Europe here we come

What are the strategic options for UK construction companies that want to operate on a pan-European basis – and why go there in the first place? Although it is common to see companies such as Skanska, Bouygues and Vinci working across Europe, when UK contractors do business on the Continent they tend to do so from their British bases. Yet it seems that, for larger UK companies, the increased market capitalisation, larger investor base and increased share-trading liquidity that result from European expansion would improve shareholder returns and outweigh whatever risks expansion might entail.

So what are UK contractors missing? The European construction market is large, with a total output approaching *1 trillion. But it is also fragmented, with the largest 100 companies accounting for 25% of volume. The five largest construction markets – Germany, France, Italy, the UK and Spain – account for 75% of the total, but there are significant differences in how each is performing in terms of construction output. And although the uncertain economic environment is affecting private-sector investment across Europe, this is offset in some countries by investment in the public sector. With another 10 countries about to join the European Union, some investment will undoubtedly head east, including EU funding, which will open up opportunities in those economies.

Why consider Europe in your business strategy? The first reason is that UK companies may now be able to acquire European companies – especially niche players – at bargain prices. Adding these could increase earning potential significantly over the medium term.

Second, given the substantial variation in construction output across Europe, companies with a greater geographic spread might be able to better insulate themselves against downturns in individual countries.

Third, there are increased opportunities from emerging public-private partnership markets in many countries, including Germany, France, Poland, Portugal, Ireland and Greece. Early movers in these markets may be able to secure a position of competitive advantage. However, social and political issues will influence the rate at which the public–private partnership concept is adopted.

Fourth, many multinational clients have their European headquarters in the UK, from where they procure pan-European services. Provided they can be assured of high service levels the preference of many is, increasingly, to source construction services from a single company.

Companies with a greater geographic spread may be able to better insulate themselves against downturns in individual countries

If this trend continues UK contractors will lose out on the European stage if they do not offer sufficient capacity across Europe. It is also worth considering that an international employer can be more attractive to graduates and experienced employees alike.

Finally, the construction industry is in a dichotomy – both similar and different across Europe. It is similar in roles, processes, tools and techniques but different in culture, environment and legislation. There is much benefit – both personal and operational – to be gained by sharing an understanding of the approach and innovations of different cultures.

What are the risks? The new business (organic or acquired) can require a disproportionate amount of management attention. This can lead to problems within the existing operation, which cannot be left to run itself. Alternatively, the new business may not get the attention it requires. Introducing effective cross-border IT systems, risk management and corporate governance can be a risk and often requires significant investment and change management.

There is also a risk of potential exposure to the single European economy and currency. As it develops European monetary union may equalise the different national markets, causing them to fluctuate as one and limiting the benefit of geographical diversity. And while the UK remains outside the Eurozone, currency risk will need to be managed.