OSL E115

Environmental Scanning
of Real Estate Industry
in Bangladesh
BALANCED SCORECARD: STRATEGIC MANAGEMENT SYSTEM

Mohammad Ashfaqur Rahman

ID # 9180 4001
Environmental Scanning of Real Estate Industry in Bangladesh

Contents

1. Introduction ..................................................................................................................................... 2
1.1. Industry Background ................................................................................................................ 2
2. Scope of the Study ........................................................................................................................... 2
3. Limitation of the Study..................................................................................................................... 3
4. Methodology .................................................................................................................................... 3
4.1. SWOT ..................................................................................................................................... 3
4.2. Porter's 5 Forces ...................................................................................................................... 3
4.3. PEST Analysis.......................................................................................................................... 4
4.4. Value Chain Analysis ................................................................................................................ 4
4.5. Four Corner Analysis ............................................................................................................... 4
5. Environment Scanning ..................................................................................................................... 4
5.1. External Environment Scanning............................................................................................... 4
5.1.1. SWOT.................................................................................................................................. 4
5.1.2. Porter Five Forces Model ..................................................................................................... 5
5.1.3. PEST Analysis...................................................................................................................... 6
5.1.4. Value Chain Analysis ............................................................................................................ 6
5.1.5. Four Corner Analysis ........................................................................................................... 7
5.2. Internal Environment Analysis ................................................................................................. 8
5.2.1. Company History ................................................................................................................. 8
5.2.2. Company Mission and Vision ............................................................................................... 8
5.2.3. Market footprint................................................................................................................... 8
5.2.4. Financial Status .................................................................................................................... 8
5.2.5. SWOT Analysis .................................................................................................................... 9
5.2.6. Value Chain Analysis ............................................................................................................ 9
6. Observation ............................................................................................................................... 10
7. Suggestion .................................................................................................................................. 10
8. Conclusion ................................................................................................................................. 10

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Environmental Scanning of Real Estate Industry in Bangladesh

1. Introduction

Though having insufficient infrastructure and slow implementation of economic reform, Bangladesh is
among the five fastest-growing economies of the world. According to World Bank Bangladesh economy
continues to be among the fastest growing economies in the world due to stable macro and export-
oriented industry-led growth1. The resilient domestic demand have led to growth in manufacturing and
construction industries, which includes readymade garments, food, real estate etc.
According to another report from World Bank, Bangladesh is experiencing faster urbanization in South
Asia. One of the reason behind this is the existence of the poverty and slum. The Dhaka is still
dominating the economy of Bangladesh, the major contributing industry are being shifted out of the city
and into its districts neighboring the city. The expanding urban populations presents it with a
considerable affordable housing challenge2.
Because of the urbanization, and improvement in life style and/or expectation of the improvement
demand of the residential real estate is increasing. Considering the projection that 50% people of the
country will live in the urban areas by 2025, presently there are more than 100K units of apartment
and/or flat are required only for Dhaka City3.

1.1. Industry Background

The history of real estate development business in more than 8 (eight) decades, which starts from the
planning of allocating land in the format of plot for leasing in “Dhanmondi” area by Government. Later
of government and their associated allocated plots in “Mohammadpur”. The large scale plot allocation
project for urban expansion was “Gulshan” lead by the chairman of Dacca Improvement Trust Mr.
Madani in ‘60s.
But the focus of the study is apartment business operated private developers, which has begun around 4
(four) decades ago. It is assumed by all that Eastern housing is the pioneer in this business by starting
selling residential apartments in Dhaka. But in real scenario the first apartment was developed nu Ispahani
group in Dhaka.
Real Estate & Housing Association of Bangladesh (REHAB) is the association of the real estate
developers in Bangladesh. REHAB at the time of its inception in 1991 had only 11 members who were
developers & builders. Presently there are more than 1000 member in the association. The massive
involvement of the business man in the industry reflects the high level of attraction.

