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Ateneo Graduate School of BusinessStrategic Management Paper on
Submitted to: Professor Surtida
STRAMA G06
Submitted by: Ryan Carlo Santos
MBA Candidate 12 December 2009
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Table of ContentsExecutive Summary 4
I. Introduction 6
II. Research Design and Methodology 10
1. Research Design 2. Scope and Limitation
III. External Analysis 12
1. Economic Performance and Forecast 2. Political and Government Aspects 3. Environmental Factors
IV. Industry and Competitor Analysis 22
1. Industry and Market Segments
i. Residential Housing Product Categories ii. Market Size and Growth
iii. Market Segments and Trends iv. Pricing
v. Distribution Channels vi. Advertising and Promotion
2. Porter’s Five Forces of Competitive Analysis 3. Competitive Profile Matrix
4. External Factor Evaluation Matrix
5. Strategic Issues based on External Factors
V. Company Analysis 56
1. Vision Mission of the Company 2. Internal Audit
3. McKinsey 7 S Framework
4. Strategic Issues based on Internal Factors
VI. Strategy Formulation 90
1. SWOT Matrix 2. SPACE Matrix
3. Internal-External Matrix 4. GRAND Strategy Matrix 5. Summary of Strategies
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VII. Strategic Objectives and Recommended Strategies 104
1. Strategic Objectives
2. Recommended Business Strategies 3. Recommended Organizational Strategies. 4. Financial Projections
VIII. Departmental Actions and Functional Strategies 126
1. Strategy Map
2. Departmental Actions and Functional Strategies
IX. Strategy Evaluation and Performance Metrics 133
1. Balanced Scorecard 2. Contingency Planning
X. References 137
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EXECUTIVE SUMMARYDMCI Homes is the property development arm of DMCI Holdings, a diversified corporation with interests in construction, mining, power generation, water distribution, infrastructure and property development. The property developer envisions being the leading builder of residential communities for the middle income market.
The property industry is recovering from the economic down turn through the growth of key customer segments such as the OFW and BPO market as well as the emergence of a new business district. The industry has now settled as reflected by a modest year-on-year growth rate of 2% and stable raw materials and housing prices. Other external factors property developers face include the projected rise of the interest rates and the impact of climate change. Overall responsiveness of DMCI to its external environment is modest. Its 2.70 EFE rating is due to its lackluster response to the growth of alternative markets (BPO and retirement industry) moderated by its average response to the economic recovery and continued growth of the OFW sector.
The real estate industry is led by three major players each dominating in a specific income segment. In the middle income segment, Megaworld is a clear market leader both based on CSF rating and market share. DMCI has a modest competitive position with a CSF rating of 2.30 given its weak capitalization and poor accessibility of its location moderated by its price competitiveness. An opportunity exists for DMCI to be a clear second given that the market followers have relatively similar market shares.
Internally, most of the company’s strengths are owed to its synergy with DMCI’s construction subsidiaries. The operational synergy has allowed DMCI to pursue an overall cost leadership – best value strategy. Despite this, DMCI is given a modest IFE rating of 2.35 due to its financial weakness caused by
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its poor capitalization and slower inventory turnover. The latter is a symptom of an inadequate distribution network which is not able to absorb the significant buildup in inventory.Market Development and Market Penetration strategies will be most appropriate strategy for the company to achieve its strategic objective to be a strong market follower. Market development strategies will be geared to address emerging markets by (1) offering innovative housing solutions to the BPO market and (2) strengthening international market presence in countries with a large and growing OFW population. Market penetration strategies includes (1) launching an integrated marketing communications plan (2) upgrading the company’s website to be e-commerce capable (3) enticing existing homeowners to provide referrals and (4) strategic land banking initiatives around the BGC area. Intensive strategies will be complemented by a (1) robust sales and operations planning to have leaner inventory levels and (2) capital build up to resolve solvency issues, funding gaps and high financing costs.
Through these strategies, DMCI’s vision to be a clear #2 in terms of market share will be realized with revenues reaching 9.3B by 2012. The operations strategy of introducing S&O planning will align the company’s turnover of inventory closer to the industry standard. Owing to its financing strategy, DMCI will not only be more solvent but cost of financing will also be reduced. This is a prudent measure given an expected high interest environment. Increase in revenues, better control of inventory and financing cost will allow DMCI’s net income to grow further to 1.5B by 2012 from 916M this year.
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I. INTRODUCTIONIn 1954, David Consunji formed DM Consunji. The construction company won the bid to construct chicken houses for the Bureau of Animal Industry. From its earlier projects, DM Consunji has earned a reputation of on time delivery, quality work and a pioneer of advanced construction technology. Today, DMCI is acknowledged as the first triple A rated Philippine construction company and an industry leader. It has built over 500 projects including major landmarks such as Mactan Shangri-la Hotel, Manila Hotel, Westin Philippine Plaza, Asian Hospital, Manila Doctor’s Hospital and the New Istana Palace in Brunei.
From its construction ventures, DM Consunji evolved into DMCI Holdings. DMCI Holdings is a multi-billion peso conglomerate majority owned by the Consunji family1. DMCI Holdings has a diverse business interests such as mining (Semirara Mining), power (DMCI Power), water (Maynilad and Subic Water) and infrastructure (Tarlac La Union Express Way). In 1999, DMCI Holdings formed its housing division – DMCI Project Developers under the brand name DMCI Homes.2 DMCI Homes capitalizes on its synergy with DM Consunji (construction) to control the quality and cost of its developments.3
DMCI Businesses:
1 As of 31 December 2008, DMCI Holdings is 51% owned by Dacon Corporation which is a holding company for the business interests of the
Consunji family.
2 DMCI Homes is a wholly owned marketing subsidiary of DMCI Project Developer. For this paper, DMCI Project Developers Inc and DMCI
Homes will be synonymously referred to as DMCI Homes.
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For ten years, DMCI Homes has been offering residential communities to modest income families and has since built 25 projects mostly concentrated in the Mega Manila area. The developer began with Lake View Manors (1999) followed with Hampstead Gardens (2001). In 2003, it was more aggressive by building bigger developments with more amenities through its East Ortigas Mansions, Villa Alegre and Mayfield Park developments. DMCI Homes’ current subdivision and condominium projects include Cypress Towers in Fort Bonifacio Global City (BGC), Magnolia Place in Quezon City and Dansalan Gardens in Mandaluyong. Its developments are identified with resort-type amenities and large open spaces. DMCI has also entered into residential leisure estate development through its Alta Vista project in Boracay.The company currently targets young middle income families and distributes its products through its in-house sales and external brokers both locally and abroad. The company formed partnerships with foreign brokers in 12 countries in Asia, Europe and United States to capitalize on the emerging OFW market.
