Land of Oz

For UK businesses the idea of working in the Australian construction industry could be enough to awaken the little green monster. And that’s not just because when you’re talking to Aussie clients you’re likely to get messages on your phone like: “Sorry, running late. On my way back from Bondi.” It’s more because while the rest of the developed world has been suffering from the global financial crisis - or GFC as Australians insist on calling it - Australia seems to have sailed through relatively unscathed. Envy is the only rational response.

However, in the last year the country’s economy has slowed: Australian construction output has virtually flatlined, with predictions that it will hit AUS$205bn (£141bn) in 2012/13, down 1%. Coming after 10 years of solid growth, including a massive boost since 2003 as the country has expanded its mining sector, this hitch has been greeted with deep concern by the Australian construction industry.

Nevertheless with opportunities thin on the ground in the UK, where the construction economy dived 10% in 2012, the broader strength of the Australian economy is inevitably still leading to many in the UK construction industry to consider seeking work Down Under. It may be about as far from home as you can get, but the sharedlanguage and, to a large extent, culture make Australia an attractive proposition. But is it a realistic source of growth?

The answer to that question can depend on who you’re asking, with Australians themselves tending to pessimism. In his foreword to the latest forecast from trade
body the Australian Construction Industry Forum (ACIF), executive director Peter Barda writes: “There is a new normal, and for many, it will be poor in comparison to previous buoyant times.” He goes on to describe prospects in the non-residential construction sector as “bleak”.

Still, some Australians are more upbeat about the country’s performance and prospects. For instance, Tim Turpin, chief executive of Australian project management company Thinc, says: “There’s a very stable banking system here and we have a fairly stable government, despite some recent dramas.

We have for the first time seen a lot of Europeans and Eastern Europeans investing in the Australian dollar - and they’re not betting on it going down. I think that we’re
an attractive backyard and a lot of people are starting to think of Australia as a safe haven for investment.”

But for new entrants to the market, the history of a decade of solid growth gives an enormous sense of opportunity. Martin Sutcliffe, the director at architecture and planning consultancy BDP responsible for driving the firm’s entry into Australia, says the market there is “a different world” compared to the UK. “Even when they had a little wobble at the end of last year because the Chinese stopped ordering quite so many minerals, it just felt much more buoyant than the UK,” he says. “They’re strangely racked by doubt, but you do have to have experienced the other side of it. Coming from the UK it really is almost farcical that they’re so worried.”

Mixed forecasts

However, the forecasts, certainly, are a mixed bag. The story is very positive on residential building, where the ACIF expects a return to strong growth from 2012-13, with “strong macroeconomic fundamentals, demographic trends and the significant shortfall” driving growth in the long term. With residential construction activity confirmed at AUS$70bn (£48bn) in 2011-12, it is forecast to grow to almost AUS$100bn (£69bn) by 2017-18.

Engineering construction activity, which covers infrastructure works as well boom industries such as mining, is forecast to have fallen by 2% to AUS$109bn (£75bn) in 2012-13. However, when one considers that between 2010-11 and 2011-12 the sector grew from around AUS$82bn (£56bn) to about AUS$113bn (£78bn), that isn’t a massive disaster. And that’s without mentioning that engineering construction activity started from a base of AUS$24bn (£16bn) in 2001-02.

The expectations are least promising for the traditional construction sector, where the government is about to turn off the tap on a stimulus package which saw it pour billions of Aussie dollars into school building through its Building the Education Revolution programme. Nevertheless, while construction activity in the non-residential sector peaked in 2009-10 at AUS$35bn (£24bn) before falling to around AUS$30bn (£21bn) in 2011-12, it is forecast to provide similar volumes of work over the next eight years - no year-on-year growth, for sure, but no decline either.

Foot in the door

The fact that growth has slowed, and that Australia is a mature market with established companies in all parts of the supply chain, of course means that UK companies have to think carefully about how they go about entering the market. One option available to medium and large companies alike is to go into partnership with local firms.

For instance, EC Harris has been working in partnership with Thinc for some time and the arrangement has proved profitable for both parties. Following a global tender, EC Harris recently won a huge project management contract with Citibank. However, the firm lacked the bodies on the ground to fulfil its role in Australia and New Zealand, at which point the relationship with Thinc came into play. “They [EC Harris] weren’t able to service Oceania, so we took on the missing part of the jigsaw,” says Turpin. “They were able to service their client and we took on work that we couldn’t otherwise have won.”

