WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 1Engineering a recovery: Rising capitalinvestment propels the industry back to growthIBISWorld Industry Report 54133Engineering Services in the USNovember2010 KevinCulbert2 AboutthisIndustry 18 International Trade 34 KeyStatistics2 Industry Definition 19 Business Locations 34 Industry Data2 Main Activities 34 Annual Change2 Similar Industries 21 CompetitiveLandscape 34 Key Ratios3 Additional Resources 21 Market Share Concentration 21 Key Success Factors 35 JargonGlossary4 IndustryataGlance 22 Cost Structure Benchmarks 23 Basis of Competition5 IndustryPerformance 24 Barriers to Entry5 Executive Summary 25 Industry Globalization6 Key External Drivers7 Current Performance 26 MajorCompanies9 Industry Outlook12 Industry Life Cycle 30 OperatingConditions 30 Capital Intensity14 ProductsMarkets 31 Technology Systems14 Supply Chain 31 Revenue Volatility14 Products Services 32 Regulation Policy16 Demand Determinants 33 Industry Assistance17 Major Marketswww.ibisworld.com|1-800-330-3772|info @ibisworld.com
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 2AboutthisIndustryIndustryDefinition Industry establishments apply physical preparation of feasibility studies, laws and principles of engineering in the preparation of plans and designs, design, development and use of machines, provision of technical services during the materials, instruments, structures, construction or installation phase, processes and systems. Services may inspection and evaluation of engineering involve the provision of advice, projects, and related services.MainActivities Theprimaryactivitiesofthisindustryare Design and management services to construction and engineering infrastructure projects Design and management services on environmental projects Design and management services on industrial processes and equipment Construction management services Process management (e.g. assess engineering and product problems) Project planning and economic assessments Asset management, including life cycle asset management and management systems Feasibility studies, including environmental impact assessment and community consultation Quality management assessment and accreditation Themajorproductsandservicesinthisindustryare Commercial, public and institutional projects Industrial and manufacturing plant and process projects Miscellaneous federal government projects Municipal utility projects Other Project management services Residential building projects Transportation projectsSimilarIndustries 23 ConstructionintheUS Establishments primarily engaged in both the design and construction of buildings, highways, and other structures or in managing construction projects. 54131 ArchitecturalServicesintheUS Establishments mainly engaged in the provision of architectural services involving the design of buildings and structures. 54132 LandscapeDesignPlanningServicesintheUS Establishments mainly engaged in the provision of landscape architectural services involving the design of streetscapes, gardens and public access areas. 54136 GeophysicalServicesintheUS Establishments primarily engaged in gathering, interpreting, and mapping geophysical data.
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 3AboutthisIndustrySimilarIndustries 54137 SurveyingMappingServicesintheUS Establishments primarily engaged in performing surveying and mapping services of the surface of the earth,continued including the sea floor. 54142 IndustrialDesignServicesintheUS Establishments primarily engaged in creating and developing designs and specifications that optimize the use, value and appearance of products. 54151 ITConsultingintheUS Establishments primarily engaged in planning and designing computer systems that integrate computer hardware, software and communication technologies. 54162 EnvironmentalConsultingintheUS Establishments providing advice and assistance to others on environmental issues, such as the control of environmental contamination from pollutants, toxic substances and hazardous materials.AdditionalResources Foradditionalinformationonthisindustry www.acec.org American Council of Engineering Companies www.aiche.org American Institute of Chemical Engineers www.asce.org American Society of Civil Engineers www.asme.org American Society of Mechanical Engineers www.enr.com Engineering News Record www.nspe.org National Society of Professional Engineers I BISWorld writes over 700 US industry reports that are updated up to four times a year. To see all reports, go to www.ibisworld.com
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 4IndustryataGlanceEngineeringServicesin2010KeyStatistics Revenue AnnualGrowth05-10 AnnualGrowth10-15Snapshot $172.8bn 0.1% 3.5% Profit Exports Businesses $8.8bn $27.0bn 147,422 Revenue vs. employment growth Value of private non-residentialMarketShare constructionThere are no 10 500Major Players inthis industry 5 450 Billion Dollars % change 0 400 −5 350 −10 300 Year 02 04 06 08 10 12 14 16 Year 01 03 05 07 09 11 13 15 Revenue Employment SOURCE: WWW.IBISWORLD.COM p. 26 Products and services segmentation (2010)KeyExternalDrivers 7.5% Residential building 17% Industrial and manufacturing projectsValueofutilities 10% plant and process projectsconstruction Project management servicesValueofprivatenon-residentialconstructionDownstreamdemandfrommanufacturing 10% Miscellaneous federalDownstreamdemand government projects 15.5% Transportationfrommining projectsDownstreamdemandfrombuildingconstruction 12% Municipal utility projects p. 6 13.5% 14.5% Commercial, public and Other institutional projects SOURCE: WWW.IBISWORLD.COM SOURCE: WWW.IBISWORLD.COMIndustryStructure Life Cycle Stage Mature Regulation Level Medium Revenue Volatility Low Technology Change High Capital Intensity Low Barriers to Entry Medium Industry Assistance Low Industry Globalization Low Concentration Level Low Competition Level High FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 34
