Porters 5 Forces applied to the Construction Industry

  Construction Industry Porter Five Forces 

Industry Competitors: Strong

·         There has been a fall in demand for construction projects and this has resulted in excess capacity

·         Construction companies are  mostly involved in submitting competitive tenders to win contracts

·         Quantity surveying firms also have to compete amongst one another by offering the lowest fees for services provided to secure clients

·         Construction products are  very similar and are delivered by means of projects with variation amongst retail, residential and leisure.

·         Overcrowded market dominated by  the big five construction companies as well as the major Q.S firms

New Entrants: Weak

·         Customers are not very loyal, the lowest bid always wins

·         Low switching costs as new projects means new consultants, contractors and suppliers 

·         Capital requirements for property development are high

·         The construction industry is highly risky and filled with uncertainty

·         Access to inputs such as skilled labour is difficult

Substitutes: Strong

·         New and emerging innovative methods and processes within construction industry.

·         New innovative methods are at a lower cost than traditional methods

·         Low switching costs once a project is complete, new consultants may be appointed

Suppliers Bargaining: Weak

·         Industry members such as the principal contractors’ e.g Grinaker are integrating backwards into the business of suppliers

·         Construction materials are readily available from many suppliers

·         Switching costs of contractors Q.S firms are low

·         Contractors, sub-contractors and manufacturers have to work together for successful delivery of the project

Buyers Bargaining: Strong

·         Construction developers have a high quality of information for decision making

·         There are few developers and construction clients compared to the  many service providers available to deliver project

·         There has been a decline in the developers and client’s demand for construction projects

·         Developers and clients have the ability to postpone projects until a later stage when they can secure lower costs of building

The overall industry attractiveness is very low. The collective impacts of the five competitive forces will result in lower profitability of the industry participants. The rivalry amongst competitors is very vigorous. The entry barriers are low and allow new rivals to gain a market foothold. There is intense competition from substitutes. Buyers are able to exercise considerable bargaining leverage.