Professional Documents
Culture Documents
Sample STRAMA Final On Text
Sample STRAMA Final On Text
on
Submitted to:
Professor Surtida
STRAMA G06
Submitted by:
MBA Candidate
12 December 2009
1
Table of Contents
Executive Summary 4
I. Introduction 6
II. Research Design and Methodology 10
1. Research Design
2. Scope and Limitation
III. External Analysis 12
1. Economic Performance and Forecast
2. Political and Government Aspects
3. Environmental Factors
IV. Industry and Competitor Analysis 22
1. Industry and Market Segments
i. Residential Housing Product Categories
ii. Market Size and Growth
iii. Market Segments and Trends
iv. Pricing
v. Distribution Channels
vi. Advertising and Promotion
2. Porter’s Five Forces of Competitive Analysis
3. Competitive Profile Matrix
4. External Factor Evaluation Matrix
5. Strategic Issues based on External Factors
V. Company Analysis 56
1. Vision Mission of the Company
2. Internal Audit
3. McKinsey 7 S Framework
4. Strategic Issues based on Internal Factors
VI. Strategy Formulation 90
1. SWOT Matrix
2. SPACE Matrix
3. Internal-External Matrix
4. GRAND Strategy Matrix
5. Summary of Strategies
6. Quantitative Strategic Planning Matrix
2
VII. Strategic Objectives and Recommended Strategies 104
1. Strategic Objectives
2. Recommended Business Strategies
3. Recommended Organizational Strategies.
4. Financial Projections
VIII. Departmental Actions and Functional Strategies 126
1. Strategy Map
2. Departmental Actions and Functional Strategies
IX. Strategy Evaluation and Performance Metrics 133
1. Balanced Scorecard
2. Contingency Planning
X. References 137
XI. Appendix 139
3
EXECUTIVE SUMMARY
The property industry is recovering from the economic down turn through the growth
of key customer
segments such as the OFW and BPO market as well as the emergence of a new business
district. The
and housing prices. Other external factors property developers face include the
projected rise of the
environment is modest. Its 2.70 EFE rating is due to its lackluster response to the
growth of alternative
markets (BPO and retirement industry) moderated by its average response to the
economic recovery and
The real estate industry is led by three major players each dominating in a
specific income segment. In the
middle income segment, Megaworld is a clear market leader both based on CSF rating
and market share.
DMCI has a modest competitive position with a CSF rating of 2.30 given its weak
capitalization and poor
a clear second given that the market followers have relatively similar market
shares.
Internally, most of the company’s strengths are owed to its synergy with DMCI’s
construction
subsidiaries. The operational synergy has allowed DMCI to pursue an overall cost
leadership – best value
strategy. Despite this, DMCI is given a modest IFE rating of 2.35 due to its
financial weakness caused by
4
its poor capitalization and slower inventory turnover. The latter is a symptom of
an inadequate
referrals and (4) strategic land banking initiatives around the BGC area. Intensive
strategies will be
complemented by a (1) robust sales and operations planning to have leaner inventory
levels and (2)
capital build up to resolve solvency issues, funding gaps and high financing costs.
revenues reaching 9.3B by 2012. The operations strategy of introducing S&O planning
will align the
will not only be more solvent but cost of financing will also be reduced. This is a
prudent measure given
cost will allow DMCI’s net income to grow further to 1.5B by 2012 from 916M this
year.
5
I. INTRODUCTION
In 1954, David Consunji formed DM Consunji. The construction company won the bid to
construct
chicken houses for the Bureau of Animal Industry. From its earlier projects, DM
Consunji has earned a
It has built over 500 projects including major landmarks such as Mactan Shangri-la
Hotel, Manila Hotel,
Westin Philippine Plaza, Asian Hospital, Manila Doctor’s Hospital and the New
Istana Palace in Brunei.
From its construction ventures, DM Consunji evolved into DMCI Holdings. DMCI
Holdings is a multi-
billion peso conglomerate majority owned by the Consunji family1. DMCI Holdings has
a diverse
business interests such as mining (Semirara Mining), power (DMCI Power), water
(Maynilad and Subic
Water) and infrastructure (Tarlac La Union Express Way). In 1999, DMCI Holdings
formed its housing
division – DMCI Project Developers under the brand name DMCI Homes.2 DMCI Homes
capitalizes on
its synergy with DM Consunji (construction) to control the quality and cost of its
developments.3
DMCI Businesses:
1
As of 31 December 2008, DMCI Holdings is 51% owned by Dacon Corporation which is
a holding company for the business interests of the
Consunji family.
2
DMCI Homes is a wholly owned marketing subsidiary of DMCI Project Developer. For
this paper, DMCI Project Developers Inc and DMCI
Homes will be synonymously referred to as DMCI Homes.
3
http://www.dmcihomes.com/company_history.php
6
For ten years, DMCI Homes has been offering residential communities to modest
income families and
has since built 25 projects mostly concentrated in the Mega Manila area. The
developer began with Lake
View Manors (1999) followed with Hampstead Gardens (2001). In 2003, it was more
aggressive by
building bigger developments with more amenities through its East Ortigas Mansions,
Villa Alegre and
Cypress Towers in Fort Bonifacio Global City (BGC), Magnolia Place in Quezon City
and Dansalan
spaces. DMCI has also entered into residential leisure estate development through
its Alta Vista project in
Boracay.
The company currently targets young middle income families and distributes its
products through its in-
house sales and external brokers both locally and abroad. The company formed
partnerships with foreign
DMCI Homes is contributing a larger part of DMCI Holding’s revenues and income. In
2008, its revenue
contribution increased from 13% to 19% of DMCI holdings Php 21.1B consolidated
revenue. Property
development is the third largest income contributor next to construction and mining
(top contributor).
DMCI Homes also contributes to 26% of the conglomerate’s Php 2.0 B consolidated net
income4.
4
2008 DMCI Holdings Annual report.
7
DMCI Homes Revenue Contribution5
Revenues as of 2nd quarter of 2009 has reached 1.87 billion (2% higher from last
year) with sales volume
of 679 residential and 212 parking units with half of the sales coming from
existing projects such as
Dansalan Gardens, Riverfront residences and Raya gardens. The remaining revenues
are coming from
5
Total Revenues in millions of Pesos. For DMCI Homes, includes real estate sales,
finance income, fx gains,
dividends and other income .
6
Net Income in millions of Pesos.
8
The company’s head office is located in Bangkal, Makati though it has several sales
and property
management offices across Metro Manila. Isidro Consunji resides as the president of
DMCI Homes. He is
also the president and CEO of DMCI Holdings. The day to day operations of DMCI
Homes is being done
7
2007 DMCI Holdings Annual Report.
8
Interview with Teresa Tiongson (DMCI Homes Senior HR Manager)
9
II. RESEARCH DESIGN AND METHODOLOGY
Research Design
Macro economic data used in the external analysis was gathered from the websites of
various government
offices such as the Bangko Sentral ng Pilipinas and the National Statistics Office.
These government
offices also have projections on macro economic growth which was collaborated by
projections from the
Industry data was gathered from the research done by real estate consultants such
as Jones Lang Lasalle
and Colliers International as well as data from Housing and Land Use Regulatory
Board (HLURB). This
was supplemented from industry news from the websites of respected media outlets
such as Philippine
obtained from both DMCI Holdings and DMCI Homes as well as its key competitors from
the Securities
and Exchange Commission. Aside from providing financial data, the published annual
reports also serves
Statements from the corporate website of DMCI and its competitors are used to
determine recent
benchmark the pricing of the company relative to its competitors, various brokers
were contacted online.
Competitor prices were benchmarked based on similar projects i.e. projects are of
similar nature (high rise
residential), in close proximity to one another and will be completed within the
same year.
10
To provide a complete internal assessment of the company, a questionnaire was
emailed to senior DMCI
Homes managers last November 2009. Their opinions provided insight to the company’s
internal
environment.
This paper will be limited to DMCI Homes’ real estate ventures in the Philippines.
The paper will focus
on how the company can compete in the Philippine market and will no longer delve
into the feasibility of
developing real-estate projects outside the country. The paper will also
concentrate on the primary real
estate product of DMCI Homes i.e. high rise residential real estate. Its other
products and services such as
its resort project and its property management will no longer be focused on due to
its marginal revenue
contribution.
Due to the timing of the submission of this paper, only the 2006 to 3rd quarter
2009 audited financial
statements were obtained from the Securities and Exchange Commission. Annual 2009
financial
statements were projected based on the 2009 income and sales projection of DMCI.
The strategies
recommended in this paper will affect the financials of the company in 2010
onwards.
11
III. EXTERNAL ANALYSIS
2008, remittances were valued by the Bangko Sentral ng Pilipinas at $16.4B. This is
13.7% higher from
last year. With the global economic downturn causing massive workforce downsizing
in the United States
and Europe, the BSP initially forecasted a flat growth for 20099. To cope with the
global crisis, the
government has aggressively marketed our Filipino workers abroad and forged hiring
agreements with the
Middle East, Japan, Canada, Korea and Australia. These measures were felt in the
first months of the year
The tenacity of the OFW remittances growth caused BSP to revise its figures to
$17.1B or a 4% growth.
Economic recovery is seen to happen in 2010. As the US and European labor market
begins to recover,
2010 OFW remittances has also been upwardly revised to $18B or a 6% growth11.
9
http://www.bsp.gov.ph/publications/media.asp?id=2119
10
http://www.bsp.gov.ph/publications/media.asp?id=2014&yr=2009
11
Chipongian, Lee. “BSP ups BOP forecast for 2010 to 5B”. 14 Oct 09.
http://www.mb.com.ph/node/224721/
12
As of September 2009, the US remains the top destinations for OFWs though the
number of OFWs
deployed dropped by 10% due to the economic crisis. Among the fastest growing
countries for OFW
Relevance:
economy. Remittances not only fuel consumer spending but also investments in real
estate. OFWs and
their families in the country are buying real estate not only for their primary
residence but also as an
12
www.bsp.gov.ph
13
http://www.bsp.gov.ph/publications/media.asp?id=2031
13
DMCI is targeting OFWs both through its sales offices both locally and abroad. 15%
of the company’s
2007 sales are from its international offices, most of which are OFWs. 14 This is
lower compared to other
real estate companies such as Ayala Land where 25% of sales are from OFWs15. In
terms of market
presence, DMCI has offices in 12 countries. DMCI has sales offices and broker
partners in 7 out of 10 top
OFW destinations.16
From late 2008 to 2009, prices of mortgaged back securities crashed resulting in
the collapse (and bail-
their housing spending. US residential home sales for June 2009 were down 21.3%
compared to previous
The Philippines suffered to a less extent. GDP slowed down but remained positive to
0.5%19. According
to Colliers International, the slowing economy slowed down office and residential
markets although the
renewed investor confidence, global recovery is seen at the latter part of the
year.20. The pump priming
activities of the government has positively affected the economy and the
Philippines is expected to
14
http://www.dmcihomes.com
15
2008 Ayala Land Annual Report.
16
www.bsp.gov.ph
17
http://www.census.gov/const/newressales.pdf
18
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId =dc59446f-d563-41a9-
947c-19ad8b3edd54
19
Murray, Dr Jane. “Asia Pacific Economy: Signs of a turnaround but outlook
remains subdued”. 2nd quarter 20009.
www.joneslanglasalle.com
20
http://business.inquirer.net/money/breakingnews/view/20090425-201415/Signs-of-
recovery-seen
14
gradually recover from the crisis this year. The gradual economic recovery has
positively impacted the
Relevance:
DMCI has the opportunity to take advantage of a possible rebound of sales from
crisis hit countries. 67%
of 2007 international sales are from US and Europe, countries which are hit the
hardest by the crisis. The
company has tie-ups with real estate brokers in 11 countries around Asia, Europe
and United States22.
After the government privatized the Bonifacio Global City (BGC) in Taguig, BGC
experienced
continuous growth. Colliers International mentioned that in the next three years,
BGC’s residential supply
will rise by 8,297 units and 25 major residential projects will be completed23. By
2012, BGC’s gross floor
area will be at 2.6 million sq meters which is double the size this year.
