Table of Contents 1. Introducing the organisation Balfour Beatty Company Profile 2. Environmental Analysis UK Construction Industry Overvie !

orter"s #ive #orces Analysis Competitive Rivalry Threat of Entrants Power of Suppliers Bargaining Power of Buyers Threat of Substitutes Overall attractiveness of the Industry $%OT Analysis &. 'esults and Im(lications of the analysis

E)ecutive $ummary In this report we have review the current position of Balfour Beatty Construction Company and the overall ! Construction Industry" Balfour Beatty is one of the leader companies in construction industry in !" The construction industry is a cyclical industry and its growth rate is steady" The five forces analysis of the showed that the mar#et is attractive and fairly competitive"

Internal analysis showed that Balfour Beatty competitiveness is at a high level" $lso% there are different ma&or competitors that Balfour Beatty has to face li#e% Taylor 'oodrow% Carillion% $mec" Balfour Beatty should has as a primary focus the maintenance of its leading position in the ! Industry and also its e(tension to new mar#ets" Since the mar#et is at a growing stage% threats and opportunities were various and Balfour Beatty should ta#e them into great consideration" *usiness (lan ob+ectives The ob&ectives 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 mar#et To ma#e specific proposals

I. Introduction Balfour Beatty Company overview One of the also the !+s most infamous construction companies due to its wilful

involvement with pro&ects such as the Ilisu dam in Tur#ey ,www"ilisu"org"u#-% it is !+s largest and most profitable with a turnover in e(cess of ./"0 billion" In

/111% the company made .23m profit% .344% /55 of which went to its chief e(ecutive% 6ichael 'elton ,www"socialistwor#er"co"u#-" Balfour Beatty is the world+s twentieth largest construction company ,see $ppendi( I% table7- and first in the /11/% it had 8%332 new global contracts ,E9R% /11/-" Balfour Beatty is a world:class engineering% construction% services and investment group and it includes the following section ,$nnual review of Balfour Beatty% /114-) *uilding, *uilding -anagement and $ervices. Balfour Beatty is an international specialist in the design% construction% e;uipping% maintenance and management of buildings and selected aspects of their internal environment" 'ail Engineering and $ervices. Balfour Beatty is an international leader in the design% construction% e;uipping% maintenance% management and renewal of rail assets and systems" Civil and $(ecialist engineering and $ervices. Balfour Beatty is a leading international provider of civil and other specialist engineering% design and management services% principally in transport% energy and water" Investments. Balfour Beatty promotes% develops and invests in privately funded infrastructure assets in selected sectors% on an international basis" Balfour Beatty is the largest !:listed construction group ,by mar#et capitali<ation-" It is see#ing growth through investment in public:private partnerships ,PPP-% as well as e(pansion of its core engineering and construction operations overseas" -ission. =To continue reliable% responsible growth in shareholder value over the long term>" /ision: ='e aspire to being the pre:eminent infrastructure company in the world>" Companys 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" These are)

construction industry ,see $ppendi( I% table/-" $lso% it is important to mention that in

! regional contracting?

Professional and technical services? E(tension of their investment business into new mar#ets? Establishing strong domestic businesses in selected overseas mar#ets based on our ! model ,$nnual review of Balfour Beatty% /114-"

II. Environmental Analysis UK Construction Industry Overview The !+s construction industry has been en&oying a period of strong growth%

with the infrastructure and the commercial construction sectors at the forefront of this trend ,Construction Industry 6ar#et Review% /115-" The annual round of results published by construction firms in 6arch /115 showed that the sector is shifting away from one:off contracts carrying high ris#s and big returns toward lower ris# long:term deals that go beyond construction to designing% maintaining and operating buildings ,www"unison"org"u# The ! construction industry provides a tenth of the !+s gross domestic

product% employs 7"3 million people and is worth around .08 bn per annum ,www"dti"gov"u#- 'ith an output of .@7"2bn in /11/ ,Construction Industry 6ar#et Review /115- the /115$ectors 0ousebuilding accounted for 5@"0A of the construction industry+s output in /111 , ! Construction Industry 6ar#et Review% /117- The amount spent on public housing has never e(ceeded ./bn whereas the figure for private housing has consistently been double or triple that amount ,Construction Statistics $nnual% /115Infrastructure accounted for 2"/A of all construction wor# in /111 : a slightly lower figure than for the previous 3 years : and was worth .0"35bn" Road building is the main source of infrastructure wor# , ! Construction Industry 6ar#et Review% /117- The 9ational $udit Office revealed that more than .353m worth of road:construction contracts : 87A of those awarded : were won by five firms% Balfour Beatty% Budge% Bairclough% $lfred 6c$lpine and Tarmac ,www"geocities"com-" ! construction industry is ran#ed in the global top ten ,Crowley%