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 5IndustryPerformanceExecutiveSummary | KeyExternalDrivers | CurrentPerformanceIndustryOutlook | LifeCycleStageExecutive If it works, thank an engineer; if it breaks, markets negatively affected demand forSummary blame an engineer. There is little, engineering services. This factor drove however, an engineer could have done to down industry performance in 2009, and stop the recent collapse in industry revenue is expected to decline by a further revenue. Engineering is one of the largest 7.2% in 2010. professional service markets in the United The industry currently employs about States, generating revenue of about 995,000 people. It is fragmented, with a $172.8 billion in 2010. It applies scientific large number of small-scale knowledge to design structures, products establishments, which often confines and industrial processes aimed at operations to regional markets or servicing the economy and society. Local specialized niches. The industry is and foreign-based consulting firms composed of about 147,000 compete in this market, along with the establishments in 2010, including 91,000 in-house engineering service operations non-employer establishments (typically of construction contractors, small-scale sole proprietors). In the five manufacturers and utility owners, years to 2010, establishment growth has including private electricity generators remained relatively flat, hampered by the and public water authorities. recent decline in demand. In 2009 and 2010, many firms reduced wages, head counts and the number of branch officesImproving levels of non-residential building in order to maintain profits, whichconstruction will raise demand for engineering declined for many players as a result of poor demand.services International trade represents a significant share of activity among the The trend toward outsourcing larger-scale players in this industry; engineering activities has supported the export earnings currently contribute long-term expansion of the industry. 15.6% to industry revenue. Many of the Technological advances in key markets, large domestic firms have secured like telecommunications and power lucrative export contracts associated with generation, have also fueled growth. the reconstruction of Iraq and Afghanistan However, revenue has grown at an over the past five years, while others have average annual rate of just 0.1% in the expanded operations into foreign markets five years to 2010. This relatively weak through strategic acquisitions or joint- growth reflects the effect of divergent venture alliances. Import penetration trends in the construction and industrial accounts for approximately 3.7% of markets. Despite solid demand domestic demand and represents the total conditions across many infrastructure earnings repatriated by foreign-based markets (notably the energy, transport firms from US operations. and water supply markets), US industrial Through 2015, the industry is production and capital expenditure have anticipated to return to growth as the trended downward. economy recovers. Revenue is projected to While long-term contracts allowed increase at an average annual rate of 3.5% many engineering firms to maintain over the period to $205.2 billion, growth as the recession began, many supported by increased demand for companies delayed projects, causing a non-residential buildings. Profit margins decline in engineering firms’ backlogs. The are also forecast to improve, particularly onset of recessionary conditions and the among larger players that provide services shortage of liquidity on global financial such as construction management.
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 6IndustryPerformanceKeyExternalDrivers Value of utilities construction Downstream demand from This industry provides engineering manufacturing assessment and advisory and The Engineering Services industry construction management services generates a significant proportion of across the entire construction sector. In revenue from activities in the particular, it provides services for heavy manufacturing and industrial market. industrial construction like power plants Growth in manufacturing output and railroads and for highway and bridge generally increases capacity utilization, construction. Increased public sector which adds to demand for engineering investment into fixed capital consulting services on the addition of construction generates increased new capital stock or the configuration of demand for engineering consulting existing stock in order to increase services. This driver is expected to efficiency. This driver is expected to increase over the next year. This increase over the next year. represents a potential opportunity for the industry. Downstream demand from mining The industry generates a significant Value of private non- proportion of revenue from activities in residential construction the mining and mineral processing This industry provides engineering market. Growth in domestic and global assessment and advisory and demand for mining commodities construction management services across generally increases demand for the entire construction sector. It engineering consulting services in the particularly provides these services for areas of improving productive efficiency, heavy industrial construction, including exploration and new mine-site oil and gas facilities and chemical plants. development. This driver is expected to The recent decline in this driver has increase over the next year. inhibited revenue growth late in the period between 2005 and 2010. This Downstream demand from driver is expected to decrease over the building construction next year. This represents a potential This industry provides engineering threat to the industry. design and construction management Value of private non-residential construction Value of utilities construction 500 20 15 450 Billion Dollars 10 % change 400 5 350 0 300 −5 Year 01 03 05 07 09 11 13 15 Year 01 03 05 07 09 11 13 SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 7IndustryPerformanceKeyExternalDrivers services across the entire construction and industrial building construction cancontinued sector, including non-residential lead to greater demand for engineering building construction projects, such as consulting services. This driver is large-scale office projects. Increased expected to increase during the next investment in commercial, institutional year.Current Throughout the mid-2000s, the Engineering Services industry Share of the economyPerformance maintained a robust pace of expansion. 