The Structure of Construction enterprise and Its Competitive Strategic
Choice in China
Yu-lin Wang 1, Wei Zhou 2
1
2
The Center for the Studies of Information Resources, University of Wuhan, Wuhan, China
The Center for the Studies of Information Resources, University of Wuhan, Wuhan, China
(zhouwei15229@163.com)
Abstract - The intense competition in the market has
exerted much pressure on construction enterprises from
both home and abroad to the extent that these enterprises
spend every minute in choosing survival and development
strategies. This paper first introduces an overview of
competitive strategy theory in which the structure of
construction enterprises is analyzed through five kinds of
competitiveness models and three kinds of competition
strategies is analyzed from their strengths and weaknesses.
Then, it points out how different construction enterprises
take the opportunity in the competition. Last, this paper
proposes some suggestions about competition strategy
formulation.
Keywords - construction enterprise; competitive
strategies; five kinds of competitiveness models; strategic
choice
I. INTRODUCTION
Nowadays, in the 21st century, the building industry is
undergoing a changeable market in China, with every
enterprise in it sparing no effort to gain the front-runner.
They compete in marketing, price, technology, service
and etc. But this all-round competition is not very good.
The enterprises must break traditional inappropriate chain
to gain lasting existence and development. To achieve this
goal, they should look into the industry environment,
allocate the privileged inner resources rationally and
fashion their strong competitive power, which requires a
clear, long and comprehensive enterprise competition
strategy to follow. So, the enterprises in building industry
ought based on the analysis of the outer environment as
well as the inner capability and resources, to seize the
chance, play to the strengths, avoid the threats and
overcome weakness to explore a desirable competition
strategy.
II. THE COMPETITIVE STRATEGY AND
INFLUENCING FACTOR OF ENTERPRISE
A. The concept of the theory of enterprise competitive
strategy
The word “competition” has many meanings[1]. In
western economics, the mainstream viewpoint is as
follows[2]: the reason for market economy to exist is
competition, which can promote the sustaining
optimization and maximum utilization of social resources.
So, competition is a main feature of market economy, an
inevitable outcome of history development.
The word “strategy” first appeared in the military
field. These days, the word “strategy” has been applied to
political and economic fields and its meaning is extended
vastly, including the dominant, global and life-and-death
maneuver, project or countermeasure. When strategy is
used in enterprise management, enterprise strategy comes
into being.
Enterprise strategy is a strategic system, with
competitive strategy, development strategy, technologydevelopment
strategy,
marketing
strategy
and
informationzation strategy included. Namely, competitive
strategy is just a part of it, which is employed to seek a
favorable competitive position in a certain industry[3]. It is
a stratagem to solve global, long and fundamental
enterprise problems and can help to put enterprise in a
profitable and steady place according to all kinds of
industry-oriented competitiveness.
B.
The development of the theory of enterprise
competitive strategy
The theory of enterprise competition strategy comes
from the enterprise strategic theory, experiencing the shift
from the study of key points in enterprise strategic theory
to competition among enterprises. It has three developing
phases:
The first one involves in traditional fundamental
strategic management theories based on environmental
and market analysis. Accordingly, the enterprise strategy
is established by analyzing the internal and external
enterprise environment. This theory includes Chandler’s
idea that the enterprise environment and enterprise
strategy come before organizational structure of the
enterprise, Ansoff matrix about product market, Andrews’
SWOT Analysis, Boston Consulting Group Growth-Share
Matrix (BCG), PEST analysis and etc[4].
The second one focuses on competitive strategy
theory grounded on market structure and competitive
advantages, whose representative achievement is the
competitive strategy of Porter. Porter came up with three
basic competitive strategies by analyzing the industry’s
market structure. Since the traditional competitive
strategic theory failed to penetrate into competitors and
competitive factors, Porter’s results can do perfect
compensation. Besides, Porter thinks that industry
attractiveness controls the profits and market structure
determines competitive strategy.
