3. Engineering & Construction: Scenarios to 2020
Partner Views
“This E&C 2020 Scenario Planning process “The Forum’s E&C 2020 scenarios project has “The demand for new infrastructure in the emerging “Work accomplished through E&C 2020 should
offers those of us who lead E&C companies a helped us to identify critical issues and uncertainties economies and for renewal of infrastructure in the provide considerable substance to the strategic
unique opportunity to make our strategic planning that have the greatest potential to impact our developed economies is practically insatiable and planning activities of individual companies. The
processes more effective, and allows us to respond company and our industry over the next decade. so is the demand for energy and communication. E&C 2020 process helps fill a significant gap as it
more quickly and confidently to future changes in It has also highlighted the merits of industry Concern for the environment has created a provides a thoughtful, informed and analytical view
our dynamic industry. This is a rare opportunity to collaboration providing all of us in the project with a whole new ‘environmental’ market with endless of the longer term future, a perspective that has not
thoughtfully consider the longer term aspects of our forum and framework for shaping, rather than simply opportunities. typically been a part of our industry-wide thinking.”
business environment and our client relationships; responding to, our future.” This presents E&C companies with unprecedented
aspects that are difficult to tackle within our normal opportunities for growth in the traditional way and Alan L. Boeckmann
Chairman and Chief Executive Officer,
business and strategic planning horizons. We live in by way of privatization of infrastructure. Yet so great
Steve Hanks
President and Chief Executive Officer, Fluor Corporation
a world that is full of uncertainty, and the E&C 2020 are the economic, social and political uncertainties
Washington Group International
process lets us tackle that uncertainty head-on in a that traditional planning is proving to be woefully
systematic way that will help us make our resource inadequate.
allocation decisions – and our response to unfolding E&C 2020 asks and studies what is most likely to
events – more robust and effective.” happen and what has already happened that can
create the future. It is a wonderful tool that can
enable businesses to make their future.”
Ralph Peterson
Chairman and Chief Executive Officer, CH2M HILL
Ajit Gulabchand
Chairman and Managing Director,
Hindustan Construction Company Limited
4 5
4. Engineering & Construction: Scenarios to 2020
Engineering & Construction: Scenarios to 2020
Introduction
How could the business environment for implementers in urban areas in developing countries, compared to only There are signs suggesting we may be at risk of an Nature of demand
Launch of the project Governors Meeting for E&C in Davos 2007
2007
of capital projects plausibly look in 2020? 6% in urban areas in developed countries3. Markets in the overall retrenchment from globalization such as rising The type of client influences the contractual
developing world will consequently increase in importance geopolitical instability and the spread of political populism arrangements of capital projects: notably, whether the
Project scoping and issue identification
To answer this question, the project set out for the E&C industry. in Europe and the US. Will globalization progress and emphasis is more on schedule and price or focuses
PHASE 1 ■ Identify focal question
to synthesize the different perspectives of many support high GDP growth, or will there be retrenchment more on long-term social and environmental impacts.
■ Research publications, papers and other information
Introduction
Introduction
stakeholders and build a shared vision of the future. To Though the pace of urbanization will be influenced from globalization? Industrial clients, government and public bodies, financial
sources
do so, over a period of one year we held discussions by factors including the rate of economic growth and institutions and developers each have their own objectives
■ Interviews with leading industry stakeholders
and multistakeholder workshops in London, Jordan, rural development, the overall trend is set to continue and constraints. The market proportion of these entities in
Regulatory context
■ Map key drivers
Singapore, Paris and China, bringing together industry – and with it the challenge of providing infrastructure Building regulations, employment and environmental the E&C market will strongly impact the nature of demand.
leaders, clients, academics, civil society and government to accommodate greater urban populations in a laws all have significant impacts on the E&C sector.
