If your company is involved with infrastructure, it is high time to reassess your strategy.
First because a Global shift in demand has started. China’s focus continues to move away from investing to consuming while other emerging markets like India and Brazil should significantly increase their spending if they get their act together.
Second because commodity prices should fall but volatility should increase. China consumes a disproportional percentage of the World’s commodities. A decrease in demand should have a significant impact on commodity markets.
Third because Risks should increase. Emerging markets is slowing down, Europe and Japan continue to struggle, MENA continues unstable and financial markets are still in a precarious situation. Not the ideal environment for capital intensive sectors.
Finally, capital for infrastructure will be increasingly short. The World is aging, Governments in the G20 are expected to reduce 10-15% of their spending to achieve debt targets, and acceptable leverage is decreasing.
It does not matter that some of these have focal points on the other side of the World. All of these are impacting infrastructure sectors everywhere.
So, what can you do?
Identify the opportunities that can you capture from the relocation of demand. If your company sells capital goods, equipment, services or any input to infrastructure, the demand for your products and services is moving. But if you do not, consider which of your clients are in this sector. Maybe there is opportunity in helping your clients prepare and adapt to this change. Maybe there is opportunity in renegotiating with suppliers, integrating vertically, buying a competitor or pouching them for talent. Do not think of opportunities exclusively in terms of direct sales.
Consider rethinking your business model. For example, the ability to pass-through costs was a major competitive advantage in a time when commodity prices were on the rise. Now, as prices decrease and risks, volatility and financial costs are on the there rise, is more value in the ability to pass-through risks. Consider changing your contracts, negotiation processes and project management. Companies resist to changing their business model because it is often seen as the “magic formula” so first movers who get it right are likely to enjoy a competitive advantage for a long time.
Review your counterparts for fragility and prepare for that. Needless to say, shake ups mean that some players will fall off the table. Some of your clients, suppliers and partners might be in this category. Reviewing who are the likely ones and having a plan to “what to do if that happens” is also critical at this moment.