The last one emphasizes on competitive strategic
theory concerning resources and capabilities. It pays
much attention to the enterprise’s own characteristics
which is always neglected by the former two theories. The
third-generation theory thinks highly of the uniqueness an
enterprise possesses, considering it the source of superprofits. The uniqueness is just what the enterprise owns
exclusively, such as special resources and capabilities.
This theory has two representative thoughts, Wernerfelt’s
resource-based view (RBV) and Prahalad and Hamel’s
core competitiveness respectively[5]. The theory of
enterprise competitive strategy is different from the
traditional ones in that the former mainly studies the
market competition to establish and maintain the
competitive advantages.
C. The Influencing Factor of Enterprise Competitive
Strategic Formulation
When talking about enterprise competitive strategy,
strategic formulation is inevitable. It is not enough for
enterprises to know the theories. Instead, they must also
know how to formulate relevant enterprise competitive
strategies to reach their goals which are what enterprises
and business decision makes are concerned with. Thus,
Dan Schendal put forward strategic management pattern
based on the collection of fruits in Pittsburgh. The pattern
takes goal determination, environmental analysis,
strategic
formulation,
evaluation,
selection,
implementation and control into consideration, which
makes competitive strategy useful to strategic problems
happening to enterprises. It means that strategy should be
formulated on behalf of enterprises[6].
Environmental analysis is the basis on which the
enterprise competitive strategy is formulated. However,
due to the more intricate and turbulent enterprise
environment, enterprise strategy becomes a central agenda
to enterprises. There are many methods of environmental
analysis, such as, PEST analysis, SWOT analysis and five
kinds of competitiveness models of Potter’s. Furthermore,
Potter’s method wins wide recognition among enterprises
and academics about competitive strategic formulation
because he extracted five kinds of crucial competitiveness
from a series of factors which have an effect on
enterprises and their competitive behaviors. And the
potential gains in an industry are determined by the
interaction among these five kinds of competitiveness. So,
the challenges an enterprise is faced with are how to find
its own suitable place in an industry, how to discover the
favorable factors and how to avoid the negative factors.
With his method, Potter raised three viable
competitive
strategies,
whose
advantages
and
disadvantages are evaluated and analyzed to pick up the
best competitive strategy for an enterprise, a goal that the
strategic evaluation and formulation purses when taking
the purpose of competitive strategy, the environment as
well as enterprise’s own features into account.
Strategic implementation and control reflects the
dynamic strategic management. In modern times, the
competition becomes increasingly fierce, and plan always
changes very fast, so it is urgent for an enterprise to
obtain a flexible, variable and market-adaptable strategy.
III. THE INDUSTRY STRUCTURE OF OUR
COUNTRY’S CONSTRUCTION
Industry structure is very important to the enterprise
competition strategy, meaning that the analysis of the
construction’s industry structures is vital for the
construction enterprise to formulate competition strategy.
According to Michael Porter’s "five competitive forces
analysis model", the state of competition in the
construction industry depends on the five basic
competition: existing competitors in the construction
industry, the bargaining ability of building materials
supplies, the bargaining ability of building products
buyers, the potential entrants of construction industry and
producers of substitution. The followings will analyze
construction industry according to the five competitions[7].
A. Existing Competitors in the Construction Industry
Since the benefits between each other in the
construction enterprise are closely linked, building
enterprises formulate their own competitive strategies in
order to gain more advantages relate to their competitors.
However, when enterprises are implementing their
competitive strategies, conflicts and antagonism
phenomenon will inevitably appear, which have made up
the competition between existing construction buildings.
Either domestic or foreign construction market,
construction industry is the one that with a huge number
of enterprises but a small rate of leading enterprises.
According to statistics, there are almost 97000
construction enterprises, but the first class enterprises just
account for about 5.6%, the main structure in the industry
is small and medium-sized enterprises. They have serious
phenomenon of homogenization and seldom distinguish,
which lead enterprise to badly compete on the same level,
even trap into excessive competition.
