Research on the Construction Industry, Skanska

This report focuses on the analysis of the external and internal environment of the construction industry Skanska in the UK. It includes research on the industry, PESTEL and Porter’s five forces model and the research on the organization is done by deriving the SWOT analysis of Skanska.

Running head: RESEARCH ON THE CONSTRUCTION INDUSTRY, SKANSKA
RESEARCH ON THE CONSTRUCTION INDUSTRY, SKANSKA
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1RESEARCH ON THE CONSTRUCTION INDUSTRY, SKANSKA
Table of Contents
Introduction......................................................................................................................................3
Research on the industry..................................................................................................................3
External analysis..........................................................................................................................3
Porter’s Five Forces analysis.......................................................................................................3
Bargaining power of Supplier..................................................................................................4
Bargaining power of buyer.......................................................................................................4
Competitive rivalry...................................................................................................................5
Threats of substitution..............................................................................................................5
Threats of new entry.................................................................................................................5
PESTEL Analysis........................................................................................................................6
Political environment:..............................................................................................................6
Social Analysis:........................................................................................................................7
Technological analysis:............................................................................................................7
Environmental analysis:...........................................................................................................8
Legal analysis:..........................................................................................................................8
Research on the organization...........................................................................................................9
Internal Analysis..........................................................................................................................9
Strength....................................................................................................................................9
Weakness................................................................................................................................10

2RESEARCH ON THE CONSTRUCTION INDUSTRY, SKANSKA
Opportunities..........................................................................................................................10
Threats....................................................................................................................................10
Personal evaluation........................................................................................................................11
Report on the organization.............................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

3RESEARCH ON THE CONSTRUCTION INDUSTRY, SKANSKA
Introduction
The construction industry present in the global market and the reputed industry compete
in the global market. Urbanization has the strongest influence on the construction industries as
more migration means more demands for the infrastructures. The construction industry needs to
maintain the reputation in the market so that the close substitutes are not able to create any effect
on their business. This discussion will mainly focus on the analysis of the external and internal
environment of the construction industry Skanska in the UK. This report will include research on
the industry, which is followed by PESTEL and Porter’s five forces model and the research on
the organization is done by deriving the SWOT analysis of Skanska. This will also include the
critical analysis of the company and the competence; the company faces are also included in this
report.
Research on the industry
The PESTEL and Porter’s five forces model helps in the researches on Skanska, the
construction industry to analyze the external environment of the company.
External analysis
The external environment of the company is analyzed in order to identify the strength,
weakness, opportunities, and threats of the company by the following analysis tools.
Porter’s Five Forces analysis
Michael Porter’s five forces are the framework for the industry analysis; this measures
the competitiveness of the business market. The Porter’s Five Forces model also identifies and
analyses the five competitive forces, which shape every industry, and it helps to determine the
industry’s weaknesses and strengths. This analysis tool is also frequently used for identifying the

4RESEARCH ON THE CONSTRUCTION INDUSTRY, SKANSKA
industry’s structure for determining the corporate strategy. The Porter’s model may be applied to
any of the segments of the economy for identifying the profitability and attractiveness (Grünig
and Kühn 2015).
Bargaining power of Supplier
This is to analyze how easily suppliers can drive up prices. The suppliers of each
important inputs, the uniqueness of products and services, the strength and size of suppliers and
the cost of switching from one to another supplier, can drive up the prices (Dobbs 2014).
Skanska’s suppliers involve the building materials producers and the sub-contractors involves
the smaller firms’related to specific farm areas. Skanska has large numbers of suppliers and as
their position is high in the market, the supplier’s bargaining power is relatively low as compared
to other construction industries. Skanska’s business area extends worldwide and they usually
work with the local suppliers in those countries where they are active. This reduced the
transportation costs for the bulky materials required in the construction process, which
strengthens the supplier’s bargaining power by limiting the local availability of the suppliers
(Gaoand Low2014).
Bargaining power of buyer
This is to analyze how easily the buyers can drive the prices down. The buyer,
importance of individual buyer to organization and cost of switching from one to another
supplier, can drive the prices down (Jarzabkowski and Kaplan 2015). The buyer is bargaining
power have a great effect on Skanska, Skanska performed an action to reduce this bargaining
power that is by demanding financial claims for the disruption and delays or any changes in
constructions and forcing the customers to spend more money on the firm’s terms and condition.

