ENGINEERING / CONSTRUCTION INDUSTRY PROFILE AND ANALYSIS

A Partial Fulfillment for a Requirement in Managerial Economics

Presented to Dr. Ma. Cecilia L. Catubig of University of Southeastern Philippines

College of Business Administration- Graduate School

Submitted By:

Inhambre, Rimark M.

Manonggiring, Hasmin

Redondo, Marc Eric

Ebol, Ruwella Jane

Gabales, Ryan

Robles, Mike
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CHAPTER 1

CONSTRUCTION INDUSTRY OVERVIEW

Construction Industry is one of the most booming industries in the world. Demands for

various improvements in the different infrastructures such as residential and non-

residential building construction, road concreting, flood controls, and revetments have

become rampantly increasing. This industry remains proportionate with the continuous

development of the economy and the country.

This industry is one of the important factors supporting the socioeconomic growth of a

country. It contributed to the creation of jobs, income in the country and interactions

among other sectors which foster economic development in terms of linkages to

trading and services. In other country such as Africa, Construction Industry contributed

to accumulation of stocks/capital in infrastructures which increased their social and

economic activities. Further, it also improved their employment and household income.

Factors affecting this industry includes the internal and external factors. Internal

factors include the organization’s choices, recruitment practice, location and size.

Internal factors affect the industry in a way that organization’s choices greatly affects

their recruitment processes in terms of choosing and hiring quality workers in which

can contribute to the growth of the firm. In terms of the size of the organization, this

would allow the firm to divide their workers into different departments in return this
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would make their transactions faster. The size of the organization also determines the

capacity of the firm to handle projects.

On the other hand, one example of external factor is the environmental factor which

covers the identification of threats and constraints in the environment that might affect

the project. Environmental analysis is done in order to provide early warning to

potential risks, analyze and implement remedies. Political factors also affect the

industry in a way that the government are the one who mandates the regulation that

the contractors must follow. The government plays an important role in the industry

including the recipient of services, costumers and regulators.

Projects are also affected by financial constraints and the economic factors

surrounding the industry. Firms must do an accurate forecasting of the economy to

ensure that the projects will be viable. Social factors refer to the opportunities and

challenges given to the firm upon accepting the projects and this includes the society

in the area they are conducting the projects. To develop sound strategies, technology

plays a vital role in the industry. This includes the plant and equipment needed in

conducting the projects. Lack of technological capacity may contribute to the downfall

of the project.

Ecological factors are also to be considered in this industry which includes the location,

conditions and the geography of the place. This also includes the exploration of eco-

efficient approaches in building and construction of the projects. Lastly, the regulations

which the contractors encounter belongs to the legal factors of the industry. These

regulations served as the basis of the contractors in performing their projects.

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In the Philippines, the Construction Industry is primarily regulated by the Construction

Industry Association of the Philippines or CIAP. This government agency is

established through Presidential Decree No. 1746, series of 1980, as amended (PD

1746). The main functions of the CIAP, as mandated, include evolving an overall

strategy for the optimum development of the construction industry; monitoring and

studying both domestic and international construction industries to identify areas

where there can be improvement and to recommend and/or implement changes which

support the development of the industry; and, formulating criteria for the classification

and categorization of contractors which reflect their contracting capacity and

performance capacity (Section 2, PD 1746).

The CIAP implements its policies through the following government agencies which

are under its jurisdiction: the Philippine Construction Accreditation Board (PCAB), the

Philippine Overseas Construction Board, the Philippine Domestic Construction Board,

and the Construction Manpower Development Foundation. The Philippine

Construction Accreditation Board (PCAB) performs regulatory and quasi-judicial

functions and is tasked with the registration and licensing of contractors intending to

engage in the construction business (Section 5, Contractors’ License Law). The PCAB

is also authorized to issue rules and regulations, it is required to exercise such power

for the purpose of carrying out the provisions of the law (Section 5, Contractors’

License Law).
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CHAPTER 2

PHILIPPINE CONSTRUCTION INDUSTRY STATISTICS

With the national government’s focus on improving infrastructure nationwide and the

increase in demand for various types of construction works, the construction industry

in the Philippines is steadily growing from previous years and is expected to continue

to rise in the near future, helping the overall economic welfare of the country. The

construction industry is seen to be in the limelight as government implements

infrastructure projects under its Build! Build! Build! Program (CIAP, 2017). Based on

the 2017 year-end report of the Construction Industry Authority of the Philippines

(CIAP), the industry’s growth rate based on total contribution to Gross Domestic

Product (GDP) was 5.4%. Construction investment, on the other hand, rose by P205

billion or 9.0% compared to 2016. In terms of employment, the construction industry

provided jobs, employing an average of 3.5 million workers or 8.8% of the total

Philippine workforce.

