-
A Methodology to Assess the Competitiveness of
Real Estate Developers in China
By Vera Li
A Thesis Submitted for the Degree of PhD.
At Queensland University of Technology
Supervisor: Professor Martin Skitmore
School of Built Environment and Engineering
2011
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CERTIFICATE OF ORIGINALITY
The work contained in this thesis has not been previously
submitted to meet
requirements for an award at this or any other higher education
institution. To the
best of my knowledge and belief, the thesis contains no material
previously
published or written by another person except where due
reference is made.
Signature _____________________________
Date _____________________________
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ACKNOWLEDGEMENT
I would like to express my deepest appreciation and gratitude to
my supervisor
Professor Martin Skitmore for his supervision, support and
guidance. The
completion of this thesis would not have been possible without
his help and
encouragement.
I am deeply indebted to the School of Built Environment,
Queensland University
of Technology, which offered me the opportunity to pursue a PhD
degree.
I wish to thank my family for their tremendous support during
the past few years.
Without their continual encouragement and care it would have
been impossible
for me to complete this course of study.
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KEYWORDS
Competitiveness study, real estate developer, competitive
indicators,
questionnaire.
ABSTRACT
Real estate, or property development, is considered one of the
pillar industries of
the Chinese economy. As a result of the opening up of the
economy as well as the
―macro-control‖ policy of the Central Chinese Government to
moderate the
frenetic pace of growth of the economy, the real estate industry
has faced fierce
competition and ongoing change. Real estate firms in China must
improve their
competitiveness in order to maintain market share or even
survive in this brutally
competitive environment.
This study developed a methodology to evaluate the
competitiveness of real estate
developers in the China and then used a case study to illustrate
the effectiveness
of the evaluation method. Four steps were taken to achieve this.
The first step was
to conduct a thorough literature review which included a review
of the
characteristics of real estate industry, theories about
competitiveness and the
competitive characteristics of real estate developers.
Following this literature review, the competitive model was
developed based on
seven key competitive factors (the ‗level 1‘) identified in the
literature. They
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include: (1) financial competency; (2) market share; (3)
management competency;
(4) social responsibility; (5) organisational competency; (6)
technological
capabilities; and, (7) regional competitiveness.
In the next step of research, the competitive evaluation
criteria (the ‗level 2‘)
under each of competitive factors (the ‗level 1‘) were
evaluated. Additionally,
there were identified a set of competitive attributes (the
‗level 3‘) under each
competitive criteria (the ‗level 2‘). These attributes were
initially recognised
during the literature review and then expanded upon through
interviews with
multidisciplinary experts and practitioners in various real
estate-related industries.
The final step in this research was to undertake a case study
using the proposed
evaluation method and attributes. Through the study of an actual
real estate
development company, the procedures and effectiveness of the
evaluation method
were illustrated and validated.
Through the above steps, this research investigates and develops
an analytical
system for determining the corporate competitiveness of real
estate developers in
China. The analytical system is formulated to evaluate the
―state of health‖ of the
business from different competitive perspectives. The result of
empirical study
illustrates that a systematic and structured evaluation can
effectively assist
developers in identifying their strengths and highlighting
potential problems. This
is very important for the development of an overall corporate
strategy and
supporting key strategic decisions.
This study also provides some insights, analysis and suggestions
for improving
the competitiveness of real estate developers in China from
different perspectives,
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including: management competency, organisational competency,
technological
capabilities, financial competency, market share, social
responsibility and regional
competitiveness. In the case study, problems were found in each
of these areas,
and they appear to be common in the industry. To address these
problems and
improve the competitiveness and effectiveness of Chinese real
estate developers, a
variety of suggestions are proposed.
The findings of this research provide an insight into the
factors that influence
competitiveness in the Chinese real estate industry while also
assisting
practitioners to formulate strategies to improve their
competitiveness. References
for studying the competitiveness of real estate developers in
other countries are
also provided.
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TABLE OF CONTENTS
KEYWORDS
.........................................................................................................
iii
ABSTRACT
...........................................................................................................
iii
TABLE OF CONTENTS
.......................................................................................
vi
LIST OF FIGURES
...............................................................................................
ix
LIST OF TABLES
..............................................................................................
xii
CHAPTER 1. INTRODUCTION
......................................................................
1
1.1 OVERVIEW
.............................................................................................
1
1.2 RESEARCH OBJECTIVES
.....................................................................
2
1.3 METHODOLOGY OF THE RESEARCH
............................................... 5
1.4 CHAPTER ORGANISATION
.................................................................
7
CHAPTER 2. LITERATURE REVIEW AND THEORETICAL
FRAMEWORK 10
2.1 INTRODUCTION
..................................................................................
10
2.2 REVIEW OF THE REAL ESTATE INDUSTRY
.................................. 10
2.3 REVIEW OF COMPETITIVENESS
...................................................... 30
2.4 REVIEW OF REAL ESTATE DEVELOPERS‘ COMPETITIVENESS
43
2.5 SUMMARY
............................................................................................
