Embed Size (px)
Citation preview
1
WO
RLD
SC
EN
AR
IO S
ER
IES
Engineering & Construction: Scenarios to 2020
Executive Summary
2 3
Preface
Engineering & Construction: Scenarios to 2020Preface
The E&C 2020 scenario report represents the
conclusion of the first phase of the Engineering
& Construction: Scenarios to 2020 initiative
undertaken by the World Economic Forum through
its Engineering and Construction Community and
Centre for Strategic Insight.
Why the E&C 2020 scenario project?
The World Economic Forum 2006 CEO Survey for the
Engineering & Construction Community showed that there
is significant change going on in the business environment
this community is operating in, underlining the need for a
long-term, multistakeholder, industry-wide approach to
deepen insights into the future of the E&C industry.
Historically, the E&C industry is not a shaper, but
responds to the needs of its customers. And most E&C
companies plan strategically three to five years out, where
risks are mostly already defined and tracked. By looking
ahead to 2020, and considering forces that are not yet
on the radar screen, companies can not only be better
prepared but also more proactive in shaping the future of
capital projects development.
To gain a better understanding of the possible
outcomes, along with the key trends and events that
might shape them over the coming years, the World
Economic Forum and its Engineering & Construction
Community set out to develop scenarios on the future
focusing on “How could the business environment play
out for the implementers of capital projects by 2020?”
The scenarios presented here are four very different,
challenging yet plausible images of that environment in
2020. They were constructed over a period of one year
and emerged from discussions and workshops with
leading industry stakeholders from Asia, the Middle East,
Europe, Latin America and North America. They combine
regional and global perspectives, and encompass both
general building and large industrial segments such as oil,
gas, chemicals, transportation and power.
How will these scenarios be used in the second
phase of the initiative?
In the second phase of the Engineering &
Construction: Scenarios to 2020 initiative, the Forum
intends to bring these scenarios back to today’s
environment and consider their implications.
Together with its stakeholders – including clients,
governments, academia and industry experts – the
Engineering & Construction Community will use its
shared understanding of the future for further dialogue
to identify proactive collaborative actions to shape the
future because the decisions we make today create
tomorrow.
As an independent international organization
committed to improving the state of the world by
engaging leaders in partnerships to shape global,
regional and industry agendas, the Forum is ideally
positioned to convene the international and diverse
group of individuals necessary to do so.
We trust you will find this publication an informative,
useful analytical tool. After reading these scenarios, we
believe you will gain a valuable new perspective on news
articles, industry information and general anecdotes.
As Marcel Proust puts it, “The real voyage of discovery
consists not in seeking new landscapes but in having
new eyes.”
Professor Klaus Schwab
Founder and Executive Chairman
World Economic Forum
The views expressed in this publication do not necessarilyreflect those of the World Economic Forum
World Economic Forum91-93 route de la CapiteCH-1223 ColognySwitzerlandTel.: +41 (0)22 869 1412Fax: +41 (0)22 869 2744E-mail: [email protected]
© 2007 World Economic ForumAll rights reserved.No part of this publication may be reproduced ortransmitted in any form or by any means, includingphotocopying and recording, or by any information storage and retrieval system.
Other Publications in the World Economic Forum’s World Scenarios Series:
■ The Kingdom of Bahrain and the World: Scenarios to 2025
■ The Kingdom of Saudi Arabia and the World: Scenarios to 2025
■ The United Arab Emirates and the World: Scenarios to 2025
■ Technology and Innovation in Financial Services: Scenarios to 2020
■ Digital Ecosystem - Convergence between IT, Telecoms, Media and Entertainment: Scenarios to 2015
■ The Gulf Cooperation Council (GCC) countries and the World: Scenarios to 2025
■ China and the World: Scenarios to 2025
■ India and the World: Scenarios to 2025
■ Russia and the World: Scenarios to 2025
For further information please visit our website www.weforum.org/scenarios
4 5
“The demand for new infrastructure in the emerging
economies and for renewal of infrastructure in the
developed economies is practically insatiable and
so is the demand for energy and communication.
Concern for the environment has created a
whole new ‘environmental’ market with endless
opportunities.
This presents E&C companies with unprecedented
opportunities for growth in the traditional way and
by way of privatization of infrastructure. Yet so great
are the economic, social and political uncertainties
that traditional planning is proving to be woefully
inadequate.
