The global market for large international design firms has taken a series of hits over the past few years, including fluctuating oil prices, political unrest in many parts of the world and the eruption of global trade wars. While many large design firms hoped that 2020 would provide relief from the disruptions, that was not to be, as the worldwide COVID-19 pandemic hit and an oil price war between Saudi Arabia and Russia flared up. These disruptions have left major international design firms wondering how to cope with a chaotic market.

The uncertainty in the market can be seen in the results of ENR’s Top 225 International Design Firms survey. The leading 225 companies generated $72.31 billion in design revenue in 2019 from projects outside home countries, up a scant 0.6% from $71.88 billion in 2018. Part of this weak growth can be attributed to the absence of Fluor Corp. from the list, which could not file a survey this year because of U.S. government disclosure restrictions on publicly traded companies. Fluor ranked No. 10 on last year’s Top 225 International Design Firms list with $2.13 billion in international design revenue.

Enter the Pandemic

The outbreak of the COVID-19 virus beginning at the end of 2019 in China and quickly spreading worldwide took much of the global construction industry by surprise. However, major design firms were quick to adopt home working and now see long-term benefits in continuing the practice.

The industry has “demonstrated a certain amount of resilience to at least three or four months’ disruption,” says Mike Haigh, chair of U.K.-based Mott MacDonald Group. The firm quickly shut scores of global offices as “50-60% of our employees shifted from working in the office to home in a day and a half to two days,” he adds.

As an organization with distributed local leadership, Systra Group’s head office in Paris provided guidelines and support, but “each market took actions in accordance with each country’s regulations,” says Andrew McNaughton, senior vice president. In India, for example, the 2,000 staffers shifted to home on “very, very short notice,” he adds.

Almost all staff at SNC-Lavalin’s U.K.-based Atkins division were working from home within a week, says Philip Hoare, Atkins’ CEO. And Denmark’s COWI had its staff “up and running immediately,” says Lars-Peter Søbye, CEO. “We saw staff getting together and clients accepting the new way of working.”

At its peak, Sweden’s Sweco AB had some 80% of its 17,500 employees at home, says Åsa Bergman, president and CEO. Initially, some clients were uneasy about digital working. But within weeks, “everyone was up to speed,” she adds. Staff were generally happy with the practice, which was “very pleasant to see.” About half the staff are back in their offices, she says.

Design firms’ ability to work remotely will lead to a “sea change in how the sector operates,” says Hoare. Atkins was already on that path, with 130 people sharing 100 desks on average. The firm now is aiming for about 200 people per 100 desks, he adds.

“We really learned something about ourselves,” says Haigh of Mott MacDonald. “We demonstrated we really can work productively and efficiently from home. It’s reinforced my belief in digital investments.”

Prior to the pandemic, many international design firms were already operating remotely to bring together the best global thinking for clients. Their response to the pandemic has been an acceleration of that transformation. “We have learned that we can continue to support our clients and communicate effectively without seeing them face-to-face, and our people are continuing to connect, engage with each other, win work and deliver projects,” says Ashley Wright, CEO of Australia’s GHD.

The response to COVID-19 “means that our way of working will never go back to the way it was,” says William Cox, CEO of Australia’s Aurecon. He says the new digital tools and time saved by a lack of travel will become “how we permanently operate in the future.”

“We were all forced to work from home, and this successful social experiment means that firms need less physical space, can work remotely and hire talent anywhere in the world,” says Ammar Al Hassam, CEO of Dewan Architects + Engineers, Dubai.

Impact on Markets

Most large design firms are seeing a significant downturn in opportunities as the result of the COVID-19 pandemic. “We are seeing a dip in large-scale projects, and this could worsen in 2021,” says Heang Fine Wong, Group CEO of Surbana Jurong, Singapore. He says many projects have been shelved, delayed or reduced in scope. “But even in these challenging times, we still have clients relying on us.”

Many firms worry that the amount of project investments will plummet in both the public and private sectors as a result of large government deficits, economic slowdown and a drop in consumer spending. “This is certainly a significant challenge we will face in the near future,” says Jose Luis Manzanares Abasolo, CEO of Spain’s AYESA.

On the other hand, many major European design firms have so far shown resilience to the pandemic. As governments plan infrastructure investments to reboot their collapsed economies, firms anticipate an uptick in project opportunities.

“Business was going well … 2019 was a good year for us,” says Haigh of Mott MacDonald, recalling the company’s “highest order book ever.” Sweco entered the crisis “financially strong” after its “best ever” year, adds Bergman.

