ANALYSIS OF GLOBAL ISSUES AND THEIR MANAGEMENT ANALYSIS OF THE PROPERTY CONSTRUCTION INDUSTRY

TABLE OF CONTENTS
1.0Introduction..........................................................................................1 1.1Overview ........................................................................................................ 1 1.2Company Overview......................................................................................... 2 1.3Objectives of This Paper..................................................................................2 2.0Global Issues in Construction Industry...................................................3 3.0The Wong Kwok Group Management Strategies......................................7 4.0Conclusion............................................................................................9 REFERENCES............................................................................................ 10

1.0

Introduction

1.1

Overview

In the last few decades, there have been a great dynamics in the world of business which created problems and challenges at the local, national and international levels. Globalization characterized by a borderless community saw that firms of all kinds and industry of many types cannot escape from facing these global challenges. Some of the issues are related to the depleting natural resources, the deteriorating condition of the earth, implications of high standards of quality of life, imbalance between rich and poor countries, the rise of new economies, financial crises and many others.

The property construction industry in Malaysia also cannot escape from the effects of these global issues and challenges. The property construction industry in Malaysia makes a significant contribution to the quality of life of the people in this country. Over the past decade, this industry annually accounted for about 3 5 per cent of the Gross Domestic Product and provided for about 10 per cent of the total labour force. Also, the property construction industry also realized many aspects of government policies aimed to develop the nation. Examples: houses, schools, hospitals, roads, airports, ports and other transportation infrastructure.

According to Rehda (2008), there are many challenges facing the property construction industry today including enhancing quality and productivity besides high labour and material prices, inefficient and ineffective methods and practices, inability to attract and develop local workforce, inability to provide total integrated solutions and difficulty in securing timely and adequate funding.
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1.2

Company Overview

In Malaysia, there are a number of companies involved in the construction development. One such example is Wong Kwok Group or simply the W Group. This company has 16 subsidiary companies and more than 2,000 employees throughout the world. The W Group specializes in property development, construction, manufacture industry, trading and services. In 2009, the W Group global revenue was over RM500 million. The W Group has experienced the development stages, noted as Brand Building, Diversification and Globalization. The total value of the past development projects undertaken and accomplished by The W Group worth more than RM2 billion. The W Group is one of the top property development companies in Malaysia. The company is led by two charismatic Executive Chairman, Tony Wong Chen Nam and Managing Director, Johnny Wong Chen Yee.

1.3

Objectives of This Paper

The purpose of this paper is to provide an industry/company specific analysis of global issues and how they manage it. The construction industry whereby the W Group become the analyzed industry/company is selected.

2.0

Global Issues in Construction Industry

The fundamentals of the property market in Malaysia appears to be strong especially with the abolishment of the real property gains tax, the relaxation on the Foreign Investment Committee rules for purchases of over RM250,000, the Governments efforts to promote the Malaysia My Second Home Programme, and the faster and easy loan approval for foreigners. Also, there is a rising demand for housing as the annual population growth is 2.4 per cent with the young population base. It is also easier to get funding in the banking system or withdraw from the Employees Provident Fund Account II effective Jan 1, 2008, towards the payment for mortgage or reduction of housing loans.

There are several issues in property construction industry which will be discussed and elaborated. The Star Online (2008) reported that the issues presented below are faced by construction and property companies in Malaysia.

One of the main issues faced by the property construction industry is the scarcity of prime land in Malaysia, which may lead to internalization. Most often, China is looked as a potential land area. However, scarcity of prime land lead to stiff competition and higher prices of replacement stock. Besides that, there is also a greater demand for green lungs, reserves for public amenities an drainage which has led to less efficiency of land use. The company involved in property construction has to build some public amenities at the cost of the company. For example, housing units are equipped with swimming pools, halls, recreational centre, and waste disposal centre which are financed by the construction company. The W Group is responsible for the construction of Beverly Hills Plaza in Kota Kinabalu. The housing areas are equipped with basic amenities for public use. Besides provision, maintenance is also required at the cost of the company.

In most areas, concern for the environment has led to the management of property to create green environment. Trees are purposely planted and there are other efforts being eco-friendly put in place. These construction companies have to do this as it becomes a competitive tool to woo customers.

Apart from that, there is also a trend of increasing construction cost arising from higher labour costs, fuel costs, toll charges, utility bills and basic building material prices. Bricks, sands, and steel are some of the necessary building materials which have increased in cost over the past few years. Most companies in the construction and property business are facing rising costs. Construction costs will continue to increase in tandem with the escalating costs of building materials. Rising oil prices and logistics will also impact the industry.

In addition, there is also an increase in financial contribution to local authorities and alto to privatized utility companies. In some housing or commercial areas such as KKIP, waste disposal is outsourced to private companies, financed by the construction and property companies. Indirectly, the price of property is increase because of the rise in prices of commodities and goods arising from global demand and the impact of globalizations.