59
CHAPTER 3. RESEARCH METHOD AND DESIGN
.................................. 61
3.1 INTRODUCTION
..................................................................................
61
3.2 SURVEY DESIGN
.................................................................................
63
3.3 DATA COLLECTION PROCEDURE
................................................... 63
3.4 SUMMARY
............................................................................................
73
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CHAPTER 4. DATA ANALYSIS
...................................................................
74
4.1 INTRODUCTION
..................................................................................
74
4.2 DEVELOPMENT OF IMPORTANCE WEIGHTS
............................... 74
4.3 RATING DEVELOPERS BASED ON ATTRIBUTES
......................... 94
4.4 AGGREGATION OF WEIGHTS AND RATINGS
............................ 100
4.5 SUMMARY
..........................................................................................
102
CHAPTER 5. DISCUSSION OF RESULTS
................................................. 104
5.1 RESULTS OF EVALUATION
............................................................
104
5.2 DISCUSSION OF RESULTS
...............................................................
141
5.3 SUMMARY
..........................................................................................
155
CHAPTER 6. CONCLUSIONS
.....................................................................
156
6.1 OVERVIEW
.........................................................................................
156
6.2 REVIEW OF OBJECTIVES
................................................................
157
6.3 GENERAL CONCLUSION
.................................................................
157
6.4 PRACTICAL VALUE OF THE RESEARCH
..................................... 164
6.5 RECOMMENDATIONS FOR FURTHER STUDY
............................ 166
REFERENCES:
..................................................................................................
168
APPENDICES. QUESTIONNAIRE SAMPLES
............................................... 197
A1-1. QUESTIONNAIRE ON REAL ESTATE DEVELOPMENT
ENTERPRISES [HUMAN RESOURCES]
.................................................... 197
A2. QUESTIONNAIRE ON REAL ESTATE DEVELOPMENT
ENTERPRISES [EMPLOYEE SATISFACTION]
........................................ 200
A3. QUESTIONNAIRE ON CONSUMER SATISFACTION TOWARDS
REAL ESTATE DEVELOPMENT ENTERPRISES
..................................... 202
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B1.QUESTIONNAIRE ON REAL ESTATE DEVELOPMENT
ENTERPRISES
...............................................................................................
204
B2-1. QUESTIONNAIRE ON REAL ESTATE DEVELOPMENT
ENTERPRISES [HUMAN RESOURCES]
.................................................... 210
C. QUESTIONNAIRE ON REAL ESTATE DEVELOPMENT
ENTERPRISES
...............................................................................................
214
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LIST OF FIGURES
Figure 2-1 Three Stages of Development of Chinese Real Estate
Market ... 23
Figure 2-2 Porter‘s Diamond Theory
............................................................ 34
Figure 2-3 The adoption frequency of competitiveness indicators
in the
literature (Zhang et al., 2009)
................................................................
50
Figure 2-4 The pyramid structure of classical competitiveness
evaluation
approaches
.............................................................................................
53
Figure 2-5 Competitiveness indicators, criteria and attributes
for assessing
real estate developers in China
..............................................................
55
Figure 3-1 Survey design for the research (Zikmund,W. G.2003)
............... 62
Figure 3-3 Types of questionnaires and respondents for this
study .............. 66
Figure 3-4 Details of questionnaires A1 and B2 in this study
...................... 67
Figure 4-1 Comparison of the average weight and importance
weight of
factors (the first level) for measuring the competitiveness of
property
developers in China
...............................................................................
80
Figure 4-2 Comparison of the Average Weight and Importance
Weight of
Criteria (the Second Level) for Measuring the Competitiveness
of
Property Developers in China
...............................................................
83
Figure 4-3 Comparison of the average weight and importance
weight of
attributes (the second & third level) under the management
competency
for measuring the competitiveness of property developers in
China .... 86
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Figure 4-4 Comparison of the average weight and importance
weight of
attributes (the second & third level) under the organizing
competencies
for measuring the competitiveness of property developers in
China .... 87
Figure 4-5 Comparison of the average weight and importance
weight of
attributes (the second & third level) under the
technological capabilities
for measuring the competitiveness of property developers in
China .... 88
Figure 4-6 Comparison of the Average Weight and Importance
Weight of
Attributes (the Second & Third Level) under the
Financial
Competencies for Measuring the Competitiveness of Property
Developers in China
..............................................................................
90
Figure 4-7 Comparison of the average weight and importance
weight of
attributes (the second & third level) under the market share
for
measuring the competitiveness of property developers in China
.......... 91
Figure 4-8 Comparison of the average weight and importance
weight of
attributes (the third level) under the social responsibility for
measuring
the competitiveness of property developers in China
........................... 92
Figure 4-9 Comparison of the average weight and importance
weight of
attributes (the third level) under the regional competitiveness
for
measuring the competitiveness of property developers in China
.......... 93
Figure 5-1 Radar diagram representing the competitiveness
factors in
maximum score, expected/reasonable score, and actual score
for
Company A
.........................................................................................
