Five Forces Analysis of the Swedish Construction Industry

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Five Forces analysis of the Construction Industry in Sweden

“The authors conclude that the less competitive a market environment, the higher will be the amount of corruption by giving public servants the incentive to extract some of the monopoly rents through bribes.” (Lambsdorf, 1999)

Industry background:

The Swedish construction business consists of four main actors namely JM, NCC, PEAB and Skanska that historically have had exclusive rights to bid on large-scale governmental projects. This is not a result of corruptive and lobbying activities but rather a result of the sheer size and financial budgets of these projects and firms with the ability to finance them. (Hådell and Uveborn, 2004). This in terms cause extensive competition between the medium players as they focus and fight over signing the medium- to small-scale projects. But business for medium sized actors are not only limited to direct signing of governmental projects, many get hired or are chosen by the larger actors to perform outsourced activities within the large-scale projects.

The procurement process for governmental projects follow internationally recognized industry standards, see process chart below (SCA 2011).

Source: Swedish Competition Authority (2011)

Five Forces analysis:

The Swedish construction market has a tendency towards being segmented hence the competition must be looked upon in two areas. First you have the large-scale projects, competition is free but historically limited to the four main industry actors. Having strong financial backing has been the main reason behind this and has caused medium players not being able to compete for these projects (Hådell and Uveborn, 2004). The internal rivalry of this market has during recent years become tougher due to the entry of foreign companies. This was an intentional change engendered by the government through offshore selling of projects. These new players were usually low average cost firms taking advantage of economies of scale and the liberal employment terms and conditions of the European Union (EU), offering cheaper labour than the national firms were able to (SCA 2007). Secondly the internal rivalry of the medium- to small- sized governmental projects has become fierce, since the medium players scramble over these by their means very profitable projects. Although the market and procedures of the government enforce open competition recent events have shown that in the shadow of the public spotlight network skills and capabilities has been proven important (TL 2000). Local players have in some cases been enjoying a competitive advantage by building corrupt personal relationships with officials and as in the case in Gothenburg using direct bribes to get an edge over their competitors (RS 2012).

The ability of new national entries has been and is today open when it comes to laws and regulations. It’s easy for new entrants to reach the market but the competitiveness and network capabilities of established actors create a need for a niche of some sort to be able to compete (Hådell and Uveborn, 2004). International companies are considered to be more of a threat. EU conditions and the free market attitude of the government have made laws and regulations limiting their existence and potential on the Swedish market non-existing (SCA 2007). But a difficulty they might face is that the high quality and standard of the market yields tough competition from the established firms with proprietary knowledge and connection on local governmental level.

The threat of substitutes and compliments are generally low in the public sector because if a decision has been made and a project has been given a green light then it will be conducted. However in some areas were political decisions are important, budgets may be compromised and the new build of properties could be replaced by the building of a new highway etc.

The influence of buyers on the market is high due to the amount...
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