Using strategic analysis to assess the construction industry in Ukraine

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Using strategic analysis to assess the construction industry in Ukraine

Viktoriia Onyshchenko Viktoriia Onyshchenko, Ph.D. of Technical Sciences,Associate Professor at the Department of Real Estate Development, Finance, Accounting and Marketing , Tetiana Zahorelska Tetiana Zahorelska, Ph.D. of Economic Sciences, Associate Professor at the Department of Real Estate Development, Finance, Accounting and Marketing, Dmytro Klymenko Dmytro Klymenko, Master Student Prydniprovska State Academy of Civil Engineering and Architecture

Анотація

Використання стратегічного аналізу для оцінки будівельної галузі України

Онищенко Вікторія Євгенівна, кандидат технічних наук, доцент кафедри девелопменту нерухомості, фінансів, обліку та маркетингу.

Загорельська Тетяна Юріївна, кандидат економічних наук, доцент кафедри девелопменту нерухомості, фінансів, обліку та маркетингу.

Клименко Дмитро Олександрович, магістрант, Придніпровська державна академія будівництва та архітектури.

У статті проведено оцінку сучасного стану будівельної галузі України за допомогою різних методів стратегічного аналізу, таких як PEST Analysis, SWOT Analysis, Five Forces Analysis, Stakeholder Analysis, Value Chain Analysis та Scenario Planning. Використання стратегічного аналізу є актуальним для будівельної галузі України, особливо в контексті сучасних викликів і незвичайної ситуації, спричиненої військовим станом в країні. Ціллю дослідження було застосування різних методів стратегічного аналізу для комплексної оцінки будівельної галузі України та розроблення рекомендацій для подальшого її розвитку. Дано характеристику поточної ситуації будівельної галузі України за останні роки. Досліджені проблеми включають: зменшення інвестицій у будівельну галузь; застарілість технологій та обладнання; дефіцит кваліфікованих кадрів; незадовільна якість будівельних матеріалів та будівельних робіт; порушення технологічних ланцюжків та забезпечення матеріально-технічної бази на будівельних підприємствах через обмеження пересування товарів; підвищення цін на енергоносії та інфляційні процеси, що можуть призвести до зростання вартості будівництва та зниження попиту на нерухомість, корупція та бюрократія тощо. Вибрані інструменти стратегічного аналізу для оцінки стану будівельної галузі національної економіки дозволили сформулювати рекомендації для її подальшого розвитку: удосконалення законодавства та нормативно-правового середовища, зокрема у сфері безпеки будівельних об'єктів та енергоефективності; розвиток партнерських відносин з міжнародними фінансовими компаніями для залучення інвестицій та новітніх технологій; підвищення ефективності управління проектами та впровадження передових технологій у будівництві для зменшення витрат та підвищення якості; розвиток інфраструктури, необхідної для будівництва; вдосконалення системи підготовки та навчання фахівців будівельної галузі; розвиток та підтримка українських виробників будівельних матеріалів та технологій для забезпечення незалежності та конкурентоспроможності.

Ключові слова: будівельна галузь, стратегічний аналіз, будівництво, Україна, військовий стан, SWOT- аналіз.

Introduction

Construction plays a vital role in the economy of any nation. In European countries, the construction sector contributes around 5-7% to the total GDP [1]. The construction industry is a cornerstone of the Ukrainian economy, yet its stability remains precarious due to recent economic, political, and social challenges. construction industry ukraine economy

Effective strategies that contribute to national development are essential for leveraging construction's potential, achievable through strategic analysis tools. Such tools can identify industry strengths and weaknesses, predict shifts in the economic, political, and social landscape, devise adaptation plans, and chart the most efficient path forward. This analytical approach is crucial for addressing the construction sector's challenges amidst the current geopolitical climate. Thus, strategic analysis offers promising avenues for developing effective strategies, mitigating risks, and anticipating change within the Ukraine's construction industry.

Analysis of recent research and publications. Numerous researchers have focused on studying the Ukrainian construction industry. Dmytrenko V.I. highlights the industry's significant potential, citing factors like economic conditions, governmental policies, competition levels, innovation, and workforce expertise as pivotal to its development. Strategies proposed include diversification, intensive growth, integration, and differentiation for construction enterprises [2].

Haidenko S.M., Konenko V.V., Sokolov D.V. assess the pandemic's adverse impact on Ukrainian construction, pinpointing key challenges such as reduced demand for services, increased material costs, labour shortages, and supply chain disruptions. Their recommendations include innovation adoption, workforce upskilling, and business diversification [3].

