Stories of NZ enterprise success
This is the fourth article in major eight-part NZ Management series: Stories of NZ enterprise success. Leading New Zealand business journalists Vicki Jayne and Nick Grant conduct sector-by-sector review of the underlying drivers of success in key parts of New Zealand’s economy. Next month: the finance sector.
Potential is word that hangs over the construction sector like loaded crane boom. Leaky homes, the Christchurch rebuild and the urgent need to stretch Auckland’s housing all point to significant growth ahead. But will bust follow?
Volatility plagues an industry that has been badly exposed to the GFC fallout – both in terms of confidence and available capital. And, as PricewaterhouseCoopers report prepared last year for the Construction Strategy Group points out, the sector “suffers boom-bust cycles far stronger than those experienced by other sectors usually associated with fluctuating fortunes”.
The same report also highlights the potential for construction to significantly lift domestic economic performance – and “lead the country out of its current unemployment malaise”. That’s because this sector of New Zealand’s economy has historically been great job creator – accounting for one in 12 New Zealand jobs and – in the past decade – contributing one in seven new jobs.
There are already positive signs this is starting to happen. Christchurch recruitment firms recently reported such high demand for construction-related skills that some interviewees were being snapped up within 48 hours. Job openings in Canterbury are rising faster than anywhere else in the country and the National Bank’s regional trends survey revealed the region is now New Zealand’s fastest-growing.
And all that well before the earthquake rebuild gets seriously underway – probably sometime in 2013.
It’s lift in fortunes that the industry is eagerly anticipating after global financial woes last year pushed domestic residential housing approvals to their lowest levels in 46 years and saw capital expenditure slow worldwide as confidence ebbed.
Caution still rules, according to Beca Group’s recently appointed CEO Greg Lowe.
“Our business is spread across New Zealand, Australia and Southeast Asia and in all those markets we’ve seen slowdown in capital expenditure.”
The growing uncertainty around European financial difficulties isn’t helping and while governments in Australia and New Zealand have continued infrastructure investment, they are now less able to commit further capital, he notes.
Government spending has certainly helped keep the local industry afloat, according to Graham Darlow, CEO of Fletcher Building’s construction division.
“Government has done good job keeping the work flowing. So expenditure on infrastructure in areas like roading, health and education has been an absolute saviour. If the Government hadn’t continued to spend, this industry would be on its knees.”
Darlow says industry volatility makes it difficult to hang on to skilled personnel. However, the situation is better than in the early 1990s when the industry hit bottom few years after the 1987 sharemarket crash – and stayed there.
“There was almost no activity at all for probably five to six years after that and the industry lost lot of talent and capability then. So from the late ’90s to 2010, we have done lot of capability building and made big investments in plant, equipment and training… The danger is that we are now losing those skills across the Tasman.”
Residential construction has become tough environment in which to work. Builders heading to Australia are not just going for the money. Some are escaping what they see as unfair fallout from the leaky homes debacle. With central and local authorities sidestepping responsibility for inadequate building standards, frustrated homeowners have instead targeted builders.
Being made scapegoats for wider systemic failure is proving burden too far for some of the country’s traditional small-scale home builders. In the face of insurance hikes as well as the threat of retrospective compensation claims, many are opting to either leave the industry or head offshore.
At an administrative level, the industry is also in flux. The Department of Building and Housing (DBH) is being folded into the new business-focused “super Ministry” that also encompasses the Ministries of Economic Development plus Science and Innovation as well as the Department of Labour. Announced with no prior consultation with the industry in March, it shocked some who believe the DBH is already struggling with workload expanded by Christchurch earthquakes and doesn’t need to be distracted by restructure.
Meanwhile, data on those industry leaders who have featured for successive years in the Deloitte/Management magazine Top 200 Awards shows that public spending and geographic spread have helped cushion the impact of downturn on bottom lines. Fletcher Building was number two on last year’s listings with annual revenue of nearly $7.5 billion. Over the past decade, the company has more than tripled its earnings as it shucked off the 1990s’ blues to romp up the rankings from eighth place, posting successive yearly gains in both revenue and profit. Despite tough economic times, the company was able to report half-year revenue (to December 2011) of $4.5 billion.
From an employee base of around 7400 in 2001, the company now has payroll of 20,000 across diverse sectors of the building industry spread around the world. Activities range from providing interior solutions for China’s KFC outlets, to building New Zealand’s largest sporting stadium and newest prison. Following its purchase of Australia-based Crane last year, the company now derives the bulk of its revenue (48 percent) from Australia.
The whole notion of geographic boundaries is becoming increasingly irrelevant for some New Zealand-based companies. Born in New Zealand back in 1918, Beca expanded into Australia 40 years ago and is now one of the largest employee-owned engineering and consultancy and services groups in Asia Pacific. Revenues of nearly $433 million pushed the company to ranking of 78 on last year’s Top 200.
Beca was declared the Deloitte/Management magazine Top 200 “Company of the Year” for 2010. It followed that up last year by earning the accolade of being this country’s “most reputable organisation” in NZ Management’s nationwide survey – conducted in conjunction with international consultancy Hay Group.
CEO Greg Lowe agrees with the notion that those who talk about “going to Asia” are only extending the colonial myth.
“We are part of Asia,” he avers.
“Beca has spent more than 40 years developing an export services business that is not constrained to New Zealand borders and as we become more global economy, I think it’s important for us to think more about clients and client needs than about geography and where people start their day.”
Lowe moved into the top job earlier this year after nearly 15 years with Beca working throughout Asia and heading its operations in China before being appointed Australia managing director. He says his early career in the New Zealand Navy taught him the power of teamwork and informed his leadership style.
“A lot of people think the military is about hierarchy and authority but it’s not at all. It’s all about developing and training people well, and giving them empowerment so that when they are in places long way from home, they make good decisions.
“I very much believe in that. And Beca is now nearly 3000 people spread over 12 countries. That is not something you can control – it is something you have to guide and give empowerment to.”
The role of leadership, he says, is to clearly articulate strategic direction for the business, and then ensure everyone understands their part in achieving it. There is no underestimating the ability of well-formed, well-directed teams to achieve great results – and it’s important to re
