Pestle Analysis of Construction Industry

Political

  • The public spending on infrastructure is expected to decrease in many developed countries. Major part of this spending will be directed to the civil infrastructure due to the increasing concerns about sustainability. Investments in power station replacements, wind farms, waste management assets and other green initiatives will increase (The Economist 2010; Balfour Beatty, 2012).
  • Since governments in the emerging countries, especially in India, China and Brazil implement market reforms, invest in infrastructure and build competitive environment Balfour Beatty actively invests in these regions (Bricdata 2012; Balfour Beatty, 2012).
  • The interest rates are very low in the USA and UK where it will be kept at 0.5% until 2015 (Barrow and Copper, 2012). This will enhance consumer investments in infrastructure since the banks do not offer attractive rates. Moreover low interest rates will enable the infrastructure companies to borrow more money for project investments.
  • Infrastructure UK unit built in HM Treasury in 2010 and actively discussed $109bn Transportation and Infrastructure Bill containing large infrastructure projects will aim to develop infrastructure industry in the UK and USA respectively (HM Treasury, 2012; Weisman, 2012)
  • Political issues in the Middle East increased commodity price volatility (Hotter, 2011). A growth in the commodity prices enhanced global mining activity which increased the investments in rail for commodities transportation, making both sectors attractive for investments (Balfour Beatty, 2012).

Economic

  • The recent financial crisis slowed the market growth in major markets USA and UK. The infrastructure industry is capital-intensive and it suffered significantly from the crisis: both volume of construction works and investments decreased (Nistorescu and Ploscaru, 2010). The possible default of Greece is also dangerous for the UK since its total exposure to Greek debt is estimated at $14.6bn and EU is its main trade partner (BBC, 2011).
  • The infrastructure sector is estimated to grow at 4% annually in the USA and UK while the growth in the emerging economies is expected to be 10%-12% during the next 10 years. Therefore Balfour Beatty increases its presence in the emerging markets (Balfour Beatty, 2012).

Social

  • The world population is increasing and the proportion of the population living in the urban areas will rise to 70% by 2050. Both high population and urbanisation rates will be witnessed in the developing countries (KPMG, 2012). The urban population of the most populated country Chine will reach 50% by 2020 (Dey-Chao, 2011). This trend will create a demand for new infrastructure, especially in the urban environments.

Technological 

  • Modern technology is vital to satisfy the criteria of changing environment, sustainability and energy security. Therefore the ageing technology in the developed countries will have to be renewed (Balfour Beatty, 2012).
  • The importance of ICT in the infrastructure sector increased. Especially Building Information Modelling (“BIM”) technology presenting a single platform for capturing and utilising knowledge of assets will improve efficiency and safety visualisation. The British Government will require its use on public construction projects from 2016 and Balfour Beatty formed a £7.5m partnership with Autodesk which will develop its BIM (Balfour Beatty, 2012; Onyegiri et al., 2011)

Environmental

  • The construction industry affects the environment in several ways: it generates carbon emissions, creates the waste and is responsible for pollution (Chen and Li, 2007). Increasing regulations force companies reduce their environmental impact. In 2009 Balfour Beatty set its sustainability vision for 2020 and started to implement programmes for the reduction of its impact such as reducing the gas emissions by 50% by 2020 (Sustainability, 2009).
  • Different regulations such as The Millennium Development Goals and 2009 Renewable Energy Directive increase a demand for cleaner energy sources which will lead to growth in the energy infrastructure. In the UK eight new nuclear power stations will be built by 2025 (Vaughan, 2010).

Legal

  •  Infrastructure industry is dangerous due to work-related accidents causing serious injuries. Numerous regulations require companies to meet safety standards and implement programmes for the improvement of the operations (HSE, 2011). Balfour Beatty’s recent Zero Harm programme aimed to achieve zero deaths and zero injuries to the public by 2012. It achieved the decrease of Accident Frequency Rate by 66% in last 10 years. The company will further continue Zero Harm programme (Balfour Beatty, 2012). CONCLUSION

Although Balfour Beatty has had a robust performance recently it faces serious challenges. The infrastructure industry in its major markets the UK and USA which account for 80% of the revenues will grow slowly at 4% annually and both of these countries will not recover from financial crisis at a short time. The company should be very careful in its risk management operations and continue the cost reduction programme. On the other hand the industry will grow faster by 10-12% annually in the emerging countries and power, rail and mining sectors will attract a huge amount of investments. Balfour Beatty should respond to these opportunities in the best way and build its footprints in these markets for further growth and development.