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Industry Definition
The heavy and civil engineering construction subsector focuses on the construction of
infrastructure projects. These projects are separated into three (3) classifications: 1) General
engineering includes roads, highways, pavement, bridges, flood control, water supply, port, and
harbor; 2) General building such as industrial plants, sewage, water treatment plants, park and
playground; 3) Specialty works like structural steel, elevator, escalator, well drilling, and landscaping.
These projects may include new constructions, additions and alterations, and maintenance and repairs.
5-Forces Conclusion
The industry is observed to have strong rivalry of players together with strong bargaining
power of suppliers and buyers. On the other hand, the high capital requirements impede the threat
from new entrants and the weak threat from substitutes makes the industry to be moderately attractive.
In order to gain competitive advantage, Badoc Builders and Supply should increase its market share
through market penetration, market development and service development. The company should also
establish backward integration in the area of equipment parts & maintenance. These strategies will
increase overall income while lowering operational costs.
The heavy and civil engineering construction industry in Ilocos Norte is characterized with
several players providing the same services in the same market segment. There are currently over 30
players in the market with no service differentiation from each other. Furthermore, the brand loyalty
in the industry is weak as projects undergo the process of bidding which is highly influenced by key
government personalities. It is important to establish relationship with these people to secure projects,
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though political conflicts often makes it impossible to remain in a positive light with all political
parties since the companies are forced to take sides.
Prospective players would find it challenging to enter the heavy and civil engineering industry
that requires high capital investments. Operations also require high investments for both heavy
equipment and facilities. Furthermore, government regulatory policies would prevent the new players
from upgrading the PCAB license easily as it requires an increase in capital investments and time to
earn project credit points as seen in Table 4.2.
C (2) (3)
A (1)
T STE Min. Const. Overall
E Financial Capacity
CLASSIFICATION Exp. Requirement
G Credit
O
R Stockholder’s Credit Points
Indivi- Aggre- Minimum
Y Points
dual gate C.P.
Equity (C.P.) Required
AAA
P90,000,000.00 900.00 10 60 300 1,950.00
AA 45,000,000.00 450.00 10 50 250 915.15
*** Overall credit points inclusive of Equipment Capacity (1 point/P100Th); Experience of Firm (10 points/year of active existence); &
1 point/P100Th of 3 year Average Annual Volume of Work Accomplished; and COMTCP points if STEs are COMTCP certified
New entrants would also need to participate in the bidding process to secure projects that are
highly influenced by the government officials sitting in position. Thus, these new players need to
establish their relationship with these government personalities before they can enter the industry.
Lastly, the lack of skilled workers would make it challenging for new entrants to supply
people for its operations. The industry requires different types of skilled workers to run its operations
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such as architects, engineers, equipment drivers and operators, mechanics and material testers to name
a few. With over 30 construction companies currently involved in the market, these skilled workers
are hard to come by.
The bargaining power of suppliers in the industry is strong because the government has only
identified three (3) brands of cement that can be used in operations. In Ilocos Norte, the most feasible
brand to be used is Northern Cement due to its geographic location that supplies all of the
construction companies. Furthermore, there is no known substitute for cement in the market. Able to
monopolize the market, pricing and payment terms are the same across all companies. On another
note, suppliers of heavy equipment and its parts are low in the Ilocos Norte province. Most of the
time, companies have to travel to NCR to procure the necessary equipment and parts for repairs.
The Philippine government is currently the only sustainable client in Ilocos Norte for
construction as private development of residential and commercial projects are not growing.
Furthermore, the Department of Public Works and Highways (DPWH) and Local Government Unit
(LGU) set all the designs and standards for the projects making it undifferentiated for the industry
players. Lastly, bidding for the projects is required wherein results are highly influenced by the
government officials sitting in power.
The government may have the option not to get the services of the construction firm and build
the infrastructure themselves. However, this only occurs for small projects which costs less than PHP
1M in the past. Furthermore, this process has been stopped due to internal problems such as blatant
stealing and corruption. Nonetheless, the government has the option to reinstate this system.