Road construction market: companies are many, leaders take a back seat

According to the results of 2016, the decline rate of the Russian road construction market reached 6.3%, when compared with 2015, and the market volume decreased to 0.9 trn roubles (≈$15.6 bln).

Tendencies

It is a third less than the experts’ pre-crisis forecasts showed in 2013. On the whole, the decrease trend, having started in 2014, depicts the macroeconomic condition.

According to the analytical forecasts, in 2017 the market will show a slight growth (+4,3%), compared with 2016, and will float in the range of -5% to +5% in the coming two or three years.

The growth strategy of the majority of road construction companies is based on the optimisation of the interior business processes in order to minimise expenditures and to expand their geographical presence.

Market growth drivers

The key factor of the market growth is the dissatisfactory condition of the automobile transport infrastructure and the growth of freight traffic connected with the achieving of the peak of rail infrastructure capacity.

60% of federal roads do not meet the norms and regulations, whilst the share of regional roads not meeting the norms and regulations is over 80% in 13 areas of the RF, with 19% of bridges needing reconstruction. 

The growth and progressive development of the road construction market is to a large extent determined by the state policy of the country’s infrastructure development and appropriate budget financing. The main source of construction financing and automobile transportation infrastructure maintenance will be road funds. 

The biggest volume of road construction until 2018 will occur in the Central, Volga and Siberian Federal Districts of the RF. About a quarter of the financing will be targeted at new construction.

Road construction market: companies are many, leaders take a back seat

Rivalry on the market

The road construction market is one of the most competitive in the Russian economy. It could be called a classic example of a perfectly competitive market, of which there are few in Russia. More than 3,000 companies had worked in this niche market by December 1st, 2016.

The absolute leaders of the market are Mostotrest GC, IFSK ARKS, VAD Ltd., USK MOST, Volgomost, STROY-TREST, Avtoban and Sibmost. These companies cover about 20% of the whole Russian road construction market.

Despite the high level of rivalry, only a third of the companies present in this niche market use the positioning strategies for tuning out from competitors. However, the study of these strategies shows that about half of them are inefficient.

By December, 2016 only 2 out of 10 companies working in the road construction market managed to organise their marketing and advertising campaigns for increasing their orders’ portfolio efficiently.

The remaining 8 companies either do not have marketing and promotion at all or do it inefficiently (due to the expenditure of resources). The companies using marketing tools have a 10-fold larger share of the tenders won than those who prefer to do without them.

Common mistakes in the strategies of tuning out from competitors are typical for the Russian construction market and are connected with the focus on the quality of the fulfilled work, or excessive use of image-building commercial modules.

The companies which use the strategies of tuning out from competitors carefully pay attention to minimisation of the price for a customer and focus on such important factors as efficient project management (which determines the final cost of the project) and the opportunity (in fact, minimisation) of servicing the completed projects.

Forecast

The results of the marketing study show that in 2017 the market will acquire the form necessary for the coming five years. In particular, large companies will start  to give way to smaller businesses and will have to focus on large regional and industrial-infrastructural projects.

Alexei ANDREEV

With the use of marketing investigation materials by the Simple Analytics agency. 

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