5RESEARCH ON THE CONSTRUCTION INDUSTRY, SKANSKA
Competitive rivalry
This to analyze the number and capability of competitors in the market and if there are
many competitors in the market offering the same product and services then that will reduce the
market attractiveness. The rivalry in construction industries like Skanska is high because of the
last years growing opportunities and the high exit barriers. In addition, many firms in the
industry have differentiated their business and do not fully depend on the single sector. Skanska
also faces competitive rivalry due to the requirement of the delivering the high quality of
customer experiences and the long-lasting relationships for which the customer increases the
rivalry among the firms (Bull et al. 2016).
Threats of substitution
When the substitute products exist in the market, it increases the chance of customers to
switch for the alternatives in response to the increase in price. This mitigates the attractiveness of
the market and the supplier’s power (Rothaermel 2015). The customers of the construction
industry like Skanska face difficulties in changing the product when the price increases.
Skanska’s products are inelastic because of the absence of the close substitutes to those products.
Skanska has positioned themselves as one of the substitute companies and is well prepared for
the future changes of threats.
Threats of new entry
The profitable markets attract various entrants and this reduces profitability. If there is the
absence of strong barriers for an entry like patents, capital requirements, and government
policies, then it will decline the profitability at a competitive rate. Skanska’s has great
reputations among the firms and it is heavily based on the projects. Due to the long history of

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establishment, the new entries in the business market will not be able to dilute the number of
projects, which Skanska will be offered in future.
The above analysis helps to find out Skanska’s structure, for the determination of the
corporate strategy. The bargaining power of suppliers has less pressure on Skanska as it is a
reputed company and mostly they work with the local suppliers. The bargaining power of buyers
create impacts on the company. There are fewer threats of substitution for Skanska because of its
brands there are very close substitutes of the company. There are no such effects of the threats of
new entries for Skanska.
PESTEL Analysis
The PESTEL analysis determines changes in the market, which are caused by political,
economic, social and technological factors. The PESTEL analysis is the framework or the tools
that are mainly used by the markers to analyze and monitor the macro-environmental factors,
which have a great impact on the organization. This analysis helps to identify the strengths and
opportunities of the company.
Political environment:
This factor involves the government rules and regulations for the particular business
organization. It also includes the study of the tax policy that involves exceptions, employment,
environmental laws and others (Zalengera et al. 2014). The construction business is always
involved in the political wrangling and the tax, legal issues also have a great impact on Skanska.
The political factors have a great impact on this business; Skanska may lose 8% of the workforce
if the UK are unable to retain the single market accessing the European Union. Skanska’s
construction project will be affected due to Brexit. The recent increase in the tax creates an
adverse effect on Skanska.

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Economic condition:
This factor analyses the economic environment by studying various factors such as the
interest rate, exchange rate, inflation rate, and economic growth. These factors help to determine
the costing of the product, expansion, growth and in accessing the demands. The world is
changing at a high rate and there is continued instability in the business market around the world.
The UK government has decided to provide the increased infrastructure spending to push the
growth in the economy, which has slowed down due to Brexit. The UK government has decided
to spend 1.2% of the GDP of the Economic Structure.
Social Analysis:
These factors involve the study of demographics and targeted customers and help in
determining the size of the market. These factors form the macro environment of any
organization (Paul, Yeates, and Cadle2014). The urbanization is the strongest factor and has a
great influence on the construction industry. The increasing urbanization always causes more
requirements for the construction industry, as it requires more real infrastructures and estate in
cities. From the recent studies, it has been found out that, 54.50% of the world population lives
in the cities. This is expected to be60% of the world population will be living in future years
(Ilmonen 2015).
Technological analysis:
The technological factor undergoes continuous changes, the consumers are eager to adopt
new emerging technology, and these factors include the understanding factors that bring
technological advancement (Šommet 2013). The revolutionizing technological changes have a
great impact on technological changes. Like, the prefabrication of the building components to
other location and transporting those components have a positive effect on Skanska through the

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cost-effective process and reduced building time (Sullivan and Robinson 2017). The technology
advancement introduces the entrance of Information and Communication technology for
supporting the constructions with the analysis of projects and information.
Environmental analysis:
The environmental factors have become important due to the increasing scarcity of the
raw materials, doing business, pollution targets. These environmental factors include the effects
of the climate, changes in the natural environment, which may affect the company. The daily
workings in the construction projects of Skanska are getting affected due to the climatic changes
in nature (Moura and Catalá 2014).
Legal analysis:
The legal factors involve the laws and the regulations, which are related to the company
issue. The laws involving the contract laws, the law of tort, legislation, criminal law, the law of
restitution need to be maintained by Skanska and being the global construction company,
Skanska needs to maintain all these legislation.
The strengths and opportunities can be derived from the above analysis, Skanska will be
affected due to Brexit and this can only be reduced if the UK is able to access a single market in
the European Union. Urbanization is the strongest factor and had a great influence on the
Construction industry. The technologies have a great impact on Skanska as it follows the cost-
effective process by using technology for transportation. The environmental and the construction
laws have a great impact on Skanska.

