Just how ebullient that economy is looking is shown by construction, the second-largest industry sector in the USA. Figures from US research firm McGraw-Hill Construction Information Group show that output has risen more than 50% in five years, from $306.5bn (£214.3bn) in 1995 to $461.7bn (£321.3bn) in 2000 (bar chart, page 28). The industry has been expanding for nine years; last year it grew an astonishing 10%, slowing to 3% this year. And although that performance may not be sustainable, a negative growth rate is not on the cards: 1% is forecast for 2001. The talk is of soft landings. "Growth in the USA is flattening out at a very high level," as Robert Prieto, chairman of engineering multinational Parsons Brinckerhoff puts it.
In fact, Prieto broadens his analysis of the sector to take in a more global perspective. "The worldwide market for construction and engineering has never been busier," he adds, referring particularly to the slew of massive infrastructure projects in the USA, Europe and the Far East. Prieto sees these markets as the three most important in worldwide construction.
From a UK perspective, these three are of differing importance. Britain's longstanding commercial links with the Asia Pacific region have encouraged firms to return there now that its economy is beginning to recover. But British firms find it much harder to penetrate the US market, the "special relationship" and a shared Anglo-Saxon culture notwithstanding. And it is not because of a lack of enthusiasm on the part of investors. "Given the different economic cycles, any firm that has both UK and American interests is in for a happier ride," reckons Leslie Kent, an analyst with stockbroker Seymour Pierce.
Despite this logic, the number of UK firms that have established themselves in the States is more a trickle than a flood. Stuart Graham, chief executive of Skanska USA, makes the point from a European perspective: "As far as Europeans coming here, a lot have come but very few have succeeded."
Given the different economic cycles, a firm that has UK and US interests is in for a happier ride
Leslie Kent analyst, Seymour Pierce
One reason for this is the nature of the market. The image the USA likes to project is of super-efficient industries at the cutting edge of the e-commerce revolution that has done so much to drive the nation to its post-Cold War predominance. That is only partly correct. The US construction market is more conservative than that, held back by geography, culture and politics.
For a start there is the sheer size of the country. This creates many local markets and an industry even more fragmented than the UK's. There are dominant contractors – Bechtel, Fluor Daniel and Turner Construction for example – but few that span the entire country. The US turnover of America's biggest contractor, Bechtel, made up barely 1% of total construction output in 1999. And those few that do span the nation tend to specialise in particular sectors, such as offices or education. The same is true of architects – Ray Crane, chairman of Arup USA, estimates that 90% of leading US architects are in the five metropolitan centres of New York, San Francisco, Boston, Chicago and Los Angeles.
A second factor is that the USA is a tough market for its own firms. Big names have come unstuck of late. Tight margins in the power and industrial sectors forced engineering and construction firm Stone and Webster to file for chapter 11 bankruptcy in July, E E and it was bought by the piping systems supplier Shaw Group soon after. About the same time, Raytheon Engineers & Constructors, another struggling firm, was snapped up by rival Morrison Knudsen. Proof that, as in the UK, decent profits are hard won in construction.
This fragmentation and poor profitability restricts firm's life spans. As Robert Fee, president of Turner Construction, says: "There are a lot of one- or two-generation companies out there. They are not around a long time – their children decide to become doctors and lawyers." The ubiquity of these "Mom and Pop" operations is also encouraged by the fact that the US market is nowhere near as homogeneous as it looks. In fact, it is chock full of differences, with different building codes and registration requirements for consultants in each state. This is partly understandable – special rules are needed to take account of storms in Florida, earthquakes in California or tornados in Kansas – and partly a result of states' rights. As Arup's Crane points out, because there is no federal code many regulations are there simply because of history. He cites the example of water towers being required on tops of New York buildings. "I've not seen any in other parts of America," Crane says. "You come up against this mentality that 'that's the way it's always been done', no matter how much you push it. You could say it's a restriction. It inhibits movement."
