A research on the effective investment and management in Energy-saving construction materials market

The Result and Findings

Overview

Taiwan has always been following the world's trend of green energy production, especially, Taipei city for almost 10 years has been promoting the use of environmental friendly construction materials in office buildings, tourist attractions and even historical building's restoration projects. As predicted by Porritt (2009), ESCM market will grow stronger and stronger as the above projects get more funding from the government and the public. This section will conduct a SWOT analysis, including strength, weaknesses, opportunities and threats. As there will be a lot of insights to gain from this, the results of this part will also inspire the recommendations for the market's improvement in terms of management and investment.

Before presenting the SWOT analysis, it is absolutely necessary to discuss thoroughly the global trend of ESCM in the world. As we all know, nearly all developed countries are in pursuit of high efficiency in their economic progress. However, through decades of heavy industrialization, multiple types of green house gases have become a severe problem for their natural environment. As proof by the more frequent natural disasters, such has landslides, hurricanes, hails and floods, scientists have determined that human beings' enormous reliance on fossil fuel is no longer a feasible energy source.

Similarly, this theory and consequence apply in the construction industry, which puts a heavy demand on the reduction of heavy metal and materials that are flammable or would emit poisonous gases when ignited. Objectively, the use of ESCM is to relieve part of the pressure of modern construction industry on the society and environment as a whole. For the most part, the industry's continuous consumption of Taiwan's energy has produced a substantial amount of pollutants. The Taiwanese government has invested a lot in the new policies of the local ESCM market. Although the 2008 global financial crisis had discouraged the investment by a certain degree, the planning returned as the impact dissipated.?

SWOT analysis of Taiwan's ESCM market

It is necessary to point out that, in Taiwan, regardless of the industry type, be it traditional or high-tech, all the core know-hows are bought from European or American firms. As far as the technology embedded in the Taiwanese ESCM is concerned, there is a huge gap between it and that of these firms. In exactly the same way, there are many restrictions in the ESCM intellectual properties as well which are controlled by western multinational firms. Similar with the LED, solar energy and wind power industry, Taiwan's ESCM business operators have a lot to do to catch up with their international competitors. However, this should not be a discouraging factor. As a matter of fact, the same developmental dilemma propose many obvious points of investment and corresponding managerial practice. Hence, in general the industry will get stronger.?

Strengths

1. One of the business and cultural hub in Asia Pacific, will attract overseas investment

2. Very consummate city infrastructures for the implementation ESCM policies

3. Extraordinary higher education institutions to produce management caliber

4. Government's positive support

5. Citizens' high purchase willingness

Weaknesses

1. Limited natural resources

2. Small geographic size

3. high centralization of government resources

4. Servicing industry is too dominating

Opportunities

1. More foreign direct investment in the future ?

2. Clusters of ESCM firms create synergy

Threats

1. informal green-certified obtainment process induce customers' doubts

2. excessive reliance on OEM?discounts ESCM originality

a. Strengths

According to Wedawatta et al (2010b), Taiwan is one of the economic and cultural hubs in Asia Pacific. There are many policies that are conducive to its ESCM development. For example, the province government define many of its cities, such as Taipei as the center for commerce, technological innovation, human resource and education. As far as the incentives for an innovative construction material industry is concerned, there are many, and the net production output is increasing every year. In addition, many high-tech sectors are initiating cooperative projects with the ESCM sector. Three high-tech districts, including Neihu, Nangang and North Tou Shi Lin have the most frequent interaction with ESCM companies in Taiwan. There is a trend showing that these companies are moving forward to becoming knowledge-intense. As a result, in the future their management will become more and more innovative and dynamic in terms of research and design, marketing and servicing.