2. Scope of the Study

As per the website of REHAB most the members are working in Dhaka. Apart from Dhaka Chottogram,
Cumilla and Khulna having the footprint. This assignment mainly focuses on the apartment development
based business; that is the business of the residential apartment unit development and sales. Commercial
space developments are not considered in this paper. The study analyzed the external environment of the

1 https://www.dhakatribune.com/bangladesh/development/2019/04/04/wb-projects-7-3-gdp-growth-for-
bangladesh-for-fy2019
2 https://www.worldbank.org/en/country/bangladesh/brief/leveraging-urbanization-bangladesh
3 http://ibtbd.net/present-condition-and-future-prospects-of-real-estate-in-bangladesh/

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entire industry and internal environment of on organization has been analyzed. The organization has been
selected based on the availability of data, both financial and non-financial.

3. Limitation of the Study

The study have some limitation, which included

 Because of time limitation, for the course paper it was not possible to collect sufficient amount
of data by doing survey, interview etc widely.
 Most of the companies of the industry maintain a very high level of confidentiality regarding their
investment, procurement process, operational expenditure etc.
 Organizational policy of not disclosing some data and information for obvious reason.
 Most of the study was dependent on websites. Lack of proper data maintenance was an issue.
 The companies are maintaining a very complex backward supply chain which is difficult to
understand and describe in brief

4. Methodology

To scan the environment we have followed some specific scanning tool. Some of them are used to
analyze the external environment, some for internal environment. A few of them are used to get the
understanding of the both environment. The tools which are used are:

4.1. SWOT
SWOT mean Strengths, Weaknesses, Opportunities, and Threats. Where strength and weakness are used
to understand the internal environment of the industry and Opportunities and Threats are used to
understand the external environment. Both the Strength and Opportunity works as enabler where and
Weakness and threat are considered as challenges

4.2. Porter's 5 Forces

This model is not only an environmental scanning tool but also used to identify the attractiveness of any
industry or product. The model helps to determine the enablers and challenged in a granular level. The
forces which are considered are

 Threat of new entrants : This parameter discuss about the possibility of entrance of
new company in the industry. The entry possibility depends of the profitability, regulatory
obligation, investment requirement, expected return on investment and as well as the target
market saturation
 Threat of substitutes : Substitution is about the availability of alternative product
which may satisfy the same customer needs. Buyer personality and the relative price factor are the
main driver of this force along with the technological differentiation.
 Bargaining power of customers : Based on the customer sensitivity, switching cost this critical
force fluctuates. The ability of getting information also now a major driver to change the
attractiveness of the product.
 Bargaining power of suppliers : The input provider for the business process are considered as
the supplier of the industry. Effort required for the switching the supplier, number of supplier,
consortium of the supplier and the availability of raw material are important to this force.

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 Competitive rivalry : The rivalry depict the competition among the industry players.
From innovation to production quality provide the forces to the rivals to expose their ability and
change the dynamics of the rivalry.

4.3. PEST Analysis

PEST analysis consist of Political, Economic, Social and Technological forces which can be used f or
understanding market growth or decline, and as such the position, potential and direction for a business.
Sometimes it's expanded to include legal and environmental factors and called a PESTLE analysis.

4.4. Value Chain Analysis

In order to fit in the industry this is required have a competitive advantage. This method is used to
analyze the value adding procedure of the company’s operational activities and identify the way to create
the comparative advantage. The process of value chain have two different kind of activities,

 Primary Activities : The activities which are directly concerned about the about
the creation and delivery of the product. The entire suit of the activities includes five main areas:
inbound logistics, operations, outbound logistics, marketing & sales, and service
 Support Activities : There are some activities which are related with the primary
activities to support in order to reach the competitive advantage. The four main areas of support
activities are procurement, technology development (including R&D or innovation), human
resource management, and infrastructure (systems for planning, finance, quality, information
management etc.)

4.5. Four Corner Analysis

This analysis method helps to identify the competitor’s intent and objectives, and the strengths. it is a
useful technique to evaluate competitors and generate insights concerning likely competitor strategy
changes and determine competitor reaction to environmental changes and industry shifts.

5. Environment Scanning

Throughout this course work, it has been tried to analyze the external environment of the real estate
industry, more actually the apartment business of the real estate industry and later we tried to analyze the
internal environment of the a real estate company name “Easter Housing Limited” which is listed
company user Security and Exchange Commission to be traded under stock market.

5.1. External Environment Scanning

To understand the external environment of the real estate industry, the opportunity and threat (from
SWOT analysis), Porter five forces model, PEST analysis, Value chain analysis and four corner analysis.

