The Pestel Analysis Of Construction Industry Economics Essay

The Pestel Analysis Of Construction Industry Economics EssayGeneral Objective To count up with an eco-friendly wrench material using shredded pet bottles as an gist (replacing the gravel component of CHB) in the deed of an alternative tress material, ecologic dig out block (EHB), which could result to a better cost effective carrefour.Specific ObjectivesTo prep ar an industry study of all the spin materials legitimately creation functiond in housing and commercial usings.To review the waste management system in the Philippines and look for areas that are sustainable sources of PET materials.To identify the current drivers and trends of the real estate and wrench industry, as well as the Non- government Organizations (NGOs) in order to explore the viability of introducing the EHB products for their wind needs.To prepare a affair model for individually market segment, namely (1) Non-government Organizations (NGOs) and (2) Real Estate Developers and Contractors.Scop e and LimitationsThis MRR is focused on the following market segments real estate developers, construction companies and NGOs. The study is limited to the Philippines specifically the interior(a) Capital Region (NCR) and provinces within a 130 km radius. Other construction materials that have the potential to be used with PET flakes deviation from the concrete hollow block are excluded from this study.Central HypothesisThis MRR focuses on the Ecoblock venture into the Philippine market through the NGOs specifically on housing and development programs and eventually cater to the local real-estate developers and contractors. Hence the desired outcome of this MRR would be a venture strategy considering the economic conditions, market outlook, competitive analysis, risks analysis and ceiling sourcing.II.PESTEL Analysis of Construction IndustryPolitical FactorsPresident Aquinos State of the Nation Address (SONA) last July 2010 highlighted the importance of Public-Private Partnerships (PPP).1The PPP was seen as an important strategy for pedestal development. It has overly been estimated that the pipeline of PPP foxs (infrastructure projects for transportation, water, effect, health, and agriculture) for the socio-economic class 2012 leave behind amount to USD 5.49B. other factor that can have an effect on these projects is the up culmination election in the year 2013 that can increase government spend on infrastructure developments. Lastly, the issue of corruption (specifically in government infrastructure projects) is seen as an important governmental factor in the construction industry of the Philippines. The corruption issues of the Philippines regarding infrastructure was discussed during Finance Secretary Cesar Purisimas meeting with Ernie Bower, the senior adviser and director of the Center for Strategic and foreign Studies in Washington DC.2In this meeting, it was cited that the PPPs program of the Philippines get out be able to address the curr ent issues on corruption. According to Purisima, the right infrastructures should be accompanied by forward-looking policies for the Philippines to be competitive through highly-viable and promising ventures. It was also made clear that corruption is a major factor that provide hinder the government to increase spending for infrastructure projects.Economic Factors regard 1. GDP year-on-year branch Rates, 2006-2011.Source National Statistic Coordination BoardAs shown in Figure 1, the Philippines gross interior(prenominal) product (GDP) decreased from 7.6% in 2010 to 3.7% in 2011. This is callable to the negative export reaping rates in 2011 that was influenced by the globular economic conditions particularly the economic and financial crises in US and Euro countries3. The domestic factors on the other hand include the decreasing request and negative growth rate in coarse production and the under spending of the government in infrastructure projects. Based on the GDP projecti ons of the International Monetary Fund (IMF), Asian Development jargon (ADB) and World Bank, the Philippine economy will slightly improve in 2012 due to the support of growth in mystical consumption ( high OFW remittances), coronation, and government spending4. However, if the debt woes in Europe will worsen and the recovery of the US economy will not be sustained, the Philippines will experience turn down exports and foreign investment funds that may lead to lower GDP growth. Considering these factors the Philippine government must be able to increase government spending on infrastructure projects to keep on the economy to slow down further.Figure 2. Peso-dollar rate, Inflation Rate, and 91-day T-bill in the Philippines, 2006 to 1Q 2012.Source Bangko Sentral ngPilipinasAs shown in Figure 2, even if rent in the economy is lower in 2011 due to the lower GDP growth rate, overall prices still increased which was brought rough by the increase in prices of petroleum in the global market.5Looking at the disposable income of Filipinos, if the overall prices increase, the purchasing power will tend to decrease. This might affect the amount of disposable income that might be allocated for provide buy. Based on Figure 2, inflation is lower in the 1st quarter of year 2012.Meanwhile, the 91-day Treasury bill interest rate decreased when the Bangko Sentral ng Pilipinas (BSP) attempted to stimulate economic growth. The peso-dollar rate remained stable due to the increase in inflow of remittances. The stability of the peso-dollar rate is very important in the construction industry due to the fact that some of the materials existence used in construction are imported. The instability of the peso-dollar rate will affect the