The Company
Do-Buy PLC is a UAE based house building company. The company provides housing using three brand names, Dubai Partnerships, United Homes, and Do-Buy Homes. The UAE housing industry consists of a few dominant firms and many small companies serving small segments of the market. Do-Buy Homes is lucky to be one of the largest dominant firms of this housing industry.
The company’s Vision is to be a leading housing partner in the UAE through sustained quality and partnerships with government and the general population. The company projects to sell close to 10,000 homes in year 2013 as part of its goals. Second, Do-Buy PLC strives to be the housing company of choice in UAE for all major market segments in the next five years.
Additionally, the company seeks to grow shareholder value by a sustained rate of 7% in the next 6 years. The company’s values its employees, strives to attain highest standards of integrity, customer satisfaction, business ethic, and ensures sustainable developments to conserve the environment.
Porter’s 5 Forces Analysis
Threat of New Entrants
The economies of scale current players are experiencing, the level of product differentiation, and the capital required to begin operations in the industry determine this force. The UAE housing industry has relatively high barriers of entry.
Large housing firms already experience huge economies of scale because of widespread operations and have the advantage of experience. House building requires specialized machinery, which small firms may not have.
Threat of Substitute Products
Substitute products serve almost a similar purpose as the industry product but may not be in the same product line. There are few substitutes for housing in the UAE. The major alternative for owning homes is renting apartments. With the economic downturn, consumers have been unable to purchase as many houses as they used to. People are now turning to renting up-market apartments instead.
Bargaining Power of Buyers
The power of buyers is low. There are very many buyers and the market is fragmented. House buyers seldom make collective purchase decisions in order to minimize costs. Usually, individual families decide what house to buy and from which firm. Commercial buyers have slightly higher power but they are rare. Housing is a critical commodity. This gives the supplier an upper hand and reduces the buyer’s bargaining power.
Bargaining Power of Suppliers
The bargaining power of suppliers is high if there are few suppliers and many buyers and if the product supplied is critical to the buyer’s business. In the UAE construction industry, there are many independent suppliers. Raw materials can be sourced from within or outside the country. Suppliers often have to submit tenders or bids. The lowest and most convenient bid is chosen.
Competitive Rivalry within the Industry
This is the strongest force in operation within the UAE housing industry. There are few dominant firms fighting to maintain their market shares. The smaller firms are competing in market growth. Companies have employed extensive product differentiation to crowd out competition.
They have also invested heavily in research and development. They compete on first mover advantage and innovation. Those who manage to innovate, charge competitive prices on their houses. The green housing initiatives are the best example of innovation within the industry. High competitive rivalry reduces an industry’s profit potential.
Main Threats and Opportunities in the External Environment
Economic Downturn
The global economy suffered a massive downturn in 2008. Recovery has been painfully slow. The European credit crisis has also greatly affected economic conditions in the UAE. Consumers are spending less. Unemployment is on the rise. This has had a definite impact on the housing sector. Reduced disposable income means people have less money to spend on housing. This in effect contracts the housing market.
Environmental and Sustainability Concerns
There is a shift in all industries towards environmental friendly operations. The housing industry has also been affected by this trend. People want houses that have the minimum possible negative influence on the environment. Global warming and the resultant climate change have caused consumers to be more conscious in their purchasing.
Companies are now forced to invest heavily in Research and Development to create innovative green housing solutions. Such innovations could reduce the amount of waste sent to landfill, increase recycling, create energy efficient homes, and create renewable energy.
Financing
The Global Financial Crisis in 2008 resulted in the collapse of major banks such as The Lehman Brothers. The banks that survived put a tighter leash on lending to avoid similar pitfalls. This means that consumers today find it harder to obtain mortgages. Very few people can afford to pay cash upfront for investment in housing. Thus, reduction in the availability of mortgages also results in a smaller housing market.
Internal Analysis
Review Resources, Capabilities, and Competencies
Do-Buy PLC has a huge land bank. Land bank refers to the amount of land a company has that is available for construction. It represents capacity to expand. Land is also an asset, which appreciates. The more land in the land bank, the higher the value of this asset.
Do-Buy PLC responds to operational, environmental and stakeholder needs. In the operational sector, the company seeks to minimize its operational wastes and recycle where possible. This reduces operational costs and environmental impact. Do-Buy PLC also seeks to build sustainable communities. This goal recognizes the human need for social interactions.
It also bears in mind that these communities are Do-Buy’s customers and therefore revenue sources. Do-Buy PLC also tries to build the capacity of its workers since people make a company. Do-Buy also trains the workers on the ground well under the tutelage of a capable management team.
Building Blocks of Competitive Advantage
Do-Buy PLC has several sources of competitive advantage. The first is the large land banks, which the company controls. Currently, Do-Buy PLC has the largest land banks among its competitors, which represents expansion capacity. Secondly, Do-Buy PLC has an established brand name.