5.1.1. SWOT
In the SWOT analysis the Opportunity and Threats are considered as the reflection of the external
environment. Here opportunities are considered as enablers and threats are the challenges.
Opportunity : There are some major opportunities for the real estate business, specially
apartment development business in urban areas. Some of them are

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 More than 35% of total population lives in the urban areas and the urbanization rate is very high
in Bangladesh, which depict the necessity of house and apartments4.
 Most of the urban people are having a tendency of avoid land purchase only because of the
complexity of the legal papers.
 Price of the land in major cities are increasing day by day. Even in some area the price of the land
is higher than the price in many advance countries5.
 Peoples are still having inadequate knowledge of building construction process.
 House rents are still high in cities, in most of the case for middle class earning or higher middle
class earning people are spending around 30% to 50% of their income as the house rent6.
Threat : Apart from the opportunities, there are still some challenges which could be
called as threats.

 As number of the developer and income of the citizens are increasing respect to time, the
bargaining power of the customer is increasing
 There is a dilemma between the land price and demand of apartment. Increment of land price
decrease the interest of the purchase land as well as increase the interest of purchasing apartment.
On the other hand, increment of land price also increase the apartment price.

5.1.2. Porter Five Forces Model

Threat of new entrants : There are very high threat from others to be entered to the market.
The reason may included

 There are no strong rules or legal obligations to be entry in the market.

 Though the initial investment requirement is high, the financial market have a long history to
support the industry.
 It is possible to start the business with very low fixed cost item.
Threat of substitutes : There are no strong substitute of the products. The most common
substitute of readymade apartment is residential plots (and the vice-versa).
Bargaining power of customers : Bargaining power of customer is getting higher and higher. There are
many factors running behind this, like

 The number of suppliers is increasing day by day. Even if the market is segmented as per rate per
square feet there are multiple giant player in each segments
 All the real estate developers are a very complex product mix and customization option to the
customer. Customers are eligible custom their product in details
Bargaining power of suppliers : The suppliers or the vendor are having very strong bargaining power,
specially backed up by syndication. The number of the raw material producer is still low for some critical
materials like steel rod, ceramic breaks etc.

Competitive rivalry : It is already been discussed that, the entry to the market is not highly
restricted. Also there are huge amount of demand. Still there is medium level of competitive rivalry.

4 https://sites.google.com/site/bdguiber/home/6-english/bangladesh/emerging-bangladesh/-urbanization-in-
bangladesh
5 https://link.springer.com/article/10.1186/s40728-018-0046-0
6 https://www.thedailystar.net/opinion/interviews/news/affordable-housing-pipedream-most-dhakas-residents-

1701076

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Forces Magnitude of the force

Threat of new entrants High
Threat of substitutes Low
Bargaining power of customer High
Bargaining power of suppliers High
Competitive rivalry Medium

5.1.3. PEST Analysis

Political and Legal forces : The impact of the political and legal forces is still very low on this industry.
The rules are regulations for building development and apartment business is still not matured. Also still
there are lack of effort from the enforcement existing law and regulations. In Bangladesh Building
Construction Act, Town Improvement Rules, Details Area Map (DAP) etc are followed. But to run the
real estate business there are not complex law or regulation from operational perspective.
Economic Forces : The industry is having very good economical backup to sustain as well
as run their operation.

 For the customer the financial institutes including bank are offering attractive loan scheme with
low interest rate and high tenor period.
 Some banks and non-banking financial institutes are doing financial alliance with the developer
to ensure the construction expenses.
 High inflation rate is a challenge to the industry, because it increases the price of the raw
materials. Also it decreases the buyer interest by reducing their capabilities.
Social and Demographic forces : Because of the high rate of the urbanization which also lead to a
complex social culture, the real estate industry is highly impacted by the Social and demographic factors.

 The urban areas are already having only few residential land to be developed. There after
developers are not interested to build multi storage buildings
 Because of the low social security, the idea of condominium is getting popular day by day, which
will ensure maximum number of facilities in a single campus.
 The family structure is different than earlier in Bangladesh. Presently people are not living in
combined family and preferring very small size family. Based on the same the demand of small
and medium size apartment is getting high day by day.