105
Figure 5-2 Radar diagram representing the competitive attributes
scores of
Company A in management competency
factors................................ 110
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Figure 5-3 Radar diagram representing the competitive attributes
score of
Company A in the organizational competency factor
......................... 114
Figure 5-4 Radar diagram representing the competitive attributes
score of
Company A in the technological capabilities factor
........................... 122
Figure 5-5 Comparison of competitive attribute scores of Company
A in the
‗financial competency‘ factor
.............................................................
126
Figure 5-6 Radar diagram representing the competitive attributes
score of
Company A in the ‗market share‘ factor
............................................. 129
Figure 5-7 Radar diagram representing the competitive attributes
scores of
Company A under the ‗social responsibility‘ factor
........................... 136
Figure 5-8 Radar diagram representing the competitive attributes
scores of
Company A in the ‗regional competitiveness‘ factor
......................... 139
Figure 5-9 the population distribution of interviewees
............................... 144
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LIST OF TABLES
Table 2-1 Leading Theories of Corporate Competitiveness
......................... 35
Table 2-2 Typical indicators for assessing the competitiveness
of
organizations (Zhang et al.,
2009).........................................................
49
Table 3-1 Number of respondents for the study
........................................... 72
Table 4-1 Survey results of the importance weights of
competitive factors,
criteria and attributes
.............................................................................
75
Table 4-2 The importance weights of competitive factors and
criteria ........ 79
Table 4-3 The importance weights of competitive
attributes........................ 81
Table 4-4 Survey results of the rating of Company A against
each
competitive factor, criterion and attributes
........................................... 95
Table 5-1 Summary of scores of competitiveness factors (the
‗first‘ level) for
Company A
.........................................................................................
106
Table 5-2 Summary of scores of competitiveness criteria (the
‗second‘ level)
for Company A
....................................................................................
107
Table 5-3 Summary of scores of competitiveness attributes (the
‗third‘ level)
for Company A
....................................................................................
108
Table 5-4 Summary of scores of competitiveness criteria (the
‗second‘ level)
and attributes (the ‗third‘ level) for management competency
factors 111
Table 5-5 Details of scores of the best and worst five
competitive attributes
under the management competency factor
.......................................... 112
Table 5-7 Details of scores of the best and worst five
competitive attributes
under the organizational competency factor
....................................... 116
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Table 5-8 Summary of the score of the attributes under the
‗staff satisfaction‘
criteria
.................................................................................................
119
Table 5-9 A comparison of staff satisfaction in different office
branches and
age
.......................................................................................................
120
Table 5-10 Summary of scores of competitiveness criteria (the
‗second‘ level)
and attributes (the ‗third‘ level) under the technological
capabilities
factor
...................................................................................................
123
Table 5-11 Details of scores of the best and worst five
competitive attributes
under the technological capabilities factor
.......................................... 124
Table 5-12 Summary of the scores of the attributes under the
‗customer
satisfaction‘ criteria
.............................................................................
125
Table 5-13 Summary of scores of competitiveness criteria (the
‗second‘ level)
and attributes (the ‗third‘ level) under the ‗financial
competency‘ factor
.............................................................................................................
127
Table 5-14 Details of scores of the best and worst five
competitive attributes
under the financial competency factor
................................................ 128
Table 5-15 Summary of scores of competitiveness criteria (the
‗second‘ level)
and attributes (the ‗third‘ level) under the ‗market share‘
factor ........ 131
Table 5-16 Details of scores of the best and worst five
competitive attributes
under the ‗market share‘ factor
........................................................... 132
Table 5-17 Reasons for customer/owner‘s decision to purchase
from
Company A
.........................................................................................
133
Table 5-18 A comparison of customer/owner satisfaction in
different regions
.............................................................................................................
134
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Table 5-19 Summary of scores of competitiveness criteria (the
‗second‘ level)
and attributes (the ‗third‘ level) under the ‗social
responsibility‘ factor
.............................................................................................................
137
Table 5-20 Details of scores of the best and worst five
competitive attributes
under the ‗social responsibility‘ factor
................................................ 138
Table 5-21 Summary of scores of competitiveness criteria (the
‗second‘ level)
and attributes (the ‗third‘ level) under the ‗regional
competitiveness‘
factor
...................................................................................................
