THE GROWTH TREND OF CONSTRUCTION COMPANIES :
A MALAYSIAN EXPERIENCE *
BY
ABU BAKAR A.H.
SCHOOL OF HOUSING, BUILDING AND PLANNING
UNIVERSITI SAINS MALAYSIA
Introduction
In his General System theory (Berthalantfy; 50:23-29) says that an open system
is in constant interaction with the environment. Changes in the environmental
factors will therefore affect an organization as a system (Kast and Rosenweig;
85:112) and so with business organizations that have to change to stay in
competition and be compatible with their environments. This relationship
between firms and their environment has to be understood and observed more
seriously at micro level to make the existence firms more meaningful. As an
economic entity a firm is in constant challenge by the flow of change in the
environmental forces (Cyert and March; 63). Perhaps the keyword for firms is the
constant change.
Among the environmental forces that have a strong influence on the
performance of firms is the global economy and the economic factor of a
country in particular. It is generally understood that there is a relationship
between performance of a firm and the economic situation of the country in
which the firm operates. It is therefore important for firms to be highly sensitive to
the environmental changes and able to forecast as precisely as possible, the
future conditions and formulate strategies to adapt. This is the prerequisite for
any firm to survive and excell in this ever changing, highly competitive and
complex environment.
The ability to anticipate the future is of prime importance for the firm to be more
effective and survive in various different conditions. Short term challenges are
less demanding when compared to long term. Firms more normally in the short
term, pay more attention to profit maximization. However in the long term, profit
is no longer a prime objective (Drucker; 68:112). The survival of the firm:
efficiency, effectiveness, reputation, increasing market share, etc., is more
important. Hence, it is important for the firm to focus and give high priority on the
development of the firm itself to achieve long term goals more effectively
(Hisatomi; 90:249). This does not mean that in the long term, making profit is not
important. Profit is important for promoting and measuring growth, but profit
maximization is not of prime importance because it is a short term strategy.
Investment that promotes growth will eventually in the long term gain higher
return (Rimmer; 88:405).
This paper is the outcome of the research on the growth of Malaysian
construction companies. It focuses on the importance of growth for construction
firms as a long term measure. A model for growth was established by relating
three main independent variables used to measure growth: namely the number
of permanent employees, the geographical market coverage and the company's
annual turnover. The model was then tested for its validity.
Objective
The main objective of this paper is to establish relationship among three
independent variables (number of permanent employees, geographical market
coverage and turnover) that are used to measure growth and to establish
relationship between growth and factors affecting growth.
The other objectives are as follows:
1. to establish path of growth;
2. to establish a possible time frame for each stage of growth and
3. to establish factors affecting growth and rank them.
Methodology
A set of questionnaire was sent at random to more than 200 firms around
Malaysia of various sizes. About 35 or 18% (all fully answered) of the
questionnaires sent were returned. The analysis was based on the 35 set of
answered questionnaires received. Though the sample size is too small to be
considered representative, times contraints left the author with no option but to
use it. The data obtained was analyzed quantitatively by using SPSS. The
frequency and the correlation test were than carried out to validate the model.
The Strategy and Structure Model
Chandler (1969) is among the pioneers to carry out research work on the
relationship between strategy and structure of large American firms after which
spurred others like Dyes (1972), Thanheiser (1972), Paven (1972), Rumelt
(1974), Channon (1973 & 1978). Best selling Peters and Waterman (1982) and
Porter (1980) are the examples of recent works related to the subject.
On the basis of the above works, comparative research was carried out in
construction. Amongst them are Newcombe (1976) and Lansley (1979). Lansley
focused his research on the flexibility of structure and strategy of firms, in various
industries including construction, in respond to the change in demand in the UK.
Whereas Newcombe focused on the relationship between strategy and structure
for small and medium sized firms in the UK. Both works provide good insights of
relationship between strategy, structure and performance.
2
The Research Model - The Geographical Market Coverage and The Number
of Permanent Employees Model
This model is based on the previous works by prominent authors in this field, but
with a slightly different approach. It tries to relate the Geographical Market
Coverage and the number of permanent employees and try to establish the
major path of growth of the construction firms in Malaysia. Figure 1 shows the
relationship between the two variables of growth and proposed a growth path for
construction firms.
