Business Creation In Construction Environment

Published Date: 02 Nov 2017

Since 2003, the government of Malaysia together with its agency, the Construction Industry

Development Board has been aggressively pushing the construction industry to use of the

Industrialised Building System (IBS) method of construction. It is part of an integrated effort to

further enhance the capacity, capability, efficiency and competitiveness of the industry and also

to reduce the industry’s reliance on foreign workers. It is also an effort to promote cleaner, safer,

simpler and efficient method of construction. Many considered it as novel effort but some

sections of the industry are very concern of its impact on hundreds of small and medium sized

traditional contractors, trade sub-contractors and material and component suppliers. Their

anxiety is well placed. As most of us already know, IBS is a construction system founded on the

conception that "construction is also manufacturing" where by most of construction components

and parts are manufactured (fabricated) in the factory and transported to site for assembly. Such

method of construction will most likely eliminate the role and function of the many of small and

medium sized general contractors as well as the traditional trade sub-contractors. The use of

large pre-finished factory made components or parts will most likely diminish the need for small

traditional trade sub-contractors whose business are in the sub-contract works such as

concreting, bar bending, bricklaying, plastering, tiling, carpentering, painting etc. The mass

production of standard components or parts in factories may also affect the businesses of the

small and medium sized material suppliers. On this note, it is important to ask ourselves some

pertinent questions - Will the introduction of IBS reduce or create more businesses? What is the

implication of the use of IBS on the small and medium sized general contractors, traditional

trade sub-contractors and small and medium sized material suppliers? The paper will analyse

and discusses these issues based on the supply chain concept and the theory of business creation

and entrepreneurship. It is important for us to give much thought to these issues because they

will have significant implication on the Malaysian construction industry in general and the small

and medium size contractors and sub-contractors in particular.

Keywords: Industrialised Building System1, Business Creation2, Supply Chain3.

1. INTRODUCTION

Under the Standard Industrial Classification, construction is defined as "a multi-tasks job of

organising and combining materials, people, machinery, money, technology and environment by

myriads of individuals, firms and companies to produce buildings and other structures,

commercial, structural and residential work, including demolition, repair and renovation works

and the assembly and installation on site of pre-fabricated, integral parts into building structures,

bridges, water tanks, storage and warehouse facilities, railroad and elevated right of way, lift

and escalators, plumbing, sprinkler, central heating, wiring etc. systems of building and all kinds

of structure…..". It is a description of the nature of construction industry itself. It is an industry

that is made up of hundreds of different firms and companies that sell or manufacture products or

provide services associated with construction. They include the general contractors, subcontractors,

trade contractors, specialist contractors, material suppliers, component

manufacturers, plant hirers and design and management practices consultant firms.

The Malaysian construction has for many years offered not only thousands of employment

opportunities, but also created many business opportunities to the micro, small, medium and

large firms and companies in the country. However, the number of businesses that construction

industry can offer depends on type or nature, size and complexity of projects, method of

procurement, the method or technique of construction, degree of repetition and types of material,

components and fittings used. Generally, the bigger, taller and more complex is the project the

more firms and companies are. What can we say about the technology or method of construction

used.

The traditional method of construction, which has been part and parcel of the Malaysian

construction since many years ago, is always a labour intensive undertaking involving myriads of

sub-contractors and trade contractors which employ hundreds of workers such as the bar benders,

concreters, carpenters, plasterers, brick layers, etc. It is also a method of construction that relies

on the services of numerous suppliers, plant hirers, consultants and financial institutions. It is a

very fragmented industry of hundreds of separate independent firms and companies that come

together where there is project to be carried out. However, this method of construction has been

said to be slow, more costly, time consuming and lack of quality. It is said to be dirty, unsafe and

dangerous method of working. Today, this method of construction has been said to be one of the

factor for the large influx of foreign workers into the country, either legally or illegally. To

remedy the so called "many disadvantages" of the traditional methods of construction, including

the uncontrollable influx of illegal foreign workers, the government decided to promote the use

of Industrialised Building System (IBS) in a big way. Theoretically, IBS promotes innovation to

the country’s construction process, its value chain produces new range of products and services,

and offers new businesses to the market (Kamarul and Zuhairi, 2009). It is supposed to be ‘new’

construction technology that will increase the efficiency and productivity of construction and

thus making construction faster, economical and cheaper but as pointed by Lim (2006), one of

the main barriers that impede the growth of IBS is the resistance from the various parties such as

the traditional contractors who are worried that their involvement will be much reduced as most

of the responsibilities are taken over by the big manufacturers. Such worry has also been voiced

by many quarters, such as the small and medium contractors, trade contractors and small and

medium sized suppliers.