Industrial construction is the smallest of the basic sectors of the whole construction industry" In /111% the output of private construction wor# was .5"4bn% or 8"5A of the total construction sector , ! Construction Industry 6ar#et Review% /117Commercial construction output% which includes a wide variety of commercial wor#% accounted for &ust over 7@A of all construction wor# in /111 , ! Construction Industry 6ar#et Review% /117-" *uilding materials embrace a wide range of materials and components such as bric#s% tiles% cement and timber" The international companies" The Review% /117-" The total value of construction sectors) ! construction output in /118 was E R 784"77 billion" ! construction materials sector is undergoing a period of rationalisation% with many ! companies now forming part of ! building materials mar#et is forecast to increase by 75"4A at current prices between /117 and /118 , ! Construction Industry 6ar#et

The chart below shows how this output was divided between the different

$T'UCTU'E O# T0E CO1$T'UCTIO1 I12U$T'3 //A /1A

//A 0A 3A

/0A

housing new build ,E R51%2 bncommercial new build,E R 31%7 bnindustrial new build,E R 0%8 bninfrastructure newbuild ,E R 2%8 bnrepair C maintenance :homes ,E R 58%7 bnrepair C maintenance :other ,E R 53%4-

$ource. Construction Statistics $nnual Report /110) Department of Trade C Industry Conditions of the Industry The ! economy is vitally lin#ed with the construction industry which ! has risen on the bac# of accounted for @A of the EDP in /118" $fter weathering the recession of the mid: 72@1s and early 7221s% the construction industry in the downtrend in the infrastructure segment" Since the advent of PBI% the construction industry has found itself on much more stable ground" Between /117 and /11/% its output is estimated to have increased by 2"4A ,Construction Industry 6ar#et Review% /115- $ccording to lobbyists% the 6a&or Contractors Eroup ,6CE-% which represents ! firms such as Carillion ,formerly part of Tarmac-% Costain and $mec% construction companies engaged in the private finance initiative e(pect to ma#e between three and ten times as much money as they do on traditional contracts" This strategy is reinforced by figures from the European Construction Industry Bederation ,ECIB-% which show that the Brance slumped by /"8A and 1"4A respectively ,6acalister%/115-" The ! government defends PBI by its use of something called the +public ! construction sector grew by over @A last year while its counterpart in Eermany and growth in private housing% public housing and non:housing segments that has offset a

sector comparator+" This shows whether or not privately financed schemes offer better value for money than conventional funding" The main problem with this is that the government has provided an accounting device called +ris# costing+ which has meant that private firms generally emerge as winners" 'hen a consortium of private companies agrees to build something for a public body% it ac;uires the ris# that the pro&ect might fail" This ris# is +costed+ and becomes a #ey component of the value:for: money calculations" Burthermore% the ! construction industry is e(tremely diverse% and is !

dominated by S6Es? appro(" /41%111 contractors and builders contributed 04A of the total construction output in /118" There has been a mar#ed shift among contractors and consultants towards Public:Private Partnership ,PPP- and Private Binance Initiative ,PBI- $lso% the surge in the Chinese construction demand is e(pected to increase input prices globally% including those for domestic ! construction companies" Erowth strategies adopted by the #ey players include

e(pansion into overseas mar#ets% diversification through ac;uisitions% e(iting low: value businesses in the construction sector and leveraging PBI pro&ects for long:term growth in revenues and profitability" Main Competitors There are several competitors threatening Balfour Beatty but its ma&or ones are the following) Carillion% is li#ely to become Balfour Beatty+s strongest competitor% as it has refocused on the lower:ris# segments in construction services and towards support services and PPP ,www"unison"org"u#-" A-EC, one of the leading construction services companies in the a threat to Balfour ,$6EC $nnual Report and $ccounts% /114-" Alfred -cAl(ine% though small in terms of scale of operations% is well: positioned in high:growth mar#ets ,www"mcalpineplc"com-" Taylor %oodro , its house building sector is the fourth largest in the ac;uisition of Bryant Fomes ,'ilson Connolly Company profile% /11@-" II. !orter"s #ive #orces Analysis The state of competition in an industry depends on five basic forces% the strength of which determines the ultimate profit potential of the industry ,Porter% 72@8-" Bive forces analysis of the constructing sector is analy<ed in the following section ,See also $ppendi( IIivalry amon! Competitors Balfour Beatty is the largest !:listed construction group ,by mar#et ! Industry) capitali<ation- and has to face with four ma&or competitors within the ! !% has a

