China Resources Land (CR Land) is the property development arm of the China Resources Group (CRG), a Fortune 500 company. The CR Land was developed in 1994 through restructuring of business of CRG and is listed in Honk Kong Stock exchange in 1996. The company is headquartered in Shenzhen, China, but it has a presence in many major cities of mainland China. The company has expertise in a wide range of businesses, including residential and urban properties, property management, leasing, development of industrial properties, and development of cinemas and sports auditorium (CR Land, 2021). The company’s portfolio includes the development of Phoenix Plaza, The Bund Side, Jade City, Phoenix City, and Wuhan Phoenix City. The company champions the policy of integrity and people-oriented and follows the motto of “better quality better city.” Porter’s five forces model is an appropriate analytical tool to evaluate the threats a company faces and the opportunities it can potentially explore.
Competitive Rivalry in The Market
CR Land develops in a highly competitive market segment, and it is part of large corporation CRG. The company has significant experience in property development that is expanded over two decades. The company has its significant business in Mainland China and Hong Kong. Its major competitors are Poly Development (PD), Swire Properties Limited (SPL), and China Gezhouba Group Company Limited (CGGC). In 2020, CR Land earned $26.4 billion and reported a profit of $8.46 billion (Nikkei Asian Review, 2021). However, CGGC is one of the largest contractors in the world, and it was among the ENR Top 250 International Contractor in 2015 (ENR, 2015). CGGC made $17.11 billion in revenue in 2020, with a net income of $650.61 million (DNB, 2021). Poly development posted $35.53 billion in revenues in 2020 (Nikkei Asian Review, 2021). In the same financial year, SPL posted revenue of $1.72 billion and a net income of $528.10 million (Nikkei Asian Review, 2021). The real estate development sector is highly competitive.
Threat of Substitutes
In the real estate industry, the threat of substitutes remains low due to the stiff nature of the industry. The industry is stuck in the past and follows many rigid practices and workflows. There is room for improvement in the sector with the help of technology. The global real estate industry will be worth $ 2.7 trillion by 2021 (PR Newsire, 2021). Real estate development companies have started to offer bundled services, and they have improved in customer engagement. That has reaped the rewards of more satisfied customers and a better retention rate. In China, people are still more inclined to lease property in the urban centers due to more employment opportunities and educational resources. The significant benefit it entails that the repairs and maintenance responsibility falls on the landlord. In the short term, the threat of better alternative products remains low.
The Threat of New Entrants
The threat of new entrants remains low in large-scale real estate development due to the inherent barriers of entry it poses. Despite high return on investment, the business capital intensive and requires significant money to start a business. Other than that, other barriers there are other industry specific barriers, such as capital acquisition and further acquisition of technology and skills are necessary. These all barriers pose a significant uphill battle for the new entrant. Valence described that in the competitive market intensity of the competition, access to capital, the market power of incumbents, and cost of investment of entry are such barriers for new entrants that here passion remains high (Valence, 2012). After considering the factors mentioned earlier, it is difficult to break through the industry, and thus the threat remains low.
Bargaining Power of Buyers
The bargaining power depends upon the underlying factors; overall, buyers have moderate to high bargaining power. Their primary buyers are individuals and property management firms. The consumer’s awareness and buying prowess can impact the buying power. Consumers can influence price based on factors such as the consumer’s experience, availability of the information, and the ability to use that information to negotiate a better price (Wilhelmsson, 2008). Consumer buying power is indirectly proportional to the company’s profit; therefore, it impacts its margin. In China, buyers are usually well informed in the urban centers because of their education and access to information sources. Consequently, they have high bargaining power. Additionally, there are other reasonable accommodations available due to the increased competition in the industry. Considering the facts mentioned above, buyers can exercise moderately to high bargaining power.
Bargaining Power of Supplier
The bargaining power of suppliers depends upon various underlying factors related to the industry and its supply chain. In the real estate development industry, suppliers usually have moderate to high bargaining power. The supply chain has two main components and one is the raw material other being the skilled workforce. Larger companies have vertically integrated supply chains, and if they need to buy materials outside their supply chain, they can avail bulk quantity discounts. Small and medium developers do not have an option; thus, suppliers sell at their terms. Overall, raw material suppliers have moderate bargaining power. Other skilled workers are in shortage, and they ask for higher wages thus have high bargaining power. Unskilled labor can be damaging for the project as it incurs more cost in wastages and project overruns. Labour unproductivity can cause delays and increase cost, and the main reason for that are inadequate labor surveillance and unskilled craftsmen (Ameh & Osegbo, 2011). After assessing the factors, suppliers hold moderate to high bargaining power.
References
Ameh, O.J., & Osegbo, E.E. (2011). Study of relationship between time overrun and productivity on construction sites. International Journal of Construction Supply Chain Management 1 (1). 56-67. DOI 10.14424/ijcscm101011-56-67
CR Land. (2021). About CR Land. Available at: https://en.crland.com.hk/ljwm_25657/hrzd/zdjj/
DNB. (2021). China Gezhouba Group Company Limited. Company profile. Available at: https://www.dnb.com/business-directory/company-profiles.china_gezhouba_group_company_limited.8c182fc902b4f5f2130005ab7fd9015b.html#:~:text=China%20Gezhouba%20Group%20Company%20Limited%20has%2039463%20total%20employees%20across,billion%20in%20sales%20(USD).
ENR. (2015). The 2015 Top 250 Global Contractors. Available at: https://www.enr.com/toplists/2015_Top_150_Global_Contractors1
Nikkei Asian Review. (2021). China Resources Land Ltd. Available at: https://asia.nikkei.com/Companies/China-Resources-Land-Ltd
Nikkei Asian Review. (2021). Poly Developments & Holdings Group Co., Ltd. Available at: https://asia.nikkei.com/Companies/Poly-Developments-Holdings-Group-Co.-Ltd
Nikkei Asian Review. (2021). Swire Properties Ltd. Available at: https://asia.nikkei.com/Companies/Swire-Properties-Ltd
PR Newsire. (2021). Global Real Estate Market Report 2021: Market is Expected to Grow from $2687.35 Billion in 2020 to $3717.03 Billion in 2025 – Forecast to 2030. Available at: https://www.prnewswire.com/news-releases/global-real-estate-market-report-2021-market-is-expected-to-grow-from-2687-35-billion-in-2020-to-3717-03-billion-in-2025—forecast-to-2030–301250151.html#:~:text=The%20global%20real%20estate%20market,2%25.
Valence, Gerard. (2012). The Significance of Barriers to Entry in the Construction Industry. Australasian Journal of Construction Economics and Building. 7. 29. 10.5130/ajceb.v7i1.2975.
Wilhelmsson, Mats. (2008). The Evidence of Buyer Bargaining Power in The Stockholm Residential Real Estate Market. Journal of Real Estate Research. 30. 475-500