China Merchants Shekou Industrial Zone Holdings Co. Ltd. is a public limited company dealing in the real estate industry, offering a wide range of residential properties development, construction and operational services. The institution was shaped in 1979 and having its Headquarters in Shenzen, China. The distribution network is expanded over 111 cities and regions across the globe.
As of 2020, the business holds solid assets of a figure, which is 737.16 billion yuan, and has completed more than 600 landmark projects and serving millions of customers worldwide (CMSK, 2021). Considering the global real estate sector, a study of the Porter Five Powers will be instrumental in determining the company’s strategic role in the financial industry to cope with threats and discover opportunities.
Competitive Rivalry in The Market
The competitive rivalry in the real estate sector is considered to be high because construction or developmental activities are the most influential division of the real estate industry and play an essential part in the country’s economic growth. Not only restricted to the major known cities and reached the world’s remote areas, which is the key to growth. As a result of this shift, many real estate firms and institutions have entered into the market to provide such services to customers, resulting in stiff competition between major corporations.
The firm’s major competitors in terms of leading revenue for Chinese fortune 500 companies are Country Garden, Evergrande Group, Sunac China Holdings and China Fortune Land Development limited. China Merchants is trying to give tough competition with a revenue figure of 97.67 billion yuan, while others showing revenue of 485.91, 477.56, 169.32 and 105.21 billion yuan respectively (Statista, 2021). Hence, the presence of such big names in the industry makes the competition more challenging.
Threat of substitutes
The threat of substitutes in the banking industry is considered to be low because of the number of corporations operating in the industry and providing somewhat similar products and services. The finance sector is crucial for businesses in the current era, and no other source can replace them.
Digitalization of services and goods has changed the essence of real estate dealing and connection between clients and the market as a mode of advanced methods. There is low risk if customers develop their own homes with low price levels, renting out properties because of low volume (Iwata et al, 2019). Also, the factor of switching cost is high. As a result, the threat of substitutes within the industry is low.
The Threat of New Entrants
In the Banking industry, the threat of new entrants is relatively low because of the availability of big firms in the market. The raised barriers in terms of services and reach set by them are difficult to achieve for new firms. People are more likely to stick their hands in big names, credible and significant institutions that they believe are worth more considering the nature of the sector.
Furthermore, a considerable amount of capital is required to establish the firm and meet financial needs and other challenges such as developing communication networks, political involvement, and dealing with the market power of incumbents (Loosemore and Denny-Smith, 2016). Therefore, the threat of possible entrants is minimal in the sector.
Bargaining Power of Buyers
The bargaining power of buyers is considered to be moderate in the sector. In the real estate industry, digital transformation has noticeably increased the consumer’s influence. Customers can now compare and differentiate the services and offer provided by different suppliers regarding costs and benefits. Customers who make payments expect to receive the best services possible.
Because consumers make the purchases having values in millions influencing the power while signing the agreement by having more information and experience (Wilhelmsson, 2008). In this process, there is a risk of the increased buying power of consumers in the real estate industry.
Bargaining Power of Suppliers
The power of suppliers in bargaining is considered moderate to high in the real estate sector because the institutions are majorly dependent on the suppliers to meet the demand. However, due to continuous growth in the industry and increased buyers, they play a vital role in setting suppliers’ terms to a moderate level. In addition, the supply chain of the industry depends upon two sources like first being the raw material and the second on is skilled labor.
These two sources can have a major influence on the bargaining power of suppliers because the delays and increase in cost can occur at any time by not having appropriate sources (Ameh and Osegbo, 2011). In such a context, the bargaining power of suppliers can be considered moderate.
References
Ameh, O.J. and Osegbo, E.E., 2011. Study of relationship between time overrun and productivity on construction sites.
CMSK, 2021. About. [online] Cmsk1979.com. Available at: https://www.cmsk1979.com/about.aspx.
Iwata, S., Sumita, K. and Fujisawa, M., 2019. Price competition in the spatial real estate market: allies or rivals?. Spatial Economic Analysis, 14(2), pp.174-195.
Loosemore, M. and Denny-Smith, G., 2016. Barriers to indigenous enterprise in the Australian construction industry. Management, 2, pp.629-638.
Statista, 2021. Fortune 500 China leading real estate companies 2020 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/454494/china-fortune-500-leading-chinese-real-estate-companies/.
Wilhelmsson, M., 2008. Evidence of buyer bargaining power in the Stockholm residential real estate market. Journal of Real Estate Research, 30(4), pp.475-500.