Economic Analysis Construction - Assignment Example

Objective Introduction The major industry areas and the regions in the Government of UK are showing the positive resultsof the growth. With this trend, the UK government is likely to become the fifth largest in the world when ranked economically. This is because the inflation rates so far are being managed therefore the interest rates are most likely to rise progressively from the results of the 2014/2015 financial year. The higher rates of interest are a contributing factor towards the present high rates of house price although the housing sector has the challenge especially with the weak productivity growth and the risk of universal shocks (Munro, Smith and Ford 2010). The annual GDP computed for the UK ranks it the 8th largest in the world and the 2nd largest in the Europe measured by the purchasing power party (PPP). The government of UK in the year 2013 was 4th largest importer and also the 4th largest exporter, moreover, it had the 3rd largest stock of inward foreign direct investment with also the 2nd largest outward foreign direct investment stock thus making it the most globalized economy in the world. The key service sectors that boost the economy are; the finance, aerospace, pharmaceutical, automotive and also by the North Sea oil and gas from the British economy. These factors contribute to a GDP of 78% (Root, 1998) Discussion In terms of macroeconomics, UKs labor market has been impressive from records. To show these progresses the employment, inflation real world wage and inflation expectation records comparison has been done to analyze these changes. From the comparisons the rate employment has increasing and education has reached even the lowest of the generations. Inflations have remained at a low rate and on the other hand the inflation expectation among wage bargainers has been stabilized. The levels of the real wages have been sustainable over the period boosting the economy. Unemployment levels can be seen to be reducing from year to year and by the year 2014, the number of those looking for jobs was at the lowest level from all the previous years (Hill and Hillier,1977). Recent shifts in employment equilibrium This was done by taking the actual rate present and make an adjustment on both side (upward and downwards) for rising and falling inflation respectively. The table below shows the estimates made; Table 1: Estimates for shifting equilibrium. 1985-1989 1989-1993 1993-1997 1997-2001 2001-2005 2005-2009 2009-2013 Unemployment (%) 8.9 8.8 7.9 6.1 5.7 5.2 4.4 Change in inflation (% p.a) 0.5 -0.7 -0.04 -0.4 -0.03 0.2 0.1 Balance of payment deficit (% of potential GDP) 0.8 0.7 -0.1 0.5 0.3 0.2 0.2 Equilibrium unemployment (%) 9.6 8.9 6.9 5.7 5.1 4.6 4.0 In European countries, the wages of many employees are determined by the trade union collective bargaining. Here this tends to generate a positive pressure on inflations at the labor market. The result is higher levels of unemployment equilibrium. This method was adopted in the Britain which has resulted in the revolution in the wage determination. During this process, wage bargain has lessened and the output has been the reduction of the strikes experienced from the previous years of 2010. The benefit aspects have also played an important role and when projected, will see the UK at the top of the world’s economy. The aspects are, the level of benefit, entitlement duration, system coverage and the regulations governing the system operation. Future changes in the unemployment equilibrium Wage determination plays an important role. First, we have the national minimum wage and the trade union recognition procedure. Secondly, the tax benefit from them will serve a good purpose in improving the labor supply. When projected to the future, competitions will result in competition from the other sectors and all these are very beneficial to the UK government. The overall general construction market output Productivity improvement is a primary factor in the economic improvement and long term sustainable performance competitiveness (HM Treasury, 2006). UK government has strategies development to improve the production which focuses on the following key factors; competition improvement, enterprise promotion, innovation and science support, investment encouragement (Budget Report 2005) and raisin UK skills. Productivity performance is dictated by a number of factors in the UK. There are ten factors which are; quality, number and balance of labor force, degree of mechanization, work continuity, work complexity, finished work quality, construction methods, contract type number of managers and the weather quality. The external factors include design, weather, client modified changes, the development level of the economy and the political stability of the nation of concern. The internal factors are the technology level exploited the training of the individuals and the skills of the workers, and lastly the management. The current Housing market and its regional competition. In the past years, the UK housing has been centralized around home ownership. The government has enabled people to own houses by means of tenure and also through the ownership of the property. The government encouraged the residence to own their own homes which is presently at 80%. This