Economics Report: Lendlease Group, Construction, and Market Analysis

This report provides a detailed economic analysis of the Australian construction industry, with a specific focus on Lendlease Group. The report begins with an introduction to business economics and its application within the construction sector, followed by an overview of Lendlease Group and its operations. It delves into the industry background, highlighting its contribution to Australia's GDP and growth rate, and examines the market structure, including perfect competition, monopolistic competition, oligopoly, and monopoly. The analysis includes factors influencing demand, such as population growth and real GDP growth, and supply, including raw material prices and market size. The report also discusses the impact of current events on the industry. Key statistics and economic concepts are used to illustrate the effects of various economic variables on Lendlease Group's operations and decision-making processes. The report also includes an analysis of market structure and elasticity to offer a comprehensive understanding of the economic dynamics at play within the construction sector.

ECONOMICS FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................1
INTRODUCTION TO COMPANY................................................................................................1
INDUSTRY BACKGROUND........................................................................................................2
MARKET STRUCTURE OF THE INDUSTRY............................................................................3
FACTORS THAT INFLUENCE DEMAND FOR COMPANY'S PRODUCT(S).........................6
FACTORS THAT INFLUENCE SUPPLY FOR COMPANY'S PRODUCT(S)...........................7
ELASTICITY..................................................................................................................................8
IMPACT OF AN EVENT ON THE INDUSTRY...........................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Business Economics is a discipline subject which deals with analysis of business
enterprises having diverse nature and size using various tools, theories and techniques
of applied economics in a quantitative manner. This report aims to provide a detailed
account of economic concepts and their application in relation to Australian
Construction Industry (Brückner and Pellegrino, 2016). For this purpose, Lendlease
Group (LLC) which is a leading company of this sector has been chosen to depict the
changes and impact of economic variables on its operations and decision-making
capabilities. In order to analyse the contribution of this industry in developing the
national GDP and growth rate of Australian market, some key statistics also presented
under this assignment (Fizel, 2017). For this assistance, a discussion related to demand
elasticity for determining whether products or services are elastic or not is also made.
Furthermore, an analysis is done on current event of construction industry which has a
likely effect of event on market demand and supply.
INTRODUCTION TO COMPANY
Lendlease is a multinational company deals in construction and real estate
industry. It is headquartered in Barangaroo, Sydney and established in 1958 by Dick
Dusseldrop. The company is dedicated towards creation and deliverance of innovative
as well as sustainable infrastructure or property to customers and their future
generations (Hill, 2016). It also provides finance to building constructors and operates
business in more than 40 countries to manage big projects of building. Some of the
main projects undertaken by this company include renovation of sport centres, express
highways, housing and infrastructure. The main areas of expertise include design,
development, investment, management of construction of various facilities in different
field. This firm has also employed to over 13k people that operates throughout its
overseas business also, which are administered by head office in New South Sales, at
Bangaroo (Seaman and Young, 2018). From given income statement, it has been
interpreted that LLC Group has generated over $17,068m in 2018 that generates high
profitability (Lendlease Report 2018 Annual Report, 2018).
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INDUSTRY BACKGROUND
Construction industry in Australia is considered as one of the fast growing sector
that contributes a large share in economic development and overall GDP (Bleikh and
Young, 2016). With this assistance, construction work at commercial sites has
increased over 9.3% in 2018. Due to constrain performance of respective industry from
last five decades has led to employ over 1.1 million people. Along with this, divergent
trends in construction work has also sharpen the revenue and share of GDP over 8%
(10 Statistics Defining the Australian Construction industry, 2018). It is to be expected
that commercial construction work till 2018 will rise by 9.3% (Raja and Pahat, 2016).
According to below mentioned statistics, it has interpreted that construction industry in
2016 – 17, has contributed to 0.9% 0r $306 million in GDP which is 1% less than EBITA
report (Albort-Morant and Ribeiro-Soriano, 2016).
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Text 1: Income Statement of Lendlease Group

MARKET STRUCTURE OF THE INDUSTRY
Construction companies primarily construct the roads, residential and
commercial buildings, railway tracks, harbour, dams, transmission lines, water pipelines,
oil refineries and more (Vasigh, 2017). Along with this, firms dealing in this sector also
involved in civil engineering, construct water and irrigation projects, electricity, gas and
sewerage infrastructure. As per the below mentioned figure, it has been analysed that
the general building industries have a solid growth over last decades that support
revenue (Adekola and Sergi, 2016). But due to divergent demand trends, performance
division of construction has been much affected, that create threat for industry.
Divisional revenue seems to be decreased to 0.7% at an annualised in order to reach
$365.5bn (Construction – Australia market research report, 2018). However, apart from
all these factors, productivity in the industry is still rising by 2.8% annually, where
construction software enables contractors in saving costs, design better structure and
boost efficiency as well.
