OC&C B2B 200 Index

August 19, 2015 | PRESS RELEASE

UK B2B services firms risk £10bn revenue losses in the wake of fierce competition from Asian incumbents

UK business to business services firms could miss out on £10 billion by 2020 if they don’t take action to restore growth now, according to new research published today by OC&C Strategy Consultants.

OC&C’s annual B2B 200 Index is an analysis of the financial results of the world’s largest and most successful companies in the B2B services sector including construction, facilities management and logistics. This year, it has unveiled a double-edged challenge for UK firms: a global slowdown of the services sector as a whole, combined with increasing competition from the East.

The B2B services industry has seen growth rates more than halve over the last four years, falling from 11% in 2010 to just 4% in 2014, with Asian firms contributing the lion’s share (75%) of this small expansion. If this underperformance continues, the sector stands to lose £420 billion globally - £10billion of which will be lost by UK companies.

Vivek Madan, Partner at OC&C Strategy Consultants, said: “The B2B services sector is critical to the UK, accounting for almost one third of our economy, and contributing to over half of our economic growth since the recession. As one of our primary exports, it’s crucial to our continued economic recovery.

“But UK companies and their European counterparts are failing to adapt quickly enough to a rapidly changing environment. Firstly, more demanding clients with sophisticated buying approaches are putting pressure on prices and margin. Secondly, fiercer competition means that suppliers need to do more to differentiate. And thirdly, relying on M&A activity to prop up organic growth is becoming harder, as the scale of acquisitions needed to make a tangible impact on the top line has greatly increased.”

European firms are experiencing a worrying loss of market share to their Asian counterparts. UK firms grew by just 1.5% in 2014, with French and German companies shrinking by 2.1% and 3.6% respectively – averaging 0% growth in Europe for the sector. By comparison, Chinese firms’ revenues grew by 14.5% last year alone.

Looking specifically at Asia, 3 of the Top 10 firms in this year’s B2B 200 are Chinese, having capitalised on strong growth in their local markets without relying heavily on global expansion - a common theme for European underperformers. Chinese construction firms are performing particularly strongly, with China Vanke, Poly Real Estate, and Power Construction all delivering over 18% annual growth and double-digit margins.

Vivek Madan continued: “As the gap between the winners and losers in the sector continues to widen, many of the world’s largest B2B firms are at risk of revenue and margin decline – and only a few are acting with sufficient aggression to pursue their next wave of profitable growth.

“Looking at the top performers, we can see that they adopted a successful three-pronged approach: they have kept their fingers firmly on the pulse of market developments; cultivated an intimate understanding of their clients’ business needs; and secured a strong position in their home markets before venturing overseas.

“Some British firms, however, seem to have relied too heavily on historically good reputation, are falling behind as a result. Although B2B Services remains a fundamentally attractive place to be, CEOs need to act now to navigate waters that will only become more turbulent. In order to turn the tide, they need to focus on how they can better deploy resources to resolve their clients’ essential needs, which processes can be improved to ensure consistent delivery, and how they can reassess their global footprint to best serve customers both internationally and at home.”

OC&C's B2B Top Ten:

 

Sector

HQ

Revenue

(£bn 2013) 

Growth

(% CAGR 2010-13) 

EBITDA (% 2013) 

Growth Drivers 

Poly Real Estate 

Construction 

China 

8.7 

 42%

 20%

Strong growth in Chinese construction market

China Vanke 

Construction

China 

12.3 

 29%

 20%

Strong growth in Chinese construction market

Cognizant 

BPO / IT 

USA 

5.7 

 28%

 24%

Drive growth in areas of new regulation (FS. healthcare) and expand global footprint

Enso 

Oil & Gas 

UK

3.2 

 26%

 49%

Aggressive M&A-driven expansion 

HCL 

BPO / IT 

India 

2.5 

 26%

 22%

Strong US results and successful cross-sell of Infrastructure Management Services 

Alliance Data Systems 

BPO / IT 

USA 

2.5 

 22%

 30%

Strong organic growth driven by demand for consumer marketing data 

Naspers Limited

Media & Marketing 

South Africa 

3.6 

 22%

 21%

Exposure to e-commerce and internet in China, European etailing acquisitions

Power Construction 

Construction 

China 

14.0 

 18%

 11%

Strong growth in Chinese construction market

Eurofins Scientific 

Engineering & Compliance 

Luxembourg 

1.0 

 17%

 15%

Sector-focused roll-up acquisitions combined with best in class account management

Waste Connections 

Facilities Management 

USA 

1.2 

 13%

 34%

Domestic acquisitions in new or adjacent markets 

For further information please contact:

Lucy Hopkins, Lucy Butterfield or Kathryn Harnett at oc&c@bluerubicon.com

0207 260 2700

Notes to editors

Methodology

OC&C presents a review of the evolution and internationalisation of the top global B2B Services businesses.

Our work is based on a combination of substantial experience over a broad range of clients and issues in the B2B Services arena, coupled with the compilation of detailed proprietary analysis on the historic performance (revenue and profit evolution) and international footprint of 200 of the top global B2B Services players.

About OC&C

Founded in 1987, OC&C is a leading global strategy consulting firm that brings clear thinking to the most complex issues facing today's management teams. OC&C's client roster includes some of the world's most respected companies throughout the retail, consumer goods, media, private equity and business services sectors.

OC&C's client roster includes some of the world's most leading and innovative business services providers across the sectors covered in this report, as well as active investors in this space.

For more information about OC&C strategy Consultants, please visit http://www.occstrategy.com