Kutsyk P.O., Yaremko I.Y. advocate for strategic analysis tools in construction management decision-making, emphasizing their integration with broader strategic management functions [4].

Common themes emerge among Ukrainian researchers in the construction domain. Low investment levels and economic instability are major hurdles to industry growth. Addressing these requires streamlining investment processes, reducing bureaucratic red tape, and combating corruption [5]. Enhancing workforce skills is crucial for resource optimisation and construction quality improvement. Infrastructure restoration is also a priority for industry development [6]. However, strategic analysis methods for assessing and utilising the construction industry's potential warrant greater attention among Ukrainian researchers.

Objectives of the article. The research aims to comprehensively assess the state of the Ukrainian construction industry for the years 2020-2024 using strategic analysis tools.

The main material of the study

The state of the construction industry in Ukraine in recent years has undergone significant transformations. The military conflict has profoundly altered the landscape of the construction market, impacting its geographic scope, workforce composition, and regulatory framework. From 2022 to 2023, total losses exceeded $150 billion USD, with the housing sector bearing the brunt at 56 billion USD, followed by infrastructure at 37 billion USD, and industry at 12 billion USD [7]. Over the two-year period of conflict, approximately 15% of construction material production capacities were destroyed, particularly in segments like metal products and dry gypsum mixtures. In 2022, the construction market volume in Ukraine plummeted by 65%. However, 2023 witnessed a notable trend towards increased consumption of construction goods and services, with the market growing by 25% [7].

The demand structure for new residential properties has undergone significant shifts. In conflict zones, construction volume decreased by almost 90%, while central regions experienced a 70% reduction. Conversely, construction in the western part of the country increased by 15%, attributed to business relocations, internally displaced persons, and active development of resort real estate in the Carpathians [8]. The primary real estate market has predominantly shifted towards western Ukraine, with developers in other regions primarily focused on completing projects initiated before March 2022. Most investors are presently abstaining from commencing new construction projects.

Meanwhile, central, northern, and eastern Ukraine are experiencing a growing need for the restoration of destroyed buildings and structures. The most dynamic segment of the construction industry currently is the restoration of infrastructure, including bridges and social facilities, funded by both the budget and international donors. In response to the war threats, new segments of the construction market have emerged, such as structures to protect critical infrastructure objects and modular reinforced concrete shelters designed to safeguard people from air attacks and artillery shelling. From 2022 to 2023, construction costs surged by 53%, resulting in a corresponding increase in prices in the primary real estate market. Construction prices are expected to continue rising due to objective processes like increased demand and inflation [8].

Suppliers of construction materials, who previously sourced goods from Russia and Belarus (including glass, bitumen, metal products, cement, and sandwich panels), have shifted to sourcing from EU countries and Turkey. Closure of Ukrainian ports has rendered the importation of construction materials by sea impossible. Currently, these materials are primarily imported into Ukraine through Romania, leading to increased costs. By the end of 2023, importation of raw materials and construction materials became more challenging due to blockades by Polish and Slovak carriers at border checkpoints with Ukraine. This has further led to price increases and delays in the delivery of imported construction materials.

During the conflict, the working-age population in Ukraine decreased by approximately 35% [8]. Mobilization and emigration of skilled professionals have resulted in a shortage of personnel in the construction industry, felt even amidst significant market downturn. This could potentially lead to wage increases, further impacting construction costs. Consequently, rapid construction technologies requiring minimal labour are gaining popularity. For instance, buildings constructed with sandwich panels require significantly fewer specialists.

Several widely used strategic analysis tools offer a more comprehensive understanding of the situation in the construction industry and potential paths for its development [9]:

- PEST analysis: assesses the external environment's impact on the enterprise, considering political, economic, social, and technological factors.

- SWOT analysis: determines enterprise strengths, weaknesses, opportunities, and threats, facilitating strategy development.

- Five forces analysis: assesses the competitive environment, including buyer power, potential competitors, supplier power, threat of substitution, and threat of new entrants [10].

- Value chain analysis: identifies all processes from material sourcing to construction work execution and costs, enabling identification of optimization opportunities.

- Scenario planning: develops possible future development scenarios based on various economic, political, and technological factors.

- Stakeholder analysis: identifies key stakeholders and their interests to determine strategic directions for development [11].

PEST analysis of the construction industry in Ukraine over recent years reveals several significant factors:

- Political factors: Political shifts and the ongoing state of war could lead to market instability and regulatory changes affecting the construction sector.

