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by Dr Low Sui Pheng, Professor, Department of Building, and
Director, Centre for Project Management and Construc on Law,
Na onal University of Singapore
This ar cle examines whether fragmenta on in Singapore’s construc on
industry is one of the root causes for its rela vely lower produc vity, mea-
sured in terms of value added per worker, as compared to the produc vity in
the construc on industry, in advanced countries. In rela on to construc on
market structures, this study also examines the leadership provided by large
Dr Low Sui Pheng
firms in enhancing the performance of the industry, and recommends suitable
measures to address construc on produc vity issues associated with industry structures.
Based on a recent compara ve study of the construc on industry in Singapore and in four advanced
countries (namely Australia, Japan, UK and USA), conducted by the author for the Building and Con-
struc on Authority (BCA), the observa on is that Singapore’s industry structure is not significantly
different from those of advanced countries. Compared to these countries, the extent of fragmenta on
in Singapore is actually less pronounced. Hence, fragmenta on does not appear to be a key factor for
the rela vely lower value-added produc vity in Singapore.

INTRODUCTION advanced countries with high construc on produc vity.

Produc vity issues have always been one of the key Hence, fragmenta on does not seem to be the cause of
concerns of Singapore, in the quest to move the country rela vely lower value-added produc vity in Singapore.
away from low-cost, labour-intensive industries to high
value-adding, knowledge-crea on ac vi es. Produc vity COMPARISONS OF CONSTRUCTION INDUSTRY
in the construc on industry is especially challenging, STRUCTURES
given the uniqueness and complexi es of building proj-
Firm size and employment
ects, around which the industry structure has evolved
over me to become what it is today. Issues rela ng to The construc on industry structure of Singapore is no
the fragmenta on of the construc on industry have also different from those exis ng in Australia, Japan, US and
been observed, wherein: UK. Historically, the number of firms in all these five
countries grew in tandem with growth in the construc-
• Different projects take place in different sub-categories
on industry and there appears to be li le or no barriers
(eg residen al versus commercial buildings), with dif-
to entry by new businesses into the industry. Based on
ferent stakeholders that are supported by a transient
official sta s cs and the largely similar data repor ng
formats for Singapore, US and UK, Table 1 shows that
• Design and construc on have tradi onally been sepa- there are more small firms than large firms in these
rated in the industry. countries.
• The industry structure reflects extensive subcontract- In the UK, the propor on of firms with 1-13 employees is
ing and mul -layer subcontrac ng prac ces, support- par cularly large, at 95.56%. A separate analysis showed
ed by a large number of small firms. that the propor on of small firms in Australia, employing
The study observes that the construc on industry struc- 0-19 persons, was also large, at 97.7%. The high propor-
ture in Singapore is not unique. In terms of firm profile on of very small firms in both UK and Australia could
and subcontrac ng prac ces, it is similar to those of be partly due to the generally higher propor on of small
housing/residen al developments in these countries.


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Number of Percentage of firms (%) Percentage of firms (%) Number of

employees in firm Singapore US UK employees in firm
1-9 54.90 77.68 95.56 1-13
10-49 34.20 18.97 3.79 14-59
50-99 6.70 1.99 0.37 60-114
100-499 3.50 1.11 0.24 115-599
500 persons & over 0.40 0.20 0.04 600 persons & over
(Note: the percentages may not sum up to 100%, because of rounding off)

Table 1: Comparison of the rela ve propor ons of the different categories of construc on firms (determined on the basis of the number of employees),
within the respec ve construc on industries in Singapore, US and UK.

For example, in the 3rd Quarter of 2014, the UK Office

for Na onal Sta s cs reported the following figures for
firms opera ng under the ‘Main Trades’: 18.5% (commer- 40.1%
cial buildings), 47.5% (residen al buildings) and 34.0%
(civil engineering). Addi onally, among the significant 39.2%
47.5% of firms in the residen al buildings sector, there
were many small firms.
Collec vely, these results showed that the percep bly high
propor on of small firms in Singapore is actually lower 37%
than the propor ons of small firms in US, UK and Austra-
lia. In fact, in percentage terms, there are generally more
small firms in US, UK and Australia, than in Singapore.

Propor on of subcontrac ng
The larger number of small firms as well as the larger
propor on of employment in these small firms appear
to point to the significant prac ce of subcontrac ng in all Figure 1: Extent of subcontrac ng in Australia, Japan and Singapore.
these five countries. Of these countries, only Australia,
Japan and Singapore publish sta s cs rela ng to subcon-
trac ng prac ces in the construc on industry. In both As subcontractors are specialists and are more proficient
Australia and Japan, these sta s cs are presented, based in their own trades, compared to general main contrac-
on the income derived from subcontrac ng. In Singapore, tors, subcontrac ng can help raise produc vity if the
sta s cs rela ng to subcontrac ng prac ce are presented, main contractor has good project management to deal
based on the amount of subcontract work done by others, with both the large numbers as well as mul ple-layers of
and expressed as a ra o of construc on turnover. subcontractors.