Residential units will reach 8,422
units, which is at par with Makati and exceeding Ortigas’ 7,000 units. The Taguig
city government is also
21
www.colliers.com
22
http://www.dmcihomes.com
23
http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Re
port/PDFs/Knowledge_1Q_
2009.pdf
15
building additional roads and creating additional amenities such as a science
museum. Additional BGC
landmarks will include the 6 star Shangri-la Hotel (to be completed 2012), St Lukes
Medical Center and
Relevance:
Megaworld, one of DMCI’s key competitors, has recently won the bid over Robinsons
Land for the 8.38
hectare northern area of the BGC at a cost of 80,000 per square meter. It intends
to spend 15.6B over the
DMCI also has a development near the area. Cypress Towers, a 10,700 sq m.
development located
adjacent to BGC25. DMCI also has a large lot (around 80 hectares) along C5 road and
adjacent to the
BGC26 which the company can potentially use for future projects.
care and research functions. By 2010, Jones Lang La Salle projects the industry to
grow tremendously and
become a major contributor to the country’s economic growth. The Philippines will
get 10% of the
The sector will employ 900,000 employees in 2010 up from 285,000 in 200627.
Relevance:
24
Liu, Kristine Jane. “Bonifacio Global City expects to equal Makati Space by
2012.” Business World. 21 Sept
2009. http://www.abs-cbnnews.com/business/09/20/09/bonifacio-global-city-expects-
equal-makati-space-2012
25
www.dmcihomes.com
26
Bworlsonline.com/online/property/inside.php?id=008
27
Marcelo, Kathy. What does the O&O roadmap say? May 2008.
www.joneslanglasalleleechiu.com
16
The BPO sector is a growing market of real estate companies. 82% of offices are
located in Metro Manila.
In terms of office spaces, the sector will need 5.2 million square meters in 2010.
Only 2.5 million sq.
meters are currently available and 1.7 million sq. meters are under construction.
The scarce supply of 1
million sq. meters will be mostly in the Makati and Bonifacio Global City area.28
The demand for office
spaces will also extend to the residential sector. With 900,000 employees earning
an average of $3,600
annually and spending 13.2% of that income on housing, the industry can potentially
gain Php 20.4 B in
In the previous years, there was a sharp rise in the global prices of construction
materials such as cement
and steel due to the construction boom in China. By 2009, prices have stabilized
due to the economic
downturn.
To measure the inflation of construction raw materials, the NSO prepares an index
containing the prices
of major construction raw materials such as cement, steel, wood, pvc, glass etc in
the National Capital
Region (NCR). The index has a base figure of 100 for 1985 prices.
In 2009, the index has been stable at the 458 to 465 range29. There is an expected
temporary uptick in the
last quarter of 2009 due to the reconstruction of typhoon affected houses in the
NCR. By 2010, prices are
28
Marcelo, Kathy. What does the O&O roadmap say? May 2008.
www.joneslanglasalleleechiu.com
29
www.census.gov.ph
30
Remo, Michelle. “Inflation Outlook Still Benign.” 2 November 2009. www.inq7.net
17
Relevance:
57% of company’s revenues are allocated to cost of construction. The cost includes
cost of construction
and raw materials. Housing prices are heavily influenced by the cost of raw
materials. Last year for
instance, when the CMWP Index shot up from 393 at the start of the year to 465.1 by
the end of the year,
DMCI Homes had to increase its selling prices by 12% to recoup costs.
As projected by The Economist, average lending rate will increase from 8.5% in 2009
to 9.6% in 2013.
Higher interest rates are mainly due to the inflationary impacts of increased
spending in a recovering
economy31.
31
3 July 09 .http://www.economist.com/countries/Philippines/
18
Projected Lending Rate:
Relevance:
Bank lending rate is the base rate which housing loan interest rates are based. A
higher lending rate will
mean a higher housing loan rate to potential home buyers. As clients would normally
buy homes on
credit, stable home loan rates will encourage buying activity and be an opportunity
for both the industry
and company.
House Speaker Prospero Nograles has set in Congress’ agenda House Resolution No 737
which opens
land ownership to foreigners. Despite hesitations from the public, charter change
will be at the top of the
legislative agenda of the house for the current session. Protests are mainly
against the political
32
Cabacungan, Gil C. Jr. “Nograles: Charter change train back on track. “18 July
2009.
http://www.inquirer.net/specialfeatures/charterchange/view.php?
db=1&article=20090718-216018
19
Relevance:
The passage of the law will allow the company to sell titled developments such as
subdivision lots to
foreigners. It will also remove the maximum number of condominium units that can be
sold to foreigners.
ownership can generate potential sales for DMCI especially if DMCI will strengthen
the operations of its
new administration come 2010 will benefit the real estate sector. According to
Philippine Retirement
Authority Chairman, Edgar Aglipay, there are 20,000 retirees who have registered
with the agency in
2008. The figure is expected to grow to 24,000 retirees this year35. These 24,000
retirees have registered
with the agency to avail of tax perks if they buy real estate in the country.
Relevance:
Potential sales can come from condominium purchases from foreign retirees. Foreign
retirees are allowed
by the current law to buy condominium developments. These represent potential sales
to DMCI especially
since DMCI’s projects are resort themed with substantial land area being used for
recreational facilities.
These are features foreign retirees are considering when buying a second home.
33
http://www.bcphilippineslawyers.com/foreign-ownership-of-land-in-the-
philippines/371/
34
Fajardo, Fernando.” Can foreigner-retirees buy land here?” 22 Oct 2008.
http://globalnation.inquirer.net/cebudailynews/opinion/view/20081022-
167846/Can_foreigner-
retirees_buy_land_here%3F
35
Ho, Abigail. 25 Aug 2009. US European Firms Eye RP retirement industry. www.
Inq7.net
20
3.3 Environmental Factors
Last September 2009, the country was devastated by one of the worst typhoons to hit
the country. One
month worth of rain fell in 6 hours when Typhoon Ondoy hit Metro Manila. This
caused 5 meter high
The UN notes that the intensified typhoon causing massive flooding is expected to
continue as the
Philippines suffer the effects of climate change37. Floods will severely affect
real estate developments
Relevance:
With the recent events, a growing consideration of home buyers is the risk of
flooding in a development.
After being heavily hit by typhoon Ondoy, real estate projects in low lying areas
such as Marikina, Pasig
and Cainta have suffered falling property values and experienced a drop in demand.
DMCI’s East Raya Gardens in Pasig was not severely affected by the flooding due to
good drainage in
the area. Other DMCI developments were also spared38. Other industry players were
not as fortunate.
housing prices but bad publicity and law suits from its residents.
36
Ramos, Marlon. “Too much rain too soon.” 27 Sept 2009. www.inq7.net
37
Abbugao, Martin. “Floods a wake up call for climate change.” 29 Sept 2009.
www.inq7.net
38
www.dmcihomes.com
21
IV. Industry and Competitor Analysis
HLURB is a government agency that issues housing licenses needed before a developer
can sell a unit. It
classifies residential developments into four categories (1) high rise residential
condominium (2) low cost
(3) socialized housing (4) medium cost & open market house and lot.
Condominium
House Bill 398 defines a condominium as “an interest in a real property consisting
of a separate interest in
In 2007, HLURB recorded 77 projects that applied for licenses40. These projects had
a total inventory of
19,369 units available for sale. By 2008, the number of condominium units being
sold jumped by 150%
of the high rise condominium market is at Php 148B – growing by Php 90B from last
year.
39
http://erbl.pids.gov.ph/listbills.phtml?id=167
40
www.hlurb.com
41
http://colliers.com/
22
This housing type is one of the key products of DMCI as 16 out of its 25
developments belong to this
category.
House and Lot developments refer to a housing project where the land title is
transferred to the buyer.
HLURB classifies these further as open market and middle income housing. Both types
are not being sold
as socialized or low income housing. They’re being targeted to middle income and
high end market.
In 2007, there were 262 projects registered under this category42. These projects
have an inventory of
58,943 units in 2007 which dropped by 9% to 53,513 units in 2008. This product
category is valued at
Php 160B.
Under the law, the socialized housing projects are high density developments worth
Php 300,000 or
below. Low cost housing projects are worth between Php 300,000 to Php 1,250,000.
Both are geared
towards low income families. This product category enjoys government perks such as
tax incentives and
subsidies.
There were 345 developments as of 2007 in both of these sectors which are composed
of 91,655 units. In
2008, this product category grew by 49% to 118,576. 14% of which is from the
socialized housing and
the rest for low cost housing. Total market size given the prices is at Php 109 B.
42
www.hlurb.com
23
DMCI is currently not offering products belonging in this category.
the biggest contributor is medium cost and open market house and lots (38% on the
industry). However,
this sector contracted by 9%. High rise residential condominiums are increasingly
becoming a bigger part
of the market growing by 155% to contribute to 35% of the industry value. The low
cost/socialized
24
housing products have the most number of units but because of the lower selling
price, contribute only
The Philippine housing sector has grown by 35% in 2008 with the high rise
residential developments
contributing to most of the growth (155%). Year on year, the industry contracted by
3% during the second
quarter of 2009 as there was a 28% drop in the low cost housing sector. In the next
3 years, there will be
20,420 new units launched to the market most of them in the Bonifacio Global City
where 25 new
The real estate market has been traditionally segmented based on economic
classification as measured by
the budget of the buyer for a house. Given this criteria, the market can be
segmented according to luxury,
25
Luxury buyers are individuals belonging in the upper A market with an annual family
income of above
Php 129K/sq m as of 1Q 200944. Aside from having a high price per square meter,
units are traditionally
bigger. Average size of a unit is around 140 sq meters for a 2 to 3 bedroom unit
and costs an average of
Php 17 million (See Appendix 3: Competitor Pricing Survey). Luxury homes are also
grander and are
According to Colliers international, there are 5,420 units being sold to the luxury
segment. Given the
price and size of the unit, this translates to Php 97 billion in market size or 23%
of the industry (See
43
Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle
class.” 3 July 09.
www.bworld.com.ph
44
www.colliers.com
45
www.colliers.com
26
The middle income segment, also called the affordable segment, is catered to modest
income buyers with
an annual family income ranging from Php 500,000 to Php 2,000,00046. Prices of
these homes are higher
than 1.25 million but lower than the prices of luxury buyers. The segment is being
targeted by numerous
firms including DMCI because of its size. The segment valued at 211M represents
half of the industry
The low cost segment is being catered to the CDE market with an annual family
income of less than Php
500,00047. These buyers have a housing budget of less than Php 1,250,000. Buyers of
this segment can
access financing from Pag-ibig. In 2007, there were 345 projects being launched for
this sector bringing
in a total of 109B market size. The value of this segment grew by 58% in 2008.
46
Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle
class.” 3 July 09.
www.bworld.com.ph
47
Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle
class.” 3 July 09.
www.bworld.com.ph
27
The residential real estate market can be further segmented to highlight the
emerging sectors of the
economy. The two major drivers of the Philippine economy are the continued growth
of OFW and BPO
sector. As indicated in the external analysis, they are potential growth drivers of
the industry.
11.2% of the projected $17.1 B worth of OFW remittances will go to housing. This
provides potential
revenues worth 91B to the industry. With the 4% growth this year and 6% growth next
year, real estate
companies are devoting more resources to cater to this segment. DMCI for instance
has 15% of revenues
coming from OFWs while 24% of Ayala Land’s real estate sales are also from that
sector.
Another segment to watch is the BPO segment. Since 2006, the sector more than
doubled (215%) in the
number of workers it employs. By 2010, the sector will have 900,000 employees.48 At
an average annual
compensation of $3,60049 and 13.2% of this income is spent on housing50, the sector
is expected to be
Below is the summary of the number of units per market segment which was calculated
based on segment
value and average price. The middle income segment was further categorized
according to source of
income.
48
See external analysis
49
http://www.magellan-solutions.com/call-center-industry_people.htm
50
www.census.gov.ph. 2006 data of family expenditure of upper 70% income group.
28
4.1.4 Pricing
Pricing strategy will depend on the economic classification being targeted by the
firm. Pricing groups can
income buyers. The price of a development can depend on the price per square meter
and the unit size.
Unit size will also depend on the economic group the developer is targeting.
