Greenland Holdings Group (GHG) is a Chinese real estate development company. It was incorporated in 1992 and is headquartered in Shanghai, China. The company has a massive portfolio of real estate development in China and a major international center. However, the primary business activities are in mainland China. It is a state-owned company and the biggest Chinese real estate developer globally; it has a presence in 4 continents, nine countries, including UK, USA, Australia and Canada, and 13 cities across the globe (Greenland, 2021). GHG has taken the lead nationally in development projects with its unique identity, product-type, development scale, large scale urban projects, high rise buildings and urban complexes. It has a boastful portfolio regarding ultra–high rise buildings, large urban complex projects, high-speed rail station business districts, and industrial park development. The company has constructed 4 of the top ten ultra-high rise urban landmark buildings in terms of height. Porter’s five forces model is an appropriate analytical tool to evaluate the threats GHG faces and the opportunities it can potentially explore.
Competitive Rivalry in the Market
GHRC competes in the highly competitive market segment, and the Chinese construction boom of the 21st century has produced massive developers in the sphere. It was the third-largest Chinese real estate company in terms of revenue in 2020 (Statista, 500). GHG’s significant competitors are China Evergrande Group (CEG), China Vanke and Poly Real Estate. In 2020, GHG was ranked at 176th place in the Fortune 500 companies; the company reported $61.9 billion and a profit of $2.1 billion (Fortune, 500). In the same financial year, CEG, 2nd highest-ranked company in Fortune 500 companies, reported a profit of $2.5 billion and earned revenue of $69.1 billion (Fortune, 500). China Vanke is placed at the 208th spot in the Fortune 500 companies and earned $5.6 billion on the reported revenue of $53.2 billion (Fortune, 500). Poly real estate posted $35.53 billion in revenues in 2020 and earned a profit of $8.7 billion (Nikkei Asian Review, 2021). The real estate development sector is highly competitive.
Threat of Substitutes
The real estate industry is rigid, and it is difficult to find any better alternative; the threat is low. From the development standpoint, the industry has outdated practices, and there are potential to improve the state of affairs. Despite the pandemic, the Chinese real estate market is stable and will continue to grow (Zhang & Woo, 2021). The industry has a major issue in managing projects and term of cost overruns. This issue can be mitigated by improving processing and investments in the right resources. There is no natural substitute to compete for the products offered by the property developers. Most consumers want stability in terms of long term property investments. Thus, it depends on the solutions provided by the traditional developers. The industry faces pressure from virtual house lending companies like Air bnb to traditional housing infrastructure. However, they only offer a single product, and people still are fixated on the stable long term. Most buyers choose to lease the property as it provides benefits for the buyers, and maintenance and management responsibility falls on the management company. The threat of substitutes remains low.
The Threat of New Entrants
Every industry has associated obstacles and opportunities that are inherent to the state of the country. The sector offers a high return on investments, which is valid for the Chinese real estate industry. In China, the real estate industry provides high return and attracts increased foreign direct investment (He et al., 2011). Despite the return on offer, there are inherent barriers such as skills acquisition, purchase of technology, and high capital requirements. In addition, access to capital, the market power of incumbents, and cost of investment and the intensity of the competition in the sector are few barriers to entry. All these barriers are real hard obstacles to overcome by any newcomer. Therefore, the threat of new entrant in the large scale real estate development sector remains low.
Bargaining Power of Buyers
The buyers’ power depends on the underlying factors such as buyers’ concentration, competition in the market, and available alternatives. Overall, buyers’ pose moderate to high buying power in the real estate industry. Other than the factors explained above, consumers can influence price based on their experience, availability of the information and ability to use data to negotiate a better price (Wilhelmsson, 2008). Consumers can reduce the cost of the offerings and thus can directly impact the profitability of the company. Globally, buyers are usually well informed in the urban center due to access to timely information and academic background; they use that to negotiate better prices. Moreover, there are other available options due to increased competition, and buyers have to lease the property that suits their needs in terms of accommodation and cost. Buyers can exercise moderately to high bargaining power.
Bargaining Power of Supplier
Suppliers’ power in the industry is dependent on the state of the sector and factors such as the importance of supplies for the buyer’s supplies chain, concentration of suppliers, nature of the product offered and the competition in the industry. The primary sources of inflows for the developer are raw materials and a skilled workforce. Larger developers have integrated supply chains to ensure a steady supply. Additionally, with operations spanning different countries, they can have multiple suppliers to avoid over-reliance, and they can negotiate for bulk discounts on larger volumes. Skilled labour is a scarce source and therefore needs to be managed carefully. They are aware of their inputs for the business and can exercise higher bargaining power. Supplier’s awareness of their importance to the business supply chain is the reason for higher bargaining power (Crook & Combs 2007). After assessing the factors, suppliers hold moderate to increased bargaining power.
References
Crook, T. & Combs, James. (2007). Sources and consequences of bargaining power in supply chains. Journal of Operations Management. 25. 546-555. 10.1016/j.jom.2006.05.008.
Fortune. (2021). China Evergrande Group. Available at: https://fortune.com/company/china-evergrande-group/global500/
Fortune. (2021). China Vanke. Available at: https://fortune.com/company/china-vanke/global500/
Fortune. (2021). Greenland Holding Group. Available at: https://fortune.com/company/greenland-holding-group/global500/
Greenland. (2021). About us. Available at: http://www.greenlandsc.com/en/About_jtjj.aspx
He, C., Wang, J. & Cheng, S. (2011). What attracts foreign direct investment in China’s real estate development?. Ann Reg Sci 46, 267–293 (2011). https://doi.org/10.1007/s00168-009-0341-4
Nikkei Asian Review. (2021). Poly Developments & Holdings Group Co., Ltd. Available at: https://asia.nikkei.com/Companies/Poly-Developments-Holdings-Group-Co.-Ltd
Statista. (2021). Leading Chinese real estate companies on the Fortune China 500 ranking as of 2020, by revenue. Available at: https://www.statista.com/statistics/454494/china-fortune-500-leading-chinese-real-estate-companies/#:~:text=On%20the%202020%20Fortune%20China,by%20Evergrande%20Group%20and%20Greenland.
Wilhelmsson, Mats. (2008). The Evidence of Buyer Bargaining Power in The Stockholm Residential Real Estate Market. Journal of Real Estate Research. 30. 475-500.
Zhang, L. & Woo, R. (2021). Growth in China’s home prices to cool in 2021, sales flat: Reuters poll. Reuters. Available at: https://www.reuters.com/article/us-china-property-idUSKBN2A119U