0.80 Its growth corresponded with strong cyclical growth in downstream 0.75 construction markets, record levels of investment into industrial capacity and % of GDP energy infrastructure, and increased 0.70 spending on public infrastructure. However, the recession significantly 0.65 eroded investment trends in several key markets, resulting in slower industry 0.60 growth. In fact, IBISWorld estimates that Year 01 03 05 07 09 11 13 15 industry revenue rose at an average annual rate of only 0.1% to $172.8 billion SOURCE: WWW.IBISWORLD.COM in the five years to 2010. The industry’s revenue has been growth for engineering services within subdued because of the poor economy. the manufacturing market. Furthermore, Demand for engineering services was private fixed investment in structures largely supported by the strong 10.2% (both residential and non-residential) annual growth in non-residential building declined every year since 2005, including construction over the last five years. a 20.2% fall in 2009. Weak business Furthermore, long-term contracts signed sentiment, tight credit conditions, by operators in the early part of the period business deleveraging and little need to kept the industry growing through 2008, expand production and office space despite the slowing economy. However, caused this decline in construction this growth has also been hampered by a investment. All of these factors variety of factors during the latter part of contributed to the industry’s poor the period. As businesses faced tighter performance late in the decade, and are budgets, many delayed planned projects expected to cause industry revenue to fall or scaled back on existing ones. by 7.2% from 2009 to 2010. Engineering firms’ backlogs dried up, and Despite these declines, demand for the number of projects in their pipelines consulting engineering has been also declined. Consequently, operators supported by technological eventually felt the pinch of the economic advancements in key markets and slowdown in 2009 and 2010, as revenue increased outsourcing of engineering fell both years. activities to specialist firms in the past In the five years to 2010, US industrial decade. Additionally, the growth of multi- production declined at an annual rate of disciplined firms with greater financial 0.7%, with a decline of 9.3% in 2009 and technological resources has opened alone. This negative pattern has stifled access to international markets.
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 8IndustryPerformanceWeakdemanderodes Historically, the Engineering Services industry’s profitability has displayed wide Industry revenueprofits cyclical fluctuations. Over the long term, 10 however, cost-reduction programs, the application of new technologies and the 5 stabilization of cash flow through long- term contracts have enhanced % change profitability. Profit margins among major 0 engineering firms flourished during the mid- to late 2000s, largely driven by −5 accelerated growth in non-residential construction activity, particularly −10 infrastructure projects and lucrative Year 02 04 06 08 10 12 14 16 government contracts including foreign contracts in Iraq and Afghanistan. SOURCE: WWW.IBISWORLD.COM Recently, however, profitability has tightened and competition has intensified Furthermore, some firms are expected because of the weaker global economy to leave the industry altogether. During and the winding back of contracts in the the last five years, the number of firms Middle East. has remained relatively flat, increasing by The fall in profitability has caused only 0.3% annually to 139,209 in 2010. some players to scale back their Non-employer firms, accounting for operations. Throughout 2009 and 2010, approximately 65.6% of the firms in this firms closed branch offices and reduced industry, have been hit particularly hard employee head count and wages to since the recession. Sole proprietors are maintain profit margins. During the five typically limited to lower-margin projects years to 2010, IBISWorld estimates that because of their small capacity. the number of industry employees Unfortunately, many of these projects increased at an average annual rate of have been delayed while investors wait only 0.5% to 995,345 people. for signs of economic improvement.Competitive Unlike sole proprietors, large strengthen its capacity and secureconditions engineering firms are multi-disciplined, contracts in the government services and multi-branch companies with the nuclear power markets. Many players capacity to complete contracts in varying have taken similar actions to focus on geographic areas and service markets. securing contracts in certain markets. All of the major players in this industry The energy, power generation and generate revenue outside the United government services markets have been States, and all have expanded through a particularly attractive throughout the five series of strategic acquisitions. However, years to 2010. Industry player KBR Inc., there are variations in the strategic formerly part of Halliburton Group, is one objectives of the major players and how of the largest defense services contractors they have expanded. in the industry. The company has Some players have grown by acquiring extensive operations in the reconstruction firms with a presence in key markets. For of Iraq and Afghanistan. However, other example, industry player URS Corp. players have developed strategic alliances acquired several companies to and joint venture arrangements as a way
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 9IndustryPerformanceCompetitive to grow. For instance, Bechtel Corp. and companies are able to improve theirconditions Foster Wheeler have entered into likelihood of securing contracts by strategic alliances to expand their spreading the risk and increasing theircontinued resources. Through such arrangements, performance capabilities.Demandcrasheswith The onset of the recession hurt demand completion of some projects in theeconomy for engineering services. The recession market are expected to decline in 2010. severely affected government budgetary The Obama administration’s fiscal finances, private company balance sheets stimulus package allocates substantial and household spending. Instability in additional funding to transport the financial markets and a decline in infrastructure, including roads, bridges economic confidence severely limited the and rails. While this funding will boost availability of investment funds. Local demand for engineering services, much governments found it difficult to raise of it is allocated to shovel-ready projects funds through the issue of municipal that are small-scale and can proceed bonds, leaving a hole in funding for within a short 120-day time frame. capital works projects. However, federal funding through The magnitude of the