Growth of Const. Companies

THE GROWTH TREND OF CONSTRUCTION COMPANIES : A MALAYSIAN EXPERIENCE *

ABU BAKAR A.H. SCHOOL OF HOUSING, BUILDING AND PLANNING UNIVERSITI SAINS MALAYSIA

Introduction

In his General System theory (Berthalantfy; 50:23-29) says that an open system is in constant interaction with the environment. Changes in the environmental factors will therefore affect an organization as a system (Kast and Rosenweig; 85:112) and so with business organizations that have to change to stay in competition and be compatible with their environments. This relationship between firms and their environment has to be understood and observed more seriously at micro level to make the existence firms more meaningful. As an economic entity a firm is in constant challenge by the flow of change in the environmental forces (Cyert and March; 63). Perhaps the keyword for firms is the constant change.

Among the environmental forces that have a strong influence on the performance of firms is the global economy and the economic factor of a country in particular. It is generally understood that there is a relationship between performance of a firm and the economic situation of the country in which the firm operates. It is therefore important for firms to be highly sensitive to the environmental changes and able to forecast as precisely as possible, the future conditions and formulate strategies to adapt. This is the prerequisite for any firm to survive and excell in this ever changing, highly competitive and complex environment.

The ability to anticipate the future is of prime importance for the firm to be more effective and survive in various different conditions. Short term challenges are less demanding when compared to long term. Firms more normally in the short term, pay more attention to profit maximization. However in the long term, profit is no longer a prime objective (Drucker; 68:112). The survival of the firm: efficiency, effectiveness, reputation, increasing market share, etc., is more important. Hence, it is important for the firm to focus and give high priority on the development of the firm itself to achieve long term goals more effectively (Hisatomi; 90:249). This does not mean that in the long term, making profit is not important. Profit is important for promoting and measuring growth, but profit maximization is not of prime importance because it is a short term strategy. Investment that promotes growth will eventually in the long term gain higher return (Rimmer; 88:405). This paper is the outcome of the research on the growth of Malaysian construction companies. It focuses on the importance of growth for construction firms as a long term measure. A model for growth was established by relating three main independent variables used to measure growth: namely the number of permanent employees, the geographical market coverage and the company's annual turnover. The model was then tested for its validity.

Objective

The main objective of this paper is to establish relationship among three independent variables (number of permanent employees, geographical market coverage and turnover) that are used to measure growth and to establish relationship between growth and factors affecting growth.

The other objectives are as follows:

1. to establish path of growth; 2. to establish a possible time frame for each stage of growth and 3. to establish factors affecting growth and rank them.

Methodology

A set of questionnaire was sent at random to more than 200 firms around Malaysia of various sizes. About 35 or 18% (all fully answered) of the questionnaires sent were returned. The analysis was based on the 35 set of answered questionnaires received. Though the sample size is too small to be considered representative, times contraints left the author with no option but to use it. The data obtained was analyzed quantitatively by using SPSS. The frequency and the correlation test were than carried out to validate the model.

The Strategy and Structure Model

Chandler (1969) is among the pioneers to carry out research work on the relationship between strategy and structure of large American firms after which spurred others like Dyes (1972), Thanheiser (1972), Paven (1972), Rumelt (1974), Channon (1973 & 1978). Best selling Peters and Waterman (1982) and Porter (1980) are the examples of recent works related to the subject.

On the basis of the above works, comparative research was carried out in construction. Amongst them are Newcombe (1976) and Lansley (1979). Lansley focused his research on the flexibility of structure and strategy of firms, in various industries including construction, in respond to the change in demand in the UK. Whereas Newcombe focused on the relationship between strategy and structure for small and medium sized firms in the UK. Both works provide good insights of relationship between strategy, structure and performance.

2 The Research Model - The Geographical Market Coverage and The Number of Permanent Employees Model

This model is based on the previous works by prominent authors in this field, but with a slightly different approach. It tries to relate the Geographical Market Coverage and the number of permanent employees and try to establish the major path of growth of the construction firms in Malaysia. Figure 1 shows the relationship between the two variables of growth and proposed a growth path for construction firms.

