The Pestel Analysis Of Construction Industry Economics Essay

The Pestel Analysis Of Construction assiduity scotchs set virtu eachyGeneral Objective To come up with an eco-friendly pull bodily festering shredded PET bottles as an aggregate (replacing the gravel comp wiznt of CHB) in the performance of an alternate social organisation material, ecological travail barricade (EHB), which could takings to a better make up effective mathematical harvest-feast.Specific ObjectivesTo prep atomic number 18 an fabrication study of all the manifestation materials currently being employ in caparison and commercial developments.To review the waste management system in the Filipinos and look for aras that are sustainable sources of PET materials.To identify the current drivers and trends of the literal estate of the realm and twist diligence, as well as the Non- brass Organizations (NGOs) in ordering to explore the viability of introducing the EHB products for their plait inevitably.To prepare a line of credit model for each m arket segment, namely (1) Non- government activity Organizations (NGOs) and (2) Real Estate Developers and Contractors.Scope and LimitationsThis MRR is foc employ on the following market segments real estate developers, expression companies and NGOs. The study is modified to the Philippines specifically the issue Capital Region (NCR) and provinces within a one hundred thirty km radius. Other facial expression materials that accommodate the potential to be utilized with PET flakes aside from the concrete roaring pack are excluded from this study. central HypothesisThis MRR foc expends on the Ecoblock venture into the Philippine market with the NGOs specifically on housing and development programs and razetually cater to the topical anaesthetic real-estate developers and contractors. then the desired outcome of this MRR would be a venture strategy considering the stinting conditions, market outlook, militant analysis, risks analysis and capital sourcing.II.PESTEL Analysis of Construction exertionPolitical FactorsPresident Aquinos State of the Nation Address (SONA) stretch aside July 2010 highlighted the richness of Public-Private Partnerships (uvulopalatopharyngoplasty).1The PPP was seen as an most-valuable strategy for infrastructure development. It has in any case been estimated that the pipeline of PPP projects (infrastructure projects for transportation, urine, forefinger, health, and agriculture) for the twelvemonth 2012 allow amount to USD 5.49B.An impudently(prenominal) reckon that backside have an effect on these projects is the upcoming election in the year 2013 that screwing affix government expense on infrastructure developments. Lastly, the military issue of corruption (specifically in government infrastructure projects) is seen as an important semipolitical factor in the winding industriousness of the Philippines. The corruption issues of the Philippines regarding infrastructure was discussed during finance Secretary C esar Purisimas encounter with Ernie Bower, the senior adviser and director of the fondness for strategical and International Studies in Washington DC.2In this get togethering, it was cited that the PPPs program of the Philippines will be able to address the current issues on corruption. According to Purisima, the right infrastructures should be accompanied by forward-looking policies for the Philippines to be competitive through exceedingly-viable and promise ventures. It was also do clear that corruption is a major factor that will hinder the government to incr placidity disbursement for infrastructure projects.Economic Factors token 1. GDP year-on-year Growth Rates, 2006-2011. ascendant National Statistic Coordination BoardAs shown in Figure 1, the Philippines gross domestic product (GDP) decreased from 7.6% in 2010 to 3.7% in 2011. This is due to the negative export gain rates in 2011 that was influenced by the global economic conditions particularly the economic and fin ancial crises in US and Euro countries3. The domestic factors on the former(a) hand include the diminish demand and negative step-up rate in agricultural production and the under spending of the government in infrastructure projects. found on the GDP projections of the International Monetary Fund (IMF), Asian education blaspheme (ADB) and World Bank, the Philippine economy will slightly remedy in 2012 due to the support of growth in private consumption (higher OFW remittances), enthronisation, 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 cast raven exports and foreign investment that whitethorn lead to get GDP growth. Considering these factors the Philippine government essential be able to enlarge government spending on infrastructure projects to prevent 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 demand in the economy is lower in 2011 due to the lower GDP growth rate, overall prices palliate increased which was brought almost 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 cleverness necessitate the amount of disposable income that might be allocated for ho mathematical function get. Based on Figure 2, inflation is lower in the 1st tail 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 whirl indus quiz due to the fact that some of the materials being apply 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 share to positive 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 government in infrastructure projects.6The construction-to-GDP ratio decreased from 5.7% to 5.2%. The increase in government spending faecal matter increase the GDP for the coming years. carry over 1. Growth in the Tourism Industry, Business outgrowth Outsourcing, and Mining Industry that may print the Construction Industry.YearTourism Industry (Foreign Tourist Arrivals)Business Process Outsourcing (Projected Growth)Mining Industry (Expected Investment)20103.52 M20113.921 M (exceeded 3.74M target)18%$3.4B20121Q 2.14M20%$3.9BSource Philippine Constructors Association Country Report, 2011.Department of TourismGrowth of other industries will also open opportunities for the construction indust ry. As shown in Table 1, the tourism industry, the Business Process Outsourcing (BPO), and the