Economics for Business: Kier Group's Supply, Demand, and Strategies

This report provides an economic analysis of the Kier Group, a major construction company in the UK, focusing on the factors influencing its housing market. The report examines the impact of technological innovations and inflation on the company's supply, illustrating these effects with supply and demand curves. It further explores how population growth and interest rate changes affect the demand for Kier Group's housing. The analysis concludes with strategic recommendations for the company, including technological upgrades, robust supply chain management, and competitive pricing strategies to navigate market fluctuations and maintain profitability. The report uses economic models and diagrams to explain the complex interactions of market forces and offers practical insights for business operations within the construction industry.

Running head: ECONOMICS FOR BUSINESS
Economies for Business
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................6
Answer 3..........................................................................................................................................9
References......................................................................................................................................11

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One of the major industries in the economy of the United Kingdom, which has expanded
significantly with time, is the construction industry (Wilcox & Perry, 2014). Of the eminent
construction companies present in the country, Kier is one that specializes in different types of
residential properties, of all shapes and caters to the clients having different affordability.
Established in 1928, by Olaf Kier, the company has been successfully operating in the country
(Kier.co.uk, 2018).
Answer 1
The operation and sustainability of any industry which exists in any market in the global
framework, depend on several determining factors and the dynamics in these industries and the
companies operating within the concerned industries largely depend on the changes in these
causal factors. The changes in these determining factors affect the demand and supply statistics
of the companies, thereby affecting the profitability and long term sustainability of the industry
itself (Baumol & Blinder, 2015). The profit earned by any company majorly depends on the
mutual interactions of the demand and supply forces which are in turn influenced by different
causal factors. The factors can be both endogenous (Determined within the system itself) as well
as exogenous ones (Determined from outside the system) (Nicholson & Snyder, 2014).
This is also applicable in the context of the concerned construction company, the Kier
Group, whose supply is subjected to change provided there are changes in the determining
factors. The changes can be positive as well as negative, depending upon the dynamics in the
determining factors, which are discussed in the following section, with the help of demand and
supply curves:

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Changes affecting the supply of the company
a) Technological Innovations
When a country experiences huge technological innovations, the same is also expected to
affect the production process of the industries present in the country, which includes the
construction industry too. In general, with technological progress in an economy, the production
processes become more efficient as well as cost effective. This in turn, reduces the cost of
production and increases the supply of the same (Ball, 2014). Keeping this in consideration, the
increasing technological progress in the overall scenario of the country is expected to contribute
in making construction process of the concerned construction company more cost efficient,
thereby increasing the supply of the same, which can be shown with the help of the following
diagram:
Figure 1: Increase in supply due to technological progress

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(Source: As created by the author)
Due to the increase in the production efficiency, the supply of the company is likely to
increase, thereby shifting the supply curve rightwards (S0 to S1). The demand remaining
unchanged, this is expected to reduce the price of housing (As the company can now build and
supply housings at cheaper rates) and increase the number of housing in the market.
b) Inflation
Another important factor which affects the demand supply dynamics of the economy in a
country is the rate of inflation prevailing in the economy at a point of time. The economy of UK
often experiences fluctuations in the inflation rates, which affects the price levels of commodities
and services as a whole in the country. Keeping this into consideration, if the inflation in the
country rises in the coming years, then the average price level in the country is expected to
increase. This in turn can increase the cost of construction of the concerned company, thereby
decreasing their supply which can be shown as follows (Hansen, 2016).

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Figure 2: Decrease in supply due to rise in price level due to inflation rate hike
(Source: As created by the author)
It is evident from the above figure that the demand remaining same, due to the increase in
the overall price level, attributed to an inflation increase in the economy of the country, the
supply of the Kier construction company is expected to fall (From S0 to S1), which in turn is
expected to increase the price level from P0 to P1 and decreases the number of houses from Q0
to Q1 (Hall & Lieberman, 2012).

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Answer 2
From the above discussion, it is evident that there are several factors which affects the
supply of the housings of Kier Group in the geographical domain of the United Kingdom.
Similarly, the demand for the housings provided by the concerned company is also affected by
several factors, which can be endogenous or exogenous in nature. There can be several
exogenous changes in the country over the next few years, which may affect the demand for the
housings provided by the Kier Company in the country, which are discussed as follows:
a) Increase in the population
The economy of UK has been experiencing robust patterns of economic development and
increasing industrial and commercial prospects over the last few decades, which has led to the
increase in the population of the country, much of which can be attributed to the increase in the
number of immigrants from all the corners of the world. These migrants mostly migrate in the
country in search of economic prosperity, educational prospects or an overall better quality of
living (Paciorek, 2013). This may put an upward pressure in the demand for housings in this
country, thereby increasing the demand for the housings provided by the Kier group, which can
be shown as follows:

