Competitive Strategies and Government Policies
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Competitive Strategies and Government Policies
Competitive Strategies and Government Policies
Companies are becoming more competitive over the course of time. As the population grows so do new company’s aiming to be successful. For a construction company, this is especially true. Current businesses and new businesses want growth and the construction companies are who make the physical structure of the business happen. Included in this paper, is a discussion of how horizontal mergers, government policies and regulations related to externalities, and business decisions by management affect the construction business entirely. The construction industry has been a result of a lot of change in the past few years. The construction industry consists of small business to the very large corporation. A small business in the construction industry can be considered a simple handyman business. A large business in the construction industry can be considered a new commercial builder. With the limited barrier of entry the construction industry has been threaten by new companies entering the market. New companies entering the marking have posed a threat in which causing the existing construction companies to have a strategic plan to prevent from closing their doors.
With a strategic plan in place the existing construction companies will have the tools needed to compete with newer companies entering the market. The recent events in the economy have increase globalization. Globalization is the activity between the world’s markets and businesses (Colander, 2010). This activity allows for import and export of goods between countries. This has been a new trend in the construction industry due to the fact that traveling abroad, shipping and receiving, and communication is easier than years ago. Globalization allows the construction companies to seek decrease prices from imports on some raw materials, resulting in passing the savings to the consumer. However globalization has its disadvantages as well on the construction industry. Operating under competitive pressure globalization has aided to the fact of many employees losing their jobs. This is due to the need to cut cost, in which outsourcing internationally has been proven to do so.
The construction industry has been affected in terms of pricing and the sustainability of profits as well. Due to recent inflation on raw materials the construction company has been exposed to higher cost for materials to produce their service. The results of price increase have been induced to the customer with a higher price tag for services rendered. The revenue increase has allowed the companies to sustain their profit margins at an acceptable range. Those companies who wish to increase this margin have to inflate prices to increase revenue or decrease fixed cost. This will allow sustainability in the long run. As many other industries have been depleted, there has been an increase of entry of new companies into the market. These companies had to enter the market due to the favorable lack of barrier of entry that creates competition between companies to gain the largest customer base to increase revenue. As a part of being able to compete within the large industry many companies have merge with other companies to gain a competitive edge in the industry. The merge is known as a horizontal merge.
A horizontal merger is when two companies that are in the same industry joins together to create one company (Colander, 2010). The experience and knowledge obtained from each company makes one large powerful company with the ability to run the market. Before the merge can exist, the two companies must create data to be analyzed to see the benefit of the merge. If a benefit exists of a significant range, the two companies would merge together. Another type of merge acquired in the construction industry is a vertical merge. A vertical merge is the merge of two businesses whom are involved in different phrases of the project (Colander, 2010). This merge occurs because companies decide to save cost by merging different phrases to adapt to the competitive market. Either choice of merging will allow the company to obtain a competitive advantage because of the ability of the merge allows the company to sustain profitability along with obtaining larger customer base of both companies involved.
The construction industry is vast. When it comes to laws, regulations, taxes, and government regulations, multiple factors apply. With such a large industry, many different organizations at the local, state, and even federal level work together to oversee the industry. In addition, even more organizations exist that are privately run help to regulate the industry. In general, when referencing policies and regulations, the authority having jurisdiction (or AJH) is the deciding factor. The AJH covers a variety of regulating organizations such as Building Code and Zoning, Fire Safety, Occupation Safety & Health Administration, Environmental Health Organization, Department of Labor, etc. These organizations exist at the local, state, and federal level. Whereas each local and state level of these organizations have separate regulations and guidelines, the basis of these regulations and guidelines come from the Federal governments “parent” agencies of the same names.
One of the main oversights for the construction industry is the United States Department of Labor, Occupational Safety & Health Administration. The OSHA standards 29 CFR 1926 is the regulatory standard for the construction industry. This regulation is exhaustive and covers thousands of subjects. Within the numerous pages, regulations and standards that address issues related to externalities such as environmental and health risks are found.
The second large oversight organization for the construction industry is the Environmental Protection Agency. Environmental concerns are more prominent in the construction industry than in the previous years. NAICS 23 is the standards for the construction industry under this organization. NAICS 23 covers externalities such as “storm water runoff, dredged and fill materials, solid and hazardous wastes, spill reporting, PCB wastes, and air quality” (Environmental Protection Agency, n.d, p. 2-5). The EPA has additional compliance resources available through the Construction Industry Compliance Assistance Center (http://www.cicacenter.org/cs.cfm), the National Environmental Compliance Assistance Clearinghouse (www.epa.gov/clearinghouse), and the Compendium of Compliance Assistance Tools (www.epa.gov/compliance/resources/ publications/assistance/sectors/constpub.html) for the Construction Sector.
Both of the aforementioned agencies have enforcement sections that are responsible for making sure the applicable regulations and policies are enforced. Per the EPA, “depending on the regulation, a violation can result
in a civil penalty up to $27,500 per day and a criminal penalty of up to $250,000 and 15 years in prison” (Environmental Protection Agency, n.d, p. 1). The ability to enforce policies and regulations helps to avoid and penalize different externalities of the construction industry.