Systra Group has a similar story. “We had a very strong first quarter after 2019 having delivered our best-ever order intake,” says McNaughton.

In Denmark, COWI started 2020 “with a very strong order book,” says Søbye. After the pandemic, COWI’s clients are “very positive” about the company’s plan to reduce the number of in-person meetings by a quarter, says Søbye. “They see it as a way for them to help the green transition.”

While Bergman values the benefits of human contact, she foresees less travel and fewer meetings while creating “the capability to be more flexible.”

But with the disease far from beaten globally, “we need to be very humble. We don’t know if the situation is stable or if there is more to come,” says Bergman, “We can’t see how the market will develop for some months.”

The greatest opportunities for business growth can currently be found in Australia, Northern Europe, the U.S., Canada and Central and Southern Asia, says Pablo Bueno Tomas, CEO of Spain’s TYPSA Group. “Infrastructure for large urban conurbations is still in high demand, especially transport (metros, railways, light rail and airports), water (dams for drinking water, water desalination and wastewater treatment plants) and energy (wind and solar) infrastructure,” he says.

For Dohwa Engineering in South Korea, sales are up in the second quarter of this year by over 30% from last year, despite COVID-19. “However, due to a shutdown, many projects overseas have started to be postponed, so the outlook for the third and fourth quarters is not bright,” says Kwak Joon Sang, president.

COVID-19 struck while SNC-Lavalin was shifting its focus deeper into engineering as part of its plan to withdraw totally from lump-sum EPC contracting by 2023, says Ian Edwards, president and CEO. “We are still interested in helping clients develop infrastructure end to end,” he adds. EPC procurement “doesn’t work,” adds Hoare, whose Atkins unit prefers to focus just on design. SNC-Lavalin will shrink in size but become more profitable, says Edwards. Its initial focus will be in growing organically with an acquisition strategy taking shape in a year or so, he adds.

Despite COVID-19, the water sector’s strength is evident for Canada’s Stantec “as our design reach for major agencies continues to grow,” says Gord Johnston, CEO. The firm has new project activity across the U.K. with major water utilities, while seeing significant work initiated for Sydney Water in Australia.

Economic Stimulus

As COVID-19 has taken its toll on nations throughout the world, many design firms are optimistic that governments will institute financial stimulus plans to jump-start their economies. “With several countries planning to invest in infrastructure to boost the economy, it is our belief this will generate in the near future many opportunities in design markets worldwide,” says Antonio Bevilacqua, CEO of Italy’s Italconsult.

Italy was one of the countries hardest hit by the virus, but Italian designers reacted well, says Alfredo Ingletti, chairman of 3TI Progetti. He urges countries to make more public investments to aid in economic recovery. But he worries that “it seems each country is focused on strengthening the local content, and less confident in trusting the long-lasting capability of foreign companies to perform at the same conditions.”

Several countries are taking this period of economic slowdown, and the talent and manpower available, to rebuild and renew national assets. “China, the European Union and Japan have all announced stimulus programs in which infrastructure investment is a key component,” says Wong of Surbana Jurong. He also says there is a growing demand for design firm expertise in planning, designing and engineering for a post-COVID world, the “new normal,” he says. “Governments and organizations are consulting us on retrofitting buildings for care and recovery facilities as well as redesigning spaces for safety as people return to the workplace and resume activities.”

However, some firms worry that economic stimulus packages could limit international firm opportunities by favoring local firms. “In a situation where the economic recession is severe due to COVID-19, some countries are trying to localize [their procurement], so foreign companies are struggling with expanding into their markets,” says Kwak of Dohwa Engineering. He also worries that international firms increasingly are being confronted by problems with currency fluctuation, political issues and religious conflicts.

European Transition

In Europe, design firms see infrastructure as a key beneficiary of governmental efforts to counter economic recession. Søbye anticipates “huge investments in infrastructure and the green transition.”

Haigh believes investment will focus increasingly on decarbonization, resilience and other emerging societal demands. Following COVID-19, these trends “are going to accelerate,” he says. “If you are going to spend lots of money, there are huge opportunities to get great societal outcomes,” he adds.

The U.K. is at an “all-time high” for work, says COWI’s Søbye. The country’s final departure from the European Union this December will likely create unemployment, triggering more public infrastructure investment, he believes. The Danish market remains stable, while prospects in Norway and Sweden are positive, he adds.

