Starting EPCs in the Global Marketplace
EPC refers to companies operating in Engineering, Procurement, and Construction sector. EPC Business by virtue of being less Capital intensive (on the face of it) makes an attractive proposition to start with. However, as you start uncovering the money-making formula, one learns the pivotal role external environments play in buttressing/enhancing the value proposition. Establishing EPC Business and sustaining it in a competitive global marketplace requires one to be crafty in dealing with all externalities in addition to internal factors as are relevant in any business.
While establishing an EPC company, the preliminary aspect that Company requires is an initial investment and an infrastructure build-up. Infrastructure build-up refers to a location where Businesses could set up shop, such as a local office presence.
Secondly, the business would also require subtle yet effective networking around few important conduits. Such alliances ensure that the business can deliver quality results while keeping the other considerations in regard.
A few important factors one may like to pay special attention while establishing footprints in EPC Business in any country:
1) The Internal Growth Potential of the Country
The internal growth potential of the country is an important factor to be considered when EPCs commence their journey in the global marketplace. Before businesses can expand their process to another country, they need to carefully scrutinize the country’s potential market and possible share to answer the risks, returns, long-term and short-term goals of the organization.
Few Essentials to ponder: Examined
- The country’s geography and population.
- The country’s development stage as well its future road map.
- The company’s potential, including revenue, Capex, margin, etc.
- The fiscal position, tax rates, inflation and interest rates, currency strength, etc.
- The prevalent trade restrictions, if any.
- The total share of EPC sectors in the market.
2) The Prevalent Laws
Before an EPC goes into business, the company needs to well acquaint with various clearances that include the environmental, regulatory, labor, local civil laws, and such. The Company shall have to understand the clearances to facilitate a quick project handover.
3) Obtaining the Permits
More often than not, EPC projects require several months to complete. It also becomes mandatory for the company to obtain approvals from the government authorities. It may be the sole responsibility of the EPC contractors to attain all such approvals for the employer. Furthermore, it is important for the employer to properly document the contractual conditions in an elaborate manner to avoid legal disputes at later stage.
Often, EPC contractors have to face various challenges in obtaining the Right of Way permits that are used for transmitting infrastructure projects. This is mostly owing to the lengthiness of the process.
4) Stability of Government (Central & State)
Government support for the Sector is crucial and this may help in facilitating the permit process. The converse, however, is disastrous for EPC companies. By abiding with the rules prevalent, business can build trust with the Government.
5) Historical Perspectives
Before EPC companies commence their business, they should check the history of companies who have been in business in the sector/geographies. This comes in handy in getting acquainted with the selected country’s experience.
Another aspect that EPC companies should keep in mind is the history of the projects performed. This information helps to understand the experiences and design a pragmatic execution plan accordingly.
6) Managing the EPC Community and the Possibility of Sub-Contracting Arrangements
Apart from external factors, EPCs also need to keep an eye on several internal factors including:
- Partnering with Subcontractors – Business needs to engage subcontractors who provide the right cost-to-quality ratio. This is highly important as it affects the business dynamics.
- Subcontracting Risks Involved – Contractors are responsible for all acts and omissions of the subcontractors. Therefore, they are required to analyze the risks involved with the projects and issue each task beforehand to the subcontractors.
7) Financial & Legal Considerations
- Project funding status / whether funded by International financial institutions.
- Cash Flow Financing of the project & its payment security.
- Fiscal Position of Country/State.
- Currency Convertibility/ valuation/ repatriation
- Legal Structure of Operations (SPV/JV/Branch/Divisibility of Contract).
Different countries present different opportunities in various infrastructure sectors. Therefore, one needs to greatly consider the sector within which business is proposed and define your own money-making formula and create a robust ecosystem supporting its delivery as overbearing pride, hubris cannot make it sustainable.