When it comes to taxation of the construction industry, the different agencies (local, state and federal) often will use a “pigovian tax” on the different facets of the construction industry. A pigovian tax is “a special tax that is often levied on companies that pollute the environment or create excess social costs, called negative externalities, through business practices” (Investopedia.org, n.d, p.1). Whereas enforcement is a way to help and stop negative externalities, enforcement can be expensive and time-consuming. The pigovian tax is an easier alternative. Reversely however, the government offers tax breaks, grants, loans, and other opportunities to companies in the construction industry that employ “green construction” methods of building. According to authors Canadian Journal of Civil Engineering, global competition necessitates shorter development times. In traditional manufacturing, time to market means shorter development cycles of new products.
In construction it relates to the speedy and timely acquisition–reshaping– reengineering of organizational resources to enter a market at the right time with the right product mix. “Market attractiveness and company competitiveness are of great significance to construction companies in today’s dynamic business environment.” (El-Diraby, Costa, & Singh, 2006) Global competition will be effected by labor demand, supply, relations, unions, and rules and regulation within the construction industry. Colander mentions in his book that taxes have become less progressive, government funding for social programs has fallen, and the wages of unskilled and medium-skilled workers have been squeezed by an influx of immigrants into the United States who are willing to work for low wages, and by global competition. According to Associated General Contract of America, the 2007 data for immigrant migration by the United States shows that the highest numbers of immigrants entered between 2000 and 2007. This period was during a high demand for construction labor with real estate market growth.
As the years advanced, construction employment fell by 13,000 to 5,554,000 but then rose year-over-year for the sixth straight month, by 65,000 (1.2%). The weather was contributed to the decrease in employment (AGC of America, 2011). The United States has been known for one the top suppliers of construction supplies. In the highly capital-intensive U.S. construction industry, investment to support global market coverage is most economical when the business has a wide line of products that can benefit from the same brand name and distribution system (Johnson, 1995). The National Labor Relations Board (NLRB) is a federal agency charged with enforcing and interpreting the National Labor Relations Act (NLRA). The NLRA, which was enacted in 1935, establishes the right of employees to join or refrain from joining a union and governs relations between most private businesses and unions. There was an issue in Wisconsin where the U.S. Court of Appeals has upheld a National Labor Relations Board (“NLRB”) decision that a grocery chain using nonunion construction contractors unlawfully ejected building trade council representatives handing out handbills adjacent to properties leased by the chain. The construction industry has multiple rules and regulations in place to protect the workers. OHSA has special occupational safety and health standards for construction.
The Wage and Hour Division (WHD) requires payment of prevailing wages and benefits. Construction companies are required to provide equal employment opportunity. The WHD is also responsible for enforcing some of our nation’s most comprehensive federal labor laws on topics, including the minimum wage, overtime pay, recordkeeping, child labor and special employment, family and medical leave, migrant workers, lie detector tests, worker protections in certain temporary worker programs, and the prevailing wages for government service and construction contracts (United States Department of Labor, 2011). Constructions companies are faced with several OSHA regulations. According to the United State Department of Labor, these regulations includes some of the following: general safety and health provisions, occupational health and environmental controls, personal protective and lifesaving equipment , fire protection, signs, signals, and barricades, materials handling, storage, use and Disposal.
The construction industry is faced with many challenges such as competition for contracts and stretching their capital to complete the jobs while still generating a profit. In an effort to combat these challenges as well as direct competition, the Team C Construction Company, LLC has merged the Heavy Equipment Company in order to leverage their strengths with in the related fields. This vertical merger provides Team C Construction Company, LLC with multiple advantages against the regular competition. This merger will allow the TCCC to offer lower bids as their business now owns the necessary equipment to do the jobs. The other companies will now need to follow suit if they wish to compete at the same level.
Team C Construction Company, LLC would need to ensure the regulations are followed to avoid any penalties. The OSHA regulations and support of the local union would be vital to the success of the TCCC. The company must provide the essentials to their works such as a safe work environment and the necessary training to ensure the employees are able to perform their duties safely and efficiently. The workers would be the externalities in this situation as well as the customers we service. These two groups would be the impacted third-parties for the agreements made between the TCCC and the government agencies.
Although global competition exists within this industry, it is vital to ensure the skilled worker from TCCC remain with the company and not be recruited by the ever growing demand of skilled workers overseas. The company must secure the necessary talent and ensure job retention in order to compete in the global markets. The TCCC will need to employ the appropriate number of employees to maintain the labor demand in order to complete the construction jobs in an efficient manner. This will allow them to undertake more contracts and secure additional business from the global and domestic competition.
One can assess from this report that effects of changes in competitive environment can be difficult for companies. Businesses are more competitive now than ever. A business must evaluate the market, mergers, and globalization. Government policies and regulation must be evaluated carefully that include externalities. Lastly, management decisions and how they affect a business with regards to labor demand, supply, relations,
unions, rules and regulations in the construction industry.
AGC of America. (2011). National Construction Employment. Retrieved from www.agc.org Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill. El-Diraby, T. E., Costa, J. J., & Singh, S. S. (2006). How do contractors evaluate company competitiveness and market attractiveness? The case of Toronto contractors, 33(5), 596-608. doi:10.1139/L06-017 Environmental Protection Agency. (n.d). Federal Environmental Requirements for Construction.