Analysis of Trends of Development and Competition in the Construction Industry
Introduction
The construction industry is a diverse sector concerned with a variety of construction activities for setting up new structures such as buildings, roads and other social amenities. The industry is responsible for the construction of residential buildings, infrastructural structures and non-residential buildings. All these entail construction activities such as bricklaying, plumbing, electrical installation, excavation, landscaping and a lot more.
The industry is extremely fragmented and it delivers a wide range of services and goods to the general construction activities (Arditi & Kale, 2002). The various sectors of the industry are not expected to show uniform growth and trends, but they are expected to be closely related because they serve similar and at times complementing functions. In the past twenty years the construction industry in the United States of America has greatly transformed.
United States’ construction and engineering companies have had to face many challenges, key among them being a dwindling economy and the rising number of competitors that have joined the industry. As a result, the trend has elicited the need to analyze and comprehend the market, its global dynamics and competition in order to develop innovative solutions and strategies to tackle competition and maintain a high profile within the industry.
The first step towards attaining this objective is to analyze competition and the driving forces which are responsible for shaping the construction marketplace. This paper explores the construction industry and methodological approaches that can be used to study the industry’s competition and trends so as to provide insight to independent investors that may be interested in establishing their own firms within the industry. The approaches outline methodologies that can be used in the collection and analysis of the relevant data and information.
Construction industry’s profile
The construction industry in the United States of America contributes an estimated 10% of the total Gross Domestic Product (GDP). Construction has the potential to create a large number of jobs, and currently the industry employs approximately 7% of the nation’s workforce. The industry is the largest energy consumer and it takes up 40% of the energy consumed. The industry has ever been rising as economies grow and populations surge (Economy Watch, 2011). However, in the recent economic slow down the industry has experienced slow growth.
The last recorded high growth was experienced in 2005, when the industry grew by 5.2%. The commercial real estate and residential sectors of construction have been the most active and these have grown at rates of 7.5% and 15% respectively. However, this trend lost is upbeat mood in the 2007 and 2006 financial years due to the economic slow down. The slow down was mainly attributed to the reduction of demand in residential real estate units (Economy Watch, 2011).
Approach to research and data collection methodologies
Research design and conceptualization in any research activity is the most essential aspect in making any research. This is important because it enhances validity and determines the essence of the results. The choice of the research methods and approach is determined by the type of variables that one would like to research about as well as the kind of information that is to be derived from the research (Jolley & Mitchell, 2009).
In this particular case, a randomized survey on construction companies was selected as the most appropriate model for the research. The survey is supposed to be administered by means of structured questionnaires as tools of the research. Data collection shall be done through questionnaire surveys mainly because a large number of construction companies in the United States are sparsely distributed across the states, and thus making it hard for surveys to use any other methods such as interviews because of the costly and time consuming nature of the travel that shall be involved.
In order to address implications of competitive advantage and gauge competitive advantage levels in construction firms, a truly representative sample of the industry’s company is required. The sampled companies should be able to give organizational data with regard to their scope and quantity of work, and choices on competitive dimensions of performance and positioning.
Since construction companies’ organizational data is not available to the public, and since the companies are sparsely distributed in terms of geographical positioning, the use of questionnaire surveys presents the easiest research choice and approach to gathering data. Additionally, the questionnaire surveys have been traditional harnessed in exploring the competitive advantage and positioning of business organizations. This research shall cover various categories of construction industries according to class.
These shall include SIC 1 (Standard Industry Classification 1) consisting of general contractors, SIC 15 constituting of general contractors in building construction and SIC 16 consisting of general constructors in heavy construction. Since there is a multitude of companies involved in the industry a few shall be sampled, that meet the sample size criteria. These can be drawn from the “Engineering news record contractor sourcebook and directory” which offers a comprehensive listing of various registered construction companies.
Due to the fact that the industry is greatly fragmented divisions will be established and sampling shall be done along each division. However, the whole process of data collection and analysis shall be done in a similar manner. This segregation is meant to set apart sectors of the industry that have little to no competition because they occupy different sectors or market niches of the construction industry.