Issue prioritization London & Jordan Workshops
representatives from Asia, the Middle East, Europe, sustainable way. Governments increasingly use building regulations Who will be the clients for E&C services and what will
■ Determine predetermined elements and critical
Latin America and North America. Discussions covered to impose environmental standards and to stimulate they value?
uncertainties: the issues that will shape the future
issues surrounding infrastructure in its broadest sense, innovation, while employment laws impact on the
Ageing societies
■ Identify focal questions for the scenarios
encompassing industrial as well as public projects. Opinions differ on how exactly demand for availability of labour. Regulations also strongly affect Scenario building
infrastructure will change as societies age, but among market structure, the costs of doing business, country From these deliberations, two main dimensions emerged
the clear implications for the E&C industry’s business competitiveness, the degree of market liberalization and through which to envision how the business environment for
environment are that ageing societies will put pressure on the extent and impact of globalization. implementers of capital projects could plausibly look in 2020:
Scenario development Singapore & Paris Workshops
The first stage was to collect a wide range of the tax revenues available for infrastructure work and will
■ Develop conditions and triggers that lead
• Will the corporate environment become more
viewpoints on the factors that might shape changes to impact the available labour force. At what level of governance will regulations be defined
to contrasting scenarios
global, or will it evolve towards a multitude of
the business environment in 2020. This was done through – local, national, regional, global? How stable will the
■ Develop challenging, plausible scenarios for 2020
local markets?
a series of open-ended interviews with stakeholders, According to the United Nations, while now one in 10 regulatory context be – will regulations affecting E&C be
• Will the demand – and E&C’s relations with its
covering political, social, economic, technological, of the world’s population is aged 60 or above, by 2050 integrated into long-term development plans or vulnerable
clients – be transactional or value-based?
environmental, and supply and demand issues. that figure will have risen to one in five. There will be strong to the shifting priorities of changing political regimes?
regional differences, but societies will age more rapidly in
Dalian Workshop
Participants at the workshops in London and Jordan developing countries than in developed countries. These two dimensions lead to four possible worlds:
Climate change policies
■ Validate the scenario axes
assessed these issues on their level of uncertainty and Climate change has become a top issue on the
■ Assess the relevance and validity of the scenarios
their level of impact on the industry, and identified the global agenda, and climate change policies hold great
The four critical uncertainties are globalization
■ Strengthen the storylines
most significant predetermined elements1 and critical uncertainty in light of the long project cycles for capital
and global economic growth, the regulatory
uncertainties . projects. Since the Kyoto protocol on climate change
context, climate change policies and the
2
entered into force in 2005, a broad range of countries has
nature of demand.
Scenario production
made progress on carbon emission reduction, but the
The two main predetermined elements are
■ Write up the scenarios in an effective
protocol’s full execution has been hindered by a variety
urbanization in developing countries and
and compelling way
of issues. Talks have already begun on what is to follow
ageing societies. Globalization and global economic growth
■ Produce scenario publication and video
Economic growth – especially growth in per capita the end of the Kyoto protocol in 2012. In parallel we see
income – is the major driver of demand for infrastructure, other climate change initiatives such as the Asia-Pacific
and the rate of globalization influences GDP growth Partnership on Clean Development and Climate, and the
Urbanization in developing countries
For the first time in history, in 2008 more than half through its impact on cross-border flow of products, Regional Greenhouse Gas Initiative.
of the world’s population will be urban. With economic services, capital and talent. The average annual global
E&C 2020 scenarios Governors Meeting for E&C in Davos 2008
2008
growth, population growth is the main driver of demand GDP growth between now and 2020 is estimated to reach What new climate change policies will be put in place,
launch
for infrastructure. The planet will have 1.1 billion more between 2.5% and 4%, depending on how globalization and by whom? How, and at what governance level, will
people in 2020 than it did in 2005, of whom 71% will be progresses. they be enforced? How will they impact the demand for
PHASE 2
Multistakeholder dialogue on industry implications to identify proactive collaborative
and execution of capital projects?
actions to shape the future.
The four scenarios presented emerged through scenario
building workshops in Singapore and Paris, and were
tested and strengthened in the scenario affirmation
Important determinants of the future business environment which are relatively certain to evolve in a particular direction, if not necessarily in their extent and timing.
1
The decisions we make today create tomorrow.
Factors that are highly important in shaping the future business environment and that are highly uncertain in the way they will evolve.
2
workshop in Dalian.
United Nations, World Population Prospects: The 2006 Revision, 2007.