As far as the strength in investment is concerned, Taiwan is a place where any multinational cooperation come to do business with each other. Some of the biggest firms in the world have set up their headquarters there as well. Their regular financial interactions have stimulated the domestic investment value chain and interest in finding the next "bull" market.As a result, the investment in the newly rising ESCM market is very promising. Apart from the major cities' multinational firms' interests, the overall industry intensity, capital and human resource pool are the three main success factors for ESCM. For example, the province's most prestigious higher education institutions are located in Taipei, where many new ESCM-related majors have been opened. This will bring about a fast speed to the development of the basic component of any industry--human caliber.

b. Weaknesses

The weaknesses mainly are located in the promotion of ESCM products, which has posed as an hindrance to the investment since the return could be low. For example, in Taipei city, which is 272 kilometers in size only. Compared to other metropolitan cities, it is very small. In addition, it has a overwhelming population and limited natural resources. All these reasons have caused the city to have outlandish prices in housing and lands, and thus the construction material markets, especially those with advanced technology. For instance, the price for most high-rise apartments to be constructed with green materials is so high that the contractors intentionally avoided any mention of such materials while negotiating with the investors.?

Furthermore, the overall industrial structure is not so promising in Taiwan. For instance, many major cities are fundamentally supported only be whole selling and servicing. Take Taipei for example, its servicing industry every year contribute more than 60% to the domestic GDP. The financial industry, followed by the non-production sectors and outsourcing sector, has very low value in whole industrial chain. Many firms are distributors instead of having their own productions or original products. The Taiwanese government expressed in 2009 that it was planning to change this situation by way of high consumption in the heavy industry such as the construction material industry. Nonetheless, their attitude was considered a bit on the passive side as they were waiting for foreign firms' investment instead of instigating many infrastructural projects to motivate other firms.

?c. Opportunities

As been mentioned numerous time before, ESCM is one of the many developmental focuses across the world. Many eastern developed countries such as Japan specifically appoint ESCM firms to conduct city projects. Taiwan has had similar actions in the past few years. According to Eichholtz et al (2010)’s "green city comparison" which included 22 major cities in Asia to compare their performance in introducing environmental friendly materials, it was found that Taipei was ranked third, following Seoul, Korea. This is a motivating sign as the investment in ESCM products has been confirmed in Taiwan. In this sense, Taipei is an exemplar city to establish some examples for firms that are on the fence about making more investment in the ESCM market.

?As of now, New Taipei City has formed a cluster of ESCM firms, whose purpose is to help the whole heavy industry convert from heavy energy consumption to become environmental friendly. It has also derived a name as Green Industry Center to promote cross region cooperation in the promotion of ESCM between towns and cities. As such type of cooperation grows more intense, the results will benefit Taiwan's continuous investment in ESCM. For the most part, the use of ESCM is not only to reduce pollutant for public health, but also to attract and expand the capacity of investment if international firms are intrigued by Taiwan's performance in this regard.

?d. Threats

Although the trend of ESCM in Taiwan is in the public's interest, the definition in the market could be confusing as many firms who deal with these products use different terms in order to boost sales. For example, Porritt (2009) discovered that many Taiwanese consumers are not aware that for the ESCM products to be certifiable, they must have been labeled by the green-certified stamps. Nonetheless, currently in the market there are many counterfeit ESCM products and Taiwanese government has not launched any significant measures to regulate them. The consequence could generate many threats for the investment of ESCM. The most severe one is that consumers will mix the good quality products with the bad ones.

?On the other hand, Taiwan's excessive reliance on OEM as whole poses a threat to ESCM's development. For example, it is still heavily reliant on manual OEM that produce products for multinational firms. Many so-called backbone industries do not have their core technology. The same situation might just happen to the ESCM industry. Especially, when it comes to management of innovation, human resource is reportedly below standard. Adding to the whole problem is the lacking in integration of the production resources scattered in the upstream and downstream sectors. They are currently being occupied by other firms with more satisfactory performance. Thus, it is a big threat to ESCM production.?

Porter five forces analysis

The Porter five forces analysis below is conducted based on the five forces of ESCM market in Taiwan, including Threat of new entrants, Threat of substitutes, Bargaining power of buyers, Bargaining power of suppliers and Industry rivalry. The data that support the analysis are industry reports and business journals.

Industry rivalry

Firstly, the Industry rivalry comprises of several indicators, which are the current number of competitors, industry growth rate, withdrawal barrier, degree of homogeneity, competition layers. According to Little (2011), at present there are roughly hundreds of ESCM firms in Taiwan. Depending on business operation direction, they are defined as partial specialization or complete specialization. The number is medium considering Taiwan's geographic size. Their investment base range from 2 million NTD to 20 million NTD. The market centralization is low with around 70% of them located in Taipei and other major cities.

