Table of Contents 1. Introducing the organisation Balfour Beatty Company Profile 2.

Environmental Analysis UK Construction Industry Overview Porter’s Five Forces Analysis Competitive Rivalry Threat of Entrants Power of Suppliers Bargaining Power of Buyers Threat of Substitutes Overall attractiveness of the Industry SWOT Analysis 3. Results and Implications of the analysis

Executive Summary In this report we have review the current position of Balfour Beatty Construction Company and the overall UK Construction Industry. Balfour Beatty is one of the leader companies in construction industry in UK. The construction industry is a cyclical industry and its growth rate is steady. The five forces analysis of the showed that the market is attractive and fairly competitive. Internal analysis showed that Balfour Beatty competitiveness is at a high level. Also, there are different major competitors that Balfour Beatty has to face like, Taylor

Amec. Balfour Beatty is the world's twentieth largest construction company (see Appendix I. Balfour Beatty should has as a primary focus the maintenance of its leading position in the UK Industry and also its extension to new markets. In 233 of which went to its chief executive. Introduction Balfour Beatty Company overview One of the UK's most infamous construction companies due to its wilful involvement with projects such as the Ilisu dam in Turkey ( the company made £94m profit. Carillion. table1) and first in the UK construction . threats and opportunities were various and Balfour Beatty should take them into great consideration. Business plan objectives The objectives of this business plan are the following: • • • • To provide a review of the company’s present position To describe the industry the company operates within To analyse the competitiveness of the market To make specific proposals I.6 billion. it is also the UK's largest and most profitable with a turnover in excess of £2. Michael Welton ( Since the market is at a growing stage. £477.

energy and water. Mission: “To continue reliable.industry (see Appendix I. Establishing strong domestic businesses in selected overseas markets based on our UK model (Annual review of Balfour Beatty. equipping. on an international basis. Company’s Objectives: There are four areas that they intended to further develop their business to ensure that they will be able to maintain their target growth rates over the medium and long term. maintenance. Extension of their investment business into new markets. it is important to mention that in 2002. as well as expansion of its core engineering and construction operations overseas. Investments: Balfour Beatty promotes. Also. Balfour Beatty is a world-class engineering. Building Management and Services: Balfour Beatty is an international specialist in the design. . 2007): Building. design and management services. Balfour Beatty is the largest UK-listed construction group (by market capitalization). services and investment group and it includes the following section (Annual review of Balfour Beatty. 2002). table2). It is seeking growth through investment in public-private partnerships (PPP). develops and invests in privately funded infrastructure assets in selected sectors. responsible growth in shareholder value over the long term”. maintenance and management of buildings and selected aspects of their internal environment. management and renewal of rail assets and systems. equipping. it had 5. These are: • • • • UK regional contracting. construction. Professional and technical services. principally in transport. 2007).449 new global contracts (ENR. Rail Engineering and Services: Balfour Beatty is an international leader in the design. Civil and Specialist engineering and Services: Balfour Beatty is a leading international provider of civil and other specialist engineering. construction. construction. Vision: “We aspire to being the pre-eminent infrastructure company in the world”.

geocities.and was worth £6. 2001) .com). 2001) The amount spent on public housing has never exceeded £2bn whereas the figure for private housing has consistently been double or triple that amount (Construction Statistics Annual.6% of the construction industry's output in 2000 (UK Construction Industry Market Review. The annual round of results published by construction firms in March 2003 showed that the sector is shifting away from one-off contracts carrying high risks and big returns toward lower risk long-term deals that go beyond construction to designing.unison.a slightly lower figure than for the previous 4 years .uk) With an output of £81. maintaining and operating buildings (www.II. 2001) The National Audit Office revealed that more than £434m worth of roadconstruction contracts . with the infrastructure and the commercial construction sectors at the forefront of this trend (Construction Industry Market Review. or 5.9bn in 2002 (Construction Industry Market Review 2003) the UK construction industry is ranked in the global top ten (Crowley.4 million people and is worth around £65 bn per annum (www.dti. Industrial construction is the smallest of the basic sectors of the whole construction industry. the output of private construction work was £3. Road building is the main source of infrastructure work (UK Construction Industry Market ) The UK construction industry provides a tenth of the UK's gross domestic Budge.3% of the total construction sector (UK Construction Industry Market Review. 2003) Infrastructure accounted for 9. 2003).7bn. In 2000.2% of all construction work in 2000 . Fairclough.were won by five firms. Environmental Analysis UK Construction Industry Overview The UK's construction industry has been enjoying a period of strong growth. Alfred McAlpine and Tarmac (www. Balfour Beatty.51% of those awarded employs 1. 2003) Sectors Housebuilding accounted for 38.

