Assignment 1 Market Analysis PDF

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ASSIGNMENT 1 – MARKET ANALYSIS

University of Technology Sydney 42870 - Entrepreneurship & Commercialisation

1.0 Market Description The construction industry is the second largest industry in Australia and is expected to rise to 13% of the country’s Gross Domestic Production (GPD) by 2023. Currently the construction industry generates over $360 billion dollars in revenue and employs 1.15 million people (back to basics 2020). As the construction industry is so big in Australia there are a variety of products and services available. Generally, construction is anything to do with constructing, fabricating, installing, maintaining, designing, and managing projects. According to the Australian Industry and Skill Committee (ASIC), the construction industry compromises of six main sectors: Building Completion Services, Building Installation Services, Building Structure Services, General Construction and Demolition, Signage and Building Surveying, and Specialist Construction Services (ASIC 2020).

2.0 Companies and their Market Positions Throughout the years, the construction industry in Australia has seen consistent growth across the board. Matured companies with effective business plans have flourish and the formation of new business has increased. An example of a matured company listed on the Australian Stock Exchange (ASX) is CPB Contractors. CPB is the leading construction company is Australia generating over $1 Billion in revenue annually with 23,000 employees (CIMIC 2021). CPB mainly focus on major infrastructure projects and are the main contractors for the WestConnex project in NSW, Barangaroo train station and the Cross River Rail in Brisbane. CPB is part of the CIMIC group and is currently trading for $18.59 (March 2021). Another company within the Australian construction industry is Alpha Engineering & Development. Alpha was established about 8 years ago and is a design and project management firm in the inner west of Sydney. They house a team of 20 professionals and a responsible for a variety of projects around Sydney, mainly focussing on the residential sector. It is estimated that Aplha generate between $1 – 2 million in revenue annually. Finally, JBuild Carpentry is an example of the most common type of building company in Australia. JBuild is a sole trading business that is only 2 years old . They aim at providing fast and reliable building services to homeowners at an affordable cost. JBuild trades in a very competitive sector of the market, however, have a strong business plan and excellent social media coverage. It is estimated that JBuild generates between $400k - $500k annually.

Figure 1: Breakdown of construction work completed and forecasted to 2023

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3.0 Porters Five Forces in the Market Porter’s Five Forces is a valuable technique of analysing the level of competition within a certain industry. It also encourages businesses to be more competitive, therefore measuring their success through their strengths and weaknesses. The five forces shown in the image below are: Rivalry among existing competitors, threat of new entrants, bargaining power of suppliers, bargaining power of buyers and finally, threat of substitute products.

Figure 2: Porter’s Five Forces Diagram

3.1 Rivalry among existing competitors This force examines the intensity of the current competition in the marketplace and is determined by the number of existing competitors and what they are capable of doing. Generally rivalry is high when there are a lot of competitors that are equal in power and size. CPB operates in a highly competitive marketplace not because there are a lot of competitors but because there are not a lot of companies within Australia that are capable of completing billion-dollar projects. John-Holland and Lendlease are the two other companies that are capable of winning a project over CPB, hence, their market is considered as competitive. 3.2 Threat of new entrants The threat of new entrants brings the capacity of new players to gain more market share and is dependent on the requirements for one to gain access to the industry. As for the construction industry in Australia, it is fairly easy to open your own building business only after a few years of experience. As a result, young businesses like JBuild Carpentry and vulnerable to new businesses that open in surrounding areas that can offer the same level of professional experience and build quality. 3.3 Bargaining power of suppliers This force determines the power and control a supplier has over the potential to raise prices or reduce quality of products that would in turn lower the profitability potential of the company. As for the construction industry in Australia, the bargaining power of suppliers is 2

considered low (AUessays 2017). The suppliers of products are many and services can be substituted with little cost making suppliers rival each other. Additionally, most goods have fixed non-negotiable price ranges making it very difficult for suppliers to markup their products. 3.4 Bargaining power of buyers The bargaining power of buyers in the construction industry depends on the size of the company and the type of job the buyer requires. This force is also referred to as the market of outputs and is the ability to which a buyer can place a company under pressure. CPB and JBuild are on two different levels when it comes to their buyers. CPB is capable of completing billion-dollar projects, hence, the buyer’s ability to bargain is minimal as there are few competitors. On the other hand, buyers of smaller projects like ones completed by JBuild are in a strong position as there are a multitude of companies that offer the same service at competitive prices. The internet has also given buyers the ability to compare prices with ease, putting the pressure on smaller businesses to price fair. 3.5 Threat of substitute products As for the construction industry the threat of substitute products is almost non-existent as even if the owner of a property chooses to build on his own, he is still highly dependent on other sectors of the construction industry to fulfill his needs. Furthermore, building in Australia requires different levels of certification that the owner himself is generally not capable of completing. A company like Alpha engineering is very appealing to the smaller types of development as they offer an all-inclusive approach to completing a project, meaning that they can design, engineer, manage and certify all in house save buyers time and money.

