German process plant engineering firms face a stiff wind of competition from firms in other countries that have access to cheaper labor, lower procurement costs and enjoy more support from their national governments. Based in expensive Germany, they must compete on the merits of their well-respected technology.

This is the mantra recited by German and many other European contractors for many for years, but with risks increasing, the German Engineering Federation VDMA has decided to evaluate how well its companies deal with these challenges. A study by consultants Management Engineers, commissioned by VDMA, recently took the industry's pulse on this question, for the second time in two years.
Competition for large engineering projects has increased enormously over the past three years, 92% of a selected 160 top managers of Germany- and Europe-based plant manufacturers interviewed for the latest survey asserted. Almost all (97%) believed that competition would continue increasing over the next five years.

Chinese Competitors a Thorn in Europe's Side
Chinese competitors, who have been a thorn in the Europeans' side for a number of years, are still seen as the most potent challengers, now and in the foreseeable future, while a new Asian competitor -- South Korea -- is emerging strongly. If only a little more than half of the engineering firm managers perceived this increasingly active country as a threat to their business in 2011, the number who held this viewpoint swelled to 83% in 2012.

Literally the bottom line is that the stiffening head wind is pressuring the balance sheets of German engineering contractors more and more. The sums invested in bidding are reaping smaller gains. While the hit rate -- the ratio of submitted bids and contracts won -- is expected to sink from 33% in 2009 to 27% in 2017, average bidding costs are expected to rise by about a third. Beyond international competition, this is also because the value of current projects is about 25% lower than in boom years 2007 and 2008, the consultants found.

Project Risk Management Means Savings
To help minimize risks, engineering firm managers who participated in the 2012 study concluded overwhelmingly that increased attention to risk management can translate into cost savings and within three years improve project margins by 10-20%. Management Engineers' contracting expert Marc Artmeyer confirmed the conventional wisdom of the German branch: Contractors with special competence in technology and detail engineering have the least to worry about as regards competition and are also better able to deal with risks.

Completing projects on time is undoubtedly the biggest risk plant contractors face, along with price calculation. The survey found that Germany's large contractors already have technical risks, those associated with project management and even insurable financial risks well under control. Here, Management Engineers noted that country risks are increasing, not least because of the wider international involvement of VDMA member companies.

Transparency is Essential Element
Most German engineering firms already actively deal with risk management, Artmeyer said, while stressing that "a maximum of transparency" in the development of cost and progress of equipment supply is key. Along with quality of personnel and excellence of technology, attention to legal security is also deemed essential. As one interviewed manager pointed out, firms can be more flexible in pricing than in binding questions of contract.

Summing up the results, Thyssen Krupp-Uhde's Helmut Knauthe, spokesman for the large plant contractors' grouping within VDMA, said: "Good project management, coupled with technological excellence, is the prerequisite for German contractors to remain competitive and further improve their competitiveness."