Why infrastructure CEOs are feeling confident about gro - KPMG Global
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Why infrastructure CEOs are feeling confident about growth

Why infrastructure CEOs are confident about growth

Why infrastructure CEOs are feeling confident about growth

Julian Vella | Leadership,

As infrastructure players seek to improve topline growth, many are looking at foreign markets for new opportunities. And they hope to use partnerships and joint ventures (JVs) to achieve their objectives. But getting value from foreign partnerships may take some work. 

Infrastructure CEOs are feeling confident. In fact, in a recent global survey of CEOs conducted by KPMG International, 91 percent of infrastructure respondents said they believe their company would achieve growth over the next three years. If not for respondents from Italy and Spain, the number would have been nearly 100 percent. 

While this level of confidence is great news, the real story seems somewhat more tempered. Our data shows that few expect growth to be particularly stellar. In fact, 62 percent of our respondents admitted they expect topline revenue growth of less than 2 percent over the next three years. Just 4 percent were bullish enough to predict revenue growth of more than 5 percent. If these predictions materialize, shareholders may be disappointed. 

Recognizing that traditional growth levers may not be driving the type of returns they desire, many infrastructure players are now looking to foreign markets for new growth opportunities. Some of the routes to expansion are well-trodden: Western European firms are prioritizing Eastern Europe; US firms are focusing on Central and South America; Australia’s firms are looking at Asia Pacific. In fact, two-thirds of our respondents said they will prioritize expansion into the emerging markets over the next three years. 

Emerging market players are also looking overseas. India’s infrastructure CEOs, for example, are largely focused on expanding into developed markets – Australasia and North America in particular. A third of respondents from China say they are looking at Central and South America for future expansion. 

However, what’s particularly interesting about this data is how CEOs plan to achieve these growth objectives. Many suggest they will do it through organic means – more innovation and more capital investments aimed at driving efficiency and improving scale. Thirteen percent say they expect to achieve their growth objectives through M&A (CEOs from India, Germany, the US and the UK reporting the highest expectations for M&A). 

Our experience suggests that a growing number of organizations are also looking at taking strategic stakes in local players as a way to facilitate market entry (though this strategy requires deep pockets and great local contacts). 

But a much larger percentage of infrastructure CEOs tell us that their preferred strategy for achieving their growth objectives is to partner with another organization. Indeed, 48 percent of the CEOs participating in our survey said they see JVs and strategic alliances as critical to achieving growth. Fifty-six percent went so far as to say that third party partnerships are the only way for their organization to achieve the agility they need to compete in the future. 

I believe this is good news. JVs and partnerships are a smart way for foreign players – developers, investors or operators – to gain valuable local insight and experience while reducing the risk of new market entry. This is as true for the developed markets as it is for the emerging ones. 

More than just a new market entry strategy, partnerships are also critical vehicles to helping infrastructure players tap into new technologies, talent, capabilities and capital. In some cases, infrastructure players may even find themselves partnering with companies that otherwise might be competitors, particularly in situations where market entry requires companies to partner with local players. And they are a key component of delivering any cross-border or regional infrastructure project. 

However, my experience suggests that driving value from partnerships and JVs may take more work than many infrastructure players expect. The reality is that few partnerships actually achieve their stated objectives. In fact, 56 percent of the respondents in our survey admitted that they had already reconsidered a partnership in the past because the two organizations couldn’t find the right fit. 

My advice to infrastructure players is to focus on improving their partnership capabilities. In part, that means being much clearer about what each party is bringing to the table. It also means putting more focus on target identification and due diligence at the front end, better communication and reporting capabilities in the middle, and clearer terms and expectations throughout the partnership life-cycle. And in today’s politically disrupted environment, improved risk management and scenario planning capabilities will also be key. 

I firmly believe that partnerships will be the top driver of growth for infrastructure providers going forward. Those able to turn partnering into a core competency today will ultimately emerge the winners of tomorrow.