Based on statistics from Philippine Statistics Authority (PSA), the number of

constructions in the Philippines posts a 2.7% percent growth in 2017, with non-

residential constructions posting the highest increase compared to 2016 with 19.6%

due to the increase in the number of construction for agricultural, commercial and

industrial buildings. The total value of construction, however, declined by 12.1%. The

statistics is based on the approved building permits for 2017 and 2016. Table 1 below

shows the summary of comparative construction statistics for the two years.
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Percentage
Type of Construction 2017 2016
Inc. / (Dec.)

RESIDENTIAL
Number 110,942 113,097 (1.91%)
Value (Php ‘000) 164,153,250 187,599,731 (12.50%)
NON-RESIDENTIAL
Number 21,349 17,845 19.64%
Value (Php ‘000) 143,315,470 162,517,347 (-11.82%)
ADDITIONS
Number 5,086 4,504 12.92%
Value (Php ‘000) 4,301,000 4,759,614 (9.64%)
ALTERATIONS AND REPAIRS
Number 14,635 12,552 16.59%
Value (Php ‘000) 21,444,800 24,019,195 (10.72%)
INDUSTRY TOTAL
Number 152,012 147,998 2.71%
Value (Php ‘000) 333,214,520 378,895,886 (12.06%)

The top five regions, in number of constructions, collectively comprised 61.6% of the

total constructions. CALABARZON led these regions with a total of 37,612 (24.7%)

constructions. Central Luzon ranked second with 16,340 (10.7%) constructions. The

other three regions completing the top five were Central Visayas (10.2%), National

Capital Region (8.3%) and Western Visayas (7.6%). Average cost of residential-type

building for 2017 is Php10,070 per square meter while P9,532 per square meter for

non-residential constructions. (PSA, 2017)

The final results of the 2015 Annual Survey of Philippine Business and Industry

(ASPBI) showed that there are were 1,796 establishments engaged in construction in

the formal sector of the economy. The distribution of all construction establishments

by industry sub-class for 2013 is shown in Table 2 below:

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Number of
Construction Establishments Percentage
Establishments

Non-residential building constructions 433 24.1%

Construction of roads and railways 377 21.0%
Residential (dwelling) building constructions 267 14.9%
Electrical installation 251 14.0%
Construction of other civil engineering projects 104 5.8%
Construction of utility projects 91 5.1%
All other construction industries 273 15.2%
TOTAL 1,796 100%

Other results of the 2015 ASPBI on construction for all establishments were:

• Site preparation activities paid the highest average annual compensation of

PHP300,774 per employee

• Non-residential building construction establishments generates highest value

of output for Php200.2 billion (43.3%)

• Non-residential building constructions also recorded the highest income per

expense ratio of 1.58

• Construction of roads and railways with PHP5.4 billion accounted for more than

half (60.0%) of the total gross addition to tangible fixed assets.

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CHAPTER 3

CONSTRUCTION INDUSTRY DEMAND AND SUPPLY

Demand for the construction industry has always been on the rise based on the

available statistics. Total construction for the Philippines in 2017 amounted to over

152,000, a 2% increase from the previous year. In the first quarter of 2018, 44 of 75

planned priority infrastructure projects under the BBB program were already under

construction, with another 15 big-ticket projects in the pre-construction stage. Key

market drivers for the demand in construction industry in the Philippines include:

• Large-scale reconstruction operations due to natural and man-made calamities

in the Philippines during the previous years

• Infrastructure push of the national government not only in the mainland Luzon,

but towards the islands of Visayas and Mindanao

• Increase in preference of the population towards modernized and highly-

developed residential projects

• Growth of the business industry including manufacturing, tourism, and real

estate

With the increase in demand for construction projects comes a corresponding increase

in the needed input for production, particularly materials and labor. Driven by the Build,

Build, Build (BBB) program, the wholesale price of construction materials reached a

five-year high during the last quarter of 2017. The construction materials wholesale

price index (CMWPI) in the National Capital Region rose by 4.7% year-on-year in
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November 2017. In terms of contribution, concrete products ranked highest on the

index as of November 2017 (43.87%), followed by reinforcing steel (12.13%), and fuels

and lubricants (9.09%) (PSA, 2018).

