POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

OPEN UNIVERSITY SYSTEM

SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

CM650 – Principle of Construction Management

“INDIVIDUAL RESEARCH & ASSIGNMENT, IRA01”

PRINCIPLE OF CONSTRUCTION MANAGEMENT

LITERATURE REVIEW: TOPIC 2

Presented to

Ar. Reynaldo C. Ventura, Jr.

In Partial Fulfillment for the Requirements of Master of

Science in Construction Management (MSCM)

Submitted By:

Engr. Apolonio Dela Cruz Mallorca II

2022
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

Table of Contents

Why Construction is considered a highly fragmented Industry?: Literature Review ............... 3

1. Introduction ................................................................................................................ 3

2. Global Construction Market ........................................................................................ 3

3. Philippines Construction in highly fragmented market................................................. 5

4. Characteristics of Fragmented Market ........................................................................ 5

Low barriers to entry ...................................................................................................... 5

Lack of Economies of scale ........................................................................................... 6
Lack of Experience Curve .............................................................................................. 7
High Inventory Costs and Fluctuation of Sales ............................................................... 8
Diversified Market Needs ............................................................................................... 9
5. Conclusion and Recommendation ............................................................................ 10

6. References ............................................................................................................... 11

Page | 2
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

Why Construction is considered a highly fragmented Industry?:

Literature Review

1. Introduction

A fragmented industry is one in which many companies compete and there is no single or

small group of companies which dominate the industry. The competitive structure of the

industry means that no one company is in an overly strong or influential position in the industry.

Fragmented industries make ideal targets for companies looking to enter and potentially

dominate a market. The nature of fragmented industries means they often provide fewer

barriers to entry than more consolidated industries (Marketplacer, 2016).

Typically, fragmented markets and industries are comprised of several firms and

organizations that compete inside a certain industry, but none of these small and medium-

sized businesses dominate the whole market within it (Moriarty, 2022).

2. Global Construction Market

According to report (Emergen Research, 2021), the global construction market size

reached USD 12,639.41 Billion in 2020 and is expected to register a Compound Annual

Growth Rate (CAGR) of 7.4% during the forecast period. Increasing urbanization due to

growing population globally with rise in disposable income is expected to drive global

construction market revenue growth over the forecast period. In addition, rapid technological

advancements in infrastructure development with growing demand for environmentally friendly

buildings with low carbon footprint are other key factors augmenting growth of the global

construction market. Another factor expected to propel construction growth is improving

Page | 3
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

economic conditions in developing countries thus resulting in rising disposable income among

consumers and increasing government investment on public infrastructure.

The global construction market is fairly fragmented, with a number of large and medium-

sized market players accounting for a major revenue share. Key players are deploying various

strategies, entering into mergers and acquisitions, strategic agreements, and contracts,

adopting automated technologies in order to boost pace, speed, and construction and

infrastructure projects, and introducing new and more advance technologies in the market.

Some prominent players operating in the global construction market are:

 China State Construction Engineering Co., Ltd.

 Al Habtoor Group LLC

 Larsen & Toubro Ltd.

 Bauer Group Ltd.

 China Communications Construction Group Ltd.

 Skanska AB

 Vinci SA

Page | 4
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

 Actividades de Construcción Y Servicios SA

 Bechtel Corporation

 Samsung C&T Corporation

3. Philippines Construction in highly fragmented market

Construction Industry in Philippines is valued at USD 20.05 billion in year 2020 and is

expected to reach USD 54.12 billion by the end of the year 2026. It is expected to grow at a

CAGR of 18.2% because of rising number of construction projects, increasing demand for

green construction projects, implementation of different governmental projects, and increasing

rate of urbanization and growing population However, rising cost of the raw materials required

construction industry and shortage of skilled labour in construction industry might restrain the

growth and development of this market (Reogma-Business Analytics for SMEs, 2021).

4. Characteristics of Fragmented Market

Low barriers to entry

One of the most typical characteristics of a fragmented market is that it is simple for

new companies to enter and establish a position. Since all firms in fragmented marketplaces

compete equally, there should be no entry obstacles. Barriers to entrance into a market might

include high start-up costs, legal and regulatory requirements, and other impediments that

hinder rivals from joining the business. However, there are little, if any, obstacles to entry in a

fragmented market (Moriarty, 2022).