INTER- 4 4-1 4-2 4-3 4-4 NATIONAL

LARGE 3 3-1 3-2 3-3 3-4 Number NATIONAL of (>25) Permanent Staff MEDIUM 2 2-1 2-2 2-3 2-4 (10-25)

SMALL 1 1-1 1-2 1-3 1-4 (<10)

1 2 3 4

LOCAL REGIONAL NATIONAL INTER- NATIONAL

Geographical Market Coverage FIG. 1: Relationship between size of permanent employee and geographical market coverage.

There are several choices of growth path that a firm can take. According to Flanagan (90:242), the market growth trend for construction firms is from local - national - international - multinational - global. However this research looks at the growth trend of indigenous contractors only within the national market boundary and proposed that growth can take a direct diagonal route from 1-1, 2-2, 3-3 and 4-4. However a direct diagonal growth as shown in figure 1, is not an easy task to achieve; it involves restructuring of internal factors, particularly the organizational structure (Fellows, Langfords, Newcombe and Urry; 83:41). Other alternative routes are also possibled and its depends, amongst others, on the type and the marketing strategy of the construction companies. Growth of a construction company are also associated with the success factors that the company adopted. A number of success factors that are considered

3 significant and apropos are used to gauge the differences in perceptions between small and large construction companies on growth.

Research Hypothesis

1. There is a direct relationship between the number of permanent employees of the construction firms and their market coverage. As firms grow in size from 'small' to 'large', both the number of permanent employees and their market coverage grow proportionately, and

2. Growth paths chosen by construction firms are many but popular routes can be established, with the most popular is through sectors 1-1, 2-2, 3-3 as shown in figure 1.

Assumptions

During the formulation of the research model, a few assumptions were made:

1. change in the environment is not drastic and sudden, 2. the rate of change in the environmental factors is manageable, 3. construction companies have the ability to cope with the increase in demand, 4. the structure of construction companies is sufficiently flexible to allow internal changes to happen.

Definitions

Age of respondents is the time frame measured from the time of registration till current year (1992). In this case the age of respondents is categorized under four categories of age range as shown in table 1.

Three variables namely market coverage, the number of permanent employees of the company and the annual turnover are used to measure the growth of the construction companies.

The number of permanent employees1 is measured by the number of employees of the companies employed under long term employment definition (excluding contract employment). This was categorized under three categories namely small

1Eventhough the construction industry in developing countries is characterised by labour intensivity approach, the number of permanent staff employed by the construction companies is small compared to that of manufacturing industry. This is due to the nature of construction employment, ie; most of the workers are employed by contract on a project basis and most of the manual labour are employed through labour only subcontractors. Hence it can be found that a large construction company with very high annual turnover employs very small numbers of permanent staff as compared to companies in other industries.

4 (i.e.; less than 10 staff), medium (i.e.; between 10-25 staff), large (i.e.; more than 25 staff).

Market coverage is measured by the geographical area of operation of the construction companies and is classified under three categories namely local (i.e.; companies operating within 50 km radius from their registered office), regional (i.e.; companies operating within 50-100 km radius from their registered office) and national (i.e.; companies operating more than 100 km radius from their registered office but within the Malaysian border).

Turnover of the construction firms is measured by their annual turnover. The turnover is classified under three categories namely less than 2 millions Ringgits; between 2-8 millions Ringgits and more than 8 millions Ringgits. This classification is by Malaysian standard based on the classification used by the Malaysian Contractors Service Center (PKK- Pusat Khidmat Kontraktor).

Data Collection and Analysis

Data was collected through postal survey where more than 200 questionnaires were sent at random to the construction firms of various size all over Malaysia. About 35 companies returned the questionnaires upon completion. Hence all the analyses were based on the information given by the 35 construction companies. Though the number of respondents are small but it left the author with no option but to use it. Various relevent questions were address to the chief executive officer of construction companies. Questions range from companies background, historical development to perceptions on various related isues including the growth of the company. Following are the information on the respondents:

Background Information

The following are the background information on respondents:

AGE OF RESPONDENTS

3% 43% 9%

30-40yr

20-30yr 10-20yr

10yr and less

Figure 2: Chart of Frequency distribution of Construction Companies by Age.

5 Figure 2 shows the frequency distribution of the respondents. Age group of between 10-20 and 10 and less, which is 46% and 43% respectively, are the core of the sample respondents. The majority of the respondents are those companies registered in the seventies and eighties that coincided with the period of construction boom (i.e., between 1974 to 1984) (Abu Bakar; 90:30-35).

Table 1: Type of work done by respondents.