DMCI is currently marking its developments in the affordable pricing scheme similar
to its key
competitors – Megaworld, Robinsons Land and Avida Land. (See Appendix 3: Competitor
Pricing Survey
29
4.1.5 Distribution Channels
The developer can choose to either distribute their products via in-house sales or
external brokers.
In house Sales
Real estate companies have their own sales personnel to distribute their products.
In house sales can be
located within or outside the country. Aside from a fixed salary, real estate
companies also compensates
External Brokers
Developers can opt to form brokering agreements with external firms. The
commissions paid to external
brokers are much higher compared to commission paid to in-house sales. Commission
rate of the industry
averages at 6% of listed price. Commissions are shared by the sales agent and the
brokerage firm.
30
Re-sellers
Buyers can also act as alternative distribution channel. There are investors who
acquire properties for the
purpose of re-selling the property once the prices have appreciated. This
distribution channel acts both as
a distribution channel and as a competitor since they can capture demand that could
otherwise have gone
to the developer.
To stimulate demand, developers use several media types. Outdoor advertising is the
most popular media
type being used. Outdoor ads are being placed along major thorough fares in Metro
Manila such as
EDSA. Companies are also utilizing television, radio and print ads in their brand
building activities.
Increasingly, companies are using its websites to inform clients of new projects
and construction updates
of existing projects. Companies such as Ayala Land are also making their websites
e-commerce capable
the company’s high rise development. As discussed in the external analysis, high
rise developments
jumped by 150%. To stimulate demand from the increasing supply, companies have
increased their
promotion activities.
51
Based from the 2007 and 2008 marketing and advertising expenses of key
competitors.
31
32
4.2 Porter’s 5 Forces of Competitive Analysis
The residential real estate industry is composed of numerous small and large
players. The 9 major players
enumerated below represent only 13% of the market share. There are numerous market
players all over
the country with most of the major players servicing key Philippine cities like
Metro Manila. The scope
of the industry does not include rental properties although this is an important
substitute.
The following are the major market players with industry orientation and their 2007
vs 2008 residential
Ayala Land, Megaworld and Vista Land have the largest market share representing
3.7%, 3.0% and 2.5%
Ayala Land Premier and Alveo Land dominates the high rise industry. Ayala Land also
has ventures in
the middle income segment through Avida Land and is venturing into the low cost
housing. Megaworld is
the leader of the middle income segment while Vista Land through Camella Homes
leads the low cost
segment.
33
Concentrating in the middle income segment, there is a large disparity in revenue
share of Megaworld
with the market followers (DMCI, Robinsons, Avida, SM, Filinvest). However, the
market followers have
Competitive rivalry is intense due to the numerous players in the real estate
market, flat prices, industry
According to HLURB, in the first half of 2008 alone, there were already 937 housing
projects registered
with the agency. Out of this, there were 63 condominium projects being built in the
Philippines52.
52
www.hlurb.com
34
Housing prices will remain flat
Nominal and real housing prices will have a near flat growth rate from a height of
10-15% in mid 2007.53
The drop came from the impact of the subprime crisis where buyers especially OFWs
deferred their
housing purchases.
and building construction. For instance, Ayala Land has spent Php 7.7 B in 2008 and
8.7 B in 2009 to
develop its residential real estate businesses (Ayala Land Premier, Alveo Land and
Avida Land)54. Exiting
the industry will be costly given the large amount of fixed asset investment.
53
http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Re
port/PDFs/Knowledge_1Q_2009.pdf
54
2008 Ayala Land Annual Report.
35
Sizeable capital is needed to enter the industry. Large capital is needed for the
construction of high rise
residential projects and purchase of land. Based from published reports55, the key
players have an average
CAPEX budget of 8.3B. A new entrant should have this amount of capital to pose a
significant threat to
the company.
Another important barrier is the high cost and limited availability of good
locations. Prices of Makati
CBD and Ortigas Area for instance, are steadily increasing at .6% to .9% per
year56. A new entrant must
also obtain a large area of land. Land area of a typical DMCI property is around
8000 square meters57. A
new entrant must obtain a single track of land close to that size to compete with a
developer the size of
DMCI.
A new entrant should overcome the strong entry barriers of capital and land
requirements. One new
entrant is Eton Properties of the Lucio Tan group. Eton Properties used the massive
land bank of other
Lucio Tan subsidiaries such as Philippine Airlines, Philippine National Bank and
Allied Bank to
overcome the barrier of entry of land availability. Being a member of the Lucio Tan
group of companies
55
2008 Annual Reports of Key Competitors.
56
http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Re
port/PDFs/Knowledge_1Q_
2009.pdf
57
DMCI Holdings SEC Disclosure Form 17-Q.1st Quarter 2009.
36
also allowed it access to capital. Despite these advantages, Eton Properties has
negligibly affected the
Major suppliers of the industry are the construction contractors and raw material
suppliers. Major raw
materials in building construction are cement and steel. Raw material suppliers,
construction contractors
and other suppliers consume 57% of the industry’s revenues (See Financial Statement
Analysis).
Prices of raw materials such as steel and cement are correlated with world prices.
Local cement and steel
prices are being monitored but not being controlled by the DTI. Current raw
materials prices have
stiff due to the numerous raw material providers and construction contractors. In
terms of substitutes,
there are no substitutes for major raw materials and construction services.
Real estate is a high ticket purchase and buyers usually can only afford to buy one
home at a time.
standard price. Aside from lack of economies of scale, bargaining power of buyers
is also weakened by
37
Substitutes are residential houses that are constructed from the ground up by the
owner of the property.
Another major substitute are properties for rent. In the near term, renting is
cheaper compared to buying a
new home. Unlike buying a home which requires 10%-30% down payment and subsequent
amortizations,
38
4.3 COMPETETIVE PROFILE MATRIX
The choice of competitors was limited to three – Robinsons Land, Avida Land and
Megaworld
Corporation. These companies were chosen on the basis of the similarity pricing and
level of quality.
Quality was defined on the basis of property design, amenities and property
maintenance. Prices per
square meter were bench marked across different companies for completed projects
within Metro Manila.
These properties deliver the same level of quality and their prices range from Php
80,000 to 100,000 per
square meter. These companies are in the affordable segment or companies targeting
middle income
families. Given these categories, the Rockwell land, Alveo Land, Ayala land Premier
and Camella Homes
were excluded since they are not competing in the same income segment as DMCI
homes.
Robinson’s Land is the property arm of JGB holdings which is owned by the Gokongwei
family.
commercial spaces, office spaces and residential comes. In 2008, its sales from its
residential division
reached Php 4.4 Billion and its second quarter 2009 sales have already reached Php
1.887 Billion. Its
existing developments include Trion Tower (Fort) and Gateway Regency (Pioneer).
Robinson’s Land targets the middle income group similar to DMCI as exemplified by
its USP “Great
Homes, great value”. Price range of a typical development is at Php 90 thousand per
square meter which
is close to DMCI’s properties priced at Php 81 thousand per square meter. Quality
of development is also
similar to DMCI.
39
Competitor # 2 Megaworld
with developments priced at Php 90,000 per square meter59. Full year residential
revenue is Php 12.43 B
Megaworld is known for its township developments which follows its USP, “Live, work
and play”.
Ayala land is further divided into commercial properties (Ayala Malls), corporate
businesses (Laguna
development. Its residential area is segmented by target market. Ayala Land Premier
and Alveo Land
caters to the luxury sector with developments such Serendra, while Avida Land
caters to the affordable
Among the Ayala subsidiaries, Avida land is DMCI’s direct competitor. Price per
square meters for
Avida Towers is at Php 100 thousand per square meter similar to DMCI. Quality of
property design and
59
2008 Megaworld Annual Report.
40
amenities is also similar to DMCI Homes. Avida and DMCI both target the same
market. Avida’s target
market is mentioned in its USP (“Affordable living at its best”) and its mission
statement (“We are the
recognized leader and the most preferred provider of quality shelters and
communities for the average
Filipino family”)60.
Capitalization can be measured by the equity value in its balance sheet and through
a leverage ratio(debt
to assets ratio). Higher debt would limit future borrowings or attract capital to
fund future projects. The
parent company’s capitalization should also be considered since the company can
finance projects
Large capital is needed to be able to purchase land, develop properties and fund
other strategies..
proximity to one another and the stage of completion of the project. Prices were
scanned for new
Real estate is a big ticket purchase. Middle market buyers will do their due
diligence to get the best value
for their money. The price sensitivity of buyers makes the price of the development
a key component in
60
http://www.avidaland.com/about_us1.php
41
their buying decisions. Customers will be looking at a product that offers them the
greatest value for
money.
Real estate developers will need to address the competitiveness of the pricing of
their product while
protecting their margins. Players that are targeting the middle market (such as
DMCI Homes) are focusing
Buyers consider the location of the development in the purchase decisions. The area
should be wide
centers or schools. Thus, acquisition of large lots in areas with high population
densities is a key factor to
distribution should be both local and international buyers. This can be measured
through number of
includes in house sales and external brokers both inside and outside the country.
Sale of real estate
requires long sales effort since it’s a high ticket item. Thus, the company should
have adequate number of
sales people to build relationships with prospects and turn them to potential
sales.
42
CSF # 5 Number and quality of amenities in the development
A survey was done where two of DMCI’s and its key competitor’s developments was
visited to assess the
quality and number of amenities of a project. The allocated area for the amenities
was also evaluated
Importance Weight: 5%
Good property design and amenities draws clients to purchase a property. Common
amenities such as
swimming pool, gardens and recreational areas add value to the development.
Importance Weight: 5%
Buyers are looking at the size of the unit. The unit should be big enough for the
occupants to live
comfortably.
Importance Weight: 5%
The track record of the developer is an important consideration for the buyer.
Condominium projects are
usually sold on a pre-selling basis. In pre-selling, the buyer will not see the
actual development but only a
model of it. The buyer has to trust the developer to deliver the quality it
promised. For trust to be
established, the buyer will consider the track record of the firm.
43
CSF#8 Marketing Capability
This can be measured through the marketing spend of the company for 2008. The
importance of
Importance Weight: 5%
For companies to compete well, it has to allocate a budget for marketing activities
such as product
DMCI Homes has a total capital of Php 3.9 B as of 2008 bringing its debt to assets
ratio of 0.67 which is
higher than the industry average of 0.45. DMCI is the most heavily leveraged among
the four companies.
Based from the price scanning done on the recent developments of the key
competitors, DMCI’s current
In its annual statement, DMCI noted that its pricing 10-15% better than competitors
owing to its
61
See Comparative Financial Ratio
44
DMCI intentionally locates its developments outside of a Central Business District
to lower unit cost. For
instance, Cypress Tower is built adjacent to the Fort (near C5). DMCI’s Dansalan
Gardens is built outside
Pioneer area in Boni while Tivoli Gardens, is built outside the Makati Business
area.
DMCI has international sales offices in 12 countries fewer than Megaworld and Avida
Land. Its local
reach is also limited compared to Avida and Megaworld and at par with Robinsons
Land.
DMCI projects follow a resort living theme. Surveying the four sample developments,
DMCI has the
most number and best quality amenities. It also allocates larger land area to
common facilities.
A typical two bedroom unit is 58 sq meter (Cypress Tower). This is at par with
Robinsons Land.
DMCI is only 5 years in the industry and has completed 11 developments. Despite
being relatively new in
the industry, a higher rating was given owing to its affiliation with its sister
company, DM Consunji
which is a triple A builder and has built landmarks such as Mactan Shangrila-Hotel,
Manila Hotel,
Westin Philippine Plaza, Asian Hospital, Manila Doctor’s Hospital and the New
Istana Palace in Brunei.
It has the largest marketing budget of 228M for 2008. Promotion activities include
TV and outdoor
advertisements.
45
CSF#1 Robinsons’ Capitalization (3)
Robinsons Land has a total capital of Php 22 B as of 2008 bringing its debt to
assets ratio of 0.43.
stock market.
Developments are built within the business districts. Its developments (Gateway,
Trion Tower) are within
Robinsons distribution network locally and abroad which is at par with DMCI.
From the survey done, Robinsons Land projects have good but limited number of
amenities compared to
DMCI. In terms of quality of its common areas, its at par with Avida and Megaworld.
built. Most notable developments include the various Robinsons Malls dotting the
country.