Number
of
Permanent
Staff
Geographical Market Coverage
FIG. 1: Relationship between size of permanent employee and geographical market coverage.
There are several choices of growth path that a firm can take. According to
Flanagan (90:242), the market growth trend for construction firms is from local national - international - multinational - global. However this research looks at the
growth trend of indigenous contractors only within the national market boundary
and proposed that growth can take a direct diagonal route from 1-1, 2-2, 3-3 and
4-4. However a direct diagonal growth as shown in figure 1, is not an easy task
to achieve; it involves restructuring of internal factors, particularly the
organizational structure (Fellows, Langfords, Newcombe and Urry; 83:41). Other
alternative routes are also possibled and its depends, amongst others, on the
type and the marketing strategy of the construction companies.
Growth of a construction company are also associated with the success factors
that the company adopted. A number of success factors that are considered
3
significant and apropos are used to gauge the differences in perceptions
between small and large construction companies on growth.
Research Hypothesis
1. There is a direct relationship between the number of permanent employees of
the construction firms and their market coverage. As firms grow in size from
'small' to 'large', both the number of permanent employees and their market
coverage grow proportionately, and
2. Growth paths chosen by construction firms are many but popular routes can
be established, with the most popular is through sectors 1-1, 2-2, 3-3 as shown
in figure 1.
Assumptions
During the formulation of the research model, a few assumptions were made:
1. change in the environment is not drastic and sudden,
2. the rate of change in the environmental factors is manageable,
3. construction companies have the ability to cope with the increase in
demand,
4. the structure of construction companies is sufficiently flexible to allow
internal changes to happen.
Definitions
Age of respondents is the time frame measured from the time of registration till
current year (1992). In this case the age of respondents is categorized under
four categories of age range as shown in table 1.
Three variables namely market coverage, the number of permanent employees
of the company and the annual turnover are used to measure the growth of the
construction companies.
The number of permanent employees1 is measured by the number of employees
of the companies employed under long term employment definition (excluding
contract employment). This was categorized under three categories namely
1Eventhough
the construction industry in developing countries is characterised by labour
intensivity approach, the number of permanent staff employed by the construction companies is
small compared to that of manufacturing industry. This is due to the nature of construction
employment, ie; most of the workers are employed by contract on a project basis and most of the
manual labour are employed through labour only subcontractors. Hence it can be found that a
large construction company with very high annual turnover employs very small numbers of
permanent staff as compared to companies in other industries.
4
small (i.e.; less than 10 staff), medium (i.e.; between 10-25 staff), large (i.e.;
more than 25 staff).
Market coverage is measured by the geographical area of operation of the
construction companies and is classified under three categories namely local
(i.e.; companies operating within 50 km radius from their registered office),
regional (i.e.; companies operating within 50-100 km radius from their registered
office) and national (i.e.; companies operating more than 100 km radius from
their registered office but within the Malaysian border).
Turnover of the construction firms is measured by their annual turnover. The
turnover is classified under three categories namely less than 2 millions Ringgits;
between 2-8 millions Ringgits and more than 8 millions Ringgits. This
classification is by Malaysian standard based on the classification used by the
Malaysian Contractors Service Center (PKK- Pusat Khidmat Kontraktor).
Data Collection and Analysis
Data was collected through postal survey where more than 200 questionnaires
were sent at random to the construction firms of various size all over Malaysia.
About 35 companies returned the questionnaires upon completion. Hence all the
analyses were based on the information given by the 35 construction companies.
Though the number of respondents are small but it left the author with no option
but to use it. Various relevent questions were address to the chief executive
officer of construction companies. Questions range from companies background,
historical development to perceptions on various related isues including the
growth of the company. Following are the information on the respondents:
Background Information
The following are the background information on respondents:
AGE OF R ESPON D EN T S
43%
3%
9%
46%
Figure 2: Chart of Frequency distribution of Construction Companies by Age.
5
Figure 2 shows the frequency distribution of the respondents. Age group of
between 10-20 and 10 and less, which is 46% and 43% respectively, are the
core of the sample respondents. The majority of the respondents are those
companies registered in the seventies and eighties that coincided with the period
of construction boom (i.e., between 1974 to 1984) (Abu Bakar; 90:30-35).
Table 1: Type of work done by respondents.
