Saudi Gazette published this article on 22 February 2016. It gives amongst many things related to the ongoing events, the Saudi point of view.
GCC construction firms urged to cut manpower, become flexible
JEDDAH — Construction companies that operate in the Middle East face a range of challenges that grow more complex every year. Low oil prices and geopolitical issues have caught them by surprise. To get through this more complex business environment, they must have leaner operations and improve their management capabilities. In particular, they should take a structured approach to dealing with their two largest spending areas—manpower and procurement—and develop more flexible organizational models, according to a recent study by management consultancy Strategy& (formerly Booz & Company), part of the PwC network.
“Local companies have benefited from significant investment by national governments,” said Alessandro Borgogna, a partner with Strategy& in Dubai, co-author of the study, and a member of the engineered products and services practice in the Middle East. “Today, that spending has declined, in part due to low oil prices. In addition, companies are required to hire more nationals, which increases labor costs. These factors, along with geopolitical developments, have forced GCC contractors to suddenly cut costs and tighten their operations.”
Regarding manpower, companies can take several measures to reduce costs, according to the report:
- Effective manpower management—including a clear manpower plan—will help companies accurately forecast their labor needs and identify looming shortfalls in specific areas, so they can recruit accordingly.
- A specialized team should be in place to enforce the manpower plan and ensure coordination across the HR, planning, and operations functions.
- Improving the “span of control”—or the ratio of employees in adjacent levels of the company, such as the number of foremen compared to the number of tradesman—could will help companies reduce the size of their workforce and have more productive operations
“Collectively, these measures can help companies reduce staff by 10 to 20 percent, while maintaining the same quality standards and timelines,” according to Fadi Majdalani, a partner with Strategy& in Beirut, co-author of the study, and the leader of the engineered products and services practice in the Middle East.
Procurement is another area of potential savings, given that the purchase of materials and services typically takes up 60 percent of a construction company’s total spending. Reducing procurement costs starts with a complete analysis of what the company is buying, who it is buying from, where the biggest opportunities lie, and how companies might negotiate better terms from their suppliers. With a clear picture of procurement in hand, companies can implement several cost-reduction measures:
- Planning and aggregating purchases for the entire portfolio of projects, rather than on an individual project basis, can lead to volume discounts and strategic partnerships with key suppliers.
- Coordinating purchases with the finance department can lead to better payment terms, more predictable cash flow, and fewer missed payments.
- Technology such as an enterprise resource management system can make procurement faster, more efficient, and more accurate.
In all these measures can lead to savings of 5 to 10 percent on procurement costs.
Finally, GCC construction companies need to create more flexible organizations. For example, they can centralize their manpower and procurement functions, to maximize the benefits of scale. Companies can also improve their core project-management capabilities—such as project management; cost control; planning; contracts; quality; and health, safety, security, and the environment—which are consistently below those of international competitors. Moreover, they can create a performance-based culture in which employees at all levels of the organization take on a sense of ownership and accountability, rather than simply meeting baseline expectations.
“These are bold measures, but the current construction market in the GCC requires nothing less,” said Marwan Bejjani, a principal with Strategy& in Dubai, co-author of the study, and a member of the engineered products and services practice. “By reducing costs and becoming lean, construction companies in the region can position themselves to win regardless of what the future holds.”
This article appeared on this website on 25 April 2015. It is updated with another article of the publication, reproduced above for its obvious interest at this conjecture.
The Saudi Gazette reported today that there are at present more than $2 trillion worth projects in the GCC countries, with 60 per cent of which are taking place in Saudi Arabia and the UAE.
Saudi Arabia is likely to remain the dominant construction market in the GCC for the foreseeable future, with an estimated $200 billion spend in construction planned over the next two years and much more in the pipeline, according to the report.
In terms of country spend, Saudi Arabia leads the way with $784 billion worth of projects, followed by the UAE with $669 million, it said.
Construction is a key economic driver in Saudi Arabia, providing a platform for almost every industry and strongly contributing towards the employment of Saudi nationals while providing growth potential to local businesses, Nathan Waugh, portfolio director, DMG events, the organiser of the recently concluded Big 5 Saudi 2015, was quoted as saying.
The construction sector showed the highest non-oil GDP growth rate at 6.7 per cent last year, and the 2015 budget demonstrates the continuation of the previous year’s diversification plan, which provides major construction spending in key government segments, he added.
Saudi Arabia’s population comprises approximately 70% of Saudi nationals and 30% expatriate, for a total population of 28.8 million. The combined population of the rest of the GCC countries is approximately 19.85 million. This positions Saudi Arabia as the single most important market in the region. Not to mention that Saudi remains one of the largest oil exporters in the world, ranking second in 2014, and is economically very stable. With the significant boost in development projects in Saudi Arabia over the last decade, the country’s growth has been steady in comparison to other GCC nations.
Source – The Saudi Gazette of 23 April 2015