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Economic Environment for a Construction Firm

Introduction

The construction industry is plagued by a lot of difficulties in the UK and other parts of the world. This study mainly focuses on economic conditions affecting construction firms based in the UK. This focuses more on those industries which are trying to expand. Construction firms basically deal with building and assembly of infrastructure amenities. Their main works involve civil constructions such as roads, bridges and building construction for both commercial and residential use. Lastly, industrial construction requires a lot of specialized expertise.

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Analysis

This study will focus on evaluating the economic factors which have greatly affected construction firms in the UK which are not fully established but are contemplating expansion.

The most significant factor affecting the construction industry is the recent business cycle that has been witnessed in the last two years as stated in Deloitte (2009). These cycles are economy wide variations in economic activity in a certain period of months or years. They involve four major stages the boom, downturn, recession, and recovery. The boom involves a period when there is economic prosperity characterized by favorable conditions that make a company to increase its income and expand its territory. In this stage national output rises faster than the growth rate, and there is normally high profitability in businesses, investor confidence and high consumer spending.

In the down turn, the economic situation takes negative direction where companies stop expanding and they start to take a direction towards collapse. The third stage is the recession where there is negative growth in the economy, it may become severe and stretch over a long period at times, and in this case it’s called a slump. The fourth and last stage which brings relief and hope to the situation is recovery or upswing. In this stage of the cycle, the economy starts to exhibit positive change and renewed growth is experienced.

Currently, there is a recession across the world and companies in the UK have not been spared. They are virtually struggling to cope with this situation. Some firms have even entered into deliberate agreements with their various creditors and banks so as to stay in business. A good example is McGimpsey and Kane Builders which is not a well established firm it is in the process of expansion. The firm has recently downsized its workforce to 145 employees from 200. They have also stopped all their expansions programs which would have increased their income by 25%-35% as stated by Lynagh (2010).

The demand and supply trend has also not been favorable in the industry. In some instances, oversupply has been a major issue since it has caused reduced workloads in commercial property which is the major income earner for construction companies as explained by Kent (2009). There is less construction demand because a lot of companies have mushroomed without getting to study the market first. This numerous companies are flooding the market with cheap services forcing a general price cut in the entire industry.

The size of the market is not large enough to accommodate numerous construction firms as explained by Kent (2009). With a limited market, companies are being forced to extend their services to other countries across Europe with some even going up to Africa to find market. If a company is not large enough to operate internationally, it finds itself in a difficult situation where it cannot expand and it lacks enough clients.

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Inflation has adversely affected the entire construction industry as stated by MGK Builders (2010). A lot of companies have had to forego their profits so that they can maintain competitive prices in the market. If they decide to match their prices in relation to the high costs incurred, their prices will be outstandingly high and consumer will shun their service. Inflation also increases costs because workers demand higher wages as they try to adjust to the general price increment.

Conclusion

Like any other business, the construction firms are affected by different economic situations. Inflation has adversely affected the construction firms in terms of income and costs. The demand and supply trend has also not been favorable since there are some instances where there is oversupply. Recession has been the worst setback that has hit the firms and it has resulted to downsizing and halting of expansion projects.

References

Deloitte, 2009. European top 100 ranking of construction companies, Deloitte. Web.

Kent, M., 2009. Challenges facing the UK construction industry, KPMG Journal, 2(9), 8-13.

Lynagh, C., 2010. Construction industry facing huge problems, Belfast Telegraph, 7(24), 10-12.

MGK Builders, 2010. MGK services, MGK Builders. Web.

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StudyCorgi. (2022, March 25). Economic Environment for a Construction Firm. Retrieved from https://studycorgi.com/economic-environment-for-a-construction-firm/

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StudyCorgi. 2022. "Economic Environment for a Construction Firm." March 25, 2022. https://studycorgi.com/economic-environment-for-a-construction-firm/.

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StudyCorgi. (2022) 'Economic Environment for a Construction Firm'. 25 March.

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