Image of construction hats on building site

Why the Construction Industry is in Dire Need of Innovation

Construction is an economic powerhouse. The $10 trillion industry contributes to ~13.0% of the global GDP and is expected to continue to grow in the coming years. World Construction Industry is also a potential employment generator and provides work to almost seven percent of the total employed person in the whole world. The extent of this industry has become so vast that the energy, in the form of electricity or fuel, consumed by it hovers around two-fifths of the total energy consumed all over the globe.

A study from Global Construction Perspectives and Oxford Economics expects global construction to grow by ~3.9% per annum to 2030, far ahead of the projected one percentage point growth in global GDP. This accumulates to a staggering increase in the volume of construction output to $17.5 trillion worldwide by 2030, with three countries – China, US and India – leading the way and accounting for ~57.0% of all global growth.

Undeniably, construction is one of the most important industries in the world. Demand for construction has risen attributed to growing population, urbanization, new employment opportunities and the need for robust infrastructure. However, the industry remains at crossroads, impacted by challenges which include

  • Poor productivity and profitability
  • Project performance
  • Skilled labour shortages
  • Sustainability concerns
  • Increasing Complexity of Projects
  • Urbanization
Chart of Net Profit Margins for Different Industries
Source: NYU Stern, R-LABS Canada Inc.

The construction industry has experienced relatively low capital investments and innovations. We believe the primary reason is the low-profit margins in construction, as compared to other industries, which can be attributed to the productivity and profitability challenges highlighted above.

In case construction were to depart from entirely project-based approaches to a manufacturing-like system of mass production with much more standardization and manufacturing of modules in factories offsite, the productivity boost could be an order of high magnitude.

Recall, Henry Ford didn’t invent the car, Karl Benz beat him to that years ago. He also didn’t invent the assembly line. However, he revolutionized the automobile industry and the concept of manufacturing worldwide, by taking existing ideas and developing them into something extraordinary. Today, construction faces similar issues of lack of innovation and productivity problems, and innovation could certainly open a plethora of opportunities in the space.

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