIGHTS (Last Five Years) Backlog Revenues 5,359 2,536 2,463 4,728 4,534 2,180 4,196 1,984 3,768 1,060 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 EBITDA 187 Figures in € mn 145 133 133 OG&P 94 Power I&CE 2006 2007 2008 2009 2010 10
  11. 11. FINANCIAL HIGHLIGHTS – FY 2010 REVENUES: €2,536 mn BACKLOG: €5,359 mnAll figures are rounded, ensuring total sum to 100% 11
  12. 12. BUSINESS STRUCTURE Maire Tecnimont works worldwide, through a network of highly specialized operating companies Engineering, Licensing and InfrastructureProcurement & Energy & Ventures Technology Construction 12
  13. 13. TECNIMONT CIVIL CONSTRUCTION Milan Metro Line 1 Extension ROADS & HIGHWAYS D&B for CW and TS RAILWAYS & HIGH Rome Metro B1 – D&B for CW SPEED RAILWAYS and TS Turin Metro Line 1 – D&B for all TS (Automated Metro) Turin Metro Line 1 – DB for Marconi – Lingotto section – CW Copenhagen Cityringen Metro – D&B for CW (awarded in Dec 2010) UNDERGROUNDS Turin - Milan High SpeedSalerno – Reggio Calabria Railway – D&B for CW and TSMotorway Design Bologna – Florence High SpeedLocal road interface with new Railway – D&B for CW and TSHigh Speed Railway lines – D&B Lamezia Terme – CatanzaroCatania – Siracusa Railway Line – D&B for CW andMotorway design TSMotorway in Lybia – D&B Fiumetorto – Cefalù Railway(awarded in Dec 2010) Line – D&B for CW and TS Shah – Habshan Railway – Abu Dhabi (awarded in Oct ‘11) 13
  14. 14. International Expansion Strategy in theConstruction Industry 14
  15. 15. The Construction Contracting world Main characteristics: 1. Typical project driven sector (the Contract) 2. Complex environment made of technical, contractual, legal, insurance, financial, social and political issues that each contractor must keep in mind 3. Different type of players, from Consultants to Contractors to EPC Contractors and from Specialists to Generalists 4. Generally low margins for high competition 5. Generally cautious in development investments 15
  16. 16. Why to expand in the international market Various reasons induce a Construction company to expand in the international market. There are two extreme attitudes: 1. The Refugee Attitude (Passive) 2. The Proactive Attitude (Active) As in many things, the truth stands in between these two extremes 16
  17. 17. Why to expand in the international market The Refugee Attitude (the contractor cannot stand something of its home market anymore) Local political issues: The construction industry in both private and public sectors is often affected by decisions at political level (often local legislation changes quicker than contractors can adapt); Local economic conditions: the financial crisis made contractors look at areas of the world with better economics; Contractual issues: Local contractual frameworks put too much risk and burden on the contractor’s shoulders (e.g. simply is better to get a project with advance payment instead of financing all projects awarded) – Copenhagen Example; Local competition: some sectors are overcrowded and this induces very low contract prices. 17
  18. 18. Why to expand in the international market The Proactive Attitude (the contractor is ok with his local market but sees advantages in diversifying areas of activity) Long term strategy of markets diversification: spreading activities over different markets reduces global business risk; Overseas development of specific fields: any contractor has preferred fields of expertise; Business Growth strategy: some contractors don’t have ambition to grow, others use the expansion in the international markets as a size growth tool. Some Countries are developing and have attractive business conditions; Strategic Partnerships: International partners may be of advantage on third markets (cost, skills, etc) 18
  19. 19. Why to expand in the international market The Combined Attitude - When the Economical or Political environment does not promote the development of a specific field, the contractor seeks for overseas opportunities; - When local Economical and Political conditions do not allow for the desired business growth, the contractor expands in the international market; - When the local contractual framework is too demanding, or the competition is too strong, the contractor seeks diversification in the international market for balancing the risks in the home market. It’s a balance between Frustration and Optimism! 19
  20. 20. Critical Steps: strategy and experience STRATEGY There is no standardized method for approaching international markets, but there are some Critical steps to be considered: 1. Identification of Internal capability and plans i. Dedicate a part of the global Business plan to new markets ii. Set up for a well structured business plan including available budget for the new market (business development is an investment) iii. Get Management’s strong commitment iv. Check on Group’s or sister companies’ international market experience v. Be prepared for internal organization changes for fitting with international operations 20