recent economic defense or infrastructure programs is an slowdown and the lack of liquidity on important driver for this industry. Some global financial markets forced cutbacks consultants have benefited from ongoing to existing infrastructure and building investment in highway construction projects. Many projects that were already through multi-year funding in the planning and bidding stages have arrangements. Others have been able to been put on hold. Construction activity mitigate losses through work on on power-generating facilities peaked in conservation and development projects, 2009, since these long-term projects following the collapse in demand in the cannot be stopped midstream, but the non-residential construction market.Industry In the five years to 2015, industry revenue is forecast to increase at an average Revenue vs. exportsOutlook annual rate of 3.5% to $205.2 billion. The 60 industry will endure further contraction in the short term, as engineering firms 50 struggle to increase the number of 40 projects in their backlog. However, % change 30 demand conditions will strengthen from 20 2012, boosted by a resurgence in private fixed capital investment, increased 10 industrial production and growing 0 business sentiment. −10 Improving economic conditions will Year 02 04 06 08 10 12 14 16 support demand for project design, Revenue Exports construction management and SOURCE: WWW.IBISWORLD.COM procurement. The value of non- residential building construction is projected to increase by an average of
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 10IndustryPerformanceIndustryOutlook 3.7% annually over the next five years.continued Similarly, private fixed investment in The economic rebound will structures is projected to increase at an average annual rate of 11.6%. Growth in raise demand for industry exports is also expected to boost demand services in project design for the industry beginning in 2012, and management supported by the gradual recovery in investment into infrastructure projects in the Middle East, the Pacific Rim and industry revenue will likely show a South American regions. marginal decline as firms continue to use The industry is anticipated to return temporary labor agreements. This decline to solid profit performance during the will be especially true for companies that five years to 2015, driven by rising provide services in remote locations, demand. The profit margins of large- particularly on export contracts, which scale engineering firms will widen as rely more heavily on subcontracted labor they continue to provide more multi- than direct employment. disciplined services and leverage their The process of industry globalization financial and technical resources. In over the past decade, coupled with turn, growth in profit margins will advances in communication and IT, will increase the number of players operating likely result in the major international in the industry. Many of the sole players sourcing an increasing proprietors that left the industry because proportion of professional labor of poor operating conditions will return requirements from lower-cost countries. as demand increases. In the five years to The majority of domestic engineering 2015, the number of firms operating in firms already have resources outside the this industry is expected to increase at an United States, including access to average rate of 1.2% annually to 147,531. suitably qualified personnel in lower- Similarly, employee compensation will cost countries like Mexico, South Africa grow at an annual rate of 3.3% over the and India. next five years, reflecting average annual During the five years to 2015, more growth of 1.2% in industry employment. firms are expected to use these personnel Nevertheless, wages as a proportion of remotely on US-based design projects.Short-termpain The industry’s performance is expected Furthermore, many businesses will bebeforegain to continue to deteriorate in the short wary of committing to large projects term before an upswing emerges in 2012. before sustained signs of recovery. These The downward trend in demand for factors will ultimately cause a shortage in engineering services during 2011 is a the number of projects in firms’ pipelines, lagged effect from the recession on inhibiting early recovery. business investment and industrial Industry revenue is forecast to decline production. The deferral of private by 1.8% to $169.6 billion in 2011, with the investment into electric power, energy likelihood of further restructuring and mass transport infrastructure between domestic consulting firms. The projects will continue to subdue the ongoing instability on the US equity non-building construction market. markets will likely expose some firms to
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 11IndustryPerformanceShort-termpain liquidity shortfalls. However, as the increase the number of projects they havebeforegain domestic economy continues to improve planned for the remainder of the five in the short term, firms will be able to years to 2015.continuedGrowthstrengthens Demand conditions for consultingfrom2013 engineering services are forecast to Demand for engineering improve across all key downstream markets toward 2013. Continued growth services will rise abroad, in the private fixed investment of particularly in South structures will provide the platform for America and East Asia industry expansion. The solid pace of industry expansion will also be supported by the return of investment into electric design and process management services power infrastructure and communications on the planning and installation of markets, which experienced many delays industrial equipment, and asset in projects over the last five years. management services for maintenance Several other factors will boost and operation of existing plants. Demand industry demand during the five years to for engineering services will also be 2015. While most of the growth in boosted by demand for work on energy industrial production will be recovery projects outside the United States during the five years to 2015, industrial (notably in South America, the Middle production is expected to meet the East and East Asia). However, export pre-recession levels. Private fixed capital earnings from activity in Iraq and expenditure is also expected to grow, Afghanistan are projected to drastically driving up demand for engineering decrease during the five years to 2015.
