The History Of The Construction Industry Economics Essay


The building Industry has been hailed as the back-bone of many economic systems, in portion or as a whole. It adds in big parts to the GDP of a state and as a whole enables trade and encourages growing. It presently contributes about one- ten percent ( 1/10 ) of the universe ‘s GDP. ‘The entire planetary AEC ( Architecture, Engineering and Construction ) market is about $ 7.2 trillion and expected to turn to $ 12 trillion by 2020 ‘ ( Global Construction 2020. hypertext transfer protocol: // ) .

The Construction industry provides employment for approximately 7 % of the entire planetary employed work force. It besides accounts for being the largest energy devouring sector globally where it is recorded to devour about 2/5th of the sum consumed energy worldwide and it is responsible for about half the entire resources used worldwide. ( http: // # sthash.8UZZiQEb.dpuf )

This proficient study examines the amount and a specific portion of the industry. Looking at factors ; Political, Economic, Social, Technological, environmental and societal that may impact the industry ‘s growing and the strategic analysis employed by concerns in this industry. This would be done utilizing the PEST analysis and Porters Five Force theoretical account when researching the Industry as a whole and the SWOT and Portfolio Analysis in researching a specific portion.

Bing a multi-trillion planetary industry, it remains an attractive competitory industry where directors must strategically pull off their single companies as it is a undertaking centred industry characterized by short-run partnering between a scope of squads with changing degrees of Industry experience, information and communicating engineerings ‘ capableness. To stay competitory, directors must guarantee they have effectual schemes to go on to win work for their undertaking centred concerns.


What is the building Industry? The concern dictionary online defines this as ; “ The Sector of national economic system engaged in the readying of land and building, change, and fix of edifices, constructions, and other existent belongings. ”

It is an industry known worldwide for operating on narrow net income borders ( P. 51 Anthony E Henry. Understanding Strategic Management ) and it constitutes one of the most of import sectors in any states national economic system. It can be split into three wide classs: Architecture, Engineering and Construction ;

– The building of heavy and civil technology which covers the building of railroad paths, Bridgess, main roads, tunnels, airdrome and other functional capital intensive ventures.

– The building of existent estate which covers both commercial and residential edifices.

– And, the building of specialised points ; grapevines, electrical equipment, cosmetic stuffs, and the likes.

It is considered as being the universe ‘s individual largest industrial employer. Estimates of its size and importance vary from state to state. ( hypertext transfer protocol: // )

The building industry like most other industries is affected by a states fiscal crisis as authorities cuts in disbursement and other factors such as population growing, stuff costs, clime, urbanization, globalisation and engineering can hold their direct and indirect toll on the industry.

chew overing on our contemporary building consumerism and considering the misdirection of resources and the severe warnings to a great extent laced by guess of the of all time increasing unstable fiscal markets taking our universe to the threshold of scarceness that analysts in the major resource sections ; stuff, energy, finance and H2O have warned. In an age of consuming resources and a demand to go on to make, the building industry is confronting many menaces and has sought many methods to go more efficient and less resource consuming. With this sees a new country of occupation markets opening up in the building industry.


The building industry presently employs ;





Town Planners,

Building inspectors,

Undertaking and Construction Directors

Contractors ( who employ ; Electricians, Plumbers, joiners, trades trades, etc. )

However, with the demand to be more efficient and streamlined, the building industry has created new employment in the sustainability sector that trades with utilizing less, working smart and taking duty for resources to diminish waste and increase production. With the coming of cutting border engineering used to greatly heighten preciseness and efficiency, the debut of Building Information Model ( BIM ) sees a more efficient watercourse lined squad enabling more specific interior decorators and their design squads to work in a collaborative mode on one platform of information engineering understating mistake every bit good as cost.


The tendencies that will go on to drive the industry in the coming old ages include planetary heating and new advanced stuffs to be used to accomplish a more sustainable environment ( Bjorn, 2009 ) ; it would besides include population growing and urbanisation world-wide.

The planetary building industry has seen diminution over the last six ( 6 ) old ages. However, there are many emerging markets and a planetary growing is expected looking up to 2020 through to 2050.

With the debut of BIM and a demand for development, recorded fast growings have been in the Asiatic markets where China now holds the lead and Japan, one time the emerging planetary building leader has about wholly halted. Africa has had large building growings and constitutes one of the fastest turning emerging markets in the building industry. Although, the huge bulk of houses that operate there are international houses particularly from the Chinese building industry. The Middle East continues to turn and Eastern Europe and Latin America are expected to hold uninterrupted growing. Most of this growing is influenced by population growings, globalisation and urbanisation worldwide.