2. ISSUES

The worries raised by these groups have their grounds. From the business perspective, the push

for greater use of IBS by the Malaysian government gives rise to many pertinent questions,

especially the small and medium sized contractors, tradesmen and suppliers.

a) What is the business implication of the greater use of IBS on the small and medium general

contractors, trade contractors, sub-contractors and suppliers? Will they create more

businesses for them or reducing them?

b) Will the greater use IBS in Malaysian construction coerce the small and medium

construction companies to revolutionise their work method and operations?

c) Will the greater use of IBS in the Malaysian construction shift the market pattern from site

based to factory based businesses?

There are around 65,000 contractors in the country and almost 70% of them are small and

medium sized companies, sub-contractors and trade contractors. At the same time there are

thousands of small and medium sized suppliers all over the country. They have for many years

been carrying out their businesses in a market where there are plenty of demand for concreter,

bricklayer, bar bender, carpenter, joiner, plasterer, plumber, tiler, etc. and suppliers supplying

materials to hundreds of contractors. Many of them are more familiar with the business practice

and work method associated with the conventional construction method. Many have written on

the benefits of IBS in terms of helping to speed up construction, reduce cost and time and

minimise our dependent on foreign labours, but very few have discussed about the implication

on today’s construction business practice or supply chain or their implication on hundreds of

small contractors, sub-contractors and suppliers in the country.

3. BUSINESS CREATION IN CONSTRUCTION ENVIRONMENT

Danny (2004) and Rolf and Sander (2005), defined ‘business’ or ‘firm’ as basically an entity

meant for gaining profits by producing goods and services with the combination of factors of

production such as capital and cost, labour, material and facilities. Business is very much linked

to entrepreneurship as both of them share the similar factors of production in generating sales

and providing services. Hence, creation of businesses can be said to be the formation of firms or

companies by the entrepreneurs or business owners to gain profits by making and selling goods

and services. From construction perspective, it is about the establishment or formation of firms

and companies by entrepreneurs, may they be individuals or groups, to make and sell

construction products and/or to provide services in the design and construction of houses,

hospitals, schools, office, roads, bridges etc. with the aim gaining financial profits and benefits.

The traditional construction businesses are characterised by the presence of myriads of separate

firms, and companies which are drawn together to form a temporary organisation to provide

services or sell products and goods and combined them to form a constructed facility. It is a

business for the production of a tailor-made or one-off constructed product for a specific client

within a specified period. When the project is completed, the team will disband and go separate

way to seek new work. In manufacturing, the products are mass produced continuously within a

controlled environment while the design and production team are often employed by one

organisation.

4. THE ELEMENTS THAT INFLUENCE BUSINESS CREATION

The elements that influence the creation of businesses include the economic conditions,

innovations and motivations of new products, financial support, science and technology, market

conditions and level of education. (He´ bert and Link, 1989; Rolf and Sander, 2005; Rajan and

Zingales, 1998; Reynolds and Curtin, 2008; Charles and Louis, 1995; Douglas and Dan, 2009

and Reynolds, 2010). In the context of economy condition, Malaysia’s economic growth

decelerated 8.9% in year 2010 because the global economy was softened. The Malaysian

Institute of Economic Research however commented that it will be gradually recover in year

2011 with strong domestic demand and investment. In fact, manufacturing sector dominates

again. It is hope this will become a catalyst for the emergence of more new business especially

for the small and medium size enterprises and firms.

As mentioned above, technology is one of the factors that influence business creation. It may

also be the cause some businesses to go out of action. IBS is an innovative technology that has

revolutionised the method of construction from trade based site operations to industrial based site

assembly process. It is a technology that has to a certain extent altered the project procurement

approach, business practices, construction market structure, project organisation and supply

chain. It has also led to the emergence of some new businesses but has forced some others to go

out of action or re-appear in some other market sector.