TYPE OF WORKS DONE
BY RESPONDENTS
Type of work
1
2
3
4
GENERAL
CIVIL
BUILDING
SPECIALIST
Total
Frequency
Percent
12
19
21
14
18
29
32
21
66
100
Table 1 shows the frequency distribution of work done by respondents is
dominated by civil engineering and building works that are 29% and 32%
respectively out of the total number 66. Therefore, on average, each company is
involved in more than one type of works.
Table 2: Type and frequency of specialised works done by respondents.
SPECIALISED WORKS DONE
BY RESPONDENTS
Type
Frequency
Percent
1
2
3
4
5
DAM
MECHANICAL
ELECTRICAL
FACTORY
OIL RELATED
Total
1
6
4
5
3
5
32
21
26
16
19
100
Table 2 shows the distribution of specialised works done by respondents. Out of
the total of 19 specialised works, 32% is mechanical and 26% is factory related
works.
Current status of respondents
Table 3 shows the distribution of respondents by geographical market coverage
where 23% of the total respondents operate currently (1992) within local
boundary, 11% within regional and 66% operate within the national boundary.
Table 3: The current geographical market coverage of respondents.
6
1
2
3
CURRENT MARKET
COVERAGE
Area of
Frequency
operation
LOCAL
8
REGIONAL
4
NATIONAL
23
Total
35
Percent
23
11
66
100
Table 4 shows the distribution of companies by their current (1992) size of the
permanent employees where 29% of the total respondent are small (i.e., having
less than 10 permanent staff), 31% are medium (i.e., having permanent staff
between 10-25) and 40% are large (i.e., having more than 25 permanent staff).
Table 4: Current size of permanent employee of respondents.
CURRENT FIRM SIZE BY NO. OF
PERMANENT EMPLOYEE
Size
Frequency
Percent
1
2
3
SMALL(<10)
MEDIUM(10-25)
LARGE(>25)
10
11
14
29
31
40
Total
35
100
Table 5 shows the distribution of respondents by the current (1992) annual
turnover where 37% of respondents have their annual turnover less than $2
millions, 14% between $2-$8 millions and 49% more than $8 millions.
Table 5: Current turnover of the respondents.
CURRENT FIRM
TURNOVER
Turnover
Frequency
1
2
3
Percent
<2M
2M-8M
>8M
13
5
17
37
14
49
Total
35
100
On the basis of the 3 variables above, it can be summarized that the sample
comprises mainly large construction companies by Malaysian Standard, i.e.,
66% of respondents operate at national level, 40% employ more than 25
permanent employees and 49% of them have more than $8 millions in annual
turnover.
Growth of construction firms
7
The following are the information on the growth of the respondents (the
construction companies) by the three variables:
1. Market coverage
Table 6 shows that 63% of the respondents start their operation within the local
market, 11% start operation within regional and 26% within the national
boundary. Majorities of the respondents start their operation by initially serving
the local market before they expand the area of operation beyond the local
boundary.
Table 6: The market position of construction firms at the start of operation.
No:
STARTING
MARKET POSITION
Area
Frequency
1 LOCAL
2 REGIONAL
3 NATIONAL
Total
Percent
22
4
9
63
11
26
35
100
Table 7: The current market position (1992) of construction companies.
No.
1
2
3
CURRENT
MARKET COVERAGE
Area
Frequency
Percent
LOCAL
REGIONAL
NATIONAL
8
4
23
23
11
66
Total
35
100
The majority of the construction companies (as shown in table 7) currently
operate within the national boundary that is 66% and 23% within the local
boundary. An increase of 40% in those who currently operate within the national
boundary but 23% of them still remained within the local boundary.
Table 8: The growth path of the construction companies by their
market coverage.
8
GROWTH PATH BY
MARKET COVERAGE
Market*
Frequency
No.
1
2
3
4
5
6
7
8
Percent
1-1-1
1-2-3
1-3-3
3-3-3
2-2-2
1-1-2
1-1-3
2-3-3
8
12
1
8
3
1
1
1
23
34
3
23
9
3
3
3
Total
35
100
* notes: 1- local
2- regional
3- national
Table 8 and figure 3 show that the growth path adopted by contractors in the
expansion of their market is dominated by route 1-2-3 (i.e., local to regional to
national) that is 34% whereas 23% of the contractors do not expand their
market. Other routes are less significant.