Besides, global shortages of experience professionals, especially technically qualified personnel have led to brain drain and competition for staff. Typically, they are being lured offshore with salaries that are three to four times the Malaysian salary and taxfree. Thus, wages for management and technical staff have also rise very steeply. In addition, hard labor which initially came from neighbouring countries such as Indonesia, Philippines, Bangladesh and Myanmar has been affected with stiffer rules of foreign workers entry to Malaysia. Alarmingly, it can cripple the construction industry as locals are not keen to work in the construction industry as they are more attracted to the service

industry such as tourism, hotels and so on. Thus, skilled technical workers as well as those considered as hard labours are shifting to other countries such as Dubai.

As land, particularly those in prime location, is gradually depleted, prices of remaining pieces of land escalate with decreasing supply, exacerbated by increasing demand from developers. Also, the increase in cost of not only replacing labour but professional and technical personnel as they seek employment in lucrative markets, such as the Gulf Cooperation Council countries, Singapore and Vietnam, would drive costs up.

As globalization led to market liberalization and countries all over the world welcome foreign direct investment, a lot of construction companies have gone for internalization. However, at the global market, competition for plant and machinery is stiff. The W Group has to compete with world class and conglomerate construction companies for prime land, plant location and machinery.

The issues of depleting and limited resources, greening the environment, conservation of the environment and balancing of the ecosystem has also resulted in higher cost of compliance due to environmental and social impact requirements. Construction companies beginning a particular project must comply with environmental impact assessment which is not only costly but time-consuming. Apart from that, there is also a growing competition in any hot location, especially from other short-term property developers. Now that Malaysia is welcoming foreign investment, this competition is both local and global.

Again, fear generated by negative news ranging from sub-prime credit crunch in the US, unrests in the Middle East and local political issues, most of which are temporal and

unrelated to property fundamentals in the long term posed challenges to the property construction industry.

Aside from these, the rising concern for sustainability, environment protection and conservation have also resulted in some mitigation measures of the companies in this industry. The property construction sectors expanded rapidly in the late 1980s as a result of the high demand for houses. During the Eight Malaysia Plan and period, more than 850,000 houses were built of which a third are low cost houses. Under the Nine Malaysia Plan it is anticipated that some 900,800 units are needed. The Government is committed in providing affordable housing for its people, particularly the lower income group. However property development that utilizes natural resources and construction activities, if not planned with the environment in mind, would give rise to problems like flooding, degradation of river and air quality. The more frequent occurrence recently, of landslide on hill slopes can also be attributed to the neglect of environmental considerations in project implementation. Environment as defined in the Environmental Quality Act 1974 means the physical factory of the surroundings of the human beings including land, water, atmosphere, climate, sound, odour, taste, the biological factors of animals and plants ant the social factor of aesthetics.

3.0

The Wong Kwok Group Management Strategies

The W Group is a large company which embarks on not only construction and property but also in other businesses. The Wong Kwok Group of Companies have more than 50 years of experience and recognized as a leader for general construction and real estate development in Sabah, with an enviable reputation for high quality and innovation in construction projects as diverse as international class resort hotels, cultural buildings, water treatment plants, rural water supply schemes and private dwellings. The company has a high regard for their vision and their people. The Wong Kwok Group of Companies comprises separate entities in well-diversified activities of property development, construction, stone quarry, hardware supply and timber supply.

Due to the diversified nature of its company, the Wong Kwok Group of Companies are able to control to a certain extent the cost and supply of construction materials and provision of public amenities and services to their construction program.

These global issues are normally addressed through the strategic business management of the company, which focuses on a global outlook. For example, the Wong Kwok Group identifies the best plan to address these issues through marketing research in order to understand the problems. As with most companies, the W Group also focus on changing the business direction of the company. They advocate to the Green Environment concept and build houses and commercial facilities based on eco-friendly approaches.

In the Business Times (2010), a green strategy approach is tailored to suit the countrys construction industry which is in line with the Prime Ministers commitment for

a 40 per cent Greenhouse gas reduction by 2020. Some of the suggestions include buildings to incorporate solar panels, water harvesting and other shading materials, monitor earth work, cutting and replanting initiatives. The use of solar panels to harness solar energy is hoped to curb the global warming issue which affects all lives and industries.

4.0

Conclusion

Events happening in Malaysia or in other countries, which are directly related to construction or not, will have certain impact on the property construction industry in Malaysia. Due to globalization, these issues at the global level must be addressed and managed by the property construction companies. If these issues are not managed, it could lead to adverse effects on the company itself.

The construction industry has a crucial role to play in assisting the efforts of the government to achieve development that is sustainable by the year 2020. Sustainable development requires a balance between economic growth, social expansion and environmental protection. In order to pursue sustainable development, the construction industry itself has to be sustainable and give emphasis to environmental matters, in addition to economic gains and social obligations.

In most companies, global issues are anticipated as risks and should be monitored and mitigated. The presentation of global issues pertaining to the property construction industry as discussed in this paper basically is similar in other industries. However, companies such as the Wong Kwok Group have their own strategies to deal and manage these issues.

REFERENCES

1. 2.

Wong Kwok website, www.wongkwok.com.my Green strategy for construction sector to be

developed http://www.btimes.com.my/Current_News/BTIMES/articles/rehd/Article/ #ixzz0m4l2qaww 3. Rehda (2008). Towards sustainable development, Rehda Bulletin,October

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