140
Table 5-22 Details of scores of the best and worst competitive
attributes
under the ‗regional competitiveness‘ factor
........................................ 141
Table 5-23 Summary of the results of the re-interview
.............................. 144
Table 5-24 Summary survey results of ―management competency
............ 146
Table 5-25 Summary survey result of organizational competency
............. 148
Table 5-26 Summary survey results of technological competency
............ 148
Table 5-27 Summary of survey results of financial competency
................ 150
Table 5-28 Summary of the survey results of market
share........................ 151
Table 5-29 Summary of the survey results of social
responsibility ............ 151
Table 5-30 Summary of the survey results of regional competition
........... 152
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CHAPTER 1. INTRODUCTION
1.1 OVERVIEW
Real estate, or property development, is considered as one of
the pillar industries
in the Chinese economy. As a result of the opening up of the
economy as well as
the ―macro-control‖ policy of the Central Chinese Government to
moderate the
frenetic pace of growth of the economy, the real estate industry
has faced fierce
competition and ongoing change. It is essential, therefore, for
the decision makers
in real estate firms to determine what strategies to adopt to
best leverage their
competitive advantages in this highly competitive market
environment. As
Flanagan et al. (2007) indicated, although the study of
corporate competitiveness
has been extensively conducted of industry and various methods
have been
established to measure the competitiveness of firms in this
sector, there is a
paucity of research into the competitiveness of other sectors of
the economy such
as construction and real estate development.
With the limitations and deficiencies of the current research in
mind, this study
established a competitive evaluation index system. This was done
through
literature searches, evaluation of model cases and consultation
with experts
combined with Delphi surveys to measure the competitiveness of
real estate
developers in China. The purpose of this study was to formulate
a corporate
competitiveness analytical system for the real estate sector.
Through this
analytical system, real estate development firms can evaluate
their ―state of health‖
from a number of different competitive perspectives. Using this
structured
evaluation approach, threats to the business and existing
problems within it can be
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identified which can help guide the management of real estate
development firms
in formulating appropriate strategies. This study provides a
useful, practical
analytical tool to assist practitioners in the real estate
industry to make appropriate
strategic decisions for maintaining and enhancing the
competitiveness of their
firms. By using the model-procedure, senior management of a real
estate
development company can self-assess its competitiveness through
a quantitative
measure. This measure is particularly useful for leading
companies as they are
already the benchmark for other companies in China. Without such
a model-
procedure, these leading companies have difficulties to make
sustainable
improvements in terms of competitiveness. Through using this
method real estate
developers can better understand their current competitive
position and
accordingly create suitable development strategies. This tool is
particularly
focused on real estate developers in China.
Ultimately, this study provides real-world guidance to real
estate developers for
pursuing sustainable growth in the highly competitive Chinese
market. It also
makes an important academic contribution since it fills a gap in
existing research
into competitiveness.
1.2 RESEARCH OBJECTIVES
Real estate development is a relatively new industry in China
which is growing
steadily. It has undergone tremendous change over the last
thirty years since
China adopted its ―open-door‖ policy in 1978 (Li et al. 2009).
Many real estate
companies of different types are being setting up in China.
However, only a
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limited number of these have notable competitive advantages. As
the market
matures it will be dominated by those firms with strong
competitive attributes.
In previous studies, numerous scholars have considered
organisational core
competitiveness as the key to survival for commercial
organisations (e.g.
Wernerfelt1984; Porter 1990; Prahalad and Hamel 1990; Barney
1991; Drew and
Skitmore 1997). Likewise, establishing an elevated level of
competitiveness is
critical to the success, or even survival, of a real estate
firm. It is very important,
then, to properly assess the competitiveness of such
organisations in China‘s
fiercely competitive property market. Therefore, the primary
purpose of this
research is to evaluate and analyse the competitiveness of real
estate developers in
China. To achieve this goal, some specific targets were
identified as following.
The first objective was to determine a suitable measurement
method for the
competitiveness of real estate developers. The proposed
evaluation method should
be specifically tailored to the characteristics of the real
estate industry.
Another important objective was to determine competition
attributes for
evaluation, since the appropriate attributes will improve the
precision of the
measurement method.
The third goal was to verify the effectiveness of evaluation
method by conducting
a case study. The case study was used to illustrate the
procedures of the
competition evaluation system and to identify the effectiveness
of the evaluation
method. Furthermore, some common characteristics of Chinese real
estate
developers highlighted in the case study. This includes
shortcomings and strategy
measures to overcome them.
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The ultimate goal of this study was to provide managers of real
estate
development firms with useful tools for improving their
companies‘
competitiveness.
However, how to formulate and measure the competitiveness of
real estate
enterprises is complicated, especially in an emerging market
like China‘s.
Abundant research on competitiveness has already been conducted
on other
sectors of the economy, but not real estate. In order to bridge
this academic gap
and provide useful tools for practitioners, the principal
objective of this research is
to develop a practical model for the evaluation of the
competitiveness of real
estate businesses in China.
This model is developed through the application of various
established assessment
methods for organisational competitiveness in the context of the
particular
features of China‘s real estate market. The competitiveness
model contains seven
key competitive factors (the ‗level 1‘) identified in the
literature. These include: (1)
financial competency; (2) market share; (3) management
competency; (4) social
responsibility; (5) organisational competency; (6) technological
capabilities; and,
(7) regional competitiveness.
