Capstone Presentation - Carolina Lamartine

Entering New Markets in the
Construction Industry:
Strategies for Diversification
Carolina Rebello Bottini Lamartine
United States University
Capstone - MGT 599
Dr. William Hodde
Introduction
• Economy is cyclical.
• Segments of the Construction industry:
• Buildings Construction
• Heavy And Civil Engineering Construction
• Specialty Trade Contractors
• Land Planning And Development
"Diversification of business portfolio is essential for construction companies to

strengthen their financial stability." (Jang, 2014).
History of the Construction Industry
• In some sort of way, human beings have always built shelters.
• Starting with raw materials and simple techniques, evolving onto
complex structures with mixed in materials.
• Construction phases:
• Egyptians: inception of aesthetics.
• Medieval Period: development through cathedrals and trial and error.
• Electricity: exponential growth.
• Modern times: differentiation between construction and management.

History of the Construction Industry
• Modern times:
“The global construction market reached a value of nearly $12,744.4
billion in 2019, having increased at a compound annual growth rate
(CAGR) of 6.1% since 2015” (The Business Research Company, 2020).
Growth is a result of:
• Vigorous economic growth in emerging markets.
• Low interest rates in most developed countries.
• Increased demand for infrastructure.
• Technological development.
Challenges in the Construction Industry
Factors such as geo-political tensions and rising material costs had
negative impacts to the growth of the construction industry. (The
Business Research Company, 2020).
Most important challenges in construction:

• Economic recessions;
• Sourcing of materials;
• Implementation of technology.
PESTEL Analysis - Politics
• Politicians can influence the industry through incentives, investment
in infra-structure and Economic and Labor reforms.
• In the recent years, the Trump administration has positively impacted
the economy and the construction industry through its Tax Cuts and
Jobs Act (Brown, 2018).
PESTEL Analysis - Economic
“Construction is an important sector in promoting competitiveness and
economic growth. It runs high risks and it is vulnerable to internal and
external events.” (Sfakianaki et al., 2016).
• Some segments of Commercial Buildings Construction have been

extremely affected by the global pandemic of COVID-19.
• 39% percent of respondents in a survey had projects halted or canceled by
owners due to the deteriorating economic conditions (AGCA, 2020).
PESTEL Analysis - Social
• Labor shortage
• Urban population growth
• Maskuriy et al. (2019) state that “the global construction industry has been
affected by the world’s urban population rising by 200,000 people per day.
PESTEL Analysis - Technology
• Building Information Modeling (BIM): computer-aided design (CAD)
that acts as a tool for collaboration across the AEC industry.
• Low usage by contractors, despite high return on investment
“To remain competitive, industry leaders will likely continue to define a

new vision and map a comprehensive digital blueprint to realign their
business and operational processes to reflect the opportunities that
innovation and technology provide” (Meisels, 2020).
PESTEL Analysis - Environmental
• Two directions for Sustainability
• Construction process and materials
• Life-cycle of buildings
• Green building certification.
PESTEL Analysis - Legal
• Permits
• Inefficient
• Opportunity for improvement via e-permitting and automated code
compliance checks
• Contractual risk management
• Bureaucratic
• Paperwork heavy
• Connected to Liability
Diversifying within Buildings Construction
• Building Construction can be further differentiated by Residential and
Commercial projects.
• Focus on market and client diversification:
Market diversification has two key objectives: reduction of market risks
and/or growth of revenues and profits (Kim & Reinschmidt, 2011).
• Different clients affect multiple aspects of a construction project.

SWOTT Analysis of Diversification
SWOTT analysis are widely used in business administration to
provide a comprehensive examination of an investment opportunity,
of a market or of the business itself.
• Strengths:
• Improve construction companies’ stability by reducing their market risks and
increasing their job volume.
• Financial gains: average percentage of the yearly earnings gained from
diversification is high (Sayegh, 2010).
• Procure work in counter-cyclical industries is positive for economic recessions.
• Client diversification can promote more opportunities, since different clients are
variably affected by economic climate.
• Weaknesses:
• Construction contractors cannot create the demand, they react to the
demand.
• Susceptibility to change in demand from markets.
• Related x unrelated businesses.
• Administrative difficulties.
• Coordination of activities.
• Client diversification brings forth risks such as client inexperience and
inadequate decision-making.
• Opportunities:
• Starting with one individual project reduces investment and risk.
• Explore innovative building concepts.
• Joint ventures.
• Mergers and acquisitions.
• Threats:
• Project failure due to lack of experience.
• Joint ventures also impose risks to diversification due to management
differences.
• Not retaining knowledge from new markets.
• Trends:
• Diversification across the board.
• Measure success by overall company performance instead of project-based
performance.
Strategic Business Alignment
• To successfully utilize diversification as a strategy for stability,,
companies must align their organizational activities and competencies
with their ultimate goals.
• Organizational changes;
• New marketing strategies;
• Differentiated business development.