5.1.4. Value Chain Analysis

Real estate business is integrating multiple types of people, procedure and technology to maintain the
value chain of the industry. From the complex backward supply chain to high level of customer
responsiveness is required for the operation of real estate.
Among the primary activities the most critical part is the managing the complex inbound logistics, which
included basic ram material like bricks, cement, rod to finishing item like tiles, electrical fittings etc. for a
single one building project the developer need to manage 20 to 30 vendors.
The operational procedure is less complex than the inbound logistics. But in this stage the actual value is
added, that is the building is being constructed. This step included production accuracy and uses of
appropriate technology in time.
For real estate business the outbound logistics is not that much important, where sales and marketing is
the core area where the companies should focus on. As buyers are having better bargaining power now a
days and tendency of pre purchase switching rate, companies need to ensure end-to-end communication

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and exposure to customer. Also it is important more than 70% percent of the sales commitment are done
before the furnished product arise.
Among the supportive activity the human resource function need very special focus, because of the high
turnover rate of the employee. Also Research and Development more actually the innovation department
is another part which need special care. Specially the architecture department has be very well equipped to
meet the customization requirement of the customer. Also meeting the compliance regarding the building
code and related regulations etc. are another critical challenge to the technology department.

5.1.5. Four Corner Analysis

This model is popular for analyzing the competitors movement which is required for prepare own
strategy. Considering projected demand up to 2025 the following is an abstract presentation on a
company’s factor of motivation and relevant action.

Motivation Action

Drivers Current Strategy

 Reach the goal of “Sustainable cities  Purchasing land in the downtown
and communities” under SDG regions
 Continue the contribution to growing  Mixing of personal and corporate both
GDP (by more than 12%) sales
 Meet the demand of 1 million plus  Varies types of price mix for the same
apartment in Dhaka product

Competitor’s Future Strategy

Management Decision Capabilities

 Focusing on the condominium based
 Easy loan management for the
product
customer
 Collecting money from secondary
 Low wages for the labor
market
 Low salary for the engineers
 Expanding business in downtown
areas  End-to-End solution for the customer

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5.2. Internal Environment Analysis

Internal analysis in considered as one of the process of strategy formulation which focuses on reviewing
the resources, capabilities, and competencies of a company. The goal is to identify the strengths and
weaknesses of the company.7 For internal environment analysis strength are considered as enablers and
weakness are the challenges.
For the purpose of internal analysis, one real estate company name “Eastern Housing Limited” (EHL),
which is an enlisted company Securities and Exchange Commission and traded under Dhaka Stock
Exchange and Chittagong Stock Exchange.

5.2.1. Company History

In 1964, Eastern Housing Limited started their by business by introducing the countries first private real
estate project “Pallabi”. Later on they started their first apartment project in Siddheswari, Dhaka. In 1993
the company was registered with the Registrar of Joint Stock Companies and Firms. It raised capital with
an overwhelmingly subscribed IPO of shares and debentures, with a prospectus issued in July, 1994. The
company is a REHAB member and was formed by Jahurul Islam to reduce the housing problems of
Dhaka city.

5.2.2. Company Mission and Vision

Vision : To be a world class Real Estate Developer creating maximum value by
providing quality homes and business.
Mission : To build and develop environment friendly Apartments, Commercial
Buildings & Land Projects using the highest standards of Safety, Architecture, Engineering & Green
technology

5.2.3. Market footprint

Eastern Housing Limited (EHL) is doing business in both land and apartment development. They are
focusing not only the commercial plot or building space but also in residential plots and apartments. As
per their business pattern of last few years they are operating 10 to 12 construction concurrency and most
of them are residential. They are also developing three biggest land projects in Dhaka at this moment.

5.2.4. Financial Status

The company has made a net profit of Tk32.44 crore in the recent fiscal year (2017-2018). The growth in
income before taxes, and net profit, in the That fiscal year were 30.97% and 9.49% respectively, which
were 29.33% and 6.86% in the previous year. Concerned officials of the company said they had managed
to reduce the finance cost. The financing cost to revenue ratio was only 5.33% in the last fiscal year,
which was 8.47% in fiscal year 2016-2017.8 It is to note that the company is operating with a paid up
capital of 93 crore where the authorized capital in 200 crore. The current ratio is just above 1 for last few
years which shows the solvency of the company.