Bergman also believes these emerging megatrends will continue and will benefit her firm, which she claims possesses “every competence that you need … to create a sustainable future.”

For Systra, a company centered on rail projects, “there is a real question on how long public anxiety around mass transportation will continue,” says McNaughton. While population growth and urbanization continue to create demand, “the public is looking for solutions that are more [resilient] in its broadest sense.”

However, Edwards of SNC-Lavalin cautions that while governments invest in infrastructure, “it takes time for these kinds of projects to hit construction.” The pandemic will intensify global efforts to accelerate design and planning to get projects shovel ready, he says. “We are in numerous very constructive conversations globally.”

While Atkins has increased the share of non-U.K. work from 40% to 60% in recent years, Hoare looks forward to rising government infrastructure spending in the U.K. The firm has had a good year in many parts of the international markets, he adds. The Asia-Pacific region has “bounced back very quickly” from the coronavirus effect, he says. On the negative side, COVID-19 has hit Atkins’ aviation business directly, while low oil prices are harming its Middle East prospects, Hoare adds.

Of Mott MacDonald’s main markets, the U.K. is “a little flat” with good infrastructure prospects, says Haigh. The firm started 2020 strongly in the U.S. and continues to win work there. “Australia’s significant growth in recent years continues,” he adds. Generally, “we greatly benefit from the fact that we are not exposed too much to commercial projects,” Haigh adds.

McNaughton believes prospects for global investment in infrastructure, especially transportation, “are very high.” Systra Group operates widely, but 85% of its work is in 12 markets, including France, the U.K., North America and the Nordic countries.

In France, large mass transit investments in Paris continue to generate work, while the national railroad agency has shifted investment from high-speed routes to its existing network. “It doesn’t mean less work, just different work,” says McNaughton.

The Australian market is “really steaming along,” while in the Middle East, Dubai will slow down as work on the postponed Expo 2020 ends, says McNaughton. Demand in Saudi Arabia is “really picking up,” he says.

Middle East Oil Woes

Beyond the pandemic, the crash in oil prices has had a significant impact in deflating the market. In March, a dispute erupted between Saudi Arabia and Russia when Russia refused to cooperate with OPEC on reducing oil production. In retaliation, Saudi Arabia announced it was increasing production, driving oil prices down. However, the drop in oil prices coincided with the COVID-19 pandemic, causing a radical reduction in the demand for gasoline. OPEC cut production, but the damage to the petroleum market was done.

“Obviously, the actual crash of crude oil prices [hurt] the Gulf economies and consequently this affects our business in that area,” says Bevilacqua of Italconsult. “Most of the markets we operate in are heavily reliant on oil, and the decline in price has impacted their budgets, resulting in a large amount of uncertainty that we could feel first-hand,” adds Matt Squires, CEO of SSH, Bahrain.

Investment in the Middle East seems to be on the wane, with a slowdown in payment collection and bureaucracy becoming more complex for business in some countries, says Bueno Tomas of TYPSA Group.

This has resulted in the Gulf Cooperation Council countries becoming “a buyers’ market driven by budgetary constraints in both public and private sectors,” says Squires. He points out that this has resulted in the landscape becoming “competitive to the point where risk is high. Many international consultants have chosen to reduce their footprint in the GCC due to market forces that are increasing risk and reducing opportunity.”

An example of the disenchantment with the Middle East region is COWI, which continues “downscaling” its business there. Getting paid on time was always a challenge, and the pandemic has made things worse, according to Søbye.

Another firm reconsidering their Middle East position is 3TI Progetti. “In the last three years we focused more on Europe, as the geopolitical global situation has turned toward a more challenging market environment; local nationalism in combination with less interest for international expertise and progressive reduction of prices, especially in emerging markets, has convinced us to strengthen our presence in Europe,” says Giorgia Gunnella, 3TI Progetti’s director of international business development.

For large international design firms, COVID-19 and the oil price crisis have taken a toll on the market. While many firms still see opportunities despite the downturn, new projects around the world are being put on hold. And, for those proposed projects going forward, most firms are finding it a buyers’ market.

“Some developers do not see the entire infrastructure life cycle as a whole and try to make false economies by reducing engineering at the planning and design stage,” says Bueno Tomas of TYPSA Group.

Further, prices are being squeezed, a worrying trend among large international design firms. “Focusing their attention more on price elements than on quality and innovation, [clients] are driving the engineering services to a ‘commodity’ role in the process,” says Gunnella of 3TI Progetti.