Irish contractors who’ve outgrown their domestic economy are being forced to look for work in international markets. Guess which is top of their list …
A quick wander down Forbes Street, a small road in Dublin’s 1300-acre docklands redevelopment, demonstrates the Irish construction industry’s new-found strength. An 80 m tower crane swings foundations into place for a Jurys Inn hotel; workers dig furiously as they attempt to get a delayed civic square project back on track; a sign promises that a classy new restaurant is about to be fitted out; and a 290-apartment block has just opened its doors to its first tenants, who can look out from their balconies onto a garden developed by celebrity landscape designer Diarmuid Gavin.
The significance here is not just the amount of work that is taking place, but the growing strength of the contractors that are carrying them out. Pierse is manoeuvring the crane; the workers on the square have “SIAC” branding on their hi-vis jackets; the proposed restaurant has a large sign for Bowen Group in its window; and John Sisk has been moving people into those apartments since the end of May. All of these contractors are Irish, as are most of those currently working in this £4.72bn investment area.
“See this area? Five, 10 years ago it was dead, mainly derelict sites,” says Gavan Quinlan, senior project manager at Dublin Docklands Development Authority. Also, a decade ago, Irish contractors would not have been able to take on this scale of work, as they simply did not have the resources. But as the Celtic tiger has worked its way through a massive infrastructure programme – Ireland’s 2000-06 National Development Plan has a budget of about £39bn covering everything from road building to childcare – so many Irish contractors have become powerful, sophisticated outfits. They are now of a size capable of expanding into and winning big projects in overseas territories, with the 10 biggest companies now turning over more than €200m (£135m) each year. And their main target will be the UK.
Martin Whelan, head of public affairs at Ireland’s Construction Industry Federation, says: “We are getting to the point where internationalisation is appropriate. The UK is an inevitability.”
The Irish government certainly thinks so, and argues that this is a result of its own success. The NDP was intended to sustain an unprecedented boom, as the country tried to make the most of foreign investment pouring into the country by upgrading its desperately poor infrastructure. This was a financial gamble, but one that paid off: Ireland is now one of the most successful economies in the world: over the past five years its economy has grown by an average of 5.3% a year, and it has the second lowest level of government debt in the eurozone.
The real brake on growth is the fact that Ireland has a population of 4.2 million. As the infrastructure has caught up, so Irish contractors have gained ground on their European rivals. Micheál Martin, the minister for enterprise, trade and employment, told Building: “As a small open economy, competition is intense, not only between Irish companies trading in the domestic market but also from international players.
“The Irish domestic market is simply too small to allow companies of scale to emerge. Sustained growth will depend ultimately on construction companies’ success in increasing market share in world markets.”
Martin is right to say competition is intense, as 40% of all start-up companies are in construction and building materials. There is still a lot of domestic work to do: the next five-year plan, which covers the 2007-13 period, is expected to have a budget of £45bn. However, many believe that growth will soon reach a plateau. Finn Lyden, who is managing director of SIAC, Ireland’s seventh biggest contractor, says: “The Irish economy will cool – it can’t keep growing at the pace it’s going.”
Over the 12 years that Lyden has been SIAC’s boss, the company has grown five-fold to a turnover of €227m (£156m). At present, only John Sisk and Pierse have large presences in the UK, but Lyden believes that the other big firms are ready to expand. He cites SIAC as an example. In the UK it only has roofing and glazing businesses based in the West Country with a combined turnover of about £30m. They have been “fairly static” for years, according to Lyden and they are certainly peripheral to the growth of its parent. However, it will now prove pivotal, as he seeks to grow its UK operations 60% over the next five years, partly through acquisitions in sectors such as steel and roofing.
To Neil Kerrigan, head of construction markets at Enterprise Ireland, the government’s international development agency, this is the sort of move that more Irish contractors need to make. He is keen for the country’s top 10 contractors to have significant businesses internationally within two to three years (see “Top 10 contractors”, below). Kerrigan says: “They have to look at maintaining what they have now. What if a contractor doesn’t land a roads contract? That could take a big chunk out of its business. It’s about balance of opportunity. If they don’t get something here, they can get something somewhere else.”
Sustained growth will depend on construction companies’ success in increasing market share in world markets
Micheál Martin, the minister for enterprise, trade and employment
According to Kerrigan, there are signs that industry figures are taking note. He knows of six leading executives of contractors and materials firms that are taking business courses at Berkeley University in California and the Massachusetts Institute of Technology to find ways of doubling turnover within 10 years. Internationalising is being drummed into them as a key driver of growth.
Kerrigan says this could mean going to European Union countries on the Continent, or following the international clients that have established themselves in Ireland. SIAC, for example, built offices for a multinational pharmaceutical firm, which promptly hired it to do a similar job in Israel. However, Kerrigan describes the UK as “the natural market”.
Dermot Reidy, senior trade adviser at the British Embassy in Dublin, certainly thinks so. He says the construction services markets in Ireland and the UK have the potential to become “enmeshed”. To this end, Reidy is organising meetings between Irish and British construction groups to talk about the London Olympics, and is running a function later this year to discuss how the country can help build the 2012 Games. “Back in 1999, Irish firms wouldn’t have had the capitalisation to take on UK projects,” he says, his eyes gleaming at the thought of the improvement in Irish contractors’ capabilities.
He concedes that one problem is that the tax regimes between the two countries differ, and this will pose accounting problems. However, Reidy points to Northern Ireland as a place for southern Irish firms to learn how to work in the UK. It is growing rapidly – a £415m roads package was announced at the end of July – and it has more design-and-build contracts. “Once the contractors cut their teeth in Northern Ireland,” says Reidy, “then more will look to the UK.”
Benefits for the UK
Although growing, none of the bigger Irish firms are likely to threaten Amec or Laing O’Rourke just yet. But what they do have is considerable experience of partnering with big European firms. For example, the NDP’s roads programme was worth €7.5bn (£5.1bn) for 2000-06, compared with €1.8bn (£1.2bn) spent in 1994-99. It involved upgrading to motorway standard five main roads from Dublin to areas such as Galway and Cork. This has involved using PPP programmes, a procurement route that was new to Ireland, with lots of toll roads. Although physically capable of building the roads, Irish contractors do not have the financial clout to fund them. So, they have partnered with overseas players: Sisk and Roadbridge have worked with Austria’s Strabag and with US contractor KBR on the N8 Rathcormac–Fermoy bypass.
This will help Irish firms break into the UK mainland and Northern Ireland as they can re-establish partnerships with French, German and Spanish firms that are already bidding for PPP and PFI schemes in these markets. It seems likely that the UK will have to improve its roads in coming years as a result of transport reviews such as the one being carried out by former British Airways boss Rod Eddington.
A particular advantage in road work is that Ireland’s recent programme has been designed to comply with tough EU legislation on environmental issues. For example, one scheme was delayed for two years while an alternative habitat was found for a species of snail. Irish road contractors would have far greater expertise at handling these issues than most of their international rivals, should the UK expand its roads programme.
Michael Egan, head of corporate affairs at the National Roads Authority, says: “We have had to deal with the environmental impact assessment directive, which the French, Germans and British didn’t have when [decades ago] they built up their roads network on this scale.”
Roads, then, are just one sector that Irish firms may use to penetrate the UK market. It seems certain, though, that they will soon move into other sectors of the UK market over the next few years. It could be that London soon sports signs from Sisk, Bowen, SIAC and Pierse in the space of one small street.