CONSTRUCTION ECONOMICS

How Flexible is Construction in Managing the Economy

How Flexible is Construction in Managing the Economy

Introduction

Construction in the UK accounts for just over 5 per cent of UK Gross Value Added (GVA). In 2001 output from the industry in Britain was estimated at £74.6 billion in current prices according to the DTI. The output of new work and repair, maintenance & improvement (RM&I) is divided into ten key sectors with their contributions illustrated in the chart below. New work accounts for 53 per cent of construction with RM&I the remaining 47 per cent. The largest type of construction work is commercial activity which accounts for 19 per cent of output, followed by private housing RM&I and private non-residential RM&I. Public sector construction activity accounts for 24 per cent of output whilst housing related activity accounts for 36 per cent.

Numerous attempts have been made by Governments around the world to improve the performance of the industry through which it converts its revenue into national assets, the construction industry (Gann, 1996, 437-450). Most have been developing nations that have sought to improve national industrial capacity, to create employment and to keep the invested funds within the economy. Some have been developed nations that have sought to improve the efficiency of the industry in order to ensure value for money invested in the process. However, Ofori (1991) described the failure of most of these attempts in developing countries and whilst there have been a number of recent initiatives that are thought to have some potential, the method for success has not been revealed. Initiatives such as those underway in Singapore, Malaysia, two states in Australia and Britain may reveal a successful model in due course.

Construction Industry Development

That an industry could be considered to need the intervention of government to improve its market performance, and ability to provide customer satisfaction, must mean that the industry concerned is in a very poor state and incapable of devising and implementing strategies that would remedy the situation. One could argue that such an industry deserves to be replaced by other service and product suppliers and that client would be wise to look for replacement service providers who can offer the required performance (Hindle, 1996, 29-30). Indeed, Porter's (1980) 'five forces' model considers the 'threat of substitute products or services' to be a normal market regulator. However, it would seem that substitutes are not readily available in construction markets or that other service providers have the same apparent structural impediments or face formidable barriers to entry. There are signs though, that manufacturing industries are venturing further into traditional construction business areas, not only in terms of component manufacture but also as constructors (Hindle, 1997a, 40-46). A number of shipbuilding and engineering companies in Korea and Japan, including the automotive giant Toyota, have made moves into the international construction market, though their impact is not yet thought to be significant. (Abdul Aziz 1991, Gann 1996)

Perhaps this array of industries, plus aerospace, may look more seriously at construction in ...