Diversification crucial for construction firms’ survival

While the industry is buoyed by lockdown restrictions-easing and 56% of projects that were suspended now back on-site, there is a deep concern about what happens next, and where future opportunities will come from.

As the UK faces another recession, leading business analysts are encouraging diversification strategies in order to spread risk and maintain businesses throughout the crisis.

The commercial property sector is perhaps the most likely to be hit first - with offices in a state of flux regarding whether employees will return and continue to work at pre-COVID-19 volumes.

And although the development pipeline appears firm now with 1,080 projects approved throughout the UK in the last three months, 6% more than a year ago, it remains to be seen whether investors will progress these to site. Caution and preparing to spread risk now would be prudent.

A recent report; “COVID-19: UK industry focus. Where next for real estate?” from Strategy& - part of the PwC network - states that “42% of workers can work from home”, and “In the worst-case scenario, real estate companies would be left with expensive, significantly devalued assets on their balance sheets for which there is no demand.”

So, it stands to reason that if firms are solely focused on office construction, then they should be looking elsewhere too, to spread their risk and avoid the worst-case scenario should it arise.

Although fears abound that city-centre offices could lose their appeal, there is potential opportunity for regional business hubs to facilitate meetings and collaborative working for remote workers, suggests Hannah Vickers, Chief Executive of the Association for Consultancy and Engineering (ACE) in a recent Infrastructure Intelligence webinar, should reverse-urbanisation occur. Therefore it may not just be diversification of services or sectors-served that is required, but also a shift in location focus too.

Diversification in manufacturing

Some manufacturing businesses are also at risk should they decide to remain focused on their ‘old-normal’ way of doing business.

Strategy& states in their report “COVID-19: UK industry focus. Where next for industrial manufacturing?”, that; “Our figures suggest the industrial manufacturing sector will be hit harder than the economy as a whole, with a possible productivity fall of more than 30%”, and “Whether making parts or assembling products, manufacturers with a broader, more diverse set of customers will fare better than those who specialise in serving specific industries.”

History teaches us that short-term measures taken in response to global crises lead to changes that last for decades. And manufacturers who can identify new opportunities to meet newly created needs will have ample opportunities for growth.

E.g. Tharsus, the advanced robotics company, has developed ‘Bump’ – a new, cutting-edge technology system designed to help keep people safe in the workplace during the COVID-19 pandemic.

And Alloy Wire International has been commissioned to produce more than five kilometres of material that will be used to produce crucial parts for use in life-saving equipment destined for the Nightingale Hospital in London.

Another example is Coventry-based flooring manufacturer, Amtico who have modified its manufacturing facilities to help produce up to 20,000 parts for protective face shields per day.

How can businesses diversify?

But how can businesses who are entrenched in one way of working and supplying one sector, quickly turn this around to be involved in others that they may not have first-hand experience of?

PwC’s Strategy& again has some useful advice to “use demand signals such as customer leads and market insight to inform recovery, preparing for different scenarios depending on the length and nature of lockdown.”

Glenigan customers can of course leverage our market insight to monitor planning activity to gauge where potential opportunities for their skill-set or experience may be leveraged in new sectors. Other businesses can start their research via our free Pipeline-Finder tool to search for potential opportunities in all construction sectors throughout the UK here.

The more businesses can diversify the types of projects they work on, or supply, the better position they’ll be in to spread risk, and weather the storm.