Robinson’s marketing spend is at par with Megaworld at 103M for 2008. Outdoor
advertisements focus
Megaworld has a total capital of Php 24 B as of 2008 and is the least leveraged
with a leverage ratio of
Megaworld’s residential developments are in close proximity with office spaces and
commercial districts.
Megaworld has a large distribution network abroad. It has market leadership over
major OFW
47
CSF#5 Megaworld’s Number and Quality of Amenities (2)
From the survey done, Megaworld has the least number of amenities from the four
companies. Its
developments also have the smallest allocated land area devoted for amenities.
Megaworld has built 6 townships which contains a mix of residential, commercial and
office spaces. Its
most popular development is Eastwood city. One township will have several
condominium, office and
commercial buildings.
Avida has a total capital of Php 2.9 B as of 2008 and with a total debt to assets
ratio of 0.52. However, its
affiliation with Ayala Land should be taken into account. Ayala Land is a publicly
listed real estate
company and is the most well capitalized property developer with a total equity of
55B. Ayala Land’s
48
Avida Land’s current development (Avida Towers Makati West in Makati62 is currently
selling at Php
100,040 per sq unit (as of 20 Aug 09). Avida’s developments are the most expensive
among the four
companies.
Avida’s developments are situated near but not within a business area. Its
development in Makati for
instance is a close drive to the Central Business District but is still outside the
CBD.
Avida Land has a wide distribution network both locally and abroad owing to its
affiliation with Ayala
Based from the survey conducted, Avida Land has adequate number of amenities
comparable to
Robinson’s Land.
A typical two bedroom unit has a size of 50 sq. m. (Avida Towers – Makati West)
Aside from the 27 projects for Avida Land, it also leverages off the experience of
its parent company
Ayala Land. Ayala Land claims that its its the largest and most experience property
developer in the
Philippines.
62
Avida has no development in Taguig to compare with Megaworld, DMCI and
Robinson Land.
49
CSF#8 Avida’s Marketing Capability (3)
Avida Land’s marketing spend is the smallest among the four companies at 74M last
2008.
From the identified critical success factors, DMCI and its key competitors are
assigned the following
ratings.
Based from CSF ratings, Megaworld has the competitive advantage over DMCI and other
key
competitors. Its competitive advantage has also allowed Megaworld to be the leader
in market share in the
middle income segment. Megaworld’s strength over the rest of the companies is in
the area of
capitalization, accessibility of location and unit size. Megaworld also has modest
ratings in terms of price
ahead of DMCI and Avida through its more accessible developments and its modest
ratings in other areas.
Avida Land leads in distribution network and track record owing to its affiliation
with Ayala Land. DMCI
lags in CSF rating which is also reflected in its market share. Despite being the
price leader with a strong
marketing capability, its overall CSF rating was lower due to its weak
capitalization and lower
accessibility of location.
50
4.4 External Factor Evaluation
External Factor Evaluation (EFE) Matrix summarizes and evaluates various external
factors including
There are many factors that affect DMCI but a set of priority factors that has the
greatest impact to DMCI
Homes’ success were selected and importance is given based on its potential impact
to its bottom line.
Rating 3 - DMCI initially lessened its exposure to the overseas market when the
economic crisis hit and
the BSP initially forecasted a flat OFW remittance growth. When remittances became
more resilient,
DMCI continued to hire more overseas agents and has been launching road shows in
countries like Tokyo
to entice international clients to choose DMCI Homes. DMCI also launched a website
specifically for the
overseas market.
Despite having more aggressive marketing efforts, a 3 rating was given since the
company has less
international offices compared to Ayala/Avida and Megaworld. 24% of the units Avida
sells was
51
Weight of 15% was given to the factor since the OFW segment contributes to 29% of
the industry’s
O2 - Global Economic Recovery from the Subprime crisis [see Environmental Analysis
– Economic]
Rating 3 - DMCI has used its price competitiveness to draw customers to buy its
existing project launches
(Dansalan Gardens, Tivoli Gardens and Cypress Towers) despite the subprime crisis
this year. DMCI
lowered its markup and retained its 10-15% price advantage over key competitors.
Impact of DMCI’s
DMCI is also positioning for the global economic recovery projected in the latter
part of the year by
launching several new projects next year such as Magnolia Place in Quezon City and
East Raya in
Paranaque.
Weight of 15% was given due to the domino effect the recovery has on both housing
prices and demand.
Housing prices for instance have remained flat when the crisis hit. With the
recovery of the economy,
revenues can grow further with rising prices and greater demand.
Economic]
Rating 3 - DMCI’s key competitors have developments within the growing Bonifacio
Global City (BGC).
Avida Land’s sister company Ayala Land Premier and Alveo Land developed Serendra, a
known BGC
landmark. Megaworld and Robinsons also launched Mckinley Hill and Trion tower, both
in the center of
DMCI’s Cypress Towers along C-5 highway which is close but outside BGC. DMCI Home’s
landbank
Rating 1 – DMCI is currently not targeting this sector. Unlike companies such as
Robinsons Land and
Megaworld, DMCI does not have a commercial real estate arm. Robinsons and Megaworld
strategically
build BPO offices near their condominium projects to be able to fully capture the
BPO market.
Rating 4 – DMCI has an advantage in sourcing its raw materials by using its steel
fabrication subsidiary
(AG&P) to source steel raw materials at a lower rate. Through AG&P, DMCI is also
able to lock-in steel
prices. With its construction arm – DM Consunji, it is able to integrate other raw
material requirements
families with modest income. Compared to competitors such as Avida Land and
Megaworld, the
Importance of the opportunity is given a lower weight (10%) given the less
likelihood of the potential
charter change to happen with the political noise generated by the upcoming
elections.
O7 - Falling market share of Megaworld (market leader) [see market analysis]
53
Rating 2 - Megaworld is the clear market leader of the middle income residential
sector. However, its
market share has fallen from 3.5% to 3%. Market share of Avida has remained stable
while Robinsons
and DMCI market share is increasing. The falling market share of the industry
leader presents as an
opportunity for DMCI and other players to gain additional market share. A 2 rating
was given since
DMCI does not have enough capital to launch an aggressive direct attack over the
market leader/
O8- 2% growth rate of high rise residential segment [see market analysis]
Rating 3 – High rise residential developments are on the rise. The sector grew by
155% in 2008 followed
by a more modest 2% year on year growth in the second half of 2009. DMCI has
responded to a modest
growth in the sector by increasing its real estate available for sale.
Rating 1 – DMCI is poorly positioned for a rise of interest rates due to its heavy
reliance on short term
debt. (see financial analysis). 54% of its liabilities are maturing in less than 1
year. These will need to be
Rating 4 – During the recent flooding, none of DMCI’s developments were severely
affected. DMCI had
the foresight to choose less flood prone areas and invest in a good drainage system
for all its
developments.
Rating 3 – DMCI increased its marketing budget by 22% in 2008. This has caused an
increase in market
share unlike Avida and Megaworld whose market shares either remained stagnant or
contracted. In terms
of marketing budget, DMCI has the largest marketing budget among the key players.
54
4.4.3 EFE Matrix
A major opportunity the company should take advantage of positioning for the global
economic recovery
projected in the last quarter of 2009. By timing the completion of its future
developments by 2010, allows
the company to weather out the economic downturn while preparing for its expected
recovery next year.
This strategy is similar to the actions of the other firms as there was a general
drop of project releases this
55
It should also look into the growing markets such as OFWs, BPOs and retirement
market. Market
Based from the CPM, the company is behind its key competitors due to its lower
capitalization. Despite
this, its market share is growing faster than the growth in market value due to its
price competitiveness.
DMCI should find ways to improve its capital base to be able to fund its
expansionary activities.
V. COMPANY ANALYSIS
DMCI Homes does not have its own vision separate from DMCI Holdings. However, it
has strategic
objectives that upon examination are actually the property subsidiary’s vision.
DMCI Homes
serve.
57
“DMCI Homes is the country’s first Triple A builder/developer of premium quality,
urban-friendly, fully
serviced communities for the underserved young families of modest income that
aspire to live
58
5.1.3 Recommendations
Recommended Vision
The new vision now indicates the measure of DMCI’s success i.e. to be the second
biggest middle income
residential real estate provider in terms of market share. The second section of
the original vision
statement.
59
The new vision is attainable yet apparitional given the time table and its current
position in the market.
There is a clear market leader in the different income segments of the residential
real estate market.
Ayala, Megaworld and Vista Land dominate the luxury, middle income and low cost
segment
respectively. Ayala Land and Vista Land have interests in all income segments but
leads in only one.
Megaworld has residential real estate sales of 12B while the rest of the players
have sales hovering in the
3-4B level. Given the time constraints, it’s unrealistic for DMCI to quadruple its
sales in three years to be
the leader. Aiming to be a clear number 2 in the middle income sector is already a
challenging and
Recommended Mission
“As the country’s first Triple A developer, DMCI Homes creates premium quality,
urban-friendly, fully
serviced communities for the modest income families that aspire to live comfortably
near their place of
it affects the level of quality it provides i.e. through the creation of premium
quality communities. The
The statement of promoting employee growth was revised. The new mission statement
states that it
workforce should be highly motivated and customer driven. The company will also
place a premium in
61
A business plan is being done and implemented for both DMCI Homes and DMCI
Holdings. To fully
capitalize on the synergy between DMCI Homes and its parent company, strategies of
DMCI Homes are
“Company goals are communicated as early as the on-boarding stages or upon hiring
of new employees
through manuals and an employee orientation program. Likewise, company goals, its
vision, mission,
Intranet. Strategies are communicated down the line by each group’s respective
Department or Division
Head.”63 The company could further improve the communication of its objectives
through its vision
There is a top to bottom decision structure in DMCI. Major decisions are made by
the upper management
given the recommendations and information provided by lower level managers. Lower
level managers get
involved in the decision making process through business planning sessions done
twice a year involving
all levels of management. Action points from and departmental goals from the
meeting are delegated to
specific departments and managers, which are held accountable through their
performance appraisals.
Motivational Factors
Job descriptions are well defined showing both the knowledge and skills needed as
well as the specific
are given for managers to have the opportunity to direct the behavior of the
employee towards the
execution of the company’s objectives.
63
Tiongson, Teresa. DMCI Homes Senior HR manager.
62
The company’s retention strategy involves employee development, recognition,
compensation and
managing company culture. Employees are trained based on their annual development
plans. Employee
development includes classroom training and on the job mentoring and coaching. High
potential
DMCI provides above industry total compensation package to attract and retain
talent. The company also
considers the working environment as a key motivational factor for employees. The
working environment
These measures have been effective in retaining talent as the overall attrition
rate of DMCI is at 14% as of
September 2009. Based from the 2008 Watson Wyatt Real Estate Compensation and
Benefits Survey,
64
this figure is lower from the real estate industry standard of 19% .
Segmentation of Markets
DMCI Homes segments the industry via income group and focuses on the middle income
segment. This
From this initial segmentation, players such as DMCI further segments the market
further via local and
international sales. For DMCI, international sales (mostly from OFWs) represent 15%
of its sales. This is
smaller compared to Ayala where 25% of sales are from OFWs. The biggest contributor
in the
64
Tiongson, Teresa. DMCI Homes Senior HR manager.
63
via source of income described in the earlier section of this paper. DMCI is not
targeting alternative
Positioning
DMCI Homes is not as well positioned compared to its competitors. It has a lower
CSF compared to its
key competitors owing to the lower accessibility of its developments. Its weaker
position relative to other
players is also reflected in its lower market share (described further in the next
section). In both market
mainly due to its lack of response to the growing BPO segment and its failure to
fully capitalize on the
Market Shares
The company’s market share has been steadily increasing. Its market share grew by
33% from last 2007
to be at par with Avida Land. As noted in the market analysis section, there is a
clear market leader for
the middle income industry i.e. Megaworld. However, market followers such as DMCI
Homes,
64
Sales and Distribution Systems
The company is distributing its products via internal and external brokers within
and outside the country.
The company is compensating its external brokers to be at par with its competitors.
External brokers
receive a 6% commission over selling price. Half of the commission goes to the
broker firm and half goes
2008 sales and reservations grew by 31% from last year. Despite declining from last
year due to the
unfavorable economic conditions, sales volume is well above the planned target.