Merco Press suggests the planetary building industry contributes over 10 % to the planetary GDP and predicts this will lift to approximately 13 % of the planetary GDP by 2020. This will see a fiscal input of over $ 97 trillion up to 2020 with annual increases of over 5 % ( planetary Construction Positions and Oxford Economics ) .

Laing O’Rourke suggests the bulk of the universe ‘s population now lives in towns and metropoliss, with the balance switching from a rural being mostly in the last three old ages. By 2050, over 6.5 billion people will be urbanites, with the entire worldA population estimated to lift towards 11 billion in the same period. Therefore, they are positioning themselves in the market to be able to provide to this large displacement in planetary life


Strategic Analysis is ; A theoretically informed apprehension of the environment in which an administration is runing, together with an apprehension of the administration ‘s interaction with its environment in order to better organizational efficiency and effectivity by increasing the administration ‘s capacity to deploy and redeploy its resources intelligently. ( hypertext transfer protocol: // )

There are many building companies around the universe. International building houses are big multi-billion lbs houses that operate in several states global presenting building solutions and growing. A figure of the larger industry houses undertake building work internationally nevertheless ; bulk of work is carried out by the local or national little and average sized endeavors.

The bulk of international building companies will hold commenced with limited operation, usually affecting one state. Those who experience initial success will be more likely to spread out their concerns, finally taking to growing by puting in other states. Conversely, a deficiency of success is likely to promote withdrawal back into the domestic market. ( Howes and Tan, Strategic Management Applied to International Construction P 59 )

These companies to remain at the top of their markets would hold strategically analysed their industry and would utilize consequences to seek to remain in front.

This study would see 2012 ‘s top 20 building Groups world-wide concentrating on figure 1-Balfour Beatty and Number 20- the Mace Group. This study would cover the old ages running up to 2012 specifically looking between 2009 -2011.

With the alteration in the planetary fiscal Market, a expression at four of the top 10 building houses have seen a alteration in the plants they are transporting out as shown in the diagrams below.

Degree centigrades: UsersEmmanuellaDesktopTop-five-contractors-breakdown-of-work-won-2009-2011 ( 1 ) .jpg

Degree centigrades: UsersEmmanuellaDesktopBalfour-Beatty-breakdown-of-work-won-2009-2011 ( 1 ) .jpg

Degree centigrades: UsersEmmanuellaDesktopCarillion-breakdown-of-work-won-2009-2011 ( 1 ) .jpg

Degree centigrades: UsersEmmanuellaDesktopLaing-O-Rourke-breakdown-of-work-won-2009-2011 ( 2 ) .jpg

Degree centigrades: UsersEmmanuellaDesktopKier-breakdown-of-work-won-2009-2011.jpg

Clear alterations are seen in the work that were bid for and carried out in a infinite of 2 old ages of an economic downswing. More important market alterations are seen with the Bottom two Laing O’Rourke and the Kier group.

Industry Analysis:


PEST stands for ; Political, Economic, Social and Technological. These are the Factors used in analyzing to derive an apprehension on the factors that affect an industry. Using the PEST analysis on an industry gives insight on the environmental factors confronting that industry. It can besides be applied to single companies, houses and concerns.

Political Factors ;

The political factors impacting the building industry are largely new authorities alterations, alterations in statute law, certification, new policies and licenses that have to be obtained and submitted before, during and after the plants and at assorted stages of the building procedure to its official hand-over.

Globally, it could be affected by unstable authoritiess in emerging markets, jurisprudence fluctuations and concern revenue enhancements.

It could besides cover things like sustainability, decrease of the C pes print in the building industry, the redress of brown land, the protection of national landmarks, ecology, and home ground.

Economic Factors ;

Price fluctuations of goods can hold an impact on the industry. Government cuts, a recession, VAT rises, fluctuations and a diminution in economic growing all can impact the building industry. This can hold knock-on consequence when occupations have to be placed on clasp which constantly costs the industry more losingss. Besides, a alteration in demand for services and a alteration with the moneyman of the building organic structures could all hold an consequence. Positively, a lessening in the cast responsibility could signal a good mark for the residential building industry.

Social Factors ;

Assorted things affect the societal facet ; a development is ‘judged ‘ on its location, its propinquity to services, the nature of the building ; stuffs used aesthetic entreaty, functionality and safety. The sensed image of the constructing house, commissariats offered by the constructed infinite, age distribution, Population Growth, cultural and calling commissariats.