DMCI Homes is contributing a larger part of DMCI Holding’s revenues and income. In 2008, its revenue contribution increased from 13% to 19% of DMCI holdings Php 21.1B consolidated revenue. Property development is the third largest income contributor next to construction and mining (top contributor). DMCI Homes also contributes to 26% of the conglomerate’s Php 2.0 B consolidated net income4.
4 2008 DMCI Holdings Annual report.
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DMCI Homes Revenue Contribution5DMCI Homes Income Contribution6
Revenues as of 2nd quarter of 2009 has reached 1.87 billion (2% higher from last year) with sales volume of 679 residential and 212 parking units with half of the sales coming from existing projects such as Dansalan Gardens, Riverfront residences and Raya gardens. The remaining revenues are coming from newer projects such as Cypress Towers and Tivoli Gardens.
5 Total Revenues in millions of Pesos. For DMCI Homes, includes real estate sales, finance income, fx gains,
dividends and other income .
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The company’s head office is located in Bangkal, Makati though it has several sales and property management offices across Metro Manila. Isidro Consunji resides as the president of DMCI Homes. He is also the president and CEO of DMCI Holdings. The day to day operations of DMCI Homes is being done by its managing director – Alfredo Austria7. As of end of September 2009, the company has around 300 probationary and permanent employees8.7 2007 DMCI Holdings Annual Report.
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II. RESEARCH DESIGN AND METHODOLOGYResearch Design
Macro economic data used in the external analysis was gathered from the websites of various government offices such as the Bangko Sentral ng Pilipinas and the National Statistics Office. These government offices also have projections on macro economic growth which was collaborated by projections from the Economist and other private research institutions.
Industry data was gathered from the research done by real estate consultants such as Jones Lang Lasalle and Colliers International as well as data from Housing and Land Use Regulatory Board (HLURB). This was supplemented from industry news from the websites of respected media outlets such as Philippine Daily Inquirer, ABS-CBN and Business World.
To be able to assess DMCI’s performance relative to its competitors, audited financial statements were obtained from both DMCI Holdings and DMCI Homes as well as its key competitors from the Securities and Exchange Commission. Aside from providing financial data, the published annual reports also serves as a good source of internal and competitor information.
Statements from the corporate website of DMCI and its competitors are used to determine recent developments, marketing activities and other internal and competitor information. To be able to benchmark the pricing of the company relative to its competitors, various brokers were contacted online. Competitor prices were benchmarked based on similar projects i.e. projects are of similar nature (high rise residential), in close proximity to one another and will be completed within the same year.
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To provide a complete internal assessment of the company, a questionnaire was emailed to senior DMCI Homes managers last November 2009. Their opinions provided insight to the company’s internal environment.Scope and Limitation
This paper will be limited to DMCI Homes’ real estate ventures in the Philippines. The paper will focus on how the company can compete in the Philippine market and will no longer delve into the feasibility of developing real-estate projects outside the country. The paper will also concentrate on the primary real estate product of DMCI Homes i.e. high rise residential real estate. Its other products and services such as its resort project and its property management will no longer be focused on due to its marginal revenue contribution.
Due to the timing of the submission of this paper, only the 2006 to 3rd quarter 2009 audited financial statements were obtained from the Securities and Exchange Commission. Annual 2009 financial statements were projected based on the 2009 income and sales projection of DMCI. The strategies recommended in this paper will affect the financials of the company in 2010 onwards.
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III. EXTERNAL ANALYSIS3.1 Economic Performance and Forecast 3.1.1 OFW remittances to grow by 6%
Remittances of Overseas Filipino Workers have experienced remarkable growth in the past years. In 2008, remittances were valued by the Bangko Sentral ng Pilipinas at $16.4B. This is 13.7% higher from last year. With the global economic downturn causing massive workforce downsizing in the United States and Europe, the BSP initially forecasted a flat growth for 20099. To cope with the global crisis, the government has aggressively marketed our Filipino workers abroad and forged hiring agreements with the Middle East, Japan, Canada, Korea and Australia. These measures were felt in the first months of the year as there was a 2.8% YOY increase as of May 2009 ($6.98B)10
The tenacity of the OFW remittances growth caused BSP to revise its figures to $17.1B or a 4% growth. Economic recovery is seen to happen in 2010. As the US and European labor market begins to recover, 2010 OFW remittances has also been upwardly revised to $18B or a 6% growth11.
9 http://www.bsp.gov.ph/publications/media.asp?id=2119
10 http://www.bsp.gov.ph/publications/media.asp?id=2014&yr=2009
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As of September 2009, the US remains the top destinations for OFWs though the number of OFWs deployed dropped by 10% due to the economic crisis. Among the fastest growing countries for OFW deployment are Canada, Japan, Germany and Norway12.Relevance:
Overseas Filipino Workers have been widely acknowledged as a major contributor to the Philippine economy. Remittances not only fuel consumer spending but also investments in real estate. OFWs and their families in the country are buying real estate not only for their primary residence but also as an investment. The BSP estimates 11.2% of OFW remittances go to real estate purchases13 or Php 91 B potential market (Refer to Appendix 2: Market Segmentation).
12 www.bsp.gov.ph
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DMCI is targeting OFWs both through its sales offices both locally and abroad. 15% of the company’s 2007 sales are from its international offices, most of which are OFWs. 14 This is lower compared to other real estate companies such as Ayala Land where 25% of sales are from OFWs15. In terms of market presence, DMCI has offices in 12 countries. DMCI has sales offices and broker partners in 7 out of 10 top OFW destinations.163.1.2 Global Economic Recovery from the Subprime crisis
From late 2008 to 2009, prices of mortgaged back securities crashed resulting in the collapse (and bail-out) of major investment banks. The inaccessibility of credit caused US and European citizens to defer their housing spending. US residential home sales for June 2009 were down 21.3% compared to previous year17. European housing market is also expected to remain weak as evidenced by falling housing prices18.
The Philippines suffered to a less extent. GDP slowed down but remained positive to 0.5%19. According to Colliers International, the slowing economy slowed down office and residential markets although the commercial real estate market remains resilient.