For example it will be prudent to sample residential constructors differently from heavy construction companies undertaking civil engineering construction work on projects such as roads and bridges. This will be important because variables in the two categories cannot be uniform across the board. The directory list used shall provide names of keys company executives and mailing addresses. An important aspect of consideration shall be the scope of work that the sampled category can handle. This shall involve grouping firms according to the project costs level they handle.
For example, a cut off level could be established at $10 million dollars and companies handling projects below this level could be relegated to their own category, thus creating more uniformity within samples. Standard classification to be used in categorization of the sampled companies can be obtained from sources that provide business information such as the “Million dollar business directory.” After this information has been gathered a review of the information should be made and the names and addresses counterchecked for any possible changes that may have resulted from changes of mailing addresses or office.
Type of information to be gathered and the process of gathering
The desirable informant for this research shall be the executive officers of the company such as the chief executive officer, vice president or the president of the construction firm under survey. These officers are preferred because they are most knowledgeable on matters relating to the construction company’s competitive levels and strategizing. These executives are also definitely well versed with the industry, competitors and general and upcoming trends. Therefore, they will be able to offer the best information with regard to the developments on competition.
The prepared questionnaires, cover letters and pre-paid return envelopes shall be mailed to these executives selected from the list of companies that are supposed to be explored. The questionnaires shall not be coded for the sake of maintaining anonymity which is important in this case because the questionnaires solicit for confidential information from the company. The cover letter should ensure anonymity is expressed as a concern so as to increase return rates of questionnaires and avoid possibilities of intentional biased reporting from some companies which may actually distort the results of the survey.
The questionnaires shall require the responding executives to consider their firms wholly and thereafter benchmark their firm’s performance against companies they consider to be their major competitors. For the sake of this research, since not all companies shall be included; respondents may be specifically directed towards benchmarking themselves against the companies randomly selected for the samples in their category.
This enhances uniformity and validity because sampled companies are able to compare themselves against their equals rather than companies in the same industry and sector, but with a different scope of operations. This should also include a description of the company’s typical behavior for the past three years.
The three year period is specifically chosen because it is long enough to allow for evaluation of implications of changes effected in the company. The competition mode shall be considered along different composite items. These shall include competition on quality basis, cost basis, schedule basis and innovation basis.
The survey tool shall seek this information through the use of several composite items that try to establish information about some aspects of the construction company. After a conclusive assessment of the items the companies’ successful engagements in terms of contracts accomplished and obtained shall also be analyzed. This shall form the bottom line which will indicate how each company’s competitive strategy has enabled it to succeed in the industry.
Highly successful companies shall be determined by evaluating the number of contract projects that they are able to successfully get, the number of projects that they are able to successfully complete as well as the value of projects that they manage to obtain (Arditi & Kale, 2002). Companies that successfully rate high on most of these aspects will be considered successful and competitive. The analysis of their competitive strategy shall be determined by the items listed below within the survey tool.
The first item on the survey tool shall address the choices of the company when engaging in competitive business. This item shall explore choices on competition based on cost. Respondents will be required to state the extent to which their companies: (a). Compete through reductions of cost on operations of construction. (b). Compete through cutting costs on administrative activities. (c). Compete through enhancing contracting services cost-efficiency.
The second item on the research shall explore construction firms’ choices of competition with regard to service/product quality delivery. The item shall require respondents to state the extent of emphasis of the firm on: (a). Achieving quality beyond the specifications offered. (b). Achieving the highest possible quality on the constructed structure. (c). Making better the quality of services of contracting given and being responsive to the requests made by clients.
The third item on the survey tool shall seek to establish the choices that the company makes with regard to time-based competition. The respondents will be required to state the construction company’s extent of emphasis on competition based on: (a). Completion of construction projects within the stipulated time. (b). Delivering construction completion before the scheduled time. (c). permit and try to accommodate requests of project acceleration from the clients.
