The Spectre of Consolidation in a Post-COVID Construction Industry

In 2020, 1,951 firms exited the construction industry in Singapore, according to Accounting and Corporate Regulatory Authority (ACRA) data. As government support to the industry begins to recede in 2021, it is not a far-fetched possibility that even more firms can be expected to exit the industry. This leaves a vacuum to be filled by the most innovative or adaptive firms, or more usually the largest firms with the strongest balance sheets.

As economic activity is expected to recover in the aftermath of the pandemic, especially in line with the government’s ambitious infrastructural plans for the coming decade, these surviving firms may be expected to fortify their positions and dig in. Is Singapore prepared for consolidation in the construction industry, and how may disruption still come into play?

According to a McKinsey report from June 2020, consolidation is expected to be a major theme in the construction industry moving forward. “Growing needs for specialization and investments in innovation—including the use of new materials, digitalization, technology and facilities, and human resources—will require significantly larger scale than is common today.” Let’s unpack these disruptive trends towards consolidation: specialisation, innovation, new materials, and digitalisation. Mastering them may mark the difference between exiting and flourishing in the post-COVID construction industry.

  1. Specialisation: In light of the new design challenges and requirements in a post-pandemic world, construction firms will need to find niches to specialise in to seek competitive advantages and counter falling margins in standard construction work. And greater standardisation–through the adoption of modular construction methods and prefabricated structures–will require moving into specialised segments of the market, like landed properties, agricultural processing plants etc. to seek greater margins from customised work. This requires scale and expertise.  
  • Innovation and New Materials: The movement to sustainable materials in basic building materials like concrete and wood as well as the trend towards prefabricated meshes and wireframes will push construction towards being more modular, standardised, and repetitive. As with Adam Smith’s pin factory, repetition is economised and benefitted from by scale and division of labour. Technological disruptions would have to be borne either by being an early adopter or by having enough scale to weather the storm until you adopt.
  • Digitalisation: Developments in construction and the requirements necessitated by more complex and smart infrastructure projects after the pandemic will stress firms’ ability to adapt in time. The surest way will be to embrace digital project management methods and technologies such as Building Information Modelling (BIM). But adopting the technology is not enough–firms will need to invest in human resource training so that the technologies are efficiently and effectively used.

The construction industry in Singapore, and globally, is slated to become cosier and smaller. Will only the largest firms survive this trial? Or shall the meek inherit the industry through early adoption, adaptation, and disruption?

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