Analysis of the South African construction industry business environment

Abstract

Purpose – The study aims to identify and examine the construction organisational environments and its dimensions that have an impact on the performance of contracting companies in South Africa. Design/methodology/approach – The study reports the result of quantitative research that obtained data from 72 construction organisations registered with the South African construction industry development board via a questionnaire survey. Descriptive statistics, non-parametric and exploratory principal component analysis were used to summarise forms of correlations among observed variables and to reduce a large number of observed variables to a smaller number of factors that provide an operational definition for the underlying dimension. Findings – This study identified six exogenous and three endogenous environmental factors that have a varying degree of impact on construction organisation performance. Four dimensions of the environment were also examined, and environmental complexity has the highest variance explained which implies that the complexity of the construction business environment significantly influences the performance of construction firms. Research limitations/implications – This paper studies the environment of the South African construction industry using cross-sectional data in exploratory research. A confirmatory study should be conducted using a longitudinal panel design with a larger sample in similar future research. Practical implications – The study offers practical implications to construction organisation owners operating in the South African construction industry to understand the need to acquire market and environmental data and process them in a way that will reduce its uncertainty when making strategic decisions. Originality/value – This study contributes to the current discourse on organisations’ business environments to better understand their influences on organisational performance.