Balfour Beatty Construction a Commercial Construction

Balfour Beatty Construction is a commercial construction company that was formulated in 1933. The headquarter of the company is in Dallas, Texas and service office in U. S. the parent company of the Balfour Beatty Construction is Balfour Beatty which is a London based group. The group is a world class construction, services and engineering organization. The competitive and strategic position of the company can be assessed by the management tools including SWOT and PESTLE analysis. The expertise of the Balfour Beatty varies from equipping, designing, manning, management and construction of the buildings.

The basic aim of the company is to expand its business at global level. There are more than 20 operating companies working under the group name Balfour Beatty. The company requires developing a sustainable business environment by making mergers and acquisitions in all business areas. The five force model of porter is used to analyze the influence of various forces on business strategies. The strategic direction of the company has been influenced by various technological, social, political and economical factors.

The company has developed a policy regarding social responsibility and has been awarded for its efforts in this area. There are about 25,000 employees working worldwide that have created many issues regarding management of human resources. The main concerned areas include health, mentoring and training, pension, and management issues. The statistics shows that there are more than 100 graduates join the firm each year. The graduates are needed to be trained and mentored which requires finances and resources. Market position (Construction Industry Market Review, 2003). (www. unison. org. uk )

The construction company in UK share tenth of the gross domestic products in UK. The annual revenue is about ? 65 bilio (www. dti. gov. uk). The industry has been ranked in top 10 construction industries in UK (Crowley,2003) The change of government in 2010 has affected the UK marker significantly and thus the comprehensive spending review. The market activity has been reduced due to changes in government policies. There are various sectors handled by the company with different market shares including house building, infrastructure, industrial buildings, building materials and commercial construction.

In 2003, the house building contributed about 38. 6% of the Ballfour Beatty construction company. About 9. 2 percent of market share was contributed by the infrastructure work of the company. In industrial construction the company contributed about 5. 3% in the construction market of UK. The commercial construction contributed about 18% of all construction work in the construction market. there is a wide variety of construction material including timber, cement, tiles, bricks etc. the building material market of UK has been found to be increased by 13. 7% by Beatty contribution.

The following diagram shows how the company has contributed to the UK market through different sectors. The company’s market share compared to competitors has been presented in the following graph. Customer analysis The owners of large scale complexes with great infrastructure assets are the biggest customers of the construction company. Most of the customers are found to address their goals by developing partnership strategies and join with the construction companies. The concerns are just associated with the assets but to the beneficial outcomes for the beneficial delivery to the communities they serve.

The partners are required to be equipped with the comprehensive knowledge, vision breadth for the better view of the big picture and to help for the formulation of optimal solutions. Porter’s five forces analysis The competition state in the industrial business can be explained through five force model presented by Porter (Porter, 1985). Rivalry among Competitors Considering the market capitalization Balfour Beatty is found to be the largest UK construction group. The company has four major competitors including * Carillion * AMEC * Alfred McAlpine

* Taylor Woodrow All of these companies have same target customers with the great reputation regarding satisfaction of the customers. There are about 150,000 homes purchased in UK per year. The industry experiences the ? 1. 5billion excess of revenue per year (www. wimpeyrawdeal. co. uk ). There is high price competition within the companies in the industry. Threat of Entrants The identification of the probabilities and possibilities of new entrants is important because of intrusion risks made by them on profitability of existing company’s market share.

The construction industry of UK has been affected by the differentiation of products, switching of costs, scale economies and government policies. The skill network report of 2006 to 2010 for construction companies in UK has stated that the output of the construction companies in UK is about 3 percent per year. There are about 2. 5 million employees who are expected to join construction companies (www. constructionskills. net). Power of Suppliers The active suppliers of UK and overseas contributions have made the market more competitive. The bid system has been adopted in this industry which works independently.

The main concern to these suppliers is volume along with the amount of steel, wood and concrete. The large suppliers are not found to be affected through volume and other leverage schemes. Bargaining Power of Buyers The customers in UK are found to be experienced and well informed through tendering in construction business more frequently. A significant part of the procurement has not been observed to be large enough to contribute in the building services by these customers. The power of buyer can be exercised through their increasing buying behaviors (OFT, 2003)

Threat of Substitutes The two substitutes have been considered as threats to the Balfour Beatty Construction company in UK. These substitutes include timber frame and prefabrication. In UK the word timber work was not considered as a legal process but now the activity is considered as a source of higher output values which reduces time and costs per project. The industrial, commercial and housing projects are using pre-fabricated panels. SWOT analysis Strengths Balfour Beatty Construction has a proven record in the developing construction business in UK.

Largest construction and Design Company in UK which has took part in the development of major coastal projects in the region. UK’s leading bridge and road Construction Company which has been found to be involved in numerous state of the art projects. Balfour Beatty Construction is the prime contractor in UK for most of the reclamation and dredging work. Balfour Beatty Construction is one of the top construction group companies in the world. ?

Through ZPMC and SPMP, CCC is one of the leading port machinery manufacturing groups in the world. ZPMC is the world’s largest container crane manufacturer, controlling a global market share of over 70% and has the world’s largest manufacturing base. It is the only manufacturer that owns a fleet of vessels to transport products to its clients. SPMP focuses on the domestic market. ?

