Increasing Capacity with a Merger

One method to improve the rate of return is to decrease costs of production and increase quantity  of work available and offered. One method of achieve this is by setting up a merger or group with other firms (Cooper, 2013). Fletcher is a large firm and has partnerships with many smaller firms which specialise in areas where Fletcher themselves do not. Within their Infrastructure Products division they work alongside Firth Concrete (NZ) and Pacific Steel (NZ), each specialising in a separate area of the construction process and are doing this currently to build a 6 lane highway connecting SH6 and SH10 in Auckland (Kenyon, 2014) (Fletcher Building, 2014).

In order to assure an increase in the quantity of jobs available and an increase in revenue and rate of return Concrete Corp needs to be involved in a merger with other business which specialise in other areas for example design or sales. If Concrete Corp was to merge or form a group with other firms any potential developer would only need to get the one group involved in the whole process which would be better in terms of organisation and management (Parker, 2014). It would be better for Concrete Corp as being part of this group as it increases market share as new markets are made available as they are no longer just in the concrete and construction industry and are also in design and property markets.

Spending time with these other firms allows access to knowledge and skills which could be incorporated into the Concrete and construction industry. Concrete Corp could then horizontally diversify and buy other firms in the same stage of the industry as them (Cooper, 2013). Concrete Corp could buy out the design sector of the group and be a ‘one-stop-shop’ designing, building and fitting out development projects. This can be started by forming a group with other firms within the construction industry and increasing market share, jobs and revenue.

 

-James Bolland 300279941

 

Bibliography

Cooper, R. (2013). Horizontal, Vertical integration and Diversification. Retrieved June 5, 2014, from Rumer Cooper: https://rumercooper.wordpress.com/boa-college/the-media-sector/horizontal-vertical-integration-and-diversification/

Fletcher Building. (2014). Financial Result for the Half Year Ended 31st December 2013. Auckland: Fletcher Building.

Kenyon, P. (2014, February 13). Ramping up mega-TBM progress in Auckland. Retrieved June 5, 2014, from TunnelTalk: http://www.tunneltalk.com/New-Zealand-12Feb2014-Mega-TBM-ramping-up-speed-for-Waterview-highway-tunnel-delivery-in-Auckland.php

Parker, T. (2014, March 24). Foreign bids for NZ assets tipped to rise. Retrieved June 3, 2014, from NZ Herald: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11224928

 

Seasonal Variation

Demand for construction labourers varies with the season and weather outlook (MacPherson, 2014). During winter the weather is less suitable for construction there is less projects available. Revenue will decrease during this period due to less available jobs. Fixed costs such as administration will continue to be paid (Builders and Concrete SARC361, 2014), and result in decreased or negative monthly profits. Depending on Concrete Corp’s financial situation, these low or negative profits may be able to be withstood. However to ensure Concrete Corp’s cash balance doesn’t go into negatives, new construction projects need to be found.

Decreasing the cost to clients may result in more jobs being offered to Concrete Corp over competing firms. Decreasing our mark up on labour and concrete may secure new jobs over competitors or make development projects that were financially unfeasible at the higher price, viable at a lower price (CareerCast, 2014). Supplying the service at product cost may not necessarily increase the rate of return to Concrete Corp during these down months, but will at least ensure our labour force has jobs over winter and ensure they do not leave to find work in other industries.

Increased spending on advertisement may also result in more jobs being offered to Concrete Corp as their availability in the market becomes more well known. Increased advertising during Summer and Autumn months may result in enough jobs being offered and undertaken to allow the whole labour force to be active during winter (BusinessDesk, 2014). There are still labour jobs available in the busy town centres but to ensure fixed costs are sufficiently covered and Concrete Corp is profitable during the winter months with a pleasing rate of return action needs to be taken to increase sales.

An alternative to increasing the quantity of sales would be for Concrete Corp to increase the price of its goods and services, however this is not advised due to decreased and elastic market demand which would cause quantity of sales will decrease proportionally more than the increase in revenue and Concrete Corp would instead see a decrease in total revenue.

 

-James Bolland 300279941

 

Bibliography

Builders and Concrete SARC361. (2014). Assessments. Retrieved June 1, 2014, from Blackboard: https://blackboard.vuw.ac.nz/webapps/portal/frameset.jsp?tab_tab_group_id=_2_1&url=%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher%3Ftype%3DCourse%26id%3D_63722_1%26url%3D

BusinessDesk. (2014, June 5). Auckland house sales, prices fall in May. Retrieved June 5, 2014, from NZ Herald: http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11268109

CareerCast. (2014). The Seasonal Roller Coaster of Jobs in Construction. Retrieved June 4, 2014, from CareerCast Construction Network: http://construction.careercast.com/article/seasonal-roller-coaster-jobs-construction

MacPherson, L. (2014, June 4). Value of Building Work Put in Place: March 2014 quarter. Retrieved June 6, 2014, from Statistics New Zealand: http://www.stats.govt.nz/browse_for_stats/industry_sectors/Construction/ValueOfBuildingWork_HOTPMar14qtr.aspx

The Burden of Fixed Costs

A major component of Concrete Corps cash flow is the burden of fixed costs (Rath, 2014). Fixed costs are costs that must be paid and are independent of the levels of output during that time frame (Builders and Concrete SARC361, 2014). Examples of fixed costs Concrete Corp has to pay are Rent, Tax and Administration These costs do not change from month to month and must be paid unless the business shuts down completely.