For each competitive factor there are associated a group of
competitive criteria
(the ‗level 2‘). For example, under the competitive factor
―market share‖ there are
five criteria, i.e.: (i) localisation; (ii) market coverage;
(iii) land acquisition
strategy and implementation; (IV) property sales strategy and
implementation; and,
(v) consumer satisfaction. Additionally, there are a set of
competitive attributes
(the ‗level 3‘) associated with each competitive criteria. For
example, under ‗land
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acquisition strategy and implementation‘ there are four
attributes: (i) rate of land
acquisition; (ii) quantity of land bank; (iii) quality of land
bank; and, (iv) land
acquisition/pricing strategy.
The competitiveness framework developed in this research is
based on the core
competitive factors that are unique to real estate development.
This
competitiveness model also takes into account the five distinct
stages of the real
estate development cycle (i.e., land acquisition, design and
development,
construction, sales and property management) to develop a
comprehensive
competitiveness framework.
1.3 METHODOLOGY OF THE RESEARCH
To fulfil the specific objective of this research, quantitative
analysis is used as the
major research tool to process data. This is complemented by
qualitative analysis.
Quantitative research focuses on ensuring that any concept can
be described in
such a way that it can be quantified (Hussey, 1997). All
collected data in this
study are defined in a manner suitable for quantification.
A quantitative survey is used to answer ―what‖ the important
competitiveness
factors are and ―how‖ significant they are (Yin, 1994).
Additionally, many
scholars suggest exploratory research and qualitative
methodologies to capture
multi-dimensional phenomena (Yin, 2003) as well as non-linear,
sometimes fuzzy,
patterns of reality (Sinkovics et al. 2005). This perspective is
supported by
arguments of which qualitative methodologies can help to find
―meaning behind
the numbers‖, provide flexibility without requiring large
samples (Sykes, 1990),
and offer a clear and holistic view of the context (Denzin,
Lincoln 1994; Ghauri
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and Grønhaug, 2005). Hence, to analyse a company‘s competitive
strengths and
weaknesses after acquiring the specific data, qualitative
analysis is useful for
determining the implicit truth of the data.
In undertaking this study, the following steps were
performed:
The competitiveness factors, criteria and attributes were
developed through an
extensive and holistic literature review combined with in-depth
interviews and
Delphi interactions with well known academics, experts and
experience-rich
practitioners.
Then, a series of questionnaires tailored appropriately for
different investigation
purposes were formulated based on the previously-developed
competitiveness
factors. Prior to the commencement of the survey, a pilot study
was undertaken to
examine the suitability and comprehensibility of these
questionnaires. A panel of
experts, including professors in the related disciplines of
construction and real
estate as well as senior managers in the real estate field who
are familiar with the
Chinese market, was invited to test these questionnaires. Their
evaluation
included: whether the proposed factors were suitable and
comprehensive; whether
the wording was acceptable and easily understood by respondents;
and whether
additional factors should be added. Their comments were received
and the
original instruments amended accordingly.
After this pilot test, the general survey was carried out. Two
methods were applied
to enlarge the sample size. The first method is called a remote
survey. It relies on
a combination of conventional mail and online applications.
Invitation letters and
e-mails were sent to the senior managers of major real estate
developers in China
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inviting them to take part in the survey either online or by
post. The method for
increasing the survey sample size was to conduct the survey
face-to-face. The
most efficient way to do this is at industry conferences such as
academic symposia,
the annual conference of industry societies, promotional
conferences, and so on.
Finally, the research data was collected and analysed. This
analysis was conducted
using quantitative methodologies such as statistics. The overall
corporate
competitive score results were produced by calculating the
weight of each
competitive factor, criterion and attribute, and combining these
in accordance with
the appropriate weight. To acquire more insight into the
statistical data, qualitative
analytical methodologies were also applied. Another survey was
then conducted
to investigate the previous interviewees‘ opinion of the
results. Much additional,
useful information was received from this re-examination
process. This included
managerial recommendations and advice to enhance the
competitiveness of real
estate developers. To put this all into context and illustrate
the effectiveness of the
proposed competitiveness evaluation system, a case study was
then performed of
a prominent real estate developer in China with rich experience
both at home and
overseas.
1.4 CHAPTER ORGANISATION
This thesis is structured in line with the previously-introduced
research steps. This
first chapter is an introduction which includes three parts.
First, the background of
the research is presented. The subsequent part provides an
introduction to the
objectives the study is striving to achieve. This is followed by
a statement of the
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significance of the study together with the proposed research
methodology and
procedures.