1-2-3
1
2
3
GR OW T H PAT H BY MAR KET COVER AGE
Figure 3: Growth path of Construction Firms by Market Coverage.
Point of Growth in The Market Coverage
In business, change is inevitable for better effectiveness and efficiency in order
to survive. Growth is what actually a firm should be seeking and can be acquired
in stages of time period. Figure 4 shows the estimated time for growth in the
three variables of the construction companies .
9
34%
26%
11%
"1st growth within
3-5yr
6%
Next growth within
5-10yr
"1st growth within
5-10yr
Next growth within
10-15yr
Growth
Figure 4: Estimated time for growth in market coverage by the Malaysian contractors.
As shown in figure 4, 34% of the construction companies experience first
expansion in market coverage during a period between 3-5 years and 11% in
between 5-10 years. Among 34% of those expanded within the duration of 3-5
years, about 26% of them experience the next expansion during a period
between 5-10 years and among 11% of those expanded within the duration of 510 years, about 6% of them experience next expansion during the period of
between 10-15 years. Generally, in term of market coverage 34% of contractors
expand their market from local to regional within 3-5 year after registration and
11% do so within 5-10 years after registration.
2.The Number of Permanent Employees
Table 9: Number of permanent employees of construction
firms at the starting of firms' operation.
No.
1
2
3
STARTING NUMBER
OF EMPLOYEES
Employee
Frequency
Percent
10 & LESS
10 - 25
25 & MORE
27
5
3
77
14
9
Total
35
100
In terms of the number of permanent staff (see table 9) employed by the
construction companies, 77% of them employed less than 10 permanent staff at
the beginning of their operation and 14% are firms employing more than 10 but
less than 25 staff. However about 9% of firms employed more than 25 staff at
the beginning of their operation. One of the main reasons why they commenced
on a large scale is because the construction companies might be a subsidiary of
10
a large corporation or those which have already established good relationships
with corporate clients or other large international contractors.
Table 10: Current (1992) number of permanent
employee of construction firms.
No.
1
2
3
CURRENT NUMBER
OF EMPLOYEE
Employee
Frequency
Percent
10 & LESS
10 - 25
25 & MORE
8
10
17
23
29
49
TOTAL
35
100
Table 10 shows some changes occurred in the firms that employed 25 and more
staff where the number of permanent staff at current time increased by 40% to
49%. This change originated mainly from firms that employed 10 and less
permanent staff and about 29% of the respondents expand their staff to medium
category that is between 10 - 25 persons.
Table 11: Growth path of the construction firms by the
number of permanent staff employed.
No.
1
2
3
4
5
6
GROWTH PATH BY NO: OF
PERMANENT EMPLOYEE
Staff*
Frequency
Percent
1-1-1
1-2-3
1-1-2
2-3-3
3-3-3
2-2-2
9
8
9
4
4
1
26
23
26
11
11
3
TOTAL
35
100
* notes: 1- less than 10 persons
2- from 10 - 25 persons
3- more than 25 persons
Table 11 and figure 5 show that there are two routes preferred by the
construction companies in terms of the number of permanent staff employed,
i.e., 1-2-3 and 1-1-2 at 23% and 26% respectively. This shows that contractors
are slightly slow in responding to change in the expansion of the number of
permanent staff due to the nature of construction employment itself, i.e., casual
employment, contract or short term employment by project, labour only
subcontract, etc.
11
1-1-2
1-2-3
<10 persons
10-25 persons
>25 persons
Growth Pa th by Numbe r of Pe rma ne nt Employe e s
Figure 5: The Growth Path of the Construction Companies by Number
of Permanent Employee.
Point of Growth in The Number of Permanent Employees
EST IMAT ED T IME
FOR GROW T H IN
31%
PERMANENT
20%
EMPLOYEE
First Growth Within
3-5yr
First Growth Within
5-10yr
11%
3%
Next Growth within
10-15yr
Next Growth Within
5-10yr
Figure 6: Estimated time for growth in permanent employees by the Malaysian Contractors.