5. IBS AND ITS ATTRIBUTES

Before going further on the subject matter, it is appropriate to have some understanding about

IBS. What is IBS? There are plethoras of definitions of IBS found in many literatures. All seem

to have some common denominator - it is about pre-fabrication i.e. off-site production and mass

production of standardised building components that are taken to site for assembly. IBS can be

said to be an assembly industry. The CIDB defines an IBS project as that which uses 70% IBS

components (for government projects) or 50% IBS components for private sector project.

Therefore, IBS is a method of transferring the on-site production processes to the factories and

while the on-site works are limited to the assembly of factory made parts and components only.

It is about the assembling of pre-fabricated building parts or components

IBS is considered to be an innovative construction technology introduced in Europe in the early

1950’s to solve the acute housing shortage due to the Second World War. In the early days, it

was known as the pre-fabricated construction system that revolutionised the way buildings are

constructed. It is based on the conception that building can be manufactured or industrialised. It

is the concept whereby the consequential site processes such as bar bending, formwork cutting,

concreting, bricklaying, roof carpentry, joinery works, plastering, etc. are minimised by

integrating them into factory made parts and components. It has been said nowadays,

construction is also manufacturing – is it so?

There are many different types of IBS. They are the closed system, open system, modular system

etc. Closed system is a system where all elements of industrial production of components to be

used for specific designs for specific projects. The system does not allow for the

interchangeability of components from different factories (IBS, 2008). The production of the

components is based on either client’s design pre-caster’s design (Thanoon et al, 2003).

According to Thanoon et al (2003), open system is plausible because it allows the pre-caster to

produce a limited number of elements with a predetermined range of products and at the same

time maintaining architectural aesthetic value.

The modular system is a co-ordinate unified system for dimensioning spaces, components, fitting,

etc. so that all elements fit together without cutting or extending even when the components and

fittings are manufactured by different suppliers (Trikha, 1999). It is an international system of

dimensional standardisation in building where buildings and components are sized in term of a

basic unit or module (IBS, 2008).

6. CONTRACTORS, SUB-CONTRACTORS AND SUPPLIERS

In discussing the subject of construction business, it is necessary for us to consider the

component of the Malaysian construction business namely the general contractors, trade

contractors, general sub-contractors, specialist sub-contractors, material suppliers and plant

hirers. There are now around 65,000 contractors registered with CIDB. They are classified into

Grade 1 – 7. According to the Standard Industrial Classification, they can be grouped into micro,

small, medium and large sized enterprise as shown in Table 1.

Table 1: Classification of Contractors by CIDB

No. of CIDB registered

Contractors

Standard Industrial

Classification

Grade 1 33,280 41,416 Micro sized

Grade 2 8,136 enterprise

Grade 3 10,961 13,632 Small sized

Grade 4 2,671 enterprise

Grade 5 3,831 5,322 Medium sized

Grade 6 1,491 enterprise

Grade 7 4,422 4,422 Large sized

enterprise

At the same time, records from the Building Materials Distributors Association of Malaysia,

there are as many as 15,000 small, medium and large building material suppliers and 1,200 plant

hiring companies all over the country.

However, out of these numbers, only a total of 597 companies have registered as IBS contractor

(Table 2). About 108 companies are certified as IBS manufacturers. The number is considered

very small indicating that the use of IBS is still very limited. Unlike the traditional method, the

dominant of this innovated construction method in the industry is large companies as shown in

Table 2. This is because production methods are allied to the technology applied (Manser, 1994).

When growth in size changes the production techniques, a firm may benefit from technical

economies of scale or mass production technically at a less cost. In old days, technical

economies are less important in the construction industry as it is site-based which does not

employ a large amount of fixed capital. However, when construction moves off-site and

prefabrication technique is started to be used, the scope of technical economies of scale becomes

greater. This is clearly illustrated when G7 contractors dominate the IBS market as they have

better capability to invest in mass production with the updated and advanced technology.