3
6 7 8
5. Global environment Market regulation Level and source of demand Client relationships Climate change Natural resources Workforce Technology
and innovation
The Race While the global economy continues to ■ No global agreement on ■ Strong international
■ Competitive globalization sees ■ International competition to attract ■ Global GDP growth, powered by BRIC countries, ■ Adversarial, tense ■ International companies’ ■ Industry R&D is inefficient
integrate and grow, security concerns climate change due to competition for access
more trade integration but investment leads to fragmented supports the demand for capital projects. relationships among industry competition for talent and expensive.
and lack of trust afflict relationships nations’ fear of becoming to scarce energy and raw
wary international relationships. legal frameworks and frequent ■ Supply of E&C services has grown faster than demand players and with clients. supported by immigration ■ Innovation and
between both nations and businesses. uncompetitive. materials.
■ Reliance on bilateral and changes in regulatory context. due to increased capacity of developing country players. ■ Transactional relations policies. knowledge sharing
With companies from the BRIC countries ■ Adaptation, not
regional agreements. ■ Emergence of private, speculative investors with governed by a tight contractual ■ Serious labour shortage: hampered by concerns
establishing a strong global presence, mitigation: dealing with the
short-term, high-margin investment strategies. regime, litigations and claims. industry is not attractive to over trust, strict intellectual
and investors in capital projects having a effect not the cause.
■ Private investment in public infrastructure: no ‘partnerships’, talent. property rights protection
speculative and short-term mindset, the privatization with government consent. ■ Underinvestment in and the highly competitive
E&C market is in a fiercely competitive human capital in the environment.
race. industry.
The Collaborative Globalization gathers pace amid ■ Global agreement on ■ Technological progress
■ Stable geopolitical environment ■ Strong drive for internationally ■ Strong global GDP growth supports the strong demand ■ Relationships between E&C ■ Some materials are in ■ Few restrictions on labour
Leap geopolitical stability and international climate change policy is is rapid due to substantial
fosters collaboration and harmonized regulation. for capital projects. firms and clients are more structural shortage, or mobility.
collaboration; regulatory harmonization operational. R&D efforts with one set of
intensifies globalization. ■ Self-regulation plays a key role as a ■ Demand exceeds supply due to high government open and collaborative. economically not viable due ■ Cross-industry high demand
and environmental awareness enable a ■ Strong GDP growth leads to intellectual property rules.
■ Strong trade and market triple bottom line mindset dominates. spending and private investment. to carbon pricing. and competition for
collaborative leap in E&C. State agencies, increased CO2 emissions, ■ E&C industry evolves towards
integration through multilateral ■ Emergence of the ‘consortia client’ and shift towards ■ Adoption of alternative talent.
research institutes and shifting coalitions but steps are taken to a more innovative culture.
cooperation. triple bottom line investing. energy and material ■ Industry develops
of specialist companies combine to tackle decouple GDP growth
■ Strong adoption of Public-Private Partnerships sources. innovative image, becoming
novel and ambitious projects for clients from energy consumption
(PPPs) for the development and operation of public more attractive to talent.
who value sustainability, spurring multiple and from CO2 emissions.
infrastructure.
innovations and systems-level thinking.
The Zero-Sum Wars, shortages and economic recession ■ Failure of climate change ■ Immigration policies are
■ Globalization stalls amid ■ Local regulation dominates, ■ Slowdown of GDP growth leads to downturn in the E&C ■ Transactional relationships ■ Prices of commodities ■ Low levels of innovation
Game fuel a worldwide upsurge in nationalism, coordination at a global restricted to specific skill
geopolitical instability. strongly implemented and enforced. industry and a buyer’s market. due to short-term nature of are not under pressure but as the industry finds it
with mounting security worries and the level. sets and sectors.
■ Rise of the politics of fear. ■ Political populism leads to regulatory ■ Governments without natural resource reserves and liquid clients’ investment horizons. highly volatile. difficult to allocate resources
politics of fear locking countries and ■ Forms of energy that are ■ High levels of unemployment,
uncertainty. banking systems cannot invest significantly. ■ Sourcing of materials to R&D, training and
business environments into a zero-sum most readily available locally decreasing enrolment
■ Private investors lose faith in PPPs, though states and equipment is highly education.
game. Slumping demand, cost-conscious are used, irrespective of in engineering and science
initiate new partnerships on security issues. constrained.
clients and the increasing difficulty of impact on environment. studies.
working internationally spell tough times
for E&C companies.