7 MLA (11th ed.) Hill, Charles W. L, and Gareth R. Jones. Strategic Management: An Integrated Approach
8 https://www.dhakatribune.com/business/2019/03/25/eastern-housing-revenue-soars

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5.2.5. SWOT Analysis

Strength is the enablers for the internal environment where are Weakness are considered as the challenges
in internal environment during the SWOT Analysis
Strength : The experienced company EHL is having multiple strengths. Some of
those are

 They are having experience of doing apartment business in same location and similar
communities for around 40 years.
 They have maintained their reputation as a brand from the inception.
 Strong financial status where the current ratio is just higher than 1.
 They have a very good customer relationship management department which ensures end to end
solution including apartment customization to mutation of the land.
 Because of low number of permanent staff, the operating cost is low.
Weakness : Though doing very good business, Eastern Housing Limited is having
a few weaknesses, which includes

 Because of staring the as a family business, still after being a public limited company, nepotism
exists in the top management level.
 Though the market is very much competitive, they are not interested in more marketing. They
are allocating 6 to 8 percent of total expense for advertising and communication purpose.
 They are maintaining very high amount of inventories where as there might be some option to
reduce the inventory host cost.

5.2.6. Value Chain Analysis

Primary Activities : We have already seen that from the financial statement, EHL is having
well amount of inventories in hand. But they are not focusing on the marketing. The understandings are,

 EHL is having good amount of inventory in hand always, which seems that they usually do not
face any challenge in backward supply chain
 EHL having good reputation in market regarding the in time delivery which reflect the
operational excellence of them
 EHL always spending very small in marketing, but they kept their profit level in a stable, it
seems they are either cost concerned about marketing or they are doing very niche marketing.
Supportive Activities : The activities which are required to give the excellence to primary
activities are known as supportive activities.

 Regarding the procurement process we didn’t get any clear idea, but one of the core principles
that they mention is transparency. Based on that they are transparent in procurement.
 Human Resource Management is one of the core competency in which they have excel them.
The company is running within 620 to 640 employees for last few years, Also the top level
management people are working in this company for long period of time. The executive
director is working in the same group (Jahirul Islam Group) for more than 40 years. It seems
that
o EHL is having excellence in human resource utilization
o EHL is having excellence in employee retention

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 From the balance sheet it has been seen that they have good amount of liability which are
reserved for employee end service benefits. It means that they may have attractive employee
budget.

6. Observation

 Eastern Housing Limited has transformed their business from family business to public limited
company but still they have nepotism in the top management level.
 EHL focuses on direct marketing mainly. Apart from that, they also attend exhibition and fair.
They are very selective in publishing advertisement in newspaper, magazine etc.
 EHL is a very much employee oriented company which is seen from low turn-out rate,
provident fun, gratuity, profit participation fund and insurance.
 The directors are attending the board meeting regularly, which is a symbol of good corporate
governance

7. Suggestion

As the real estate market more actually apartment development business is growing, Eastern Housing
Limited is still doing well in their field. They are sold almost equal unit of land and apartment (1623
apartments and 1547 plots) in 2016-17, where as in the previous year the sold more apartments (1710
units) than lands (969 plots). The need to focus more on the apartment business, as from earlier records it
seems that apartment business is more profitable than other one.
One of the major challenges in apartment development is inadequacy of skill labor. Furthermore
automation may ensure better customer service and debt collection than earlier.
In the era of digital world, direct marketing over phone is not sufficient. In order to perform promotion
in more cost effective way EHL can start digital marketing method and tools like SMS marketing,
following potential customer over social network, introducing additional offer for online transaction etc.
Scanning the entire environment, we found that there is no price regulator for real estate industry. In that
case people are struggling with the overpriced offers of the developers. One regulatory authority should
be formed (apart from RAJUK, KDA, CDA etc) centrally in order to ensure the quality and price of the
apartments.

8. Conclusion

Environmental scanning not only concern about the financial parts of the organization, but also it
consider the organization policy, procedure, culture and other aspects. Environmental scanning is one of
the most important task for the strategist for strategy formulation. Perfect environmental scanning may
help to prepare another practice outline named, Balanced Scorecard.

Though the market is booming day by day, people are still not confident about the quality of construction
and construction material. Also complex land procurement and distribution system sometime introduced
more complexity. The construction guideline still needs to be revised considering the surrounding
environment and natural disaster. The top most challenge is there is no price regulator for this industry in
Bangladesh. Overcoming these thing we may have better environment in the industry.

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