B. The Supplier of Building Raw Material
The force of suppliers mostly depends on the inputs
they supply to buyers. The raw material supplied by
supplier accounts for a big proportion in the cost of
construction enterprise. Building raw material is not just
very important for construction enterprise to construct and
produce, it also influences the quality and servant of
constructive products directly, which provide supplier a
strong bargaining ability to sell the material with a higher
price. However, in order to maintain the stability and
development of supplier and construction enterprise, the
cooperation between the two is always supplied in a form
of long-term contract, which can solve the problems of
quality and cost by cooperation. Therefore, the bargaining
ability of building raw material supplier is less intense.
C. The Buyers of Constructive Products
The buyers influence profitability of existing
enterprises mainly through the ability of asking for a
lower price and higher quality and service. Thanks to
continued rise of infrastructure construction in our
country, the tendency of buying a large number of
constructive products is still very strong; all construction
enterprises can get a lot of order forms and contracts for
the construction of infrastructure and cities. However, on
the other hand, at the constructive market, buyers would
rather choose the products with a lower price under the
condition of supplying similar products by construction
enterprises; thus, the ability of construction enterprise to
control the constructive products price is weaker than the
buyers.
D. The Potential Competitor in the Constructive Industry
Constructive industry is a kind of intensive enterprise
which needs a heavy capital and operation finance. If the
potential constructive enterprises want to enter into the
circle of construction, they would pay a high price and
will be easily boycotted and damaged by competitors at
the initial stage. Again, as the series of constructive
products is so similar to each other, the economy of scale
and scope works a strong function. Therefore the society
highlights that the qualifications and record of service and
the prestige of a construction enterprise are important,
which make the barrier to enter the constructive industry
very high. However, the suppliers of constructive raw
material who know clearly about the construction may
turn into potential competitors; at the same time, with the
end of the transition period of China accessing to the
WTO and the gradual opening of domestic constructive
market have provided conditions for them to enter in. The
two enterprises mentioned above are the most powerful
potential competitors in constructive industry.
E. The Threaten of Constructive Alternatives
Two enterprises in the same industry or not may
appear competing behaviors, because their products are
alternatives to each other. The competition based on
alternatives will influence the existing competitive
strategy of enterprises in the industry by all kinds of
forms. According to constructive industry, however,
constructive products are always designed and produced
to meet buyer’s requirements, and quite different from
batch process, which have unique qualities. It means that
almost no obvious threats happen to alternatives.
IV. THE COMPETITIVE STRATEGY OF
CONSTRUCTIVE INDUSTRY AND HOW TO CARRY
IT OUT
When Porter’s "five competitive forces analysis
model" is analyzing the competitiveness among the
enterprises, it also provides us enterprises three
competitive strategies: differentiation strategy, cost
leadership strategy and target concentration strategy[8].
A. Differentiation Strategy
Making the divers products and service supplied by
enterprise to form some unique things in the whole
industry is called differentiation strategy. There is obvious
difference between the products of construction enterprise
and its competitors’, which are determined by the single
quality of construction enterprise. That is beneficial to
carrying out the differentiation strategy and gaining
lasting competitiveness. To carry out differentiation
strategies, following measures may be adopted.
(1) Difference in Products
Difference in products is the main way to realize
differentiation strategy of construction enterprise. Under
the background that products of construction have
substitutability between each other, construction
enterprise should put more effort into the following
aspects: the design of products, the creation of the
environment, constructive material and so on. At the same
time, it also needs construction enterprise to trail the new
bright points in the industry development constantly,
focus on transformation and application of constructive
industry in technical achievements, adds the new
technology which can meet the buyer’s requirements to
the constructive products to ensure the leading position in
the field of developing constructive product.
(2) Difference in Brands
Difference in brands starts at the figure of brands.