TYPE OF WORKS DONE BY RESPONDENTS Type of work Frequency Percent 1 GENERAL 12 18 2 CIVIL 19 29 3 BUILDING 21 32 4 SPECIALIST 14 21 Total 66 100

Table 1 shows the frequency distribution of work done by respondents is dominated by civil engineering and building works that are 29% and 32% respectively out of the total number 66. Therefore, on average, each company is involved in more than one type of works.

Table 2: Type and frequency of specialised works done by respondents.

SPECIALISED WORKS DONE BY RESPONDENTS Type Frequency Percent 1 DAM 1 5 2 MECHANICAL 6 32 3 ELECTRICAL 4 21 4 FACTORY 5 26 5 OIL RELATED 3 16 Total 19 100

Table 2 shows the distribution of specialised works done by respondents. Out of the total of 19 specialised works, 32% is mechanical and 26% is factory related works.

Current status of respondents

Table 3 shows the distribution of respondents by geographical market coverage where 23% of the total respondents operate currently (1992) within local boundary, 11% within regional and 66% operate within the national boundary.

Table 3: The current geographical market coverage of respondents.

CURRENT MARKET

6 COVERAGE Area of Frequency Percent operation 1 LOCAL 8 23 2 REGIONAL 4 11 3 NATIONAL 23 66 Total 35 100

Table 4 shows the distribution of companies by their current (1992) size of the permanent employees where 29% of the total respondent are small (i.e., having less than 10 permanent staff), 31% are medium (i.e., having permanent staff between 10-25) and 40% are large (i.e., having more than 25 permanent staff).

Table 4: Current size of permanent employee of respondents.

CURRENT FIRM SIZE BY NO. OF PERMANENT EMPLOYEE Size Frequency Percent 1 SMALL(<10) 10 29 2 MEDIUM(10-25) 11 31 3 LARGE(>25) 14 40 Total 35 100

Table 5 shows the distribution of respondents by the current (1992) annual turnover where 37% of respondents have their annual turnover less than $2 millions, 14% between $2-$8 millions and 49% more than $8 millions.

Table 5: Current turnover of the respondents.

CURRENT FIRM TURNOVER Turnover Frequency Percent 1 <2M 13 37 2 2M-8M 5 14 3 >8M 17 49 Total 35 100

On the basis of the 3 variables above, it can be summarized that the sample comprises mainly large construction companies by Malaysian Standard, i.e., 66% of respondents operate at national level, 40% employ more than 25 permanent employees and 49% of them have more than $8 millions in annual turnover.

Growth of construction firms

The following are the information on the growth of the respondents (the construction companies) by the three variables:

7 1. Market coverage

Table 6 shows that 63% of the respondents start their operation within the local market, 11% start operation within regional and 26% within the national boundary. Majorities of the respondents start their operation by initially serving the local market before they expand the area of operation beyond the local boundary.

Table 6: The market position of construction firms at the start of operation.

STARTING MARKET POSITION No: Area Frequency Percent 1 LOCAL 22 63 2 REGIONAL 4 11 3 NATIONAL 9 26 Total 35 100

Table 7: The current market position (1992) of construction companies.

CURRENT MARKET COVERAGE No. Area Frequency Percent 1 LOCAL 8 23 2 REGIONAL 4 11 3 NATIONAL 23 66 Total 35 100

The majority of the construction companies (as shown in table 7) currently operate within the national boundary that is 66% and 23% within the local boundary. An increase of 40% in those who currently operate within the national boundary but 23% of them still remained within the local boundary.

Table 8: The growth path of the construction companies by their market coverage.

GROWTH PATH BY MARKET COVERAGE No. Market* Frequency Percent

8 1 1-1-1 8 23 2 1-2-3 12 34 3 1-3-3 1 3 4 3-3-3 8 23 5 2-2-2 3 9 6 1-1-2 1 3 7 1-1-3 1 3 8 2-3-3 1 3 Total 35 100 * notes: 1- local 2- regional 3- national

Table 8 and figure 3 show that the growth path adopted by contractors in the expansion of their market is dominated by route 1-2-3 (i.e., local to regional to national) that is 34% whereas 23% of the contractors do not expand their market. Other routes are less significant.

23% 9% 23% 1-2-3 1 34% 2 3

LOCAL REGIONAL NATIONAL

GROWTH PATH BY MARKET COVERAGE

Figure 3: Growth path of Construction Firms by Market Coverage.

