Impact of Climate Change on Building Merchant Industry and Its Effect on the Marketplace

Impact of Climate Change on Building Merchant Industry and Its Effect on the Marketplace

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An Analysis of the Impact of Increased Climate Change on Building Merchant Industry, Its Effect on the Marketplace and the Future Strategies of E.H. Smith

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.

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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 at the centre of every equation. That is how E.H smith differentiates itself from its competitors and has various branches covering different parts of the UK. They also offer trade-smith card, this card makes it easier for regular customers to buy goods online. E. H. Smith (2006). Although the E H Smith has recently selected Vecta's Sales Intelligence software to help streamline its sales process and overcome barriers to business growth. They might need to utilise new marketing strategies to avoid being taking over by the super players in the industry. E.g. take-over of Baggeridge Brick by Wienerberger, the Austrian brick maker and the take-over of BPB a plaster-board maker by Saint Gobain the giant French insulation company (Builders Merchants Journal Aug 2006 Supplement)

Possible marketing strategies in reducing CO2 emission

The builder's merchant industry has been pro-active in addressing high levels of co2 emission; there is no convincible information on the how E.H Smith have pro-acted or re-acted against climate change but by looking at their website and the kind of product and services they offer and reading their profile we could estimate that they been trying to expand in direction of differentiation into the market, trying to downstream into a niche market, introducing civil engineering solutions, garden landscaping products and self build project services.(EH Smith 2006). Using Ansoff's matrix EH Smith Ltd could present a logical frame-work to grow new market objectives under each of the four headings to help the company toward better proactive strategic decisions (McDonald M. 2002).
The general strategies to address reduced CO2 emission in the building industry could start from Government taxation and regulation e.g. Tax breaks or rewards for energy efficiency; raised energy efficiency standards for construction and refurbishments; calls for increased transparency in property energy use which could effect valuations, Voluntary targets; Industry sets reporting metrics, individual companies set targets, Process/technology innovation building material companies need simultaneously to make changes to their technology abs their energy mix, to actively promote products with less clinker, and to invest in R &D on new products and processes to optimise CO2 emissions in light of the new constraints posed by the ETS. Other ways of reducing climate change is by switching to lower carbon fuels, Identifying alternative raw materials (e.g. lower clinker-content cement), CO2 capture and sequestration (although very costly) and Emissions trading.

A re-active approach, E.H Smith Ltd could also react to the impact of climate change by enforcing sustainability within the workforce. They can stress and communicate to their employees the important of minimising CO2 emission through effective training and by setting up environmental performance improvement programmes for employees.

Company strategies to address climate change differ markedly, and only few in the builder's merchant industry have set explicit emission targets. The Builders merchant industry continues to become more concentrated and highly competitive with five major market leaders and as a result companies need to utilise a sustainable competitive advantage, in order to add value to their service. For E.H Smith to grow and adapt to the change they need to improve on their strategy and train their workforce to better management of energy efficiency and might look at expanding outside of the UK. E.H Smith developing software to improve it supply chain can be effective in adapting to Kyoto protocols and the EU ETS. The way ahead in other for the implementation to be effective is for government to incorporate sustainability as a headline policy target with an environment minister at cabinet level, and for the building industry to unify under a single banner of sustainable principles with an aim of constructing sustainability instead of excellence.

Bibliography and References
Piltz, S (2005) the politics of climate change: "from brown to green: towards sustainable construction", Open Democracy Ltd, London, UK

Kruse, C (2004) "Climate Change and the Construction Sector" IIGCC (Institutional investors group on climate change, Woking, UK

Hertin J, Berkhout F, Gann D M, Barlow J. (2003) "Climate change and the UK house building sector: perceptions, impacts and adaptive capacity", Journal of Building Research & Information, Taylor and Francis Group, 31: 278-290.

Vecta (2006) EH SMITH FIXES BARRIERS TO BUSINESS GROWTH WITH VECTA, VECTA PRESS RELEASES, (Retrieved 1 November, 2006). From Vecta databases.

Supplier base shrinks as buy-outs continue. Builders Merchants Journal, Sep2006, p5-5, 1/3p; (AN 22422790)

Major players dominate changing marketplace. Builders Merchants Journal, (Aug 2006 Supplement), p5-5, 1p; (AN 22422777)

Panel debates key issues. Builders Merchants Journal, (Aug 2006 Supplement), p9-9, 1p; (AN 22422779)

E.H Smith Ltd. (2006). About E.H Smith. {Online} URL: (Retrieved 1 November, 2006)

E.H Smith Ltd (2006). E. H Smith Products and services. (Online) URL: {Retrieved October 30, 2006)

E.H Smith Ltd (2006). E. H Smith Trade-Smith. (Online) URL: {Retrieved November 1, 2006)

Stern, N. (2006) Energy "Environmental Issues: Climate Change" DTI Reports (Online) URL: (Retrieved 3, 2006)
Keynote (July 2006) Builders merchant Industry [Online] URL: (Accessed November 2006) Builder's merchant industry.

Ghauri, and Cateora (2006) International Marketing. 2nd edition. Maidenhead: McGraw-Hill Education.

Hennessey H. D. and Jeannet J (2001). Global marketing Strategies. 5th edition. P45-46, p243-245 Houghton Mufflin Company, Boston, New York.

Chris Brown, BS, (2006), International marketing lecture Slides.
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McDonald M, (2004) Marketing Plans; "How to prepare them, how to use them", p264, Fifth Edition, Elsevier.

Boyd H JR, Walker O JR, Larreche J (1998). Marketing Management: "A strategic approach with a global orientation" 3rd edition p2-4, p60-62, Irwin: McGraw-hill Educatio
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