The development of constructive industry is long and
periodically, which makes it possible for constructive
industry to build its own unique brand according to its
characteristic. At the point of difference in brands,
enterprise should make great efforts to create a brand of
constructive product, realize the operation of brand and
set a good credit by good image of brand. The style of
advertising design and the format of brand building
should be characteristic, the raising of the image of brand
should be emphasized, which make the enterprise more
forceful and lively, the image of enterprise and product
root in publics and the diversity in brands boldly. The
cognitive diversity of brand among public safeguard
brand image.
B. Cost Leadership Strategy
The cost leadership strategy, also called the lowest
cost strategy, regards the lowest cost as the powerful
weapon, which means that the total cost of enterprise
lower than its competitors’, even become the lowest one
in the industry by using an effective way to get
advantages in the competition[9].
To operate the cost leadership strategy effectively,
several measures can be considered:
First of all, the sense of controlling cost should be
promoted in the intranet to make sure that staffs know the
importance of it. Controlling cost needs not only the
proper management of project and finance manager but
also the effort from all the staff of enterprise. Relevant
index of controlling cost established in constructive
enterprise are regarded as principle which encourage
workers to saving cost and take advantage of existing
resources.
Secondly, effective technical measures are adopted
to control material cost. During the whole process of a
program, the material cost often account for 60 percent[10],
thus controlling cost must emphasize on reinforcing of
controlling material cost. To control the material cost
effectively, some necessary work must be done including
basic activities before purchasing (investigating materials
market, developing a reasonable material planning), the
management of using material at the construction site.
Therefore, unwanted wastage at each stage can be
decreased when the measures above are strict performed
and enterprise adjust their measures to local conditions.
Thirdly, strengthening the staff management and
reducing the wastage on cost of labor demand a powerful
control of choosing and managing the contracting team.
The first step to manage staff is to choose a good
contracting team whose labor cost and product quality
influence the whole quality and cost of the program[11].
Construction enterprise should take all kinds of factors
into account to choose a proper contracting team.
Finally, a good financial management assists to the
counting accuracy and integrality after the project fishing.
The recording of the consumption and expenses about
staff, materials, machine and so on should be put down in
the construction stage, which can check out if there is any
error when analyzing and resorting those recordings. It is
apparently that the completion management is the final
period of the management of enterprise cost; it is also the
key point for enterprise to realize profit reality [12] .
C. The Concentration of Target Strategy
The construction enterprises in our country may have
mastered some advanced technology in the practice longterm construction contracting, but lack the creation of
technology. Competitive strength can be brought to the
construction enterprise by the concentration strategy.
In order to carry out the strategy, it is necessary for
construction enterprises to form a target system of core
competence after knowing the advantage of construction
enterprise, enforce the development and re-creation of
technology, highlight leading product of proprietary
intellectual property rights which promote the competitive
strength and sustainable development ability.
Nowadays, the existing barriers of construction are
caused by the character of construction itself. At first, the
discontinuity of project organization constructive industry
has no benefit for accumulating technological experience
and transferring technologies. There are some temporary
organizations, such as owner, design units, construction
unit, materials and equipment supply unit. While the item
is completed, the organization is dismissed, some new
ones will be organized according to new contracts[13]. This
discontinuity without sharing, reflecting, accumulating of
knowledge and experience blocks the activities of
construction enterprise at constructive market. Secondly,
the predicted market demand is the precondition of
technology creation, but the construction products are
uncertain. Then, the barriers of development of enterprise
are happened by the stationarity and the immobility of
constructive products. Finally, the design of construction
and separation of construction limit construction
enterprise march into other constructive fields. If
construction enterprises want to develop other markets, it
will take a high price because of the need of dealing with
different architectural firms, so a lot of efficiency and
profit will be reduced. Thus the target concentration
strategy is one of the best competitive strategies for the
current construction enterprise.