E&C 2020 asks and studies what is most likely to
happen and what has already happened that can
create the future. It is a wonderful tool that can
enable businesses to make their future.”
Ajit Gulabchand
Chairman and Managing Director,
Hindustan Construction Company Limited
“Work accomplished through E&C 2020 should
provide considerable substance to the strategic
planning activities of individual companies. The
E&C 2020 process helps fill a significant gap as it
provides a thoughtful, informed and analytical view
of the longer term future, a perspective that has not
typically been a part of our industry-wide thinking.”
Alan L. Boeckmann
Chairman and Chief Executive Officer,
Fluor Corporation
“This E&C 2020 Scenario Planning process
offers those of us who lead E&C companies a
unique opportunity to make our strategic planning
processes more effective, and allows us to respond
more quickly and confidently to future changes in
our dynamic industry. This is a rare opportunity to
thoughtfully consider the longer term aspects of our
business environment and our client relationships;
aspects that are difficult to tackle within our normal
business and strategic planning horizons. We live in
a world that is full of uncertainty, and the E&C 2020
process lets us tackle that uncertainty head-on in a
systematic way that will help us make our resource
allocation decisions – and our response to unfolding
events – more robust and effective.”
Ralph Peterson
Chairman and Chief Executive Officer, CH2M HILL
“The Forum’s E&C 2020 scenarios project has
helped us to identify critical issues and uncertainties
that have the greatest potential to impact our
company and our industry over the next decade.
It has also highlighted the merits of industry
collaboration providing all of us in the project with a
forum and framework for shaping, rather than simply
responding to, our future.”
Steve Hanks
President and Chief Executive Officer,
Washington Group International
Partner Views
Engineering & Construction: Scenarios to 2020
6
Engineering & Construction: Scenarios to 2020Introduction
7 8
There are signs suggesting we may be at risk of an
overall retrenchment from globalization such as rising
geopolitical instability and the spread of political populism
in Europe and the US. Will globalization progress and
support high GDP growth, or will there be retrenchment
from globalization?
Regulatory context
Building regulations, employment and environmental
laws all have significant impacts on the E&C sector.
Governments increasingly use building regulations
to impose environmental standards and to stimulate
innovation, while employment laws impact on the
availability of labour. Regulations also strongly affect
market structure, the costs of doing business, country
competitiveness, the degree of market liberalization and
the extent and impact of globalization.
At what level of governance will regulations be defined
– local, national, regional, global? How stable will the
regulatory context be – will regulations affecting E&C be
integrated into long-term development plans or vulnerable
to the shifting priorities of changing political regimes?
Climate change policies
Climate change has become a top issue on the
global agenda, and climate change policies hold great
uncertainty in light of the long project cycles for capital
projects. Since the Kyoto protocol on climate change
entered into force in 2005, a broad range of countries has
made progress on carbon emission reduction, but the
protocol’s full execution has been hindered by a variety
of issues. Talks have already begun on what is to follow
the end of the Kyoto protocol in 2012. In parallel we see
other climate change initiatives such as the Asia-Pacific
Partnership on Clean Development and Climate, and the
Regional Greenhouse Gas Initiative.
What new climate change policies will be put in place,
and by whom? How, and at what governance level, will
they be enforced? How will they impact the demand for
and execution of capital projects?
Nature of demand
The type of client influences the contractual
arrangements of capital projects: notably, whether the
emphasis is more on schedule and price or focuses
more on long-term social and environmental impacts.
Industrial clients, government and public bodies, financial
institutions and developers each have their own objectives
and constraints. The market proportion of these entities in
the E&C market will strongly impact the nature of demand.
Who will be the clients for E&C services and what will
they value?
Scenario building
From these deliberations, two main dimensions emerged
through which to envision how the business environment for
implementers of capital projects could plausibly look in 2020:
• Will the corporate environment become more
global, or will it evolve towards a multitude of
local markets?
• Will the demand – and E&C’s relations with its
clients – be transactional or value-based?
These two dimensions lead to four possible worlds:
The four scenarios presented emerged through scenario
building workshops in Singapore and Paris, and were
tested and strengthened in the scenario affirmation
workshop in Dalian.
