Generational Shift Forces Construction Industry Digital Transformation

The historically fragmented industrial economy is getting a modern makeover.

And while ecosystem needs are different from geography to geography, a fundamental shift in digital capabilities is reframing the possibilities — and efficiencies — of the global construction industry.

That’s why PYMNTS sat down with Kaustubh Pandya, partner at Brick & Mortar Ventures  and Fernando Olloqui, CEO and co-founder at procurement management platform Licify, to get their thoughts on how today’s innovative solutions are streamlining workflows and solving for historical needs with new technology.

“Access to financing hamstrings the pace of construction and while cash management or mismanagement is usually a problem in the U.S., access to cash is a direct problem in Latin America (LatAm),” Pandya explains.

“Macro tailwinds like nearshoring are driving the development of factories, office buildings, and warehouses in the northern part of Mexico, and the tourism boom is also driving the construction of resorts, hotels, condos on both coasts of Mexico,” Olloqui adds.

That’s why he sees the region as attractive for emergent solutions meant to help keep construction on track.

“Mexico is close to the U.S., which means they are more open to technology and innovation,” Olloqui says.

The Problem Equals the Opportunity

In terms of historic fragmentation across the construction space, both Pandya and Olloqui agree that “the problem equals the biggest opportunity.”

“There are big, sophisticated companies that are growing at tremendous speed with a fragmented supply chain where you have small players, medium-sized players, and large players that all need to be connected,” Olloqui says. “Suppliers bring providers, and more providers bring more suppliers, and you can create a network effect.”

But addressing fragmentation and bridging legacy silos isn’t easy. It doesn’t just require technical solutions that can streamline manual processes like phone calls and emails, but behavioral changes built on a foundation of trust.

“We have around 50 large construction companies in Colombia and around 17,000 providers of goods and services. … From one side, we become kind of like a bridge with the supply chain. For the other side, we become more like an ERP [enterprise resource planning] in which we help them manage their business for companies that traditionally have not used software and traditionally are not good at running their business,” Olloqui says.

Fortunately, he explains that there is a “generational takeover” in these companies that is helping to drive growth and innovation in the construction sector.

Embracing Technology and Innovation

Construction companies are undergoing a leadership transition, with second-generation and beyond leaders taking charge and introducing technology to their formerly more traditionally operated businesses.

These companies have recognized the importance of leveraging technology to stay competitive and scale their businesses, and decision makers are more and more understanding how innovative software solutions can act as a bridge between buyers and suppliers, streamlining the procurement process and helping sellers find and win deals, execute contracts, and manage their businesses effectively.

“Companies are beginning to understand that in order to scale, they need to leverage the technology that’s out there,” Olloqui says.

But onboarding technology can be too much, too fast for more traditional businesses.

“What we do, is we provide a lot of support and make these operational changes very marginal and minimal — they start with something helpful, and then we integrate more tools as they grow. It’s done step by step,” Olloqui explains.

“There’s a value in simplifying an existing relationship by making it smoother, whether that’s across contracts, communication or payments,” Pandya adds.

And simplifying a relationship adds value, which builds trust.

Putting Working Capital to Work

A contractor without proper working capital is a lot riskier, Olloqui notes, explaining that in the highly competitive world of construction, the financial health of companies can make or break their success.

One of the biggest challenges faced by construction companies, both in the U.S. and Latin America, is the timely payment of subcontractors. Failure to pay subcontractors on time not only causes financial stress and inefficiency but can also lead to significant delays in construction projects.

The cost of slow payments in the U.S. construction industry alone was valued at $208 billion in 2022.

Enterprising companies have realized that keeping the supply chain with cash in hand is crucial for improved performance, saving both time and money while fostering smoother relationships between buyers and suppliers.

“If businesses have positive working capital, they’re going deliver quicker. They’re going to be focused on the job and not focused on looking for money and fixing the problems and negative externalities that not having cash leads to,” Olloqui says.

“The dirty truth in [the construction] industry is that those small contractors are the ones who are financing the large projects,” Pandya adds.

That’s why Licify’s platform comes with a FinTech element, one that uses a “unique underwriting model” to predict with more accuracy the risk of underwriting to construction businesses better than a traditional lender or bank.

Coming out of a $3.4 million funding round led by Brick & Mortar Ventures and Accion Venture Lab, Olloqui says Licify is excited to capitalize on the construction industry’s shift towards embracing technology and prioritizing working capital.

Working capital is no longer seen as a last resort but as a vital tool for driving growth and innovation. Contractors now understand the importance of having proper working capital to reduce risk and seize opportunities.

As the construction industry undergoes a generational takeover, the fusion of technology and trust promises to reshape the landscape.