Analysis Of Task Environment 3v5j2z

Riju Joshi 13724 BBA IV Year (Deep Group) ANALYSIS OF TASK ENVIRONMENT HOUSING INDUSTRY ANALYSIS An industry is a group of firms producing a similar product or service, for example noodles and consultancy services. Examining the stake holders group such as customers and suppliers is one of the essential parts of industry analysis for an organization's task environment. Housing industry in Nepal and real estate business had been a emerging industry in past few years, while its popularity is decreasing especially after the real state crisis in 2010 and massive earthquake that hit Nepal in 2015. We use Michael Porters' five forces framework model to assess the task or closed environment of any industry to analyze its competitive forces. Thus, we analyze task environment of housing industry using this framework. The five forces are: 1. 2. 3. 4. 5.

The threat of new entrants The rivalry among competitors in the industry Threat of substitute Bargaining power of suppliers Bargaining power of buyers Threat of new entrants: New entrants are threat to existing corporations in an industry as they aim to bring new capacity, gain market share and substantial resources. Thus there are entry barriers that make it difficult for new companies to enter into the market. In case of housing industry, there are some entry barriers; however, companies with adequate supply of funds can enter into this industry. The barriers are:

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High economies of scale: There are not much economies of scale in this industry. There are few housing companies with the apartments and housing at more than one place, but the number is rising. There is low threat

of entrants as the existing companies have relatively high economies of scale. •

Learning or experience effect: There has been no particular skill or learning factor that can bring big difference. Since, the learning effect is low, there is threat of new entrants.

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Brand benefits: People do prefer some companies over another such as CG housing, Central Business Park, Sunrise homes and so on. However, most of the companies are on similar page. The brand benefit is lower and thus threat of entrants is comparatively higher.

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Capital requirements: There is higher capital requirement for the business as it is related to construction work. High capital requirement is low threat of entrants.

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High switching cost: For consumers the switching cost from one housing company to the other is high. The housing company price range varies, however is very expensive. The high switching cost means low threat of new entrants.

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Access to distribution channel: Relying totally on local distribution channel is problematic.

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Anticipated growth: This real estate business is at its saturation. There is not much growth prospect unless new entrant comes with highly innovative idea at relatively lower costs than its competitors. Thus, threat is low as the growth of industry is slower.

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Government policy: there is no strict government policy for limiting the entry to industry.

Rivalry among competitors in the industry Rivalry begins when healthy competition turns into contention or sometimes unhealthy competition. 

Unstable environment: The environment is somewhat stable. It has been quite stagnant in few years. After the massive earthquake, the number of clients is decreasing as people do not want to stay in big and high storied buildings. There would not be price wars or heavy promotion to outgrow one

another because the investment itself is high. There is low instability, lower rivalry but the trend is unfavorable. 

The life of innovation is short: Innovation is not a major concern in this type of industry.

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Industry close to maturity: Closer to industry means more rivalry, weaker companies leave the market. This case is similar for housing industry in the valley as, some companies have left the market due to lower sales of the apartments and houses. The existing ones are still fighting with one another to take as much as customers in as possible. If this industry goes out of valley to other regions, then there is prospect of growth, but various other factors have to the business, such as income level of consumers who can afford the housing and its facilities.

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Market dominated by few competitors: There are no few major players in the market. Thus, this might show that the environment is favorable but this alone doesn’t show how industry is.

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Characteristic of Product/ Service: People perceive the facility provided by different companies differently depending upon the location, the building itself, the area and facilities that are offered.

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Variable cost pricing options (Unused capacity): There is unused capacity, offers are made and discounts are given to attract customers, but these strategies are not much effective. Thus, there is not much possibility of lowering prices at present stage.

Bargaining power of Suppliers •

Suppliers are limited: The suppliers of this industry are the construction materials, there are various numbers of dealers for the materials and hence the suppliers are not limited. The suppliers are not powerful which is favorable for the business industry. Another aspect of suppliers could be the engineers. The engineers are also not limited, and hence business seems favorable.

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Importance of supplier’s product to buyer: The products that are bought are common and not so unique, it gives less power to suppliers as

the business may switch from one supplier to another. This is a favorable aspect. •

Substitutes are not available: Substitutes are not easily available. The things used are construction materials such as cement, iron rods and so on. These materials cannot be substituted.

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Our volume of purchase is small: The volume of purchase for contraction is higher which gives the businesses more power to reduce and bargain prices for heavy bulk buying. This is lower power to suppliers.

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Threat of forward integration by suppliers: Threat of construction dealers going for entering the market is very low in this case and thus means quite favorable situation.

Bargaining power of customers •

Standard supplies: Customers cannot bargain much in the prices in this industry, even if the supply is somewhat standard, it doesn’t give customer much privilege to bargain.

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Consumer price sensitivity: Consumers are less price sensitive with regards to the services, facilities and quality of place where they prefer to live. This gives more power to the supplier, here, the housing industry.

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Accurate information about the cost structure: The information of cost structure is easily estimated. This gives some power to the customers, however, the costs of housing itself is higher, so there is not much to bargain.

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Threat of backward integration: This threat is very minimal in this case as the industry is expensive. One has to have a lot of capital for backward integration. Hence, this does not seem to be threat for housing industry companies.

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Customers have parallel sourcing strategy: There is less possibility of parallel sourcing strategy. Only few owners have property at more than one location or company. But there is not much dependency upon the suppliers either. This does not give power to the buyers and is favorable to business.

Threat of Product Substitutes •

Easiness in substitution: Substituting among the product or the brand itself is difficult as people have to spend a lot of money when it comes to housing. Thus customers cannot easily switch among the housing and apartments. Lower easiness in substitution means low threat of substitution.

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Price differential between comparable product categories: People stick to similar product even if there are easily substitutes available due to price differential. Thus it means lower threat of substitution.

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Growing competition in substitute category: There is no major substitution to housing industry except for house owner themselves. If the price of houses themselves goes down, then the commercial housing industry might face a drop in potential customer as they prefer individual deals rather than through a company. This means some threat of substitution. Porters' Five forces framework SN

Five Forces

1

The threat of entrants

2

The rivalry among competitors in the industry

3

Threat of substitute

4

Bargaining power of suppliers

5

Bargaining power of buyers

High

Medium

From the Porters' five forces model, the industry seems to be more or less feasible, however, the stage of the industry matters too. The industry is in maturity stage, the earthquake has led to weaker houses and less feasible to construct new buildings. People, here customers, do not prefer to stay in high storied buildings. Most of the buildings themselves have grown weak and almost in ruins. The current scenario is deserted housing apartments in many places; the investment on them has gone to waste. Similarly, due to

Low

interest payments and loan repayment issues, some of the companies have stopped their work at mid- construction. Hence, along with the framework described above, it is essential to study the industry from a more practical point of view and analysis. This shows that housing and real estate is not an attractive option for investment since the market is at saturation and people do not prefer apartments at least for a few years to come. Therefore, I suggest not to make investment in this field for the time being, especially in case of Kathmandu valley. In case of other places than Kathmandu, there are opportunities but it is bound to take few more years to gain popularity.