The goal of the study was to analyze the Russian road infrastructure market. The preparation of the report involved interviews with the major players at the federal, regional and local level, consultation with the departments of transportation and roads in the each of the regions, analysis of more than 70 regional programs to develop transportation and road infrastructure in Russia. On the basis of the data collected, we drafted a list of recommendations to improve competitiveness, taking into consideration the experience of the leaders of the Russian road infrastructure market, as well as the experience of major international companies.
The results obtained demonstrate a trend to projects becoming larger and more integrated, a change in the geography of their implementation, and the consolidation of players. The market for road infrastructure is attractive, but its participants will be forced to adapt their business models in response to ongoing market changes. It should be noted that several players have already taken active measures to refine their business models, but under conditions of increasing competition and reduced profit margins they will have to pay particular attention to improving their internal efficiency.
Appeal of the road infrastructure market
- The road infrastructure market was worth 665 billion roubles in 2012. The market is forecast to grow at an average annual rate of 10% by 2020, due to federal and regional development programs.
- Despite the forecast slowdown in economic growth, the share of expenses on transportation infrastructure will account for a significant portion of additional spending from the federal budget on high-priority projects; even under a conservative scenario, it will account for 39.3% of total additional spending from 2013 to 2020.
- The development of road infrastructure accounts for the bulk of the market (up to 65%) – mainly for clients at the regional level, which are characterized by a significant number of projects.
Change in operating conditions
The leading companies are encountering significant changes in working conditions on the market, specifically:
projects are becoming larger and more complex;
- the profit margin on projects is shrinking;
- new forms of project implementation are appearing (PPP);
- the geography of implementation of projects is shifting;
- changes are underway in the legislative sphere;
- the players on the market are consolidating.
Under the pressure of these changes, players are forced to adapt their business models, diversify their services, move into related segments, and also raise their efficiency and optimize costs.
Measures taken by leading companies to adapt their business models in response to changes in the market
The main measures that may help companies to remain leaders in the midst of changing market conditions are:
- integration into related segments (specifically the infrastructure servicing and maintenance segment);
- comprehensive resource management and cost controls;
- consolidation of assets around companies that have access to orders.
In addition, companies must pay particular attention to restraining costs and becoming more efficient.
Main cost-cutting initiatives for companies on the road infrastructure market
KPMG specialists have identified seven initiatives to cut costs for road infrastructure companies, which may allow them to improve their operating efficiency and make them more competitive:
- full cost control;
- standardization of work;
- evaluation of the cost of owning their construction equipment;
- creation of a shared service center;
- implementation of a planning system at all levels of the organization;
- synchronization of the size of business in accordance with the amount of work being performed;
- implementation of a modern project management system (including software).