IntroductionHow could the business environment for implementers
of capital projects plausibly look in 2020?
To answer this question, the project set out
to synthesize the different perspectives of many
stakeholders and build a shared vision of the future. To
do so, over a period of one year we held discussions
and multistakeholder workshops in London, Jordan,
Singapore, Paris and China, bringing together industry
leaders, clients, academics, civil society and government
representatives from Asia, the Middle East, Europe,
Latin America and North America. Discussions covered
issues surrounding infrastructure in its broadest sense,
encompassing industrial as well as public projects.
The first stage was to collect a wide range of
viewpoints on the factors that might shape changes to
the business environment in 2020. This was done through
a series of open-ended interviews with stakeholders,
covering political, social, economic, technological,
environmental, and supply and demand issues.
Participants at the workshops in London and Jordan
assessed these issues on their level of uncertainty and
their level of impact on the industry, and identified the
most significant predetermined elements1 and critical
uncertainties2.
The two main predetermined elements are
urbanization in developing countries and
ageing societies.
Urbanization in developing countries
For the first time in history, in 2008 more than half
of the world’s population will be urban. With economic
growth, population growth is the main driver of demand
for infrastructure. The planet will have 1.1 billion more
people in 2020 than it did in 2005, of whom 71% will be
in urban areas in developing countries, compared to only
6% in urban areas in developed countries3. Markets in the
developing world will consequently increase in importance
for the E&C industry.
Though the pace of urbanization will be influenced
by factors including the rate of economic growth and
rural development, the overall trend is set to continue
– and with it the challenge of providing infrastructure
to accommodate greater urban populations in a
sustainable way.
Ageing societies
Opinions differ on how exactly demand for
infrastructure will change as societies age, but among
the clear implications for the E&C industry’s business
environment are that ageing societies will put pressure on
the tax revenues available for infrastructure work and will
impact the available labour force.
According to the United Nations, while now one in 10
of the world’s population is aged 60 or above, by 2050
that figure will have risen to one in five. There will be strong
regional differences, but societies will age more rapidly in
developing countries than in developed countries.
The four critical uncertainties are globalization
and global economic growth, the regulatory
context, climate change policies and the
nature of demand.
Globalization and global economic growth
Economic growth – especially growth in per capita
income – is the major driver of demand for infrastructure,
and the rate of globalization influences GDP growth
through its impact on cross-border flow of products,
services, capital and talent. The average annual global
GDP growth between now and 2020 is estimated to reach
between 2.5% and 4%, depending on how globalization
progresses.
1 Important determinants of the future business environment which are relatively certain to evolve in a particular direction, if not necessarily in their extent and timing.2 Factors that are highly important in shaping the future business environment and that are highly uncertain in the way they will evolve.3 United Nations, World Population Prospects: The 2006 Revision, 2007.
Engineering & Construction: Scenarios to 2020 Introduction
Launch of the project Governors Meeting for E&C in Davos 2007 Project scoping and issue identification ■ Identify focal question ■ Research publications, papers and other information sources ■ Interviews with leading industry stakeholders ■ Map key drivers
Issue prioritization London & Jordan Workshops ■ Determine predetermined elements and critical uncertainties: the issues that will shape the future ■ Identify focal questions for the scenarios
PHASE 1
2007
PHASE 2
2008 E&C 2020 scenarios Governors Meeting for E&C in Davos 2008launch
Multistakeholder dialogue on industry implications to identify proactive collaborative actions to shape the future.
The decisions we make today create tomorrow.
Scenario development Singapore & Paris Workshops ■ Develop conditions and triggers that lead to contrasting scenarios ■ Develop challenging, plausible scenarios for 2020
Dalian Workshop ■ Validate the scenario axes ■ Assess the relevance and validity of the scenarios ■ Strengthen the storylines
Scenario production
■ Write up the scenarios in an effective and compelling way ■ Produce scenario publication and video
9 10 11
Global environment Market regulation Level and source of demand Client relationships Climate change Natural resources Workforce Technology and innovation
The Race While the global economy continues to
integrate and grow, security concerns
and lack of trust afflict relationships
between both nations and businesses.
With companies from the BRIC countries
establishing a strong global presence,
and investors in capital projects having a
speculative and short-term mindset, the
E&C market is in a fiercely competitive
race.
