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ARBE2307-Economics Of The Construction Industry

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Question:

Assignment brief

Part A: Theoretical application

1. Identify and explain the key economic factors that should be considered before investing in or expanding a construction business in a foreign country.
 
2. Discuss the importance of effective supply chain management on the economic performance of firms in the Australian construction industry that seek to expand their operations overseas

Part B: Report to client

It has been some time since you were first approached for advice by Coastwide. Since then, Coastwide has successfully commenced engineering construction work on infrastructure projects in Brisbane and Melbourne. Its success and growth has allowed the company to hire more employees. Strategically, Coastwide has chosen to hire more employees from the Asia-Pacific region as it is now considering expanding its engineering construction business into other countries in that region. Before considering overseas expansion further, Coastwide wants to be certain of the challenges, risks, and opportunities that exist in doing business in other countries. Coastwide asks for your advice on the following:
 
1. Using the economic factors you identified in Part A1 as a framework, compare two different countries in the Asia-Pacific region which Coastwide may target for international growth.
 
2. Identify specific opportunities for Coastwide’s engineering construction business in those countries.
 
3. Provide your opinion and recommendation as to which country offers the better opportunities for Coastwide’s international growth.
 
4. Advise Coastwide on the various business models that it can use to conduct business in the chosen foreign country and recommend the most appropriate business model for Coastwide.
 
5. Conduct a risk assessment for Coastwide’s expansion into the chosen country and identify strategies for Coastwide to minimise itsrisks.
 
6. Identify and explain 3 innovations that Coastwide can adopt to give it a competitive advantage in the new country.
 
 

Answer:

Part A: Theoretical application

1.The location of the business or firm; the site selection process is a major factor of consideration when deciding to invest in a foreign country. This involves the identification of the geographical area that is suitable for the company’s project. The site selection is a must and therefore there is no need of going ahead in investment if there is no place to locate the business.

Availability of workforce; the availability of team members that have the right education and skill to work in the firm is a major factor of consideration (Sierzchula, Bakker, Maat & Van Wee, 2014). The firm should have confidence that there is enough supply of workforce. On the other hand the company also must have the capability to attract, and be able to afford the people required to perform its operations.

The tax structure of the foreign country; the ability of the firm to make profits should be considered in terms of measuring the local, regional and the state tax environment (Castaño, Méndez, & Galindo, 2015). This is because in some countries they have made changes to the tax structures and thus it is important to have knowledge in advance about how such tax change positively or negatively affect the performance of the business projects 

 


Infrastructure in the foreign country of investment; the country of investment should have good infrastructure put in place to enable the firm meet its project’s requirements. Infrastructure consists of electronic infrastructure, telecommunication and transportation just to name a few (Baysan, Burke, González, Hsiang, & Miguel, 2018).

The incentive from the government; the firm should consider the availability of incentives beginning from the state, regional or local government because these helps lower the firms project cost. Incentive should not be used by the firm to decide on the site location areas but considering them helps promote the achievements of the firm’s projects (Christopher, 2016).

The regulatory environment; the firm should have knowledge on the impacts of the state, regional and local government regulations to the performance of its projects and business. Some of the issues that have significant impact on the firm’s projects are like the building plans permits, utility connections approvals, environmental permits, and disposing waste permits.

The availability of the air services; the firm should check for a location that has potential access to an airport. This provides an easier access to company’s headquarters and the firm by the company officials for it is important for the leaders of the business to be able to travel to where the business is located more efficiently (Monczka, Handfield, Giunipero, & Patterson, 2015).

The crime rate; the firm should consider more on the security of its employees and therefore security of the area is of great importance. Therefore, anything that makes suggestions that there is insecurity in the area of business location will definitely affect the performance of the firm projects.

2.Effective supply chain management helps reduce the cost of operations in the firms (Mangan, Lalwani, & Lalwani, 2016). Here we find that when the supply chain is managed properly, the amount of money that the company spends in doing supply decreases. In this case the firm can use supply chain to fasten the delivery of products that are expensive and avoid unnecessary holding of costly products in stores for a long time. 

