The Constructional steelwork sector is a vital part of the building construction industry and the generation of the physical infra-structure of the community. The importance of the sector in the U.K. is accentuated by the higher proportion of steel construction in the U.K. than in other developed countries. Wedged tightly into a value chain position between suppliers and buyers of considerably greater financial power and confronted by strong competition from both inside and outside the sector, the strategic position of the constructional steelwork manufacturer in the U.K. is weak. This position is further undermined by the prospect of another building construction industry wide downturn in 1990-91 leaving the companies within the sector to face at least two years of low profitability, widespread reduction in activity and increased stress of price based competition. The history of the constructional steelwork sector reinforces these expectations with its fragmented and highly monopolistic structure. Companies within the sector must attack their position through active strategic development if the corporate objective of maximising returns to shareholders is to be achieved other than through corporate dissolution.
It is into this difficult environment that the Harley Spaceframe system has been launched. A new structural building system developed in Australia, Harley enters a market place which has a long history of aggressive price based competition, and an industry which has responded in the past to technical developments by individual competitors. Having recognised that a lack of resource, financial and human, would not allow the Australian company to effectively penetrate the European market place, Harley licensed a major U.K. constructional steelwork manufacturer to exploit the system. Behind the decision for the specific licence agreement rest a wide variety of strategic issues which drove both parties to the mutual arrangements. It is the importance of the these strategic issues, both specifically to the Harley Spaceframe System and generically to the constructional steelwork manufacturer, which provided the impetus for this report.
1992 is expected to herald the single common market of the European Economic Community, with the objective of commercial, fiscal, regulatory and operational integration of the individual member countries. However the cultural and national differences between the member countries may be expected to cause stress and result in creation of commercial opportunity. Only as the formal removal of all trade barriers approaches has the U.K. construction industry begun to respond to the implication international affairs may be expected to have on their domestic markets. The formalisation of the common market can be expected to add to the importance of a structured strategic approach to the U.K. Constructional steelwork Manufacturer.
This report develops the formal scenario within which the U.K. constructional steelwork manufacturer operates, and attempts to anticipate where the sector is heading from a strategic perspective. An assessment of the domestic industry structure provides the bulk of the report, while the implications of that structure to development of competitors both specifically and generically are expanded. Specific references are made with regard to recognition of the "value chain" within which the industry operates and the importance of this chain to the development of a long term strategic plan for the specific competitor regardless of their position within the industry. The implications of ignoring the value chain concept are also addressed as they identify the primary constraints to maximisation of long term profitability. Tactical and operational development have been addressed only when relevant to a specific example. '!he results of the industry analysis conducted, and the succeeding comments on strategic development could be used to discuss the strategic positioning of any of the sector members.
The report supports the adoption of a long term strategic plan aimed at breaking the value chain barriers to achieve "economic" profitability. From the analysis conducted of the present industry structure, the importance of separating corporate reliance from constructional steelwork activity is identified. With its present position in the value chain, the best scenario identified for the constructional steelwork manufacturer attempting to remain in the sector was the maintenance of normal "profits" in the long term. strategically the best option for the constructional steelwork manufacturer appears as a production centre within a diverse corporate portfolio, supporting other corporate activity, or to concentrate. upon cost based competition and cost minimisation while utilising the cash flows of the manufacturing activity to develop non-related commercial activities. A proportion of the sector, given their profitability record, should be considering an exit strategy. The industry could support the diverse range of companies it currently contains, but only if unilateral action forced steelwork prices up to profitable (long term) levels. However Fair Trading" legislation clearly prevents such action. Recent cases of price fixing in cement manufacture ratify the impact of legislation preventing industry unilateral action. The constructional steelwork sector needs to take action to control their strategic position and individual competitors to assure their corporate future. '!he sector, caught between the dichotomy of short and long term economic objectives, has not consistently demonstrated rational long term economic l:ehaviour. '!he time for action by players is long overdue.