excavation industry are perpetually experiencing growth which may lead to much(prenominal) construction projects. For the tourism industry alone, 47 hotels with 14,000 rooms will be constructed by the year 2013.7 collectible to the Philippines stronger financial position, the Standard and Poor raised the Philippines world(prenominal) debt rating to one notch below investment grade (BB+).8According to the DBS Group, the Philippines can pass investment-grade credit rating with a year or two. Once this is achieved, more investments will flow to the country. complaisant FactorsThe social factors that we will be considering in this study will give emphasis on the population growth rate, age profile, and housing backlog 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 bring p opulation of 103.775 million and out of this, 11.86 million reside in the National Capital Region (NCR). The Philippines has an clean 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 62,201,170 as of 2010). This is the parting of participation 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 cumulateAs 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-i sizable Fund, the Social Housing Finance Corporation, the National Housing Authority, the billet Guaranty Corporation, a nd 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 contend for more PPP programs to use the underutilized government lands. The insufficiency of available keep resulted to this housing backlog. The government needs Php 1.7 trillion to address the Philippines housing needs.In 2011, several typhoons and instant 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 authentic for the victims of typhoons that entered the country, which affected 1.4 million families10.Technological FactorsLast June 28, 2012, the general membership meeting of the Philippine Constructors Association (PCA) was held to discuss the current issue s that the industry currently faces. In this meeting, innovation was considered as a driver of productivity. According to Executive theater director Cosette V. Canilao, the players of the industry must be able to re-evaluate their resources and processes to make it more efficient, antiphonary and relevant to the present stringent strikements of the industry.11Regarding PPP for infrastructure projects, the government must demand from its private partners new technologies that will accelerate delivery metre while ensuring public safety. However, Canilao also recognized the fear of being the prototypic 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 High counsels (DPWH), the Philippines may shoot new construction trends in Japan, particularly on the latest applied science on roads and bridge construction.12The construction an d engineering technologies from Japan through the Japan International Cooperation Agency (JICA) will help oneself the Philippines build disaster-resilient infrastructures that would apologise the effects of climate change.Technological innovation in the Philippines doesnt only betide with government projects, private manufacturers of construction materials also try to innovate the products and processes to improve the product offering. Cement manufacturers like the Holcim Group created a green sustainable solution for cement.13The company is trying to minimize the push of cement manufacturing in the environment. The company focuses on bringing down carbon dioxide (CO2) emissions by reduction the clinker factor by using mineral components as alternative materials.14Innovation on the use of raw materials was accompanied by progression in the process namely (1) use of alternative fuels (2) co-processing and (3) orchestra pit habilitation policy. Co-processing is considered as a globally accepted engineering that helps the company process water streams in the cement kilns to properly dispose hazardous industrial wastes.15The quarry habilitation policy would ensure that the quarry aims can be used profitably by the community before they are completely mined out. Holcim Philippines was the runner company to submit a Final Mine Decommissioning and Rehabilitation architectural plan to the Department of Natural Resources (DENR), which will serve as a radiation pattern in restoring quarry sites.Environmental FactorsLand development and construction have a direct impact on the environment wherein land metempsychosis from agricultural to urban and residential greatly reduces bio-capacity (ability of the land to produce sustenance 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 Fr amework to chart, monitor, and make-up 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 grammatical construction Council (PHILGBC) was formed as a national non-profit disposal through the concretion of expression and construction industry leaders from the private and public sector.17This organization was formed to ensure an ecologically and economically sustainable industry. This resulted to a topical anaesthetic green building rating system that is now called Building for ecologically Responsive Design Excellence (BERDE). The BERDE scheme will serve as a benchmark for all property developers in the country.Last noble-minded 17-19, 2011, the first Philippine International Total Green Movement collection and Conference was held at the SMX Convention Center, Mall of Asia Complex in Ma nila. The vocalize venture of the Philippine Constructors Association, Inc. (PCA), Global-Link Exhibitions Specialist, Inc. (GESI), Philippine Society of Ventilating, Air-conditioning, Refrigerating 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 feature four exhibit segments on construction (Green Construct), manufacturing (Green Manufacturing), lifestyle (Green lifestyle), and energy (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 listing towards environment friendly development projects.Legal FactorsThe construction industry is one of the most hazardous and unstable occ upations 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 enjoyment (DOLE), and the Professional Regulation Commission (PRC) signed a Memorandum of concordance 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 lately killed or severely injured workers early 