Driven by the coordinated intervention of the government, continued growth of countries like China and renewed investor confidence, global recovery is seen at the latter part of the year.20. The pump priming activities of the government has positively affected the economy and the Philippines is expected to
14 http://www.dmcihomes.com 15 2008 Ayala Land Annual Report. 16 www.bsp.gov.ph
17 http://www.census.gov/const/newressales.pdf
18http://www.fxstreet.com/news/forex-news/article.aspx?StoryId =dc59446f-d563-41a9-947c-19ad8b3edd54 19 Murray, Dr Jane. “Asia Pacific Economy: Signs of a turnaround but outlook remains subdued”. 2nd quarter 20009.
www.joneslanglasalle.com
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gradually recover from the crisis this year. The gradual economic recovery has positively impacted the residential real estate sector at the 2nd quarter of 200921.Relevance:
DMCI has the opportunity to take advantage of a possible rebound of sales from crisis hit countries. 67% of 2007 international sales are from US and Europe, countries which are hit the hardest by the crisis. The company has tie-ups with real estate brokers in 11 countries around Asia, Europe and United States22.
3.1.3 Emergence of Bonifacio Global City as a new business center
After the government privatized the Bonifacio Global City (BGC) in Taguig, BGC experienced continuous growth. Colliers International mentioned that in the next three years, BGC’s residential supply will rise by 8,297 units and 25 major residential projects will be completed23. By 2012, BGC’s gross floor area will be at 2.6 million sq meters which is double the size this year. Residential units will reach 8,422 units, which is at par with Makati and exceeding Ortigas’ 7,000 units. The Taguig city government is also investing heavily to improve the business center’s infrastructure by upgrading its transport system,
21 www.colliers.com
22 http://www.dmcihomes.com
23http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Report/PDFs/Knowledge_1Q_
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building additional roads and creating additional amenities such as a science museum. Additional BGC landmarks will include the 6 star Shangri-la Hotel (to be completed 2012), St Lukes Medical Center and the country’s tallest tower24.Relevance:
Megaworld, one of DMCI’s key competitors, has recently won the bid over Robinsons Land for the 8.38 hectare northern area of the BGC at a cost of 80,000 per square meter. It intends to spend 15.6B over the next 20 years to develop this part of the BGC.
DMCI also has a development near the area. Cypress Towers, a 10,700 sq m. development located adjacent to BGC25. DMCI also has a large lot (around 80 hectares) along C5 road and adjacent to the BGC26 which the company can potentially use for future projects.
3.1.4 Continued growth of the BPO sector
The Business Process Outsourcing sector is composed of outsourced or off-shored back office, customer care and research functions. By 2010, Jones Lang La Salle projects the industry to grow tremendously and become a major contributor to the country’s economic growth. The Philippines will get 10% of the market share representing USD 13 B or 8.5% of our GDP (compared to $3.3B or 5% of the 2006 GDP). The sector will employ 900,000 employees in 2010 up from 285,000 in 200627.
Relevance:
24 Liu, Kristine Jane. “Bonifacio Global City expects to equal Makati Space by 2012.” Business World. 21 Sept
2009. http://www.abs-cbnnews.com/business/09/20/09/bonifacio-global-city-expects-equal-makati-space-2012
25 www.dmcihomes.com
26 Bworlsonline.com/online/property/inside.php?id=008
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The BPO sector is a growing market of real estate companies. 82% of offices are located in Metro Manila. In terms of office spaces, the sector will need 5.2 million square meters in 2010. Only 2.5 million sq. meters are currently available and 1.7 million sq. meters are under construction. The scarce supply of 1 million sq. meters will be mostly in the Makati and Bonifacio Global City area.28 The demand for office spaces will also extend to the residential sector. With 900,000 employees earning an average of $3,600 annually and spending 13.2% of that income on housing, the industry can potentially gain Php 20.4 B in property sales (see Appendix 2: Market Segment Sizes).3.1.5 Construction Raw Materials Prices to remain stable
In the previous years, there was a sharp rise in the global prices of construction materials such as cement and steel due to the construction boom in China. By 2009, prices have stabilized due to the economic downturn.
To measure the inflation of construction raw materials, the NSO prepares an index containing the prices of major construction raw materials such as cement, steel, wood, pvc, glass etc in the National Capital Region (NCR). The index has a base figure of 100 for 1985 prices.
In 2009, the index has been stable at the 458 to 465 range29. There is an expected temporary uptick in the last quarter of 2009 due to the reconstruction of typhoon affected houses in the NCR. By 2010, prices are expected to remain stable due to a modest economic recovery causing benign inflation of 3.5% to 5.5% per government forecast30.
28 Marcelo, Kathy. What does the O&O roadmap say? May 2008. www.joneslanglasalleleechiu.com 29 www.census.gov.ph
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Relevance:57% of company’s revenues are allocated to cost of construction. The cost includes cost of construction and raw materials. Housing prices are heavily influenced by the cost of raw materials. Last year for instance, when the CMWP Index shot up from 393 at the start of the year to 465.1 by the end of the year, DMCI Homes had to increase its selling prices by 12% to recoup costs.
3.1.6 Interest Rates are projected to rise
As projected by The Economist, average lending rate will increase from 8.5% in 2009 to 9.6% in 2013. Higher interest rates are mainly due to the inflationary impacts of increased spending in a recovering economy31.
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Projected Lending Rate:Relevance:
Bank lending rate is the base rate which housing loan interest rates are based. A higher lending rate will mean a higher housing loan rate to potential home buyers. As clients would normally buy homes on credit, stable home loan rates will encourage buying activity and be an opportunity for both the industry and company.
3.2 Political and Government Aspects
3.2.1 Potential Charter Change
House Speaker Prospero Nograles has set in Congress’ agenda House Resolution No 737 which opens land ownership to foreigners. Despite hesitations from the public, charter change will be at the top of the legislative agenda of the house for the current session. Protests are mainly against the political amendments to the constitution and less on the opening of land ownership32.
32 Cabacungan, Gil C. Jr. “Nograles: Charter change train back on track. “18 July 2009.
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Relevance:The passage of the law will allow the company to sell titled developments such as subdivision lots to foreigners. It will also remove the maximum number of condominium units that can be sold to foreigners. Currently, DMCI can only sell 40% of condominium certificates to foreigners33. Opening of land ownership can generate potential sales for DMCI especially if DMCI will strengthen the operations of its international offices in 12 countries.
3.2.2 Continued promotion of the Philippines as a retirement haven
The Philippine Retirement Authority (PRA) is implementing the Special Resident Retiree’s Visa (SRRV) Program to promote the country as a major destination for foreign retirees34. Continued patronage of the new administration come 2010 will benefit the real estate sector. According to Philippine Retirement Authority Chairman, Edgar Aglipay, there are 20,000 retirees who have registered with the agency in 2008. The figure is expected to grow to 24,000 retirees this year35. These 24,000 retirees have registered with the agency to avail of tax perks if they buy real estate in the country.