Quality management team with a strong record in the different business aspects of CCC. ? Integrated business model enhances the possibility for CCC to secure contracts for large and complex projects. ? Possession of leading technologies, proven track record, industry expertise, high qualification certification, recognised quality of work and adequate equipment resources and production capacity. ? CCC hold various operating licences granted by the Ministry of Communications to conduct overseas construction, dredging and construction project management outside China.

Weaknesses ? Margins of CCC’s infrastructure construction and design business may be lower than its international peers for some of its contract, as these projects are government-related and are more rigid in pricing. ? CCC’s core businesses are subject to foreign currency fluctuations due to their overseas exposure. ? Backlog orders are subject to unexpected adjustments and cancellations, which is not surprising according to the industry practice. ? Some of CCC’s operations are not subject to insurance coverage for injuries to persons, harm and damage to property and the environment, which may see the company incur losses from claims. ?

Cash flow of CCC is affected by the progress of customer payments and release of intention money. Any delay in these payments will affect its working capital and cash flow. ? In case CCC is unable to meet the completion schedules of its projects, it is subject to liquidated damages, for which the maximum liability is usually 10% of the contract value. ? Most of CCC’s operations are highly capital intensive and, thus, the availability of funding is important to its operations.

? Poor weather conditions will negatively impact CCC in terms of delays in project completions and delays or reduction in turnover. Opportunities ? On the back of the Chinese Government’s plan to increase its investment in transportation-related infrastructure projects under the 11th Five-Year Plan, CCC will be able to ride on this trend to grow its businesses due to its leading position in the industry. In fact, since it entered into the railway construction market in 2005, CCC has secured nine contracts with an aggregate value of Rmb9. 0bn, including a railway deal from Taiyuan to Zhongwei and another one from Wuhan to Hefei, after the government granted certain approved road and bridge companies, with top-tier qualifications, access to this market. ?

As a major contractor in China, CCC has access to many opportunities for investments in BOT projects, which can bring attractive returns and stable cash flows to the company. ? Acceleration in replacement cycle for port machinery creates good growth opportunities for CCC’s port machinery business. ? ZPMC is also riding on the market growth of steel structure products and heavy marine crane machinery. Threats ? Higher raw material costs due to rising commodity prices, which may affect the profit margin of CCC as most of its contracts are fixed price or fixedunit price ones.

Even though some of the contracts contain escalation formulas to cover price fluctuations they may not cover in full the impact of price volatility. ? Higher fuel costs will lower the profitability of dredging business. ? Rising interest rates will increase the financial burden of the company. ? Renminbi appreciation will affect the profitability of the port machinery manufacturing division in the short run. ? Competition for road and bridge construction projects from local companies on municipal/provincial level as many of the competitors are supported or owned by the local governments. ?

Capacity constraints may force CCC to subcontract more projects in the short run, which may have a negative impact on its profit margin Financials * Strong performance demonstrates the diversity, flexibility and resilience of our business * Order book stable at ? 15. 2bn * Revenue1 up 5%; up 6% on a constant currency basis and 4% on an organic basis * Underlying profit from operations improved in all divisions except for Construction Services * Existing cost efficiency programme delivering, with ? 15m of savings in 2011; a further ?

50m pa of savings targeted through a broader programme over the next three years * ? 20m gain from infrastructure investment disposals; Directors’ valuation of the PPP portfolio increased to ? 743m * Earnings per share up 9%; dividend increased by 9% to 13. 8p * Net cash position strong at ? 340m The strength of our construction business lies in our ability to integrate and manage local supply chains to deliver projects on budget and on time. Our asset knowledge, supplemented by Parsons Brinckerhoff’s professional services capabilities, is crucial in meeting the complex needs of infrastructure customers.

We see our knowledge of customer assets and our integrator capability as competitive advantages that differentiate us from our peers. Our strategy for the UK construction business is to seek growth right across the available market by deploying the collective strength of the division rather than working in silos. During 2011 we completed our desired footprint in US construction by acquiring Howard S. Wright in the Northwest. There are clear opportunities to leverage our capabilities from one region into another, particularly now we have combined our building, rail and civil businesses across the country.

We have launched programmes to achieve synergies and efficiencies while differentiating ourselves in a very competitive market. Issues Competition for road and bridge construction projects from local companies on municipal/provincial level as many of the competitors are supported or owned by the local governments. Capacity constraints may force CCC to sub-contract out more projects in the short run, which may have a negative impact on its profit margin Poor weather conditions will negatively impact CCC in terms of delays in project completions and delays or reduction in turnover.

11) Higher raw material costs due to rising trend of commodity pricing, which may affect the profit margin of CCC as materially all of its contracts are fixed price or fixed-unit price ones. Even though some of the contracts contain escalation formulas to cover price fluctuations they may not cover in full the impact of price volatility. Also, higher fuel costs will lower the profitability of dredging business 12) Rising interest rates will increase the financial burden of the company. Conclusions