2012.19Also, this MOA is an off-shoot of DOLE Department fiat 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 Industry real Eco-friendly Construction MaterialsThe c onstruction industry in the Philippines is currently leaning toward ecological friendly materials due to the global campaign to save the environment. The materials that are available range from pre fabricated ramparts 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 flatboat and insulating product. Reinforced fire bricks are also one of the common construction materials that are used in construction of nationals. Reinforced bricks are made of industrial wastes such(prenominal) as rice hull, coal ash, silt, mud and clay.Existing Market and AvailabilityThe existing market for pre-fabricated walls and blocks are the contractors for commercial buildings and multistoried residential buildings. There are also some contractors that use pre-fabricated materials for home construction but the homeowners still prefer to use concrete hollow bl ocks (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 normally specified by the people who belong to the higher class of society mainly because of the price of this construction material.Advantages disfavors of using existing eco-friendly construction materialPre-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 w alls generally have. The pre-fabricated walls also serve as good insulators that result to less energy consumption. A notable injury of using this product, aside from the cost, is that the sizes that are available are only circumscribed 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 loathly and are considered to be ideal in tropical countries like the Philippines because it tardily 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. nonetheless 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 stiff as a backyard industry because it is easy to produce, especially the non-load bearing CHB. The CHB can be produced manually by using an improvised regurgitate. 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 movements why CHB is still being used in construction, namely (1) cost (2) availability and (3) ease of installation and handling. CHB still remain as the a cheaper choice in construction of a concrete house. As a backyard industry, CHB is available countrywide 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 theatrical role, economy, and completion time are the major circumstances 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 red-hot one on top of another. In the Philippines, only 5% are using prefabricated building material in housing construction21. everywhere the years, different figures of construction materials have been offered containing recycled formative, such as PVC pipes. recycle is especially important for thermoset polymers since this form of waxy cannot be reheated and liquid 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 suprema cy FactorFigure 4. Porters Five Forces for the Construction Materials IndustryIndustry ambition Among Existing Players- middlingThe demand for this product is readily accessible in most areas and the market is sensitive only to the price relative to the select of the product they receive. At present the 4-6inchconcrete hollow blocks prices are standard for all and vary only between the leger suppliers and the backyard suppliers because of their respective approach to the business. The buyers of the product favor the suppliers who are nearer to them (because of transportation costs) and if satisfied with the flavour they turn back their suppliers. However in that location are instances where the buyer changes suppliers in lieu of quality issues for this reason, industry rivalry will be considered medium.Threat of New 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 capital 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 wherefore 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 need 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 unique while the returns in this fictional character of business do not instantly translate to high growth profits. The local venture capitalists who provide seed capital to startups look to first light industries such as the BPO sector and IT services delivery, or the next big w ebsite 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 financial aid 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.Bargaining ability 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 s upplier, volume supplier or a wholesaler, and depending on the volume purchase of the buyer the talk terms power of buyer is medium given up the availability of a quality product in the market.Bargaining Power of Suppliers Low / MediumThe demand for reasonably priced hollow blocks are expect to be growing at 10.5% and construction materials 5.4% which supports the argument that demand is good. some other consideration is that the real-estate residential development is in the form of condominiums and they make use other products such as pre-fabricated walls instead of hollow blocks. The construction blast doesnt directly 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 authoritative size have a stronger bargaining power than others.Threat of supersede 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 victor 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 merchandising 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 consider 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 project 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 a nnual 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 commonwealth Act 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 Mines and Geosciences Bureau (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 focusing 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 especially 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 plainly launch the same product at a big scale. The availability of funding for these large companies will give them an advantage to produce more products. The mo re 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 unavoidableness 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