Relevance:
Potential sales can come from condominium purchases from foreign retirees. Foreign retirees are allowed by the current law to buy condominium developments. These represent potential sales to DMCI especially since DMCI’s projects are resort themed with substantial land area being used for recreational facilities. These are features foreign retirees are considering when buying a second home.
33 http://www.bcphilippineslawyers.com/foreign-ownership-of-land-in-the-philippines/371/ 34 Fajardo, Fernando.” Can foreigner-retirees buy land here?” 22 Oct 2008.
http://globalnation.inquirer.net/cebudailynews/opinion/view/20081022-167846/Can_foreigner-retirees_buy_land_here%3F
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3.3 Environmental Factors3.3.1 Heightened risk of flooding due to climate change
Last September 2009, the country was devastated by one of the worst typhoons to hit the country. One month worth of rain fell in 6 hours when Typhoon Ondoy hit Metro Manila. This caused 5 meter high floods and devastated houses in Cainta, Pasig and Marikina area36.
The UN notes that the intensified typhoon causing massive flooding is expected to continue as the Philippines suffer the effects of climate change37. Floods will severely affect real estate developments located low lying areas.
Relevance:
With the recent events, a growing consideration of home buyers is the risk of flooding in a development. After being heavily hit by typhoon Ondoy, real estate projects in low lying areas such as Marikina, Pasig and Cainta have suffered falling property values and experienced a drop in demand.
DMCI’s East Raya Gardens in Pasig was not severely affected by the flooding due to good drainage in the area. Other DMCI developments were also spared38. Other industry players were not as fortunate. Provident Securities, the developer of Provident Village in Marikina, is not only faced with a drop in housing prices but bad publicity and law suits from its residents.
36 Ramos, Marlon. “Too much rain too soon.” 27 Sept 2009. www.inq7.net
37 Abbugao, Martin. “Floods a wake up call for climate change.” 29 Sept 2009. www.inq7.net 38 www.dmcihomes.com
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IV. Industry and Competitor Analysis4.1 Industry and Market Segments
4.1.1 Residential Housing Product Categories
HLURB is a government agency that issues housing licenses needed before a developer can sell a unit. It classifies residential developments into four categories (1) high rise residential condominium (2) low cost (3) socialized housing (4) medium cost & open market house and lot.
Condominium
House Bill 398 defines a condominium as “an interest in a real property consisting of a separate interest in a unit in a … residential building and an undivided interest in common areas of the building ...”39
In 2007, HLURB recorded 77 projects that applied for licenses40. These projects had a total inventory of 19,369 units available for sale. By 2008, the number of condominium units being sold jumped by 150% to 49,459 units41. At an average price of Php 3M (See Appendix 3: Competitor Pricing Survey), total size of the high rise condominium market is at Php 148B – growing by Php 90B from last year.
39 http://erbl.pids.gov.ph/listbills.phtml?id=167 40 www.hlurb.com
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This housing type is one of the key products of DMCI as 16 out of its 25 developments belong to this category.House and Lot
House and Lot developments refer to a housing project where the land title is transferred to the buyer. HLURB classifies these further as open market and middle income housing. Both types are not being sold as socialized or low income housing. They’re being targeted to middle income and high end market. House and lot can be sold as an independent unit or part of a subdivision development.
In 2007, there were 262 projects registered under this category42. These projects have an inventory of 58,943 units in 2007 which dropped by 9% to 53,513 units in 2008. This product category is valued at Php 160B.
DMCI has 9 out of 25 projects belonging to this category.
Low Cost and Socialized Housing
Under the law, the socialized housing projects are high density developments worth Php 300,000 or below. Low cost housing projects are worth between Php 300,000 to Php 1,250,000. Both are geared towards low income families. This product category enjoys government perks such as tax incentives and subsidies.
There were 345 developments as of 2007 in both of these sectors which are composed of 91,655 units. In 2008, this product category grew by 49% to 118,576. 14% of which is from the socialized housing and the rest for low cost housing. Total market size given the prices is at Php 109 B.
42 www.hlurb.com
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DMCI is currently not offering products belonging in this category.4.1.2 Market Size and Growth (Value and Volume)
As of 2008, the total Philippine residential market is valued at 418B comprised of 221,548 units. In value, the biggest contributor is medium cost and open market house and lots (38% on the industry). However, this sector contracted by 9%. High rise residential condominiums are increasingly becoming a bigger part of the market growing by 155% to contribute to 35% of the industry value. The low cost/socialized
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housing products have the most number of units but because of the lower selling price, contribute only 26% of the industry value.The Philippine housing sector has grown by 35% in 2008 with the high rise residential developments contributing to most of the growth (155%). Year on year, the industry contracted by 3% during the second quarter of 2009 as there was a 28% drop in the low cost housing sector. In the next 3 years, there will be 20,420 new units launched to the market most of them in the Bonifacio Global City where 25 new condominium units will be completed (see external analysis).
4.1.3 Market Segments and Trends
4.1.3.1 Segmentation through Economic classification
The real estate market has been traditionally segmented based on economic classification as measured by the budget of the buyer for a house. Given this criteria, the market can be segmented according to luxury, affordable and low-cost buyers.
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Luxury buyers are individuals belonging in the upper A market with an annual family income of above 2,000,00043. According to Colliers International, average price of homes being targeted for this group is Php 129K/sq m as of 1Q 200944. Aside from having a high price per square meter, units are traditionally bigger. Average size of a unit is around 140 sq meters for a 2 to 3 bedroom unitand costs an average of Php 17 million (See Appendix 3: Competitor Pricing Survey). Luxury homes are also grander and are centrally located within a business or a recreational area. Major real estate players that are tapping this sector are Ayala Land Premier and Rockwell Land.According to Colliers international, there are 5,420 units being sold to the luxury segment. Given the price and size of the unit, this translates to Php 97 billion in market size or 23% of the industry (See Appendix 2: Market Segment Size). According to Colliers international, growth rates for the luxury segment will be flat as indicated by lower capital values of prime 3 bedroom units45.
43 Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle class.” 3 July 09.
www.bworld.com.ph
44 www.colliers.com 45 www.colliers.com
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The middle income segment, also called the affordable segment, is catered to modest income buyers with an annual family income ranging from Php 500,000 to Php 2,000,00046. Prices of these homes are higher than 1.25 million but lower than the prices of luxury buyers. The segment is being targeted by numerous firms including DMCI because of its size. The segment valued at 211M represents half of the industry value (See Appendix 2: Market Segment Size).The low cost segment is being catered to the CDE market with an annual family income of less than Php 500,00047. These buyers have a housing budget of less than Php 1,250,000. Buyers of this segment can access financing from Pag-ibig. In 2007, there were 345 projects being launched for this sector bringing in a total of 109B market size. The value of this segment grew by 58% in 2008.
