UK Construction Industry and Balfour Beatty
In this paper, a UK company will be analysed which has been thriving in the economy for the past decades. This main purpose of this study is to get an insight on the structure of the industry from where the chosen firm belongs and how the said structure dictates its economic functionality. Furthermore, additional emphasis will be given to the microeconomic factors that drives the company and helps the same to partake in a competition market. Lastly, a discussion will be made on how the UK government’s economic policies influence the targeted business of this paper how the company can cope-up with the same.
In the United Kingdom, every industry has got their unique classification code according to which they are sub-categorised. For the sake of this paper among those sub categories, the construction industry is chosen. In the UK economy, the main revenue is earned from four industries, namely, manufacturing, servicing, construction and tourism (Mehran 2016). This was the main reason the construction industry has been chosen for the discussion and in the industry a public limited company which is top ranked in terms of turnover and profit is Balfour Beatty.
In construction industry there are various segregation according to which different firm partake in different activities. Construction of buildings is not only limited to residential houses, rather it has expanded to other civil engineering projects related to educational establishments or commercial architectures (Mahmoudkelaye et al. 2018). If the structure of this industry is considered then it can be said that the construction industry belongs to an oligopoly competition where there is a large base for the consumers and a countable number of producers who manufacture mostly similar but slightly differentiated products, that is buildings. Furthermore, for smaller firms’ entry to this market can be restricted as the larger firms have already acquired higher market shares and the consumers will not trust a completely new firm on the first go for the construction of their homes or offices (Dabara et al. 2018).
The company which will be analysed this paper is Balfour Beatty which is the leading entity in the UK construction industry (Lu et al. 2016). As per the recent data, this company is valued at $2.26 billion on April 1st, 2022. This company focuses on establishing social infrastructure, water holding establishments, energy operative constructive entities and transportation construction units. In the category of heavy construction, this company is enjoying a dominance for the past two years (Brooks and Rich 2016). Apart from this company there are other leading firms which are ranked below this. Hence it can be said that there is more than one firm industry but the main power in concentrated in a few numbers of firms and among which the Balfour Beatty enjoys an upper-hand. Most importantly, every leading and following firm produces nearly similar products. Thus, the explanation of oligopoly structure of this industry is justified.
STEEPLE is an analytical took which is used to measure the external macroeconomic factors that can influence a business. The abbreviation stands for Social, Technological, Economic, Environmental, Political, Legal and Ethical (Soroka et al. 2017). In the next sections all of these attributes will be discussed for Balfour Beatty.
Industry Structure and Oligopoly Competition
Social factors:
There are several social factors that can have an impact on the organisational operations of Balfour Beatty. In UK the income inequality trend is upward rising (Brewer and Wren-Lewis 2016). As a result, the power structure is changing in the country which consequently can alter the demand for construction projects. Then there is also an increase in the media influence on the public. The company can use these mediums to promote their manufacturing service more so that their area of operation expands further. However, in UK migration is viewed in a negative outlook; this can jeopardise Balfour’s plan of bringing in marketing experts from foreign regions. Along with it, domestic experts are necessary who can drive the company by aligning it with the social hierarchy which persists in the UK. Last but not the least, in this era of trade liberalisation, the safety measures of UK have started ton lag. In order to sustain for a longer period, this company needs to fulfil its safety measures; because for the country it might be okay for the time being but if the company starts to do the same, in long run it can lose its business license.
Technological factors:
In UK the adoption of technology is a major advantage for the economy. As the construction industry mainly operates using capital goods of production, technological advancements have helped Balfour Beatty to function with a lower production cost as the capital factors can be produced at a cheaper rate (Ghaffarianhoseini et al. 2017). Then there is the research and development unit which is in a consistent grow for the country. The government also invests heavily in this segment on micro and macro levels which have enabled the company to develop their functionality. Furthermore, 5G connectivity is gradually expanding throughout the UK. If Balfour keeps close tab on it then using this connectivity, they can serve the customers’ query and questions in a better way. Along with it the company must have adequate knowledge about their competitors’ technology adoption so that they know, what to expect from this industry in the future. However, the technological attributes are still not sound in this industry and therefore in the upcoming future, there are potentials which the company can explore.
Economic factors:
- Microeconomic factors affecting the demand:
There are several microeconomic factors that can affect the demand for the constructed building by Balfour Beatty. Firstly, there is the price of the constructed building and other architectural establishments as manufactured by Balfour (Dzwigol 2021). If the price of the buildings increases, the consumers will most likely prefer to shift to other companies who are providing with same. Next, there is income of the consumers. As Balfour Beatty is mostly focused on multidisciplinary projects, if the corporations that hire them experience a revenue and income hike in their operations, they would want to shift to another company which provides better manufacturing services. Now, as Balfour is the leader in this industry, chances are that this company will get more clients if smaller corporations expand their businesses. Lastly, if in the future new firms emerge who has the potentiality to replace Balfour, then its demand will experience a downfall. Now the summed-up consumer demand is known as the market demand. Thus, if a lot of consumers shift from this company, their market demand will change.
