Alejandro Ruíz
Head of Construction, KPMG in Mexico
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Insight

Construction SMEs Undergoing Changes

Mon, 11/05/2018 - 18:05

Small to medium-sized enterprises (SMEs) are the engine that drives Mexico, representing 99.8 percent of all companies in the country. The construction sector is home to many of these SMEs, which are growing quickly, representing major challenges in oversight and working environments, says Alejandro Ruíz Head of Construction at KPMG in Mexico
According to INEGI’s 2014 Economic Census, 45.7 percent of the companies in the construction sector in 2013 employed 10 or fewer people and 40.4 percent had between 11 to 50 employees. “The Mexican construction market is extremely fragmented. In Mexico City alone, there is a large number of mini-companies that generate approximately MX$2-3 billion a year and most of the time, these companies are not audited at all. They went from earning MX$100 million to MX$2 billion at an exponential rate,” says Ruíz. These hundreds of SMEs found their niche in the market and are profiting greatly; nevertheless, they have yet to install flexible controls to ensure sustainable growth. “When companies grow at such a fast pace, it is hard to establish not only controls, but healthy working cultures.”
KPMG offers auditing, process optimization services, project management and human retention consulting for players of all sizes in the construction sector. One of the main hurdles the firm has highlighted within the sector, especially for Mexican players, is talent retention. “Talent has been a great challenge because millennials no longer want to have long careers. Instead, they look to partake in projects that provide results in a much quicker way, both economically and on their resumés. It is important that construction companies create career plans that encourage their talent to stay and grow within the company,” says Ruíz. According to KPMG’s 2017 Global Construction Survey, 28 percent of respondents said there was no common approach at all to their employee promotion processes and that promotions were generally considered on a case-by-case basis, making standardization a must in the sector.
The virtues and flaws of millennials are shaking up the entire infrastructure industry as companies strive to adapt to changing generations. The study finds that approximately 40 percent of employees are Generation X and 37 percent are millennials. Construction companies must adapt and facilitate the coexistence of three different generations that are in the market right now. “Baby boomers, Gen X and millennials are integrating themselves into the same working space. Gen X is becoming extremely relevant because it is the generation that generally has more loyalty to the company and responsibility. It will play a key role in incorporating and motivating millennials to participate in projects within the same company,” says Ruíz.
There are many companies that have been around for more than 50 years, have established corporate governance models and are now in their third generation. But Ruíz says that a great part of the market is comprised of companies that are 10 years old on average and are extremely successful. “The time for change is near and there is a fear of handing over control to the next generation. It is important for these companies to create management and organizational charts, where they slowly incorporate these younger generations into decision-making processes, with the help of third-party advisors.” A common cause of conflict, according to KPMG, comes from not establishing rules for financing and compensation. It becomes a power battle and the best way to ensure a healthy culture is not by pitting employees against each other, but rather by complementing the skills and abilities of each member.
Apart from generational changes, every six years the Mexican market is forced to adapt to a new federal administration, which can be a challenge for many businesses. “Creating trans-sexennial master plans would help reduce uncertainty within Mexico’s infrastructure industry and support companies,” Ruíz says. Without long-term master plans, there is always the risk that projects could be suspended when there is a change of government. “This demotivates the industry from investing money in these projects, and if they are not secured, this creates a lack of trust between the public and private sectors. It also makes financial institutions wary, leading to higher debt prices and ultimately hurting the players in the sector.”