As the demand for construction industry rises, the demand for construction workers

also rises as well. Construction industry is currently in need of 200,000 workers, but

there is currently only 80,000 manpower supply in the labor market, resulting to a

shortage of 120,000. Among the most highly in demand skilled workers are laborers,

electricians, heavy equipment drivers and safety engineers. Among the available

80,000 workers, only 24,000 workers are actively looking for employment (Pendatun,

2017).

In terms of supply provided by the players in the construction industry, the number of

PCAB licensed contractors are also increasing, taking advantage of the increase in

demand for construction and other related works. The illustration below is taken from

the Construction Industry Authority of the Philippines.

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The steady incline in the construction industry this contributed to a steadier source of

livelihood for all levels of society. A steady supply and demand for the materials

needed in the industry has also opened up new venues for budding entrepreneurs as

well. The Construction industry grew by 16.1 percent in the third quarter of 2018, faster

than the 4.0 percent growth recorded in the previous year. The growth was driven by

the acceleration in both public and private construction.

CHAPTER 4

COMPETITIVE SCENARIO

Construction industry in the Philippines is forecasted to sustain its strength

underpinned by the growth of the economy and the push for infrastructure by the

national government. The increase in investment in the construction market, combined

with the rapid growth of the economy, creates the ideal conditions for a number of local

and international vendors to enter the market. Competitive position for the construction

industry is analyzed using the Porter’s Five Force Model which considers five

undeniable forces that play a part in shaping every industry.

Competition in the Industry - HIGH

Rivalry amongst construction companies is high due to the large number of

competitors operating in the Philippines (1,681 in 2013) that are equally balanced in

terms of size, resources and capabilities. Services offered to consumers by the

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industry is also difficult to differentiate and only differ with price. Construction

companies are also mostly involved in submitting competitive bids in order to acquire

a particular project or contract. Exit barriers in the industry is high due to specialized

assets needed in the industry which is difficult to liquidate upon exit in the industry.

Potential of New Entrants into the Industry - LOW

Threat of new entrants in the construction industry is weak or low due to high capital

requirements for interested companies, especially on machineries, insurance and

bonds, and materials needed for a particular project. Certain regulatory or

accreditation requirements are also needed to be complied prior to entering the

industry. The construction industry is highly risky and filled with uncertainty especially

on acquiring projects for newly-established construction establishments. Consumers

of the industry are also not very loyal, especially on government projects since the

lowest bid always wins, and new companies cannot afford to bid low amounts

compared to existing companies.

Power of Suppliers - LOW

The bargaining power of supplier in the construction industry is low due to the following

reasons:

• The supplier market is not dominated by a few large companies. The market

for raw materials in a construction project is highly competitive due to its

homogeneity. Construction materials needed for the projects are readily

available from many suppliers

• Switching cost of suppliers are low. Switching cost refers to the cost incurred

as a result of changing brands, suppliers or products.

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• Some members of the construction industry are integrating backwards into the

business of the suppliers. Some acquire or merge with suppliers, while some

adds a new department tasked to procure construction materials

• Contractors, sub-contractors and manufacturers have to work together for

successful delivery of the project

Power of Buyers - HIGH

Buyers in the construction industry are demanding for a lot from construction

companies. consumers want to have the best offerings available but by paying the

minimum price possible. This puts pressure on construction companies’ profitability in

the long run. The smaller the company base, the higher the bargaining power of

customers by seeking higher discounts and offers. Consumers (construction

developers) also have high quality of information to be used in decision making. They

also have the ability to postpone projects at a later stage at a certain period that they

can secure a lower cost for the project. Lastly, due to large number of construction

companies, competition is also high, giving the advantage to the buyers.

Threat of Substitutes – LOW

There is a little threat of substitution on construction activities though the Philippines

may see an increase in more innovative and cost-efficient techniques in the future.

Products and services in the construction industry are considered “as they” are and

virtually difficult to substitute those, especially on airports, roads, seaports and

railroads. Demand for a residential house can also not be substituted with its substitute

goods. As mentioned by Saidi, O’Brien and Lytle, “There is limited or no direct

substitute for the industry’s product, some services can be replaced with others within
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the industry such as the use of robots in place of human labour”. However, it does not

completely substitute human labor in the industry.

CHAPTER 5

CONSTRUCTION INDUSTRY PROFILE – DAVAO CITY

In the Philippines, it is forecasted that construction industry is expected to grow by

11.8 percent in 2018 which is backed up by the government’s infrastructure

development plans such as the “Build, Build, Build!” program which include

construction of different infrastructure projects in the Davao City, the whole Davao del

Sur province and the rest of the Mindanao islands. Department of Public Works and

Highways will allocate funds amounting to P126.86 billion for infrastructure projects in

Mindanao for 2019 geared towards the building of more railways, urban mass

transport, airports and seaports, more bridges and roads and establishing new and

better cities.