4.1.3.2 Segmentation through source of income
46 Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle class.” 3 July 09.
www.bworld.com.ph
47 Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle class.” 3 July 09.
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The residential real estate market can be further segmented to highlight the emerging sectors of the economy. The two major drivers of the Philippine economy are the continued growth of OFW and BPO sector. As indicated in the external analysis, they are potential growth drivers of the industry.11.2% of the projected $17.1 B worth of OFW remittances will go to housing. This provides potential revenues worth 91B to the industry. With the 4% growth this year and 6% growth next year, real estate companies are devoting more resources to cater to this segment. DMCI for instance has 15% of revenues coming from OFWs while 24% of Ayala Land’s real estate sales are also from that sector.
Another segment to watch is the BPO segment. Since 2006, the sector more than doubled (215%) in the number of workers it employs. By 2010, the sector will have 900,000 employees.48 At an average annual compensation of $3,60049 and 13.2% of this income is spent on housing50, the sector is expected to be worth Php 20B or 5% of the total industry.
4.1.3.3 Market Volume of Segments
Below is the summary of the number of units per market segment which was calculated based on segment value and average price. The middle income segment was further categorized according to source of income.
48 See external analysis
49 http://www.magellan-solutions.com/call-center-industry_people.htm
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4.1.4 Pricing
Pricing strategy will depend on the economic classification being targeted by the firm. Pricing groups can be classified by luxury, affordable and low cost pricing schemes. Affordable pricing is targeted to middle income buyers. The price of a development can depend on the price per square meter and the unit size. Unit size will also depend on the economic group the developer is targeting.
DMCI is currently marking its developments in the affordable pricing scheme similar to its key competitors – Megaworld, Robinsons Land and Avida Land. (See Appendix 3: Competitor Pricing Survey for a detailed list of prices per project)
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4.1.5 Distribution ChannelsThe developer can choose to either distribute their products via in-house sales or external brokers.
In house Sales
Real estate companies have their own sales personnel to distribute their products. In house sales can be located within or outside the country. Aside from a fixed salary, real estate companies also compensates its in-house sales agents via commission over sales.
83% of DMCI’s sales are from in house sales.
External Brokers
Developers can opt to form brokering agreements with external firms. The commissions paid to external brokers are much higher compared to commission paid to in-house sales. Commission rate of the industry averages at 6% of listed price. Commissions are shared by the sales agent and the brokerage firm. External brokers can be contracted to exclusively distribute the project of a single developer.
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Re-sellers
Buyers can also act as alternative distribution channel. There are investors who acquire properties for the purpose of re-selling the property once the prices have appreciated. This distribution channel acts both as a distribution channel and as a competitor since they can capture demand that could otherwise have gone to the developer.
4.1.6 Advertising and Promotion
To stimulate demand, developers use several media types. Outdoor advertising is the most popular media type being used. Outdoor ads are being placed along major thorough fares in Metro Manila such as EDSA. Companies are also utilizing television, radio and print ads in their brand building activities. Increasingly, companies are using its websites to inform clients of new projects and construction updates of existing projects. Companies such as Ayala Land are also making their websites e-commerce capable by creating the infrastructure to allow online reservations. Property developers are also using public relations by contracting writers to discuss its property offerings.
Promotion spending has been increasing at an average rate of 27%51 primarily through the promotion of the company’s high rise development. As discussed in the external analysis, high rise developments jumped by 150%. To stimulate demand from the increasing supply, companies have increased their promotion activities.
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4.2 Porter’s 5 Forces of Competitive AnalysisThe residential real estate industry is composed of numerous small and large players. The 9 major players enumerated below represent only 13% of the market share. There are numerous market players all over the country with most of the major players servicing key Philippine cities like Metro Manila. The scope of the industry does not include rental properties although this is an important substitute.
The following are the major market players with industry orientation and their 2007 vs 2008 residential real estate revenues.
Ayala Land, Megaworld and Vista Land have the largest market share representing 3.7%, 3.0% and 2.5% of the residential industry. Each of these companies leads in the a different market segment. Ayala Land’s Ayala Land Premier and Alveo Land dominates the high rise industry. Ayala Land also has ventures in the middle income segment through Avida Land and is venturing into the low cost housing. Megaworld is the leader of the middle income segment while Vista Land through Camella Homes leads the low cost segment.
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Concentrating in the middle income segment, there is a large disparity in revenue share of Megaworld with the market followers (DMCI, Robinsons, Avida, SM, Filinvest). However, the market followers have the same level of sales (2 to 4 Billion).4.2.1 Threat of Competition - Strong
Competitive rivalry is intense due to the numerous players in the real estate market, flat prices, industry growth and high exit barriers.
Numerous players in the industry
According to HLURB, in the first half of 2008 alone, there were already 937 housing projects registered with the agency. Out of this, there were 63 condominium projects being built in the Philippines52.
52 www.hlurb.com
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Housing prices will remain flatNominal and real housing prices will have a near flat growth rate from a height of 10-15% in mid 2007.53 The drop came from the impact of the subprime crisis where buyers especially OFWs deferred their housing purchases.
High Exit Barriers
Residential condominium industry is capital intensive. Investments have to be made in land acquisition and building construction. For instance, Ayala Land has spent Php 7.7 B in 2008 and 8.7 B in 2009 to develop its residential real estate businesses (Ayala Land Premier, Alveo Land and Avida Land)54. Exiting the industry will be costly given the large amount of fixed asset investment.
4.2.2 Threat of New Entrants – Weak
Entry Barrier – High Capital Requirement
53
http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Report/PDFs/Knowledge_1Q_2009.pdf
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Sizeable capital is needed to enter the industry. Large capital is needed for the construction of high rise residential projects and purchase of land. Based from published reports55, the key players have an average CAPEX budget of 8.3B. A new entrant should have this amount of capital to pose a significant threat to the company.Entry Barrier – Land Availability
Another important barrier is the high cost and limited availability of good locations. Prices of Makati CBD and Ortigas Area for instance, are steadily increasing at .6% to .9% per year56. A new entrant must also obtain a large area of land. Land area of a typical DMCI property is around 8000 square meters57. A new entrant must obtain a single track of land close to that size to compete with a developer the size of DMCI.
Recent New Entrant
A new entrant should overcome the strong entry barriers of capital and land requirements. One new entrant is Eton Properties of the Lucio Tan group. Eton Properties used the massive land bank of other Lucio Tan subsidiaries such as Philippine Airlines, Philippine National Bank and Allied Bank to overcome the barrier of entry of land availability. Being a member of the Lucio Tan group of companies
55 2008 Annual Reports of Key Competitors.