Initially, DMCI targeted
2,600 units in 200965 but sales volume has already exceeded 3,700 units in the
third quarter of 200966 due
to a surge in third quarter sales. Unit sales are projected to reach 5,095 units.
Product
Compared to its key competitors, DMCI boast greater control over product quality
through its synergy
DMCI developments are also turned over to buyers at a faster rate of 3 years
compared to the industry at 5
years.
In terms of construction design, individual units are larger than Avida and
Robinsons Land. DMCI’s
developments are resort living themed. Differentiating itself key competitors, DMCI
developments have
more areas allocated to amenities such as gardens, swimming pools and common areas
(see CPM).
65
www.bloomberg.com
66
3rd quarter 2009 DMCI SEC filing.
65
Pricing
DMCI is pricing its products appropriately. The company is targeting the middle
income or affordable
segment. This segment is not as price sensitive as the low cost segment but price
is still a primary
15% lower compared to the average industry price67. Among its key competitors, DMCI
is the price
leader.
Promotions Capability
Due to the continued promotion activities of DMCI, market share grew by 33%. Budget
was better
utilized in relations for revenues gained. For every peso spent in advertising, 17
pesos of sales are
areas such as EDSA. The message of the outdoor advertisements is that DMCI
developments offer a
relaxing living environment with a great view where buyers can retreat from the
busy city life.
DMCI also recently launched a TV commercial for its subdivision development. The 30
second
commercial features celebrity endorser Marc Nelson with an advertising message that
DMCI offers a
67
2nd Quarter 2009 DMC SEC Filing.
68
See Appendix 4: Financial Statements
66
GROWTH
Sale volume is projected to be at 5095 units in 2009 down from 5732 units in the
previous year. Units
sold include both residential and parking units. Historically, 23.1% of units sold
are parking units69. Year
on year, the number of sold units (both residential and parking units) has fallen
11% during the third
Revenue Growth
Revenues are recognized by the company when the unit is fully complete and 20% of
its contract price
has been collected. This complies with International Accounting Standards of full
accrual or completed
contract method of real estate revenue recognition. This is different from the
percentage completion
method adopted by other real estate companies. There is a delay in realizing DMCI’s
revenues. In 2008
for instance, total reservations reached 9.8 Billion compared of recognized revenue
of only 3.9 Billion70
or 40% of the total reservation sales. By the 3rd quarter of 2009, out of the 6.4
Billion in sales and
reservations, 3.5B of which will be reported as the recognized sales. Full Year
2009 Recognized sales
against sales reservation is assumed to follow the same ratio as 3rd quarter 2009
(55%).
69
Ratio of Parking units to total Units sold is 212:891 in 2nd quarter of 2009 and
229:1016 in 2nd quarter of 2008.
Thus, average of 23.1% of total units sold is parking
70
DMCI 2008 Annual Report.
67
By the third quarter of 2009, recognized revenues grew by 6% while sales
reservations dropped by 11%.
Recognized revenues are mostly coming from high rise units, which take longer to
complete thus the
new projects such as Royal Palm Residences in Taguig and Tivoli Gardens in
Mandaluyong, and from
existing projects such as Dansalan Gardens and Raya Gardens. There was a drop in
revenues from two
The increment in price was relatively lower to the increase in cost given the
thrust of the company to be
price competitive (10-15% lower than the industry) in order to maintain sales
velocity and gain market
share. Lower sales reservations were due to the economic downturn and reduced sales
from OFWs. Sales
are expected to recover due to the easing of these threats. Consequently, the
company projects net income
68
Comparing to the industry71, DMCI homes is growing at a faster rate in both
residential real estate sales
and net income. Residential real estate sales doubled in 2008 compared to the 41%
average growth rate of
its key competitors. The market leader in the middle market segment grew the
slowest at 18%. DMCI
Homes’ net income also grew much faster (233% growth) compared to its key
competitors average of
39%.
Profitability
Margin Growth
There was a drop of gross profit margin in 2008 from 58% to 43% due to increase in
construction cost
particularly on the cost of raw materials (see external analysis). Despite the rise
in cost of sales, the
company decided to minimally increase its price and retain its 10-15% price
advantage over competitors.
Operating margin likewise fell from 29% to 22% due to increased commission and
marketing expenses.
Net income margin nearly doubled to 15% in 2008 due to a one-off write-off in 2007.
71
Comparative revenues are done through the company’s and its competitor’s
recognized revenues.
69
Significant portion of the company’s gross profit is being allocated to marketing,
selling and financing
activities. Financing cost which grew to 149% was mainly due to the 179% growth in
bank loans.
Comparative Margins
DMCI Homes’ gross profit margin is higher compared to the industry due to its lower
build cost owing to
its synergy with DMCI’s Triple A construction subsidiary. Both operating and net
income margin are
lower compared to the industry due to DMCI’s higher marketing, commission and
finance expenses
70
Return on Assets
Return on Assets improved from 2% in 2007 to 5% in 2008. Despite this, the company
generates less
income out of its assets compared to its key competitors. A factor of the lower ROA
is the lower net
income margin of the company compared to the competitor average owing to its higher
operating and
financing costs. DMCI also has highest inventory level (at 6.5 B in 2008) among its
competitors.
71
Given these factors, the company should aggressively reduce its inventory levels.
The liquidation of its
inventory will also generate cash to reduce its debt and lower financing cost.
Lower inventory levels and
Return on Equity
DMCI’s ROE was up from 6% to 15% in 2008. DMCI’s ROE is almost at par with the key
competitor
average. 2007 ROE was lower due to a one time write off. 2008 Return on Equity of
the four players are
72
Activity and Efficiency
Inventory Turnover
Robinson’s Land is the most efficient in selling its inventory. Despite improving
from 2007, DMCI’s
2008 inventory is still the worst in the industry at 0.34 owing to its having the
largest available inventory
(6.5 B). DMCI has been building up its inventory but its distribution channel is
not large enough to
offload inventory in a slow economy. DMCI should thus be more aggressive in selling
its existing
73
DMCI is able to collect its accounts receivable at a faster rate compared to
Megaworld and Avida. DMCI
at 1.72.
Asset Turnover
Asset Turnover has been improving due to the faster rise of sales compared to
assets. This is a positive
indicator of how DMCI Homes is utilizing its assets to generate sales. Its asset
turnover is slightly lower
compared to key competitors but higher compared to Megaworld and Robinsons Land.
Avida Land has
the highest asset turnover at 0.58 mainly due to its lower total assets compared to
the rest of the players.
Liquidity
DMCI is second to Megaworld as the most liquid in terms of current ratio. However,
DMCI has a lower
than competitor average quick ratio. The large gap between its 2.23 current ratio
versus its 0.60 quick
74
Despite its poorer quick ratio, DMCI Homes’ has improved its liquidity compared to
last year. This was
due to the company’s increasing cash and accounts receivable owing to a marked
increase in its sales for
2008.
Cash Flow
The company’s cash is mainly being provided by financing activities. There has been
a marked increase
in cash provided by bank loans. Cash is mostly being invested in properties as part
of the company’s
75
strategic land banking initiatives. The company is net cash outflow in its
operations due to the increase in
Based on the company’s cash flow, the company is on a growth mode. The company is
aggressively
financing through debt its strategic land banking and inventory build-up
activities.
Working Capital
DMCI has more than doubled its working capital last 2008. This is mostly due to the
drastic inventory
build up of the company last year. The company has more than enough current assets
to cover its current
76
Solvency
Leverage Ratio
DMCI is the most highly leveraged compared to its key competitors. 2/3 of the
company’s assets are
being funded via debt compared to the industry at only 0.45. This has increased the
company’s financing
cost and has significantly reduced profits. Higher debt will also limit the
company’s ability to fund its
DMCI’s debt to equity ratio is also higher at 2.07, an increase from 1.84 last
2007. To reduce the risk of
Funding Gap
54% of DMCI’s debt is funded through the rediscounting of its contracts receivable.
This instrument has a
maximum tenor of 120 days and bears an interest between 8.75% to 10%. It dependency
to less than 1
year debt leaves DMCI Homes prone to liquidity risks. Given the nature of the real
estate business,
77
property development takes a long time to recoup the cash invested. By funding a
long term investment
with short term debt, DMCI bears the risk of not being able to continuously fund
its operations.
With increasing interest rates (see external analysis), DMCI’s financing cost will
increase further if it
Capital Budgeting
DMCI’s planned capital expenditure of Php 8 billion in 2009. Its CAPEX budget is
comparable to the
industry average of Php 8.3 Billion. Based from the company’s cash flow, the
company allocates its
capital budget through strategic land banking initiatives and real estate
development.
DMCI has a greater control over product quality compared to its competitors owing
to its synergy with
DM Consunji, DMCI Holdings’ construction arm. DM Consunji has over 50 years in the
construction
78
boasts of using the latest construction technology in all of its developments
including its projects with
DMCI Homes72. This also allows faster turnover of its developments. It can complete
a high rise
Steel, a primary raw material, is also sourced from another subsidiary, AG&P. These
synergies have
enabled the company not only to save on build cost, but also control the quality of
its property
developments.
DMCI developments are fully compliant with UBC 1997 which is an international
standard for high rise
developments that certifies that the building can withstand an earthquake with a 7-
8 richter scale
magnitude74. DMCI is also compliant with HLURB policies on maximum number of units
that can be
sold given a land area and the minimum amount of common areas per a development.
Critical features
such as sewerage systems, utilities and safety features are being fully complied
with.
Structure
Currently, there’s no Chief Information Officer for DMCI Homes. Also, Information
Systems forms part
systems used by DMCI Homes and the management of the company’s website. DMCI
outsources its
79
A major information system being used by the firm is an online tracking tool for
its inventory. Available
sold units are being encoded in a project’s sales office and linked to the
company’s head office and the
The company’s internet site is being used to inform the public, buyers, employees
and other shareholders.
The website does not have any e-commerce capability. DMCI maintains two websites, a
main site and
for investors, new projects for buyers, hiring requirements for job seekers and
sales performance for
brokers. The website is being maintained for the current projects however,
information regarding the
firm’s financial information and hiring requirements have not been updated.
Information security
Systems are protected using alphanumeric passwords. For instance, accessing broker
information via the
net requires a 6 digit password given only to intended users. These measures are
meant to limit
80
5.3 McKinsey 7S Framework
5.3.1 Strategy
real-estate industry, DMCI Homes was able to quickly grow by taking advantage of DM
Consunji’s 50
customers value the track record of the developer (see key success factor).
The integration strategy also allows DMCI homes greater control of the quality of
their developments. In
terms of turnover rate, DMCI homes can deliver a high rise development in three
years from
groundbreaking unlike other industry players which take five years. Its
construction experience has also
allowed it to deliver a design concept DMCI in now being recognized for, which its
labels as a resort
themed community. For a development offered to the middle income group, it has more
areas devoted for
Based from Porter’s strategies, the company uses Overall Cost leadership – Best
Value strategy. One of
the key selling propositions of the company is that it offers the greatest value
for money. DMCI Homes
offers 10%-15% lower selling price compared to its key competitors while offering
the same level of
quality (measure by amenities and unit size). The company’s cost structure allows
this strategy through
the company’s integration strategy with DMCI’s triple A rated construction arm. By
eliminating
additional layers from construction to developer, DMCI Home’s per unit construction
cost is lower
compared to other players in the industry. To lower its prices further, DMCI
projects are positioning
outside main business and commercial districts.
81
Evaluation: Effective
Capitalizing on its construction company’s track record and offering the lowest
price per square meter
(both key success factors), allowed DMCI to nearly double its market share (92%
2008 growth) and grow
faster than the industry. These are made possible by the company’s integration
and overall cost
leadership strategies.
Its overall cost leadership strategy is aligned with its values. Its current
mission statement specifically
targets families with modest income and its cost leadership strategy provides the
greatest value for money
to its middle income clients. However, its not being centrally located is against
its mission to build
The company’s integration strategy is also in line with its core value of
interdependence which is also
Based from its mission statement, the company espouses these core values:
Integrity, Excellence,
Evaluation: Effective
82
Shared values are effective since they are in line with the current strategy of the
firm. The firm chooses to
company utilizes a cost leadership strategy. One of the company’s core values is
interdependence. This
5.3.3 Structure
labor is grouped by the main activity or function that needs to be performed in the
organization.
