Material and Labor Trends

Asia – Pacific region weathered the financial crisis better than other neighboring regions, with the domestic demand growing at a healthy pace and this serves as the best driving force for the construction industry. Asian Economies are currently leading the way for global Engineering & Construction sector and 40% of the global construction spend comes from APAC. Total construction spending in the Asia-Pacific region is expected to expand at a 5. 8% compound annual growth rate (CAGR) from 2009-2014. India, which holds about 8% of the E&C spend in APAC, is expected to grow rapidly in the coming years.

The overall construction spend in India is expected to increase to USD 360 billion by 2013. ? ? ? The engineering & construction industry was one of the worst affected sectors due to recession and witnessed the highest number of job losses. Almost all countries excluding a few like China and India are still experiencing negative growth in this industry which is likely to continue till at least 2012. Maximum share of the stimulus spending by various countries is concentrated on the construction sector. For instance, India requires a spend of around USD 1. 5 trillion on infrastructure to achieve a 10% economic growth rate.

India along with China, Indonesia, Brazil and other developing countries are expected to be the major growth drivers in this space. Construction is the second largest industry contributing to 11% of India’s GDP. According to the Eleventh Five-year plan, huge investments exceeding USD 500 billion is expected to be injected into the Indian infrastructure market by 2012. The construction industry employs 18 million people directly and 14 million people indirectly. Exports constitute 5% of the domestic Indian market which comprises of construction materials, services & labor.

The construction industry in India is categorized into organized and unorganized segment. Organized segment consists of contractors who are capable of performing functions like design, financing and execution; on an in house level; whereas the unorganized segment includes the standalone contractors that function at relatively smaller scale. The Indian government has encouraged the construction industry by improving government reforms like the Repealing of the Urban Land Ceiling Act, the rise of privatepublic partnerships in infrastructure projects and the 100% FDI in this sector.

Multilateral agencies, such as World Bank and Asian Development Bank, have initiated funding infrastructure projects like the Delhi Metro, which was funded by the Japan International Bank for Cooperation. Construction of non-residential buildings will be the fastest-growing segment of the AsiaPacific construction market throughout the next five years. Non-residential building construction will grow at a 6. 5% CAGR where India is expected to lead with a CAGR of 9. 1% in next five years.

In the infrastructure segment, China will lead with growth at a CAGR of over 10% between 2009 and 2014, with India a close second, averaging a 9. 4% CAGR which will be driven mainly by government stimulus. The growth of residential construction will be slower as compared to the commercial buildings and infrastructure segments, but China and India will still see growth in the 8%CAGR range over the next five years. High input costs may reduce construction’s contribution to GDP Rise in raw material prices is expected to hit the construction sector and may reduce its contribution to below eight per cent in the country’s GDP in 2011-12 as

against 8. 1% in the last fiscal year. 4 Porter’s Five Force Model – Asia The engineering and construction industry in Asia has a mixed outlook. In countries like India and China the client is expected to enter the market with a trend of high level of spend for procuring engineering and construction service where as in Countries like Japan and Korea , the aging society and post tsunami effect (Japan) is likely to bring changes in supply-demand dynamics of the country. 5 End User Industry Outlook ?

? Employment in heavy and civil engineering construction is projected to increase due to the increased activities in highway, bridge, and street construction. Non-residential building construction in Asia will grow at a 6. 5% CAGR where India is expected to lead with a CAGR of 9% in next five years which happens to be the major end user segment of the construction industry. Commercial and industrial constructions are the key drivers of the non-residential construction industry. The industrial construction growth will be driven by local demand in this sector.

The automobile industry in Ahmedabad, Chennai, and Pune is fuelling 40 new large-scale industrial construction projects in these three cities through 2011. Residential construction is expected to grow at a CAGR of 8% over the next five years which is going to be the next major end user. Developers have adopted new innovative models, such as low-cost housing in order to cater to the vast urban middle-income population. Growing IT and ITes sector will attribute to more and more residential and non-residential sector.