Point of Growth in The Market Coverage

In business, change is inevitable for better effectiveness and efficiency in order to survive. Growth is what actually a firm should be seeking and can be acquired in stages of time period. Figure 4 shows the estimated time for growth in the three variables of the construction companies .

9 34% ESTIMATED TIME 35 FOR GROWTH IN 30 26% MARKET COVERAGE 25 20 "1st growth within "1st growth within 15 11% 3-5yr 5-10yr 10 6%

Next growth within 5 Next growth within 5-10yr 0 10-15yr 1 2 Growth

Figure 4: Estimated time for growth in market coverage by the Malaysian contractors.

As shown in figure 4, 34% of the construction companies experience first expansion in market coverage during a period between 3-5 years and 11% in between 5-10 years. Among 34% of those expanded within the duration of 3-5 years, about 26% of them experience the next expansion during a period between 5-10 years and among 11% of those expanded within the duration of 5- 10 years, about 6% of them experience next expansion during the period of between 10-15 years. Generally, in term of market coverage 34% of contractors expand their market from local to regional within 3-5 year after registration and 11% do so within 5-10 years after registration.

2.The Number of Permanent Employees

Table 9: Number of permanent employees of construction firms at the starting of firms' operation.

STARTING NUMBER OF EMPLOYEES No. Employee Frequency Percent 1 10 & LESS 27 77 2 10 - 25 5 14 3 25 & MORE 3 9 Total 35 100

In terms of the number of permanent staff (see table 9) employed by the construction companies, 77% of them employed less than 10 permanent staff at the beginning of their operation and 14% are firms employing more than 10 but less than 25 staff. However about 9% of firms employed more than 25 staff at the beginning of their operation. One of the main reasons why they commenced on a large scale is because the construction companies might be a subsidiary of

10 a large corporation or those which have already established good relationships with corporate clients or other large international contractors.

Table 10: Current (1992) number of permanent employee of construction firms.

CURRENT NUMBER OF EMPLOYEE No. Employee Frequency Percent 1 10 & LESS 8 23 2 10 - 25 10 29 3 25 & MORE 17 49 TOTAL 35 100

Table 10 shows some changes occurred in the firms that employed 25 and more staff where the number of permanent staff at current time increased by 40% to 49%. This change originated mainly from firms that employed 10 and less permanent staff and about 29% of the respondents expand their staff to medium category that is between 10 - 25 persons.

Table 11: Growth path of the construction firms by the number of permanent staff employed.

GROWTH PATH BY NO: OF PERMANENT EMPLOYEE No. Staff* Frequency Percent 1 1-1-1 9 26 2 1-2-3 8 23 3 1-1-2 9 26 4 2-3-3 4 11 5 3-3-3 4 11 6 2-2-2 1 3 TOTAL 35 100 * notes: 1- less than 10 persons 2- from 10 - 25 persons 3- more than 25 persons

Table 11 and figure 5 show that there are two routes preferred by the construction companies in terms of the number of permanent staff employed, i.e., 1-2-3 and 1-1-2 at 23% and 26% respectively. This shows that contractors are slightly slow in responding to change in the expansion of the number of permanent staff due to the nature of construction employment itself, i.e., casual employment, contract or short term employment by project, labour only subcontract, etc.

11 23% 1-1-2 26% 26% 1-2-3 1 23% 2 11% 3

<10 persons 10-25 persons >25 persons

Growth Path by Number of Permanent Employees

Figure 5: The Growth Path of the Construction Companies by Number of Permanent Employee.

Point of Growth in The Number of Permanent Employees

ESTIMATED TIME 31% FOR GROWTH IN 35 PERMANENT 30 EMPLOYEE 25 20%

20 First Growth Within 15 11% First Growth Within 5-10yr 3-5yr 10 3% Next Growth within 5 Next Growth Within 10-15yr 5-10yr 0 1 2 Growth

Figure 6: Estimated time for growth in permanent employees by the Malaysian Contractors.

As shown in figure 6, 31% of the construction companies experience first expansion in the number of permanent employees during a period between 3-5 years and 20% in between 5-10 years. Among 31% of those expanded within the duration of 3-5 years, about 11% of them experience the next expansion during a period between 5-10 years and among 20% of those expanded within the duration of 5-10 years, about 3% of them experience next expansion during the period between 10-15 years. Generally, in terms of number of permanent employees; 31% of contractors expand the number of permanent employees

12 from small to medium within 3-5 year after registration and 20% do so within 5-10 years after registration.