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Furthermore, as per ACOS (Australian Construction Outlook Survey) 2018,
construction in non-residential work is estimated to be risen by approximate 9.3%
(Construction – Australia market research report, 2018). Here, the most essential key
factors that lead to create success for construction companies are- Ability for competing
on tender, having a large contact within marketplace, capabilities for expansion and
curtailing operations in rapid manner in line with market demand and more (Raja and
Pahat, 2016). Along with this, some external factors like Capital expenditure on private
non-residential and dwelling also considered as key success for respective industry
within Australian market (Webster, 2018). Along with this, market structure of industries
in Australia has majorly been classified on four major aspects as- Perfect competition,
Monopolistic Competition, Oligopoly and Monopoly that classified on the basis of
different characteristics as-
Characteristics Perfect
Competition
Monopolistic
Competition
Oligopoly Monopoly
Number of
organisation
Extensive large Various Only few Single
Product Standardised Differentiated Identical / No substitutes
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and Identical differentiated
Barriers for
entrance
None Limited Significant Much high
Control over
price strategy
None Limited Constrained Often regulated
Non-price
competition
None Mainly
emphasis on
trademarks and
brand names
Product
differentiation
Advertisement
and public
relationship
From the above analysis, it has been depicted that there are significantly few
barriers within construction industry. But since in marketplace, only few number of
contractors are capable for managing large products (Bleikh and Young, 2016).
Therefore, in terms of financial capacity, technical capability and on track record,
barriers in this sector are also significant. Here, degree of monopoly power can only
exercise by largest firms only. But in engineering construction as well as commercial or
non-residential building sectors possess the characteristics of oligopoly due to
requirement for technical capability. Therefore, market structure of construction industry
can be described in following manner:-
Construction Perfect
Competition
Monopolistic
Competition
Oligopoly
Subcontractors Labour based
subcontracting
Mechanical services Building automation,
lifts
Contractors Small and medium
contractors
Medium sized
contractors
Large head
contractors
In Australia, Lendlease and Bouygues Construction Australia Pty Ltd (BYCA) are
considered as topmost market leaders in construction industry. Here, Lendlease is a
multinational company which has employed to more than 13k employees and generates
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over $1244.80 million. Along with this, market capitalisation $11.4 billion with 12.7%
return on equity (Lendlease Report 2018 Annual Report, 2018). While Bouygues
Construction Australia Pty Ltd (BYCA) is considered as the top market leader that deals
in civil engineering and construction (Seaman and Young, 2018). It is dedicated to
provide world class service in the areas of building, earthworks, civil engineering,
infrastructure, road construction and more. It operates business in more than 80
countries and given employment to over 47k employees. Along with this, net profitable
income 130 dollar (2017 Financial Report).
FACTORS THAT INFLUENCE DEMAND FOR COMPANY'S
PRODUCT(S)
Demand defines the quantity of a commodity or service which is desired by a
buyer to purchase the same at a given price over a specific period of time. In general
terms, the relationship between quantity demanded and price is known as demand
relationship. But in economical prospectus, the term that gives money backed desire is
considered as effective demand, which is distinct from need (Hill, 2016). However,
demand depends only on ability as well as willingness of buyers to buy a certain good.
Due to cost, size, longevity and investment nature of products or services,
determination of demand of same offered by construction industry is a complicated
process. In context with, Lendlease Group (LLC) of Australia, it deals in construction
industry and offers a range of products and services such as construction of residential
and non-residential building, financial support to contractors, remodelling, road and
infrastructure development etc. The demand of these products of respective firm is
affected by various factors that include interest rate, real GDP growth, wage growth,
household saving rate, unemployment rate, household saving rate, changes in
population and migrations and so on (Fizel, 2017). In Australia, the two major factors
that affect demand of LLC and other construction products or services are described as
beneath –
 Population rate - When population growth rate is increasing in a country then
demand of construction also raises. As people demand for residential building
and apartments that fulfil every desires (Brückner and Pellegrino, 2016).
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Therefore, increasing migration rate aid to increase demand of housing as well.
In this regard, this factor proves beneficial for LLC Group to enhance its
profitability by completing demand of customers on time. In context with
Australian market, it has been estimated that population growth is increasing by
1.6 percent every year (10 Statistics Defining the Australian Construction
industry, 2018). The reason behind this growth is net overseas migration that
grow near about 62%. Here, migrators demand for new and effective structures
in both commercial and residential sector. Along with natural child birth (over
38%) has also contributed to increase in demand of construction products.
Moreover, construction work in urban areas within Australia is also increasing at
steady rate. This is also attributed to population grow and increase in demand of
construction products.
 Real GDP growth - This factor majorly affects the demand of construction
products where with increase in income, people seek to remodel or build the
residential and commercial apartments (Hummel, Pfaff and Rost, 2018). While
decrease GDP reduced demand of same also. As per statistical data, it has been
estimated that GDP growth rate in Australia is increasing steadily and reach at
highest 4.40%. While in construction it has reached to approximate 36785.00
(Australia GDP from Construction, 2019). Thus, it has shown growing demand of
construction within given country. With respect to these information, it has been
analyzed that with increasing GDP Growth of Australia, it provides opportunities
to LLC Group in running its business as well as expand the same in other
locations with less risk of failure.