5 bn) infrastructure newbuild (EUR 9. The UK building materials market is forecast to increase by 13. tiles. accounted for just over 18% of all construction work in 2000 (UK Construction Industry Market Review.11 billion.Commercial construction output. The UK construction materials sector is undergoing a period of rationalisation. Building materials embrace a wide range of materials and components such as bricks.1 bn) industrial new build(EUR 6. 2001).5 bn) repair & maintenance -homes (EUR 35.9 bn) commercial new build(EUR 40. After weathering the recession of the mid-1980s . which includes a wide variety of commercial work. with many UK companies now forming part of international companies.7% at current prices between 2001 and 2005 (UK Construction Industry Market Review.1 bn) repair & maintenance -other (EUR 34. cement and timber. The chart below shows how this output was divided between the different construction sectors: STRUCTURE OF THE CONSTRUCTION INDUSTRY 22% 20% 22% 6% 4% 26% housing new build (EUR30. 2001). The total value of UK construction output in 2005 was EUR 157.7) Source: Construction Statistics Annual Report 2006: Department of Trade & Industry Conditions of the Industry The UK economy is vitally linked with the construction industry which accounted for 8% of the GDP in 2005.

7% (Construction Industry Market Review. its output is estimated to have increased by 9. the Major Contractors Group (MCG). 2003) According to lobbyists.000 contractors and builders contributed 67% of the total construction output in 2005.and early 1990s. Since the advent of PFI. the construction industry in the UK has risen on the back of growth in private housing. This strategy is reinforced by figures from the European Construction Industry Federation (ECIF). There has been a marked shift among UK contractors and consultants towards Public-Private Partnership (PPP) and Private Finance Initiative (PFI) Also.5% and 0. Furthermore. the surge in the Chinese construction demand is expected to increase input prices globally. Growth strategies adopted by the key players include expansion into overseas markets. 270. When a consortium of private companies agrees to build something for a public body. exiting low-value businesses in the construction sector and leveraging PFI projects for long-term growth in revenues and profitability. the UK construction industry is extremely diverse. This risk is 'costed' and becomes a key component of the value-formoney calculations.7% respectively (Macalister. construction companies engaged in the private finance initiative expect to make between three and ten times as much money as they do on traditional contracts. the construction industry has found itself on much more stable ground. public housing and non-housing segments that has offset a downtrend in the infrastructure segment. diversification through acquisitions. which show that the UK construction sector grew by over 8% last year while its counterpart in Germany and France slumped by 2. it acquires the risk that the project might fail. which represents UK firms such as Carillion (formerly part of Tarmac). The UK government defends PFI by its use of something called the 'public sector comparator'. and is dominated by SMEs. Costain and Amec. Main Competitors . Between 2001 and 2002. The main problem with this is that the government has provided an accounting device called 'risk costing' which has meant that private firms generally emerge as winners. approx. including those for domestic UK construction companies.2003). This shows whether or not privately financed schemes offer better value for money than conventional funding.