■ Competitive globalization sees
more trade integration but
wary international relationships.
■ Reliance on bilateral and
regional agreements.
■ International competition to attract
investment leads to fragmented
legal frameworks and frequent
changes in regulatory context.
■ Global GDP growth, powered by BRIC countries,
supports the demand for capital projects.
■ Supply of E&C services has grown faster than demand
due to increased capacity of developing country players.
■ Emergence of private, speculative investors with
short-term, high-margin investment strategies.
■ Private investment in public infrastructure: no ‘partnerships’,
privatization with government consent.
■ Adversarial, tense
relationships among industry
players and with clients.
■ Transactional relations
governed by a tight contractual
regime, litigations and claims.
■ No global agreement on
climate change due to
nations’ fear of becoming
uncompetitive.
■ Adaptation, not
mitigation: dealing with the
effect not the cause.
■ Strong international
competition for access
to scarce energy and raw
materials.
■ International companies’
competition for talent
supported by immigration
policies.
■ Serious labour shortage:
industry is not attractive to
talent.
■ Underinvestment in
human capital in the
industry.
■ Industry R&D is inefficient
and expensive.
■ Innovation and
knowledge sharing
hampered by concerns
over trust, strict intellectual
property rights protection
and the highly competitive
environment.
The Collaborative Leap
Globalization gathers pace amid
geopolitical stability and international
collaboration; regulatory harmonization
and environmental awareness enable a
collaborative leap in E&C. State agencies,
research institutes and shifting coalitions
of specialist companies combine to tackle
novel and ambitious projects for clients
who value sustainability, spurring multiple
innovations and systems-level thinking.
■ Stable geopolitical environment
fosters collaboration and
intensifies globalization.
■ Strong trade and market
integration through multilateral
cooperation.
■ Strong drive for internationally
harmonized regulation.
■ Self-regulation plays a key role as a
triple bottom line mindset dominates.
■ Strong global GDP growth supports the strong demand
for capital projects.
■ Demand exceeds supply due to high government
spending and private investment.
■ Emergence of the ‘consortia client’ and shift towards
triple bottom line investing.
■ Strong adoption of Public-Private Partnerships
(PPPs) for the development and operation of public
infrastructure.
■ Relationships between E&C
firms and clients are more
open and collaborative.
■ Global agreement on
climate change policy is
operational.
■ Strong GDP growth leads to
increased CO2 emissions,
but steps are taken to
decouple GDP growth
from energy consumption
and from CO2 emissions.
■ Some materials are in
structural shortage, or
economically not viable due
to carbon pricing.
■ Adoption of alternative
energy and material
sources.
■ Few restrictions on labour
mobility.
■ Cross-industry high demand
and competition for
talent.
■ Industry develops
innovative image, becoming
more attractive to talent.
■ Technological progress
is rapid due to substantial
R&D efforts with one set of
intellectual property rules.
■ E&C industry evolves towards
a more innovative culture.
The Zero-Sum Game
Wars, shortages and economic recession
fuel a worldwide upsurge in nationalism,
with mounting security worries and the
politics of fear locking countries and
business environments into a zero-sum
game. Slumping demand, cost-conscious
clients and the increasing difficulty of
working internationally spell tough times
for E&C companies.
■ Globalization stalls amid
geopolitical instability.
■ Rise of the politics of fear.
■ Local regulation dominates,
strongly implemented and enforced.
■ Political populism leads to regulatory
uncertainty.
■ Slowdown of GDP growth leads to downturn in the E&C
industry and a buyer’s market.
■ Governments without natural resource reserves and liquid
banking systems cannot invest significantly.
■ Private investors lose faith in PPPs, though states
initiate new partnerships on security issues.
■ Transactional relationships
due to short-term nature of
clients’ investment horizons.
■ Failure of climate change
coordination at a global
level.
■ Forms of energy that are
most readily available locally
are used, irrespective of
impact on environment.
■ Prices of commodities
are not under pressure but
highly volatile.
■ Sourcing of materials
and equipment is highly
constrained.
■ Immigration policies are
restricted to specific skill
sets and sectors.
■ High levels of unemployment,
decreasing enrolment
in engineering and science
studies.
