Michael Porters Five Forces Model Management Essay

Chapter 5

This chapter provides a summary of the research and includes recommendations for future related studies. These recommendations are based on reflections on the research, existing scholarly literature and survey results.

5.1 Summary of Research

The purpose of this research was to find a winning market strategy for the housing industry in Sri Lanka by specifically using Michael Porter’s Five Forces Model and the Generic Strategies as the academic tools of research.

In this research, the author considered the political, economical, socio-demographical and technological changes that can influence the five competitive forces and generic strategies, which impact industry structures.

The author obtained valuable data and information researching the methodology, conducting interviews, discussions with key players and carrying out further research on this topic to gather research findings but some areas of this study were descriptive in nature.

In determining the housing industry in Sri Lanka, the author obtained insights into attractiveness and profitability decisions such as entry or exit, which helped to explore the market segment and customer behavioural patterns, and to compare the impact of competitive forces and generic strategies on the housing industry and their impact on competitors.

The housing industry was also analyzed through in-depth interviews, as a case study within the frame of Porter’s five forces model and a questionnaire survey to ascertain the bargaining power of supplier’s and buyer’s and these results were evaluated by using frequency tables and Likert scale of comparisons.

5.2 Research Findings

Findings showed that competition between the existing companies in the Sri Lankan Housing Industry has been fierce with many similar-sized companies, low entry and exit barriers, increasing threat from substitute products and increasing bargaining power of buyers. The result could be a new strategic direction, i.e. a new positioning, differentiation for competitive products of strategic partnerships.

Table: Findings of the Research Study

Objective

Area

Findings

1

To find out the scale of the bargaining power of suppliers in the housing industry

Low

2

To find out the degree of bargaining power of buyers/customers in the housing industry

Low

3

To find out the level of threat of new entrants in the housing industry

High

4

To find out the measure of threat of substitutes in the housing industry

Low

5

To find out the extent of threats posed by  competitors within the housing industry

High

6

To find out the best market positioning for the housing industry in Sri Lanka

Overall Cost Leadership Focused Strategy

Sri Lanka being a rapidly developing third world country is saddled with a growing population and housing is becoming an increasing problem. The study found that many live in rented houses and some have no option but to live in sub-standard accommodation.

As per the Five Forces Industry Analysis, the housing industry affords value to the developers as it represents a good sellers market.

The findings demonstrate that the housing industry has a good market and a high demand for housing and promises to be a profitable business venture. Findings also indicated that the industry was a developers/sellers market and had power to bargain the quality, price and locality, while it did not afford the buyer much choice.

The findings also indicated that the housing industry provided an ideal environment and a good opportunity for developers/sellers to pursue as a business venture. The number of housing projects that have cropped up in the city also provides an overview of the increasing demand.

5.3 Recommended Analytical Model for the middle class housing industry

The research has helped us to understand that it is still possible for developers to build decent, affordable housing by raising funds through private equity, bridging finance, venture capital, etc with minimal government subsidies through a well designed public and private partnership policy, where the government provides only suitable land and the infrastructure required for housing development projects.

Such a framework could be drawn up to ensure that the high demand for housing is addressed by a larger participation of developers.

Hence, the strategy should be for developers to focus on the construction of mid-rise apartment buildings in both cities and suburbs at a relatively low cost once the infrastructure and suitable land is made available by the government through public/private partnership arrangement.

However, this may not be the suburban buyers’ dream of ‘a house with a yard’, but such mid-rise apartment projects coupled with common amenities such as playgrounds, swimming pool, gymnasium, theatre, clubhouse and the administration/maintenance of such strata could be the answer to affordable good housing for the working middle class.

This strategy would open a large segment of buyers to the developers and if managed successfully those players would reap the benefits and be classified as overall cost leaders in the industry.

Thus the best fit for the developer in the GCM would be to pursue a focused cost leadership strategy constructing mid-rise apartments.

However, this will not solve the housing problem in its entirety. The housing requirements of the very low income segments which do not offer sufficient ROI to developers will have to be undertaken solely through government housing under UDA/NHDA/REEL sponsored development projects.

The promise of a brighter future lies in both public and private sector cooperation/investment in the community at large and this will help shape the environment, where all its stakeholders would be able to afford a roof above their heads.

5.4 Further Research on the Subject

This research study was conducted to find a winning market strategy for the housing industry in Sri Lanka. Porter’s Five Forces Industry Analysis and Generic Strategies Models were used as the conceptual framework to determine a viable strategy for the housing industry.

The results of the survey indicate that, the bargaining power of the suppliers as well as the buyers in the industry was low. Because the research is exploratory in nature, future research on the subject should be expanded to assess the practical application of these tools.

The study did have some limitations and was susceptible to biased feedback by some of the respondents. Additionally, a more comprehensive survey should examine the GCM to assess the tools to re-test the models practicality.

While the study concluded that the tools examined were successful in meeting the objective of the research of finding a winning market Strategy for the housing industry in Sri Lanka, it provides many avenues upon which future studies can be built.

However, there is much more research that could be done in this area and the author intends to invite any other researcher to continue in this field in order to find the ideal fit. If anyone is interested to further carryout research on this project the author would be most willing to provide the data and the findings to re-test the model. This could be applicable to even industries other than the housing industry.

5.5 Conclusion

The demand for housing has expanded rapidly with population growth, urbanisation and the increasing migrant populace converging on the city leading to the infrastructure and utilities almost bursting at their seams; it will not be long before a catastrophic failure takes place paving the way for unhygienic conditions and disease.

However, the main drawback seems to be the lack of funding to undertake large scale housing projects. The research study shows that the private sector with its capability to secure and attract cheap finances seemingly would be the panacea to this ill.

A major change in the last ten years that has emerged in the housing industry is the bifurcation of the market and there has been an emergence of the ‘super developer’, or the larger developers, who will take market share away from small and mid-sized developers.

It is a fact that while being a fragmented market, the large developers will maintain a dominant share of the market because of their ability to ride the wave of an economic downturn with their greater financial strength. This aspect was clearly evident during the conduct of the research study.

In conclusion there is no doubt that there is a huge housing market and potential for marketers to capture the untapped segments and venture into successful businesses in the future.

5.6 Reflections and Limitations of the Research

The research was restricted to analysing the housing industry within the framework of Porter’s Five Forces and generic Strategies models.

In addition, the findings, recommendations and conclusion were drawn based on the responses that the author obtained from the respondents during the interviews, questionnaire and case study material.

Further, one needs to consider that this attempt to analyse the housing industry was done within a conceptual framework was to satisfy an academic requirement of the degree.