  21. 21. Critical Steps: strategy and experience 2. Identification of potential successful fields of activity and/or geographical areas of interest i. Honest assessment of the internal capabilities and references (know yourself!) ii. Identification of potential new markets / countries (market Benchmark) iii. Careful markets scouting for real opportunities: the international market is huge and there may be more opportunities than we can think of (choose well) iv. Accurate identification of risks related to specific fields in specific geographical areas 21
  22. 22. Critical Steps: strategy and experience 3. Definition of the local mechanisms for successfully bidding and executing projects (overcome being strangers): i. need for a local strategic partnership, which could be a sponsor, an agent or just a local partner for intelligence and long term strategy ii. Scouting overseen by own personnel iii. Evaluation of liabilities, taxation and financial factors for optimizing market entry and contract management iv. Introduction to local entities such as professional associations, industrial associations, embassies for market intelligence v. Assessment of fields of realistic success in the country vi. Project related local and international partnership strategy for implementing success possibility – based on complementarity, mutual benefit and cost optimization 22
  23. 23. Critical Steps: strategy and experience 4. Keep detailed track record of International Activities i. Successful contract award may take some time ii. Often International Development is a trial-error procedure iii. First defaults may give precious feedback for future success iii. Check for other international contractors activities in the same market iv. First steps in foreign markets need frequent debriefs for quick and effective actions. Small mistakes may cause frequent exclusions from opportunities 23
  24. 24. Available tools Institutional Tools (normally information available to many): 1. Chamber of Commerce internationalization programmes 2. Professional associations 3. Multilateral Development Banks (WB, EBRD, ADB, IDB etc) 4. Websites with tenders etc.. 5. Embassies Informal Tools (often confidential information): 1. Information from existing partners / suppliers 2. Sister Companies 3. Agents (beware) The optimal combination of Institutional and informal tools is a key success factor 24
  25. 25. Typical mistakes (1 of 2) In everyone’s experience in Business Development, there are some typical mistakes to avoid: 1. Start without a clear business plan with fields of activities and dedicated budget and timescale 2. Too much confidence in agents / local partners: a. Blindly believe to so-called agents promising very important political contacts and easy access to contracts b. Sign large scope agreements with agents – normally case by case are the best option, in particular at the beginning c. Disclose too much information on internal strategies 3. Pretend to manage everything from home (intelligence, tendering, production, partnerships) 25
  26. 26. Typical mistakes (2 of 2) 4. Have high expectations for early contracts award in new markets – persistence is a must, but ruled by a careful business plan 5. Apply our own way of doing to other countries’ markets. We must become locals to understand the locals – flexibility 6. Pretending to export all the activities carried out in the local market. 7. Have an unclear protection policy for development 8. Get into dangerous corruption practices (be prepared to take a step back) 9.Concentrate all international expansion efforts in only one area 10. Rely too much on sister companies experience. Every field has its own characteristics that cannot be generalized 26
  27. 27. Case Studies EXPERIENCE of TECNIMONT CIVIL CONSTRUCTION a. INDIA –Infrastructures - Basis: - Local presence: company of the group (Engineering for the operating company, never involved in infrastructures) - Initial Management Commitment: Medium to High - Market attractiveness: High (lots of opportunities) - Market assessment: i. International competitors for consultancy services ii. International and local competitors for EPC with locals improving quickly iii. Local tendering legislation trying to encourage the development of local companies - Contracts seeked: Consultancy and EPC - Strategy: initial introduction with consultancy services for subsequent bid for EPC contracts 27
  28. 28. Case Studies EXPERIENCE a. INDIA –Infrastructures - Outcome: - Bid for 3 large infrastructure General consultancy tenders: unsuccessful but with increasing results (learning curve) - Management Commitment: medium - Further investments: 1 specific local resource for business development - Strategy development: i. High Level consultancy services with low competition and strong international partner with good presence ii. Some specialized fields still favorable for international Contractors iii. Civil works EPC contracts having small size and with high level competition from local contractors 28