- Economic factors: The industry has faced increased construction costs due to price hikes. Furthermore, there has been a decrease in investments and consumer purchasing power. However, there is a growing interest among international investors in the reconstruction and development of the construction industry.

- Socio-cultural factors: Emigration and the mobilization of skilled workers may result in a shortage of labour within the construction industry. Additionally, changes in consumer preferences and needs have influenced demand for construction services and materials.

- Technological factors: There has been a notable adoption of modern technologies in construction, including rapid construction methods and the implementation of "green" technologies.

The PEST analysis highlights the significant impact of political, economic, socio-cultural, and technological factors on the construction market in Ukraine. Such influences are commonly observed across various economies [12].

Taking into account the state of war in the country, the SWOT analysis of the construction industry in Ukraine in recent years may look as follows (Table 1):

Table 1

SWOT analysis of the construction industry in Ukraine in 2022-2024

Source: compiled by the authors

During the reconstruction of Ukraine, a substantial number of construction specialists will be required. Consequently, in the future, there may be labour migration of qualified professionals from the European Union, as well as workers from Asia. International organisations have already commenced establishing partnerships with Ukrainian construction companies. Priority is given to companies utilising European materials and technologies, enabling the creation of modern, architecturally attractive, and energy-efficient buildings [13].

Considering the ongoing state of war, the SWOT analysis of Ukraine's construction industry allows for the proposal of the following development strategies:

- Drawing investments from both national and international companies. State support is vital to enhance trust in Ukrainian investments. Post-war construction financing criteria in Ukraine should prioritise transparency and the expeditious implementation of projects. Collaboration with international partners is pivotal.

- Advancement and implementation of cutting-edge technologies to enhance work efficiency, quality, and reduce environmental impact. Such technologies encompass modern, including "green," materials, rapid construction methods, energy-efficient buildings, virtual design and construction technologies, 3D printing, "smart" buildings, solar panels, etc.

- Developing infrastructure essential for construction (roads, bridges, and railway structures).

- Enhancing the training and education system for construction industry professionals. Establishing programmes for skills enhancement among workers and encouraging youth involvement in vocational education.

- Diversifying supply sources and fostering domestic production.

- Streamlining the process for obtaining construction permits and reducing bureaucratic barriers, ensuring transparency and expediency in implementing construction projects.

The Five Forces analysis elucidates the impact of the competitive environment on Ukraine's construction industry [10]:

- Buyer power: Low. Buyers primarily rely on construction companies and suppliers of construction materials due to limited influence on prices. Nonetheless, they have the option to select among different companies and projects.

- Supplier power: Medium. Material suppliers exhibit some concentration, yet they are dependent on market demand. To ensure the supply of construction projects, material suppliers must furnish the necessary volume and quality of products punctually.

- Threat of new entrants: High. The construction industry is attractive to new entrants due to a high demand for construction services and materials. However, significant internal competitive pressure may impede entry into the market for new entrants.

- Threat of substitution: High. There is a looming threat of substitution with alternative construction methods or technologies in the construction industry.

- Competitive rivalry within the industry: High. The construction industry is characterised by intense competition among companies, necessitating the upkeep of product and service quality.

Applying stakeholder analysis to identify key stakeholders in the construction industry, their interests, needs, and influence [14]:

- Government and regulatory bodies. These are crucial stakeholders tasked with formulating rules and regulating construction industry activities. Their interests encompass ensuring safety and quality in construction, fostering economic development, and ensuring compliance with legislation.

- Investors and financial institutions are pivotal stakeholders. Their interests involve ensuring investment profitability, mitigating risks, and maintaining financial stability.

- Construction companies and contractors. Their interests include profitability, ensuring work quality and safety, and attracting new clients.

- Consumers and users. These encompass individuals and organisations utilising construction projects. Their interests revolve around receiving quality and safe facilities, consideration of their needs and comfort.

- Local communities and society. Their interests entail ensuring environmental sustainability, participating in decision-making processes, and benefiting from construction projects.

Analysing stakeholders provides insight into which groups wield the most influence over the construction industry and how their interests can shape the industry's development strategy. Factoring in stakeholders' interests can aid in devising effective cooperation and management strategies that will foster the growth of Ukraine's construction sector.

Utilising value chain analysis allows for the examination of all stages involved in creating a product or service within the construction industry, identifying sources of value, and opportunities for optimisation [15]:

- Production of construction materials. This stage encompasses raw material extraction, the manufacture of construction materials, and their transportation to construction sites. Sources of value include the costs of raw material extraction, material production, energy supply, transportation, and logistics. Opportunities for optimisation lie in the use of renewable energy sources, refining production technologies, and logistics streamlining.