Based on the 2017 data from Philippine Statistics Authority, a total of 5,043

construction projects have been completed in the Davao Region for a total value of

almost P15.0 billion. Demand for construction-related labor is constantly on the rise,

resulting to shortage of workers in the real estate industry in Davao City, also

contributing the aggressive expansion of construction firms toward the city (Colina,

2017). This trend is expected to continue for the foreseeable future, with
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commencement of lineup of infrastructure projects. As ranked by the National

Competitiveness Council (2018), Davao City was ranked as third overall in the

Infrastructure indicator, with top five rankings on road network (1st), availability of basic

utilities (1st), education (3rd), and accommodation capacity (3rd).

Based on the 2017 statistics from Construction Industry Authority in the Philippines,

there are currently 415 PCAB licensed construction companies in Region XI, with

primary classification on general building and engineering, electrical and mechanical

works and landscaping. Some of the construction firms in Davao City, including their

backgrounds are the following:

1. Ulticon Builders, Inc.

Ulticon Builders primarily engaged in the general construction business and

which involves among others, developing, constructing, repairing, rehabilitation

and other work activities on roads and highways, piers and bridges, irrigation

projects and building construction. They also focus on infrastructure

development, an area of activity it considers important and vital to the socio-

economic development of the country.

2. O.G. Santos Construction

O.G. Santos Construction is a contracting firm established in 1975. It has

sustained and overcome several financial and economic turmoil for the past

three decades, but also gaining great public and private acceptance because

of its sound management, financial capacity, equipment resources and vast

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experience in the design and general construction of various infrastructure

projects.

3. Maer Summit Konstrukt Co.

The company is principally engaged to build quality infrastructure projects,

including roads, bridges, ports, and harbor, irrigation, flood control, water

system, traffic services and buildings.

4. CLTG Builders

CLTG Builders is a B-licensed construction firm owned by Deciderio L. Go.

Some Projects of CLTG in 2017 includes: (1) Bypass Road at Jct. Daang

Maharlika-Licanan-Bunawan-Mahayag-Indangan-Cabantian-Jct. Davao City

Diversion Road- Joint Venture with St. Gerrard Construction and (2) Widening

(4 into 6 lanes) of Davao/ Cotabato Road (Davao City/ Jct. Digos Section)- Joint

Venture with Three W Builders Inc.

5. Alfrego Builders

Alfrego Builders is a single proprietorship owned and managed by Mr. Alfredo

A. Go engaged in general construction.

Big-ticket infrastructure projects that the government is currently implementing in

Davao are the following (Dominguez, 2018):

• Davao International Airport Development Project that is expected to be

completed in 2022;

• Davao City Coastal Road Project that will be completed in 2021;

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• Mindanao Logistics Infrastructure Network involving the construction or

improvement of 2,567 kilometers of roads across the Davao, CARAGA and

Northern Mindanao regions, and which is expected to be completed next year

• Davao Public Transport Modernization Project.

Private projects will include: P20-billion Azuela Cove, a mixed-use estate which will be

built by Aviana Development Corp., a joint venture of Ayala Land, Inc. and the

Alcantara and Sons (Alsons) Group, with a time frame of 2017 to 2021; and the P5-

billion St. Luke’s Hospital, which will start construction in 2018 and is targeted for

completion by 2020 (Carillo, 2017). These projects, along with other residential

construction works, are expected to bring socio-economic benefit to Davao City, with

the demand of skilled workers and professionals expected to rise.

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REFERENCES

Build Build Build (2018). ‘Build, Build, Build' program to turn Davao City into

manufacturing, agro-industry hub. Philippine Information Authority. Retrieved from

https://pia.gov.ph/news/articles/1011210

Bautista, R. (2018). Construction Statistics from Approved Building Permits for the

year 2017 (Final Results). Philippine Statistics Authority

Philippine Statistics Authority (2017) 2015 Annual Survey of Philippine Business and

Industry (ASPBI) - Construction All Establishments: Final Results

Colina, A. (2017). Davao’s construction industry needs more workers. Mindanews.

Retrieved from http://www.mindanews.com/top-stories/2017/09/davaos-

construction-industry-needs-more-workers/

Carillo, C. (2017). Davao Region’s construction sector bullish as 8th Philconstruct

Mindanao opens today. BusinessWorld. Retrieved from

https://www.bworldonline.com/davao-regions-construction-sector-bullish-8th-

philconstruct-mindanao-opens-today/