As far as Europeans coming here, a lot have come but very few have succeeded
Stuart Graham chief executive, Skanska USA
On top of this conservatism there is the problem of work permits, especially for consultants and architects. Having no umbrella body to oversee professional licences, such as the RIBA, means there is little recognition of previous experience or education. "You have to go back to first principles to move ahead," says Crane with some frustration. Local differences even extend to unions, which typically only cover a city or state. The result of all this is that consultants are "grateful everyone has the same currency".
Building the American way
A particular irony for UK firms is that those elements of the US market that do run from coast to coast are so different from Britain that they could further restrict UK firms' progress.
First you have the language (factfile below). Then there are the construction methods. Talk to practitioners with US experience and the word "efficiency" crops up time and again. Frank Duffy, founder of UK architect DEGW, is moving to New York later this year to tap the market for offices for e-commerce businesses. He sees this as a legacy of Henry Ford and mass production: building products are more standardised than in Britain, so construction times are faster.
There’s this mentality that ‘that’s the way it’s always been done’, no matter how much you push it
Ray Crane chairman, Arup USA
UK professionals crossing the Atlantic also notice better preparation for jobs. "Going into a project you are much closer with other professions. There is a better understanding of time and costs," says Crane. "There is a tacit understanding of each phase, of what is expected for each phase, what level of detail and what levels of responsibility." The outcome is that there tend to be fewer changes during construction. Turner Construction's Fee compares his firm's output with that of its parent, German contractor Hochtief, to illustrate US efficiency. "We have a turnover of £4bn with 4000 staff, while they have a turnover of £5bn with 30 000." Fee says this is achieved by buying in skills such as carpentry and masonry from subcontractors. This leaner set-up leads to lower overheads, Fee adds.
Partnering seems more of a reality in the USA than in Britain. "More than 60% of our business is from repeat clients," declares Fee. And this approach is not just restricted to touchy-feely relationships with clients. The firm encourages subcontractors to use its college, called Turner University. This offers advice for subcontractors on estimating, accounting and bidding for work. "It helps us to find good subcontractors and for them to survive in the industry," says Fee.
Turner International president Nick Billotti compares this approach with what he sees as the norm in the UK. Despite the attempts to Eganise the industry, he still sees professions pitted against professions. "If you help a subcontractor it is perceived to be for personal gain, and not in the interest of the client," he says.
It is a point conceded by many in the UK. Andy Wheaton, principal of UK-based project management firm Precept Programme Management, who has previous US experience, contrasts the two approaches. "In the UK we probably have the best individual professionals – it's getting them to work together that is the problem. That's what they do so well in the USA."
The UK has the opportunity to become a very effective global transition point for ideas and services
Robert Prieto chairman, Parsons Brinckerhoff
This is where the US reputation for service comes into its own. "It's far more ingrained in the States than Europe," says Skanska's Graham. "We have a really highly developed sense of customer focus. We pursue customers more than projects." The concept of programme management, where a firm handles a series of projects for a client, backs this up. And it explains why firms such as Parsons Brinckerhoff, which is managing the West Coast Main Line, are attractive to premier league UK clients such as Railtrack.
Can we compete? Yes we can!
So is it a case of Europeans hanging our heads in shame, admitting our inferiority and the complexity of the US market and staying put? Not at all; the difficulties are not unsurmountable. This is proved by the European firms that have prospered. For example, look at Skanska's remarkable growth in the USA in the past decade – from just over £200m turnover at the start of the 1990s to £3bn in 1999, putting it comfortably in the top 10 of US contractors.
And then there is the rise of UK quantity surveyors such as Gardiner & Theobald and Davis Langdon & Everest. These firms have tapped into the lack of specific cost expertise in the States. Andrew Mann, principal of G&T's US operation, who arrived in the USA exactly a decade ago, has seen a change in the market that offers cost consultants, as they are genuinely called in America, more opportunities. "Before the recession, time was the total driver," he remembers. "In the new boom the experience of the downturn has made it much more balanced than it was. Cost is of major importance now."