As shown in figure 6, 31% of the construction companies experience first
expansion in the number of permanent employees during a period between 3-5
years and 20% in between 5-10 years. Among 31% of those expanded within the
duration of 3-5 years, about 11% of them experience the next expansion during
a period between 5-10 years and among 20% of those expanded within the
duration of 5-10 years, about 3% of them experience next expansion during the
period between 10-15 years. Generally, in terms of number of permanent
employees; 31% of contractors expand the number of permanent employees
12
from small to medium within 3-5 year after registration and 20% do so within 510 years after registration.
3. The Companies Annual Turnover
A majority of the construction companies (i.e., 86%) have less than $2 millions
in their annual turnover during the first three years of their operation with the
exception of a number of firms that have their annual turnover greater than $2
millions during their first 3 years of their operation such as shown in table 12.
Table 12: Turnover of the construction companies at
the start of the operation.
No.
1
2
3
STARTING TURNOVER
Turnover
Frequency
Percent
<2M
2M - 8M
8m & more
30
2
3
86
6
9
Total
35
100
Table 13: Current (1992) annual turnover of the
construction companies.
No.
1
2
3
CURRENT TURNOVER
Turnover
Frequency
Percent
<2M
2M - 8M
8m & more
13
0
22
37
0
63
Total
35
100
From table 12 and 13, there is a marked increase of 54% of respondents that
having their annual turnover expanded to 8m & more at current time (1992),
37% of them remained at the less than $2 million's category and all the firms
having between $2-$8 million's turnover have expanded to $8 million and more in
turnover. In terms of annual turnover the construction companies are readily to
expand in respond to growth.
Table
14:
Growth path of construction
companies by annual turnover.
13
No.
1
2
3
4
5
PATH OF FIRMS
BY TURNOVER
Turnover * Frequency
Percent
1-1-1
1-2-3
3-3-3
2-3-3
1-3-3
13
11
3
3
5
37
31
9
9
14
TOTAL
35
100
* notes: 1 - less than $2m
2 - from $2m- $4m
3 - $8m and more
There is one dominant route in terms of annual turnover preferred by
construction companies, that is route 1-2-3 (about 31%) and 37% of the
construction companies remained with turnover less than $2 millions as shown in
table 14 and figure 7.
1-2-3
<$2 millions
$2-$8 millions
>$8 millions
Growth Pa th by Annua l T urnove r
Figure 7: The Growth Path of construction companies by Annual Turnover.
Points of Growth in The Annual Turnover
14
34%
E S T IMAT E D
29%
T IME FOR
GR OW T H IN
T U R N OV E R
First Growth
Within 3-5yr
17%
11%
Next Growth
Within 5-10yr
First Growth
Within 5-10yr
Next Growth
Within 10-15yr
Growth
Figure 8: Estimated time for growth in annual turnover of the Malaysian construction
companies.
As shown in figure 8, 34% of the construction companies experience first
expansion in annual turnover during a period between 3-5 years and 29% in
between 5-10 years. Among 34% of those expanded within the duration of 3-5
years, about 11% of them experience the next expansion during a period
between 5-10 years and among 29% of those expanded within the duration of 510 years, about 17% of them experience next expansion during the period
between 10-15 years. Generally, in terms of annual turnover, 34% of contractors
expand their annual turnover from small to medium within 3-5 years after
registration and 29% do so within 5-10 years after registration.
From figures 4, 6 and 8, it is possible to conclude that the construction
companies do grow and most of the growth occurred in the period of between 35 years after registration and some do take a little longer, i.e., between 5-10
years after registration. Most of the firms achieved their second stage of growth
in the period of between 5-10 years such as clearly shown in figure 4 and 8.
Some firms do take a little longer to attain second stage of growth.
The Relationship Between The Growth Variables of The Construction
companies
Figure 9, 10 and 11 shows the growth paths of the construction companies by
relating variables namely the market coverage, the number of permanent
employees and the annual turnover.
15
Figure 9: The relationship between number of permanent employee and
market coverage of the construction companies.
Figure 9 shows the relationship between the market coverage and the number of
permanent staff. It determines the direction of the path of growth of the
construction companies with route 1-1, 2-2, 3-3 dominate the rest at about 30%,
route 1-1, 1-3, 3-3 takes about 20% and route 1-1, 3-1, 3-3 take about 11% of all
respondents.