56http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Report/PDFs/Knowledge_1Q_
2009.pdf
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also allowed it access to capital. Despite these advantages, Eton Properties has negligibly affected the industry with only 90M in sales or a 0.02% market share58.4.2.3 Bargaining Power of Suppliers – Moderate
Major suppliers of the industry are the construction contractors and raw material suppliers. Major raw materials in building construction are cement and steel. Raw material suppliers, construction contractors and other suppliers consume 57% of the industry’s revenues (See Financial Statement Analysis).
Prices of raw materials such as steel and cement are correlated with world prices. Local cement and steel prices are being monitored but not being controlled by the DTI. Current raw materials prices have stabilized (see external analysis). Competition in the raw material and construction services industry is stiff due to the numerous raw material providers and construction contractors. In terms of substitutes, there are no substitutes for major raw materials and construction services.
Overall, bargaining power of suppliers is moderate due to the numerous suppliers tempered by the lack of substitute to these key inputs.
4.2.4 Bargaining Power of Buyers – Weak
Real estate is a high ticket purchase and buyers usually can only afford to buy one home at a time. Buyer’s lack of ability to buy in bulk prevents buyers from bargaining significantly off the developer’s standard price. Aside from lack of economies of scale, bargaining power of buyers is also weakened by the fact that housing is a primary human need.
4.2.5 Potential for Substitutes - Strong
58 http://etonpropertiesphilippines.com
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Substitutes are residential houses that are constructed from the ground up by the owner of the property. House design is more customized compared to the standard property offerings of residential developers. However, location of the property is farther from commercial business districts.Another major substitute are properties for rent. In the near term, renting is cheaper compared to buying a new home. Unlike buying a home which requires 10%-30% down payment and subsequent amortizations, there is a smaller cash outlay in renting a house.
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4.3 COMPETETIVE PROFILE MATRIXThe choice of competitors was limited to three – Robinsons Land, Avida Land and Megaworld Corporation. These companies were chosen on the basis of the similarity pricing and level of quality. Quality was defined on the basis of property design, amenities and property maintenance. Prices per square meter were bench marked across different companies for completed projects within Metro Manila. These properties deliver the same level of quality and their prices range from Php 80,000 to 100,000 per square meter. These companies are in the affordable segment or companies targeting middle income families. Given these categories, the Rockwell land, Alveo Land, Ayala land Premier and Camella Homes were excluded since they are not competing in the same income segment as DMCI homes.
4.3.1 Key competitors of DMCI Competitor #1 Robinsons Land
Robinson’s Land is the property arm of JGB holdings which is owned by the Gokongwei family. Robinson’s Land is engaged in various sectors of the property market. It develops and markets commercial spaces, office spaces and residential comes. In 2008, its sales from its residential division reached Php 4.4 Billion and its second quarter 2009 sales have already reached Php 1.887 Billion. Its existing developments include Trion Tower (Fort) and Gateway Regency (Pioneer).
Robinson’s Land targets the middle income group similar to DMCI as exemplified by its USP “Great Homes, great value”. Price range of a typical development is at Php 90 thousand per square meter which is close to DMCI’s properties priced at Php 81 thousand per square meter. Quality of development is also similar to DMCI.
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Competitor # 2 MegaworldMegaworld, a property development firm founded by Andrew Tan, is engaged in residential, office and commercial development. It is considered as the market leader in the middle income residential segment with developments priced at Php 90,000 per square meter59. Full year residential revenue is Php 12.43 B out of its total 15.4B 2008 revenues.
Megaworld is known for its township developments which follows its USP, “Live, work and play”. Township developments combine residential, commercial and office buildings in an area. Its most notable development is Eastwood City.
Competitor #3 Avida Land
Ayala Company is a diversified conglomerate with interest in telecommunications (Globe), banking (BPI), semi-conductors (Integrated Microelectronics) and water distribution (Manila Water). Ayala Land, its property arm, is the country’s most experienced property developer.
Ayala land is further divided into commercial properties (Ayala Malls), corporate businesses (Laguna Technopark and Ayala businesscapes), geographic businesses (Cebu Holdings) and residential development. Its residential area is segmented by target market. Ayala Land Premier and Alveo Land caters to the luxury sector with developments such Serendra, while Avida Land caters to the affordable segment with projects such as Avida Towers.
Among the Ayala subsidiaries, Avida land is DMCI’s direct competitor. Price per square meters for Avida Towers is at Php 100 thousand per square meter similar to DMCI. Quality of property design and
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amenities is also similar to DMCI Homes. Avida and DMCI both target the same market. Avida’s target market is mentioned in its USP (“Affordable living at its best”) and its mission statement (“We are the recognized leader and the most preferred provider of quality shelters and communities for the average Filipino family”)60.4.3.2 Critical Success Factors CSF # 1 Adequate Capitalization
Capitalization can be measured by the equity value in its balance sheet and through a leverage ratio(debt to assets ratio). Higher debt would limit future borrowings or attract capital to fund future projects. The parent company’s capitalization should also be considered since the company can finance projects through its parent company.
Importance Weight: 30%
Large capital is needed to be able to purchase land, develop properties and fund other strategies..
CSF # 2 Price Competitiveness
To compare on the basis of price, newly constructed projects of a company were chosen based on their proximity to one another and the stage of completion of the project. Prices were scanned for new developments located around the same area.
Importance Weight: 20%
Real estate is a big ticket purchase. Middle market buyers will do their due diligence to get the best value for their money. The price sensitivity of buyers makes the price of the development a key component in
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their buying decisions. Customers will be looking at a product that offers them the greatest value for money.Real estate developers will need to address the competitiveness of the pricing of their product while protecting their margins. Players that are targeting the middle market (such as DMCI Homes) are focusing on the affordability of their homes.
CSF # 3 Accessibility of Location
Proximity of a location to a business or commercial district
Importance Weight: 20%
Buyers consider the location of the development in the purchase decisions. The area should be wide enough to accommodate a high rise building and amenities. It should also be in proximity to business centers or schools. Thus, acquisition of large lots in areas with high population densities is a key factor to the success of a player in the industry.
CSF # 4 Wide distribution network
Adequate number of internal and external sales personnel is necessary to move inventory. Reach of distribution should be both local and international buyers. This can be measured through number of international and local offices sales offices.
Importance Weight: 10%
To be successful in the industry, a developer should have a wide distribution network. Distribution includes in house sales and external brokers both inside and outside the country. Sale of real estate requires long sales effort since it’s a high ticket item. Thus, the company should have adequate number of sales people to build relationships with prospects and turn them to potential sales.
