The document analyzes the potential for survival in India's construction industry using Porter's Five Forces model. It finds that while the threats of new entrants and bargaining power of suppliers are high due to shortage of skilled labor, bargaining power of buyers is low due to high demand. Competition is high in some segments but lower in others like airports. The government is taking measures like increasing foreign investment to stimulate growth in the construction industry.

1. Potential Survival After
Entering the Construction
Industry
Presentation in the subject of
Managerial Economics
By – Divpriya Chawla

2. Objective
By means of this presentation, the researcher
aims to analyze the potential survival after
entering the construction industry in India with
the help of the Porter’s Five Forces Analysis.
The researcher will also look into the status of
the construction industry in India, its recent
risks, challenges and developments.

3. Porter’s Five Forces
Analysis
►The Five Forces were
Porter’s conclusions on the
reasons for differing levels of
competition, and hence
profitability, in differing
industries.
►They are empirically derived,
i.e. by observation of real
companies in real markets,
rather than the result of
economic analysis.
► Porter’s Five Forces is a
useful generic structure for
thinking about the nature of
industries.

4. Construction Industry in India
►The construction industry is the second largest
industry of the country after agriculture
accounting for 11 percent of India’s GDP.
►Indian construction industry employs 35 million
people and its total market size is estimated at
US$ 126 billion.
►Construction activities in India are largely
fragmented with only about 250 firms
employing more than 500 people.

6. Construction Industry Characteristics
►The Financial Year 2012-13 had a growth of
6.0% for the Indian construction sector.
►The industry is characterised by a mix of
organised and unorganised players in all sub-sectors
encompassing everyone from
construction workers to supervisors,
contractors and material
manufactures/suppliers etc and has grown
slower than the overall Gross Domestic
Product (GDP) during the year.

7. ►The industry is currently on the cyclical
uptrend. Deciphering past data, indicate
periods of 3 to 4 years of cyclical peaks and
troughs.
►The year 1990-1991, recorded a growth rate of
11.8% and has been low for the past decade
owing to the slow market for construction.
►The next peak of the cycle is likely to be
experienced in the year 2014-2015 by reaching
11%.

9. Segmentation of the Industry
►Residential, industrial, commercial, and other
buildings.
►Sewers, roads, highways, bridges, tunnels,
and other projects.
►Specialized activities such as carpentry,
painting, plumbing, and electrical work.

12. Threat of New Entrants
►New entrants to an industry add capacity and if
the capacity added is greater than growth in
demand, this reduces profitability.
►Threat of new entrants is very high across
segments like road construction, housing and
urban infrastructure development.
►Threat of new entrants is relatively low in airport
and port development.

13. Bargaining Power of Buyers
►The prices a business can obtain has the single
biggest impact on the profitability of your
business. In most cases buyers shop around for
best prices and thus exert downward pressure
on prices.
►Bargaining powers of the buyers is low in the
Construction Industry, owing to the huge
demand-supply gap in the present economic
scenario.

14. Threat of Substitutes
►The threat from substitute products is particularly
severe if the substitute product is cheaper or more
cost effective.
► Whole industries have been wiped out by
substitutes, for example in Europe the
replacement of silk by viscose rayon.
►As such, there is a very little threat of substitutes
in the Construction industry as the inputs cannot
be substituted easily.

15. Bargaining Power of Suppliers
►The balance of power between suppliers and
the supplied industry is a function of the
relative fragmentation.
►In industries where inputs are commoditised
and where there is ample availability of
substitutes, the ability of suppliers to raise
prices is limited and vice-versa.
►The bargaining power of the suppliers is high
keeping in view the shortages of labour and
the constantly rising prices of the inputs.

16. ►Construction costs have shown a clear 15%
increase with input costs of materials and
workforce. There is a critical shortage of over
30% of skilled workforce and supervisors.

17. The constantly rising input prices
and the acute labor shortages in
the construction industry lead to a
very high power in the hands of the
suppliers to affect the price.
The same surveys point to the need
to hinge on project management,
mechanization and pre advanced
technology to handle the situation.

18. Rivalry among Existing Firms
►The intensity of competition, or rivalry, will have
a significant impact on the ability to generate
adequate margins.
► High competition in cases of road construction,
housing and urban infrastructure development.
►Relatively less competition in airport and port
development.

19. Risks to the Construction Sector
►Construction majors are currently
experiencing liquidity constraints due to
tightening funding norms being employed by
institutional financers.
►The industry is also facing squeezing margins
due to increasing commodity prices.

21. The Way Forward
►Due to monetary issues and other elated
policies the Indian construction industry
showed a lacklustre performance in 2012-13.
►The government is also making pertinent
efforts to remove bottlenecks that are
delaying infrastructure projects in India.
India's construction sector is to reach 7.6%
growth in Financial Year 2013/14.

22. Efforts by the Government
►In 2012 the Asian Development Bank (ADB) and
India Infrastructure Finance Company Limited
(IIFCL) have launched the first version of the
credit enhancement scheme or infrastructure
bond guarantee scheme.
►This risk-sharing facility will partially guarantee
INR7.2bn (US$128mn) of rupee-dominated bonds
issued by Indian companies to finance
infrastructure projects.

23. ►The government announced the proposal to set up a
National Investment Board to ensure speedy clearing of
projects.
► The Indian Government has decided to allow 100%
Foreign Direct Investment (FDI) in the real estate
industry, thereby stimulating construction activities
throughout the country.
►The Indian real estate industry is likely to grow from €7
billion or Rs. 490.03 billion in 2005 to €58 billion or Rs.
4,060.24 billion in by 2015.
►Foreign direct investment alone might see a close to six-fold
jump to €19 billion or Rs. 1,329.96 billion over the
next 10 years.

25. Conclusion
Therefore, after experiencing a decade of slow
growth, the construction industry is expected to
experience a major upsurge leading to huge
profitability and reaching the peak of its cycle
again owing to the various revival measures
taken by the government.