Technical / Technological Factors:

The Construction industry is a really proficient one. Technology alterations happen quickly and the coming of the usage of BIM, has seen large alterations in the manner work is carried out. Techniques change, demands change, new constructing systems to run into with Zero C edifices, prefabricated stuffs, pre-mixed cement mixtures. The industry works, faster and smarter now. Many new edifices are put together like a mystifier piece.

Porters FIVE Forces ;

The Porter ‘s five forces is a model used for naming an industry ‘s ‘ construction. Forces that erode long-run industry mean profitableness. This model can be applied at industry, group or single house degree. ( Lecture notes Feb 2013 ) It breaks down the competitory competition within an industry concentrating on ; the menace of new entrants, the bargaining power of providers, the bargaining power of clients and the menace of replacements.

Degree centigrades: UsersEmmanuellaDesktopmichael-porter-5-forces-model-for-banking-industry-604.jpg

Competitive Rivalry within the Industry ; ( HIGH )

With the down-turn in the economic system, the major Construction houses have shown contrastive responses to the downswing in public sector building work, amid warnings that public sector capital investing will drop by 24 % by 2013/ 2014, three of the biggest houses increased their proportion of public sector work won.

Balfour Beatty no 1 of the top 100 building houses moves towards programs for acquisitions of major gas-fired Stationss. It besides uses its US concern Parsons Brinkerhoff to go an end-to-end supplier for major clients such as SSE. ( http: // blocktitle=Top-Stories & A ; contentID=7501 )

Many of the larger houses are spread outing and diversifying their portfolios to remain at the top. Bidding in new classs and offering more. Brand individuality gives an advantage in contract acquisition nevertheless ; there is a degree of just drama in that non all building companies can transport out the same occupation eyeglasses.

The little and average endeavors lower down the building house ladder nevertheless have steep competition as they all go for the same undertakings and are offering on the same degrees.

And everyone on that ladder competes against itself on ; bettering engineering, uninterrupted invention and integrating to optimize cost.

The Threat of New Entrants ; ( LOW )

The building Industry is really capital intensifier. The trade name names in the building industry are good known and good established, location for most of the top 100 building houses is non an issue as they can easy absorb the costs of travel to win work and diversify their portfolios in other states. Profitableness in the building industry relies to a great extent on the economic systems of graduated table. It does non offer much for consumers exchanging costs and revenge from the top 100 would be an issue for a new smaller house that does non hold the heavy capital investings required. Regulatory blessing and licensing is paramount in this industry and it comes with high operational costs.

Smaller houses and concerns operate and do smaller occupations and contracts. They are sub-contracted from the larger building houses and operate in the local markets. They besides offer merchandise and service hires which can turn out profitable for them.

With larger houses holding the intensive capital required, they are able to offer lower than smaller houses and win occupations.

Dickering Power of Customers: ( High )

The Buyers are the clients and terminal users of the building industry. They can be authorities organic structures, a pool, or high net- deserving persons. As most occupations are won through a stamp / command procedure, the consumer / client has a just sum of ‘force ‘ here as they of course have a say in who they would wish to transport out their undertaking normally based on best monetary value for quality, portfolio, trust in trade name, cognition of trade name and in some cases this can be decided by ‘word-of-mouth ‘ . Firms need to maintain a good name and work ethic to maintain concern, win repetition concern and win new concern from referrals.

When covering with residential belongings, the consumer has the option to besides restitute or purchase an already done house. So, they do hold a just sum of force.

Dickering power of Suppliers: ( LOW )

Supplies are many and merchandises and services can be substituted. New merchandises are invariably coming into the market and as the building industry is a future forward one, it would travel with the better planetary tendencies for goods and services.

Most goods have a set non-negotiable monetary value scope across board which leaves the provider with small or no force on the industry.

Menace of Substitutes: ( LOW )

Merchandises and services in the building industry are ‘as they are ‘ it is virtually impossible to replace them.

The rise of the Boat-home, the mobile-caravan places, and vacation cabins are all short-run replacements. Many other edifices and big civil building services can non be substituted.

As explained by ( Saidi, O’Brien and Lytle, 2008 ) , ‘There is limited or no direct replacement for the industry ‘s merchandise, some services can be replaced with others within the industry such as the usage of automatons in topographic point of human labor. Robotic system cut down labour demands in a Nipponese building site by about 30 % ‘ . It nevertheless does non wholly substitute the demand for human input.

THE Administration:

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Strategic Management Applied to International Construction

By Rodney Howes, Joseph H. M. Tan

Berge Bjorn, ( 2009 ) The Ecology of Building Materials. 2 ” vitamin D Edition.Architectural Press

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