■ Low levels of innovation
as the industry finds it
difficult to allocate resources
to R&D, training and
education.
The Aspirational Communities
Amid international tensions and economic
difficulties, globalization stalls. As
societies look inwards, visionary leaders
emerge at the head of aspirational
communities who see E&C as strategically
important for local socio-economic
development. They catalyse collaboration
between businesses and academia to find
innovative solutions to local infrastructure
needs caused by environmental and social
change.
■ Retrenchment from globalization
due to international economic
tensions.
■ Societies and governments focus
on improving their local situations.
■ Strong local market regulations.
■ Protection of domestic industries
considered to be strategic for
economic and policy development.
■ Slowdown of global GDP growth and decrease in
international capital flows constrain demand for E&C
services.
■ Governments take the lead in identifying infrastructure
needs to improve the standard of living and stimulate
local markets.
■ Governments and investors are sensitive to long-term,
locally inspired value creation, sustainable
infrastructure and local job creation.
■ Governments with limited resources attract the private
sector to participate in infrastructure development through
attractive partnership frameworks.
■ Governments catalyse
collaboration to spur
increasingly sophisticated
development for meeting
complex infrastructure
requirements.
■ Local governments have strong
influence on capital projects.
■ No global agreement
on climate change, but
governments place high
value on sustainability of the
built environment.
■ Emphasis on locally
relevant environmental
issues.
■ Local governments want to
reduce their dependence
on imports.
■ Developing countries
restrain export of
materials to ensure supply
for local needs.
■ Selective and temporary
immigration is aimed
at skill and knowledge
transfers.
■ High emphasis is placed on
building of local human
capital.
■ Local community aspirations
stimulate innovation.
■ Limited cross-border
innovation and knowledge
sharing.
■ Research agencies are
established in partnership
between academic
institutions, E&C firms and
clients.
12
Engineering & Construction: Scenarios to 2020Conclusion and Next Phase
13
Engineering & Construction: Scenarios to 2020Project Team
Conclusion and Next Phase
The aim of these scenarios has not been to predict
the future, but rather to sketch the boundaries of the
plausible. These scenarios will have had their desired
effect if they have succeeded in teasing out some
underlying issues and helping you to envisage and reflect
on what could happen. On reading these scenarios, you
should ask yourselves:
• Which world would I prefer to live in?
• What can I do to bring that world into existence?
• If another world came about, what would it mean
for me?
• What would I need to do to fare well in each world?
An awareness of the worlds described in these
scenarios offers the potential to help the many
stakeholders in capital projects – E&C companies,
governments, owners, financial institutions, international
and non-governmental organizations – to build strategies
that are flexible and robust enough to withstand diverse
possible futures. They offer a context for interpreting one-
off media headlines or experiences which may give you,
the decision-makers, a competitive edge by raising your
sensitivity to early signals of emerging fundamental trends.
Much is uncertain about the business environment in
which E&C companies will execute capital projects in the
future. But we trust that by stretching your minds in new
directions, we will also have inspired a transformation from
a reactive to a proactive approach. With that in mind, we
now embark on the second phase of the project, where
the focus is on shaping a positive future. This second
phase will involve both Engineering & Construction
community-specific and multistakeholder workshops
throughout the year, some as elements of the World
Economic Forum’s Regional Meetings and some as stand-
alone events.
The Forum is uniquely qualified to bring together the
various stakeholders of capital projects to analyse barriers
to success and opportunities for collaboration, both
on a global approach and from more detailed regional
perspectives. Working together, we aim to ensure that
we continue to implement capital projects that support
economic growth and improve the state of the world.
The scenario project team includes the following individuals:
Project Leaders: Kristel Van der Elst, Associate Director, Scenario Planning Team
Roger Van der Marel, Project Manager E&C Community
Core Team Advisers
Viktoria Ivarsson Roy Antink
Shaun Kirby, secondee of KPMG Fiona Paua
Johanna Lanitis Alex Wong
Sandrine Perrollaz
Scenario writer: Andrew Wright
Editors: Nancy Tranchet
Creative design: Kamal Kimaoui
ComStone.ch – Geneva
World Economic Forum
www.weforum.org
Project Team
The World Economic Forum is an independent international organization committed to impro-ving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas.
Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests. (www.weforum.org)