Using the SPSS package to analyse the data, it was found that the average 2
value of the Pearson Correlation Coefficient (r) is 0.6249. This support that there
is a fairly strong positive relationship between the two variables i.e., as the
number of permanent employees of companies increases, the market coverage
also increases.
Beside the above relationship, this paper also look into possibility of establishing
other relationships, i.e., relationships between the annual companies' turnover
and the market coverage, and between the number of permanent employees
and the companies' annual turnover. Figure 10 and 11 show the relationships.
2The
average value of the Pearson Correlation Coefficient (r) is taken from an average value of r
at 5 different stages of the construction companies.
16
Figure 10: The relationship between companies annual turnover and market
coverage of Malaysian construction companies.
Figure 10 shows that there is no dominant route to established growth path with
the exception that about 31% of the respondents expanded from sector 1-1 to 12 i.e., local to regional. Companies with turnover $2 millions and less do expand
their area of operation from local to regional. Beyond the $2 million's turnover,
there is no distinctive pattern of growth to conclude the dominant path of growth.
SPSS result shows that the average value of the Pearson Correlation Coefficient
(r) is 0.5296. This shows that there is a positive relationship between the two
variables.
17
Figure 11: The relationship between the number of permanent employees
and the annual turnover of the Malaysian construction
companies.
Figure 11 shows the growth paths by relating two variables namely the number
of permanent employees and the turnover of the Malaysian construction
companies. From the figure, the growth paths can be more clearly established.
Majorities (i.e., about 34%) of the construction companies expand from 1-1 to 21 that is expand from small to medium with the turnover remain at $2 million and
less and further expand to sector 3-3 (i.e., 22%). About 15% of respondents
follow 1-1, 2-1, 3-1 and 3-3 route.
Using SPSS to analyse the data, it was found that the average value of the
Pearson Correlation Coefficient is 0.5484. This shows that there is also a fairly
strong positive relationship between the two variables i.e., as the number of
permanent staff of companies increases the annual companies' turnover also
increases accordingly.
From figure 9, 10 and 11, it can be concluded that there is correlation between
the growth variables particularly between the geographical market coverage and
the number of permanent staff, and also between the annual turnover and the
number of permanent staff. Pattern of growth among the construction companies
can also be determined by identifying popular routes taken by them as shown in
figure 9 and 11.
18
The Growth Index
To support the argument for growth of the construction companies, index for
growth is established by combining indexes of all the three variables of growth at
any particular time as shown in (1).
GIt = 1/3 (1/3 (MCt) + 1/3 (PEt) + 1/3 (TOt)).
(1)
Where GIt is the Growth Index at t time;
MCt3 is the position of the market coverage of the construction companies
at t time;
PEt4 is the position of the number of the permanent employee of the
construction companies at t time;
TOt5 is the position of annual turnover of the construction companies at t
time.
The values of the growth index for the construction companies at any particular
time lie between a minimum of 0.1 to a maximum of 1 as shown in (2) and (3).
The growth trend of the construction companies can therefore be established by
relating the average growth indexes for a period of times. Figure 12 shows the
mean indexes of growth at various times after registration. The trend is that the
construction companies do experience growth over time. The growth index
increases from an average of 0.434 within less than 3 years to 0.775 in 10-15
years after registration.
GImin = 1/3 (1/3 (1) + 1/3 (1) + 1/3 (1))
= 1/9 (1)
= 0.11
(2)
GImax = 1/3 (1/3 (3) + 1/3 (3) + 1/3 (3))
= 1/9 (9)
= 1
(3)
3see
the definition of the market coverage for the categorisation.
the definition of the number of permanent employee for the categorisation.
5see the definition of the annual turnover for the categorisation
4see
19
Figure 12: The average growth indexes for respondents (the construction
companies).
T he T re nd of sma ll a nd la rge growth Inde xe s
Of T he Construction Compa nie s
Figure 13: The trend of small and large growth indexes of the construction
companies over time after registration.
20
Figure 13 indicates the relationship between the percentage of small and large
construction companies by their growth indexes6. The growth index of the
construction companies increases as the number of year after registration
increases. The percentage of companies with large growth index increases from
20% at the early years to 80% in 10-15 years after registration. While for
companies with small index, the percentage decreases from 80% to 20%. Using
growth index as a measurement for growth of the construction companies, about
60% of them experience growth from small to large in between 10 - 15 years
after registration.