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 12IndustryPerformanceLifeCycleStage Industry revenue growth has started to slow and is generally in line with the overall economy The industry has experienced slow growth in the number of engineering firms The industry has experienced a slowdown in the growth of new types of buyers 30 Maturity QualityGrowth%Growthofprofit/GDP KeyFeaturesofaMatureIndustry Company High growth in economic consolidation; importance; weaker companies Revenue grows at same pace as economy level of economic close down; developed Company numbers stabilize; MA stage importance stable technology and markets Established technology processes 25 Total market acceptance of product brand Rationalization of low margin products brands 20 15 QuantityGrowth Many new companies; minor growth in economic importance; substantial 10 technology change 5 Engineering Services GeophysicalServices LawFirms 0 RailTransportation Shake-out LandscapeDesign PlanningServices ArchitecturalServices Shake-out –5 Decline PotentialHiddenGems TimeWasters Crash or Grow? Future Industries Hobby Industries –10 –10 –5 0 5 10 15 20 25 30 %Growthofestablishments SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 13IndustryPerformanceIndustryLifeCycle During the early 2000s, the industry In the five years to 2010, the number experienced strong growth as operators of enterprises operating in this industry expanded into new markets, including remained relatively flat, increasing by anT his industry environmental management and average of only 0.3% annually. In 2009is Mature monitoring and planning services. and 2010, IBISWorld expects that the Furthermore, the prospects for securing number of players actually declined as a government contracts increased when result of poor operating conditions. the US entered Iraq and Afghanistan. While non-employers have been However, the industry has since entered particularly vulnerable to the recession, a mature phase of its life cycle. Industry larger players have not been immune to growth has slowed to be roughly on par the decline in demand. Major players, with the overall economy, a factor that is such as KBR and URS, have taken the expected to continue during the five opportunity to acquire medium-sized years to 2015. In the 10 years to 2010, firms, a factor that has contributed to IBISWorld estimates that the industry’s slow enterprise growth. contribution to the overall economy will The industry’s relatively low level of increase at an average annual rate of revenue volatility is indicative of the mix 2.3%, compared with GDP growth of of end markets: public and private sector; 2.0% during the same period. Recently, construction and maintenance; mining many companies reduced the scope of and energy; industrial and transport. their engineering projects as the However, those markets have gone economy began to decline. During the largely unchanged over the past decade. five years to 2015, businesses are While exports are expected to grow expected to increase spending on these during the five years to 2015, the majority projects once again, but at a moderated of this industry is composed of small pace compared to what was seen the regional players that will not reap the early 2000s. benefits of overseas expansion.
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 14ProductsMarketsSupplyChain | ProductsServices | DemandDeterminantsMajorMarkets | InternationalTrade | BusinessLocationsSupplyChain KEYBUYINGINDUSTRIES 21 MiningintheUS Engineering firms help design, manage and develop mines and mining operations. 22 UtilitiesintheUS Engineers provide design and management services for power, gas and water infrastructure. 23 ConstructionintheUS This industry helps design and manage construction projects. 48211 RailTransportationintheUS Engineers help develop traditional railroads as well as high speed trains systems. 92 PublicAdministrationintheUS Engineering firms provide the government with a variety of services, such as defense systems. KEYSELLINGINDUSTRIES 23 ConstructionintheUS The construction sector supplies construction services to consultants acting as project managers. 52 FinanceandInsuranceintheUS This sector provides firms with a variety of services, including banking, project financing and professional indemnity insurance. 54 Professional,ScientificandTechnicalServicesintheUS This sector supplies specialized services on a consulting basis. These include: architectural services, surveying, landscape architecture, building inspection services and drafting. 54111 LawFirmsintheUS Law firms supply legal advice and representation. 54121a AccountingTaxPreparationServicesintheUS This industry provides accounting services, bookkeeping and accounts management.ProductsServices Products and services segmentation (2010) 7.5% Residential building 17% 10% projects Industrial and manufacturing plant and process projects Project management services 10% Miscellaneous federal government projects 15.5% Transportation projects 12% Municipal utility projects 14.5% 13.5% Other Total $172.8bn Commercial, public and institutional projects SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 15ProductsMarketsProductsServices The principal activities of this industry 13.5% of industry revenue. This segmentcontinued include design services on construction, provides renovation and design services the physical environment and industrial for new buildings, including schools, processes. However, given the breadth of parks and retail space. Renovation markets that demand engineering in one accounts for a third of this segment’s form or another, industry operators revenue; however, such projects are provide a wide variety of services. expected to see an increase in demand as Furthermore, many operators have more businesses are likely to refrain from started providing a multitude of value- enduring the costs of new construction in added services in order to be more an uncertain economy. competitive. Municipal