 


Effective supply chain management helps reduce the production cost. For instance, a manufacturer mostly depends on the supply chains to deliver materials to the factory for manufacturing. Proper management of the supply chain department for delivery of production materials to the factory helps evade situation when workers have to wait for material to be delivered which is expensive to the firm in terms of wages (Whiteford, Ferrari, Degenhardt, Feigin, & Vos, 2015). In addition to that, proper management helps reduce over delivery of materials when few production materials are required for production.

Proper supply management helps decrease the total supply chain cost; the supply chain managers are the ones that have the task of designing and design networks that meet the goals of the consumer at lowest cost possible. Supply chains that are efficient help the firm to be more competitive in the market. The supply chain for Dell revolutionary evolved making each computer based on a specific order, then afterwards delivering the computer to the consumer directly. Through this method, Dell was in a position to have large computer inventories in warehouses and in retail stores that saved a lot of money. Also, Dell avoided the production of computers that were technologically obsolete.

Proper supply chain management helps improve the financial position of the firm. The supply and chain managers are highly valued in a firm because they assist in controlling and reduction of the supply chain cost. Reducing the cost of supply can greatly increase the profits made by the firm. For example, the consumers in a country might be consuming 2.7 billion per a box of cereals per year. Therefore reducing the cereal supply chain cost by one percent would make $13 million dollars save (Sung, Chan, Chiu, Kim, Matsuda, & Reddy, 2015).

Proper supply chain management reduces the fixed assets. If the supply chain experts design a warehouse plant in such a way that the customers can be served by six numbers of warehouses instead of ten, the firm will avoid building the extra four warehouses which will reduce the number of fixed assets for the firm hence the reducing cost of construction.

Proper supply chain management increases cash flow in construction industries. This is because the supply chain managers help the firm by increasing the speed of product delivery to the customer. For example, considering a firm that makes and delivers a product with 15 days rather than 80 days will be able to invoice the customer before 80 days are over.

Part B:

Introduction

Coastwide is a company that started as a construction company offering infrastructural construction services and mining projects and eventually advanced into offering project management services for constructions and other projects and also provision of prefabricated pipes for infrastructural projects. Over a long period of time, the company has been advancing successfully and has a result made it hire more employees to work with them. Now Coastwide is considering advancing and going in another level of investment by investing in a foreign country. Therefore, the company management wants to know the opportunities that exist in doing business in another country and also the risks involved when doing business in foreign countries.

1.Comparing the availability of work force in the two countries, you get to find that the workforce in Japan or Japan’s labour market is currently numbered at 65.9 million people. This is estimated as 59.6 percent of the total population above 15 years of age. Among all this people,

62.757 million have employment which means that 3.34 million people are the ones that are not employed which is a representation on 5.1 percent. This shows that most of the people are skilled in Japan. The workforce in Chile on the other hand is seen to decrease to 59.50 percent from last year’s 59.70 percent. The labour force participation in rate in Chile averages 59.53 percent from 2010 until 2018. Therefore we get to see that between the two countries, labour force availability in Japan is high compared to that of Chile. This because Chile’s labour force is seen to decrease year after year.

Looking at the infrastructure, we find that Japan has highly developed infrastructure in terms of power, communications and modern road networks. Chile on the other hand is focusing on investing on infrastructure heavily with the aim of advancing the economy growth of the country. Both countries have good infrastructure but Japan has better infrastructure than Chile.

Comparing the availability of the air services between the two countries, Japan has highly developed airline services that can allow movements to any part of the country. Chile on the other hand has airline services that as at now are working but undergoing development. Therefore, Coastwide targeting both countries will work well but Japan has better airline service. 

 


Comparing business regulatory environment in Chile to that of Japan you get to find that the regulatory measures for Chile that have been put in place are much more transparent thus encouraging business investment in the country (Hugos, 2018). Japan on the other hand has regulation measures that limit the rate of expansion of businesses and also other measures that have been put in place that limit business activity.