From Figure 1, it can be seen that subcontrac ng prac- This study further reviewed the extant literature on
ces are extensive in Australia (40%), Japan (37%) and studies related to mul -layer subcontrac ng in various
Singapore (39%) and we can extend the conclusion to countries. The literature review showed that subcon-
the UK and US, as well, even though no subcontrac ng trac ng is ac vely and extensively prac sed worldwide
sta s cs are available from these two countries. The for pragma c reasons, related to economics and effi-
subcontrac ng prac ce seems to be underpinned and ciency. There is no difference between the mul -layer
supported by the large number of small firms in the five subcontrac ng prac ces in Singapore and those in other
countries, which further reinforced the observa on that advanced countries, as summarised in Table 2.
Singapore’s construc on industry structure is similar to Further in-depth interviews conducted with foreign main
those of advanced countries. contractors opera ng in Singapore also suggested that
there is no difference between the mul -layer subcon-
SUBCONTRACTING PRACTICES trac ng prac ces in Singapore and those in the home
countries of the interviewees (a majority of them were
To be er understand why subcontrac ng is extensively
from Japan).
prac sed locally and its effect on produc vity, in-depth
interviews were conducted with 11 main contractors and There might be a rela onship between the size of a
five subcontractors, in Singapore. The interviews revealed project and mul -layer subcontrac ng prac ces. For
that main contractors turned to subcontrac ng prac ces to instance, more complicated and larger building projects
counter market uncertain es and reduce business risks, and would involve more layers of subcontrac ng. However,
when they do not have the necessary exper se to do a job. the extent of this rela onship should be viewed on a


September 2017

Countries Subcontrac ng layers Sources

Interviews with 30 local/foreign main/subcontractors in
Singapore 2-4
Hong Kong 4 Lo, 2000; Tam, 2001; Yik and Lai, 2008; Tam et al, 2011
Hippoh, 1983; Hasegawa, 1988; Levy, 1990; van Kooij,
Japan 3-5 1991; Yau, 1991; Reeves, 2002; An and Tsunemi, 2011;
MLIT, 2015
South Korea 3-5 Yun, 2010
United Kingdom ≥3 Oyegoke et al, 2012; DBIS, 2013
Ardi and Cho bhongs, 2005; Warrick, 2006; Beck, 2012;
United States 5-6
Smith and Brand, 2010
European countries Typically starts with 3 Houwerzijl and Peters, 2008
Table 2: Summary of subcontrac ng layers in different countries.

case-by-case basis. In addi on, there is a rela onship

between the types of trades in the construc on indus-
try and mul -layer subcontrac ng prac ces. Again, this
rela onship seems to vary and should also be viewed on
a case-by-case basis.
All the main contractors interviewed were of the view
that mul -layer subcontrac ng cannot be eliminated
completely in the construc on industry. The interview-
ees seemed to have accepted mul -layer subcontrac ng
as part and parcel of work prac ces in the industry.
Nonetheless, while the interviewees were generally of
the view that mul -layer subcontrac ng cannot be elim-
inated completely, they remain open to opportuni es
to reduce the number of layers, on a case-by-case basis. Notes: 1. As a proxy, greater Construc on Output/Firm denotes less
This is especially so, if they no ce that too many layers of fragmenta on. 2. Construc on output/firm and labour produc vity data
were derived, based on reference years 2013 and 2011-2013, respec vely.
subcontractors are hampering work progress and affect-
ing quality standards in their projects. Figure 2: Normalisa on based on Construc on Output/Firm.

In addi on, regardless of the number of ers one sees in

mul -layer subcontrac ng, it appears that clear, mely the advanced countries, who would nego ate for higher
communica ons and coordina on are the two most minimum wages for their members, means higher labour
important factors for effec ve project management. costs in these countries.