utility projects Industrial and manufacturing projects Municipal utility projects represent Accounting for approximately 17.0% of approximately 12.0% of industry revenue. industry revenue, the industry’s largest This includes the design of landfills and product segment is industrial and water collection and treatment facilities. manufacturing plant and process It also includes other municipal utility projects. This segment includes the projects, such as local power stations. provision of design services on industrial Water collection, distribution, treatment processes, equipment and product and disposal projects generate the development. It also includes associated majority of this segment’s revenue at services, such as asset management, approximately 59.8% of municipal monitoring and the operation of project’s total. Following the recession, industrial processes. These services are many cities have been strapped for cash important for companies involved in and have reduced spending on everything mining, refining, power generation and but necessary system upgrades. manufacturing operations. Consequently, this segment is estimated to have seen a recent decline in demand. Transportation projects Transportation projects are estimated to Residential building projects represent 15.5% of industry revenue. The Residential building projects account for segment accounts for all projects that are an estimated 7.5% of industry revenue. related to transportation, including mass This segment accounts for high rises, transit systems, airports and highway apartments, condos and homes. Like the and roadway projects. Highway and commercial, public and institutional roadway projects make up the vast projects segment, residential building majority of transportation project services can be divided between new revenue at approximately 86.5%. The projects and renovations. New buildings segment largely relies on federal and represent the majority of this segment, state budgets for growth. Recently, the generating approximately 84.6% of transportation segment has grown, revenue from residential projects. Given largely due to an increase in federal the recent decline in business and spending on infrastructure projects to consumer sentiment, residential projects reduce unemployment. have declined since the recession. Commercial, public and Other institutional projects Industry operators also provide a variety Commercial, public and institutional of other services, including building projects generate approximately environmental services and project
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 16ProductsMarketsProductsServices management. Environmental services reporting and controlling of all resourcescontinued supplied by this industry involve a broad in a project to meet time, cost and range of activities, such as urban design; quality objectives. recreation and traffic planning; Similarly, construction management environmental impact assessment; involves the management and community consultation; geographic coordination of independent contractors, and landscape architecture; along with planning, scheduling and cost contaminated site management and reporting, site supervision and quality natural resource management. assurance administration. Project management services, which Industry operators also provide the account for approximately 10.0% of federal government with services, such industry revenue, include the provision as overseas defense structures. Military of pre-design services such as feasibility spending on engineering services studies and environmental impact increased dramatically during the early statements. It also involves the to mid-2000s when the US entered Iraq planning, scheduling, monitoring, and Afghanistan.Demand The principal demand determinant for product design and services toDeterminants engineering services is the level of architectural and drafting activities. investment into infrastructure and Demand for this industry can also be non-residential building construction stimulated by one-off occurrences, such projects. However, the industry is also as natural disasters (e.g. Hurricane heavily influenced by trends in Katrina), terrorist attacks (e.g. the downstream markets, particularly September 2001 attacks on the World investment into equipment and Trade Center and the Pentagon), and processes in the manufacturing, energy from US involvement in military action and transportation markets. Many of the (e.g. the war in Iraq). industry’s downstream markets rely on Projects in response to natural the level of general economic activity, disasters typically include the provision such as commercial building projects. of specialist engineering services in risk Consequently, the performance of the assessment, project design, logistics and wider economy can have serious effects procurement management, and on industry demand. Similarly, many construction project management. firms recently experienced a boom in Government investment in infrastructure performance due to a spike in the price programs can also affect demand. of oil. Other key determinants of industry The share of industry revenue derived demand are performance of industries from the design of industrial processes with high levels of complex capital and equipment has gradually contracted equipment and structures (e.g. mining, since the mid-1990s. This has primarily manufacturing and transport); increased been associated with the scaling back of outsourcing of public sector activities to industrial production to the US economy. the private sector and the privatization of On the other hand, the share of revenue public sector assets in the areas of derived from environmental design electricity generation and rail transport; projects has trended upward. Other and investment into industrial important areas of industry operation production capacity and the introduction include marine design, manufacturing of technologically advanced processes.
