Five Forces

Industry background: The Swedish construction business consists of four main actors namely JM, NCC, PEAB and Skanska that historically have had exclusive rights to bid on large-scale governmental projects. This is not a result of corruptive and lobbying activities but rather a result of the sheer size and financial budgets of these projects and firms with the ability to finance them. (Hadell and Uveborn, 2004). This in terms cause extensive competition between the medium players as they focus and fight over signing the medium- to small-scale projects.

But business for medium sized actors are not only limited to direct signing of governmental projects, many get hired or are chosen by the larger actors to perform outsourced activities within the large-scale projects. The procurement process for governmental projects follow internationally recognized industry standards, see process chart below (SCA 2011). Source: Swedish Competition Authority (2011) Five Forces analysis: The Swedish construction market has a tendency towards being segmented hence the competition must be looked upon in two areas.

First you have the large-scale projects, competition is free but historically limited to the four main industry actors. Having strong financial backing has been the main reason behind this and has caused medium players not being able to compete for these projects (Hadell and Uveborn, 2004). The internal rivalry of this market has during recent years become tougher due to the entry of foreign companies. This was an intentional change engendered by the government through offshore selling of projects.

These new players were usually low average cost firms taking advantage of economies of scale and the liberal employment terms and conditions of the European Union (EU), offering cheaper labour than the national firms were able to (SCA 2007). Secondly the internal rivalry of the medium- to small- sized governmental projects has become fierce, since the medium players scramble over these by their means very profitable projects. Although the market and procedures of the government enforce open competition recent events have shown that in the shadow of the public spotlight network skills and capabilities has been proven important (TL 2000).

Local players have in some cases been enjoying a competitive advantage by building corrupt personal relationships with officials and as in the case in Gothenburg using direct bribes to get an edge over their competitors (RS 2012). The ability of new national entries has been and is today open when it comes to laws and regulations. It’s easy for new entrants to reach the market but the competitiveness and network capabilities of established actors create a need for a niche of some sort to be able to compete (Hadell and Uveborn, 2004). International companies are considered to be more of a threat.

EU conditions and the free market attitude of the government have made laws and regulations limiting their existence and potential on the Swedish market non-existing (SCA 2007). But a difficulty they might face is that the high quality and standard of the market yields tough competition from the established firms with proprietary knowledge and connection on local governmental level. The threat of substitutes and compliments are generally low in the public sector because if a decision has been made and a project has been given a green light then it will be conducted.

However in some areas were political decisions are important, budgets may be compromised and the new build of properties could be replaced by the building of a new highway etc. The influence of buyers on the market is high due to the amount of and competition amongst suppliers. Especially government, state and municipalities hold a lot of power because they posses huge budgets and sell projects of a high value and profitability, hence are in a good seat to play competing firms against each other and bargain for the price.

The power they posses might grow even bigger as the reputation and trust of the market has decreased over the last couple of years causing mistrust towards some firms and making them fight even harder to win a bidding (Hadell and Uveborn, 2004). Supplier power is generally low due to the competitive nature of the market. Nevertheless medium- and small-sized suppliers influence is of both high and low level, many times depending on at what stage in the process of a project they are.

If it is in the beginning stages and there is a demand for material or service the medium sized actors have the negotiating power and can mark up prices, because the main actors want and need to get started as soon as possible often choosing the first and best sub supplier. In the latter stages of the process, the large-scale firms can use their power discounts to bargain for prices (Hadell and Uveborn, 2004). Gothenburg corruption case During the last 5-year period several corruption cases have surfaced in the construction industry in the municipality of Gothenburg.

Cases that show that local medium- sized actors have used network skills and foul play to secure the acquiring of governmental projects. This has been attained in a number of ways, by carrying out personal construction jobs for officials free of charge in exchange for government contracts (TL 2010), through high value gifts that under Swedish law constitutes as bribery (TH 2012), and by sweetened invoices and in some cases invoices of work never carried out taxpayers money is disappearing.

The recently recognized corruption cases caught the general public by surprise and have since been widely discussed because the general perception was that these under the table sort of affairs did not occur in Sweden (TH 2012). Conclusion The aftermath of the Gothenburg cases is still too early to see, and the reasons behind them vary from friendly connections to personal greed. But an intriguing issue is that the fight for survival because of the extensive competitiveness of the market for these medium- to small-sized firms could be considered as a potential reason for some actors to turn towards corruptive behaviour.

Doing this without neglecting the fact that the construction industry has had its fair share of corruption tendencies all over the world as well as old habits of giving and accepting gifts as a token of doing business together. References Dr. Lambsdorff, J. G. , 1999, “Corruption in Empirical Research – A Review”, available at: http://gwdu05. gwdg. de/~uwvw/downloads/contribution05_lambsdorff. pdf; accessed April 23, 2012 Hadell, A. and Uveborn, J. 2004, “Strategic Analysis Based on the Swedish Construction Industry: A Survey on JM, NCC, PEAB AND SKANSKA”, available at: http://liu.

diva-portal. org/smash/record. jsf? pid=diva2:19126; accessed April 23, 2012 Swedish Competition Authority (SCA), 2011, “The Swedish Public Procurement Act – an introduction”, available at: http://www. kkv. se/upload/Filer/ENG/Publications/Public_procurement_intro. pdf; accessed April 23, 2012 Swedish Competition Authority (SCA), 2007, “Competition in Sweden 2007”, available at: http://www. kkv. se/upload/Filer/ENG/Publications/rap_2007-4_summary. pdf; accessed April 23, 2012

The Local (TL), 2010, Simpson, V. , P. , “Bribery scandal rocks Gothenbourg”, available at: http://www. thelocal. se/26384/20100430/; accessed April 23, 2012 Radio Sweden (RS), 2012, “Ten stand accused in multimillion dollar scam”, available at: http://sverigesradio. se/sida/artikel. aspx? programid=2054&artikel=4998979; accessed April 23, 2012 The Local (TH), 2012, “First conviction in Gothenbourg bribery trial”, available at: http://www. thelocal. se/39630/20120312/; accessed April 23, 2012