Five forces analysis of the constructing sector is analyzed in the following section (See also Appendix II) Rivalry among Competitors Balfour Beatty is the largest UK-listed construction group (by market capitalization) and has to face with four major competitors within the UK Industry: Carillion. 2007).unison. leaving owners of new homes with little or no protection for the most expensive purchase they will ever make. (www. II. With an average value of £100.000 homes purchased throughout the UK. Alfred McAlpine. Taylor Woodrow. Each of these companies targets the same clients and each has a fine reputation for customer satisfaction. there is a high price competition within the companies in the industry. Each year there are 150. Therefore.There are several competitors threatening Balfour Beatty but its major ones are the following: Carillion.5bn per year is unregulated by the government and exempt from usual trading standards. has a highly leveraged balance sheet and volatile cash flow. though small in terms of scale of operations. AMEC. 2008).uk).wimpeyrawdeal. Alfred McAlpine and Taylor Woodrow. its house building sector is the fourth largest in the UK following the £480m acquisition of rival Wilson Connolly in 2003 and £556m acquisition of Bryant Homes (Wilson Connolly Company profile. AMEC. it is unlikely to pose a threat to Balfour (AMEC Annual Report and Accounts. is wellpositioned in high-growth markets (www. as it has refocused on the lower-risk segments in construction services and towards support services and PPP (www. Porter’s Five Forces Analysis The state of competition in an industry depends on five basic forces. 1985).000 per property this means that an industry worth in excess of £ As a result. New homes are currently exempt from the Sale of Goods Act. one of the leading construction services companies in the UK. is likely to become Balfour Beatty's strongest the strength of which determines the ultimate profit potential of the industry (Porter.

including those for domestic UK construction companies. skilled construction workers have supplier power.The industry is at a growing stage and with the 2012 London Olympics is expected to further propel growth in the UK construction industry by boosting investments in South-East London. switching costs and government policy affect UK construction industry. The highly fragmented nature of the UK construction industry implies intense price competition and falling margins for a bulk of the players. Unlike subcontractors. The construction skills network report 'Blueprint for UK construction 20062010' forecasts that UK construction output is set to average 3% growth annually between 2006 and 2010. the amount of workers needed is likely to increase by approximately 245. With the current economic recovery the industry is expected to experience considerable skills shortages in both traditional and new skills areas (MacKenzie et al. In addition. 2000).5 million people are expected to be employed in construction across all contractors’ associations say “it’s particularly crucial during times like now when commercial and residential construction is in high demand” and this strong supplier power of construction workers leads to high costs of labour (Scripps Howard New Service study. This will mean that an average of 88. because of the large amount of initial capital required for constructions and the high prices leaves the entire industry to large companies that have sufficient capital.000 new recruits will be required each year (www. . The construction industry has issues with worker shortages (Scripps Howard New Service study. Economies of scale. Also. capital requirements. 2005). Economic stability and low interest rates are also likely to drive homebuilding demand. The construction industry is heavily dependent on the adequate supply of a skilled labour force. At the end of 2006 just over 2.constructionskills. Threat of Entrants It is important to identify the possibility and probability of new entrants in an industry because they can intrude on market share and profitability of existing competitors. product differentiation. and as a result the skilled labour shortage in the UK has received considerable attention in recent years. It predicts that in order to deliver this growth. As a consequence. Another factor is that the surge in the Chinese construction demand is expected to increase input prices globally.000 throughout the UK. competitive rivalry will be high but also it will deteriorate entrance of small companies. 2005).

require a specific amount of steel. Still. As a consequence. concrete. oil. In the house building sector there is a continued shortage of housing. Bargaining Power of Buyers There are some large customers who repeatedly tender for business and are well informed and experienced buyers. concrete and wood for the homes and on the other hand. In addition to UK producers there are a large number of overseas companies strongly active in the UK market and represented by their own UK subsidiaries or distribution partners (http://www. Volume is a significant concern to these homebuilders. Suppliers in this industry are not concentrated and they act as separate groups competing for the same project through the bid system. There is a weak demand-side in terms of the proportion by number of clients who have access to innovative or improved techniques. with not only a large number of UK suppliers large contractors are not affected in terms of supply volume giving suppliers any leverage. on one hand. 2003). The government plans for the provision of 1 million new homes by 2016. for instance. The clients say that they want to focus on value – this makes good business sense to them – and whilst cost is one of the . the subcontractors must build these variable costs into their homebuilding bids. the fragmented nature of the supplier market in all other construction supplies to homebuilding companies severely limits supplier power. the price of gasoline and As such there is little prospect of them being able to exercise any buyer power (OFT. There are over 100 trade associations representing suppliers of various construction products and materials. However none of these customers are large enough to constitute a significant part of the procurement of building services. Prices for some of these materials are non-negotiable. plastic. gravel. but many overseas suppliers already established in the market.constprod. which affect all companies equally and do not lead to a strategic advantage for suppliers. thus.Power of Suppliers The UK market is very competitive. House builders are being encouraged to supply affordable housing as well as housing that complies with new more stringent regulations on environmental performance. and in particular cheaper housing suitable for key workers in the South East of the country. gasoline. Every contractor requires a large number of inputs except from land including wood. steel and other raw materials.