The advantage of establishing a growth index for the construction companies is
that the measurement of growth can be reduced from three different kinds of
measurements (i.e., the market coverage, the number of permanent staff and
the annual turnover), to a single unit. It is much easier, more accurate and
consistent to use index of growth to determine the position of growth for each
company but it's also has certain disadvantage such as it cannot shows the
direction of growth.
By splitting the growth index into two ranges, (ie. 0-0.59 and 0.6-1)7, it is possible
to categorise companies into two groups, namely small and large respectively.
This is very useful especially to analyse the differences in perception between
success factors in small and large construction companies.
Success Factors For Construction Companies
Successful companies that grow and are operating in the national or international
arena probably have special characteristics that make them successful. Different
companies possess their very own quality that makes them different, but there
are factors that can be considered common to all companies. What make them
different are the way in which each company utilises or combines these factors.
The success factors listed below are by no mean exhaustive. There are many
others that can be considered but the 19 factors listed in table 15 below are
regarded more relevant to this research.
6The
growth indexes for the construction companies are categories into 2 category, namely
small(ie. companies with growth index of less than 0.6) and large (ie. companies with growth
index of o.6 and above).
7The maximum value of Growth Index for medium size construction companies is 0.67. The small
companies are those which have less than 0.6 index value (ie. the index ranging from 0 to the
lower end of the index for medium size companies), and large companies will be those with value
of index ramging from 0.6 - 1, (ie. ranging from the higher end of the index for medium companies
to the maximum value of the growth index).
21
Table 15: The overall ranking of success factors of the construction
companies.
SUCCESS FACTORS FOR
CONSTRUCTION FIRMS
NO.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
SUCCESS FACTOR
GOOD FINANCIAL BACKING
GOOD CASH FLOW MANAGEMENT
TECHNICAL EXPERTISE
GOOD COMPANIES MANAGEMENT
GOOD SITE MANAGEMENT
INTERNAL EFFICIENCY
GOOD MATERIAL MANAGEMENT
LINK WITH EXISTING MARKET
BUILDING MATERIAL
SKILLED WORKERS
AVAILABILITY OF CREDIT FACILITIES
FLEXIBLE STRUCTURE
SENSITIVE TO ENVIRONMENTAL CHANGE
MARKET SPECIALIZATION
HAVING POOL OF PLANT & EQUIPMENT
DIVERSIFY EXPERTISE
INNOVATIVE CONTRACTUAL PACKAGE
COLLABORATION WITH OTHER FIRMS
IN-HOUSE SERVICE
POINT
169
166
166
160
151
146
143
109
100
96
94
65
52
44
40
35
18
-6
-14
CATEGORIES
VI
VI
VI
VI
VI
VI
VI
VI
IMP
IMP
IMP
IMP
IMP
IMP
IMP
IMP
IMP
LIMP
LIMP
Note: VI - very important; Imp - important and Limp - less important.
Table 15 shows the success factors and their overall ranking (Lindley and Scott;
84) of the Malaysian construction companies. Eight factors are considered to be
very important or essential by contractors and six of them are of management
type. Nine of the success
109
100
96
94
169
166
166
160
151
146
143
65
52
44
40
35
-6
-14
-50
0
18
50
100
150
200
THE OVERALL RANKING OF SUCCESS FACTORS
Figure 14: The overall ranking of perception on success factors of
the construction companies.
22
factors listed are regarded as important or necessary and two are in the less
important or 'can do without' category. Good financial backing is regarded as the
utmost important success factors, follow by good cash flow management,
technical expertise, good companies management, good site management,
internal efficiency, good material management and so on as shown in the table
15 and figure 14. These are vital but basic factors that any construction
companies should emphasize. However there are other factors that a firm should
also consider in order to increase market share such as factors that can assist in
developing the company's niche.
The last four factors (16, 17, 18 and 19) as shown in the table 15 are consider
least importance amongst all the success factors. Perhaps majorities of the
Malaysian construction companies are still struggling with the basic factors for
success. The four factors are vital to any company which emphasis long term
achievement and an advantage factor for success. Most of the successful
international construction companies do practice the four factors rigorously (Aziz;
91: 121-131).
Table 16: The ranking of the success factors by small and large
contractors.