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CSF # 5 Number and quality of amenities in the developmentA survey was done where two of DMCI’s and its key competitor’s developments was visited to assess the quality and number of amenities of a project. The allocated area for the amenities was also evaluated against the total land area of a project.
Importance Weight: 5%
Good property design and amenities draws clients to purchase a property. Common amenities such as swimming pool, gardens and recreational areas add value to the development.
CSF # 6 Size of Unit
The size of a unit is measured as number of Square Meters of a standard 2 bedroom unit
Importance Weight: 5%
Buyers are looking at the size of the unit. The unit should be big enough for the occupants to live comfortably.
CSF #7 Track record of developer
This is measured by the reputation of projects the developer has successfully completed.
Importance Weight: 5%
The track record of the developer is an important consideration for the buyer. Condominium projects are usually sold on a pre-selling basis. In pre-selling, the buyer will not see the actual development but only a model of it. The buyer has to trust the developer to deliver the quality it promised. For trust to be established, the buyer will consider the track record of the firm.
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CSF#8 Marketing CapabilityThis can be measured through the marketing spend of the company for 2008. The importance of promotions activities to the company can be quantified by the budget allocated to it.
Importance Weight: 5%
For companies to compete well, it has to allocate a budget for marketing activities such as product promotion to increase brand awareness and recall.
4.3.3 DMCI Homes CSF ratings CSF#1 DMCI’s Capitalization61 (1)
DMCI Homes has a total capital of Php 3.9 B as of 2008 bringing its debt to assets ratio of 0.67 which is higher than the industry average of 0.45. DMCI is the most heavily leveraged among the four companies.
CSF#2 DMCI’s Price Competitiveness (4)
Based from the price scanning done on the recent developments of the key competitors, DMCI’s current development (Cypress Towers in Taguig) is currently selling at Php 81,034 per sq meter. This is the lowest among the four companies.
In its annual statement, DMCI noted that its pricing 10-15% better than competitors owing to its operational synergy with DMCI’s Triple A construction subsidiary.
CSF#3 DMCI’s Accessibility of Developments (1)
61 See Comparative Financial Ratio
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DMCI intentionally locates its developments outside of a Central Business District to lower unit cost. For instance, Cypress Tower is built adjacent to the Fort (near C5). DMCI’s Dansalan Gardens is built outside Pioneer area in Boni while Tivoli Gardens, is built outside the Makati Business area.CSF#4 DMCI’s Distribution Network (2)
DMCI has international sales offices in 12 countries fewer than Megaworld and Avida Land. Its local reach is also limited compared to Avida and Megaworld and at par with Robinsons Land.
CSF#5 DMCI’s Number and Quality of Amenities (4)
DMCI projects follow a resort living theme. Surveying the four sample developments, DMCI has the most number and best quality amenities. It also allocates larger land area to common facilities.
CSF#6 DMCI’s Size of Unit (4)
A typical two bedroom unit is 58 sq meter (Cypress Tower). This is at par with Robinsons Land.
CSF#7 DMCI’s Track Record (3)
DMCI is only 5 years in the industry and has completed 11 developments. Despite being relatively new in the industry, a higher rating was given owing to its affiliation with its sister company, DM Consunji which is a triple A builder and has built landmarks such as Mactan Shangrila-Hotel, Manila Hotel, Westin Philippine Plaza, Asian Hospital, Manila Doctor’s Hospital and the New Istana Palace in Brunei.
CSF#8 Marketing Capability (4)
It has the largest marketing budget of 228M for 2008. Promotion activities include TV and outdoor advertisements.
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CSF#1 Robinsons’ Capitalization (3)Robinsons Land has a total capital of Php 22 B as of 2008 bringing its debt to assets ratio of 0.43. Robinsons Land is also a publicly listed company which allows it access to additional capital through the stock market.
CSF#2 Robinsons’ Price Competitiveness (3)
Robinsons’ current development, Trion Tower in the Fort, Taguig is currently selling at Php 90,439 per sq unit (as of 20 Aug 09) based on quotes of an online seller.
CSF#3 Robinsons’ Accessibility of Developments (4)
Developments are built within the business districts. Its developments (Gateway, Trion Tower) are within the business districts of Fort Bonifacio and Pioneer. Some of its developments are also placed strategically near Robinsons Malls.
CSF#4 Robinsons’ Distribution Network (3)
Robinsons distribution network locally and abroad which is at par with DMCI.
CSF#5 Robinsons’ Number and Quality of Amenities (3)
From the survey done, Robinsons Land projects have good but limited number of amenities compared to DMCI. In terms of quality of its common areas, its at par with Avida and Megaworld.
CSF#6 Robinson’s unit size (3)
A typical two bedroom unit is sized at 57 sq. m. (Trion towers)
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Robinsons land has 6 major residential developments aside from the commercial and office spaces it has built. Most notable developments include the various Robinsons Malls dotting the country.CSF#8 Marketing Capability (3)
Robinson’s marketing spend is at par with Megaworld at 103M for 2008. Outdoor advertisements focus on the affordability of Robinsons Land developments.
4.3.5 Megaworld’s CSF Rating
CSF#1 Megaworld’s Capitalization (4)
Megaworld has a total capital of Php 24 B as of 2008 and is the least leveraged with a leverage ratio of 0.40. Megaworld is also a publicly listed company allowing it to directly access funds from the stock market to fund its investments.
CSF#2 Megaworld’s Price Competitiveness (3)
Megaworld’s current development, Mckinley Hill in Fort, Taguig is currently selling at Php 87,179 per sq unit (as of 10 Aug 09) based on quotes of an online seller.
CSF#3 Megaworld’s Accessibility of developments (4)
Megaworld’s residential developments are in close proximity with office spaces and commercial districts. It pioneered the concept of townships embodying its USP, “Live-work-play-learn”. Eastwood City for instance has a mix of residential condominiums, malls and office
CSF#4 Megaworld’s Distribution Network (3)
Megaworld has a large distribution network abroad. It has market leadership over major OFW destinations such as the Middle East. It also has a respectable distribution network locally which is at par with DMCI and Robinsons Land.
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CSF#5 Megaworld’s Number and Quality of Amenities (2)From the survey done, Megaworld has the least number of amenities from the four companies. Its developments also have the smallest allocated land area devoted for amenities.
CSF#6 Megaworld’s Unit Size (4)
A typical two bedroom unit has a size of 92 sq. m. (McKinley hill)
CSF#7 Megaworld’s Track Record (3)
Megaworld has built 6 townships which contains a mix of residential, commercial and office spaces. Its most popular development is Eastwood city. One township will have several condominium, office and commercial buildings.
