How to Manage the Trend to Mega–Sized Engineering Projects

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This trend often creates a problem for European industrial plant manufacturers. Their traditional strength has been technological expertise, but they have only limited project execution capacity. Personnel resources for carrying out construction work are in short supply, and to take on the financial risks associated with mega projects they need a critical (turnover) mass. Not only that, industrial plant manufacturers must have the capability to install highly complex high-tech systems at increasing inhospitable locations around the world.

Setbacks for Competitors from South Korea

Particularly between 2008 and 2014, German industrial plant manufacturers lost out to rivals from South Korea and China on a number of large projects in the Middle East. Roughly two-thirds of all EPC projects in the Middle East are now awarded to contractors from South Korea. On the Sadara project mentioned above for example, Daelim is constructing the naphtha/ethane cracker at a cost of 725 million euros.

In the past, Southeast Asian competitors have been willing to accept substantial risk and their pricing has been extremely aggressive. The latest business reports show that the pricing was actually too aggressive. Earnings at Daelim were down 90% year-on-year in 2013. Samsung Engineering reported a loss in excess of 220 million euros. As a result, the EPC supplier will be merged with the Heavy Industries shipbuilding unit as of December 1st, 2014.

Less Aggressive Prices Coupled with Risk Aversity

“We are seeing less aggressive pricing and a reduced willingness to accept risk on the part of competitors from South Korea,” reported AGAB spokesperson Helmut Knauthe. However despite the fact that recent developments have restricted the risk appetite of South Korean industrial plant manufacturers, pressure remains intense in the international EPC business. This is due in part to Chinese suppliers who have ramped up their efforts to acquire projects in the Middle East, with increasing success. Besides aggressive pricing and a willingness to accept risk, the Chinese also offer attractive financing schemes.

ACHEMA 2012: Trend Report Plant Engineering

Plant Engineering Between Individual Solutions and Container Modules

Industrial plants manufacturers from the Western industrialized nations are unable to offer anything comparable. In order to increase their competitiveness, these companies are looking at ways of enhancing their productivity. One strategy is intensive workflow and (industrial plant manufacturing) product standard- ization.

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