Table 2: Classification of IBS Contractors by CIDB

GRADE SIZE TOTAL (Up to 2010)

G7 Large 342

G6 Medium 44

G5 Medium 54

G4 Small 29

G3 Small 72

G2 Micro 24

G1 Micro 32

7. COMPARATIVE ANALYSIS

As pointed out earlier, the introduction of IBS fulfils some of the criteria in creating business.

For the purpose of this paper, a basic model of business entities for both traditional construction

method and IBS has been developed respectively from the literature and wall and frame elements

are selected as examples. These models as in shown in Figure 1 and 2 are illustrating the model

for wall element with traditional and IBS method of construction respectively. Whereas, Figure 3

and 4 show the model for frame element using traditional and IBS method of construction

respectively.

Figure 1 and 2 shows major businesses involved in the traditional and IBS construction method

for wall element respectively. As shown in Figure 1, the traditional suppliers supply bricks and

reinforcement to the trade contractors, which are the brick layers for laying bricks process.

Cement and sand are also supplied to be used as mortar and plastering purpose. Painter will then

complete the finishing work. Hence, the business entities that are actively involved are the

suppliers of various materials needed and trade contractors like brick layer, plasterer and painter.

It is clearly shown in Figure 2 that component manufacturers have actively participated in the

IBS method of construction and they are producing different kinds of system depending on the

requirements and designs. Similar to the traditional method, suppliers supply material needed

like wood, concrete, aluminium, steel and paint. All the materials are sent to factories to produce

components like wall panels and cladding. The main contractors then engage installers to fix the

components fabricated in the factories. The manufacturers are classified as big players which

have the capability in mass production with adequate financial and technological support in the

industry. Anyway, trade contractors like the conventional bricklayers, plasterers and painters

who lay bricks, plastering and painting are eliminated from the linkage. Installers that are

qualified to undertake the work must be registered with CIDB.

Figure 1: Traditional Method of Construction for Wall Element

Figure 2: IBS Method of Construction for Wall Element

Figure 3 illustrates the linkage of traditional construction method for frame element which shows

the suppliers and transporters provide all kinds of materials that are needed to the trade

contractors. Steels are supplied to the bar bender to cut and fix reinforcement to construct a

frame. Then, formwork is laid using plywood by the carpenter. The concreters are supplied with

either ready mixed concrete or cement and sand for site mix purpose.

Figure 3: Traditional Method of Construction for Frame Element

Figure 4: IBS Method of Construction for Frame Element

As for IBS method, raw materials are supplied to manufacturers so that components are

produced in factories before they are sent to the site. It is clearly shown in Figure 4 that

component manufacturers have actively participated in the IBS method of construction and they

are producing different kinds of systems like panel, box, formwork or block work system

depending on the requirements and designs. The manufacturers are classified as big player which

have the capability in mass production with adequate financial and technological support in the

industry. Trade contractors like the conventional carpenters, bar-benders and concreters who lay

formwork, reinforcement and concreting are eliminated from the linkage of IBS method because

the wet construction is no longer needed. Instead of labour suppliers who provide either legal or

illegal foreign workers service, contractors who undertake an IBS project are required to engage

the registered installers for assembling of components purpose. The employees hired by

installers are locals who are qualified with certificates issued by CIDB.

8. CONCLUSION

As highlighted earlier in this paper, in 2003, the government has embarked on the program to

promote the greater use of IBS in the country by announcing that all public projects must contain

70% of IBS components. Although it is a welcoming initiative, several quarters, such as micro,

small and medium companies and suppliers are worry that the move may force them to close

down their business or they have to move their businesses somewhere else. Their concerns have

ground because Figure 1, 2, 3 and 4 suggested that the use of IBS will likely eliminate many of

the traditional processes. Consequently, it will eliminate the need many of the traditional trade

contractors and suppliers. By comparing Figure 1 and 2, it can be seen that the traditional process

of bricklaying, bar-bending, plastering will be gone. By comparing Figure 3 and 4, the traditional

work of concreter, bar-bender and carpenter will also not be needed when IBS is used.

As a conclusion, it can be suggested that considerable numbers of construction related business

in the form of trade contractors may not be able to continue their business when the industry is

moving towards greater use of IBS. Therefore, it is very apt to carry out a more detailed study on

the implication of greater use of IBS on construction business community.