2.The opportunities available in Japan that Coastwide construction industries can venture in are for construction. This is because Japan being the 3rd largest construction market in the world posts 23% growth in construction industry and thus this shows the existence of construction opportunities for construction which Coastwide construction companies can decide to venture in (NCD Risk Factor Collaboration 2016). Chile on the other hand shows signs of increased construction opportunities as per the registration shown since 2015 which shows an increase in the construction in the country. The expectations of construction today are that the industry will continue to expand over the period (2016-2020) because of advancements in transport and housing projects (Nicholas & Steyn, 2017).

3.Japan is developed country, compared to Chile which is undergoing development to reach the level of Japan. Therefore, looking at the economic factors in the two countries in support of business operation in the country we find that although Japan is much more developed than Chile, the economic factors that support business operations are very limiting (Youlden, Cramb, Yip & Baade, 2014). Chile is less developed and currently is undergoing development and because of this, it is allowing a lot of industrial investments to see the country grow and advance.

My opinion on the country that Coastwide construction industries can venture in and start investing is the nation of Chile because it has all the factors that Coastwide may require before venturing into business (Bilal, Oyedele, Qadir, Munir, Ajayi, Akinade & Pasha, 2016). Furthermore it is undergoing development and this makes it a better for investment by Coastwide industries.

4.Basically what a business model means is that it is the structure that conceptually supports the viability of company or product and includes the purpose and goals and the intentions of the company in achieving them.

There are various business models that Coastwide construction Company can use. For instance, we have the manufacturer model. This model involves the collection of raw materials required for production, combine then and finally produce the final product. The final product is then sold to the consumer. The company can use this model by bringing together the materials required in building which results to the final construction (Myers, 2016). The company also through buying and distribution of prefabricated pipes for the infrastructure projects can apply the use of distributor model in which the distributor purchases manufacturers products and resells them to the public or the retailer.

The appropriate model for Coastwide construction Company would be the manufacturer’s model because most of construction operations involve the combination of different raw materials sourced from different companies. These raw materials are then used in the production of the final product hence it would be most appropriate for Coastwide construction company.

5.Change is good but however volatile political and economic environments can have effects on the business operation. When the business working environment is secure, it gives humble time for business expansion in the country (Wirtz, Pistoia, Ullrich & Göttel, 2016). There are risks in a country that hinder business expansion and for this we focus on the country of Chile. The small business might be vulnerable to external shocks given the dependency on copper and Chinese demand and also the occurrence of earthquakes. The existence of weak budgets and the vulnerable road networks, high prices of energy, the high differences in the income levels between the rich and the poor and also education system that is poor are the weaknesses that might hinder business growth in a country.

The factors in Chile that promote business growth are like mining, agricultural, forestry resources and fishery, the existence of free trade agreements, the availability of flexible monetary, fiscal and exchange rate that are favorable (Dijkman, Sprenkels, Peeters & Janssen, 2015). Also we have business climate that are favorable, stability politically, existence of international that operate in air industry and finally Chile being a member of the OECD and the Pacific Alliance.

For Coastwide to minimise and overcome the risks, the company needs to develop a risk management plan. For instance have sufficient insurance to protect against losses in one aspect or another (Wieland, Hartmann & Vargo, 2017). Taking steps to cross-train it also another key of avoiding risk. Insurance covers that cover the company premises against earthquake occurrence should be taken for protecting the company from the effects of earthquakes occurring. 

 


6.In order for the company to adopt the competitive environment in Chile, there are various things that it needs to put into practice to gain higher competitive advantage in the market. First Coastwide should know the competition that it is involved in (Lewandowski, 2016). This can be done by the company knowing its competitors in the market, what they offer and how they do it different from them. Coastwide also should know the people that it is supposed to serve. This is because the expectations of the customer changes due to instability in the condition of the economy. Coastwide needs to differentiate from its competitors to give the customers a reason to come to them.

Coastwide can choose to market their company extensively to tell the customers who they are and the kind of job that they do and the reason they should contract them in their projects. Frequent updating of the image of the company is among the simple steps that Coastwide can choose to take. Something simple like painting of the front premises of the company makes the company look more modern and inviting (Saebi & Foss, 2015). These are some of the innovations that Coastwide might choose to take so that they can fight competition in the new country.