In terms of industry growth rate, it is evaluated within the a 10 year time frame from 2005 to 2015. According to Bakhoum and Brown (2012), ESCM back in 2012 was considered as a very innovative sector. While it is less so now, its growth rate maintains at an averaged?23.5% and is affected by the construction industry in general.

?In terms of withdrawal barrier, it means how easy firms are able to withdraw their investment in the market. Most types of ESCM products are manufactured in a relatively small scale and the techniques involved are not complex anymore after 10 years of industrial upgrade. Nevertheless, nearly all types of ESCM products are supported by advanced technology. Such products include paper-surfaced plaster tablet, light steel frame, asbestos sound-proof walls and fiber concrete. In addition, these products have been appointed by Taiwanese Commerce Department as the priority products for export. Therefore, because the products are extremely specialized, the withdrawal barrier is high.

Moreover, in terms of degree of homogeneity, Taiwanese ESCM firms are primarily SMEs (small to medium enterprises). The majority of their products as mentioned in the above analysis are the same. Therefore, such degree is high.

Lastly, the competition layer, or often understood as firms' position in the industry's value chain is rather simplistic. While many firms focus on low end to medium end products, the highly specialized ones are only being produced by selected big corporation. The best example in this area is the plastic and window and door business which are most SMEs' backbone dealings. Hence, the competition layer is simplistic.

Summary

Indicators Situation

number of competitors Many

industry growth rate Medium

withdrawal barrier High

degree of homogeneity High

competition layers Simplistic

Threat of new entrants

In this aspect, because Taiwan's ESCM industry is still growing, maintaining a satisfactory net rate of profit, it holds some degree of attraction to foreign direct investment. While examine as whole with Taiwan's economy, many types of products are still lacking in investment to improve quality. Meanwhile, the local government adopts a encouraging attitude toward new entrants. Thus, entering this market is easy with the exception for enormously advanced product types, such as fire-proof materials for walls.

There are three indicators the author has adopted for evaluation--attraction level, entry barrier and competitors' counter measures.

Firstly, the industry maintains a 15-20% growth rate (Huang, 2003) and all the net sales profits are high. From the technological aspect, every year there is new know-hows and production techniques being researched, which might be appealing to tech firms as well. Hence the attraction level is high.

?As for entry barrier, it is low for reasons centering around construction cycles. For the most part, ESCM are superior to ordinary construction materials in application. Normally, business organizations would need a small sum of investment to enter. Compared to other fields dealing with concrete and glass, which at the minimum requires millions of NTD for initial investment, this industry holds the largest appeal to private firms.

?As for firms' counter measures against competitors, it is largely determined by the market centralization. For the most past, competitive firms are still located in Taipei, GaoXiong, Central Taiwan and Jilong. The problem is that they do not focus on low-end and medium-end market. However, they would undertake counter measures once there are new players. As a result, such markets are free of the competition between different brands, especially those new ones.

Indicators Situation

attraction level High

entry barrier Low

competitors' counter measures Medium

Suppliers' bargaining power

The suppliers' bargaining power of Taiwanese ESCM industry is reflected by three indicators that are applicable in other countries--supply/demand balance, product uniqueness, raw material costs (Eichholtz et al, 2010).

Firstly, the supply/demand balance is regarded weak as the production capacity exceeds the demand of the market. Many small and medium firms have reported the issue of excessive inventory. As for the big corporation, although they have dominant positions in the business, they more or less share this issue.

In terms of product uniqueness, it is determined to be very high. On the one hand, ESCM now has become the main preferred materials in Taiwan's public construction projects, such as parks and public utilities. On the other hand, the local government has regularly procured such materials that they have formed a good viewpoint on the products' economic value in the whole construction market. And every year new unique products are encouraged to be produced.

