Constructing Success by Capitalising on Long-Term Opportunities

Helping a strategy department identify its 10-year growth opportunities

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Client: A global aggregate and building materials provider

Department: Strategy

Having an accurate view of how the industry a company operates in will develop and, thereafter, establish a forward-looking strategy that can withstand the test of time is a necessity for ensuring sustainable growth and maintaining a competitive position. A critical aspect of this process involves identifying and entering the markets and product categories that will grow most rapidly, whilst avoiding or exiting those that will shrink.

The Challenge

Forecasting for a decade’s time is no easy task. The intricacies of predicting how economic fluctuations, policy shifts and evolving industry practices will influence market demand during this time add significant uncertainty to the process.

Our client, an aggregates and building materials provider, faced the complex task of devising a capital allocation strategy across over 20 European markets for the upcoming decade, to support its ongoing operations and facilitate potential acquisitions.

Essential to this endeavour was forecasting market demand. The client wanted to learn where the greatest opportunities were likely to occur in Europe, both in terms of building material types and regions. It sought to identify markets not only where it currently operated but also where it was well-placed to enter over the next decade.

As the aggregates and some of the other building materials the client supplies are bulky and expensive to transport, the client required the analysis to be broken down to regional and local levels. This granularity in forecasting heightened the complexity of the task, calling for a thorough analysis of diverse and nuanced markets.

In construction projects, governments play a pivotal role. They not only fund large infrastructure projects, either directly or indirectly, but could also shape material demand through policy. Our client, therefore, sought to forecast government spending in over twenty markets and to evaluate demand within the infrastructure project pipeline. This required a comprehensive review of government policy, the capital expenditure plans of various government departments, such as transport and energy, as well as regional and local infrastructure initiatives.

In pursuit of a robust and forward-looking strategy, the client underscored the importance of attaining an independent view, one untainted by the company’s existing position in the market, past investment or divestment decisions, or the interests of local office staff.

The Solution

We provided forecasts of construction output from our Global Construction Service and Global Industry Service to inform the client about the future demand for building materials in its various markets across Europe. These forecasts, broken down by type of construction activity, offered detailed insights into the demand for different types of building materials. They were supplemented with comprehensive analysis of the economic drivers behind the estimates of the demand for building materials, including in-depth analysis of demographic changes.

Additionally, we provided region- and local area-specific forecasts of construction activity derived from our European Cities and Regions Service, highlighting the growth pace of various building material markets within individual territories.

At Oxford Economics, our forecasting process is underpinned by an advanced suite of proprietary models. Connecting the global economy with national, sectoral and city-level growth, these modelling tools provide a consistent framework that ensures our forecasts are aligned with overarching economic trends while finely attuned to the specificities of sectoral and local developments.

To help the client grasp the impact of government policy on demand for different type of aggregates and building materials, we first examined the EU’s various initiatives such as the Green Deal Industrial Plan and REPowerEU and their impacts on market demand. We also evaluated the outlook for governments’ finances and their ability to fund large scale infrastructure investments. In addition, we analysed governments’ announcements about forthcoming infrastructure investments across different sectors and what that meant for the future demand for building materials.

The Result

Our analysis fed into the in-depth country deep dives the client’s strategy department presented to its global leadership team. Backed by our forecasts and analysis, the client conducted data-driven internal reviews to identify growth opportunities and determine strategies for weaker markets.

The client’s satisfaction with our work fostered a long-standing partnership. Over the years, our project scope widened to include more European countries, with annual updates provided to major markets. The client also engaged us to explore the impact of specific issues on individual market’s demand.

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