3. The Companies Annual Turnover

A majority of the construction companies (i.e., 86%) have less than $2 millions in their annual turnover during the first three years of their operation with the exception of a number of firms that have their annual turnover greater than $2 millions during their first 3 years of their operation such as shown in table 12.

Table 12: Turnover of the construction companies at the start of the operation.

STARTING TURNOVER No. Turnover Frequency Percent 1 <2M 30 86 2 2M - 8M 2 6 3 8m & more 3 9 Total 35 100

Table 13: Current (1992) annual turnover of the construction companies.

CURRENT TURNOVER No. Turnover Frequency Percent 1 <2M 13 37 2 2M - 8M 0 0 3 8m & more 22 63 Total 35 100

From table 12 and 13, there is a marked increase of 54% of respondents that having their annual turnover expanded to 8m & more at current time (1992), 37% of them remained at the less than $2 million's category and all the firms having between $2-$8 million's turnover have expanded to $8 million and more in turnover. In terms of annual turnover the construction companies are readily to expand in respond to growth.

Table 14: Growth path of construction companies by annual turnover.

13 PATH OF FIRMS BY TURNOVER No. Turnover * Frequency Percent 1 1-1-1 13 37 2 1-2-3 11 31 3 3-3-3 3 9 4 2-3-3 3 9 5 1-3-3 5 14 TOTAL 35 100 * notes: 1 - less than $2m 2 - from $2m- $4m 3 - $8m and more

There is one dominant route in terms of annual turnover preferred by construction companies, that is route 1-2-3 (about 31%) and 37% of the construction companies remained with turnover less than $2 millions as shown in table 14 and figure 7.

37% 1-2-3 1 31% 2 9% 3

<$2 millions $2-$8 millions >$8 millions

Growth Path by Annual Turnover

Figure 7: The Growth Path of construction companies by Annual Turnover.

Points of Growth in The Annual Turnover

14 34%

35 ESTIMATED 29% TIME FOR 30 GROWTH IN

TURNOVER 25

17% First Growth 20 First Growth Within 5-10yr Within 3-5yr 11% 15

Next Growth 10 Next Growth Within 5-10yr Within 10-15yr 5

0 1 Growth 2

Figure 8: Estimated time for growth in annual turnover of the Malaysian construction companies.

As shown in figure 8, 34% of the construction companies experience first expansion in annual turnover during a period between 3-5 years and 29% in between 5-10 years. Among 34% of those expanded within the duration of 3-5 years, about 11% of them experience the next expansion during a period between 5-10 years and among 29% of those expanded within the duration of 5- 10 years, about 17% of them experience next expansion during the period between 10-15 years. Generally, in terms of annual turnover, 34% of contractors expand their annual turnover from small to medium within 3-5 years after registration and 29% do so within 5-10 years after registration.

From figures 4, 6 and 8, it is possible to conclude that the construction companies do grow and most of the growth occurred in the period of between 3-5 years after registration and some do take a little longer, i.e., between 5-10 years after registration. Most of the firms achieved their second stage of growth in the period of between 5-10 years such as clearly shown in figure 4 and 8. Some firms do take a little longer to attain second stage of growth.

The Relationship Between The Growth Variables of The Construction companies

Figure 9, 10 and 11 shows the growth paths of the construction companies by relating variables namely the market coverage, the number of permanent employees and the annual turnover.

15 Figure 9: The relationship between number of permanent employee and market coverage of the construction companies.

Figure 9 shows the relationship between the market coverage and the number of permanent staff. It determines the direction of the path of growth of the construction companies with route 1-1, 2-2, 3-3 dominate the rest at about 30%, route 1-1, 1-3, 3-3 takes about 20% and route 1-1, 3-1, 3-3 take about 11% of all respondents.

Using the SPSS package to analyse the data, it was found that the average 2 value of the Pearson Correlation Coefficient (r) is 0.6249. This support that there is a fairly strong positive relationship between the two variables i.e., as the number of permanent employees of companies increases, the market coverage also increases.

Beside the above relationship, this paper also look into possibility of establishing other relationships, i.e., relationships between the annual companies' turnover and the market coverage, and between the number of permanent employees and the companies' annual turnover. Figure 10 and 11 show the relationships.