The brand is associated with up-market luxury homes. Prospective homeowners seeking luxury homes are likely to hire this company due to its brand name.
Thirdly, the company has excellent sustainability policies. If properly implemented, these policies could lead the company to greater heights. Since the government is the biggest consumer in any economy, Do-Buy PLC collaborates with the government to promote home ownership, which creates a positive image for the company, and enhance its brand equity.
Do-Buy PLC has a large scale of operations that allows the company to benefit from economies of scale. Do-Buy PLC can achieve great efficiencies in construction due to learning curve effect. They can also negotiate for bulk discounts from suppliers. This reduces costs hence increasing the operating margin.
Finally, the company has a capable, experienced, and diverse management team that meets regularly to strategize. All these work well towards fulfillment of the company Mission Statement since it offers room for expansion and fulfillment of its commitments to customers in terms of quality.
Strengths and Weaknesses of Items
As noted above, Do-Buy PLC draws a lot of competitive advantage from land resources. However, this resource is highly underutilized. The pressure of innovation presents the company with a challenge of financial resources.
However, it is imperative to commit them in light of pressing needs brought by global warming, environmental sustainability, and customer quality expectations. Do-Buy PLC should strive to meet customer expectations since the current customer as little sophisticated.
SWOT Analysis
A SWOT analysis examines both internal and external factors that are critical to a firm’s success. This analysis will aid in coming up with the best strategy in light of the opportunity presented by global warming concerns and a recovering global economy.
Strengths
Do-Buy has large land banks that are available for development. It can use this resource to increase market share in the industry. The company’s brand is also recognized countrywide. This brand equity is an important intangible asset. Do-Buy has a highly skilled management team and Board of Directors. They provide leadership to the company.
Weaknesses
Weaknesses are factors under the company’s control, which can prevent it from achieving corporate goals. Do-Buy is underutilizing its land banks. The company may lose market share by failing to develop its land. The company also constructs houses at a slower rate than its competitors do. This could be because of internal inefficiencies.
Figure 1: Do-Buy SWOT Analysis
Opportunities
Do-Buy can take advantage of globalization to enter foreign markets. The company can use its experience in UAE as advantage. The demand for luxury housing is also increasing. Do-Buy has an opportunity to expand its United Homes division.
Threats
The macro-economic environment is the greatest threat to Do-Buy. Rising interest rates will make it difficult for prospective customers to obtain mortgages. The company may also have trouble accessing credit. Inflation may force consumers to spend less and reduce Do-Buy’s revenue.
Functional-Level Strategies
Do-Buy should enhance more resources on ‘United Homes’ line of business. This is because luxury homes are exclusive and attract huge profits. The company should enhance its land usage efficiency to reduce large tracts of unused land. There should be more communication between the market, lower level workers, and top management to enhance positive information flow.
Lastly, more resources should be focused on research and innovation to ascertain market demands in light of global warming concerns and the effect of economic downturn. Do-Buy should also strive to build apartments that cater to mass markets in this slow economy.
Business-Level Strategies
Michael Porter proposed that companies build competitive advantage using three methods. These are cost leadership, differentiation, and focus.
Differentiation
This is the most appropriate option for Do-Buy PLC. The company has already started operating along these lines. The investors would seek to create brand loyalty by providing special features in their housing products.
This brand loyalty will create repeat purchases and referrals that increase Do-Buy’s sales and profitability. A differentiation strategy also provides options for the company. In case one product line is failing, the company can still profit from the others.
Focus
Do-Buy PLC can adopt a focus strategy. This means they work to meet the needs of only one specific segment of the market. In Do-Buy’s case, they would need to divest in two divisions and retain one, preferably the ‘United Homes’ line. This line serves the high-end market, which is less prone to market fluctuations.
Cost Leadership
This strategy requires Do-Buy PLC to maximize construction and operational efficiency in order to minimize costs. The company will sell houses at a lower price than competitors sell. Such a strategy will appeal only to low-end consumers and the government. Hence, Do-Buy cannot sell to the high-end homeowners, which may result in reduced revenues.
Global Strategy
Do-Buy’s global strategy would be differentiation. As noted above it leads to customer loyalty and a safety net for the company. The economy is still in uncertain times. Extension of credit and market penetration in foreign countries is threatened. Hence, the company should adopt a strategy that reduces its risk of doing business. Additionally, this strategy would appeal to all markets.
Summary
This paper is an analysis of a business in light of strategic focus. The paper draws similarities from the class work course on strategic management. Through analysis of a housing firm in UAE (Do-Buy PLC), this paper critically analyzes the company in terms of values, mission, and vision statements.
In addition, the paper looks at internal and external environments through SWOT and Porters Five Forces analyses. Lastly, the paper looks at strategy options at the functional, business, and global level.