Five Forces Analysis of the Swedish Construction Industry
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
“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
References: Dr. Lambsdorff, J. G., 1999, “Corruption in Empirical Research – A Review”, available at: http://gwdu05.gwdg.de/~uwvw/downloads/contribution05_lambsdorff.pdf; accessed April 23, 2012 Hådell, A. and Uveborn, J. 2004, “Strategic Analysis Based on the Swedish Construction Industry: A Survey on JM, NCC, PEAB AND SKANSKA”, available at: http://liu.diva-portal.org/smash/record.jsf?pid=diva2:19126; accessed April 23, 2012 Swedish Competition Authority (SCA), 2011, “The Swedish Public Procurement Act – an introduction”, available at: http://www.kkv.se/upload/Filer/ENG/Publications/Public_procurement_intro.pdf; accessed April 23, 2012 Swedish Competition Authority (SCA), 2007, “Competition in Sweden 2007”, available at: http://www.kkv.se/upload/Filer/ENG/Publications/rap_2007-4_summary.pdf; accessed April 23, 2012 The Local (TL), 2010, Simpson, V., P., “Bribery scandal rocks Gothenbourg”, available at: http://www.thelocal.se/26384/20100430/; accessed April 23, 2012 Radio Sweden (RS), 2012, “Ten stand accused in multimillion dollar scam”, available at: http://sverigesradio.se/sida/artikel.aspx?programid=2054&artikel=4998979; accessed April 23, 2012 The Local (TH), 2012, “First conviction in Gothenbourg bribery trial”, available at: http://www.thelocal.se/39630/20120312/; accessed April 23, 2012