International Marketing

3BUS0051 - INTERNATIONAL MARKETING

ASSIGNMENT NO.1

JOSEPHINE OLAMIDE ADEYANJU

04085310

WORD COUNT: 1,200

A CRITICAL ANALYSES OF THE IMPACT OF INCREASED CLIMATE CHANGE ON BUILDING MERCHANT INDUSTRY, ITS EFFECT ON THE MARKETPLACE AND THE FUTURE STRATEGIES OF E.H SMITH

Josephine Adeyanju,

University of Hertfordshire, Hertfordshire, UK

Introduction

One of the frightening environmental concerns is the build-up of carbon-dioxide (CO2) in the atmosphere that has resulted from heavy use of fossil fuels. This carbon dioxide blankets traps the sun's radiation, which leads to an increase in the earth's average temperature. In the UK, climate change is likely to give rise to warmer temperatures, wetter winters and drier summers, as well as higher sea levels resulting in flooding of coastal areas (Boyd et al 1998). As an article (Habitat International 1995) states "the building industry, together with the materials industries which support it, is one of the major global exploiters of natural resources, both physical and biological". The department of trade and industry (DTI) says that just to maintain existing stock the industry "produces about half of UK carbon emissions and single biggest action is in improving energy efficient in new and existing stock".

Buildings consume 40% of energy and produce 40% of CO2 emissions (DTI 2004) to reduce the high level of CO2. EU and UK government have introduced tougher energy efficiency standards, this will be felt by builders merchant; the latter stand to gain from an increase in demand for insulation materials but will also have to bear additional costs. The Key Impacts of building merchant industry on climate change are the cement sector alone accounts for 5% of global man-made CO2 emission (Piltz 2005), highest impact is the mining/manufacture of materials and chemicals, transport of heavy materials such as cement is energy-intensive, but most building materials tend to be sourced from close-by facilities. The chemical processes and use of fuel/electricity account for the major portion of the sector's CO2 emissions.

The effect of CO2 emissions (climate change) on the UK Builders merchant industry and E H Smith Ltd

The key impacts of climate change on Building industry; Weather related impacts: flooding, coastal erosion, subsidence, drainage systems require new building techniques and materials to withstand adverse weather conditions; influences the choice of site. Cost of finance/insurance: Insurance sector beginning to factor impacts of climate change into premiums. Sector has yet to put systems into place to discount climate-change related risk mitigation, but could be pushed to do so through building industry initiatives. Businesses will be interrupted from wetter winters (Kruse 2004)

With the new sustainability approach in effect, it creates great opportunities for the builder's merchant industry. Organisations will be known to have good corporate social responsibility to the society and as this industry is closely linked to the construction industry it has greater chances of emerging into wider market. By companies adapting to both production processes and product characteristics, companies cannot only alleviate risks but also exploit new opportunities that arise as a result of new regulations. "Investors are also seeking assurance from the companies in the building sector that have strategically addressed the risks and opportunities climate change poses in short term and long-term". (Kruse 2004)

There are risk associated to the effect of high carbon emissions, in that it could lead to reduced raw materials (if quarries are not rehabilitated), regulatory risk in EU (emissions, building specs, environmental protection, planning etc), rising power prices as a result of the EU ETS (emission trading scheme) and Less space available for development.

Effect of CO2 emissions on the Market place

Issues facing the building contracting market have an impact on builders' merchants and the products they sell. For example changes in the construction industry will affect the types of building material stocked by merchants. E. H Smith operates only in the UK market and as a result limits their market target. The company's expansion by acquiring product line acquisitions (value-added processes), offering other products and services apart from the heavy materials (core product). The company's sustainable competitive advantage will become increasingly important, as new potential customers would be entering the market. E.H Smith Ltd has more to offer, so when the cement and timber market declines as those are the two products mostly affected by climate change, the company can focus on other products. The builders' merchant sector is recognising a growing potential in emerging markets and is diversifying into developing countries. This is a result of increasing regulation in EU (although this can be of advantage, e.g. building regulations), low growth in developed markets has triggered search for high growth markets, and growth potential in emerging markets (requiring more input into developing infrastructure providing greater opportunities in these less mature markets; population growth and economic development; change in building techniques). It will create lower costs of production in emerging markets. Developing countries (DCs) are not constrained by the Kyoto protocol and industrialising countries are becoming greater contributors to climate change. In shift towards internationalisation, construction is both affected by and contributing to climate change. For example, China is a key growth market and its energy policy increasingly promotes renewable energies (Boyd et al 1998).

EH Smith Ltd is an independent builders' merchant, EH Smith has always concentrated on the quality of its products and service, keeping the customer