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Hong Kong: How to tap its £400bn pipeline

Hong Kong skyline

Filled with well-established heavyweight construction firms, fitting into the Hong Kong construction market can be a huge challenge. So how go you go about doing it? Lucy Alderson investigates.

For decades, Hong Kong has been the go-to destination for international companies looking to tap into the highly lucrative and rapidly growing Asian market.

The region’s open economy and reliance on overseas trade, combined with its close links to mainland China, provide ideal conditions for global businesses to springboard into the Asia-Pacific market.

With big money being pumped into the state, Hong Kong has a healthy appetite for construction that is set to grow steadily over the medium term. The territory’s Construction Industry Council forecasts that industry expenditure will edge up from HKD$295bn (£27.1bn) in 2018/19 to HKD$320bn (£29.4bn) in 2024/25, according to its latest upper forecasts. 

This growth will be supported by government plans to spend around £400bn in developing infrastructure and building assets over the next 10 years, according to Hong Kong-based contractor Gammon Construction.

The potential is there, but how can new international entrants break into what is a notoriously competitive and well-established market?

Fierce competition

“There’s opportunity here, but competition is fierce,” says Turner & Townsend South China managing director Rodney Moulder. “For anyone looking to start up their business over here, hard work and perseverance are needed.”

Hong Kong’s market is small in relation to other jurisdictions, Mr Moulder points out, as only a select number of construction firms have the ability to deliver mega-projects in the public sector pipeline. This opportunity to scoop work on major programmes was one of the factors that encouraged Turner & Townsend to expand into Hong Kong.

“Contractors should be localised to be successful. In Hong Kong, you have more subcontracting to deal with in comparison to the UK”  

Thomas Ho, Gammon Construction

The group has been operating in the state for the past 40 years and is known locally as Turner & Townsend Brechin, after acquiring local chartered surveyor and cost consultancy firm HA Brechin in 2013. Consultancies entering the region face an additional hurdle, as they need to be rubber-stamped by central government to be in with a chance of winning work on major public sector jobs. 

“We’re a band one consultant here, which means we are in a top tier of 13 consultants pre-approved by the government,” Mr Moulder explains. “This is based on size, capability and profile. We’re re-banded every year based on the number of professionally qualified staff we employ and the number of projects we are working on.”

Band one consultants might have the privilege of bidding for the largest government jobs. But on such a small playing field, standing out from other rivals is challenging, Mr Moulder admits.

Find yourself a partner

For contractors, building relationships with the local supply chain is one of the biggest tasks new entrants face, according to Gammon Construction chief executive Thomas Ho.

Hong Kong Airport

Hong Kong Airport

Gammon has worked on Hong Kong International Airport

He estimates that around 90 per cent of construction work in Hong Kong is subcontracted. For main contractors, this means that failing to establish strong supply chain relations will make it hard to get business off the ground.

“Contractors should be localised to be successful,” Mr Ho says. “In Hong Kong, you have more subcontracting to deal with in comparison to the UK. The chemistry and management across the supply chain is different. You need to speak the same language and be singing the same song in order to manage subcontractors properly, which can pose a challenge.”

Integrating with the supply chain successfully can be challenging, but linking up with a local contractor is one way to make your entry into the market easier. Gammon Construction offers one such example.

“When larger projects come up, everyone will look to who their partners will be, as partnering with the right people will often be the winning formula for work”

Paul Lengthorn, Mott MacDonald

In 2004 Balfour Beatty took a 50 per cent stake in the business, which has been operating in Hong Kong since 1919. Since the joint venture’s formation, Gammon Construction has delivered work on schemes such as Hong Kong International Airport, the Shanghai World Expo and the Mass Transit Railway.

This approach meant Balfour moved into the market with less difficulty than many overseas entrants, with links to subcontractors already established through its partner. 

Mott MacDonald China director Paul Lengthorn agrees that forming joint ventures is important to winning work as a newcomer in Hong Kong. “If you want to start here you need to partner with others,” he says. “When larger projects come up, everyone will look to who their partners will be, as partnering with the right people will often be the winning formula for work.”

Where is Hong Kong’s market going?

Now could be the best time to consider taking the plunge over in Hong Kong as the government pushes forward its masterplan for the city: 2030+.

The programme aims to deliver 460,000 units of housing in the next 10 years; more than HKD$200bn (£18.4bn) will be invested in better healthcare facilities for an ageing demographic; and HKD$140bn (£12.9bn) will be spent on expanding Hong Kong’s airport, as Mr Ho points out.

“In total, infrastructure and building spend will come to around £400bn in the next 10 years, in sterling terms,” he says.

Hong Kong infrastructure

Hong Kong infrastructure

Hong Kong’s government is planning a major programme of work

For Turner & Townsend’s Mr Moulder, the outlook is very favourable from a construction perspective. There is huge government demand for delivering major programmes of work relatively quickly, he says, adding that this provides an opportunity for contractors to develop alternative construction techniques.

Mr Lengthorn says the average age of Hong Kong’s construction workforce is around 55, so labour is expensive and in short supply. The region’s government has recognised that developing offsite construction solutions offers a possible solution to reduce the cost of building.

Technology in general is a big focus for the public sector. The government mandated the use of BIM on all public sector projects over HKD$30m (£2.8m) at the start of this year, which provides an opportunity for other construction firms to lead the way in raising industry standards, according to Mr Lengthorn.

“The costs of investing in this technology and training for BIM will be a commitment for some firms,” he says. “Companies that have invested in these tools will survive in the market – it’s a good time for us to be delivering projects.”

Certain public sector departments, such as housing, are further forward in pushing for BIM. “Development funds have been made available for smaller practices to draw on and give them the ability to invest in BIM software, hardware and so on,” Mr Moulder says. “Hong Kong’s Construction Industry Council has also started BIM training courses, and modules have been developed to enable industry uptake in the use of BIM.”

How to set yourself apart

It’s a tough market, but what are clients – particularly in the public sector – looking for when choosing firms to deliver their projects?

“Hong Kong is an open-minded market, so there are opportunities here for anyone who has good experiences and new ways of working” 

Rodney Moulder, Turner & Townsend

“Procurement is a rigorous process, with a lot of specific rules that are marked against specific criteria,” Mr Lengthorn says. “This criteria is based on a weighting of 70 per cent for technical aspects of delivery and 30 per cent for finances.”

Price is a key driver for clients when choosing winners if the bidders are on an equal technical footing, he continues. “To drive price down, you need to find innovative ways of changing designs and building offsite – this is a key differentiator in the market.”

Mr Moulder agrees that this is a crucial area for winning work. “Innovation is a unique selling point,” he says. “Hong Kong is an open-minded market, so there are opportunities here for anyone who has good experiences and new ways of working. But like everywhere else, the acid test for winning work is reliability, capability and innovation.”

Mr Lengthorn urges exhaustive market research for any aspiring international contractors before they look to set up in Hong Kong. “Come here and talk to as many people as you can to find partners you are interested in working with,” he says.

“Come with something new to bring to the market – if you have expertise in health and safety or prefab approaches or specialist construction like building hospitals, bring it and differentiate yourself from others in the market.”

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