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Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

Based on historical data by category of Construction Industry Authority of the Philippines -

Philippine Contractors Accreditation Board (CIAP-PCAB), total accredited contractors

increased by 45% from 2012 to 2018 excluding the unorganized contractors.

Lack of Economies of scale

The term economy of scale refers to the cost advantage that a company has due to

the size of its commercial activities. For instance, huge firms with substantial economies of

scale are able to sell their products at inexpensive prices due to the size of their operations.

Typically, a fragmented market has no major economies of scale since it comprises primarily

of small and medium-sized businesses, which do not scale as effectively as large, competitive

businesses (Moriarty, 2022).

Large construction projects typically benefit from economies of scale for several

reasons. One, a contractor can hire an electrical crew to be assigned on site all-day for an

extended period of time. The electrician owner can anticipate consistently paying their staff a

full day’s pay. On smaller projects, the same crew could possibly work six hours, but still get

Page | 6
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

paid for eight. It’s unlikely that the crew can be assigned to a different project for those

remaining two hours and still be productive. This is less efficient use of their time versus a full

shift and result in increased cost per square foot (Wolfgast Corporation, 2016).

Lack of Experience Curve

Based on article (Faithful Gould, 2015), The theory of Learning Curve (LC), sometimes also

called ‘experience curve’ or ‘dynamic curve’ was first developed by T.P. Wright in 1936, while

studying time required to make airplane parts. He observed that, as the workers gained more

experience, less time was required to manufacture these parts. This effect was not linear but

seemed to have a constant decrease. To be more precise, he observed that the labor required

for producing doubled quantities, decreased by a constant factor in relation to the original

quantity. The rate of improvement is referred to as the learning rate and is expressed in terms

of slope of a curve. If it is a 70% curve, it represents a 30% reduction in effort with every

doubling of experience. Similarly, an 80% curve corresponds to a 20% reduction in effort. This

percentage varies with the type of industry, from 60% to 95%. Normally an 80% curve is used

in construction. The effort required by the fourth unit will be 20% less than the second unit will;

the hundredth unit will require 20% less effort compared to the fiftieth unit. The rate of

improvement is referred to as the learning rate and is expressed in terms of slope of a curve.

If it is a 70% curve, it represents a 30% reduction in effort with every doubling of experience.

Similarly, an 80% curve corresponds to a 20% reduction in effort. This percentage varies with

the type of industry, from 60% to 95%. Normally an 80% curve is used in construction. The

effort required by the fourth unit will be 20% less than the second unit will; the hundredth unit

will require 20% less effort compared to the fiftieth unit.

Page | 7
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

High Inventory Costs and Fluctuation of Sales

In fact, more than 55%-60% of the total expenditure of a project goes into the

construction materials. But issues regarding the tracking and locating of material deliveries

are always tricky and nerve-wracking at construction sites. The traditional inventory tracking

process easily causes labour intensive, error prone, insufficient storage space, overordering,

increased employment costs and other problems (Stilwell, 2022)

The global cement market is projected to grow from $340.61 billion in 2022 to $481.73

billion by 2029, at a CAGR of 5.1% in forecast period, 2022-2029 (Fortune Business Insights,

2022).

With this, effective construction resource management shall be performed. As per

article (Designing Buildings Ltd., 2022), construction companies face the challenge of

delivering often complex projects to a schedule, within a budget, and hopefully with a

reasonable profit margin. Resource management is the process of planning the resources

necessary to meet the objectives of the project, and to satisfy the client’s requirements.

Page | 8
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

Without proper resource management, projects can fall behind schedule, or can

become unprofitable. The objective is to ensure the adequate and timely supply of resources,

whilst at the same time maximizing the utilization of resources between projects.

Diversified Market Needs

Highly competitive sectors are often comprised of a number of revenue-generating

enterprises and organizations. This may be attributable to the firms’ capacity to consistently

provide unique and novel items to the market. However, in a fragmented market there is

typically a lack of product variety, innovation, and even personalization. It is likely that a market

is fragmented if the product offers of many firms within the market are comparable and there

are no inventive techniques to developing new goods (Moriarty, 2022).