• Organizational change varies based on the requirements of the new
market or owner. Can incur in:
• New job positions.
• Different outlook on processes (virtual network).
• Higher integration instead of differentiation.
• Support activities.
• New Marketing Strategies
• Portfolio is not enough.
• Bid team to thoroughly study new project for proposals.
• Marketing team to go above and beyond:
• Usage of BIM
• Relational strategies: reputation and relationships.
• Product quality.
• Pricing strategies
• Business Development:
• Align project pursuits with strategic goals.
• Revisit bids based on diversification efforts.
• Individualize departments for new markets.
• Extensive market research.
Measuring Diversification Success
• Initially, use market share or customer satisfaction measures in lieu of
financial indicators (Sayegh, 2010).
• Long-term, evaluate financial performance.
• Benchmarking
• Critical Success Factors
• Key Performance Results
Conclusion
• Entering new markets is challenging in any industry. However,
diversification is an effective strategy construction companies can
utilize to overcome the difficulties related to remaining operational
during recession times.
• Construction is an industry of “doers” and practicality.
• There is a lot of knowledge in the experience of business owners that
is not academically documented.
References
Association of General Contractors. (2020). Sharp Jump In Owners Canceling Or Delaying Construction Projects Across The Country, New Survey Finds, Putting
Many Jobs At Risk. Retrieved from https://www.agc.org/news/2020/03/27/sharp-jump-owners-canceling-or-delaying-construction-projects-across-country-new
Association of General Contractors & Autodesk. (2018). Worker Shortage Survey Analysis. Retrieved from
https://www.agc.org/sites/default/files/Files/Communications/2017%20Worker%20Shortage%20Survey%20Analysis.pdf
Brown, K. (2020). Two years of Trump: Where are we and what's next for construction? Retrieved from https://www.constructiondive.com/news/two-years-of-
trump-where-are-we-and-whats-next-for-construction/542578/
Jang, S. (2014). Stability analysis of construction companies following diversification of the business portfolio of construction companies. Journal of the Korea
Construction Management Association, 15(6), 105–112. Retrieved from https://www.koreascience.or.kr/article/JAKO201436351075370.pdf
Kim, H. & Reinschmidt, K. (2011). Diversification by the largest US contractors. Canadian Journal of Civil Engineering, 38(7), 800-810. Retrieved from
https://www.researchgate.net/publication/237189273_Diversification_by_the_largest_US_contractors
Maskuriy, R., Selamat, A., Maresova, P., Krejcar, O., David, O. (2019). Industry 4.0 for the Construction Industry: Review of Management Perspective. Economies.
7. 14. 10.3390/economies7030068. Retrieved from https://www.proquest.com/docview/2426410183/13066679BE5948CAPQ/1#
Meisels, M. (2020). 2020 Engineering and Construction Industry Outlook: A midyear update. Deloitte. Retrieved from
https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/engineering-and-construction-industry-trends.html
Sayegh, N. (2010). The Impact of Diversification Strategy on the Construction Organisations Corporate Level Performance. (Unpublished master's thesis). The
British University in Dubai (BUiD).
Sfakianaki, E., Theoharis Iliadis, T., & Zafeiris, E. (2016). Crisis management under an economic recession in construction: the Greek case. University of Applied
Sciences. Athens, Greece. Retrieved from https://www.inderscienceonline.com/doi/abs/10.1504/IJMDM.2015.074015
The Business Research Company. (2020). Construction Market - By Type (Building Construction, Heavy And Civil Engineering Construction, Specialty Trade
Contractors, And Land Planning And Development), By End-User Sector (Public, Private), And By Region, Opportunities And Strategies – Global Forecast To 2030.
Retrieved from https://www.thebusinessresearchcompany.com/report/construction-market

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Entering New Markets in the

• Heavy And Civil Engineering Construction

• Specialty Trade Contractors

• Land Planning And Development

"Diversification of business portfolio is essential for construction companies to

• Medieval Period: development through cathedrals and trial and error.

• Electricity: exponential growth.

• Modern times: differentiation between construction and management.

Most important challenges in construction:

• Some segments of Commercial Buildings Construction have been

“To remain competitive, industry leaders will likely continue to define a

• Different clients affect multiple aspects of a construction project.

• New marketing strategies;

• Differentiated business development.

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