Accounting, finance and human resources are under administration group. Aside from
in-house sales, the
sales group also manages the company’s relationship with external brokers both
locally and abroad. A
separate customer care group was established to ensure the delivery of after sales
customers to the
In relation to its parent company, DMCI Homes is the primary real estate arm of
DMCI Holdings but DM
83
The ownership of DMCI group’s housing arm is not clearly delegated. While most of
the housing
products are with DMCI Homes, DM Consunji (construction) also offers housing
products. As further
DMCI Homes.
5.3.4 Systems
A business plan is being prepared on an annual basis and implemented throughout the
year. Departmental
goals are included in the business plan which can be tweaked given an internal or
external development.
The plan is being discussed during the annual organizational and budget meetings
set twice a year.
external brokers via the company’s website. The actual sales are being measured
against the sales forecast
to tweak strategies further. The business development division will also look at
the profitability of a
with the company’s strategy. The measurement which includes both qualitative and
quantitative
Evaluation: Helpful
Systems are being used to plan strategies and implement them. In the area of
implementation,
being rewarded through meeting goals and drive strategies through a performance
management system.
5.3.5 Style
84
Work Life Balance
DMCI espouses a work life balance program targeted to strengthen the morale of its
employees and
improve teamwork within the organization. It has launched several activities such
as company sponsored
retreats, birthday celebrations, sports fest with other DMCI subsidiaries and an
annual employees’ day.
Rewards Program
DMCI recognizes teams and individuals whose contributions led in the achievement of
DMCI’s business
monetary rewards to teams who have exceeded the target given to them such as an
award to the in house
Evaluation: Effective
The work-life balance and rewards program has motivated employees to be customer
oriented while
creating a fun team-based culture. This is in line with the company’s shared value
of interdependence and
customer focus. The program has also increased the employee’s morale and reduced
the company’s
attrition rate. As of end of September 2009 our overall attrition rate is at 14%
versus industry experience
of 19% (Source: 2008 Watson Wyatt Real Estate Compensation & Benefits Survey).75
The company’s
style has positively contributed in aligning the culture of the company with the
company’s strategy and
5.3.6 Staff
Employee growth is being espoused through training, coaching and mentoring
activities. Through the
75
Tiongson, Teresa. DMCI Homes Senior HR Manager.
85
employee and his supervisor. The supervisor and the employee will then agree on how
this need can be
Classroom courses include trainings on skills required for the job (such as sales
training for in-house
and price calculations for members of the sales team. Classroom trainings are done
in a class room size of
20 to 40 people. Hands-on training is being carried out with regular coaching and
mentoring from the
supervisor76.
Evaluation: Effective
Development plans are aligned to the skills needed for the company to achieve its
chosen strategy. The
periodic review of the development plans allows the manager to assign the relevant
training, coaching or
mentoring program needed to close the skill gap of the employee. This allows the
employee to fully
5.3.7 Skills
Real estate is a very client driven business. To be successful in the real estate
business, the employees
should have the necessary skills to fully service its clients. As stated in the
company’s vision statement,
DMCI should be responsive to the ever changing needs of the customer. Employees
should thus have the
Evaluation: Good
76
Tiongson, Teresa. DMCI Senior HR Manager.
86
The skill focus is in line with the shared values (as stated in the company’s
mission statement). The
company places a monetary reward and recognition to clients who exemplify this
skill through its
5.4.1 Strengths
material (steel) and construction services are being sourced within the DMCI
Holdings group. This allows
the company to have greater control over the quality of its projects.
Rating 4 - DMCI Homes can deliver a high rise project in 3 years compared to the
industry average of 5
years. This has allowed DMCI to build up its inventory at a faster pace and can be
more responsive to a
Rating 4 -DMCI Homes’ has a resort living theme in its projects. It projects DMCI
developments as a
retreat against the hustle and bustle of the city. Its developments have more
amenities and have more land
Rating 4 - The synergy with DM Consunji has also allowed DMCI Homes to control the
cost of its
developments. This has given the company the ability to price its developments at a
10-15% cost
advantage compared to its competitors.
87
14% attrition rate compared to the industry at 19%
motivated employees. This has allowed DMCI Homes to retain talent and provide
continuity in strategy
implementation.
5.4.2 Weaknesses
Less Solvent with a debt to assets ratio of 0.67 compared to the industry at 0.45
Rating 1 - DMCI Homes is the most highly leveraged among its key competitors. 67%
of its assets are
being funded by debt versus the industry average of 0.45. It is also more leveraged
in 2008 compared to
last year. Also, there is a funding gap since most of the company’s liabilities are
being funded via short to
medium term debt that are used to fund long term property investments.
Rating 2 - DMCI Homes has a smaller distribution channel compared to its key
competitors. Its key
competitors have more sales offices and partnerships with external brokers both in
the country and
Rating 2 – DMCI’s weak distribution channels impacted its ability to convert its
inventory into sales.
When DMCI built up its inventory on 2008, its distribution network was not able to
cope with the
increase in inventory.
choice of the company to lower its production cost without sacrificing the quality
of the development.
The downside of this is that the accessibility of the location is a key decision
factor of a buyer (see CPM).
Robinsons Land and Megaworld for instance locates its developments within a
business area.
experience to develop commercial and office real estate. Avida Land’s parent
company Ayala Land
develops commercial real estate through Ayala Malls and has a vast experience
developing office
projects. Robinson’s and Megaworld also has office and commercial developments.
Their projects
spaces or malls.
89
5.5 Strategic Issues based on Internal Factors
DMCI delivers high quality products at a reasonable price owing to its operational
synergy with DMCI’s
to its key competitors prevents the company from fully taking advantage of its
strengths in product and
pricing. A possible strategy the firm can employ is to strengthen its distribution
network both locally and
abroad.
aggressively competing in the industry. DMCI should increase its capital base and
rely less on short term
debt to finance its operations to lower its financing cost and improve its long
term viability.
90
VI. STRATEGY FORMULATION
The information gathered through the CPM, EFE and IFE matrices will be used to
develop strategies for
DMCI Homes. SWOT Matrix, SPACE, Internal-External (IE) matrix, Grand Strategy,
Summary of
The SWOT matrix helps develop four types of strategies: Strengths – Opportunities,
Weakness-
91
Market Development Strategies:
W2 & O4 - Partner with BPOs for DMCI to provide housing solutions to BPO workers
brokers
O2 & S5 - Develop and expand BGC property through strategic land banking
initiatives
distribution channel
W5, O6 & O7 Establish Sales and Operations Planning to keep demand and supply in
balance.
S1 & T3 - Launch incentive program for satisfied home owners to refer family and
friends to DMCI
W3, O2 & O4 - Combine BPO office buildings with residential developments for land
outside BGC (also
affects W4)
S3 & O5 - Redesign developments to make them fully service communities designed for
second home
O1 & T3 - Update design of buildings and locate developments to lessen the risk of
flooding and
T2, T3, S1 & S2 - Strengthen synergy with construction arm to lower construction
services to maintain
price advantage
Other strategy:
W1 & T1 - Do an IPO as soon as the economy has recovered in 2010. (impacted by O1)
The Strategic Position and Action Evaluation (SPACE) matrix allows for the company
to choose the most
appropriate set of strategies. The four possible sets of strategies in the SPACE
Matrix can be
financial strength and competitive advantage are selected along with external
factors pertaining to
of expansionary strategies and can affect the long term viability of the
company. This has been
operating cash flow of the firm. DMCI has not been able to move inventory
as fast as its
The high rise residential real estate market is growing modestly at 2% year
on year. A +5 rating
was given to this factor as the company has several current and future
projects belonging in this
category. A 5 rating is also given to the falling market share of Megaworld
which presents an
93
opportunity for Megaworld to capture Megaworld’s lost market share. A +5 rating
is given to the
stable price of construction materials since this will stabilize the industry.
A +1 rating is given to
the intense competitive rivalry since this will pose a hindrance to DMCI to
gain market share.
The intense competitive rivalry mentioned in the 5 forces section of this paper
attributes this
intense rivalry to the industry’s high exist barriers, flat housing prices and
numerous competitors.
The global economic recovery from the subprime crisis is a key environmental
stabilizing factor
since this will bring back the local demand for housing. OFW remittances are
also an important
stabilizing factor for the company and the industry. The industry and the
company are becoming
The growth of the outsourcing sector and the retirement industry stabilizes the
industry but they
are given less weight since the company is currently not targeting them. These
factors were given
The continued development of BGC is an opportunity for the industry and the
firm to create
developments within the area. For DMCI, this is a direct opportunity since it
has a development
The threats to the industry include the rising interest rates and the impact of
climate change.
Rising interest rates will be a deterrent for both home buyers and the industry
players to finance
their real estate purchases and expansion. This is given a -5 rating. Climate
change is also given a
-4 rating given its impact to current and future developments but DMCI is well
positioned to meet
94
d. Competitive Advantage (CA) Ratings: For CA use -1 (best) to -6 (worst)
DMCI Homes synergy with its Triple A rated construction arm has allowed it to
control the
delivery time of its products and profitably price 10 to 15% lower than its
competitors through its
lower production cost. These are key success factors in the industry and are the
company’s key
USPs. Thus, they were assigned a -1 rating. Its lower attrition rate compared to
the industry is
also an advantage though the attrition is still high. So, a -3 rating was given
to this factor.
Its key disadvantages are its limited distribution network compared to its key
competitors and its
developments not being centrally located. These are also key success factors to
the industry thus a
-6 rating was assigned. Its limited experience in the other fields of real
estate is also a hindrance
95
96
SPACE Matrix:
Based from the strategic management tool, the company belongs in the competitive
quadrant. It should
77
David, Fred. Strategic Management. 12th Edition. 2009.
97
6.3 INTERNAL-EXTERNAL MATRIX
The internal-external matrix assigns positions to the firm in a nine cell display
based on its IFE and EFE
scores. If the firm falls in cell 1,2 and 4, grow and build strategies are
recommended. Hold and Maintain
strategies are advised for firms falling in cells 3, 5 and 7. Firms should consider
harvest or divest
Based on the IE matrix, DMCI Homes falls in cell 5. Hold and maintain strategies
are recommended
under this group. Intensive strategies such as market penetration and product
development can be used.
Using the grand strategy matrix, firms are grouped into four quadrants depending on
the firms
98
GDP is expected to be at 0.5%. In contrast, the total real estate industry is
expected to grow by 36%
driven by high rise residential real estate (155% growth) to which DMCI belongs to.
The continued
growth of OFW remittances and potential industry sales coming from the BPO sector
and the retirement
DMCI Homes has a weak competitive position brought about by its lack of adequate
capital and limited
CPM ratings.
DMCI falls under the second quadrant in the grand strategy matrix. Under this
quadrant, market
99
The various recommended strategies of the SPACE, IE and Grand matrices are tallied
to determine the
Among the strategy options, market penetration, market development and product
development are
On Opportunities:
100
Market penetration is effective when the market shares of major competitors are
declining while total
of global economic recovery, industry growth and declining market share of Avida
and Megaworld. With
alternative markets will also grow along with the overall growth in the industry.
The attractiveness of
an existing project and significant land bank adjacent to the BGC area. This can be
marketed to the
growing number of office workers in the BGC area which is already an existing
market of the company.
delve in other types of developments such as office and commercial real estate
within BGC. Market
development can possibly be applied since DMCI can opt to niche in specific types
of BGC workers such
as the BPO workers whose sector is one of the major drivers of growth in the BGC.
sector, OFW and retirees. A 3 rating was given to product development since this
can be a supplementary
strategy to market development. DMCI can tailor fit its developments to match the
needs of its target
market. Market penetration is given a 1 rating since DMCI does not directly target
these niche markets.
On Threats
Product development can be best applied to the threat of climate change. DMCI can
opt to build new type
of projects that has adopted to the threat of climate change (such as using flood
prevention technology)
78
Fred, David. Strategic Management. 7th edition. 2009.
101
and being more responsive to it (such as green buildings). Market development is
given a 3 rating since it
can supplement the product development strategy by marketing the new type of
development to home
buyers concerned with climate change. Market penetration is not applicable to this
threat.