The construction industry is leveraging technology to make construction management

and site operations more efficient and sustainable. The major construction industry trends

include building information modeling (BIM), construction robotics, and the use of advanced

building materials. Further, the COVID-19 pandemic creates the need for newer ways of

construction that adhere to worker safety and regulations. Hence, startups and scaleups

increasingly develop innovations around prefabrication, worker safety, and construction

robotics. Parallelly, 3D printing, and green building solutions significantly reduce the negative

impacts of construction on the environment (StartUs Insights, 2022).

Page | 9
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

5. Conclusion and Recommendation

In this study, the researcher reviewed the how the construction industry is highly

fragmented industry especially in Philippine’s construction industry due to rapid urbanization

and diversified market needs.

As of now, we are living in an era where technology is advancing at an unprecedented

rate. Most of large construction companies performing diversification strategy to consistently

provide unique and inventive techniques to meet the stakeholder’s satisfaction and profitable

income. Evidently, adopting modernized software and equipment in construction will improve

the productivity, efficiency, and the quality of the construction work to mitigate the risk in

industry.

Therefore, it concluded that technology is the key player in innovation of construction

industry. It is highly important in construction management plan to streamline the entirety of

the work to mitigate the construction company to be fragmented by using innovative

construction methods and materials, services, and effective resource management.

Page | 10
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

6. References

Construction Industry Authority of the Philippines (2018, September 8). Historical Data-

Statistics of Licensed Contractors. http://construction.gov.ph/statistics/statistics-of-

pcab-licensed-contractors-by-category/

Designing Buildings Ltd. (13 May 2022). Article: Resource management in construction. The

Construction Wiki edited last 2022, May 13.

https://www.designingbuildings.co.uk/wiki/Resource_management_in_construction

Emergen Research ( 2021, June). Construction Market By Type (Building Construction, Heavy

and Civil Engineering Construction, Specialty Trade Contractors, Land Planning and

Development), By Building (Residential Building, Non-Residential Building), By

Construction Machinery, By End-Use, and By Region Forecast to 2028.

https://www.emergenresearch.com/industry-report/construction-market

Faithful Gould, member of SNC Lavalin Group (2015, July 3). Applying Learning Curve Theory

in Construction Cost Estimating. https://www.fgould.com/americas/articles/applying-

learning-curve-theory-construction-cost/

Fortune Business Insights (2022, April). Building & Construction Materials: Cement Market

Size, Share & COVID-19 Impact Analysis, By Type (Portland, Blended, and Others), By

Application (Residential, and Non-residential), and Regional Forecast, 2022-2029.

Market Research Report. https://www.fortunebusinessinsights.com/industry-

reports/cement-market-101825

Marketplacer (2016, October 24). How do you identify a fragmented industry?.

https://marketplacer.com/blog/how-do-you-identify-a-fragmented-industry/

Page | 11
Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B
 POLYTECHNIC UNIVERSITY OF THE PHILIPPINES-
OPEN UNIVERSITY SYSTEM
SCHOOL OF DISTANCE EDUCATION
MASTER OF SCIENCE IN CONSTRUCTION MANAGEMENT
STA. MESA, MANILA, PHILIPPINES

Moriarty, P (2022, August 22). What is a Fragmented Industry? Advantage, Strategy, 10 Facts.

Student Savings Club Sharing Financiahttps://www.studentsavingsclub.com/what-is-a-

fragmented-industry/

Reogma-Business Analytics for SMEs (2021). Construction Industry in the Philippines.

https://www.reogma.com/industry-reports/construction-industry-in-the-philippines/

StartUs Insights (2022). Research Blog: Discover the Top 10 Construction Industry Trends &

Innovations in 2022. https://www.startus-insights.com/innovators-guide/top-10-

construction-industry-trends-innovations-in-2022/

Stillwell, C. (2022 (January 13). Inventory Control in Construction: Data Matters. Voyage

Control. https://voyagecontrol.com/logisticsexpert/inventory-control-in-construction-

data-matters

Wolfgast Corporation (2016, October 5). How Economies of Scale Works in Construction.

https://www.wolgast.com/blog/how-economies-of-scale-works-in-construction

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Engr. Apolonio Dela Cruz Mallorca II
CM650 1-1B