The Aspirational Amid international tensions and economic ■ No global agreement ■ Selective and temporary
■ Retrenchment from globalization ■ Strong local market regulations. ■ Slowdown of global GDP growth and decrease in ■ Governments catalyse ■ Local governments want to ■ Local community aspirations
Communities difficulties, globalization stalls. As on climate change, but immigration is aimed
due to international economic ■ Protection of domestic industries international capital flows constrain demand for E&C collaboration to spur reduce their dependence stimulate innovation.
societies look inwards, visionary leaders governments place high at skill and knowledge
tensions. considered to be strategic for services. increasingly sophisticated on imports. ■ Limited cross-border
emerge at the head of aspirational value on sustainability of the transfers.
■ Societies and governments focus economic and policy development. ■ Governments take the lead in identifying infrastructure development for meeting ■ Developing countries innovation and knowledge
communities who see E&C as strategically built environment. ■ High emphasis is placed on
on improving their local situations. needs to improve the standard of living and stimulate complex infrastructure restrain export of sharing.
important for local socio-economic ■ Emphasis on locally building of local human
local markets. requirements. materials to ensure supply ■ Research agencies are
development. They catalyse collaboration relevant environmental capital.
■ Governments and investors are sensitive to long-term, ■ Local governments have strong for local needs. established in partnership
between businesses and academia to find issues.
locally inspired value creation, sustainable influence on capital projects. between academic
innovative solutions to local infrastructure infrastructure and local job creation. institutions, E&C firms and
needs caused by environmental and social ■ Governments with limited resources attract the private clients.
change. sector to participate in infrastructure development through
attractive partnership frameworks.
9 10 11
6. Engineering & Construction: Scenarios to 2020
Engineering & Construction: Scenarios to 2020
Conclusion and Next Phase Project Team
The aim of these scenarios has not been to predict Much is uncertain about the business environment in The scenario project team includes the following individuals:
the future, but rather to sketch the boundaries of the which E&C companies will execute capital projects in the
plausible. These scenarios will have had their desired future. But we trust that by stretching your minds in new Project Leaders: Kristel Van der Elst, Associate Director, Scenario Planning Team
effect if they have succeeded in teasing out some directions, we will also have inspired a transformation from Roger Van der Marel, Project Manager E&C Community
Conclusion and Next Phase
Project Team
underlying issues and helping you to envisage and reflect a reactive to a proactive approach. With that in mind, we
on what could happen. On reading these scenarios, you now embark on the second phase of the project, where Core Team Advisers
should ask yourselves: the focus is on shaping a positive future. This second Viktoria Ivarsson Roy Antink
phase will involve both Engineering & Construction Shaun Kirby, secondee of KPMG Fiona Paua
community-specific and multistakeholder workshops Johanna Lanitis Alex Wong
• Which world would I prefer to live in?
throughout the year, some as elements of the World Sandrine Perrollaz
• What can I do to bring that world into existence?
Economic Forum’s Regional Meetings and some as stand-
• If another world came about, what would it mean
alone events. Scenario writer: Andrew Wright
for me?
• What would I need to do to fare well in each world?
The Forum is uniquely qualified to bring together the Editors: Nancy Tranchet
An awareness of the worlds described in these various stakeholders of capital projects to analyse barriers
scenarios offers the potential to help the many to success and opportunities for collaboration, both Creative design: Kamal Kimaoui
stakeholders in capital projects – E&C companies, on a global approach and from more detailed regional ComStone.ch – Geneva
governments, owners, financial institutions, international perspectives. Working together, we aim to ensure that
and non-governmental organizations – to build strategies we continue to implement capital projects that support
that are flexible and robust enough to withstand diverse economic growth and improve the state of the world.
possible futures. They offer a context for interpreting one-
off media headlines or experiences which may give you,
the decision-makers, a competitive edge by raising your
sensitivity to early signals of emerging fundamental trends.
World Economic Forum
www.weforum.org
12 13
7. The World Economic Forum is an independent
international organization committed to impro-
ving the state of the world by engaging leaders in
partnerships to shape global, regional and
industry agendas.
Incorporated as a foundation in 1971, and based
in Geneva, Switzerland, the World Economic
Forum is impartial and not-for-profit; it is tied to
no political, partisan or national interests.
(www.weforum.org)