According to NAO report (2006). for a long time was a “dirty” word in the UK. compared to traditional construction which is perceived to be at high risk of price fluctuations. much of it for a total-package approach to construction. Prefabricated panels and components are being used in commercial. or until initiatives such as training take effect to give a longer-term solution. To help increase the proportion of affordable housing. Overall Attractiveness of the Industry Regarding the future. delays due to bad weather. for example. as well as in the design and construction processes.primary criteria it is not the only developments will continue through the use of new materials and prefabricated construction through the use of structural insulated panels. with private companies being involved in finance. Prefabrication. 2002). operation and maintenance. In the supply chain cost seems to be the only criteria. lack of key trade skills. The new Trustmark scheme should help homeowners to avoid `cowboy' builders and. The organisers of the 2012 London Olympics are especially keen to use prefabrication in the specification of stadiums and the Games infrastructure (Olympic Delivery Authority). construction errors and other defects at handover. an attitude of giving the least and trying to claw back the most prevailing (Morledge. health and safety hazards. The continuing skills shortage will continue in the short term. but now is seen as one of the ways the industry can achieve higher output and reduce build time and costs. predicts the UK Timber Frame Association (UKTFA) (www. . there are no high risks associated with open panel timber frame. industrial and housing projects. Threat of Substitutes There the threat of two substitutes: Prefabrication and Timber Frame. While the cost of bricks and blocks used in most new home construction will continue to rise disproportionately due to skyrocketing gas prices. speed or quality being potentially as important. the introduction of tough new building regulations will also encourage more house builders and housing associations to try timber frame construction – and the tangible business benefits of this way of building will keep the construction industry coming back for more 2006 will be "the year of timber frame".timber-frame. PFI work will continue to be important. service installation faults.

particularly to achieve these aims at an agreeable price. However. energy and natural resources. largely as a result of difficulties in satisfying government planning regulations. owing to delays in government programmes. Planning consent for construction work is often a major problem. the construction industry faces important challenges. .in the medium term. for example. the competitive rivalry. the number of geographic regions that they find themselves in direct competition with each other broadens market commonality and creates multi-market competition. The infrastructure sub sectors have experienced a decline in work. the 2012 Olympic Games in London should provide a variety of opportunities for the construction industry. the construction industry is the subject of increasing legislation across a broad spectrum of topics relating to employees. disposal of waste and recycling. energy. there are challenges relating to rising energy costs and environmental issues. much of which is due to delayed programmes in. customers. is likely to increase highly in the future. unless planning regulations are relaxed and a substantial affordable-housing programme makes an impact: high house prices exclude many prospective first-time buyers from the housing market. on a national scale. The sustainability of resources. In addition. water and supplies to provide socially acceptable and environmentally compatible building is a major theme. SWOT Analysis (see Appendix III for Balfour Beatty SWOT Analysis) III. in the house building sector. Results and Implications of the analysis As a whole. some sectors of the construction industry have not grown as rapidly as they might. New materials are being investigated to accommodate improved environmental features. As both firms continue to grow. In the building materials sub sector. Economically. Moreover. such as sustainable material sources. and this is unlikely to ease in the short term. The shortage of skilled labour continues to be a problem. The built environment makes a significant contribution to the UK's greenhouse-gas emissions and the Government is seeking ways in which these can be reduced. there is a shortage of housing. reducing heat loss and simplifying construction methods.

Factors. such as the UK government’s commitment to PFI projects. an upswing in the demand for housing and outsourcing of facilities management. . a strong balance sheet and record order books. have been driving the business of the construction companies in the UK. Balfour Beatty’s growth has been driven by its success in the UK PFI market.

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