price of these materials.Figure 3. Construction Output (in million Php and manage to total GDP)Source National Statistic Coordination BoardAs shown in Figure 3, construction output in 2011 went down. This is due to the under spending of the gove rnment in infrastructure projects.6The construction-to-GDP ratio decreased from 5.7% to 5.2%. The increase in government spending can increase the GDP for the coming years.Table 1. exploitation in the Tourism Industry, Business Process Outsourcing, and Mining Industry that may Affect the Construction Industry.YearTourism Industry (Foreign touring car Arrivals)Business Process Outsourcing (Projected Growth)Mining Industry (Expected Investment)20103.52 M20113.921 M (exceeded 3.74M stooge)18%$3.4B20121Q 2.14M20%$3.9BSource Philippine Constructors Association Country Report, 2011. part of TourismGrowth of other industries will also open opportunities for the construction industry. As shown in Table 1, the tourism industry, the Business Process Outsourcing (BPO), and the dig industry are interminably experiencing growth which may lead to much construction projects. For the tourism industry alone, 47 hotels with 14,000 rooms will be constructed by the year 2013.7Due to the Philippin es stronger financial position, the Standard and Poor raised the Philippines international debt rank to one notch below investment grade (BB+).8According to the DBS Group, the Philippines can achieve investment-grade credit rating with a year or two. Once this is achieved, more investments will flow to the country.Social FactorsThe social factors that we will be considering in this study will accommodate emphasis on the population growth rate, age profile, and housing impalelog in the Philippines and try to correlate them with the construction industry in the country.Population Growth RateAs of July 2011 the Philippines has an estimated total population of 103.775 million and out of this, 11.86 million reside in the National Capital Region (NCR). The Philippines has an average population growth rate of 1.9% and the NCR has an average population growth rate of 1.78%.Age ProfileThe majority of the population in the Philippines belongs to the working class (15-64 years 61.1% or 62,2 01,170 as of 2010). This is the portion of society who are about to start their own families until those who are about to retire from their respective careers. People in this segment are also the ones who have the capacity to invest in residential developments.Housing BacklogAs of 28 December 2011 Philippines housing backlog is currently 3.6 million.9The government will tap shelter agencies like the Housing and Urban Development Coordination Council (HUDCC), the Housing and Land Use Regulatory Board (HLURB), the Pag-ibig Fund, the Social Housing Finance Corporation, the National Housing Authority, the Home Guaranty Corporation, and the National Home Mortgage Finance Corporation to reduce the housing backlog by 50% with an annual target of 350,000 housing units. To achieve this, the Aquino administration highlighted the need for more PPP programs to use the underutilized government lands. The insufficiency of available funding resulted to this housing backlog. The government needs Ph p 1.7 zillion to address the Philippines housing needs.In 2011, several typhoons and flash floods occurred in the Philippines between May and September. The Department of Social Welfare and Development (DSWD) will develop recovery and rehabilitation projects for victims of flash floods in NCR and other provinces with a total of 187,008 families. Also, projects will be developed for the victims of typhoons that entered the country, which affected 1.4 million families10.Technological FactorsLast June 28, 2012, the general social status meeting of the Philippine Constructors Association (PCA) was held to discuss the current issues that the industry currently faces. In this meeting, innovation was considered as a driver of productivity. According to Executive manager Cosette V. Canilao, the players of the industry must be able to re-evaluate their resources and processes to make it more efficient, responsive and relevant to the present stringent requirements of the industry.11Regardi ng PPP for infrastructure projects, the government must demand from its private partners radical technologies that will accelerate delivery time while ensuring public safety. However, Canilao also recognized the fear of being the first to try something different. With this, he emphasized that those players who will not invest in technological innovation might be left behind at bidding time.According to the Department of Public Works and Highways (DPWH), the Philippines may adopt new construction trends in Japan, particularly on the latest technology on roads and bridge construction.12The construction and engineering technologies from Japan through the Japan International Cooperation Agency (JICA) will help the Philippines build disaster-resilient infrastructures that would mitigate the effects of climate change.Technological innovation in the Philippines doesnt sole(prenominal) happen with government projects, private manufacturers of construction materials also try to innovate t he products and processes to improve the product offering. Cement manufacturers like the Holcim Group created a thousand sustainable solution for cementum.13The company is trying to minimize the impact of cement manufacturing in the environs. The company focuses on bringing down carbon dioxide (CO2) emissions by slighten the clinker factor by using mineral components as alternative materials.14Innovation on the use of raw materials was accompanied by improvement in the process namely (1) use of alternative fuels (2) co-processing