Chapter 2 summarises a comprehensive literature review. Such a
review was
carried out both of the real estate industry itself and of the
concept of business
competitiveness. An overview of the real estate industry in
emerging countries
was first performed. A brief outline of China‘s real estate
industry is presented
through this review. The second part of this chapter relates a
review of existing
research on competitiveness. The review first discusses the
background and
definitions of competitiveness. It then addresses sub-branch
research such as
organisational competitiveness, industry competitiveness and the
measures
approach of competitiveness. In the final part of this chapter,
a critical review is
made of the research that exists of competitiveness in the field
of real estate
development highlighting the limitations of existing theories. A
comparison of
current assessment methods of real estate developers‘
competitiveness is made. It
is found that any evaluation method has its strengths as well as
weaknesses and
limitations of application. Lastly, a series of competitive
factors, criteria and
attributes tailored to the evaluation a real estate development
enterprises is
extracted. Drawing on this master list, the final list of
factors, criteria and
attributes employed in this study is determined through
interviewing and
surveying experts and practitioners in the real estate
industry.
The research design and methodology is presented in Chapter 3.
This chapter
provides a detailed introduction to how the study was carried
out, what methods
were applied to address research problems, how the data was
acquired and
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analysed, and finally how the research results were formulated
and assessed for
reliability.
Chapters 4 and 5 report the major findings of the study. The
detailed results of the
research are presented and analysed. A case study of a real
estate developer in
China is also presented to illustrate the applicability of the
original study.
Furthermore, the effectiveness of research results is validated
through a round of
re-visit interviews with pervious interviewees. Through these
interviews,
additional valuable information related to this research and to
future study is
presented.
Finally, practical managerial recommendations and suggestions
for real estate
industry practitioners are discussed in Chapter 6. In the last
part of this chapter,
the academic contributions of this research are summarised and
the limitations of
the study and a research agenda for the future are given.
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CHAPTER 2. LITERATURE REVIEW AND
THEORETICAL FRAMEWORK
2.1 INTRODUCTION
This chapter presents a comprehensive literature review of
existing research
covering three areas. The first review is of the real estate
industry, in particular
real estate development in China. The second review is of
literature related to
theories of competitiveness. It is here that we first present
the definition of
―competitiveness‖ as well as address the competitiveness of
business
organisations. The third review is of research into
competitiveness in the real
estate industry. A series of theories of competitiveness in real
estate are
summarised first. Then, a comparison of competition evaluation
methods is made.
Based on this review, an evaluation model for the
competitiveness of real estate
developers in China is proposed. The factors in this initial
model are re-examined
and complemented by experts and surveys as presented in Chapter
3.
2.2 REVIEW OF THE REAL ESTATE INDUSTRY
2.2.1 Real Estate Industry in China
The real estate industry China emerged as a commercial operation
accompanying
with reforms and opening-up policies started in 1978, before
then housing was
merely a kind of social welfare distributed to the people by the
government. From
1980, private-owned capitals were permitted to invest in the
real estate market.
From then on, the real estate industry had increased
dramatically to become a very
large industry and the gross product of the industry leaped to
28.4 billion Yuan at
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the end of 1991(CSSB, 1990-1995). In last 10 years, domestic and
foreign
investors have invested heavily in the industry and this had led
to the housing
prices in major cities in China hitting a record high (Jiang,
D.C, Chen, J.H and
Isaac, D, 1998).
The real estate market of China has become a prosperous business
and a pillar
industry in the country due to a series of national reforms. It
is estimated that over
4.5 billion m2 of property was provided by the private-owned
property developers
which account for approximately 80 per cent of the whole market
share. The
annual new completion of commodity property has increased from
36.4 million
m2 in 1991 to over 290 million m
2 in 2002 (Li, X., 2004). Rising household
incomes, rapid economic growth and massive rural-to-urban
migration have made
a strong housing demand in Chinese cities (Liu, 2004). In 2003,
the SDPC (State
Development Planning Commission) stated that the urbanization
rate of China
will be over 50 percent by 2020, and the annual housing demand
in major cities is
estimated to reach to about 300 million m2 when the urban
population increases
to 650 million in 2010 (Xie, 2004).
There exists certainly a great body of literature describing the
real estate market in
China from various perspectives including housing structure
(e.g. Wu, 1996; Zhu,
2000), housing policies (e.g. Chen and Gao, 1993), housing
problems (e.g. Logan
et al., 1999; Wang and Murie, 2000; Zhang, 1999; Zhou and Logan,
1996), tenure
choice (e.g. Li, 2000a, 2000b; Huang, 2004; Huang and Clark,
2002), and
interurban and interurban residential mobility (e.g. Li, S. M.,
2004; Li and Wu,
2004; Sabin, 1994; Wu, 2002; Wu, 2004; Zhang, 2001).
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In terms of housing structure, due to the vivid character of the
institutional
structure which dominated by the government in a socialist
country, there are
complicated procedures involving various management levels to
allocate the
public housing to individual tenants. The Chinese housing
structure, however, has
its unique features, as stated by Wu (2002), the 'state
provision' has different
meanings between municipally-managed and work-unit housing. Wu
(2002)
argued that ambiguous understanding in the structure of public
housing provision
has led to the problem of the real estate market during the
'commercialization'
process. He has adopted a perspective of structure of housing
provision (SHP) to
examine the changes in public-sector housing provision in China.