2The average value of the Pearson Correlation Coefficient (r) is taken from an average value of r at 5 different stages of the construction companies.

16 Figure 10: The relationship between companies annual turnover and market coverage of Malaysian construction companies.

Figure 10 shows that there is no dominant route to established growth path with the exception that about 31% of the respondents expanded from sector 1-1 to 1- 2 i.e., local to regional. Companies with turnover $2 millions and less do expand their area of operation from local to regional. Beyond the $2 million's turnover, there is no distinctive pattern of growth to conclude the dominant path of growth.

SPSS result shows that the average value of the Pearson Correlation Coefficient (r) is 0.5296. This shows that there is a positive relationship between the two variables.

17 Figure 11: The relationship between the number of permanent employees and the annual turnover of the Malaysian construction companies.

Figure 11 shows the growth paths by relating two variables namely the number of permanent employees and the turnover of the Malaysian construction companies. From the figure, the growth paths can be more clearly established. Majorities (i.e., about 34%) of the construction companies expand from 1-1 to 2-1 that is expand from small to medium with the turnover remain at $2 million and less and further expand to sector 3-3 (i.e., 22%). About 15% of respondents follow 1-1, 2-1, 3-1 and 3-3 route.

Using SPSS to analyse the data, it was found that the average value of the Pearson Correlation Coefficient is 0.5484. This shows that there is also a fairly strong positive relationship between the two variables i.e., as the number of permanent staff of companies increases the annual companies' turnover also increases accordingly.

From figure 9, 10 and 11, it can be concluded that there is correlation between the growth variables particularly between the geographical market coverage and the number of permanent staff, and also between the annual turnover and the number of permanent staff. Pattern of growth among the construction companies can also be determined by identifying popular routes taken by them as shown in figure 9 and 11.

18 The Growth Index

To support the argument for growth of the construction companies, index for growth is established by combining indexes of all the three variables of growth at any particular time as shown in (1).

GIt = 1/3 (1/3 (MCt) + 1/3 (PEt) + 1/3 (TOt)). (1)

Where GIt is the Growth Index at t time; MCt3 is the position of the market coverage of the construction companies at t time; PEt4 is the position of the number of the permanent employee of the construction companies at t time; TOt5 is the position of annual turnover of the construction companies at t time.

The values of the growth index for the construction companies at any particular time lie between a minimum of 0.1 to a maximum of 1 as shown in (2) and (3). The growth trend of the construction companies can therefore be established by relating the average growth indexes for a period of times. Figure 12 shows the mean indexes of growth at various times after registration. The trend is that the construction companies do experience growth over time. The growth index increases from an average of 0.434 within less than 3 years to 0.775 in 10-15 years after registration.

GImin = 1/3 (1/3 (1) + 1/3 (1) + 1/3 (1)) (2) = 1/9 (1) = 0.11

GImax = 1/3 (1/3 (3) + 1/3 (3) + 1/3 (3)) (3) = 1/9 (9) = 1

3see the definition of the market coverage for the categorisation. 4see the definition of the number of permanent employee for the categorisation. 5see the definition of the annual turnover for the categorisation

19 0.8

<3yr 3-5yr 5-10yr 10-15yr

THE AVERAGE GROWTH INDEX FOR THE CONSTRUCTION COMPANIES

Figure 12: The average growth indexes for respondents (the construction companies).

small index 100 large index 80

60 (%) 40

0 10-15yr 5-10yr 3-5yr <3yr The Trend of small and large growth Indexes Of The Construction Companies

Figure 13: The trend of small and large growth indexes of the construction companies over time after registration.

20 Figure 13 indicates the relationship between the percentage of small and large construction companies by their growth indexes 6. The growth index of the construction companies increases as the number of year after registration increases. The percentage of companies with large growth index increases from 20% at the early years to 80% in 10-15 years after registration. While for companies with small index, the percentage decreases from 80% to 20%. Using growth index as a measurement for growth of the construction companies, about 60% of them experience growth from small to large in between 10 - 15 years after registration.

The advantage of establishing a growth index for the construction companies is that the measurement of growth can be reduced from three different kinds of measurements (i.e., the market coverage, the number of permanent staff and the annual turnover), to a single unit. It is much easier, more accurate and consistent to use index of growth to determine the position of growth for each company but it's also has certain disadvantage such as it cannot shows the direction of growth.

