Michael Porter’s Five Forces model is a framework for studying the Scaffolding Materials market. Strategic business managers trying to gain an edge over competing firms in the Scaffolding Materials market can utilize this model to better comprehend the industry in which the company operates. The components of each of the forces and the degree of impact of each component in the context of the Scaffolding Materials market have been broken down and analyzed.
Porter’s FIVE FORCES ANalysis: SAUDI ARABIA SCAFFOLDING MATERIALS MARKET
THREAT OF NEW ENTRANTS
The new entrants in the Saudi Arabia scaffolding market are moderately at risk of doing so. For the most part there are several different barriers to entry, including having to be a small-scale construction company looking to sell, lease or rent due to the large capital requirements involved with these types of businesses (even though small businesses are relatively easy to establish). For example, scaffolding systems such as tubular steel frames typically have a high degree of standardization and can easily be sourced through importation or from local fabricators. Likewise, the rising level of construction activity under the Vision 2030 plan is attracting a steady stream of new domestic and foreigners to pool together resources to explore the possibility of building a scaffolding rental business in the kingdom. However, significant entry barriers do exist, including initial investment capital requirements, compliance-related matters (safety and quality), and existing companies not only usually have long-term agreements with the major EPC contractors, but also are already operating multiple mega-infrastructure projects or high-rise buildings.
BARGAINING POWER OF SUPPLIERS
In the Saudi scaffolding material sector, a moderate to high level of supplier power exists because the scaffolding production process departs from the need for raw materials, particularly steel and aluminum. There are many variables affecting the pricing for steel globally that will impact on the overall cost for producing scaffolding. Because some of the additional components making up specialized or modular scaffolding are imported from Europe and Asia, these international manufacturers hold sway over both pricing and delivery times. While there is enough capacity for producing steel in Saudi Arabia, the advanced engineered scaffolding systems are not produced entirely inside the country, which creates greater dependence on outside suppliers and leave the suppliers with more power, particularly when there are disruptions in the global supply chain, or shipping costs increase.
THREAT OF SUBSTITUTES
In the scaffolding materials market, substitute products pose a low to medium risk of substitution. Scaffolding provides a temporary solution to construction needs such as safety and support. There are few substitutes that can replicate the acumen of scaffolding entirely. There are many substitutes available for some of the scaffolding functions, e.g., aerial work platforms, hydraulic lifts, prefabricated modular systems, etc. These substitutes replace the use of scaffolding in limited applications but may not be cost effective or possible to utilize at the same time on an extensive number of high-rise or long-term projects. There is still a very low risk of substitution of scaffolding when used for industrial and infrastructure projects due to the construction safety and adaptability of scaffolding.
BARGAINING POWER OF BUYERS
The buyer power of scaffolding material purchasers is considered a key consideration when analyzing the Saudi Arabian scaffolding material market. Large construction companies and EPC contractors generally have an immense amount of buyer power. Major developers of infrastructure and companies operating and managing Saudi mega projects are typically procuring their scaffolding materials in bulk, commonly through tendering processes or competitive bidding. Thus, they have substantial leverage in negotiating the prices, payment terms, and conditions of service related to those scaffolding materials. Due to the use of tendering, the buyers also have the additional option of purchasing or renting scaffolding systems, providing them with additional flexibility. The existence of a wide range of suppliers, both local and international, also leads to intense price competition among suppliers. As project margins are typically very tight, contractors will often seek to maximize their cost efficiency and therefore tend to compel scaffolding suppliers to provide discounts on their services, or bundle additional services (installation, maintenance) along with their scaffolding systems.
INTENSITY OF RIVALRY
In the Saudi scaffolding materials market, there is a significant degree of competitive rivalry, with local manufacturers, foreign suppliers, and numerous rental companies all competing on aspects such as price, quality, service capabilities and safety compliance. The numerous infrastructure projects taking place in Saudi Arabia provide many opportunities for companies to bid aggressively and be competitive based on bidding strategies. Companies compete not just based on the cost of products but also based on a range of other factors such as the size of the fleets, the level of technical support, the speed of delivery and the types of erection services provided. In the rental segment, competition is particularly strong because there is little to no differentiation among standard scaffolding products. In addition, the cyclical nature of construction activity increases intense competition during downcycles as companies compete against one another to maintain utilization rates. Pressure from strong levels of competition adversely impacts profit margin and encourages companies to operate more efficiently and offer differentiation through service.
Technology Outlook and Disruptions
New technologies and increasing efficiency, safety, and digitalization of the construction industry mean that the Saudi Arabian scaffolding materials market is changing. The scaffolding systems used historically throughout the country have been based on traditional methods, such as steel tube-and-coupler and frame scaffolding. However, because of the growing number of mega-projects and high-rise developments, the industry is experiencing an increase in demand for advanced modular and system-based scaffolding solutions. Modular scaffolding systems are becoming an increasingly popular option for rapid assembly/disassembly, improved load-bearing and improved worker safety. Modular scaffolding systems help to reduce labor dependency and the duration of construction projects in large scale there are many attractive qualities about using lightweight aluminum scaffolding—primarily ease of handling and corrosion resistance, as well as providing a viable alternative for coastal and industrial installations. In addition to emerging technologies included in this trend, digital transformation has gained traction and is being used by a growing number of construction companies as they are implementing Building Information Modeling (BIM) to assist in the planning of temporary structures, including scaffolding layouts. The benefits of implementing BIM include better structural precision, greater cost estimation accuracy, and improved safety planning. In addition to implementing BIM, some of the larger rental providers have begun to use RFID tagging systems and inventory management software to track their scaffold components and maximize fleet utilization.
Convergence and Cross-Sector Impact (Adjacent Markets)
As the Saudi scaffolding materials market develops, it is further developed by related markets such as oil & gas; renewable energy; infrastructure; commercial/industrial manufacturing; and the commercial/industrial maintenance space.