His study
reveals that some significant changes in the SHP have been
stimulated by the
housing reform. The changes certainly have profound implications
to the nation's
urban development and urban spatial structure (Wu, 1996). This
reform has been
implemented in gradual manner due to the existing complicated
housing provision
structure, which caused the housing shortage problem of cities
in China. Through
two decades of development, the housing structure is gradually
transferred into a
market-oriented system of property development and investment,
with is
complemented by a modest provision of affordable housing by
local government
at various levels (Zhu, 2000). However, this kind of housing
structure provoked
fierce debates nationwide as emerging problems such as
rocket-high price, Private
Housing Vacancy Rates, real estate bubbles, as well as unfair
provision system of
affordable housing. This is still a challenging problem that
remains to be attacked
by the government and real estate developers.
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The tenure choice is another important issue of China‘s real
estate market. Huang
(2004) uses a multilevel modelling technique to analyse national
survey data of
China‘s real estate market in 1996. Through the study, he
reveals that both market
mechanisms and institutional forces have effect on householders‘
tenure choice in
urban China. However, market mechanisms are gradually replacing
the previously
welfare-oriented housing provision system during the further
step of housing
reform. Micro-level factors such as household characteristics
begin to change
tenure choice behaviour in urban China as in the Western
countries, but macro-
level constraints and opportunities defined by not only housing
stocks and
housing markets but also local government behaviours continue to
be crucial.
Through conducting case studies in 3 different cities in China,
Huang (2004)
concludes that high ratio of vacant flats in the commercial
housing market, and a
conservative local government all encourage consumers to choose
public housing
and rental.
The residential mobility and housing decisions are major issues
in real estate
studies in which individual households are the focus of
analysis. There are
numerous literatures focusing on residential mobility and
housing choice. These
studies mainly investigate the residential mobility and housing
decisions from the
perspective of urban theory. Usually, residential mobility is
considered as a spatial
adjustment process, through which tenants adjust their housing
consumption in
location, size, type, and tenure form to changing circumstances,
both internal and
external to the tenants (Wolpert, 1966; Brown and Moore, 1970;
Michelson,
1977). Residential mobility aims at restoring a state of
consumption equilibrium
(Quigley and Weinberg, 1977). Comparing to studies conducted in
western
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countries, studies conducted in China expand the conventional
western context to
an unfamiliar, dynamic, and transitional form. Given the size of
the country in
terms of geographical extent, population, and economic strength,
and given the
scale and pace of urban transformation that is currently
unfolding within the
country, whether the status cities real estate development in
major cities of China
can be explained well by the theories and known concepts
formulated in the west
need to be testified (Li 2004)
Furthermore, the real estate development in China has also been
simulated by
foreign direct investments which provide not only in capital but
also in form of
services and developmental experience to the real estate
industry. As real estate is
a localization industry operating within local market
conditions, foreign direct
investments in real estate can be considered as a local economic
activity. Hence,
the returns of foreign investments in real estate are directly
determined by
economic dynamism, as well as supply and demand and purchasing
power of local
real estate markets. However, the realization of profits and
returns to capital in
such markets require good regional institutions and governance.
He (2002) finds
that developers from Hong Kong, Macao, and Taiwan, because they
have a better
understanding of the local culture and institutional governance,
tend to perform
better than investors from other countries in terms of profit
gain and market share.
2.2.2 Characteristics of Real Estate Enterprises
Different types of enterprises have unique characteristics and
effective boundaries
to their businesses (Committee of Donor Agencies for Small
Enterprise
Development, 1995). The characteristics of real estate
enterprises are
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distinguished by an industry that is complex and diverse as well
as risky in nature.
These characteristics are summarised as following:
Real estate development has strong local characteristics which
results in each
project having unique features.
Real estate products differ widely in location, configuration
and application of
materials. These fundamental differences make the promotion of
standardisation
difficult (Weimer et al. 1966). Hence, unlike industries which
rely on mass
production, each real estate project is unique. Additionally,
property development
is an offspring of the political process. For each real estate
development society
has an opportunity to negotiate debate and reconsider the basic
issues
underpinning the project (Graaskamp 1981).
The real estate development process principally involves three
groups: consumers,
producers, and providers of public infrastructure. Thus REEs
(real estate
enterprises) need to expend additional effort in planning each
project to optimise
the benefit to all concerned. How to ensure the success of the
real estate project
for all stakeholders is a question that must be taken it
seriously by any property
developer.
Real estate development involves long and complicated
contractual processes
with numerous participants from various business sectors.