CSF#8 Megaworld’s Marketing Capability (3)
Megaworld’s marketing spend is at par with Megaworld at 118M for 2008.
4.3.6 Avida’s CSF Ratings
CSF#1 Avida’s Capitalization (3)
Avida has a total capital of Php 2.9 B as of 2008 and with a total debt to assets ratio of 0.52. However, its affiliation with Ayala Land should be taken into account. Ayala Land is a publicly listed real estate company and is the most well capitalized property developer with a total equity of 55B. Ayala Land’s capitalization offsets the capitalization of its subsidiary, Avida.
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Avida Land’s current development (Avida Towers Makati West in Makati62 is currently selling at Php 100,040 per sq unit (as of 20 Aug 09). Avida’s developments are the most expensive among the four companies.CSF#3 Avida’s Accessibility of developments (3)
Avida’s developments are situated near but not within a business area. Its development in Makati for instance is a close drive to the Central Business District but is still outside the CBD.
CSF#4 Avida’s Distribution Network (4)
Avida Land has a wide distribution network both locally and abroad owing to its affiliation with Ayala Land, the country’s largest real estate developer.
CSF#5 Avida’s Number and Quality of Amenities (3)
Based from the survey conducted, Avida Land has adequate number of amenities comparable to Robinson’s Land.
CSF#6 Avida’s Unit Size (2)
A typical two bedroom unit has a size of 50 sq. m. (Avida Towers – Makati West)
CSF#7 Avida’s Track Record (4)
Aside from the 27 projects for Avida Land, it also leverages off the experience of its parent company Ayala Land. Ayala Land claims that its its the largest and most experience property developer in the Philippines.
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CSF#8 Avida’s Marketing Capability (3)Avida Land’s marketing spend is the smallest among the four companies at 74M last 2008.
4.3.7 Competitive Profile Matrix (CPM) Ratings
From the identified critical success factors, DMCI and its key competitors are assigned the following ratings.
Based from CSF ratings, Megaworld has the competitive advantage over DMCI and other key competitors. Its competitive advantage has also allowed Megaworld to be the leader in market share in the middle income segment. Megaworld’s strength over the rest of the companies is in the area of capitalization, accessibility of location and unit size. Megaworld also has modest ratings in terms of price competitiveness, distribution network, track record and marketing capability.
In terms of market share, there is no clear market follower. In terms of CSF rating, Robinsons Land is ahead of DMCI and Avida through its more accessible developments and its modest ratings in other areas. Avida Land leads in distribution network and track record owing to its affiliation with Ayala Land. DMCI lags in CSF rating which is also reflected in its market share. Despite being the price leader with a strong marketing capability, its overall CSF rating was lower due to its weak capitalization and lower accessibility of location.
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4.4 External Factor EvaluationExternal Factor Evaluation (EFE) Matrix summarizes and evaluates various external factors including environmental and competitive factors facilitate strategy formulation. (David, 2009).
There are many factors that affect DMCI but a set of priority factors that has the greatest impact to DMCI Homes’ success were selected and importance is given based on its potential impact to its bottom line.
4.4.1 Opportunities and DMCI Homes’ responsiveness
O1 - OFW remittances to grow by 6% [see Environmental Analysis – Economic]
Rating 3 - DMCI initially lessened its exposure to the overseas market when the economic crisis hit and
the BSP initially forecasted a flat OFW remittance growth. When remittances became more resilient, DMCI continued to hire more overseas agents and has been launching road shows in countries like Tokyo to entice international clients to choose DMCI Homes. DMCI also launched a website specifically for the overseas market.
Despite having more aggressive marketing efforts, a 3 rating was given since the company has less international offices compared to Ayala/Avida and Megaworld. 24% of the units Avida sells was distributed to the overseas market compared to DMCI of only 15%.
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Weight of 15% was given to the factor since the OFW segment contributes to 29% of the industry’s revenues or 91B annually.O2 - Global Economic Recovery from the Subprime crisis [see Environmental Analysis – Economic] Rating 3 - DMCI has used its price competitiveness to draw customers to buy its existing project launches
(Dansalan Gardens, Tivoli Gardens and Cypress Towers) despite the subprime crisis this year. DMCI lowered its markup and retained its 10-15% price advantage over key competitors. Impact of DMCI’s responsiveness to the crisis is evidenced by DMCI’s 61% jump in unit sales.
DMCI is also positioning for the global economic recovery projected in the latter part of the year by launching several new projects next year such as Magnolia Place in Quezon City and East Raya in Paranaque.
Weight of 15% was given due to the domino effect the recovery has on both housing prices and demand. Housing prices for instance have remained flat when the crisis hit. With the recovery of the economy, revenues can grow further with rising prices and greater demand.
O3 - Emergence of Bonifacio Global City as a new business center [see Environmental Analysis –
Economic]
Rating 3 - DMCI’s key competitors have developments within the growing Bonifacio Global City (BGC).
Avida Land’s sister company Ayala Land Premier and Alveo Land developed Serendra, a known BGC landmark. Megaworld and Robinsons also launched Mckinley Hill and Trion tower, both in the center of the BGC business district.
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In contrast, DMCI’s strategy is to build in close proximity but outside a business district like BGC. DMCI’s Cypress Towers along C-5 highway which is close but outside BGC. DMCI Home’s landbank does not include lots within BGC.O4 - Continued growth of the BPO sector [see Environmental Analysis – Economic]
Rating 1 – DMCI is currently not targeting this sector. Unlike companies such as Robinsons Land and
Megaworld, DMCI does not have a commercial real estate arm. Robinsons and Megaworld strategically build BPO offices near their condominium projects to be able to fully capture the BPO market.
O5 - Construction Raw Materials Prices to remain stable
Rating 4 – DMCI has an advantage in sourcing its raw materials by using its steel fabrication subsidiary
(AG&P) to source steel raw materials at a lower rate. Through AG&P, DMCI is also able to lock-in steel prices. With its construction arm – DM Consunji, it is able to integrate other raw material requirements with that of DM Consunji to command lower prices.
O6 – Potential Sales due to continued promotion of the Philippines as a retirement haven and relaxing of constitutional limitations on land ownership [see Environmental Analysis – Political]
Rating 1 - DMCI is not specifically targeting retirees. In its vision statement, DMCI targets young
families with modest income. Compared to competitors such as Avida Land and Megaworld, the company also has less sales offices abroad.
Importance of the opportunity is given a lower weight (10%) given the less likelihood of the potential charter change to happen with the political noise generated by the upcoming elections.