Market development can be best applied to answer the threat of higher raw material
costs. DMCI can opt
to market to less price sensitive segments such as the luxury segment. Product
development will
supplement this strategy (thus given a 3) since DMCI would need to redesign its
developments if it wants
Weaker housing prices and intensive competitive rivalry can be best responded by
market penetration.
DMCI has a cost advantage over its competitors through its synergy with its
construction arm. DMCI can
opt to target less price sensitive and less competitive markets such as the luxury
segment. A 2 rating is
On Strengths
The synergy of DMCI Homes with the construction subsidiary of its parent company
can best be applied
through a market penetration strategy. The ability of DMCI to deliver its units
faster and a higher quality
rating, can also utilize the strength of control of its construction operations.
The company can easily
rating.
102
Market Penetration can be best used to take advantage of DMCI’s cost advantage
(thus a 4 rating). DMCI
can reinforce its value proposition through a more aggressive marketing strategy to
its existing market. A
new market such as the young BPO workers just starting in their career. The
strength of price
On Weaknesses
develop new distribution channels to tap newer markets such as delving into online
sales. Product
development is given a 1 rating since adding new products will add to the strain of
an already weak
distribution network.
A product development strategy (rated a 4) can best counter the weakness of having
developments that
commercial and office real estate, its residential spaces will be in closer
proximity to the buyer’s place of
product line. By developing new products such as office spaces, DMCI can gain the
experience it needs in
this area. Market development and market penetration will just concentrate on
selling existing residential
real estate products without broadening the product offering of the company.
103
104
VII. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES
The strategic objective of DMCI homes is to be the clear second in the middle
market residential industry.
From the market analysis, there is a wide lead of the big three real estate
companies (Ayala, Megaworld
and Vista Land) versus the lower tier companies. The big three companies have
competencies in different
segments of the market. Ayala Land through Ayala Land Premier and Alveo Land is
dominant in the
luxury real estate market although it also has interest in the middle income
segment (Avida) and is
entering the low cost segment. Megaworld is the market leader in the middle income
segment. Vista Land
prevails in the low cost segment through its subsidiary Camella Homes although it
also has interest in the
high end and middle income segment (Brittany and Crown Asia).
Megaworld dominates the middle income segment with sales reaching 12 Billion but
there is no clear
second. Robinsons Land, DMCI and Avida are all within the 2-4 Billion sales level.
The large disparity
between the market leader and followers makes it unlikely for players like DMCI to
aim for the market
leader position within a three year horizon. However, given that the market
followers have equal position,
DMCI can best succeed if it can become the strong number 2 within the next 3 years.
Aiming to be the
number two both a challenging and rewarding goal as having a 2.1% market share will
increase its profits
105
Having a market share of 2.1% of the total industry or a 4.1% market share over the
middle income
segment will make DMCI a strong market follower in the middle income market
segment. After securing
its place as a strong contender against Megaworld, a further study will be needed
on DMCI’s next steps to
The company will endeavor improving its IFE (at 2.35) and CPM rating (2.30 versus
other market
followers of 2.85 and 3.20) to be more competitive against Avida and Robinsons and
improve its market
share. The strategies will make the company more responsive to its external
environment (Current EFE
rating is at 2.70).
106
7.2 Recommended Business Strategies
W2 & O4 - Partner with BPOs for DMCI to provide housing solutions to BPO workers
One of the concerns of the BPO industry is its high turnover rate. DMCI can offer a
solution by
partnering with BPOs and banks to provide housing to BPO workers. DMCI can offer
discounts to
employees of corporate accounts. BPO workers can enjoy lower rates provided a bond
with the BPO
company. 1 bedroom and 2 bedroom units can be marketed directly to these employees.
Additionally,
DMCI can approach BPO companies to buy several units that which the companies can
allow their
A corporate account manager under the sales division will study this segment in
detail and propose the
external brokers
DMCI should increase the number of external brokers it’s partnering with outside
the country to widen its
distribution network to the growing OFW market. Currently, DMCI only covers 12
countries but this can
Norway. Saudi Arabia is the third most popular destination for OFWs with year on
year increasing by
5%. Along with its Dubai office, this will strengthen DMCI’s presence in the Middle
East which currently
only constitutes 22% of DMCI’s total international sales. The Middle East is the
area where Megaworld,
the leader in the middle market segment, sources most of its international sales
from.
107
Germany and Norway are also potential countries where DMCI can venture into through
a partnership
with a local broker. It is currently the 9th and 10th most popular destination for
OFW with deployment
jumping at a rate of 48% and 80% year on year. Along with its UK, France, Italy,
Austria and Greece
offices, will further strengthen DMCI’s hold on the European housing market (54% of
its international
To entice external brokers from carrying DMCI products, the commission rate will be
increased to 10%
from DMCI’s current 6% which is also the industry standard. The business
development along with the
company’s legal team will look into the viability of venturing into other countries
and ensuring that all
that will build brand equity to both local and international markets. For the
international market, DMCI
will join real estate trade fairs and hosts property conferences to build brand
awareness for both potential
108
Contribution of Market Development strategy:
Out of the 91.3B OFW market, a total amount of 15.3B is attributed to middle income
buyers. By 2012,
42% of the company’s revenues will be from OFWs up from the current 15%. This is
higher compared to
Ayala at 25% of their sales. DMCI will capture 15% of the Middle Income OFW market
by 2012.
By 2010, an additional 577 units will be sold to OFWs in addition to the existing
459 units. The figure
will increase by 1480 in 2012 to bring the total volume sold to OFWs to 1939 units.
By 2012, the strategy
to develop its OFW market will bring in 5.6 B in revenues and 2.4B in income.
The market development strategy to provide housing solution to the BPO market will
allow DMCI to tap
the Php 20 billion BPO housing market. Isolating the middle market, this segment
has 3,429 potential
units of demand.
In three years, this strategy will generate 583 units worth of sales. By 2012, 5%
of the company’s sales
volume will be coming from this sector. By 2010, 2% of the middle income BPO sector
will be captured
109
by DMCI. This is a reasonable estimate given that few real estate companies that
specifically targets BPO
segment.
among OFWs
DMCI shall use Integrated Marketing Communication (IMC) to build brand awareness
especially to
Advertising through local and OFW channels will be used to build up a long term
image of the DMCI
Homes brand as a provider of high quality homes at a good value. Public relations
such as sponsorship of
articles and blogs will be used to re-enforce the DMCI brand further as a quality
property developer.
Events such as real estate conferences and participation in overseas trade fairs
will be used to promote
specific projects. Lastly, personal selling done by external brokers will be used
to build up buyer
distribution channel
The company has an existing website, dmciinternational.com, but this acts only as a
catalogue of the
projects with only a brief description of a development and contact information.
The website can be
79
Kotler, Philip & Keller, Kevin. Marketing Management. 4th Edition.
110
improved to allow for an interactive open house that will allow users to explore in
3D a selected property.
The website will also build its e-commerce capability by allowing for online
reservations that will allow
By enhancing its website, DMCI can strengthen its limited distribution network and
tap tech savvy buyers
S1 & T3 - Launch incentive program for satisfied home owners to refer family and
friends to DMCI
Homes
home buyers will get either a cash incentive or a discount in the selling price if
they refer their family
members and friends. This will be especially effective given tightly knit family
ties of Filipinos as buyers
To be able to effectively promote the referral program, DMCI will need to intensify
its Customer
Relationship Management. DMCI should continue to promote the DMCI brand and
products to its
strengthen its relationships with existing home buyers and will introduce the
referral program to them. An
intensive database will also be kept to determine if existing buyers have relatives
or friends to refer to.
W5, O6 & O7 Establish Sales and Operations Planning to keep demand and supply in
balance.
Sales and Operations Planning (SOP) refers to the cross functional process aimed to
keep demand and
supply in balance80. Through SOP, general management, sales, construction and
finance will be all
involved in the planning process. Sales and marketing shall forecast demand for
specific projects for the
80
Jacobs, Robert, Chase, Richard & Aquilano, Nicholas. Operations and Supply
Management. 12th edition. 2009.
111
next 1 to 2 years which shall be coordinated to construction for output delivery
and finance for funding.
The team based approach will ensure that scarce capital will be properly allocated
and there is no
O2 & S5 - Develop and expand BGC property through strategic land banking
initiatives
DMCI has an existing 80 hectare lot in a property adjacent to BGC. DMCI can expand
this further
towards the fort area. From the external analysis, the BGC area is expected to grow
further. DMCI should
have 9B in property investments mostly in the BGC area. This is similar to the
capex spending of
families (new and existing home owners). This translates to 105 referrals which
will grow up to 188
To entice buyers to refer, a generous referral fee will be given to existing buyers
worth PhP 100,000. In
2012, this will translate to 19M additional cost bringing total benefit for this
strategy to be at 216M.
112
The integrated marketing communication strategy will provide a boost to both local
and international
businesses. For the international businesses, this is already accounted for by the
market development
strategy on OFWs. For the local businesses, the sales target of its brokers and in
house sales will be
increased by 500 units with the launch of this program. Gross profit provided by
the increased sales will
offset the additional marketing cost entailed. The budget will be increased from
242 in 2009 to 500M in
The S&O Planning will enable the more efficient use of the company’s inventory.
Through the
coordination of sales and construction, the strategy will allow the company to meet
an inventory policy of
the Sales and Operations Planning committee decides to develop these properties.
Finance Strategies
W1 & T1 - Do an IPO as soon as the economy has recovered in 2010. (impacted by O1)
This will increase the company's capitalization for expansion activities while
reducing the dependency for
short term debt. Though not specifically tied to any strategy, capital raising
activities is an integral part to
113
compared to its competitors. The company’s dependence in short to medium term debt
to finance long
term investments has hindered its ability to finance new projects and strategies.
Doing an IPO will raise
equity to fund its capital intensive market development and market penetration
strategies. This will also
The strategy will provide additional 3B in equity to the company on top of its 5B
equity base.
114
7.3 Recommended Organizational Strategies
The current functional organization lends itself to the market penetration and
market development
strategy. The first level of the organization can be retained but additional
department within the functional
divisions can be added to promote the market development strategy. Additional roles
will be added to
existing departments.
divisions.
Homes.
brokers abroad.
A corporate sales unit will be added to form partnerships with BPO companies in
line with the
W2 & O4 - Partner with BPOs for DMCI to provide housing solutions to BPO
workers
The new unit will forge partnerships with corporate institutions to provide
housing solutions to
S1 & T3 - Launch incentive program for satisfied home owners to refer family
and friends to
DMCI Homes
relationship manager will be used to market the incentive program to the DMCI
Home owners.
To reduce operating cost and increase business focus, DMCI Holdings should
concentrate all of
116
7.4 Financial Projections
2009 Financial Statements are projected assuming the firm is status quo on its
strategy. Given the timing
• 2009 Full Year Volume and Sales and Reservations follow the same growth
as 3rd quarter year
on year growth:
Table 1
• 2009 Full Year Net Income was projected by the company to be 916M81
• 2009 Income Tax is the balancing figure to obtain 916M Net Income.
Industry Assumptions:
• Market size will grow 2%. This is the 2nd quarter 2009 year on year
growth rate of the high rise
• Middle Income BPO and OFW volume are from the market segmentation section
of this paper.
• Middle Income OFW will grow by 6% in 2010 (BSP forecast) and will
continue to grow at 6% in
81
www.bloomberg.com
117
Revenue Assumptions:
• Base figure will be 2009 sales. This assumes that sales will not go down
further given the
• 2006 to 2008 total units was provided in the annual reports but this is a
mixture of residential
of 3 projects was chosen with a given breakdown of total sales per project
and total residential
and parking unit sales. From the sample, parking unit sales account for an
average of 40% of total
sales volume. Thus, for every 3 residential units being sold, there are 2
parking slots also sold.
Table 2
• An assumption was made that all residential unit buyers will also avail of
the parking slot to
simplify calculations.
