Architecture, Engineering, and Related Services [NAICS 5413]

The majority of the industry is made up of small to medium sized businesses. In fact, 59.9% of firms
have 0 to 4 employees. Enterprises with 500+ individuals only make up 1.1% of the players in the
industry (IBIS, 2012). Further, the four largest firms account for just 14% of industry revenue (IBIS,
2012). This large concentration of smaller entities means that most firms focus on pursuing projects
in specific regional markets or specialize in certain types of services.
The engineering services industry is in the process of recovering from the decline in business
experienced during the recession. Long-term contracts executed by firms helped to maintain
industry growth until about 2008, but budget cuts which caused projects to be delayed or scrapped
altogether caused growth to slow significantly in 2009 and 2010 (IBIS, 2012). Other reasons for the
decrease in projects resulted from tighter credit policies, conservative business strategies and less
need for office expansion. From 2007 until the end of 2011, annual revenue of the industry has
actually fallen 1% each year. This led to a decrease in profits, causing firms to reduce its workforce.
The employment rate has decreased .8% over a five year period from 2007-2012. However, revenue
in 2012 is projected to increase by 1.7%, suggesting that the industry it taking a more positive turn
(IBIS, 2012). The largest percentage (17%) of engineering projects is currently in the industrial and
manufacturing plant and process sector. This is followed by commercial, public and institutional
projects, which accounts for 13.5% of business.
Demand for engineering services is expected to increase in both of these areas moving forward. The
outsourcing of engineering services and technological developments has also stimulated an increase
in demand for engineering consulting services (IBIS, 2012).
INDUSTRY ANALYSIS
Larger engineering firms, which have more robust offering of services, have fared significantly better
in the economic recession than sole proprietors. Players have engaged in several different growth
strategies, the first of which are mergers & acquisitions. This is an approach particularly favored by
the larger firms looking to gain a presence outside of the U.S. Other firms simply seek to secure
projects in a variety of geographic locations in effort to expand their business reach. Some companies
are opting to enter into strategic alliances or joint ventures with firms for specific projects. These
firms might in other contexts be considered competitors, but collaborating on a specific project may
allow the organizations involved to take advantage of the strengths and resources of each party
involved.
For years the U.S. was considered an epicenter for the design and engineering of products, while the
products themselves would be manufactured in countries such as China and India. However, this
trend is changing. Asian countries are producing larger numbers of engineers each year, creating a
changing workforce in a global marketplace that yields additional competition for U.S. engineers
(QFinance, 2012).
SIGNIFICANT TRENDS & CHALLENGES
There are several current developments in the industry that will continue to have a significant
impact on the state of the industry moving forward.
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