FICHTNER: Family firm that adapts to the times

28 March 1997

The mania for mergers and acquisitions leaves few stones unturned. As cash-rich firms pursue size and substance, smaller operators are swallowed up by the predators. This process of consolidation has cut a swathe through the ranks of the world's engineering consultants in recent years and very few firms survive as independents. Many partnerships with a Middle East record running back over several decades now trade under new names. Kennedy & Donkin is part of the US' Rust; the US' Black & Veatch owns Binney & Partners; other UK firms have passed into Dutch and German ownership.

Germany's Fichtner is one of the few independents to remain untouched by the ownership changes that have swept the consulting industry in recent years. Even better, two of the top three managers at the Stuttgart-based company are direct descendants of the engineer who founded Fichtner in 1922. And as befits a private family-owned firm, Georg Fichtner, a lawyer, and his economist brother Hannes control 75 per cent of the company that bears their name. Senior management owns the remaining 25 per cent of the enterprise and there are no plans to alter the structure. 'Capital independence has been an asset not a constraint,' says Martin Bay, Fichtner's president and chief executive officer.

The growth of Fichtner into a multi-disciplinary consulting group employing more than 1,300 people on three continents is inextricably linked with the Middle East. When Fichtner found its first work in the region, with the electricity generating companies in Saudi Arabia in the late 1960s, it was entering a market that would go on to require a massive expansion of the group. 'The reason we are proud of our Middle East heritage is because the growth of the Middle East mega-projects in the 1980s was the growth of the company,' says Bay. At one point in the 1980s the region accounted for 80 per cent of Fichtner's turnover.

Fichtner's first contracts in Saudi Arabia were for power generation, transmission and distribution. It has worked with the Electricity Corporation in Riyadh and the so-called Scecos, the regional consolidated electricity companies, and the national oil company, Saudi Aramco, on generation and transmission projects. As a junior engineer, Bay himself worked on one of the biggest projects in the mid-1970s, the Hail electrification scheme. For another two years in the mid-1980s he acted as Saudi Arabian project manager, based in Jeddah and Hail.

Saudi speciality

The company also won work with the Saline Water Conversion Company (SWCC), the Saudi Arabian agency which has commissioned some of the world's largest desalination plants. From virtually no background in the speciality, desalination in the Gulf was soon to become one of Fichtner's biggest business areas. It worked on several phases of the huge power and desalination complexes built on Saudi Arabia's Red Sea coast at Shuaiba and on the Gulf coast at Al-Khobar. At Ruwais in Abu Dhabi Fichtner has acted as consultant for every phase of the utilities for the purpose-built industrial complex; it played a similar role on the Das island project. 'Our desalination work grew up in the Middle East,' says Bay. 'It is now a core expertise for Fichtner.'

The water experience gained in the Gulf has proved invaluable, enabling Fichtner to deploy the skills it acquired in other markets. For example, the group recently won a study for a desalination plant in Singapore, the first to be proposed by the Asian city state.

Expertise also flows the other way. Fichtner has built up a portfolio of refuse incinerator and waste management contracts in the Far East and expects such infrastructure to become the next big business in the Middle East. One target for 1997 is an engineering contract for a waste disposal project in Jeddah, which will be the first of its kind in Saudi Arabia. Fichtner is already working on an environmental master plan for the Council for Development & Reconstruction in Lebanon and a composting scheme for Amman municipality in Jordan.

Past glories in the Middle East cannot disguise how much the market has changed in recent years. Business fell away in the late 1980s, although it may be rebounding again at the moment, and the role of the consultant has altered. Bay recalls an earlier time. 'There was still a very close relationship in terms of mutual confidence. Clients were willing to take your advice,' he says. Over the years regional clients have become more experienced, better educated and more ambitious for themselves. 'Consultancy has to justify its existence these days,' says Bay. 'The differences have disappeared completely. Technology transfer has occurred and we are dealing (with each other) as partners.'

The downturn in Middle East business by the end of the 1980s sent Fichtner off in search of new business in east Asia, but the company was astute enough not to run down its regional presence. There is a full size engineering office with a staff of 15 in Abu Dhabi and permanent offices in Riyadh and Doha. From a low in 1995, when the Middle East accounted for only 6 per cent of turnover, business recovered in 1996 to about 10 per cent and should post further gains in 1997.

This reflects the recovery in basic infrastructure work among many of Fichtner's long-term clients, such as Abu Dhabi Gas Liquefaction Company (Adgas) and the Abu Dhabi National Oil Company (ADNOC). It also reflects what the company describes as a 'new approach to our traditional business.'

A key initiative has been to improve competitiveness by keeping a tight rein on costs - not easy when you are based in a country with a strong currency and some of the highest non-wage labour costs in the world. 'We have been heavily affected by the strength of the D-Mark,' says Bay. The response? 'We take two approaches - always work with local consultants and source engineering services within the group.' Although conceptual designs are drawn up by the 400 or so engineers at the company headquarters in Stuttgart, other work can be put out to lower-cost Fichtner subsidiaries in the UK, India, Singapore and Taiwan.

A lot of detailed design work is done in Madras; the UK specialises in co-generation and industrial waste-management; Asian standard incinerators are designed in Singapore or Taiwan. Many of the firm's local offices reflect this multinational character. In Abu Dhabi, for example, German and British engineers work alongside local partners under the same roof.

Cost containment

Nevertheless, the scope for cost containment is not infinite and the company has focused on high quality projects at the top end of the market to preserve its margins. 'If we are competing with Indian consultants [on cost] we are in the wrong game,' says Bay.

To maintain a qualitative edge Fichtner has embraced computer aided design (CAD) with enthusiasm. 'Our own tools have improved considerably. We have state of the art quality,' says Bay. The company has developed its own software packages for CAD applications. More than 20 years of experience has gone into the development of programmes for energy management and the thermo -dynamic optimisation of power stations and desalination plants. Many have received ISO recognition and are marketed, as a very lucrative sideline, through Fichtner's information technology division.

A looming challenge for international contractors and consultants in the Middle East is the dearth of new money for capital projects and the demand for private solutions to public infrastructure needs. Yet, for the time being, private infrastructure is more talked about than taken up in most states of the region.

As a family firm Fichtner would have limited capacity as a prospective investor in private utilities. But it is proposing to take a 5 per cent equity stake in a private sector 40-MW solar energy project in Cyprus and is considering a small investment in a much bigger combined-cycle power plant in India.

'We have not been affected by the privatisation issue in the Middle East yet,' says Bay. 'The governments still provide all the services.' The Fichtner president sounds sceptical when quizzed about the prospects for private infrastructure initiatives in the region. 'It is still too soon. You need a clear legal framework before a private investor can play a role,' he says. Fichtner is reserving its view of the attempt to implement the next phase of the Shuaiba power project in Saudi Arabia as a build- operate-transfer (BOT) venture. 'We have not yet formed an opinion.'

The more immediate issue is the company workload for 1997 which is expected to be a bumper year for new contracts in the Gulf. In Qatar, work is advancing on the Ras Abu Fontas C power station where Fichtner is teamed with Energoprojekt of Belgrade. In Abu Dhabi, work should resume soon on the general utilities upgrade for the Ruwais refinery expansion and Fichtner is also involved in the next enlargement of the Taweelah power plant. Optimism certainly prevails at the chief executive's office in Stuttgart. Says Bay, 'We expect a substantial increase in orders this year.'

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