The final item in this section of the survey tool shall seek to solicit information on how much a company emphasizes competition based innovation in the construction activities. Under this item respondents shall be required to state the level of emphasis of the company with regard to: (a). Application of innovative procedures in the company’s processes and procedures of administration. (b). Initiating financing methods that are innovative. (c). Application of innovative procedures in project completion.
This section of the survey tool will be used in effectively analyzing competition among the players of the industry as a whole. The items on these items on the tools of survey shall be measured on a scale with five points of measurement. The points on the scale shall range from extremely to not at all i.e. extremely emphasized, emphasized, somewhat emphasized, not very emphasized and not at all emphasized.
In the analytical phase an index for every mode of competition (innovation, cost, schedule and quality) shall be derived from the results obtained from the tools of survey. Corresponding responses shall be summed and their mean calculated. In the interpretation and inference section the obtained average shall be used as an indicator to explain the company’s most emphasized approach towards competition.
If many companies’ results are found to be skewed towards one approach to competition, then that may be declared as the common trend of the current competition in the industry. Therefore, a higher average value on any one mode of competing is an indicator of a strong pursuit of that mode of competing in the industry. The highly successful companies shall matched with their respective competitive mode of choice which will most probably show why they lead. Any success is attributed to good competitive modes of plans that put a company before others by offering an advantageous competitive edge.
The choices of a company with regard to its scope of competition and operation will be gauged by asking the responding executives to state the extent to which their construction firms emphasize: (a). Operating exclusively in certain geographical confines. (b). Serving specific market niches such as the upper end market, individuals or corporations. (c). Serving a certain exclusive group of clients. (d). Delivering a range of limited project services and systems. The scope of competition index for each analyzed company shall be obtained by adding up all the values obtained and calculating an average.
Low mean values from these results show that a construction firm has made a choice of competing in a broader field and as such it offers a broad scope of services to many different clients under different market niches and geographic zones (Arditi & Kale, 2002). On the contrary, low values obtained in this calculation indicate that the company under highlight has chosen to narrow its scope of operation and it thus either serves certain market niches, specific geographic zones, an exclusive group of clients or it delivers a number of limited construction services. This is thus an indicator of some form of specialization (Arditi & Kale, 2002).
The analysis of this information should be able to help independent investors wishing to enter the industry learn about the level of competition within the industry as well as the specialty of various construction firms. After a conclusive evaluation an investor should be able to correlate companies and their strategies and therefore, easily understand which competitive strategies works best. This will be easier because collected data on a company’s success shall be available and the company can be easily matched with its obtained competitive strategies.
Strengths of the selected methodology
The use of randomized questionnaire surveys as a mode of research in this case provides the best option of research because it reduces costs and time that would have been used in the conducting of actual related interviews. The fact that quantitative research is not possible in such cases, surveys that are qualitative research modes in nature provides the only best alternative, which is relatively simple (Jolley & Mitchell, 2009).
However, it is hard to establish the subjectivity behind the responses because the researcher does not come face-to-face with the respondent (Connor, 2010). Additionally, it is hard to eliminate bias in responses made in such cases and this may lead to wrong answers which will subsequently offer false results. The fact that the survey tools will be administered without the presence of the researcher means that the researcher will be unable to determine whether the responses are truthful.
References
Arditi, D. and Kale, S. (2002),. Competitive positioning in United States Construction Industry: Journal of Construction Engineering and Management, 128 (3).
Connor T. (2010). Survey Research Design, retrieved on 16th April, 2011, from http://drtomoconnor.com/3760/3760lect04.htm
Economy Watch (2011),. Construction industry trends, retrieved on 16th April, 2011 from http://www.economywatch.com/world-industries/construction/trends.html
Jewell, C. Shen, L. and Flanagan, R. (2007),. Competitiveness in construction: a critical review of research. Construction Management and Economics
Jolley, M. J. and Mitchell, L. M. (2009),. Research Design Explained, 7th edition, Cengage Learning
Liebing, W. R. (2001),.The construction industry: processes, players, and practices. Prentice Hall
Yates, K. J. (1994),. Construction completion and competitive strategies: Journal of Management in Engineering, 10 (1)
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