highly leveraged balance sheet and volatile cash flow" Therefore% it is unli#ely to pose

following the .3@1m ac;uisition of rival 'ilson Connolly in /115 and .880m

Carillion% $6EC% $lfred 6c$lpine and Taylor 'oodrow" Each of these companies targets the same clients and each has a fine reputation for customer satisfaction" 9ew homes are currently e(empt from the Sale of Eoods $ct" Each year there are 781%111 homes purchased throughout the !" 'ith an average value of .711%111 per property

this means that an industry worth in e(cess of .7"8bn per year is unregulated by the government and e(empt from usual trading standards% leaving owners of new homes with little or no protection for the most e(pensive purchase they will ever ma#e" ,www"wimpeyrawdeal"co"u#- $s a result% there is a high price competition within the companies in the industry" The industry is at a growing stage and with the /17/ Gondon Olympics is e(pected to further propel growth in the ! construction industry by boosting ! investments in South:East Gondon" Economic stability and low interest rates are also li#ely to drive homebuilding demand" The highly fragmented nature of the construction industry implies intense price competition and falling margins for a bul# of the players" $lso% because of the large amount of initial capital re;uired for constructions and the high prices leaves the entire industry to large companies that have sufficient capital" $nother factor is that the surge in the Chinese construction demand is e(pected to increase input prices globally% including those for domestic ! construction companies" $s a conse;uence% competitive rivalry will be high but also it will deteriorate entrance of small companies" "hreat of #ntrants It is important to identify the possibility and probability of new entrants in an industry because they can intrude on mar#et share and profitability of e(isting competitors" Economies of scale% product differentiation% capital re;uirements% switching costs and government policy affect ! construction industry" The construction s#ills networ# report +Blueprint for /171+ forecasts that ! construction /110: ! construction output is set to average 5A growth annually

between /110 and /171" $t the end of /110 &ust over /"8 million people are e(pected to be employed in construction across all occupations" It predicts that in order to deliver this growth% the amount of wor#ers needed is li#ely to increase by appro(imately /38%111 throughout the !" This will mean that an average of @@%111 new recruits will be re;uired each year ,www"constructions#ills"net-" The construction industry is heavily dependent on the ade;uate supply of a s#illed labour force% and as a result the s#illed labour shortage in the ! has received considerable attention in recent years" 'ith the current economic recovery the industry is e(pected to e(perience considerable s#ills shortages in both traditional and new s#ills areas ,6ac!en<ie et al% /111-" nli#e subcontractors% s#illed construction

wor#ers have supplier power" The construction industry has issues with wor#er shortages ,Scripps Foward 9ew Service study% /118-" In addition% contractors* associations say =it*s particularly crucial during times li#e now when commercial and residential construction is in high demand> and this strong supplier power of construction wor#ers leads to high costs of labour ,Scripps Foward 9ew Service study% /118-" $ower of %uppliers The ! mar#et is very competitive% with not only a large number of ! suppliers active% but many overseas suppliers already established in the mar#et" Suppliers in this industry are not concentrated and they act as separate groups competing for the same pro&ect through the bid system" Holume is a significant concern to these homebuilders% thus% on one hand% re;uire a specific amount of steel% concrete and wood for the homes and on the other hand% the subcontractors must build these variable costs into their homebuilding bids" $s a conse;uence% large contractors are not affected in terms of supply volume giving suppliers any leverage" There are over 711 trade associations representing suppliers of various construction products and materials" In addition to number of overseas companies strongly active in the ! producers there are a large ! mar#et and represented by

their own ! subsidiaries or distribution partners ,http)IIwww"constprod"org"u#-" Every contractor re;uires a large number of inputs e(cept from land including wood% concrete% plastic% gravel% oil% gasoline% steel and other raw materials" Prices for some of these materials are non:negotiable% for instance% the price of gasoline and oil% which affect all companies e;ually and do not lead to a strategic advantage for suppliers" Still% the fragmented nature of the supplier mar#et in all other construction supplies to homebuilding companies severely limits supplier power" In the house building sector there is a continued shortage of housing% and in particular cheaper housing suitable for #ey wor#ers in the South East of the country" The government plans for the provision of 7 million new homes by /170" Fouse builders are being encouraged to supply affordable housing as well as housing that complies with new more stringent regulations on environmental performance" Bar!ainin! $ower of Buyers There are some large customers who repeatedly tender for business and are well informed and e(perienced buyers" Fowever none of these customers are large