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 17ProductsMarketsMajorMarkets Major market segmentation (2010) 15% Government 47.5% Construction 17.5% companies Utilities, mining and industrial companies 20% Energy and Total $172.8bn gas companies SOURCE: WWW.IBISWORLD.COM Construction companies projects under this segment often. During This industry generates the majority of the five years to 2010, this segment its revenue directly from the construction increased as a proportion of industry sector of the economy. Construction demand as the price of oil increased companies use engineering services for dramatically. While revenue growth has pre-design work and the asset and project since subsided, this segment is expected management function of building to increase during the five years to 2015 construction. In general, construction as more research is conducted on new companies represent the wider economy. fuels and energy technology. For example, a construction firm might build a mall for a developer and an office Utilities, mining and building for a company, but use the same industrial companies engineering firm to design both. Some This segment uses engineers to develop portions of this segment, such as firms machinery and systems required by specializing in residential construction, utilities, mining and industrial saw drastic declines following the companies. Engineers develop recession; however, its overall diversity everything from mines and landfills to mitigated losses. machinery and water treatment facilities. Firms in the industry are also used to Energy and gas companies minimize environmental impact. While Energy and gas companies use local governments run many utility engineering firms to develop refineries, companies, the increasing use of oil rigs and pipelines. The segment also privatization has caused this segment to uses engineers to maintain compliance grow over the past decade. with environmental regulations. This segment is highly specialized and often The government requires an extensive knowledge of Several of the leading engineering chemicals to prevent potentially services firms, such as URS Corp., dangerous explosions. Furthermore, generate around half their revenue from many of this segment’s projects require a public sector contracts. The government firm with a relatively large capacity; uses engineering firms for a variety of consequently, smaller players do not get activities, including public infrastructure
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 18ProductsMarketsMajorMarkets projects and defense work. Engineering needed to design solutions in Iraq andcontinued firms also provide the government with Afghanistan. While revenue from many urban planning, public transport and of those projects has fallen, a recent environmental cleaning. During the early emphasis on infrastructure programs has 2000s, there was an increase in demand increased the segment’s proportion of the from the government as engineers were industry once again.InternationalTrade International trade represents a significant share of activity among the Industry trade balance larger scale companies. Several of the 45LevelTrend leading firms (e.g., KBR, Bechtel, andExports in the Fluor Corporation), maintain permanent 30industry are operations outside the US and often Billion DollarsMedium and generate the majority of their annual revenue from foreign-based activities. 15Increasing Similarly, global players such as theImports in the French-based Egis Groupe compete 0industry are ow L against US firms for a share of the domestic engineering consulting market.andIncreasing −15 It is difficult to identify the consulting Year 02 04 06 08 10 12 14 16 engineering services component of this Exports Imports Balance industry’s export earnings and import SOURCE: WWW.IBISWORLD.COM consumption. Major players typically contract a wide range of engineering and average 2.2% per annum over the five non-engineering services, including years to 2010. During the mid-2000s, construction, manufacturing processes exports increased due to US involvement and logistics operations. Among several in Afghanistan and Iraq. Export growth of the largest consultant engineering has fallen, however, largely due to the firms, export earnings account for 25% downturn of the global economy in the to 30% of annual revenue. The past two years. industry’s total export earnings Total revenue by foreign-based firms (including revenue from engineering in the US market is estimated to account consulting and other services) have $5.6 billion of total domestic demand in grown from around 7.6% of industry 2010. In the five years to 2010, import revenue in the 2000, to around 14.9%, or penetration has grown by approximately $27.0 billion in 2010. 3.7% per annum. The export earnings component of this The 10 largest US-based engineering foreign revenue principally represents firms currently rank among the top 25 the profits repatriated to the US parent international design firms. All the major from foreign subsidiaries, as much of the players in this industry figured total revenue earned on foreign contracts prominently among the major players is paid in operating costs in the country on the global market with URS Corp, where the consultancy is undertaken AECOM, ABB Lummus Global, Fluor (e.g., wages and materials). Industry Corp, and Kellogg Brown Roots export earnings have grown by an ranking within the top 10 firms globally.