and (3) quarry habilitation policy. Co-processing is considered as a globally accepted technology that helps the company process water streams in the cement kilns to properly dispose hazardous industrial wastes.15The quarry habilitation policy would mark that the quarry sites can be used productively by the community forward they are completely mined out. Holcim Philippines was the first company to submit a Final Mine Decommissioning and Rehabilitatio n Plan to the Department of Natural Resources (DENR), which will military service as a blueprint in restoring quarry sites.Environmental FactorsLand development and construction have a direct impact on the environment wherein land conversion from agricultural to urban and residential greatly reduces bio-capacity (ability of the land to produce food and other resources for the society).16Because of this, sustainable land development is becoming more important in the construction industry. The World Wildlife Fund (WWF) and Ayala Land, Inc. (ALI) developed an ALI Sustainability Framework to chart, monitor, and report the companys progress in sustainable land development. The increasing awareness about environmental impact of construction activities will eventually affect the way residential and commercial developments are built.In 2006, the Philippine Green Building Council (PHILGBC) was form as a national non-profit organization through the alliance of building and construction indus try leaders from the private and public empyrean.17This organization was formed to ensure an ecologically and economically sustainable industry. This resulted to a local green building rating system that is now called Building for Ecologically Responsive Design honesty (BERDE). The BERDE scheme will serve as a benchmark for all property developers in the country.Last August 17-19, 2011, the first Philippine International resume Green Movement Exhibition and Conference was held at the SMX Convention Center, Mall of Asia Complex in Manila. The joint venture of the Philippine Constructors Association, Inc. (PCA), Global-Link Exhibitions Specialist, Inc. (GESI), Philippine Society of Ventilating, Air-conditioning, preserve Engineers, Inc. (PSVARE), Philippine Center for Environmental Protection and Sustainable Development, Inc. (PCEPSDI), and Society of Manufacturing Engineers (SME) Manila, created the Green Philippines 2011.18This event featured four exhibit segments on constructio n (Green Construct), manufacturing (Green Manufacturing), lifestyle (Green lifestyle), and zipper (Green Energy). Also, last August 16-17, 2011, the 2nd Sustainable Building Technology Conference was held that invited international sustainability experts to discuss the best practices for a green industry. These events would show that the players in the construction industry are already leaning towards environment friendly development projects.Legal FactorsThe construction industry is one of the most hazardous and risky occupations in the country. With this, the Department of Public Works and Highways (DPWG), the Department of Interior and Local Government (DILG), the Department of Trade and Industry (DTI), the Department of Labor and Employment (DOLE), and the Professional canon Commission (PRC) signed a Memorandum of Agreement last May 4, 2011 to strengthen the campaign to minimize accidents in construction activities. This MOA aims to promote the welfare of construction workers and prevent the recurrence of construction-related incidents, notably the ones that recently killed or severely injured workers early 2012.19Also, this MOA is an off-shoot of DOLE Department Order No. 13 (which provides the Guidelines Governing occupational Safety and Health in the Construction Industry) and aims to intensify the holistic and extensive execution of the policies and programs set forth in D.O. No. 13 in construction sites.III. Construction Materials IndustryExisting Eco-friendly Construction MaterialsThe construction industry in the Philippines is currently leaning toward ecological friendly materials due to the global campaign to exempt the environment. The materials that are available range from pre fabricated groins and blocks to bricks that is considered to be the oldest building material used. The pre-fabricated walls and blocks use polystyrene as an aggregate that is added to the concrete mixture to produce a twinkle and insulating product. Reinforced fire br icks are also one of the common construction materials that are used in construction of homes. Reinforced bricks are made of industrial wastes such as rice hull, coal ash, silt, mud and clay.Existing Market and AvailabilityThe live market for pre-fabricated walls and blocks are the contractors for commercial buildings and high-rise residential buildings. at that place are also some contractors that use pre-fabricated materials for home construction but the homeowners still prefer to use concrete hollow blocks (CHB) because of the high cost of the pre-fabricated material. The walls are pre-ordered by the contractor and are sometimes manufactured on site to avoid delivery expenses. On the other hand, the reinforced firebricks are used in home construction. This material is ordinarily specified by the people who belong to the higher class of society mainly because of the price of this construction material.Advantages disadvantages of using existing eco-friendly construction materia lPre-fabricated walls are used in exterior and interior applications in building construction. The lighter wall means that the foundations of a building project could be smaller due to the reduction in weight that the foundation needs to support. Installation time for the pre-fabricated wall is shorter compared