V. THE CHOICE OF COMPETITIVE STRATEGY IN
CONSTRUCTION INDUSTRY
Potter presented the method for the analysis of the
competitiveness in an industry by five competitive models,
and provided three competition strategies to improve the
competence of the enterprise[14]. But, when it comes to
construction industries, the consideration changes and the
method should be decided on the characteristics of the
trade itself and the adaptation degree. So in order to
ascertain the suitable scope, it needs to know clearly what
are the advantages and disadvantages of three kinds of
competitive strategy.
A. The Advantages and Disadvantages of Competitive
Strategy
The implement of differentiation strategy can
strengthen customer loyalty to the construction enterprise,
reduce the sensitivity of the building products prices,
avoid excessive competition in the industry, and moreover,
form unique brand effect and maintain leading position in
particular fields[15]. The barriers derived from loyalty of
customer make the competitors cost a lot to gain
customers and business, which raises the competitive
threshold. To achieve the effect of differentiation, the
input of enterprises is very high, and the cost paid by
enterprises will be a part of the cost of the products. To
some extent, the additional price weakens the competitive
ability of the construction enterprise.
Next talking about the strategy of cost leadership.
Since the fierce competition in the construction industry,
the advantages of a lower cost can perform a good
foundation for the price war, making competitors quit
because of the pressure from competition and weakening
some potential threat from those who try to enter the
industry. But in order to maintain the cost advantage, the
amount of funding is invested in the technological
innovation process, thus improving the launch obstacles.
In addition, too much attention is focused on the
production cost and ignored the needs of the enterprises,
which is not benefit to long-term development of the
enterprise.
Operating target concentration strategy is to make
the technology and management specializ to gain the
competitiveness in technology and process, use advanced
information technology to innovation, attract good
professional and innovative technology talents. The
strategy makes the enterprise can get better and more in
the long run, and at the same time, the relative
concentration of enterprise resource can guarantee the
costs and technical advantage and make the operation of
the enterprise and goal more clear and less risk. Its
limitations are that the scope for enterprise competition is
narrow, and once lose these business areas, enterprise will
be falling into the dangerous situation.
B. The Choice of Competitive Strategy for Construction
Enterprises
Construction industry in our country is in a relatively
healthy growth period, that is to say, demand is relatively
strong, building enterprise is numerous, but the scale and
strength is far behind, and each enterprise makes full use
of their own resources to improve market share and gain a
competitive advantage and corporate profits. So the
market competition is fierce. Through the above analysis,
in this paper we put forward different competition
strategies for the construction enterprises in different scale.
For those strong construction companies,
differentiation strategy may be an alternative strategy.
Large construction enterprise can give full play to their
advantages through the product differentiation and brand
differentiation. At the same time and constantly improve
them and avoids weaknesses to cope with threats in
construction market and to gain greater development.
For the powerful construction enterprise, the cost
leadership strategy is more appropriate. They may strictly
control cost and reduce the cost of every stage in the
whole production process, so they can control project
scale, optimize cost, and increase the market share.
For those potential entrants or foreign construction
enterprise, they can take the aim concentration strategy as
the best choice. By the subdivision of construction market,
centralizing resource aims at a specific area and a
particular consumer area in construction market,
developing goods to satisfy special needs, the
construction enterprise can gain competitive advantages
and take a place in the market.
It need to point out that, if two or all of the three
competition strategy are used in construction industry at
the same time, the advantages and characteristics of
competitive strategy of all sorts may be not obvious, just
as the middle layer of sandwich which may add additional
press to enterprise. Construction enterprises should
choose one of the competition strategies, not their mixture.
VI. CONCLUSION
The competitiveness of construction enterprise and
its competitive strategy is inseparable; in turn the
enterprise competition strategy is designed according to
competition ability of construction enterprise. With the
competition between the construction enterprises
constantly upgrade, competition is increasingly fierce.
Only careful analysis the competition ability of the
enterprise, can construction enterprise create their own
competitive advantage and grasp the disadvantages of
competition strategy. Finally, through the reasonable
using competition strategy, enterprise can make continued
progress and development, possessing a place in
construction industry.
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