4.0 SWOT Analysis – JBuild Carpentry 4.1 Strengths JBuild provides affordable, high quality, and fast building services for customers around Sydney. They also have a strong online presence through social media and google reviews making them very appealing to customers unlike other competitors. JBuild also offers extensive industry experience with over 20 years. They also house a variety of different tools and machinery needed to complete a wide range of projects meaning that they do not need to outsource, reducing the price for the buyer. 4.2 Weaknesses As JBuild is a fairly young business, there are a few weaknesses that are associated with the business. As JBuild is a sole trader he does not have the ability to offer a range of construction services like design and engineering in house. Additionally, unlike other matured building companies within this sector he does not have the workforce to complete bigger projects and is required to subcontract workers, greatly reducing his profit margin. 4.3 Opportunities JBuild has the opportunity to expand toward bigger projects through effective business plans and offering building service at competitive rates. As there are many competitors within the 3

market it is critical for JBuild to keep providing high quality services. Furthermore, his online presence will ensure they gain further exposure to the market increasing the amount of opportunity available. 4.4 Threats As mentioned previously, the majority of business in the construction industry in Australia consists of sole traders or very small businesses. As a result, JBuild is continuously under threat by both new and existing building companies that offer the same services. However, as the company expands and new elements are introduced, JBuild has the ability to emerge out of that sector and provide additional services that other companies are not capable of, reducing the threat risk of the business.

5.0 Core Process of Value Creation The core process of value creation of JBuild Carpentry is simply providing affordable, cheap, and high-quality building service to customers. This is achieved through industry experience, appropriate tools and machinery and effective management of the project . The process is shown in the diagram below: - Site investigation & quoting: Prior to the job being approved JBuild must go out to site to see what the customer wants to achieve then accurately quote the job.

- Design & Engineering: Once job has been approved by the client the project is designed and engineered to ensure compliance with Australian Standards. - Procurement of Labour & Materials: The labour and materials needed to complete the project are brought to site so that construction may begin. - Surveying & Lining of the Land: The project area is marked out to ensure compliance with the drawings.

- Construction: The project construction begins as per the approved drawings. If any changes are made during this stage the designers and engineers must be called out and a variation for the new work is raised and approved by the owner. - Operations & maintenance: Once the project is completed and handed over either a maintenance company, the homeowner or anyone who occupies the building will look after it.

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6.0 Recommendation of Change There are many changes or additions that could be implemented into JBuild Carpentry that would give the business more value. Common construction process in small residential projects is to outsource engineers and designers. This brings substantial cost to the owner and the builder. Incorporating an engineer into the company’s workforce can encourage huge savings for the customer and allow for a smoother construction process as it is kept in house. This addition aligns with the current business model of JBuild as they plan to grow the business into one which can provide these services.

7.0 New Business Idea The four main challengers that face the construction industry today are: labour shortages, safety, stagnant productivity levels, and technology adoption (ConstructConnect 2018). These challenges often cripple small businesses in the industry and with rising labour and material costs it is getting harder for small businesses to stay afloat. Unfortunately, there is little to be done about rising labour and material costs, however, there are savings to be made elsewhere. The new business proposal is aimed at increasing productivity levels, reducing cost of production for the client, and increasing the profit margin of the builder through the use of computer aided software. Traditionally, builders are guilty of not having appropriate planning in place in order to execute a successful project. As a result valuable time and money is lost through excessive down time and inaccurate material buying. Skilled labourers and project managers are skill required for successful project delivery, however, through the use of the software project planning is made easy. Additionally, the client is given access to project milestones including daily objectives, delivery schedules and other critical information to help keep the builder accountable and the project on track.

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8.0 References • •

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Back to Basics 2021, Construction Industry Facts (Updated 2020), Back to Basics, viewed 19 March 2021, https://backtobasics.edu.au/2019/03/construction-industry-facts/ Australian Industry and Skills Committee 2020, Construction, Australian Industry and Skills Committee, viewed 19 March 2021, https://nationalindustryinsights.aisc.net.au/industries/construction#:~:text=The%20Con struction%20industry%20generates%20over,in%20the%20next%20five%20years.&text= This%20industry%20is%20heavily%20regulated,at%20every%20level%20of%20governm ent LetsBuild 2020, Value chain construction – guide, LetsBuild, viewed 19 March 2021, https://www.letsbuild.com/blog/value-chain-construction Jones, K 2018, 4 Major Challenges Facing the Construction Industry, constructconnect, viewed 19 March 2021, https://www.constructconnect.com/blog/4-major-challengesfacing-the-construction-industry AUessays 2017, Developments of the construction industry: Economic analysis, AUessays, viewed 19 March 2021, https://www.auessays.com/essays/economics/the-history-ofthe-construction-industry-economics-essay.php Business-to-you 2016, Porter’s Five Forces, business-to-you, viewed 19 March 2021, https://www.business-to-you.com/porters-five-forces/ Mind Tools 2021, Porter’s Five Forces, Mind Tools, viewed 19 March 2021, https://www.mindtools.com/pages/article/newTMC_08.htm Australian Construction Industry Forum (acif) 2021, Australian Construct Market Report, November 2020, acif, viewed 19 March 2021, https://www.acif.com.au/forecasts/summary CIMIC Group Annual Report 2020, viewed 19 March 2021, https://www.cimic.com.au/en/investors/financial-results-and-annual-reports Company Websites • • •

https://jbuildcarpentry.com.au/ https://www.alphaengineering.com.au/ https://www.cpbcon.com.au/

9.0 Appendix Appendix 1: Core process of value creation draft.

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