The electrical power industry hit rock bottom in 2002, leading to lower-than-expected revenues for design firms nationwide. This downturn, coupled by the weak economy, has resulted in intense competition, plummeting price levels, and a buyer's market. Three years ago, electrical design firms had more work than they could handle, but today many markets have all but disappeared.
To gain a better understanding of the challenging marketplace, EC&M, Electrical Marketing's sister magazine, surveyed the nation's largest electrical design firms for its inaugural Top 40 listing. These firms identified the latest hot and cool markets, current trends in electrical design, and the challenges that lie ahead for the remainder of this year. In the chart below, EC&M ranked the companies based on a combination of factors, including 2002 revenues submitted by the firms, data from Dun and Bradstreet's Million Dollar Database, and the companies' involvement in electrical design. EC&M also listed the location of their headquarters and number of employees. In a tough economy, these firms are discovering ways to survive and even thrive amongst a tough field of competition.
Hot and Cool Markets
The power plant industry continues to be a cool market, but it is slowly showing signs of recovery. Some U.S. developers are seeing the downturn in power plant construction as an opportunity to cost effectively build generation, and more of the utility-based clients are starting to return to the market. The power market has traditionally been very cyclical with six- or seven-year cycles.
Until the power market stabilizes, many firms are branching out into other sectors to compensate for the lull in power plant construction. Companies have pursued such hot markets as health care, security, and education. Hospital work across the nation posted a 17 percent gain in 2002, and the Dodge division of McGraw Hill Construction forecasts a 2.9 percent increase for 2003. Colleges, universities, and K-12 have also become hot markets.
Trends in Electrical Design
Electrical design firms have been able to survive not only by market hopping, but also by taking advantage of advances in design tools, such as the advent of advanced personal computing and the Internet. Today's modern electrical engineering software brings about a quantum leap in capabilities, efficiency, and speed. Easy-to-use graphical user interfaces simplify the design and layout process and allow users to test multiple design configurations in a short time. The Internet also allows engineering firms, electrical contractors, general contractors, and owners to collaborate online, review and approve documentation, and share drawings and job site photos. Due to the availability of business software, owners now have a thirst for real-time information.
What's Ahead for 2003?
Many markets, especially the power plant industry, have nowhere to go but up. After surviving a few grueling years, many segments may start to recover, but according to the survey respondents, 2003 will be another challenging year.
Funds aren't readily available, the cost of energy is uncertain, and there has been a reduction in manufacturing production due to the economic recession. Regulatory and market uncertainty for the electrical energy industries will also make transmission and distribution and generation project funding a challenge.
The flat economy will result in a compressed market for services, and the lack of government and private funds will force the cancellation, postponement, or downgrading of traditional projects. More companies will be competing for less work, and to stay in business, more firms will be forced to explore more traditional markets and get jobs done more quickly and cost effectively through techniques like design/build.