Business situation

The purpose of this report is to identify and select a UK construction company and, using information readily available in the public domain, review the company’s current business performance and its ability to meet the demands of the business environment over the next five years. Balfour Beatty was founded in 1909 by a Scottish Mechanical Engineer called George Balfour and an English Chartered Accountant called Andrew Beatty.

Initially it set itself out as a ‘General and electrical engineers, contractors, operating managers for tramways, railways and lighting properties and for the promoting of new enterprises’ and then expanded into Civil Engineering. Balfour Beatty began tendering for jobs worldwide, and in 1924 landed its first international project in East Africa. A hundred years on from when it was first established Balfour Beatty is now the 19th largest construction company in the world, and the largest in the UK. 1 The Porter’s 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation.

This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you’re looking to move into. See Appendix 7 for the table of Porter’s 5 forces of Competitiveness Analysis. To enter the market and compete at the level of Balfour would take a huge amount of time and money, even with no real protection of the technologies used on projects, this would still be difficult. For new companies to get loans needed for projects and/or to start up will be extremely difficult, at the moment, as banks are extremely reluctant to invest or lend.

Especially as the construction industry is historically, very badly affected during recessions. The number of projects is starting to decline, leading to a decrease in the number of suppliers and construction companies, again making entry into the market very risky. In the construction industry the Power of the Buyer is very strong at the moment, due to the global “recession. ” This is due to the decrease in the number of projects, making any current and future projects very competitive, as work is decreasing. Therefore Balfour must be prepared to decrease the amount of profit they would usually make in order to stay competitive.

However with the range of services Balfour offer they can dictate to certain buyers in certain sectors. For example the Rail, Road construction sectors are less competitive due to little competition. Many organisations are holding back planned projects and instead of making new offices are deciding to rent existing buildings. This kind of substitution is a major threat to the construction industry, as it decreases the amount of work at al levels, from housing to small offices to major head quarters. However in some of Balfour’s sectors the client has no choice, for example, railway, road repairs and maintenance.

So for Balfour the threat of substitution is mixed depending on the sector, it will impact certain sectors but not others, however it all depends on the clients’ needs and budgets. In the current climate acquisitions are commonly made by those in better situations. Balfour is in a better financial situation than most and so it is unlikely that the biggest construction will be taken over. It is much more likely that Balfour will continue to increase their group adding new acquisitions to the existing 23 companies. Although many companies offer similar services to Balfour, none offer the variety of services present especially at the same level.

There will always be rivalry in the construction industry, especially when considering the system in which contracts are awarded. Tenders are offered, with companies competing against each other for the project. So it will always contain rivalry. Balfour has many competitors in the industry, however not all or many of these are at the same size as Balfour. Thus many of the large projects seem to be fought for by the same few companies, such as, Carillion, Laing O’Rourke, Taylor Woodrow amongst others (See appendix 10 for the full list of competitors). These companies are Belfour’s main rivals when it comes to major projects.