puts UK higher than Germany where home ownership is very low yet it is among the developed countries. The system for land acquisition is also well equipped and works fast providing high levels of security to lenders making the process easy and consequently increasing lending of property. The revision of the mortgage market the prices widely available to lower income groups and also the premise type has increased in variety making room for many customers. The government policy has increased owner occupation through policies. Recently, tenants can be able to claim tax relief on their house lending’s and also negotiate on the payable interest rates. Money got from the house sales and lending is not taxable thus attracting market values contributing to tenure services. The right to buy property has led to a revolution from public to private housing sectors. This has increased the number of houses sold which now contribute to around 15% of the total house selling (Hill and Hillier 1977). Figure 1: Graph of owner occupation of between 1998-2013; Analysis It is seen that the rate of unemployment is reducing at a higher rate and this shows that the economy of the UK is improving. Therefore, the company’s performance will be better since the number of people to be employed with enough skills and experience. The housing system has proved to boost the economy now that the government has reduced the taxation levied. The number of people owning houses is increasing and all the classes of individuals are being catered for in the government. From this housing sector the level of poverty has substantially reduced by o notable amount. Together with the level of education improving this generates the total economy at very high levels, putting UK on top and thus achieving the company’s objectives. The inflation rates are decreasing and this shows that the economic performance should be improving by a very big percentage. This therefore shows that by the year 2018-2019, the objectives would have been achieved and thus the company will improve its production. In general, it is seen that the objectives of the company will be achievable provided the economy of the country proceeds at the same rate by 2018-2019. Strengths of the data sources The data source uses the current economies and present statistics to analyze the future trends and performance of U.K. The data used is reliable since it has been used in evaluation of other important aspects in the recent years. The sources are up to-date as they exhibit the vast changing technology and website information. Accuracy of the data sources in that the performance of the economy at the ground level is also included in the analysis. Weakness of the data sources Limited information due to vast changes and updates of information Reliability of single sources limiting comparisons. Objective 2 Introduction Fundamentally, the Middle East is one of the fastest growing economies in the world. Social, economic, and political are some of the aspects that shape the community we live in and the whole country at large. Construction Companies will have various opportunities in the Middle East owing to the fast growth of all sectors in the region. These opportunities range from the built environment such as residential houses, high rise buildings, sky scrapers, hotels among many others (Azzimonti et al, 2007). Discussion The current macro-economic context in the Middle East and the key trends. Principally, these refers to the external factors that will affect the Company’s performance, operation and the atmosphere needed to carry out the business activities in the middle east. It will also encompass the emergence of current issues. They include the following; Political environment. It is the atmosphere needed for business to carry out its activities well. It also refers to the level of security that is available in a certain country. The political atmosphere in the United Arab Emirates is very steady with a stable government. This will enhances the growth of the construction company and therefore higher revenue can be generated because of assurance of security of both personnel and the facilities. Additionally, the presence of conflicts such as wars, revolution or terrorism have a strong impact on the foreign investment (Root, 2008). Furthermore, legislation normally is subjected to changes which make foreign companies insecure and instil them with fear thus affects the company to achieve its full potential. Legal procedures. This is one of the very vital factors that should be considered by a company in the Middle East. Different countries have different legal practises that are needed to be complied and adhered to. U.A.E government has been able to encourage foreign investors by reducing the procedural requirements for one to start or operate a company in the country. Economic factors. U.A.E is one of the potentially rich countries. Most of her opportunities have not been exploited to the maximum. The estimated GDP by the IMF is quite high which suggesting a positive growth in all sectors. The availability of cheap labour have also pushed the economic growth in the country. The frequent occurrence of strikes, political demonstrations and riots will adversely affect the economy.