Five forces analysis of Carillion Construction

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Carillion Construction is the building division of Carillion PLC, the Wolverhampton –based building and services company, founded in 1999 (Carillion, 2014a). The organisation’s overall portfolio covers services, maintenance and infrastructural support, (through Carillion Rail), civil engineering, and construction (Carillion, 2014a). Although based in the UK, Carillion also operates internationally, undertaking construction contracts in Canada, the Caribbean, and the Middle East (Carillion, 2014a). Carillion Construction’s core business lies in the construction and/or refurbishment of large public and private projects, including hospitals, hotels, theatres, sport facilities, and major transport hubs (Carillion, 2014a).

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Competition from existing firms As Brandenburger (2002) points out, the five forces competitive model as envisaged by Porter is well adapted for situations where a large business is competing in a market with a small number of other incumbents. In this respect, it may be argued that the most substantial commercial threat to Carillion’s business is that posed by existing incumbents in the construction market. For example, the company’s attempts to expand its market share through a merger with its rival Balfour Beatty were thwarted when the latter rejected a £3bn deal in September 2014 (Plummer et al., 2014). Under the UK’s takeover rules, Carillion cannot now initiate another bid until February 2015, effectively blocking its strategy of creating a dominant UK firm with a workforce of 80,000 (Massoudi et al., 2014). This means that Carillion must now compete within the existing field of market incumbents, including John Laing PLC and AMEC PLC (Hoovers, 2014). In HR terms this implies ongoing uncertainty over job descriptions and incomes for employees (Brooks, 2003).

The Threat of Substitutes

In literal terms, there is not currently a substitute for Carillion’s products in the sense envisaged by Porter (1980), since neither infrastructure nor buildings can be supplanted by alternative offerings. In this respect, Carillion is safe from this kind of pressure for the time being; changes could however occur, if for example environmental pressures enforced radical changes in transport policy (Carbon Trust, 2005). As Porter (1980, p.51) cautions regarding sustainable competitive advantage ‘Virtually any advantage can be replicated sooner or later’.

Pressure from Consumers

Carillion’s consumers comprise both public and private organisations; since the 2008-9 financial crash, demand from both sectors has weakened; as theFinancial Times cautioned at the time of the crash, ‘With sharp falls in private sector construction currently and anticipated falls in public sector construction in the medium term, it is unlikely that even the large contractors will be isolated from the downturn…’ (Hammond, 2009, p.1). In the case of public contracts in particular, Carillion faces a high degree of pressure arising from operating standards and safety; it was, for example, fined by the UK Health and Safety Executive in 2013 for safety breaches during a road construction project (BBC,

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