U.S.-based multinational firms are thriving in a growing global market

Architects based in the United States are expanding their professional services around the world. DesignIntelligence research projects year-end 2014 billings for services outside the United States will be up approximately 8.25 percent, to $2.47 billion. This is the amount that the top 30 exporting firms will invoice this year based on revenue collected thus far and on contracted backlogs for the remainder of the year.

The following regions are currently rated as the hottest for U.S. firms exporting design services:

1. China

54.5%
2. Middle East

22.7%
3. Mexico

18.2%
4. Canada

18%
5. Asia

11.4%
6. Saudi Arabia

13.6%

Within these regions there is flux in sector contraction and expansion. For instance, one of the new expanding markets is healthcare facilities in China. Private hospital development, some analysts say, could replace corporate facilities as the strongest service sector. In China, private equity firms are now engaging in the healthcare sector. There is new growth reported in the upmarket chains of private hospitals. Chindex is one of the leading developers reported to be at the top of the pyramid of hundreds of potential private hospital deals. Fosun Group in Beijing, parent of Fosun Pharma, said recently that the group might invest in as many as 500 hospitals in China.

Two years ago Beijing lifted restrictions on foreign investment in private hospitals. The demand for hospitals and custom medical care has risen in line with prosperity and the growth curve is not expected to peak anytime soon. There is a new market sector frontier for U.S.-based firms who most recently focused their work in the corporate, commercial, and industrial and hospitality sectors.

Spending on healthcare in China is about 5 percent of gross domestic product today compared with about 9 percent in Japan and nearly 18 percent in the U.S. according to a McKinsey study. In another report, Bain & Company earlier this year stated that healthcare has been identified by private equity funds as one of the most attractive sectors for future investment in China.

Leading Market Sectors for non-U.S revenues (% of top 30 global firms participating)

1. Corporate/Offices

72.3%
2. Residential/Multi-family

59.6%
3. Hospitality/Hotel/Resort

57.4%
4. Higher Education

53.2%
5. Retail/Commercial

51.1%
6. Healthcare

46.8%

Why are U.S.-based firms increasingly being secured as key design and business advisors in these market sectors? In our experience there are many different ways clients articulate the value of the architect, but in most cases the common denominator is the architects serve as an economic multiplier in one way or another.

One of several advantages is that architects bring savvy insight to risk mitigation and design power, often translating into tangible benefits that sophisticated clients can measure. Call it both tangible and intangible accountability. Well-designed buildings have investment advantages. Clients, both public and private, are seeking assurance that the quality of their building will hold up during the investment period, which is being lengthened in investor business models. While inertia in the marketplace blinds some to quality design and delivery options, there are also breakthrough shifts opening and it is often U.S.-based organizations that are leading the global pack in innovation.

Top U.S.-Based Firms Ranked by Non-U.S. Architecture Fees

1. AECOM

$326,252,000
2. Jacobs

$287,980,000
3. Gensler

$280,000,000
4. SOM

$186,703,000
5. KPF

$147,500,000
6. HOK

$144,000,000

Well-designed buildings are perceived to have a longer life and have potential for alternative utilization. Some have flexibility designed into them, protecting the value of the original investment from obsolescence. U.S. architects and engineers are also perceived to be the leaders who are offering up the world’s most sophisticated solutions in the green and sustainability field. This is now a high priority in Asia, China, Europe, and increasingly the Middle East. In short, clients from a variety of perspectives see professionals from the United States as bringing economic value. The value added from firm to firm is often quite different.

China remains strong on the top of most firms’ list of geographic priorities. Firms practicing in China are guardedly enthusiastic about the business growth prospects there. Market segments are changing, but overall backlogs are still strong. Is there a downside in China? Topping the list of risks is an economy that could turn on a dime and there is the very real issue of corruption. While there is strong anti-corruption enforcement emerging, even in the healthcare sector it seems that hospital finances are opaque. This is expected to change.

Good design in the global economy can be profitable for both the buyer and seller. Understanding the client’s economic aspirations is an ongoing priority of smart practices wishing to export their professional services. Leading architecture firms often speak the languages of economics and investment opportunity, not just the local dialect. Architects must also raise the level of business dialogue by placing design thinking, design process, and design product at the center of the discourse. Increasingly, U.S. architects find ways to innovate on means to calculate value in terms of needs, expectations, costs, outputs, and future options. Design­Intelligence interviews have uncovered genuine enthusiasm for global practice. Expectations are bullish for continuing expansion worldwide; look for Africa to soon become a market with double-digit growth for U.S. firms. What about getting paid and margins of profit? We’ll have more to report early next year on the rates of growth, marketing strategy, financial metrics and analysis of profit margins.

In the future, the winners in the export of design services will be those professional practices whose main focus is on their client’s journey and who possess a relentless desire to understand and improve that relationship from beginning to end. Firms who dedicate themselves to improving the client’s total experience (service, talent, language, energy, rapport, financial acumen) will have one or more competitive advantages.

Firms with Highest Percentage of Fee from Non-U.S. Projects

1. Adrian Smith + Gordon Gill Architects (AS+GG)

96.8%
2. Hirsch Bedner

96.7%
3. Jerde Partnership

94%
4. Wimberly Allison Tong & Goo (WATG)

90%
5. Kohn Pederson Fox Associates (KPF)

79.7%
6. SB Architects (Sandy Babcock)

68.4%

While the stories detailing why U.S.-based firms are gaining market share around the world are diverse, the following are often cited as reasons for success:

    1. Firms possess a global outlook that is empathetic to planet earth sustainability priorities
    2. Firms possess a seriousness about measuring value delivered
    3. Firms deliver expert services that are tuned to the needs of the evolving marketplace
    4. Firms possess high-performance processes and product repute that includes innovation aligned with client aspirations
    5. Firms possess strong and aspirational strategic plans that allow for ambiguity, frequent surprises, and fast adjustments
    6. Firms are serious about the business of architecture

Whether it’s in making a new city plan or a new building, solving a technical problem, devising innovative ways of doing things, or finding new uses for conventional materials, design takes us out of the realm of the familiar into new territory, creating something of value in the process. U.S. professional practices are on the vanguard of setting the pace for design worldwide.

The annualized growth rate of the top 30 U.S. firms from non-U.S. work has averaged 13.27 percent over the past sixteen years. This far exceeds U.S. growth percentage rates for architecture services. How about beyond the top 30? Again, there is growth for the next twenty firms measured in our DesignIntelligence report and we are uncovering robust growth activity too by small- and medium-sized firms who are carefully going global.

James P. Cramer is the Chairman and Founding Principal of the Greenway Group. Through his teaching and research, he works with management teams of leading professional practices and organizations to bring about fundamental change that improves bottom line results.