SUCCESS FACTORS FOR CONTRACTORS
NO.
SUCCESS FACTORS
SMALL
LARGE
1
GOOD FINANCIAL BACKING
146
182
4
GOOD COMPANIES MANAGEMENT
138
173
3
TECHNICAL EXPERTISE
154
173
2
GOOD CASH FLOW MANAGEMENT
133
170
5
GOOD SITE MANAGEMENT
146
169
6
INTERNAL EFFICIENCY
131
155
7
GOOD MATERIAL MANAGEMENT
138
145
9
BUILDING MATERIAL
77
114
11
AVAILABILITY OF CREDIT FACILITIES
77
105
8
LINK WITH EXISTING MARKET
115
105
10
SKILLED WORKERS
115
86
13
SENSITIVE TO ENVIRONMENTAL CHANGE
25
67
16
EXPERTISE DIVERSIFICATION
-17
64
12
FLEXIBLE STRUCTURE
77
57
15
HAVING POOL OF PLANT & EQUIPTMENTS
31
45
17
INNOVATIVE CONTRACTUAL PACKAGE
-15
38
14
MARKET SPECIALIZATION
8
30
19
IN-HOUSE SERVICE
18
COLLABORATION WITH OTHER FIRMS
-69
18
0
-10
notes: score 101 to 200 is very important; 0 to 100 is important;
-100 to 0 is less important and -200 to -101 is unimportant.
To compare differences in perception on the success factors between small and
large companies, scores are separated as shown in table 16. Companies belong
to the large group, place 10 success factors under the very important, 8 under
23
important and 1 under the less important categories while companies belong to
small group place 9 of the success factors under very important, 6 under
important and 4 under less important categories.
Both large and small companies place 8 success factors in the same very
important category as shown in table 16 and in figure 15. However their opinions
slightly differ on the scale of important. Small companies say 'technical expertise'
as the most important factor for success while the large companies say 'good
financial backing' is the most important factor for success. The opinion by the
small companies above is consistent due to the lack of technical expertise that
hamper them from getting larger and more specialized work.
Figure 15: The comparison of perception on success factors by small and large
contractors.
However, the small companies regarded 4 factors are less important (i.e., factors
16, 17, 19 and 18) as compared to 1 (18) by the large companies such as
shown in table 16 and figure 15. This confirmed that the small companies are still
struggling with the basic success factors and thus pay less attention to other
factors that promote long term effectiveness and efficiency.
Conclusion
24
As outlined in the objectives of this paper, the relationships among three
variables were established by relating them to the key issue of the growth of
construction companies. Growth was measured in three different ways: by the
individual variable, by relating two variables at a time and by establishing the
growth index from combining all three variables.
By the individual variable, the growth is measured in a single dimension for each
variable. The findings show that growths does take place and dominant patterns
of growth over time can be established.
By relating two variables at a time, three relationships were established which
not only show the growth pattern but also the path and direction of growth.
Except for the relationship between the companies' annual turnover and the
market coverage, the relationship between market coverage and the number of
permanent employees and between the number of permanent employees and
the annual turnover, shown a very clear and dominant path and direction of
growth. The findings show that the majority of the construction companies do
respond to growth and in the right direction.
It is very useful to reduce the three measurements of growth to an index, not only
for measuring growth but also to use as a basis for relating different sizes of
firms to other factors relating to growth.
Large and small construction companies have different perceptions about the
relative important of success factors. However both sizes do agree on a number
of factors such as those of management types. These are basic success factors
that any firm has to have, but to operate in a more volatile, competitive and
demanding environment, other factors such as innovative contractual package,
in-house service and collaboration with other firms should also be emphasized
(Bennett, Flanagan and Norman; 87:53).
Although beyond the scope of this study it should be mentioned that the
competition in the international arena is fierce and complex with greater
uncertainties compare to that of the national level (Seymour;87:83). Venturing
outside the national boundary is a great additional task for indigenous
contractors. Not only must they fully equip themselves with modern technology
and management and a good financial package but they need also intervention
and backing from the government (Aziz; 92:82-86) to ensure international
survival and success.
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*
This paper was presented in 7th CIB W65-Symposium on “Organisation and Management of
Construction - The Way Forward” held in Trinidad and Tobago, September 1993. Also available in
the proceeding.
27