FACTORS THAT INFLUENCE SUPPLY FOR COMPANY'S PRODUCT(S)
Supply refers to amount of a product or service which a firm is willing to offer at a
particular marketplace for sale in a certain period of time (Shackle, 2017). The
relationship between quantity of product sold and price of a same that a company willing
to sell is known as supply relationship. It mostly affects by input price of raw materials,
technological changes, government policy, size of market, expectation related to future
condition of market and more. In context with construction industry like Lendlease
Group (LLC), it is mostly affected by input price of raw materials and size of market.
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 Price of raw materials: The cost of materials used in constructing any building
or improving infrastructure is rapidly rising in all over the world. It includes the
price of some key materials such as cement, bricks, steel, lumber and more.
Therefore, it highly affects the supply process of products or services offered by
Lendlease Group (Gabaix, 2016). However, Australia is rich in natural resources
and minerals like iron ore, bauxite, sands and more. But supply of these sources
in overseas market are much sensitive due to fluctuations in economical
condition and world market price. It results in either restrict or encourage growth.
But within Australia market, richness in natural resources gives opportunity to
LLC Group to easily fulfil the demand of construction products, by supplying the
same on short period of interval.
 Size of market: With growing in urbanisation, rising population, rapid
industrialisation and more, market size also increases due to high economic
development (Elobeid, Lele and Kaifi, 2016). Therefore, it enhances the demand
of construction products of Lendlease Group (LLC) also which could be
completed only by supplying such products as per requirement. But factors such
as economic fluctuations, shortage of resources, labour price and more, results
in increasing prices of services and products of LLC also. This would impact
directly on profitability of respective construction company along with decreasing
in demand. For example: waterproofing and roofing application are estimated to
restrain market due to shortage of such materials and hamper the growth market
also. Therefore, this factor also affects both demand and supply of construction
products which adversely affect cost of production and earning power of
Lendlease Group.
ELASTICITY
In economical terms, elasticity can be defined as measure of responsiveness of
supply and demand of a particular, that leads to either decrease or increase in price of
same (Hummel, Pfaff and Rost, 2018). While in engineering, elasticity refers to an ability
of a particular material for recovering the original dimensions after being subjected to a
stress. In construction industry, Demand elasticity is considered as a sensitivity of
demand for a particular product or service because of changes in another factors (input
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price, economic fluctuations etc.). This concept helps in determining the output level,
price of products or services, price discrimination of production factors, demand
forecasting and more.
Hereby, many factors are presented that influence a change in demand elasticity
such as price, income level of population of a particular area and availability of
substitutes (Gabaix, 2016). In construction industry, elasticity of demand is majorly
affected by price of raw materials and GDP (Elobeid, Lele and Kaifi, 2016). Here, the
demand of best quality of raw materials is demanded more to construction companies in
order to develop strong infrastructure of building and societies. This would help people
in preventing and reducing the risk of collapse of building which may cause due to
earthquake or less quality of materials used by construction companies. Therefore, it
has been analysed that products offered by Lendlease Group (LLC) like cement or other
concrete is inelastic. Concrete is not considered as linearly elastic as compared to other
important material used in construction like reinforcing steel (Shackle, 2017). Along with
this, there is no fixed value related ratio of stress which is divided by strain. Thus,
module of elasticity of concrete products is inelastic while steel in nature is elastic due
to fixed value of ratio. Therefore, as elasticity affected both demand and supply of
Lendlease Group (LLC) products and services, so, it highly affects its logistics and
supply change management. This ultimately leads to impact on its production and
profitability of business.
IMPACT OF AN EVENT ON THE INDUSTRY
As people are concerned more on sustainability therefore, construction
companies also focused on developing the same. Currently an event related to
ecological benefits impact on construction industries more, in order to place a strong
focuses to bring sustainability. Here, demand for making living walls which provide an
area to people with fresh oxygen is raised more. This type of wall refers to a garden
which grows vertically and exists either inside or outside the home. In Australia, people
demand more to develop indoor herb gardens that thrive well specially in sunny kitchen.
According to the article given by Jessica (2019), it has been analysed that these walls
prove beneficial protecting home from harmful polluted environment, save energy and
improve health more efficiently (Living Walls: How They Can Improve Your Home and
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Your Health, 2019). Thus, bringing innovation and usage of latest technologies aid
technological companies in generating more economy due to increase in demand.
From a press release information that published on Vertical Garden Construction
Market (2019), it has been evaluated that due to demand of living walls and vertical
gardens for utilising the space efficiently, global market in given field is expected to be
grown over 7% (Vertical Garden Construction 2019 Market Highlights by Competitive
Scenario with Impact of New Innovations, Drivers and Challenges to 2023. 2019). This
would prove beneficial for companies dealing in this sector to increase market share.
CONCLUSION
It has been concluded from this assignment that construction industry is growing at
a faster rate in entire world. Due to increase in demand for infrastructure development,
building commercial and residential building etc. has led to grow business of firms that
deal in same industry. Therefore, respective industry has provided a high support and
constitute a large market share in increasing GDP and growth rate of economy.
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