RBC report identifies growth areas for Canadian engineering firms

RBC Royal Bank has just published an industry report focused on Canadian engineering firms that outlines areas for business growth, and advice on how to plan for it.

The report paints a very positive picture.  Seeing “glimmers of hope” in the general economy, it says that for engineering companies specifically: “the opportunities that are likely to arise over the next several months could represent the growth opportunity of a generation.”

The report notes that the effect of the downturn in 2008 on engineering companies has been uneven: “Some noticed a gradual decline in the number of projects or a reduction in the scale of the projects they were involved in. Others had the rug pullout from under them, with anticipated business evaporating almost overnight.”

However, the report also points to factors playing out that will have enormous potential business opportunities for consulting engineers. These come under two basic types: first, the need for infrastructure — not just the work provided under the government’s stimulus funding, but work that will be forthcoming on a long term basis. Second, the fact that new technologies are needed, especially to reduce greenhouse gas emissions.

Engineering companies will need to keep staff if they want to meet the expected demand for engineering services, the authors warn. They also offer some unorthodox advice on this theme for small firms, advice such as that the principals might want to take a salary cut in order to keep key staff over the interim period.

Fewer cross-border mergers and acquisitions of engineering firms will occur over the next 12 months according to the authors. It notes that since the economic downturn, consolidation in the engineering sector generally has slowed down. 

Following are extracts from the RBC Industry Report, which is entitled “Who Turned Out the Lights.”

— Opportunities for growth – a closer look:

There’s significant pressure at all levels of government to fast-track spending as much as possible, so some of these infrastructure opportunities are already in development,” explains Paul Ferley, Assistant Chief Economist for RBC Royal Bank. “But there’s still a lot of spending to come – and plenty of opportunities for the engineering industry will emerge over the next several years.

— Look for an increase in P3 arrangements: 

While governments alone are funding many infrastructure projects, a number of future developments will be delivered through public private partnerships, or “P3” arrangements, as they are widely known….

Because the projects tend to be both large and complex, engineering firms bidding on P3 projects often need a degree of scale to compete. However, there are often opportunities for smaller firms to partner with larger firms on bids. For those that are successful, P3 projects can generate a stream of reliable business income.

— Climate change regulations:

The introduction of climate-change laws is likely to give rise to opportunities in a number of areas for the engineering sector:

Compliance. Companies will need consulting engineers to help with CO2 emission measurement and reporting. Opportunities will also emerge for the development of customized software for tracking and reporting greenhouse gas emissions.

Process modifications. Companies that are large greenhouse gas emitters will look to consulting engineers – chemical, mechanical, electrical – to help with process modifications. Energy management consultants will be needed to help track and reduce energy use.

Building retrofits. Engineers will play a key role in designing ways to make older buildings more energy efficient.

Carbon-offset project development. Engineering entrepreneurs will be needed to develop technologies that reduce CO2 and generate CO2 credits. Engineers will also play a major role in CO2 credit auditing and verification.

Carbon capture and storage. Geotechnical firms will be needed to assess the suitability of carbon storage areas, and consulting engineers will be called upon to make the design of new processes “carbon capture and storage” ready.

Transit. Governments will need consulting firms employing planners, engineers and transportation experts to help in the development of public transit and

light rail development projects.

— Green energy legislation:

Across Canada, we are witnessing a migration to green energy sources. In Ontario, green energy legislation is intended to transform the way energy is generated and delivered to businesses and consumers.

— Beyond traditional boundaries:

It could pay to keep an eye on work prospects abroad. While most world economies were knocked off course by the global financial crisis at roughly the same time, recovery rates may vary significantly from region to region. Developing nations alone currently make up 25% of the US$3 trillion global construction market and could be the international markets of choice when looking at opportunities abroad.

— Managing talent during the downturn:

Whether a firm’s growth plans are based on overseas assignments, green initiatives or infrastructure building and renewal, engineering firms will need the appropriate talent to bid on projects and see them through to completion.

While the Association of Canadian Engineering Companies has publicly assured Ottawa that the industry has the capacity to tackle additional investment in infrastructure, individual firms will be asking, “is our business ready?”

Engineering is truly a knowledge-based industry. The value of each firm rests in large part on the talent it is able to attract and retain. And therein lies the challenge.

To see the full report, see www.rbcroyalbank.com/business-services/engineer