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Figure 3: Increase in demand for housings due to increase in the population
(Source: As created by the author)
Due to the increase in the demand for housing, supply remaining the same, the price of
the housings provided by the company is expected to increase with the increase in the housings
bought by the people of the country.
b) Increase in the interest rates by the banks
Residential investment is often treated as an alternative form of asset building and the
rate of interest prevailing in the economy significantly determines how much money people lend
to invest in residential properties. If the interest rate prevailing among the banks, regarding
residential loans is low, then people are encouraged to borrow more money for the purpose of
buying housing properties. Conversely, if the rate of interest rate prevailing in the economy is

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high, then people tend to save more and borrow less, which affects their residential investment
negatively, thereby reducing the demand for housings (Cheng, 2014). Therefore, in the coming
years, the changes in the rate of interest prevailing in the United Kingdom is expected to affect
the demand for the housings provided by the concerned company, the change being determined
by the direction of change of the rate of interest. For instance, if the rate of interest increases,
then the residential property demand is expected to fall, which may affect the demand for the
housings produced and marketed by the Kier group negatively, which is shown as follows:
Figure 4: Fall in demand for housings due to increase in the rate of interest in the banks
(Source: As created by the author)

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It is evident from the above figure, that due to the fall in demand for housing as a result
of an increase in the interest rates for lending, the concerned company can experience a fall in
the level of price of its housing also (Rader, 2014).
Answer 3
From the above discussion it is evident that like any other industry the demand and
supply dynamics of any company belonging to the construction industry depend on several
determining factors, which may be both endogenous as well as exogenous. These factors are
therefore expected to affect the demand and supply side dynamics of Kier group which belongs
to the same industry. The effects may be positive as well as negative, which in turn may bring
considerable fluctuations for the company as a whole (Varian, 2014).
Given this situation, it becomes immensely important for the concerned company to
implement several strategies and lay out an inclusive plan to tackle these fluctuations in demand
and supply of the company due to exogenous factors. This plan may include the following steps:
a) Technological Innovation- The primary strategy which the concerned company can
implement is constant up-gradation of their technological aspects, given that technological
innovation has been one of the driving factors in almost all the industries in the contemporary
commercial scenario. This can help the company in achieving efficiency and cost effectiveness
in production, thereby giving the same an edge over its competitors.
b) Robust Supply Chain Management- For efficient production of any commodity (Housings
in this case) it is immensely important for the companies to ensure a robust and reliable network

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of supply of the raw materials and resources which they need for producing their final
commodities. Keeping this into consideration, it becomes significant for Kier groups to build up
a network of loyal and efficient raw material suppliers and labor base, which may help them in
making their production cost efficient as well as in keeping them immune to the fluctuations in
the price levels due to the incidence of inflations. The company, in presence of a strong and cost
efficient flow of resources, can achieve economies of scale (Mahanty, 2014).
c) Keeping the price of their products competitive- Given the fact that there are many other
suppliers of housings in the country and also that the demand for the same largely depends on
factors like the income of the households, the rate of interest prevailing in the market and others,
it is expected to be beneficial and profitable for the concerned company if they keep the price of
their products competitive and not outrageously high, thereby gaining significant share of
clientele as well as considerable profit (Bauer, 2014).

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References
Wilcox, S., & Perry, J. (2014). UK housing review. Coventry: Chartered Institute of Housing.
Kier.co.uk. (2018). Kier Group - Construction, Support Services, Property Development &
more. Kier.co.uk. Retrieved 9 January 2018, from http://www.kier.co.uk/
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage
Learning.
Nicholson, W., & Snyder, C. M. (2014). Intermediate microeconomics and its application.
Cengage Learning.
Ball, M. (2014). Rebuilding Construction (Routledge Revivals): Economic Change in the British
Construction Industry. Routledge.
Hall, R. E., & Lieberman, M. (2012). Microeconomics: Principles and applications. Cengage
Learning.
Hansen, B. (2016). A Study in the Theory of Inflation. Routledge.
Paciorek, A. (2013). Supply constraints and housing market dynamics. Journal of Urban
Economics, 77, 11-26.
Cheng, Y. M. (2014). An exploration into cost-influencing factors on construction
projects. International Journal of Project Management, 32(5), 850-860.
Rader, T. (2014). Theory of microeconomics. Academic Press.
Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach: Ninth International
Student Edition. WW Norton & Company.