A new survey of mid-sized construction firms reveals that the effects of inflation are weighing heavily on many in the sector and with business leaders anticipating more headwinds over the coming months, attention now turns to investing in innovation to strengthen performance and drive growth.
According to MYOB’s Mid-market Construction Snapshot - a survey of 100 leaders and decision-makers of local (NZ) mid-sized construction firms - while 45% polled saw year-on-year revenue increase and 38% saw it remain the same, rising costs spurred by inflationary pressures are hampering profitability.
The business leaders surveyed reported seeing an average increase in the cost of construction materials and goods of 18.5% over the past year. As a result of these rising prices, almost half (49%) of the decision-makers surveyed said their business has had to absorb some additional costs, while 42% have had to reduce their margins.
Additionally, 39% of those canvassed said they have missed out on some jobs due to higher-than-expected quotes, while more than a third (36%) have had to pass on higher costs to customers.
Looking ahead, many of the existing challenges are expected to continue. For those polled, the biggest challenges they are expecting to face over the next six months include:
Increased cost of goods: 41%
Shortage of skilled employees: 39%
Disruption of supply/materials from overseas: 32%
Increased cost of business overheads: 30%
“There’s no denying local mid-sized businesses in the construction and trades sector are feeling the pinch of a challenging economic environment, with costs going up, ongoing supply issues and a real need for more skilled workers,” says Kim Clarke, General Manager for Enterprise at MYOB.
“However, even in the face of these obstacles, our insights into the performance of these businesses reveal that many have remained remarkably resilient. A strong contributing factor to this will be the fact that time and time again, mid-sized businesses are the ones investing to innovate.”
MYOB’s snapshot showed that nearly two-thirds (64%) of the decision-makers surveyed, said they had invested in innovation in the past 12 months.
“These businesses are hungry for growth and it’s clear many of the investments mid-sized construction leaders are making, are to ensure they’re match fit. They directly correlate to the industry changes and challenges they’ve got on the radar,” explains Kim.
“With top innovation investments including upgrading their ERP software, improving project management processes, and hiring in new expertise – we can see these local businesses are spending strategically to secure future growth and the firms taking this approach are going to propel forward the furthest when conditions improve.”
The ability to adapt to change will continue to influence success for local mid-sized construction firms, and 69% of those polled believe the industry will change significantly in the next five years.
Leading the biggest changes this group expects will shape their industry in the next five years, includes: the rising cost of materials (61%), new design technologies (38%), more skilled workers (35%), acquisitions of smaller firms and competitors by bigger businesses (35%) and more automation of processes, like pre-framing or robotic machinery (32%).
“As they gear up for changes that could revolutionise both their businesses and their industry, many of New Zealand’s mid-market construction firms appear to be in a good place, with 64% expecting their revenue to increase over the coming months,” says Kim.
“On top of a solid performance over the past 12 months, investing in changes they know will futureproof their operations will also be giving cause for confidence in a tough market. These businesses are increasingly technologically driven, with more than half of those surveyed having digitised 50% or more of their business operations, and this readiness to embrace new technology - particularly for a sector where much of the work is manual - is key to maximising efficiency and productivity.
“Nearly half of those we surveyed have more sales and work in the pipeline than usual for the next few months, and a forward-looking approach to business is what will continue to see them ahead of the pack,” she adds.
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