Canada is the 4th largest exporter of engineering services in the world.
Montreal-based engineering services firm CIMA+ is now working on a gravity transfer feasibility study that would help counter the drying of the Chad Basin, a vital water source for millions of people in four African countries. If it goes ahead, the massive multi-billion-dollar project to replenish what was once one of the world’s largest lakes would be one of the largest of its kind ever.
Two years ago, engineering consulting firm Magna IV Engineering of Edmonton decided to open an office in Chile, where it had been working for many years on copper mining projects. That move helped the company diversify into projects in Chilean hospitals and its food and pulp and paper industries.
Welcome to the world of engineering services, where Canada is the fourth largest exporter in the world, behind only the U.S., U.K. and the Netherlands. Close to 30 per cent of the revenues ($21.4 billion in 2010) of Canadian consulting engineering service firms stem from exports, estimates John Gamble, president of the 500-firm Association of Consulting Engineering Companies – Canada (ACEC).
What’s more, some $40 trillion in investment is required worldwide for infrastructure work, according to GE Infrastructure.
“There’s really no shortage of international projects,” says Ken Unruh, chairman of Magna IV Engineering. “It’s a matter of selecting the right one, making sure the risk criteria are met and it doesn’t detract from existing workflow.”
Gamble says Canadian engineers are valued for the expertise they have developed working on mega-projects involving Canada’s vast natural resources. Another plus is that Canada is one of only a few countries that regulate engineering services. As well, “Canadians have demonstrated the ability to work well with other cultures. We have a great deal of credibility in the international marketplace.”
CIMA+ has leveraged that credibility to grow in Africa, where it now has four offices. It has also ventured into the Asian market and recently acquired a local consulting firm in Hanoi, Vietnam – a joint venture with a state-owned enterprise and state agency. The company is now considering opening offices in Abu Dhabi and Latin America.
EDC is a valuable resource for engineering services firms of all sizes, Gamble says, by providing loans, guarantees or bonds to those firms that are working abroad. “EDC gives our members a firmer footing and a little bit more confidence as they participate financially in other markets.” EDC can also provide insurance that mitigates risks in areas where political instability may be a concern, he adds.
As in other industries, engineering firms are sometimes confronted with bribery and corruption issues in emerging markets that may not have adequate governance and institutional controls. To deal with such situations, the International Federation of Consulting Engineers (fidic.org) has developed a best practices guide, Gamble says. As well, engineering firms are more careful about doing business with foreign project sponsors in emerging markets that have a history of corruption, “and that’s a positive.”
Chance Encounter Leads to Africa
CIMA+ expanded into Africa by chance only 10 years ago: a former African classmate informed CIMA+ president and CEO Kazimir Olechnowicz about potential engineering contacts in Africa. The company is now working on engineering projects in 30 African countries – from hydro-electricity and water filtration projects to highway construction.
Our clients in Africa see we want to work with them to help them and they like that approach.
Canadian engineering service firms have definite advantages in Africa, Olechnowicz says. “Canadians are able to work in both French and English, and our approach is to understand the social and political environment first before providing solutions. Our clients in Africa see we want to work with them to help them and they like that approach.”
The rewards of working on projects that visibly benefit the people far outweigh the challenges, he adds. “The ability to bring water or energy to little villages in the Congo or Niger is extremely rewarding for our people because you see exactly how you’re helping them.”
CIMA+ has had several of its African projects financed through the World Bank and African Development Bank.
“I’m hopeful that in the next year we can develop some new projects in Asia, Africa or Eastern Europe. We want to work in other parts of the world, so that when things get quieter in one area we can step into another,” says Olechnowicz.
CIMA+ is targeting contracts in the range of $50- to $125 million, in the energy, water and wastewater sectors. The company is also developing a niche in the airport sector.
Mining for Contracts in Chile
Magna IV Engineering started venturing into Chile in the 1980s, when the company began to help German mining equipment manufacturers like ThyssenKrupp install and run their machines in Chilean mines.
Alberta’s Magna IV Engineering, with expertise in large scale projects for the utility, infrastructure and industrial sectors, invested in a local presence in Chile to grow its South American customer base. Magna IV Engineering started venturing into Chile in the 1980s, when the company began to help German mining equipment manufacturers like ThyssenKrupp install and run their machines in Chilean mines.
For decades the company worked on a number of small engineering projects around the world – everything from liquified natural gas in Angola to a glass factory in China. Those projects tended to be short-term, involving only a few Magna IV employees.
Magna IV’s decision to open an office in Santiago, Chile, in 2010 has allowed the company to offer its electrical engineering services directly to mining companies and to diversify into other sectors. Chilean projects now involve as many as 30 Magna IV employees and are worth millions of dollars.
The 190-employee company now has 25 people in Santiago, and hopes to have 35 by the end of the year. Last year, it also opened a six-employee office in Denver, Colorado, in the heart of the U.S. mining industry. Once that office becomes self-sustaining, likely this year, the company may consider establishing other U.S. offices. Magna IV now derives 20 per cent of its $34 million in sales from its Chilean and U.S. subsidiaries.
“People from around the world are coming into Canada and competing with us. We need to go into somebody else’s backyard, just like companies are coming into ours,” says Ken Unruh, chairman.
“That’s a message to other industries too. If they are afraid of going outside of Canada, they should be aware other industries aren’t afraid of coming into Canada. You really don’t have a choice.”
Still, setting foot abroad is not without its challenges, Unruh admits. Language differences and understanding the playing field – including taxes, human resources and labour laws – have been challenges. As well, given the huge world demand for copper, the money that is going into Chile is “phenomenal” and is driving up salaries to close to Canadian levels.
We need to go into somebody else’s backyard, just like companies are coming into ours.
“We didn’t study the market extensively,” Unruh says. “We’d just done some projects down there and perhaps naively thought ‘maybe if we open an office we’ll make some money.’” Still, he cautions against over-analysing before venturing abroad because “you might scare yourself and walk way.”
“You’ve got to have a bit of faith and some bravery and just jump into it,” Unruh advises, “while making sure that, if it’s not successful, it won’t be a fatal endeavour.”
In Magna IV’s case, the gamble paid off. Unruh notes that the competition in Santiago is non-existent for some of its control-system expertise. Magna IV is confident it can repeat its Chilean success in other South American countries. Before doing so, however, it will likely open a second field office in Chile, in the heart of the country’s Norte Grande mining region.
Magna IV has been working with EDC since its mining projects hit seven figures. The company was asked by Chilean mines to provide millions of dollars worth of electrical equipment for two projects worth $6- and $8 million, and would have faced cash and operating capital crunches without assistance. “That’s where EDC stepped in and guaranteed to our bank the operating capital for those projects,” Unruh says. “When you’re talking about a $30 million company, it’s quite a bit of financing.”