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ACE’s State of Business report has a number of significant warnings for the consultancy and engineering sector. Almost half of firms still face cash flow problems. Meanwhile, more than a third struggle with late payment for work done.
Following hard years for the wider construction industry, consultancy and engineering firms did report some good news. There was strong expectations of growth in foreign markets and short term staffing expectations are stable. But economic pressures have meant that a third of companies feel that they will be, or are likely to be, actively involved in mergers and acquisitions. Small firms in particular have been hit by the cash flow problems resulting from bank lending conditions and late payment for work done.
The government is hoping the private sector will take the slack in the economy as the public sector withdraws funds to facilitate spending cuts. However, this year’s State of Business reveals there are serious concerns about how the private sector will undertake such activity in such a short period of time given the tight credit conditions. Private sector activity has remained subdued in the last 12 months, with 39% of companies reporting a decrease in activity and 40% experiencing no change.
At the same time, public sector activity is reported to have fallen significantly since 2009. More than half of companies have seen activity fall, compared to 31% in the previous year. This suggests that the cutbacks are impacting on the industry and raises questions about whether the private sector is rebounding as hoped.
Nelson Ogunshakin, ACE chief executive, told Impact: “This year’s ACE State of Business report could not take place more challenging time for the industry. The debate as to how fast the public sector should cut spending continues, with potentially half a million public sector jobs being lost in the process.”
However, despite the concerns about the domestic market and public spending cuts, firms expressed optimism in other regards.
There is significant focus on foreign markets, with particular emphasis on fast growing emerging markets. Companies reported that they see opportunities for earnings over the next three years in the Middle East (35%), China (32%), Indian sub-continent (26%), South East Asia (25%) and Africa (23%).
Firms also expect growth in particular sectors. Energy or power production, utilities, transportation, waste and the commercial sectors are seen as potential areas for earnings growth. This highlights the need for the UK to become more competitive, both in terms of its business environment and infrastructure provision.
The potential size of the UK’s infrastructure challenge and the emphasis that is being placed on the low carbon sector as a driver of tomorrow’s construction industry should offer some growth potential. However, 52% of respondents felt that the low carbon industry would not provide a significant boost to the construction sector.
Following concerns that several major companies had had to reduce their headcounts as workloads fell, companies reported that they expected staffing to stay relatively stable in 2011 with improving prospects for 2012. This is more upbeat than previously expected.
The government has spoken about the need to improve efficiencies, and companies highlight procurement as a key area for this. Experiences of public sector procurement were not positive, with the majority of respondents indicating that at devolved (70%), local (71%) and central government (63%) levels there are poor or very poor procurement processes. A third of companies say government procurement processes are very poor in terms of efficiency alone, suggesting that there is a significant saving available to the government by reforming procurement.
It seems that, with a tough couple of years behind the industry, firms are now looking forwards with a view to growth again.
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