Riju Joshi

13724
BBA IV Year (Deep Group)
ANALYSIS OF TASK ENVIRONMENT
HOUSING INDUSTRY ANALYSIS
An industry is a group of firms producing a similar product or service, for
example noodles and consultancy services. Examining the stake holders
group such as customers and suppliers is one of the essential parts of
industry analysis for an organization's task environment. Housing industry in
Nepal and real estate business had been a emerging industry in past few
years, while its popularity is decreasing especially after the real state crisis in
2010 and massive earthquake that hit Nepal in 2015.
We use Michael Porters' five forces framework model to assess the task or
closed environment of any industry to analyze its competitive forces. Thus,
we analyze task environment of housing industry using this framework.
The five forces are:
1.
2.
3.
4.
5.

The threat of new entrants

The rivalry among competitors in the industry
Threat of substitute
Bargaining power of suppliers
Bargaining power of buyers
Threat of new entrants:
New entrants are threat to existing corporations in an industry as they aim to
bring new capacity, gain market share and substantial resources. Thus there
are entry barriers that make it difficult for new companies to enter into the
market. In case of housing industry, there are some entry barriers; however,
companies with adequate supply of funds can enter into this industry.
The barriers are:

High economies of scale: There are not much economies of scale in

this industry. There are few housing companies with the apartments and
housing at more than one place, but the number is rising. There is low threat

of entrants as the existing companies have relatively high economies of

scale.

Learning or experience effect: There has been no particular skill or

learning factor that can bring big difference. Since, the learning effect is low,
there is threat of new entrants.

Brand benefits: People do prefer some companies over another such as

CG housing, Central Business Park, Sunrise homes and so on. However, most
of the companies are on similar page. The brand benefit is lower and thus
threat of entrants is comparatively higher.

Capital requirements: There is higher capital requirement for the

business as it is related to construction work. High capital requirement is low
threat of entrants.

High switching cost: For consumers the switching cost from one
housing company to the other is high. The housing company price range
varies, however is very expensive. The high switching cost means low threat
of new entrants.

Access to distribution channel: Relying totally on local distribution

channel is problematic.

Anticipated growth: This real estate business is at its saturation. There

is not much growth prospect unless new entrant comes with highly
innovative idea at relatively lower costs than its competitors. Thus, threat is
low as the growth of industry is slower.

Government policy: there is no strict government policy for limiting the

entry to industry.

Rivalry among competitors in the industry

Rivalry begins when healthy competition turns into contention or sometimes
unhealthy competition.

Unstable environment: The environment is somewhat stable. It has

been quite stagnant in few years. After the massive earthquake, the number
of clients is decreasing as people do not want to stay in big and high storied
buildings. There would not be price wars or heavy promotion to outgrow one

another because the investment itself is high. There is low instability, lower
rivalry but the trend is unfavorable.

The life of innovation is short: Innovation is not a major concern in this

type of industry.

Industry close to maturity: Closer to industry means more rivalry,

weaker companies leave the market. This case is similar for housing industry
in the valley as, some companies have left the market due to lower sales of
the apartments and houses. The existing ones are still fighting with one
another to take as much as customers in as possible.
If this industry goes out of valley to other regions, then there is prospect of
growth, but various other factors have to support the business, such as
income level of consumers who can afford the housing and its facilities.

Market dominated by few competitors: There are no few major players

in the market. Thus, this might show that the environment is favorable but
this alone doesnt show how industry is.

Characteristic of Product/ Service: People perceive the facility provided

by different companies differently depending upon the location, the building
itself, the area and facilities that are offered.

Variable cost pricing options (Unused capacity): There is unused

capacity, offers are made and discounts are given to attract customers, but
these strategies are not much effective. Thus, there is not much possibility of
lowering prices at present stage.

Bargaining power of Suppliers

Suppliers are limited: The suppliers of this industry are the construction
materials, there are various numbers of dealers for the materials and hence
the suppliers are not limited. The suppliers are not powerful which is
favorable for the business industry.
Another aspect of suppliers could be the engineers. The engineers are also
not limited, and hence business seems favorable.

Importance of suppliers product to buyer: The products that are

bought are common and not so unique, it gives less power to suppliers as

the business may switch from one supplier to another. This is a favorable
aspect.

Substitutes are not available: Substitutes are not easily available. The
things used are construction materials such as cement, iron rods and so on.
These materials cannot be substituted.

Our volume of purchase is small: The volume of purchase for

contraction is higher which gives the businesses more power to reduce and
bargain prices for heavy bulk buying. This is lower power to suppliers.

Threat of forward integration by suppliers: Threat of construction

dealers going for entering the market is very low in this case and thus means
quite favorable situation.

Bargaining power of customers

Standard supplies: Customers cannot bargain much in the prices in this

industry, even if the supply is somewhat standard, it doesnt give customer
much privilege to bargain.

Consumer price sensitivity: Consumers are less price sensitive with

regards to the services, facilities and quality of place where they prefer to
live. This gives more power to the supplier, here, the housing industry.

Accurate information about the cost structure: The information of cost

structure is easily estimated. This gives some power to the customers,
however, the costs of housing itself is higher, so there is not much to
bargain.

Threat of backward integration: This threat is very minimal in this case

as the industry is expensive. One has to have a lot of capital for backward
integration. Hence, this does not seem to be threat for housing industry
companies.

Customers have parallel sourcing strategy: There is less possibility of

parallel sourcing strategy. Only few owners have property at more than one
location or company. But there is not much dependency upon the suppliers
either. This does not give power to the buyers and is favorable to business.

Threat of Product Substitutes

Easiness in substitution: Substituting among the product or the brand

itself is difficult as people have to spend a lot of money when it comes to
housing. Thus customers cannot easily switch among the housing and
apartments. Lower easiness in substitution means low threat of substitution.

Price differential between comparable product categories: People stick

to similar product even if there are easily substitutes available due to price
differential. Thus it means lower threat of substitution.

Growing competition in substitute category: There is no major

substitution to housing industry except for house owner themselves. If the
price of houses themselves goes down, then the commercial housing
industry might face a drop in potential customer as they prefer individual
deals rather than through a company. This means some threat of
substitution.
Porters' Five forces framework
SN

Five Forces

The threat of entrants

The rivalry among competitors in the

industry

Threat of substitute

Bargaining power of suppliers

Bargaining power of buyers

High

Medium

From the Porters' five forces model, the industry seems to be more or less
feasible, however, the stage of the industry matters too. The industry is in
maturity stage, the earthquake has led to weaker houses and less feasible to
construct new buildings. People, here customers, do not prefer to stay in high
storied buildings. Most of the buildings themselves have grown weak and
almost in ruins. The current scenario is deserted housing apartments in
many places; the investment on them has gone to waste. Similarly, due to

Low

interest payments and loan repayment issues, some of the companies have
stopped their work at mid- construction.
Hence, along with the framework described above, it is essential to study the
industry from a more practical point of view and analysis. This shows that
housing and real estate is not an attractive option for investment since the
market is at saturation and people do not prefer apartments at least for a
few years to come. Therefore, I suggest not to make investment in this field
for the time being, especially in case of Kathmandu valley. In case of other
places than Kathmandu, there are opportunities but it is bound to take few
more years to gain popularity.