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The construction industry struggles with low productivity | company industry

Labor productivity on construction sites is not at its best. Studies show that there has been little progress in value creation per hour worked for decades. Profitability is correspondingly low. Nevertheless, among the large construction companies there are some worthwhile stocks (cf. share boxes) where there is room for improvement. Because the demand for construction work remains high and the industry is in the process of solving its problems.

The construction industry has not been able to follow many trends that have caused productivity gains in other industries. Series production, just-in-time production, lean management, automation and digitization had a hard time on the construction sites. The reasons for this are diverse. The companies produce at constantly changing locations and are exposed to inclement weather. Especially in civil engineering, the local conditions are always different and sometimes cause expensive surprises. Every structure is unique, and construction projects and construction sites have become increasingly complex.

Extensive regulations

In addition, the construction industry is confronted with extensive regulations. Poorly coordinated contracts between contractors and suppliers impede cooperation. Added to this are inefficient planning, limited standardization and an underskilled workforce. The low profit margins also prevent investments in technology and digitization. According to the consulting firm Deloitte, the average operating margin (EBIT) of the 30 most profitable construction companies in the world was 5.4% in 2020. The pure construction activities of European companies only reached 2.5% (see table).

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