  29. 29. Case Studies EXPERIENCE a. INDIA – Infrastructures - Conclusions: - Initial market high attractiveness reduced to medium because of high competition level and low prices - Investment in the market reduced to specific technological contracts with strong local and international partners - Management commitment lowered because of reduced market attractiveness - Important relationships with local medium to big size contractors for opportunities outside India - Increasing level of local competition may need implementation of local specialized staff in own organization 29
  30. 30. Case Studies EXPERIENCE b. UAE – Infrastructures - Basis: - Local presence: company of the group (never infrastructures) - Initial Management Commitment: Very High - Market attractiveness: High for foreseen investments - Market assessment: i. Very strong international competition ii. Importance of partnership with strong local contractors iii. Very price sensitive market - Contracts seeked: EPC - Strategy: Bidding for first large infrastructural projects (railways) since the beginning for testing prices, competition and client 30
  31. 31. Case Studies EXPERIENCE b. UAE – Infrastructures - Outcome: - Bid for 1 large infrastructure EPC tender with other Italian contractor with strong presence in the area: successful award of the first large railway project in the UAE - Management Commitment: very high - Further investments: strengthening of company staff presence - Strategy development: i. Strengthening of alliances with locally established contractors ii. Use of specialized technical skills for stronger bidding capability iii. Implementation of specific strategy for optimizing internal operational capability 31
  32. 32. Case Studies EXPERIENCE b. UAE – Infrastructures - Conclusions: - Strong presence of Group and High Management Commitment shortens market assessment and familiarization process - The first success in a new area accelerates company’s investments and visibility - Visibility enlarges the possibility of stronger partnerships - Some markets prize the long term commitment in the area 32
  33. 33. Case Studies EXPERIENCE c. DENMARK – Infrastructures - Basis: - Local presence: none - Initial Management Commitment: medium - Market attractiveness: medium for contractual advanced culture - Market assessment: i. Small to medium contracts ii. Some important investments in the infrastructures market with strong international competition - Contracts seeked: EPC - Strategy: Bidding for a large infrastructural project (metro) as specialist in the Metro field with confirmed partners from home country and local support (consultants, lawyers, etc). No particular initial interest in the Country 33
  34. 34. Case Studies EXPERIENCE c. DENMARK –Infrastructures - Outcome: - Bid for 1 large infrastructure EPC tender (2 in 1) of 1.7 bln Euros with local support: successful award for the strong technical optimization process and pricing policy - Management Commitment: medium (this contract was unique) - Further investments: use of local staff as antennas - Strategy development: i. Strengthening relationship with local consultants ii. Seek for even small to medium contracts with potential success in areas of internal high competence iii. Implementation of specific international and local partnership for specific contracts in business plan 34
  35. 35. Case Studies EXPERIENCE c. DENMARK – Infrastructures - Conclusions: - International tenders with client’s transparency may open doors to qualified outsiders in specific countries - Some projects may induce strategies implementation in countries of not very high initial interest in company’s business plan - Local partnership with well acknowledged entities are fundamental for effectively approaching well established markets - Success at first trial may not be a risk if local investigations have been carried our carefully and with local support 35
  36. 36. Lesson Learnt International Expansion in the Construction Industry – Lesson learnt from experience: 1. A very important way to diversify markets and turnover, particularly in crisis periods 2. Business plan based on country risk assessment, internal capabilities review and proper market scouting is a must 3. Perseverance and management commitment 4. Be ready to change your internal organization 5. Careful and proper management of intermediaries is needed 6. Take the advantage of sister companies activities but don’t rely completely on their experience, especially if from different fields 36
  37. 37. Lesson Learnt International Expansion in the Construction Industry – Lesson learnt from experience (cont’d): 7. Strong local partnerships are a big advantage (long term and for specific projects) 8. Trial Error procedure 9. Each Country has its own rules, different from ours 10.The first success is opening new possibilities for practical experience and local visibility 11. It is important to show willingness to remain in the Country 12. Make treasure of experiences in more geographical areas 37
  38. 38. THANK YOU 38
  39. 39. Rome Via di Vannina, 88/94 00156 Rome Ph. +39 06 4122 351 Fax +39 06 4122 35610 Milan Viale Monte Grappa, 3 20124 Milan Ph. +39 02 6313.1 Fax +39 02 6313.9052info@mairetecnimont.it – www.mairetecnimont.it

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