• Average price per unit is at PhP 2.9M. The data is coming from the total
sales of the three sample
projects over the residential unit sales and rounded off to the nearest
100,000 (see table 2). Under
this assumption, prices of studio type, one bedroom, two bedroom and other
unit layouts for
• Assumed average price per unit will not change in the next three years. This
assumption can be
justified by the flat growth in the housing prices (see external analysis)
and that DMCI Homes
would want to still be the price leader in the middle income segment given
the intense rivalry in
• Total Sales and Reservation is the average selling price multiplied by the
projected volume of
residential units.
118
• The company will continue to adopt the International Accounting standard
of completed contract
method where revenues are recognized by the company when the unit is
fully complete and 20%
of its contract price has been collected. An assumption was made that 55%
of total sales and
• 2009 sales distribution between local and international sales will follow
the 2007 data (15% of
Expense Assumptions
• Cost of Sales will follow the ratio of 2008 (57%). There are no specific
strategies geared towards
synergy between DMCI Homes and its construction sister company will be
retained.
• Finance cost is 11% of bank loans. This is the average borrowing rate for
bank loans the company
pays82.
• Other expenses will remain constant. This pertains to the one time write
off of investments due to
legal proceedings.
• The following operational costs will remain constant:
82
2008 DMCI Annual Report.
83
2008 DMCI Annual Report.
119
Taxes and licenses
Management Fees
Depreciation and Amortization
Supplies
Outside Services
Communication, light and water
Pension Expense
Entertainment, amusement and
recreation
Professional Fees
Fuel and oil
Association Dues
Rent
Transportation and Travel
Repairs and maintenance
Insurance
Other Operating Expenses
• Investment in Properties, Property and Equipment and Other Assets will remain
constant until
2012.
• Cash is the balancing figure to match assets with liabilities plus equity.
120
• DMCI will capture 6%, 10% and 15% of the middle income OFW segment
market from 2010 to
2012. This will be done through its market development and market
penetration strategies geared
towards OFWs.
• DMCI will capture 2%, 5% and 10% of the middle income BPO segment market
from 2010 to
2012. This will be done through its market development strategy geared
towards BPO workers.
• At the start of 2008, DMCI served 4,000 families84. Given the number of
residential unit sales,
DMCI now serves 10,496 families. 1% of these families will refer their
relatives and friends
84
2007 Annual Report.
121
• Marketing and advertising will increase from 242M in 2009 to 400M annually
in 2010 to 2012.
• Workforce will grow from 300 to 350 employees in 2010 to 2012. Additional 50
employees will
• Additional referral cost of Php 50,000 for every new buyer will be incurred
as part of the market
• IPO will proceed in 2010 and will generate Php 3B in funds. It was assumed
to calculate for the
Paid in capital and capital stock that the selling price is at P2 for a P1
par value.
• Bank Loans will drop to 1B in 2010 and 500M in 2011 to 2012. Bank loans will
be paid using
proceeds from the IPO and internally generated funds to lower the leverage
of the company and
85
Values in millions of pesos unless volume is indicated.
123
124
125
Through the market penetration and market development strategies, sales will grow
by 87% in 2010 and
will stabilize to 13-14% in the subsequent years. The revenues gained from these
strategies will more than
offset the expenses incurred to widen its distribution network and launch an
integrated marketing
communications program. Net income is projected to grow further by 14% to 19% with
total return on
Solvency of the company will drastically improve to a healthier 50% debt to asset
ratio. Proceeds of the
planned IPO will be used to reduce the loans of the company. This will be a prudent
measure given that
the interest rates are projected to rise (see external analysis). This measure has
paid off as it the reduction
Balance sheet management will also be more prudent by setting an inventory policy.
Maintaining a set
inventory level is done through the strategy on having a more robust sales and
operations planning. This
will positively impact the turnover of company’s inventory which is one of the
company’s financial
weakness.
126
VIII. DEPARTMENTAL PROGRAMS
an organization’s strategy.”86
86
Galbraith, Jay. “Designing Organizations: an executive briefing on strategy,
structure and process.” 1st ed. 1995.
127
8.2 Departmental Programs
The implementation of the market penetration and development strategies will rely
on division and their
Marketing
Marketing will lead in the planning and execution of the integrated marketing
communications plan of the
company to raise brand awareness (S1 & S2 & T3 - Pursue an integrated marketing
communications plan
to strengthen brand awareness among OFWs). The IMC plan’s target audience will be
middle income
OFWs looking to settle in the Philippines or provide homes to their families. The
communication
objective is to build brand awareness87 or the ability to identify the DMCI brand
among OFWs in the
housing category.
Overall advertising message will be that DMCI Homes delivers their dreams for their
families to have a
quality house they can call home. The marketing department will contract an
advertising company to
Given the Integrated Marketing approach, DMCI will utilize several communications
mode to deliver a
coherent and effective message and promote brand awareness. TV advertisements will
focus on the
DMCI brand (as opposed to a specific project) as a property developer that offers
optimal quality and
value for money to their families in the Philippines. Events will also be organized
to inform both external
brokers and buyers of the features and Unique Selling Propositions of specific
developments. DMCI will
participate in real estate fairs and organize buyer conventions. Detailed product
information will also be
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Kotler, Philip & Keller, Kevin. Marketing Management. 4th Edition.
128
published in the company’s enhanced website. Publicity will be used by sponsoring
magazine articles and
Referral Program
Marketing will support customer care in the referral program. Marketing will
provide the needed printed
materials to properly communicate the message of the referral program. The material
should not only
Sales
The sales division will lead in the execution of the e-commerce strategy (W2 & O3 -
Enhance website to
link their inventory management system to the enhanced website so both buyers and
brokers are made
aware of specific units that are still available in real time. Sales will also
assign sales personnel to handle
the reservations coming online and ensure that adequate follow-ups are made to
convert the reservations
The sales team will coordinate with the other departments for the other components
of the website.
Marketing will provide the sales team the ad content of the website. The content
will be in line with the
development. This will be uploaded in the website as a part of the 3D Open House
feature of the website.
129
Sales will outsource the actual development of the website to a third party vendor.
By June 2010, the new
As indicated in the SWOT matrix, BPO workers will be targeted as a possible new
market to tap, (W2 &
O4 - Partner with BPOs for DMCI to provide housing to BPO workers). To be able to
innovate a housing
solution to BPO workers, the key accounts unit under sales will lead this
initiative. Together with
Another market development strategy is to tap the OFW segment (W2 & O1 & O3 -
Strengthen
department will lead this initiative by forging partnerships with various external
brokers in countries
DMCI has no presence in. An external broker will be employed to market DMCI in
Saudi Arabia, whose
OFW deployment is growing at 5%. Germany and Norway are also among the top
destinations of OFWS
but DMCI does not have presence. The sales team will also partner with external
brokers in these
also strengthen its hold over Canada and Japan which also has an increasing number
of OFW
deployments.
Customer Care
Customer care will lead in the market penetration strategy to tap the more than
10,000 existing home
owners of DMCI (S1 & T3 - Launch incentive program for satisfied home owners to
refer family and
130
friends to DMCI Homes). For the referral program to work, existing home owners
should continue to
remain satisfied. The relationship manager within the customer care department will
be in charge of this.
A more important duty of the customer care group is to update the CRM of DMCI not
just for prospective
clients but for existing home owners. In satisfying the current needs of the home
owners, customer care
will also data mine for possible referrals that can be obtained from existing home
owners. The
Construction
Construction will lead in the Sales and Operations Planning strategy (W5, O6 & O7
Establish Sales and
Operations Planning to keep demand and supply in balance). Operations will chair
monthly meetings
with sales to determine forecasted demand for units. Sales will provide indication
as to the type of units
that are on demand (studio type, 1 bedroom, 2 bedrooms). Construction will design
its developments
based on the projection provided by sales. Through S&O planning, inventory levels
will be monitored by
the construction department. By Jan 2010, the construction group through the
regular coordination with
sales team, will maintain inventory levels at 5B and eventually quicken inventory
turnover to 1.79 in
Operational synergy with DMCI group will also be strengthened to reduce cost and
manage quality better.
All of the construction and steel fabrication requirements of DMCI Homes will be
coursed through DM
give DMCI additional bargaining power to lower the acquisition price of its raw
materials and reduce
131
Business Development
The Business Development division will lead in the company’s expansionary strategy
in the BGC area
(O2 & S5 - Develop and expand BGC property through strategic land banking
initiatives). The business
development will approach the BGC administration and other realtors to acquire new
tracts of land such
as the newly opened Northern BGC area. Expansionary activities will occur within
three years after the
planned IPO. Investment in properties will grow from the current 1.7B to 9B by 2012
or by 7.2B in 3
years. At the current price of 8,000 per square meter, DMCI aims to gain 90,475
additional square meters
out of the total 2.6M available area in BGC. Additional properties will be utilized
for additional mid and
Finance
Finance will own the IPO strategy. (W1 & O1 - Do an IPO as soon as the economy has
recovered in
2010.) Within 2010, tt will coordinate with the underwriters to raise the needed
capital to fund new
projects and the new strategies. Finance will target total proceeds of 3 B pesos.
If the IPO is well
received, the remaining capital requirement can be sourced via a re-launch of the
stocks. If not, the
remaining capital raising can be either deferred until market conditions improve or
it can be funded via
debt. To compensate its existing and new stockholders, a dividend policy of 500M
annually start 2011.
Finance will use the proceeds of the IPO not only to fund expansionary strategies
(such as strategic land
banking strategy) but also to pay off its short term debt. Bulk of the company’s
debt are short term debt
(see financial analysis). Given that interest rates are expected to rise further
(see external analysis), paying
off the short term debt of DMCI will save on finance cost and improve the company’s
profitability.
Success in lowering its leverage will be measured by its improving debt to asset
ratio which will move
132
Human Resources
Human resources will need to hire and train 50 additional personnel to man the
different strategies of
DMCI will send high performing sales personnel to international sales offices. HR
will also launch
training to prepare new hires for the real estate licensure exam which is a
requirement by the government.
HR will also review the performance appraisal system to include customer service to
both new and
133
IX. Strategy Evaluation and Performance Metrics
9.1 Balanced Scorecard
financial, customer knowledge, internal business processes and learning and growth.
Financial Perspective
2012:
● ≥19%
● 10-19%
● <10%
Growth in Real Estate Revenues 2010: D –
Marketing and Sales
(vs previous year) ● ≥ 87% A – General
Management
● 50-87% C – Finance
& Construction
● <50% I – Business
Development
2011:
● ≥14%
● 5-14%
● <5%
2012:
● ≥13%
● 5-13%
● <5%
Improved Capitalization Debt to Assets D – Finance
● ≤ 0.50 A – General
Management
● 0.50-0.60 C – Business
Development
● >0.60 I -
Construction
134
Customer Perspective
2011:
● ≥4%
● 2-4%
● <2%
2012:
● ≥6%
● 3-6%
● <3%
Increase Market Share for 2010: D – Marketing and Sales
Middle Income OFW market ● ≥ 6% A – General Management
● 3-6% C – Business Development
● <3% I – Finance & Construction
2011:
● ≥8%
● 4-8%
● <4%
2012:
● ≥10%
● 5-10%
● <5%
2011:
● ≥1.8%
● 1.0-1.8%
135
● <2.6%
2012:
● ≥2.0%
● 1.0-2.0%
● <1%
Operations Perspective
136
9.2 Contingency Planning
IPO will not be well received • Defer second tranche (40% of needed
capital) until market
- END OF PAPER –
137
X. REFERENCES
138
27. Liu, Kristine Jane. “Bonifacio Global City expects to equal Makati Space by
2012.” Business
World. 21 Sept 2009.
28. Cabacungan, Gil C. Jr. “Nograles: Charter change train back on track. “18 July
2009.
www.inquirer.net
29. Fajardo, Fernando.” Can foreigner-retirees buy land here?” 22 Oct 2008.
globalnation.inquirer.net
30. Ho, Abigail. 25 Aug 2009. US European Firms Eye RP retirement industry. www.
Inq7.net
31. Ramos, Marlon. “Too much rain too soon.” 27 Sept 2009. www.inq7.net
32. Abbugao, Martin. “Floods a wake up call for climate change.” 29 Sept 2009.
www.inq7.net
33. Cabralez, Aizl. “ The growing significance of the middle class.” 3 July 09.
www.bworld.com.ph
139
XI. APPENDICES:
140
141
142
Appendix 4: Audited Financial Statements
143
144
145
146