By splitting the growth index into two ranges, (ie. 0-0.59 and 0.6-1) 7, it is possible to categorise companies into two groups, namely small and large respectively. This is very useful especially to analyse the differences in perception between success factors in small and large construction companies.

Success Factors For Construction Companies

Successful companies that grow and are operating in the national or international arena probably have special characteristics that make them successful. Different companies possess their very own quality that makes them different, but there are factors that can be considered common to all companies. What make them different are the way in which each company utilises or combines these factors. The success factors listed below are by no mean exhaustive. There are many others that can be considered but the 19 factors listed in table 15 below are regarded more relevant to this research.

Table 15: The overall ranking of success factors of the construction companies.

6The growth indexes for the construction companies are categories into 2 category, namely small(ie. companies with growth index of less than 0.6) and large (ie. companies with growth index of o.6 and above). 7The maximum value of Growth Index for medium size construction companies is 0.67. The small companies are those which have less than 0.6 index value (ie. the index ranging from 0 to the lower end of the index for medium size companies), and large companies will be those with value of index ramging from 0.6 - 1, (ie. ranging from the higher end of the index for medium companies to the maximum value of the growth index).

21 SUCCESS FACTORS FOR CONSTRUCTION FIRMS CATEG- NO. SUCCESS FACTOR POINT ORIES 1 GOOD FINANCIAL BACKING 169 VI 2 GOOD CASH FLOW MANAGEMENT 166 VI 3 TECHNICAL EXPERTISE 166 VI 4 GOOD COMPANIES MANAGEMENT 160 VI 5 GOOD SITE MANAGEMENT 151 VI 6 INTERNAL EFFICIENCY 146 VI 7 GOOD MATERIAL MANAGEMENT 143 VI 8 LINK WITH EXISTING MARKET 109 VI 9 BUILDING MATERIAL 100 IMP 10 SKILLED WORKERS 96 IMP 11 AVAILABILITY OF CREDIT FACILITIES 94 IMP 12 FLEXIBLE STRUCTURE 65 IMP 13 SENSITIVE TO ENVIRONMENTAL CHANGE 52 IMP 14 MARKET SPECIALIZATION 44 IMP 15 HAVING POOL OF PLANT & EQUIPMENT 40 IMP 16 DIVERSIFY EXPERTISE 35 IMP 17 INNOVATIVE CONTRACTUAL PACKAGE 18 IMP 18 COLLABORATION WITH OTHER FIRMS -6 LIMP 19 IN-HOUSE SERVICE -14 LIMP Note: VI - very important; Imp - important and Limp - less important.

Table 15 shows the success factors and their overall ranking (Lindley and Scott; 84) of the Malaysian construction companies. Eight factors are considered to be very important or essential by contractors and six of them are of management type. Nine of the success

1 169 2 166 3 166 4 160 5 151 6 146 7 143 RANKING 8 109 ORDER 9 100 10 96 11 94 12 65 13 52 14 44 15 40 16 35 17 18 18 -6 19 -14 -50 0 50 100 150 200 POINTS

THE OVERALL RANKING OF SUCCESS FACTORS

Figure 14: The overall ranking of perception on success factors of the construction companies. factors listed are regarded as important or necessary and two are in the less important or 'can do without' category. Good financial backing is regarded as the

22 utmost important success factors, follow by good cash flow management, technical expertise, good companies management, good site management, internal efficiency, good material management and so on as shown in the table 15 and figure 14. These are vital but basic factors that any construction companies should emphasize. However there are other factors that a firm should also consider in order to increase market share such as factors that can assist in developing the company's niche.

The last four factors (16, 17, 18 and 19) as shown in the table 15 are consider least importance amongst all the success factors. Perhaps majorities of the Malaysian construction companies are still struggling with the basic factors for success. The four factors are vital to any company which emphasis long term achievement and an advantage factor for success. Most of the successful international construction companies do practice the four factors rigorously (Aziz; 91: 121-131).

Table 16: The ranking of the success factors by small and large contractors.