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 19 ProductsMarkets BusinessLocations2010 West AK 0.4 New England ME Mid- 0.3 Great Atlantic 1 2 Lakes NY 3 WA MT ND 4.0 5 4 2.3 0.1 MN Rocky 0.2 1.1 WI OR Mountains SD 0.2 Plains 0.9 MI 4.0 PA 4.3 6 7 0.8 ID IA OH 9 8 0.6 WY 2.6 0.1 NE 0.3 IL IN WV VA 3.0 1.0 4.6West NV 0.3 0.2 KY UT MO 0.6 NC 1.2 0.5 CO KS 1.7 1.9 3.6 1.4 TN SC Southeast 2.0 CA 2.1 15.1 OK AR GA 0.9 0.2 AL 2.4 AZ MS 1.4 1.4 NM 0.6 Southwest 0.4 TX LA 1.6 FL 10.2 4.7West HI 0.4 AdditionalStates(as marked on map) Revenue(%) 1 VT 2 NH 3 MA 4 RI Lessthan3% 0.1 0.3 4.4 0.3 3%tolessthan10% 10%tolessthan20% 5 CT 6 NJ 7 DE 8 MD 9 DC 1.0 3.2 0.3 4.4 0.4 20%ormore SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 20ProductsMarketsBusinessLocations The industry’s geographic spread 13.8% of industry establishments. The generally corresponds with the state is home to several leading players in distribution of economic activity and the industry, most notably Bechtel and population. There is a disproportionately Fluor Corporation. high representation of engineering The Mid-Atlantic accounts for around consulting activity in major 13.4% of industry establishments. This metropolitan areas, transport hubs and falls below the Mid-Atlantic’s overall areas with a high concentration of heavy share of the US economy (18% to 18.5% industry (e.g. steel, petrochemicals) and annually) but corresponds closer to its natural resources (e.g. mining, energy share of national population and production). construction activity (15% to 16% The Southeast accounts for the largest annually). Several of the leading players share of industry activity. The region operate from headquarters in the major accounts for about 24.6% of industry urban areas within the Mid-Atlantic establishments, which broadly equates region (e.g., New York City, Philadelphia). with the Southeast’s share of US GDP and The Southwest accounts for 12.1% of resident population 25.2% annually. In industry establishments and around spite of this, the Southeast generates a 13.5% of employment, which marginally relatively smaller share of revenue than outweighs the Southwest region’s share of other regions. It is estimated the relatively the total US economy and construction non-specialized nature of engineering activity (around 10% to 11% annually). It operations in the region causes this. is likely the marginally higher The West accounts for about 19.8% of concentration of industry activity stems industry establishments. With 20.2% of from the region’s significant level of industry revenue and 17.0% of the mining and energy production. Texas, the population, the West generates more base for the petrochemical and oil revenue per capita than the Southeast. industry, accounts for two-thirds of California alone accounts for around regional activity. Distribution of revenue vs. population Distribution of revenue vs. establishments 30 30 20 20 Percentage Percentage 10 10 0 0 West Great Lakes Mid-Atlantic New England Plains Rocky Mountains Southeast Southwest West Great Lakes Mid-Atlantic New England Plains Rocky Mountains Southeast Southwest Revenue Revenue Population Establishments SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM EngineeringServicesintheUS November 2010 21CompetitiveLandscapeMarketShareConcentration | KeySuccessFactors | CostStructureBenchmarksBasisofCompetition | BarrierstoEntry | IndustryGlobalizationMarketShare This industry is characterized by manyConcentration small establishments that typically Distributionofestablishmentsby confine operations to a localized regional staffsize(2010) market or to specialized niche activities.Level No.of Share The industry displays a low concentrationConcentration in of ownership, with the four largest No.ofpeople establishments (%)this industry is Low companies contributing only around 1 to 4 79,082 53.6 14.3% of industry revenue. Despite the 5 to 9 23,000 15.6 low concentration of ownership, a 10 to 19 20,168 13.7 significant proportion of revenue is 20 to 49 15,938 10.8 derived from medium and large firms. 50 to 99 5,572 3.8 Consequently, the 50 largest enterprises 100 to 249 2,707 1.8 generate around 35.0% of industry 250 to 499 621 0.4 revenue in an industry with nearly 500+ 335 0.3 140,000 firms. Total 147,422 100.0 The large number of small-scale firms is evident from the County Business SOURCE: US CENSUS BUREAU COUNTY BUSINESS PATTERNS Patterns. According to the latest figures, approximately 69.2% of industry professionals that do not have a payroll. establishments employ fewer than ten These non-employing establishments persons and 53.6% employ fewer than represent approximately 65.6% of five people. Only 2.5% of establishments industry firms, or 91,300 in 2010. In employ more than 100 persons. The spite of this, sole proprietors only industry also has a large of self-employed generate 2.9% of industry revenue.KeySuccessFactors Having contacts within key markets compromising long term profitability. Firms must establish networks and a reputation amongst the key players in Ability to quickly adopt new technologyI BISWorld identifies each market in order to be invited to Technological advancements (production250 Key Success tender. and construction technologies) impactFactors for a the capacity of firms in this industry tobusiness. The most Fast adjustments made to efficiently compete in most markets.important for this changing regulationsindustry are: Firms must understand and adapt to a Access to highly skilled workforce changing regulatory environment. It is important that firms attract and retain a highly skilled workforce. Ability to compete on tender Successful firms are capable of winning Marketing of differentiated products contracts through tender while ensuring Firms must be able to undertake a broad adequate cash flow without range of engineering services.