STEEPLE Factors Impacting Balfour Beatty
- Determinants of supply:
The main determinants of supply in case of Balfour Beatty are price of the construction establishments, availability of manufacturing factors like steel, cement and others, cost of the said factors which ultimately will determine the price, technology adoption, taxes the company has to pay to the government, subsidies the government allows for the company, climate problems and other natural factors that can influence the manufacturing process (Balogun, Nazeem and Agumba 2016). Now, these factors are the ones which can shift the supply of any good or service. For instance, if the price of constructional establishments rises in the real estate market, then naturally Balfour Beatty will construct more of their establishments to earn an additional revenue and profit. The same can be shown through the following diagram.
- Competitiveness in UK market:
As mentioned before, the UK construction industry is highly competitive and in of an oligopoly structure. Hence, for Balfour Beatty, holding their competitive edge is important. As an affect to this competition, this corporation can easily be toppled. Therefore, constant upgradation and staying up to date is of utmost importance for this company.
- Random shocks:
Random shocks are those which occur all of a sudden and affect the economy (Drautzburg 2019). Some of these shocks are inflation, natural disaster, geopolitical conflict and others. Now if the government imposes a fiscal policy to help the businesses grow and one such random shock takes place, then it will result in exhausting the policy fund in sustaining rather than growing.
Environmental factors:
Recently for the past decade the entire world is adopting sustainable measures to look out for the environment. For this purpose, the government is urging all the corporate entities to take up measures so that the Corporate Social Responsibilities can be satisfied and no harm can get inflicted to the environment. However, there are several environmental factors which can influence the operational dynamic of the companies belonging to construction industry. In case of Balfour Beatty, adverse weather issues like rapid increase of temperature are dragging up its operation costs. Therefore, the company has to invest more in its supply chain management to ensure that despite bad weather, the production process does not get affected. Next, in case of waste management and recycling, the government of UK has taken up strict measures (Chow et al. 2017). Therefore, the operational technology for Balfour Beatty must be aligned with the said measures to reduce environmental waste. Lastly, the Paris Climate Agreement assigned by UK government has set up concise target for all the firms operating in UK and Balfour Betty must also adopt environmental scrutiny measures in the home ground.
Political factors:
Political factors involve both the operational dynamics of the local and central governments. This goes with the political scenario of UK also. Recently, the UK government has initiated investment in capital good industry. This has a chance of accelerating growth in the construction business. Thus, Balfour must align their action planning surrounding this government policy measure. Moreover, as local governments have major significance in UK’s politics, this company needs to follow the regulations of states and territories to conduct a successful business throughout the country. Then, there are the threats of terrorism and geopolitical conflicts; but as per UK’s past decade’s operations, the global geopolitics is running smoothly and the country has enough resources to combat with any potential terrorist threats (Gilpin 2016). Hence, the company can expect a comparatively relaxed environment in reference with the politics. Lastly, in the past couple of decades, the UK government has lowered the taxation throughout the country which has helped Balfour Beatty to continue their business operations in a much comfortable and low-cost setting.
Social Factors
Legal factors:
In UK there are several laws and regulations which are focused on businesses, and all the operating firms must abide by the same. Among all the regulations, the most prominent ones are the Equality Act of 2010 and the Employment Act of 1996 (Grimshaw et al. 2017). According to the former, no business entity operating within the domestic border of UK can discriminate between their workers and everyone must be judged based on their skills and potential. According to the latter, no company can take up measures like unfair dismissal, redundancy in payments, Sunday working, suspension and termination without any valid ground. More specifically, the legal factors in UK exist to safeguard the workers.
Ethical factors:
The businesses operating in UK must follow the ethical factors of the country which states the main forces which can ensure that a company will sustain in future are trust and integrity. Integrity states businesses must always stay transparent to their customers and workers; and complete honesty must be maintained (Gutierrez-Huerter, Gold and Trautrims 2021). In construction industry there are several segments through which the entire manufacturing process takes place. Therefore, Balfour Beatty must give emphasis on every part of their manufacturing process so that from the supplier of raw materials to the workers, from the logistics executive to the consumers, no one can accuse the company of breaking the ethical values and government also cannot impose penalty.
One of the main challenges faces by this company is that there are not enough labour who possess the skills necessary for this industry (detsimas et al. 2016). Being a high-end organisation, the requirement of this company is high skilled labours which is facing a shortage in the UK economy. Apart from that decision taken by businesses can be harmful for the external attributes. The board of directors can loss if the decision results in a negative economic growth; the workers might lose if the employment structure changes; the customers can get affected if Balfour Beatty decides to suddenly increase their prices and the public at a large scale can get affected if the company does not abide by the CSR measures.
Conclusion:
In conclusion it can be said that Balfour Beatty is a leader of UK construction industry and it focuses on conducting business by following all the macro level factor requirements. The company belongs to an oligopoly industry and faces severe competition. However, its position in the markets helps it to enjoy an upper-hand. Lastly, the company faces challenges due to lack of skill labours and some o its decision can have a negative affect on its stakeholders as well as on the company itself.
References
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