SUCCESS FACTORS FOR CONTRACTORS NO. SUCCESS FACTORS SMALL LARGE 1 GOOD FINANCIAL BACKING 146 182 4 GOOD COMPANIES MANAGEMENT 138 173 3 TECHNICAL EXPERTISE 154 173 2 GOOD CASH FLOW MANAGEMENT 133 170 5 GOOD SITE MANAGEMENT 146 169 6 INTERNAL EFFICIENCY 131 155 7 GOOD MATERIAL MANAGEMENT 138 145 9 BUILDING MATERIAL 77 114 11 AVAILABILITY OF CREDIT FACILITIES 77 105 8 LINK WITH EXISTING MARKET 115 105 10 SKILLED WORKERS 115 86 13 SENSITIVE TO ENVIRONMENTAL CHANGE 25 67 16 EXPERTISE DIVERSIFICATION -17 64 12 FLEXIBLE STRUCTURE 77 57 15 HAVING POOL OF PLANT & EQUIPTMENTS 31 45 17 INNOVATIVE CONTRACTUAL PACKAGE -15 38 14 MARKET SPECIALIZATION 8 30 19 IN-HOUSE SERVICE -69 18 18 COLLABORATION WITH OTHER FIRMS 0 -10 notes: score 101 to 200 is very important; 0 to 100 is important; -100 to 0 is less important and -200 to -101 is unimportant.

To compare differences in perception on the success factors between small and large companies, scores are separated as shown in table 16. Companies belong to the large group, place 10 success factors under the very important, 8 under important and 1 under the less important categories while companies belong to small group place 9 of the success factors under very important, 6 under important and 4 under less important categories.

23 Both large and small companies place 8 success factors in the same very important category as shown in table 16 and in figure 15. However their opinions slightly differ on the scale of important. Small companies say 'technical expertise' as the most important factor for success while the large companies say 'good financial backing' is the most important factor for success. The opinion by the small companies above is consistent due to the lack of technical expertise that hamper them from getting larger and more specialized work.

182 1 146 173 4 154 173 3 138 170 2 133 169 5 146 155 6 131 7 145 114 138 9 77 105 11 115 105 8 77 86 10 115 LEGEND 67 13 25 64 Small -17 16 57 large 12 77 45 15 31 38 -15 17 30 14 8 18 -69 19 -10 18 0

-100 -50 0 50 100 150 200

THE DIFFERENCE IN PERCEPTION ON SUCCESS FACTORS BETWEEN SMALL AND LARGE MALAYSIAN CONTRACTORS

Figure 15: The comparison of perception on success factors by small and large contractors.

However, the small companies regarded 4 factors are less important (i.e., factors 16, 17, 19 and 18) as compared to 1 (18) by the large companies such as shown in table 16 and figure 15. This confirmed that the small companies are still struggling with the basic success factors and thus pay less attention to other factors that promote long term effectiveness and efficiency.

Conclusion

As outlined in the objectives of this paper, the relationships among three variables were established by relating them to the key issue of the growth of construction companies. Growth was measured in three different ways: by the

24 individual variable, by relating two variables at a time and by establishing the growth index from combining all three variables.

By the individual variable, the growth is measured in a single dimension for each variable. The findings show that growths does take place and dominant patterns of growth over time can be established.

By relating two variables at a time, three relationships were established which not only show the growth pattern but also the path and direction of growth. Except for the relationship between the companies' annual turnover and the market coverage, the relationship between market coverage and the number of permanent employees and between the number of permanent employees and the annual turnover, shown a very clear and dominant path and direction of growth. The findings show that the majority of the construction companies do respond to growth and in the right direction.

It is very useful to reduce the three measurements of growth to an index, not only for measuring growth but also to use as a basis for relating different sizes of firms to other factors relating to growth.

Large and small construction companies have different perceptions about the relative important of success factors. However both sizes do agree on a number of factors such as those of management types. These are basic success factors that any firm has to have, but to operate in a more volatile, competitive and demanding environment, other factors such as innovative contractual package, in-house service and collaboration with other firms should also be emphasized (Bennett, Flanagan and Norman; 87:53).

Although beyond the scope of this study it should be mentioned that the competition in the international arena is fierce and complex with greater uncertainties compare to that of the national level (Seymour;87:83). Venturing outside the national boundary is a great additional task for indigenous contractors. Not only must they fully equip themselves with modern technology and management and a good financial package but they need also intervention and backing from the government (Aziz; 92:82-86) to ensure international survival and success.

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* This paper was presented in 7th CIB W65-Symposium on “Organisation and Management of Construction - The Way Forward” held in Trinidad and Tobago, September 1993. Also available in the proceeding.