The collaborative route also seems to be a sensible one for smaller companies. For instance, architecture practice Rogers Stirk Harbour + Partners first competed for the huge Barangaroo development in Sydney, which it has since won (see box left), in partnership with local firm Lippmann Partnership. And while BDP hasn’t yet won any major commissions, Sutcliffe believes that a local partnering approach has been critical to winning a place on the bid teams for two major PFI hospital projects, as well as a near miss on the Melbourne Park tennis centre (the Australian equivalent of Wimbledon). Far from being seen as unwelcome competition, Sutcliffe says that UK architects are often welcomed as partners in Australia, either to other architecture practices or other firms such as engineering consultancies.

The reason we invested here was that we had global clients in natural resources such as BP, Chevron and Rio Tinto

Dave Todd, Turner & Townsend

“They are absolutely used to collaborating - most often with three firms working on major projects - and that’s often specified by the states because they don’t want too many eggs in one basket,” he says. “The Australians travel a lot - they do a lot of study tours. Some state officials and architects have come to look at our work in France and the UK and to degree they’re kind of appreciative of the fact you’ve turned up [in Australia]. Some firms see you as a threat but most are positive about it.”

Also in UK firms’ favour is the perception that they have an advantage over their most natural competitors in the Australian market, the Americans. According to one interviewee who preferred not to be named, Australian businesses are “much better disposed towards the Brits than the Yanks. The American approach is far less in tune with the ways Australians do business.”

Other firms have successfully entered the Australian market via major clients with whom they already worked. For instance, consultant Turner & Townsend has been operating in Australia since the turn of the century, having entered the market through their existing clients in the energy and mining sectors. “The reason we invested here was that we had global clients in natural resources such as BP, Chevron and Rio Tinto,” says Dave Todd, regional managing director for Australia at Turner & Townsend.

However, having got a foot in the door, Turner & Townsend was able to expand into other sectors, but only by buying into the established market. “We saw that the growing population and economy gave us a big opportunity for property and infrastructure,” says Todd.

“It is a challenging market because there is a relatively mature cohort of consultants here. We certainly found that once we got into property and infrastructure we needed to make an acquisition.”

The story is similar with engineering consultant WSP. Andrew Mather, the company’s managing director for the Africa, Australia and Asia region, says that WSP entered the Australian market in 2007 through the acquisition of building services company Lincolne Scott, which at the time employed about 450 people and had a specialism in sustainable building. The acquisition allowed WSP to expand across Australia and into South-east Asia and New Zealand. The business now employs about 600 people with a turnover of around AUS$70m (£48m).

“I think that it would be very difficult to enter the Australian market other than by acquisition,” says Mather. “It wouldn’t necessarily have to be a very large acquisition, but you do need a presence here. Some parts of Australia are quite parochial, such as Queensland and Western Australia. If you’re not an Australian firm or an international firm with an office in Australia they don’t want to deal with you.”

Different systems

There are, of course, practicalities to be considered. Although the business culture may be anglophile, Australia is closer to the USA in terms of governance than it is to the UK. There is the federal government that delivers the overarching policy direction, but then a system of state government that is responsible for delivery and which has a significant degree of autonomy, which it guards passionately. As a result, doing business can vary significantly from state to state.

While he has always worked under the system, Thinc’s Turpin has a lot of sympathy for foreigners attempting to understand its variations. “You can have one way of doing things in New South Wales and it’s entirely the opposite in Western Australia,” he says. “The best example is the planning legislation. In Queensland we have 4.6 million people, 12 regional councils and six plans. But in New South Wales we have six million people, 183 councils and 5,500 local plans. “

However, if a company is willing to invest in Australia in the long term, it can reap substantial dividends. Take groundworks firm Keller. The company has been in Australia for 15 years and is now the biggest ground engineering contractor in the country by some margin - chief executive Justin Atkinson estimates that his next biggest rival is half the size of Keller - and the company has grown both by acquisition and organic growth.

He certainly feels that the market isn’t what it once was and that boom times in most sectors are a thing of the past. Indeed, the company saw around AUS$40m (£27m) of contracted work cancelled towards the end of 2012 as a result of the downturn in the iron ore market. However, Atkinson remains positive. “We made a strategic play for Australia 15 years ago and built up over time,” he says. “The market isn’t booming as it was five years ago, but if you’re taking a 10-year view then Australia is always going to be the place to be.”