PRODUCTIVITY The construc on industry has a fragmented industry
The findings of a normalisa on exercise (Figure 2), using structure due to the unique nature of construc on and
construc on output per firm as a proxy for fragmenta- building works as well as due to the ease with which
on, showed that the industry structure in Singapore new businesses can readily enter and exit the market. If
appears to be less fragmented than those in Australia, properly managed, specialist (mul -layer) subcontrac ng
Japan, UK and US. However, while Singapore’s construc- actually serves to support and not undermine construc-
on industry structure appears to be less fragmented, on produc vity, because of the unique nature of the
Singapore’s construc on produc vity is lower than that industry.
in Australia, Japan, UK and US, based on value added
produc vity (VAP) or value added per worker. Hence, granted that the industry structure and
mul -layer subcontrac ng prac ce is here to stay, a
Previous studies elsewhere have however concluded that three-pronged approach is recommended to address
VAP is not a reliable indicator, due to its many inherent construc on produc vity issues associated with industry
limita ons (Low, 2015). Specifically, the low wage level in structures. The three areas in this approach are:
Singapore has resulted in lower VAP, given that remu- (a) Technology Enhancement
nera on cons tutes a significant por on of construc on
value added. The presence of strong labour unions in (b) Project Management


September 2017

(c) Launching a na onal drive for construc on research Hasegawa F (1988): ‘Built by Japan. Compe ve strategies of
and development (R&D), as a rallying point for the local the Japanese construc on industry’, John Wiley & Sons, USA.
construc on industry, along the lines of that prac sed Hippoh Y (1983): ‘The construc on industry in Japan: A survey’,
by top Japanese contractors. Asian Produc vity Organiza on, Tokyo, Japan.
It is noteworthy that significant por ons of this three- Houwerzijl M and Peters S (2008): ‘Liability in subcontrac ng
pronged approach are already in place, to some extent, processes in the European construc on sector’, European
in Singapore, through the ini a ves of BCA, to promote Founda on for the Improvement of Living and Working Condi-
the adop on of Design for Manufacturing and Assembly ons, Dublin, Ireland.
(DfMA) technologies, lean construc on, Building Infor-
ma on Modelling (BIM) as well as Virtual Design and Levy S M (1990): ‘Japanese construc on. An American perspec-
Construc on (VDC). These should help to reduce the ve’, Van Nostrand Reinhold, New York, USA.
number of workers on-site as well as wastage, which Lo S L L (2000): ‘A study of restric ng the mul -layers sub-
should then alter the industry structure in Singapore, so contrac ng prac ce to improve the safety performance of
as to achieve higher labour produc vity in construc on. the Hong Kong construc on industry’, unpublished Master of
It will also help to further enhance communica ons and Applied Science report, University of Western Sydney and Hong
coordina on in project management prac ces. Kong Polytechnic University.
The study also found that Singapore does not have a Low S P (2015): ‘A review of construc on produc vity indicators
consistent core of local contractors to anchor and lead in Singapore’, The Singapore Engineer, August 2015, pp 24-30.
the industry, unlike in Japan where the group of top
MLIT (2015): ‘The current situa on of the Japanese construc-
Japanese contractors (eg Obayashi, Kajima, Shimizu,
on industry’, Slides prepared for the 12th Mee ng of the
Taisei and Takenaka) con nues to thrive and seems to
Basic Problems Subcommi ee, Ministry of Land, Infrastructure,
have provided long-term stability and core leadership
Transport and Tourism (MLIT), Tokyo, Japan (in Japanese).
in upgrading the Japanese construc on industry, in the
areas of produc vity and technology, through their Oyegoke A et al (2012): ‘Transforma on in the tradi onal pro-
campus-like research ins tutes as well as their empha- curement route in the UK’, Proceedings of the Joint CIB W070,
sis on reducing wastage through lean thinking. W092 & TG72 Interna onal Conference: Delivering Value to the
Community, University of Cape Town, South Africa, pp.486-493.
Therefore, by pu ng in place a na onal drive for Reeves K (2002): ‘Construc on business systems in Japan:
construc on R&D, such as the recent establishment of General contractors and subcontractors’, Building Research and
the Built Environment Research & Innova on Ins tute Informa on, 30(6):413-424.
(BERII) and the Built Environment Technology Centre
(BETC), by BCA, resources can be pooled to facilitate Smith M P and Brand J S (2010): ‘Annual report of the Joint En-
more impac ul R&D ac vi es at the na onal level, that forcement Task Force on Employee Misclassifica on’, to David
will help local contractors to level up and strengthen A Paterson, Governor of the State of New York, Department of
Labor, New York State, US.
their capabili es through technology licensing, with
a long-term view of expor ng their services overseas. Tam S S (2001): ‘The effect of construc on contractor’s
These various ini a ves by BCA, to drive innova on, mul -layer subcontrac ng strategy on project performance:
will transform the construc on industry so that it will a case study of construc on firms in Hong Kong’, unpublished
achieve higher labour produc vity. DBA disserta on, Hong Kong Polytechnic University.
Tam V et al (2011): ‘Impacts of mul -layer chain subcontrac ng
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