One way these fixed costs can be manipulated to have less of a negative effect on the cash flow and financial situation of Concrete Corp is to hold back these payments as long as possible. Corporate taxes must be paid at the very least quarterly, but paying these in four larger payments (rather than monthly payment) (Rath, 2014) (Reed, 2012)means that when you pay the sum the purchasing power of each of those dollars is less and Concrete Corp has essentially saved costs (Measuring Worth, 2014). Because inflation rises the costs of the dollar prices of goods increase meaning that $1 today will buy more than $1 in the future. By delaying payments as long as possible the real value of those costs decreases, which leads to an increase in the rate of return for Concrete Corp as a whole.

Some fixed costs such as administration staff costs need to be paid monthly, but others such as rent can be negotiated to be paid as late as possible to make the most of this loss of purchasing power. Loan repayments (if Concrete Corp has any bank loans) act in the same way however due to interest rates being higher than inflation and interest compounding daily on the initial loan, it is best to pay off any loans as soon as possible.

 

-James Bolland 300279941

Bibliography

Builders and Concrete SARC361. (2014). Assessments. Retrieved June 1, 2014, from Blackboard: https://blackboard.vuw.ac.nz/webapps/portal/frameset.jsp?tab_tab_group_id=_2_1&url=%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher%3Ftype%3DCourse%26id%3D_63722_1%26url%3D

Measuring Worth. (2014). Measuring Worth Is a Complicated Question. Retrieved June 4, 2014, from Measuring Worth: http://www.measuringworth.com/

Rath, T. (2014). 7 Ways to Reduce Your Small Business Tax Burden. Retrieved May 24, 2014, from About.com: http://sbinformation.about.com/od/taxes/a/ReduceSBtax_ga.htm

Reed, J. T. (2012). Disadvantages of gold as an inflation hedge. Retrieved June 4, 2014, from John T. Reed Publishing: http://www.johntreed.com/golddisadvantages2.html

 

Labour and Rate of Return

Based upon the number given, the cost price to Concrete Corp for concrete is $10 per unit with a sale price of $12.50 per unit (Builders and Concrete SARC361, 2014). This gives a per unit profit of 25%. Labour on the other hand has a cost price of $20 and a sale price of $30 which gives a 50% return for every unit hour of labour sold (Builders and Concrete SARC361, 2014). Ignoring Fixed Costs such as Rent, Taxes and Administration Staff and focusing just on good sold, labour achieves a far better return per unit. Based upon this in order to maximise profits Concrete Corp should rearrange internal resources to maximise the output of labour hours.

Concrete Corp currently has a monthly capacity of 1300 hours of labour available (Builders and Concrete SARC361, 2014). With an average residential  house taking 4500 man hours (Brekke, 2014) this means at Concrete Corp could build approximately four hours per year working to full capacity. The market for residential housing has been increasing as the Christchurch Rebuild is underway and this means there are a lot more potential jobs available. By hiring more building and construction staff more houses can get built, bringing in increased revenues. A profit of ($30 revenue – $20 cost = $10 profit per hour * 4500 hours per house) $45000 profit can be brought into Concrete Corp per each new house built. By increasing Concrete Corp’s labour force and increasing the sale of labour hours at $30 per hour, return on investment will dramatically increase.

Unskilled Labour can be hired at a much cheaper rate and if Concrete Corp chooses to employ unemployed people on the benefit to government will offer Concrete Corp a subsidy per hour worked (MBIE, 2012) to ensure there is work to ensure they previously unemployed do not go back on the benefit. This subsidy can be used to train the worker or they can be kept in a position where little formal training is needed and used as cheap labour at a potentially high rate of return. Concrete Corp needs to increase its labour work force and construct more residential buildings as labour has a great rate of return per unit.

 

-James Bolland 300279941

 

Bibliography

Brekke, E. (2014, March 28). Estimate of Manhours. Retrieved June 3, 2014, from Google Groups: https://groups.google.com/forum/?hl=en#!forum/alt.building.construction

Builders and Concrete SARC361. (2014). Assessments. Retrieved June 1, 2014, from Blackboard: https://blackboard.vuw.ac.nz/webapps/portal/frameset.jsp?tab_tab_group_id=_2_1&url=%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher%3Ftype%3DCourse%26id%3D_63722_1%26url%3D

MBIE. (2012). The Impact of Wage Subsidies . Wellington: Ministry of Business, Innovation and Employment .