- Construction and installation. This stage entails construction activities, building structure installation, and system commissioning. Sources of value encompass labour costs, procurement of construction materials, equipment rental, and transportation expenses. Opportunities for optimisation include the automation of construction processes, adoption of advanced construction technologies, and workforce and resource optimisation.

- Sales and service. This stage involves the sale of completed construction projects and provision of after-sales services. Sources of value comprise marketing and advertising, distribution, and customer service.

Opportunities for optimisation include employing effective marketing and sales strategies and enhancing customer service quality.

- Support and management. This stage includes project management, financial planning, and administrative support. Sources of value encompass management expenses, financial management, and IT infrastructure. Opportunities for optimisation entail the use of effective management methods, automation of administrative processes, and financial flow optimisation.

Value chain analysis aids in identifying cost sources and opportunities for optimisation at each stage of activity within Ukraine's construction industry. Optimising each stage can bolster the efficiency and competitiveness of the industry as a whole [13].

Several potential scenarios for the development of Ukraine's construction industry:

- "Economic Recovery" scenario: The military conflict concludes, and the government shifts focus to the country's economic recuperation. Large-scale infrastructure projects are initiated to stimulate demand for construction services and materials. Key strategies encompass involvement in major infrastructure projects, investment in the advancement of new technologies, and the adoption of efficient construction methods.

- "Economic Instability" scenario: The military conflict persists, and Ukraine's economy undergoes upheaval. Reduced investments and a decline in consumer purchasing power result in diminished demand for construction services and materials. Key strategies involve diversifying business directions, cutting costs, and streamlining business processes to maintain stability amidst challenging conditions.

- "Integration into the EU Market" scenario: Ukraine actively integrates into the European Union market, driving growth in construction volumes and the advancement of new technologies. Heightened investments and elevated quality and safety standards create fresh opportunities for the construction industry's development. Key strategies include adapting to new standards and requirements and enhancing competitiveness through the adoption of European technologies and standards.

These scenarios equip the construction industry with strategies tailored to various developmental scenarios and enable adaptation to market shifts. Implementation of such planning will facilitate readiness for diverse future scenarios and ensure the advancement of Ukraine's construction industry.

Conclusions

Utilising various strategic analysis methods (PEST analysis, SWOT analysis, Five Forces Analysis, Stakeholder Analysis, Value Chain Analysis, Scenario Planning), a thorough examination of Ukraine's construction industry has been undertaken, encompassing its strengths and weaknesses, the external landscape, competitive positioning, potential hazards, and opportunities. Drawing from this analysis, a series of recommendations has been devised for the further advancement of Ukraine's construction sector: refinement of legislation and regulatory frameworks, particularly in domains concerning construction site safety and energy efficiency; enhancement of project management efficiency and adoption of cutting-edge construction technologies to curtail costs and enhance quality; forging partnerships with international financial institutions to foster investment and modernisation; ongoing vigilance of market dynamics and adaptability to shifts in the economic and political milieu; nurturing and bolstering Ukrainian construction material and technology producers to ensure self-sufficiency and competitiveness.

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Список використаних джерел

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Abstract

Using strategic analysis to assess the construction industry in Ukraine

Viktoriia Onyshchenko, Ph.D. of Technical Sciences, Associate Professor at the Department of Real Estate Development, Finance, Accounting and Marketing.

Tetiana Zahorelska, Ph.D. of Economic Sciences, Associate Professor of the Department of Real Estate Development, Finance, Accounting and Marketing.

Dmytro Klymenko, Master Student, Prydniprovska State Academy of Civil Engineering and Architecture.

The article assesses the current state of Ukraine's construction industry using various methods of strategic analysis, such as PEST Analysis, SWOT Analysis, Five Forces Analysis, Stakeholder Analysis, Value Chain Analysis, and Scenario Planning. It provides an overview of the current situation in Ukraine's construction industry over the past years. The identified problems include: decreased investments in the construction industry; outdated technologies and equipment; shortage of skilled labor; unsatisfactory quality of construction materials and works; disruptions in technological chains and provision of Ukraine's material and technical base: improvement of legislation and regulatory environment, especially in the field of construction safety and energy efficiency; development of partnerships with international financial companies to attract investments and modern technologies; implementation of advanced technologies in construction to reduce costs and improve quality; development of infrastructure necessary for construction; improvement of the system for training specialists; support for Ukrainian manufacturers of construction materials.

Key words: construction industry, strategic analysis, construction, Ukraine, military situation, SWOT analysis.

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