to using conventional materials in wall construction. The product is smoother and does not need additional plastering (only the joints require additional concrete) because of the smooth finish that these walls generally have. The pre-fabricated walls also serve as skillful insulators that result to less energy consumption. A notable disadvantage of using this product, aside from the cost, is that the sizes that are available are only limited and could not be cut to size. The advantages of using reinforced fire brick in construction is that it uses less cement and is stronger than concrete. Bricks are also weather resistant and are considered to be holy man in tropical count ries like the Philippines because it slowly absorbs heat to keep the inside of the house cooler. Bricks do not need cement plastering and the walls do not need to be painted. The disadvantage of using this material is the high cost. Even if it requires less cement and no paint the cost of the material is still higher compared to common construction materials used.Concrete Hollow Blocks (CHBs)CHB as a backyard industryIn the Philippines, CHB remains as a backyard industry because it is easy to produce, oddly the non-load equipage CHB. The CHB can be produced manually by using an improvised mold. In producing a non-load bearing CHB, a mixture of sand, gravel, cement, and water can be manually compressed using the improvised mold.Reasons why CHB is still being used in constructionThere are three reasons why CHB is still being used in construction, namely (1) cost (2) availability and (3) ease of installation and handling. CHB still remains as the a cheaper choice in construction of a concrete house. As a backyard industry, CHB is available nationwide with similar product specifications. Lastly, CHB is a traditional product. With this, majority of the laborers or construction workers are familiar with CHB in construction. The familiarity of the laborers with a product is the main reason why CHB is still being used.Innovations from CHBThe demand for quality, economy, and completion time are the major considerations for all construction projects that usually dictate the choice of technology20. The traditional construction material currently being used for construction projects is the CHB. Based on the interview with key players in the real estate industry, another alternative is the pre-fabricated walls. For fabricated walls, the entire wall is built off- site or on-site before installation as compared to CHB that are stacked one on top of another. In the Philippines, only 5% are using prefabricated building material in housing construction21.oer the years, differ ent types of construction materials have been offered containing recycled plastic, such as PVC pipes. Recycling is especially important for thermoset polymers since this form of plastic cannot be reheated and melted back to liquid form.In the Philippines and in other countries, shredded plastic has been used as aggregates for bricks and construction blocks. Most of these, however, are not widely offered commercially and are not load bearing.Porters Five Forces and Key Success FactorFigure 4. Porters Five Forces for the Construction Materials IndustryIndustry Rivalry Among Existing Players- strong suitThe demand for this product is readily accessible in most areas and the market is sensitive only to the price relative to the quality of the product they receive. At present the 4-6inchconcrete hollow blocks prices are standard for all and vary only between the volume suppliers and the backyard suppliers because of their respective approach to the business. The buyers of the product fa vor the suppliers who are nearer to them (because of transportation costs) and if satisfactory with the quality they retain their suppliers. However there are instances where the buyer changes suppliers in lieu of quality issues for this reason, industry rivalry will be considered medium.Threat of sunrise(prenominal) Entrants MediumThe technical skill and labor required isnt advanced nor does it require highly specialized machines to deliver the product, the only obstacle is the cash required to 1) purchase the hollow block maker and 2) to secure working bang-up requirements. The cost of a concrete block mixer is between Php30,000-P40,000, and a mold container would be approximately Php5,000 per piece. Normally a block maker can start a small-time business with 6 molds which is equivalent to Php30,000 therefore a backyard business can start at a Php60,000 investment excluding working capital.The disadvantage of this practice is it sacrifices the quality/durability of the blocks due to the lack of compression of the block being formed thereby resulting in a lower PSI rating. The difficulty in securing funding for this particular business is high because the business is not incomparable while the returns in this type of business do not instantly translate to high growth profits. The local venture capitalists who provide seed capital to startups look to sunrise industries such as the BPO sector and IT services delivery, or the next big website investment. The prospects of a potential participant to capture market share will primarily be on their ability to reduce the cost of their concrete hollow block while maintaining a reasonable quality and service. In order to achieve this, the potential participant must have a large base of clients in order to achieve economies of scale in their production of quality products and a person who will provide assistance to the client to ensure proper delivery and satisfaction, a backyard hollow block maker will not be able to be competitive and for this reason the threat of new entrants is rated as medium