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Research on the organization
The research on the organization is followed by the internal analysis, the strength,
weakness, opportunity, and threats of the company can be understood by the following analysis.
Internal Analysis
The SWOT analysis is mainly made of two four factors, the strength and weaknesses
refer to the internals of the company whereas the opportunities and threats are considered
external factors of the company. This analysis helps to analyze the environment and the
company’s standing point. The PESTEL analysis helps to identify the threats and weaknesses of
the company. The PORTER’S FIVE FORCES model helps to identify the strength and weakness
of the company.
Strength
Skanska is in the favorable position in the business market due to its brand and history
and it stands in comparison with the competitors when the tendering process has been initiated.
Skanska is able to hold the marker because of their global presence and variety products and
services. From the studies, it has been found that the early adoptions of technologies and also by
aligning the supply chain and the productions to the social responsibility and the new
regulations. Skanska has the supplier code for taking the ethical decisions in the decision-making
process and it is also reputed for the green construction. The employee ownership program, good
information system, and R&D focus help Skanska to compete in the global business market.
Weakness
Skanska filed to establish them in the developing market and it is also unable to meet the
targets of the operating margin that is set in the business plan for the constructions. The

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operating margin remained at 2.6% whereas the target set was 3.5%, though Skanska is
struggling to keep its operating margin. The weak performance in the last few years is dragging
down the operating margin (Low, Loveridge and Powrie 2017).
Opportunities
The global trends in the form of the urbanization and demographics are favorable for the
growth of the construction industry, Skanska. The whole world is experiencing the high growth
rate in migration and from the external analysis; it has been found out that the half of the world
lives in the city. This leads to the rise in the demands of the infrastructures, housing, and
healthcare sectors, which are in favor of the construction industries. Skanska is looking forward
the low-cost production process, which can lead to the cost-effective housing solutions for the
success in the future as it is expected that the urbanization will continue in the future period also
(Murphy et al.2013). Skanska has positioned themselves, by reducing the transportation cost, or
increasing the suppliers bargaining power, capital potential revenue growth.
Threats
This has been found out from the external analysis that the uncertainty in the UK market
will have a great impact on Skanska. Due to Brexit, it is expected that Skanska will be losing the
8% of their workforce if the UK cannot retain the single market, and it needs to be accessed in
the European Union (Ouyang et al. 2015). The intense competition is also raising in the business
market and the operating margin is becoming low than the targets. This is expected that
Skanska’s cost of sales will increase in the future, due to the lack of educated scholars.
Thus, from the above analysis, it can be concluded that Skanska will be facing both the
opportunities and threats in the future years and this can only be reduced by bringing variety in
the operation process. From the analysis based on the growth data analyzed in the period of 2004

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– 2013, it was found that Skanska’s value is highly dependent on the profitability and growth
(Araszkiewicz and Tryfon-Bojarska 2017). For this Skanska has generated cash flows; this cash
flow analysis will enhance the value of Skanska in the business market.
Personal evaluation
I will like to be a part of the operation management; if I ever get a chance then I want to
be at the management sector of Skanska. According to my perception and understandings I have
found out that there needs to be the up gradation of technologies, which will enhance the
productivity and the customer relationship are need to be built up, though it is a reputed
company, it also needs to hold the regular customers. All these factors need to be supervised and
thus, if I was in that sector then all these parts I will be looking after. This will raise the
competitions in the business market.
Report on the organization
Various strategies of Skanska that are being globally active and for the diversified
segments of the business, Skanska can position themselves for the expected GDP growth in the
home markets. From the external internal analysis, this is found out that the growth of GDP
along with the current low rates and the inflation rates will create the favorable growth potentials
for Skanska in the future (Pasetto 2015). This is also found out from the above analysis process
that Skanska‘s present strengths outweigh their weaknesses and also their present position in the
market is opened up for an opportunistic future of the company (Young et al. 2015).
Nowadays Skanska is facing comparisons and it is mainly based on the size, operating
areas, and the geographical positioning. There are still some of the excluded companies, which
had similar market variations and the business segments like Skanska. The mainly two close

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peers to Skanska are NCC and Hotchief (Zak and Macadam 2017). Hotchief has the same market
capitalization like Skanska and the NCC market capitalization represents 41% of the market
capitalization of Skanska. The peer’s geographical presence is similar to the place where
Skanska generates the most of the revenues (Blockley 2017).
Conclusion
Therefore, from the above discussion, it can be concluded that the construction industries
like Skanska, have their brand position and are able to participate in the competitions in the
global business market. Skanska is not facing any threats of new entries but there are close
substitutes of Skanska and those substitutes are present in the same operating areas. The
technology needs to be upgraded in Skanska, for the better operation of the company. Skanska
will be affected due to Brexit if the UK will not be able to maintain their single market in the
European Union. Skanska needs to follow the environment and the construction laws for better
production.

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