 

New NABERSNZ tool shows you how to get to the next level

27 May 2014

Before we begin our endeavour into the nation with our great sustainable resources, construction-methods, or our import and export potential; we will need the quality/location of Concrete Corp. to be splendid. We advertise success in our construction, material and renovation; therefore, the company’s headquarters should represent the logo of Concrete Corp.

 

The term ‘Externalities’ comes in to play here, which has many meanings; however the current meaning would be that the location of our site is very important as the price of our firm will be higher as it is closer to areas of public thoroughfare. Buildings are more affected by this principle than any other asset due to immobility.

 

The New Zealand Green Building Council and the Energy Efficiency and Conservation Authority (EECA) launched a new online tool following the NABERSNZ programme.

 

“The new NABERSNZcalculator will allow building owners and tenants to get a clearer picture of what they need to do to get a desired star rating under the NABERSNZ programme,” says NABERSNZ project manager Mike Frew.

 

Having an office with higher energy-efficiency ratings would attract potential customers seeking a professional company to undertake future-sustainable projects.

 

Not only will this tool improve our own building. But we can utilize this tool as our own to be used by architects, engineers and building scientists at design stage, which will assist with more accurate design to meet specific energy-saving standards.

 

Initially, this calculator will only be available to be used by Assessors and Practitioners who have received NABERSNZ training courses; which Concrete Corp. should send representatives to take these courses.
Sources:

http://www.eeca.govt.nz/news/new-nabersnz-tool-shows-you-how-get-next-level

Govt has ‘abandoned’ home insulation scheme – Labour

The home insulation scheme that has been set up under an agreement with the Greens had insulated more than 230,000 homes which the Government boasted about. However, the government has winded down this scheme.

 

“Currently 600.000 houses remain uninsulated across New Zealand. Around 300,000 of the homes are lived in by people on low incomes,” said Labour’s energy spokesman, David Shearer. He said the Government ‘virtually abandoned” the insulation scheme and therefore, a fifth of the Energy Efficiency and Conservation Authority’s staff would be cut.

 

“I think they’re a great organisation (EECA) with a long future and I’ve personally made sure that they’ve got some very interesting projects on the go. I’m trying to re orient it into areas such as carbon emissions measures and how we can reduce that and also have better productivity,” said                Minister Simon Bridges.

 

This is our great opportunity to raise awareness for our knowledge in carbon-emissions measures via Hempcrete. New Zealand is on the chase for energy-efficiency and sustainability, this proven by Simon Bridges.

 

Concrete Corp. should seek attention with the government or other organizations to assist with construction and supplying sustainable materials.

 

More focus should be put into making Builders and Concrete’s construction methods and final building running costs more sustainable and green. The economy will become more efficient, and Builders and Concrete will become a more desirable construction company leading to an increase in contracts and revenue with the possibility of expansion overseas as the company’s reputation is more well-known.” - James Bolland (https://buildersandconcrete.wordpress.com/2014/03/26/eu-free-trade-agreement-and-sustainable-buildings/

 

As I have explained in my first blog, Hempcrete is a trustworthy method of insulation, cladding, or foundation. Hemp is a plant which is a fast-growing crop, which is capable to grow in any condition. With New Zealand’s agriculture, Hemp would be an easy method of cultivating. Especially with future possibility of trading opportunities internationally, New Zealand can be made an option for source of sustainable and efficient construction material.

This ‘Eco-House’ is a great example of New Zealand’s potential sustainable construction: http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10870819

Sources:

http://www.nzherald.co.nz/house-building/news/article.cfm?c_id=228&objectid=11259127

http://www.eeca.govt.nz/

 

Auckland design competition seeks exemplary models of medium-density housing

Responding to Auckland’s housing shortage and to concerns about the quality of medium-density housing in the ever-growing city, the New Zealand Institute of Architects (NZIA) is partnering with Ockham Residential to run a design competition for a multi-unit residential development in a mixed-use area in inner-city Eden Terrace.

 

In Auckland, as the demand for housing rises; Pip Cheshire, president of the NZIA says: “Auckland urgently requires more medium-density housing and Aucklanders have to be convinced that this type of housing can be produced to a good standard.”

 

Cheshire states that the Auckland Housing Accord agreed by Auckland Council and the NZ government calls for more than 30,000 new dwellings in Special Housing Areas.

 

“We need to tap into the creativity of  New Zealand’s architects to design smaller, well-designed home that are more socially and environmentally sustainable.”

 

The NZIA is currently working with Ockham Residential, a company ‘strong in record’ in developing innovative, high-quality medium-density housing projects in Auckland’s inner suburbs. This design competition is for a multi-unit development.

 

Concrete Corp. is a growing business, and we definitely have to consider stretching our organisation over the country for maximum reputation. Due to the low kiwi-dollar, it will be easier to conduct export trade overseas as well as purchasing good in New Zealand. This competition can be our step stone to success, or we can imitate this, via influence, and try to advertise ‘sustainability’ through a similar approach in a national competition; proposing new designs and materials to be used to enhance New Zealand’s housing sector.