(Adji, Ahn, and Holsey 1997, 133). Technological factors. The level of technology in a country will affect the company’s operation and output. The technology is one of the current and emerging issues in the country. Technology keeps on changing and the company should be keen on that aspect. Furthermore, the level of technology application and use varies from one country to another (Azzimonti et al, 2007).Essentially, foreign companies should keenly identify the level and type of technology used in any country of their choice. Conclusively, foreign direct investment in the U.A.E and the Middle East at large is increasing at a faster rate (World Bank 2012). Barriers to market entry, and how to be overcome. These are limitations of a particular company trying to venture into a new business in the market. A number of market entry exists that hinders new companies to enter into the market. They include the following; 1. Economies of scale The cost of material productions, marketing and advertising must be endured by the company itself which opts to enter into the industry. This can affect the company’s viability and entrance into the market. The cost of raw materials for construction purposes might be too high in some countries while might be less in others depending on the government legislation and taxes. Furthermore, the cost of operation, marketing and advertisements might be too high thus hindering the entrance of new companies in the in the industry (Root, 1998). 2. Competitors Competitors might in one way or another discourage the entrance of new companies. For instance, very well established companies might lower the prices of goods and services but still make substantial amount of profits. A new company which tries to operate at the same prices will make lots of loses in the short run thus discouraging them from entering the industry. 3. Distribution channels It is another barrier to entry of new firms into the industry by foreign firms. A foreign firms will always have difficulties with new distribution channels of their products and also access of raw materials. If a feasibility study is not carried out well, then the company will be disadvantaged and will be overtaken by the competitors. This might lead to closure of firms. 4. Government policy The government might create barriers to entry into new markets. The licensing requirement is one of the fundamental permit in order to carry out the business activities. If the government refutes the licensing of certain companies then it will be the end of such firms and thus discouraging the new or foreign investors from coming into the market. Such barriers can be resolved by coming with new legislation by the concerned governments to encourage and reduce the licensing requirements. The firms must carry out a nice feasibility study in order to have a good knowledge in distribution channels of their raw materials and products. Additionally, the firms must have good and high starting capital in order to compete with their competitors favourably. The general construction market growth prospects through to 2018/19 in the Middle East The figure below illustrates various regional sector composition in the Middle East in the year 2012. It gives a good estimation of the overall opportunities in the building sector thus anticipating a positive projection in the next coming years (Azzimonti et al, 2007). Figure 2: various regional sector composition in the Middle East Figure 3: Various prospects sectors of the economy in the Middle East The figure above illustrates the project performance in the Middle East. Several sectors in the U.A.E can be exploited by the construction company such as health, retail, residential, education among many others. The strategic objectives of the company can be achievable with certainty. The Middle East economic opportunities are countless. This is due to oil availability which increases the GDP of the country. The U.A.E in particular have set out targets which will benefit the construction industry at large. The strengths and weaknesses of the data sources you have used. Strengths 1. The data is based on surveys and statistics thus provide a precise and most probable values in the analysis. 2. The method used is cleared defined and its accuracy can be verified and checked. 3. The survey essentially provides comparisons of different data. Weaknesses 1. Resources are required in order to carry a good analysis which might be too expensive. 2. Time consuming because data collection might take long time. 3. The results can be unreliable and incorrect if wrong or obsolete methods are used in the analysis. References Root, R. (1998) Entry Strategies for International Markets – revised and expanded. San Francisco, US: Jossey-Bass. Adji, S., Ahn Y., and Holsey M. (1997). "Political Capacity, Macroeconomic Factors, and Capital Flows." In Political Capacity and Economic Behavior, eds. Azzimonti, Marina, and Pierre-Daniel G. Sarte. 2007. Barriers to Foreign Direct Investment Under Political Instability. Economic Quarterly (10697225) 93 (3):287-315. Hill, R. and Hillier, T. (1977). Organizational buying Behavior. The MacMillan Press Lt: BBudget Report (2005), HM Treasury, The Stationery Office, London. ath international edition. Munro, M., Smith, S. and Ford, J. (2010) An evaluation of the January 2009 arrangements for Support for Mortgage Interest, London: DWP Read More