Conclusion

To conclude, we see that there are factors that a business or any other company should put into consideration when making decisions to invest in foreign countries. The nature of the country that a company chooses to invest might determine the success of the company because of economic and political influence in the country.  The company also should learn to adopt measures that will help it compete in the market and gain market share. The company should also learn the risks that are involved when one decides to invest in a foreign country.  This is because earlier preparation and the market study helps avoid wastage of resources going to invest in a country that has no life for any business 

 

References

Baysan, C., Burke, M., González, F., Hsiang, S., & Miguel, E. (2018). Economic and Non- Economic Factors in Violence: Evidence from Organized Crime, Suicides and Climate in Mexico (No. w24897). National Bureau of Economic Research.

Bilal, M., Oyedele, L. O., Qadir, J., Munir, K., Ajayi, S. O., Akinade, O. O., ... & Pasha, M. (2016). Big Data in the construction industry: A review of present status, opportunities, and future trends. Advanced engineering informatics, 30(3), 500-521.

Castaño, M. S., Méndez, M. T., & Galindo, M. Á. (2015). The effect of social, cultural, and economic factors on entrepreneurship. Journal of Business Research, 68(7), 1496-1500.

Christopher, M. (2016). Logistics & supply chain management. Pearson UK.

Dijkman, R. M., Sprenkels, B., Peeters, T., & Janssen, A. (2015). Business models for the Internet of Things. International Journal of Information Management, 35(6), 672-678.

Goulding, J. S., Pour Rahimian, F., Arif, M., & Sharp, M. D. (2015). New offsite production and business models in construction: priorities for the future research agenda. Architectural Engineering and Design Management, 11(3), 163-184.

Hugos, M. H. (2018). Essentials of supply chain management. John Wiley & Sons.

Lewandowski, M. (2016). Designing the business models for circular economy—Towards the

Mangan, J., Lalwani, C., & Lalwani, C. L. (2016). Global logistics and supply chain management. John Wiley & Sons.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.

NCD Risk Factor Collaboration. (2016). Trends in adult body-mass index in 200 countries from 1975 to 2014: a pooled analysis of 1698 population-based measurement studies with 19· 2 million participants. The Lancet, 387(10026), 1377-1396.

Nicholas, J. M., & Steyn, H. (2017). Project management for engineering, business and technology. Routledge.

Myers, D. (2016). Construction economics: A new approach. Routledge.

Saebi, T., & Foss, N. J. (2015). Business models for open innovation: Matching heterogeneous open innovation strategies with business model dimensions. European Management Journal, 33(3), 201-213.

Sierzchula, W., Bakker, S., Maat, K., & Van Wee, B. (2014). The influence of financial incentives and other socio-economic factors on electric vehicle adoption. Energy Policy, 68, 183-194.

Sung, J. J. Y., Ng, S. C., Chan, F. K. L., Chiu, H. M., Kim, H. S., Matsuda, T., ... & Reddy, N. (2015). An updated Asia Pacific Consensus Recommendations on colorectal cancer screening. Gut, 64(1), 121-132.

Whiteford, H. A., Ferrari, A. J., Degenhardt, L., Feigin, V., & Vos, T. (2015). The global burden of mental, neurological and substance use disorders: an analysis from the Global Burden of Disease Study 2010. PloS one, 10(2), e0116820.

Wieland, H., Hartmann, N. N., & Vargo, S. L. (2017). Business models as service strategy. Journal of the Academy of Marketing Science, 45(6), 925-943.

conceptual framework. Sustainability, 8(1), 43.

Wirtz, B. W., Pistoia, A., Ullrich, S., & Göttel, V. (2016). Business models: Origin, development and future research perspectives. Long range planning, 49(1), 36-54.

Youlden, D. R., Cramb, S. M., Yip, C. H., & Baade, P. D. (2014). Incidence and mortality of female breast cancer in the Asia-Pacific region. Cancer biology & medicine, 11(2), 101.

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