And there are opportunities in urban renewal, design and new forms of procurement in the USA. Brownfield regeneration is one area where the UK is somewhat ahead. Smart growth, as it is called, is only just starting to trickle through in America, partly owing to the fact that it has rather a lot of land to play with. A mere 12 states have legislated growth control laws, yet there seems to be a growing awareness that urban sprawl is not healthy. UK firms with such expertise could exploit such opportunities.
And European design still has quite a cachet for Americans. "They even advertise European-designed kitchens, whatever they are," says a confused Crane. DEGW's Duffy is also convinced that design will take on new importance, especially in the workplace. He likens current American offices to the famous newspaper cartoon: "They are like Dilbertville. Office cubicles endlessly spread out." He thinks the Americans have turned the virtue of standardisation into a vice. "The office world has tended to become even more conservative," he adds. Which is why Duffy, who originally trained as an architect in the States in the 1960s, is returning. And what with big names such as Terry Farrell, Lord Foster and Nick Grimshaw landing projects Stateside, things do seem to be on the up for architects.
There are also changes afoot in procurement. Although PFI has yet to take off – both central and local governments' coffers are full to brimming, so there is no need for private cash – and construction management is still king, there is a rise in design-and-build work, especially in public projects. Skanska's Graham admits that it is a geographically patchy market, but says it is growing. "The results so far are indisputable. Design and build is a better delivery system, particularly for large projects. I think it will become a widely accepted way of doing business."
Five tips for making it big in the USAAdapt skills If you travel to the States as just a QS, forget it. You need to be a project manager as well. “You need to adapt for the particular market,” as Gardiner & Theobald principal Andrew Mann puts it.
Grow organically You can’t just buy your way into the market. “I didn’t come out here and acquire,” states Arup USA chairman Ray Crane, who wants to keep the Arup culture intact while nurturing local talent. “It’s the best of both worlds,” he concludes.
Specialise There’s no point in trying to compete with strong regional players. It is probably best to focus on particular markets, such as oil and gas in Houston or the car industry in Detroit, or to target niche markets (Buro Happold, page 38).
Socialise G&T’s Mann thinks the US market is more personality-driven than the UK. “Clients want to go to a person rather than an organisation,” he says. Schmoozing is the key.
Beware of lawyers If someone trips over two blocks away from a construction site, the chances are that they will sue the contractor. Then there are the employee lawsuits to deal with. “Lawyers are very creative over here,” as Stuart Graham, chief executive of Skanska USA, puts it.
Say what? US business jargonLeverage Catch-all phrase used in every other sentence in US boardrooms, usually referring to harnessing business opportunities, as in: “We’re trying to leverage our skills into new markets.”
Brownbag lunches Used in engineering circles to refer to informal meetings where project teams discuss technical problems.
Offshore If an American says this to you, he’s not talking about his tax-free bank account, but anywhere overseas.
Expedite/expeditors You don’t speed up a project in America, you expedite it. Expeditors are consultants who get planning applications through the systems.
Dunning All part of the American obsession with getting projects done on time. Dunning is where you obsessively chase up requests for drawings, plans and so on.
Low hanging fruit The easy parts of the project. You get these out of the way first to reassure clients you are expediting the job.
Shake the bush Market your business proactively, as opposed to waiting for clients to come to you.
Hard-wired Hard to overcome, as in: “Mistrust of architects is not as hard-wired in the USA as it is in the UK.”
Four firms doing very well over thereAmec The contractor snapped up US environmental group Ogden for £12m last month. This follows the landmark £221m acquisition of Canadian engineering and design giant Agra, which has considerable US operations, at the start of the year. It is all part of Amec’s attack on global giants such as Bechtel and Fluor Daniel, and analysts expect more purchases along the lines of Ogden.
Arup The engineer saw North American turnover increase 26% to £24m for the year to 31 March 1999. It has six operations in the States, most recently opening an office in Houston, Texas.
WS Atkins Chief executive Mike Jeffries has made no secret of his desire to grow in America. Atkins bought engineer Benham for £32.3m in December, and there look like being plenty more where that came from.
Hanson The materials giant’s US operation makes up 30% of its business. This is largely by taking advantage of the fragmentation of American industry to make acquisitions. Hanson is looking for further bolt-on buys.