taking into consideration these factors. bargain Power of Buyers MediumSome projects outsource their hollow block while others make it onsite. While it is preferred to buy the product in order to avoid the cost of investment and taking into consideration that there is abundant supply for this product (but at varying prices depending on which type of supplier backyard supplier, volume supplier or a wholesaler, and depending on the volume purchase of the buyer the bargaining power of buyer is medium given the availability of a quality product in the market.Bargaining Power of Suppliers Low / MediumThe demand for reasonably priced hollow blocks are assumed to be growing at 10.5% and construction materials 5.4% which supports the argument that demand is good. Another consideration is that the real-estate residential development is in the form of condominiums and they make use other products such as pr e-fabricated walls instead of hollow blocks. The construction boom doesnt at a time translate to increased hollow block use and the prices of hollow block are generally stable therefore for these reasons the suppliers bargaining power is low.The bargaining power of cement and sand suppliers remain low since there are abundant sources for these suppliers. The PET flakes suppliers have a medium bargaining power since they are less abundant than the cement and sand suppliers. Moreover, the local PET suppliers have different methods in shredding and cutting the plastic such that those suppliers that have the ability to shred PET flakes at a certain size have a stronger bargaining power than others.Threat of Substitute Products LowFor the low cost housing sector and other housing projects hollow blocks are still preferred. The emerging sector of high-rise residential projects make use of pre-fabricated products and gypsum boards however the market share of these products is only 5% for construction materials, therefore the threat of substitutes are rated medium.Key Success Factors (Industry)The success in this industry will be in the costing of the product and the quality. In order to reduce the overall cost of the product there is a need to meet operation efficiency and effective marketing in order to achieve economies of scale that will bring down overall costs for our firm while producing a good quality product.Opportunities and ThreatsOpportunitiesEmphasis on PPP programs for government infrastructure projectsGood forecast for the tourism, BPO, and mining industryMovement towards sustainable community developmentThe use of plastic as an aggregate is not yet widely introduced in the PhilippinesThe high amount of investment on PPP programs is seen as a good hazard for the construction materials industry. For year 2012, several PPP projects are in the pipeline, namely (1)14 projects on transportation (2) 2 projects on utilities-water (3) 2 projects on power 1 p roject on health and (4) 2 projects on agriculture that amounted to USD 5.49B will increase the demand for construction materials. These PPP programs will also serve as an opportunity for private companies to increase their annual construction projects.The growth of three industries, namely (1) tourism industry (2) BPO and (3) mining industry will also contribute to the growth of the construction materials industry. The increasing annual foreign tourist arrivals and domestic travelers opted for the increased in resorts, hotels, and condominiums. The increase in number of accommodation facilities was accompanied by the Republic take on of 9593 or Tourism Act of 2009 wherein the roads that are not initially classified as national but lead to tourism sites, airports, and seaports will be improved which will be included in the DPWH budget for 2012.22For the BPO, construction of commercial buildings is also expected to increase to meet the demand of the industry. The investment of the M ines and Geosciences means (MGB) would show that the mining still remains as a promising industry (Table 1). Investment on mining would result to more office sites and barracks for mining companies.The movement towards building more sustainable developments is seen as an improvement for the construction industry. New technologies for products and processes will help improve the viability of construction projects in the Philippines. By stress on the impact of construction of the environment, the need for environment-friendly products may increase as the industry try to include the societys welfare in planning construction projects.The use of plastic as an aggregate is currently being used in Germany. However, this new aggregate is not yet widely introduced in the Philippines. This is seen as an opportunity for the company to introduce a product with more benefits than the existing products in the market.ThreatsCompetition (large companies)Emergence of new productsCompetition especi ally against large competitors is seen as a major threat because these companies are already established in the industry. New companies that may introduce new products in the market may face difficulties especially if these products are not patented. Large companies can simply launch the same product at a larger scale. The availability of funding for these large companies will give them an advantage to produce more products. The more products a company manufactures, the opportunity to capture a larger market is bigger. Also, large companies can be seen as good suppliers for developers and contractors who want a steady supply of materials.Even if CHB currently remains as the primary choice for wall construction, emergence of new products as a substitute may pose as a threat for the CHB market. Even if only 5% in Philippines uses prefabricated bu