Prof Dominic Swordswww.dominicswords.comProf Dominic Swordswww.dominicswords.com

Prospects for the global constructioneconomyProspects for the global constructioneconomy

From recession to recovery?From recession to recovery?

the timing? the place?the pace?

2011 : tactical plans

1 – 3 years: sustain competitiveness

5 Years + : Megatrends

Stabilise – confidence and sentiment – investment and consumption

From recession to recovery?From recession to recovery?

Fix – asset, credit and stock markets

Grow – momentum - expansion phase

Source: www.niesr.ac.ukSource: www.niesr.ac.uk

Progress out of recessionsProgress out of recessions

Months from start of recession

0 6 12 18 24 30 36 42 48

2.0%

1.0%

0.0%

-1.0%

-2.0%

-3.0%

-4.0%

-5.0%

-6.0%

-7.0%

-8.0%

-9.0%

1930-1934 1973-1976 1979-1983 1990-1993 2008

Sentiment improving in the EUSentiment improving in the EU

Baltic Dry Goods Index Baltic Dry Goods Index

... realisic long term level but highly volatile …

The Great Crash

Over-capacity driving volatility

Main economic and financial indicators confirm that that the world has emerged from recession.

But the severity of the crisis points to a very different post-crisis world.

Over the foreseeable future, the resulting economic landscape is likely to be characterized by the combination of problems in a damaged financial system together with a weak recovery in the global economy held back by fiscal restraint.

A German CEO

‘The crisis is over… ‘ ‘The crisis is over… ‘

Construction - the worst collapse …Construction - the worst collapse …

… in decades… in decades

0.70.7

2.22.2

1.61.6

1.11.1

3.93.9

3.33.3

2.12.1

Risk and volatility will be continuing themes in our economies & markets

EU ForecastsEU Forecasts

European Commission Autumn 2010

Improving though gradual

return togrowth

Improving though gradual

return togrowth

At lower level

in mid term

At lower level

in mid term

And continued

significantrisks

And continued

significantrisks

What does this tell us?What does this tell us?

Euro area forecast to

grow 1.5% in 2011

Euro area forecast to

grow 1.5% in 2011

US by 2.1 and Japan by

1.3% this year

US by 2.1 and Japan by

1.3% this year

0.70.7

2.22.2

1.61.6

1.11.1

3.93.9

3.33.3

1.71.7

Risk and volatility will be continuing themes in our economies & markets

EU ForecastsEU Forecasts

European Commission Autumn 2010

Improving though gradual

return togrowth

Improving though gradual

return togrowth

At lower level

in mid term

At lower level

in mid term

And continued

significantrisks

And continued

significantrisks

What does this tell us?What does this tell us?

Euro area forecast to

grow 1.5% in 2011

Euro area forecast to

grow 1.5% in 2011

US by 2.1 and Japan by

1.3% this year

US by 2.1 and Japan by

1.3% this year

China and India still at low relative level …China and India still at low relative level …

But are still much below the West in per capita income… but moving fast… but moving fast

China is setting a new courseChina is setting a new course

- Long term ambitions for moderately prosperous society - xiaokang

- Spread benefits of growth, re-energise agricultural productivity and output, redress urban drift to the East

- Expand domestic market, reduce export dependency, allow yuan to appreciate in due course

- Invest in infrastructure and buildin

- Long term ambitions for moderately prosperous society - xiaokang

- Spread benefits of growth, re-energise agricultural productivity and output, redress urban drift to the East

- Expand domestic market, reduce export dependency, allow yuan to appreciate in due course

- Invest in infrastructure and buildin

The world top 30 in 2050The world top 30 in 2050

Based on Total Shareholder Returns (TSR): includes change in share price and dividends based on calendar year data in local currencySource(s): Thomson Financial Datastream; Morgan Stanley Capital International; BCG analysis

BCG – Global Value CreatorsBCG – Global Value Creators

BCG – Global Value CreatorsBCG – Global Value Creators

… in construction and machinery sector… in construction and machinery sector

Forecast growth …Forecast growth …

… and re-ordering of main markets… and re-ordering of main markets

What’s staring us in the face?What’s staring us in the face?

- A shifting global landscape

- China - Domestic development & international presence

- US - Search for external markets

- EU - Multi speed economies

- How do we capitalise on these developments?

- A shifting global landscape

- China - Domestic development & international presence

- US - Search for external markets

- EU - Multi speed economies

- How do we capitalise on these developments?

… the decade will be mixture of these trends… the decade will be mixture of these trends

So, what?So, what?

Imperative 1

- Financial efficiency

- From operational efficiency to commercial effectiveness

- Streamlined decision making

- Supply chain power

- Margin growth

Imperative 1

- Financial efficiency

- From operational efficiency to commercial effectiveness

- Streamlined decision making

- Supply chain power

- Margin growth

So, what?So, what?

Imperative 2

- Market distinctiveness

- Market leadership in reputation if not in absolute size

- Re-define segments

- Innovation

Imperative 2

- Market distinctiveness

- Market leadership in reputation if not in absolute size

- Re-define segments

- Innovation

So, what?So, what?

Imperative 3

- Selective investment and capacity expansion

- Market entry and investments in new markets (product, service and/or geographies)

- Lay foundations to enable sustained organic value creation

Imperative 3

- Selective investment and capacity expansion

- Market entry and investments in new markets (product, service and/or geographies)

- Lay foundations to enable sustained organic value creation

QuestionsQuestions

Trade winds blowTrade winds blowUS and EU consolidate domestic markets – companies build on local strengths

Exports more balanced – Western businesses find opportunities in high growth geographies

China 1st and India 2nd largest economies – with buoyant domestic markets

Far and Middle Eastern business invest in Western markets – offering local competition o established players

Troubled watersTroubled watersCredit markets slow to gather momentum

Business and consumer confidence slumps

China over-whelmed by internal social and economic stresses

Political instability drives protectionism ….

BecalmedBecalmedFiscal deficits decline while slow uptake by private sector in EU – distracted by worries over internal euro difficulties

USA divided with negative impact on investment and growth

Western businesses slow to identify and react to opportunities and threats

Emerging markets focus on local regions

Three global scenarios – to 2020Three global scenarios – to 2020

Becalmed

Trade winds blow

Troubled waters