As for the raw material costs, it is essentially an indicator for ESCM firms' return on investment. For example, the more such costs, the low the profit. That is, if the business operator's goal is after profit maximization, then the first thing to do is to reduce it as much as possible. Currently, because the industry's technical standardization is high, in practice every small firm or big firm in their domain are subject to more or less the same use of raw materials.?

Indicators Situation

supply/demand balance Weak

product uniqueness High

raw material costs Medium

Buyers' bargaining power

On the whole, the buyers' bargaining power of Taiwanese ESCM market is low. The evaluation is based on the following indicators--number of target buyers, purchase volume, conversion cost and product homogeneity.

As far as the number of target buyers in Taiwan is concerned, Little (2011) stated that it is large, consisting of ordinary family users, company users and professional users. Regardless of the user type, ESCM as a new construction materials have now been widely chosen for generic construction projects for housing, office buildings and public projects, or internal decorations. All in all, such number is very large.

As for the purchase volume, it is usually thought that the bigger the volume, the better the bargain consumer could get. In particular, there are many downstream clients or brand associates in Taiwanese ESCM market. They tend to sell the materials in large bundle via more capable distribution channels. In other words, the consumers would have limited choice as to where to buy them. As it turns out, the materials are most of the times concentrated in construction materials market for purchase. Hence, the buyers' bargaining power is strong.

As for the conversion cost, which is referred to as the cost for consumers to switch to another brand selling the same products. As of now, energy saving materials are more and more necessary either for interior designs or public projects. Especially, the buyers with these two types of intentions tend to procure ESCM even though the pricing is a bit beyond their prince range. Hence, the conversion cost is high.

With regard to product homogeneity, this is similar as the same indicator in the market rivalry analysis. However, there are a few exceptions in terms of definition. For example, when it comes to buyers' bargaining power, the factors governing product homogeneity come from product research on the firms' side rather than the market. However, even if this is the case, it is reported that ESCM firms' technology acquisition is by way of direct purchase. So is the technology transfer. As the more competitive and innovative firms move on to new developments, other weaker firms will fill up the gap. Therefore, the homogeneity in this regard is medium.

Indicators Situation

number of target buyers Large

purchase volume High

conversion cost Medium

product homogeneity Medium

Threat of substitutes

In the past, threats of substitutes are limited as the western construction firms had little interest in Taiwanese construction materials market because of its stagnant growth. As a matter of fact, up until now the active foreign construction firms with available ESCM products are mostly Korean, Japanese or Singaporean. Their competition with domestic are often not in the same product category or not suitable for the same area of development. In addition, the domestic firms' products are more focused on application while the foreign firms' are more experimental which are purchased by the government to test for new industrial projects. Therefore, the effective substitutes are few.?

Investment decision factor analysis

With regard to the successful investment in ESCM market, the decisions must be on point and according to the movement of the said market. This research has adopted the following factors for analysis--regional construction business activities, local real estate development, local natural environment, local trends of construction design, local material costs and local real estate value. As seen in the below table, how each firm selected refer to these factors to form?their investment decisions is different. However, according to the experts' opinions, such difference is not uncommon because the contexts and timing for their investments must be built upon their business nature.

For instance, among the five selected sectors, the real estate-oriented ESCM firms consider natural environment as the most important decision-making factor, followed by material cost, local trends of construction design, real estate value and local construction business activity. By contrast, the Public housing-oriented ESCM firms firstly consider local real estate development, followed by local trends of construction design, real estate value and then local construction business activity. It is very clear that the same factor could be either placed at first or last as the critical decision factor, which is completely dependent on the firms' orientations, or business directions.

By contrast, in the Infrastructures sector, the ESCM firms put the value of the local public facilities as the priority. According to this perspective, the critical decision factors are local natural environment, local trends of construction design, material cost, real estate value and local construction business activity. As for the roads and highways sector, the firms usually supply the energy saving construction materials in conjunction with the local real estate development. For example, the more developed are the nearby communities, the more concern is put in whether the buildings are environmental friendly. By the same theory, the roads and highways material contractors need to comply with this thinking. Therefore, their decision factors follow this order: the local real estate movement, local real estate, natural environment, local trend of construction design, regional construction movement.?

Darren Tai Chi, LAU 21.Apr.2022