M RahmanPESTEL analysis of the construction industry
This is a detailed PESTEL analysis of the construction industry. It explores how this industry is influenced by several powerful forces. The global construction industry offers fantastic opportunities for companies; however, it also faces numerous challenges. It is therefore crucial for companies to understand the current state of the industry.
| Quick facts about the construction industry | |
| Popular building material | Concrete |
| Top iconic buildings | Hagia Sophia, The Guggenheim, Taj Mahal, The Pyramids of Giza, Acropolis of Athens, The Gherkin, Le Centre Pompidou |
| Challenges | Shortage of construction workers, young generation’s lack of enthusiasm in the construction industry etc. |
| Diversity | More women in the industry than before |
Political factors that affect the construction industry
One of the primary political factors that affects the global construction industry is government spending. Increased government spending on infrastructure can increase demand for construction services. This leads to a higher need for skilled labor and more opportunities for construction companies. In the USA, billions of dollars are spent every year on the construction of public buildings e.g. bridges, highways, educational institutes, and health facilities.
The lockdowns have badly impacted on the construction industry in the UK like many other countries. In response, the UK government has unveiled substantial infrastructure spending plans with a view to providing a boost to the industry both in the short and long term.
Wars and political instabilities usually destroy the infrastructure in a country. However, rebuilding the infrastructure offers massive opportunities for construction companies. In fact, some construction companies have been accused of profiting from wars and political instabilities around the world.
Economic factors that affect the construction industry
According to Statista (2022) spending in both public and private construction makes up a significant portion of the U.S. GDP. According to IBISWORLD (2022) construction is the third biggest industry by revenue in the UK.
The construction industry has a significant impact on the economy and therefore it can also be affected by economic factors such as unemployment, inflation, interest rates, and government spending. For instance, unemployment can lead to a lower demand for construction services which results in increased costs for companies and less work opportunities for employees.
Economic recession and uncertainties have a huge effect on the construction industry. The downturn in construction often leads to a decrease in both the number of jobs and wages for construction workers. On the other hand, people will be more willing to buy properties during thriving economic times which increase the demand in the construction industry.
Social factors that affect the construction industry
The discussion on social factors is a key area in the PESTEL analysis of the construction industry. Many people are keen on having their own private properties resulting in increased demand for the construction industry. On the other hand, poverty in some sections of the society means that many people cannot afford to buy their own properties.
Generally, women make up a small portion of the global construction industry. In addition, they are often seen discharging office-based responsibilities rather than in action on site. However, the good news is that more and more women are coming into the industry dispelling the myth that this industry is not suitable for women. In fact, many companies around the world are now more than willing and looking to increase the number of women in their workforce.
In developed economies, construction workers are modestly paid if not high. According to stats published by Linear Recruitment (2021) construction workers get paid far better than their counterparts in many other industries in the UK. However, the opposite is often true in many developing economies.
The construction industry faces numerous challenges, including a shortage of skilled labor, an aging workforce, and the new generation’s lack of enthusiasm in it. Therefore, more efforts are required to encourage youngsters to come into the industry. Similarly, more private, and public efforts are needed to anticipate and develop future skills.
Technological factors that affect the construction industry
Automation is an essential element of the modern construction industry. As technology continues to advance, customers are becoming more demanding of productivity and efficiency. Companies must therefore develop strategies that meet these demands while keeping the costs low to continue increasing their market share. In this issue of productivity and efficiency, automation can certainly play a big role.
Social media is a valuable tool for construction companies looking to advertise and connect with their target audience. Likewise, online learning platforms can help construction workers gain valuable skills without having to attend an educational institute physically.
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Environmental factors that affect the construction industry
The global construction industry is affected by several environmental conditions. For instance, rain makes it difficult for people to do work because everything gets wet and dirty easily. When it rains, there are also greater chances of landslides and flooding which simply distract the construction efforts.
The construction industry contributes heavily to air pollution, water pollution, climate change, and landfill wastes. It also creates noise from human activity and transportation during an otherwise quiet time for people. Therefore, construction companies should minimize waste, and use renewable energy sources and less hazardous materials to reduce its negative impact on the environment.
Legal factors that affect the construction industry
The last area of discussion in the PESTEL analysis of the construction industry is the legal environment. There are many laws e.g. the Health and Safety at Work Act 1974 and the Construction (Design and Management) Regulations 2015 that can be applied to the construction industry in the UK. In the USA, construction activities can be subjected to different rules and regulations depending on the location and the nature of work.
The global construction industry is highly regulated for safety and environmental reasons. However, the implementation of laws varies from one country to another. Certainly, laws can affect the industry in a good way by improving safety measures and industry standard; however, regulatory compliance can also be expensive and time-consuming, which can limit a company’s growth.
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Last update: 15 February 2022
References:
IBISWORLD (2022) The 10 Biggest Industries by Revenue in the UK, available at: https://www.ibisworld.com/united-kingdom/industry-trends/biggest-industries-by-revenue/ (accessed 15 February 2022)
Linear Recruitment (2021) Highest Paying Construction Jobs in the UK, https://www.linearrecruitment.co.uk/news/highest-paying-construction-jobs-uk (accessed 15 February 2022)
Statista (2022) U.S. public construction – statistics & facts, available at: https://www.statista.com/topics/1256/public-construction/#dossierKeyfigures (accessed 15 February 2022)
Author: M Rahman
M Rahman writes extensively online and offline with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He holds an MSc in Tourism & Hospitality from the University of Sunderland. Also, graduated from Leeds Metropolitan University with a BA in Business & Management Studies and completed a DTLLS (Diploma in Teaching in the Life-Long Learning Sector) from London South Bank University.