enough to constitute a significant part of the procurement of building services" $s such there is little prospect of them being able to e(ercise any buyer power ,OBT% /115-" There is a wea# demand:side in terms of the proportion by number of clients who have access to innovative or improved techni;ues" The clients say that they want to focus on value J this ma#es good business sense to them J and whilst cost is one of the primary criteria it is not the only one% speed or ;uality being potentially as important" In the supply chain cost seems to be the only criteria% an attitude of giving the least and trying to claw bac# the most prevailing ,6orledge% /11/-" "hreat of %ubstitutes There the threat of two substitutes) Prefabrication and Timber Brame" Prefabrication% for a long time was a =dirty> word in the !% but now is seen as one of the ways the industry can achieve higher output and reduce build time and costs" Prefabricated panels and components are being used in commercial% industrial and housing pro&ects" The organisers of the /17/ Gondon Olympics are especially #een to use prefabrication in the specification of stadiums and the Eames infrastructure ,Olympic Delivery $uthority-" 'hile the cost of bric#s and bloc#s used in most new home construction will continue to rise disproportionately due to s#yroc#eting gas prices% the introduction of tough new building regulations will also encourage more house builders and housing associations to try timber frame construction J and the tangible business benefits of this way of building will #eep the construction industry coming bac# for more /110 will be Kthe year of timber frameK% predicts the ! Timber Brame $ssociation , !TB$- ,www"timber:frame"org-" $ccording to 9$O report ,/110-% there are no high ris#s associated with open panel timber frame% compared to traditional construction which is perceived to be at high ris# of price fluctuations% delays due to bad weather% lac# of #ey trade s#ills% service installation faults% health and safety ha<ards% construction errors and other defects at handover" Overall &ttractiveness of the Industry Regarding the future% PBI wor# will continue to be important% much of it for a total:pac#age approach to construction% with private companies being involved in

finance% operation and maintenance% as well as in the design and construction processes" The continuing s#ills shortage will continue in the short term% or until initiatives such as training ta#e effect to give a longer:term solution" To help increase the proportion of affordable housing% developments will continue through the use of new materials and prefabricated construction through the use of structural insulated panels% for e(ample" The new Trustmar# scheme should help homeowners to avoid Lcowboy+ builders and% in the medium term% the /17/ Olympic Eames in Gondon should provide a variety of opportunities for the construction industry" $%OT Analysis ,see $ppendi( III for Balfour Beatty S'OT $nalysisIII. 'esults and Im(lications of the analysis $s a whole% the construction industry faces important challenges" The sustainability of resources% energy% water and supplies to provide socially acceptable and environmentally compatible building is a ma&or theme% particularly to achieve these aims at an agreeable price" The built environment ma#es a significant contribution to the !+s greenhouse:gas emissions and the Eovernment is see#ing ways in which these can be reduced" Planning consent for construction wor# is often a ma&or problem% largely as a result of difficulties in satisfying government planning regulations" In addition% the construction industry is the sub&ect of increasing legislation across a broad spectrum of topics relating to employees% customers% energy and natural resources" Economically% some sectors of the construction industry have not grown as rapidly as they might% owing to delays in government programmes" The shortage of s#illed labour continues to be a problem" 6oreover% in the house building sector% there is a shortage of housing% and this is unli#ely to ease in the short term% unless planning regulations are rela(ed and a substantial affordable:housing programme ma#es an impact) high house prices e(clude many prospective first:time buyers from the housing mar#et" The infrastructure sub sectors have e(perienced a decline in wor#% much of which is due to delayed programmes in" In the building materials sub sector% there are challenges relating to rising energy costs and environmental issues% such as sustainable material sources% disposal of waste and recycling" 9ew materials are being investigated to accommodate

improved environmental features? for e(ample% reducing heat loss and simplifying construction methods" Fowever% the competitive rivalry% on a national scale% is li#ely to increase highly in the future" $s both firms continue to grow% the number of geographic regions that they find themselves in direct competition with each other broadens mar#et commonality and creates multi:mar#et competition" Bactors% such as the ! government*s commitment to PBI pro&ects% an !" Balfour Beatty s

upswing in the demand for housing and outsourcing of facilities management% have been driving the business of the construction companies in the growth has been driven by its success in the and record order boo#s" ! PBI mar#et% a strong balance sheet