The production process in real estate involves a number of
lengthy activities
including such things as: site acquisition, site survey and
formation, securing
planning consent, arranging financing, design, construction, and
marketing
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(Barrett et al. 1978; Healey 1994). Cadman, Wilkinson and Reed
(2008) divide
the development process into four phases: evaluation,
preparation, implementation
and disposal. Another more detailed model was presented by Miles
(1991) who
contains eight stages as follows: inception of the idea,
refinement of the idea,
feasibility, contract negotiation, formal commitment,
construction completion,
formal opening, and asset and property management. Ratcliffe et
al. (2004)
identified the following five-phase process from a property
development
prospective: concept and initial consideration; site appraisal
and feasibility study;
detailed design and evaluation; contract and construction; and
marketing,
management and disposal. However you characterise it, property
development
involves a lot of interrelated steps.
Although the descriptions of these steps appear relatively
simple, the activities
themselves can grow to be very complex. Each step in property
development
involves the cooperation of a number of stakeholders from
different business
sectors including: suppliers, design firms, consultant
companies, construction
firms, property management companies, and others (Jin 2003). The
fact that these
processes involve a large number of players across a wide range
of sectors, each
with its motivations and objectives, makes real estate
development very
convoluted and challenging.
To succeed in real estate development, much preparation is
required including
acquiring a deep understanding of relevant public policy,
physical planning,
municipal regulation, market conditions, site appraisal,
economic evaluation,
financial requirements, contractual procedures, building design,
construction
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techniques and marketing strategies. Additionally, a
professional approach to
project management is necessary to coordinate schedule, quality
and cost. All of
this adds up to yet more demands on the real estate developers‘
management
expertise.
Real estate development is resource intensive.
Finance is one of the most critical elements of successful
property development.
The funds needed for the development of a real estate project
are considerable and
are used mainly for land acquisition and construction. REEs must
access a number
of financial channels to secure adequate financing for operating
business activities
(Wu 2002). Fortunately, financing can be obtained from a number
of channels.
The choice depends mainly on the statues of developer and the
degree of risk
attached to the proposed project (Ratcliffe et al. 2004). In a
mature market like the
US or Britain, sources of finance include: insurance and pension
funds, banks,
trusts, bonds, internal finance. However, that is not the case
in China where a real
estate developer‘s financing options is limited, for the most
part, to banks and
internal finance. This was echoed by interviewees including the
managers in
Vanke (China Vanke Co., Ltd. which develops residential
properties in 19 cities
throughout China as well as providing property management
services.) and
Greentown (Greentown China Holdings Limited, located in
Hangzhou, Zhejiang
province, which is one of the Top 10 real estate enterprises in
China) who agree
that banking is the most important financial channel for their
businesses.
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In addition to capital, REEs must possess others important
resources in order to
survive and prosper. Land reserves and sufficient, competent
human resources are
key factors.
Land is fundamental in order for an REE to undertake his
business (Liu 2004). In
the absence of adequate land reserves, a real estate developer
will lose
opportunities and his business may have to be suspended.
Available land in urban
areas is becoming increasingly scarce and expensive. Real estate
firms with no
land reserves in an urban area will find themselves in a
disadvantaged position.
Hence, proper strategies for acquiring land resources are very
important to an
REE.
The complicated development process inherent in real estate
projects requires the
employment of many different professionals and technical
experts. These
individuals are vitally important. Their expertise crosses
numerous disciplines and
knowledge areas including: obtaining land-use rights, planning
and design, project
financing, project management and marketing management (Cong and
Wang
2004). Acquiring these essential skilled resources is another
challenge for
developers.
● Real estate development is subject to high risk but with the
expectation of high
return (Tay and Tay 2007).
The future is uncertain and many events may affect the expected
outcome of a real
estate development. As previously discussed, real estate
projects generally involve
a long production process. Unsurprising, these lengthy and
involved processes
present various risks such as changes in governmental policies,
changes in interest
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19
rates and changes in the market environment (Van der Krabben and
Lambooy
1993). Although it is impossible to list of all of the possible
risks in a real estate
development project, defining risk categories allows us to
structure risk
identification and gain insight into those risks.
Various authors (Miller and Lessard 2000; Bing 2005; Risnun
Instituut. 2005; Ng
and Loosemore. 2007) define real estate risk categories as
technical, financial,
legal, political, physical, social, and organisational. Risks
can also be categorised
as organisational, project-related and environmental, or macro
level (exogenous),
meso level (endogenous), and micro level (stakeholder
relationships (Baloi and
Price, 2003; Bing et al., 2005; Mbachu and Vinasithamby, 2005).
Others assign
risk to the parties in the process (Kumaraswamy 1997; Rahman
and
Kumaraswamy 2002). Additionally, real estate development risk
can be
categorised into seven types according to the steps in the real
estate development
process. These categories, including a few examples of the risks
associated with
each of these steps, are summarised by Ellen Gehner (2008) as
follows:
Land development risk: e.g. land cannot be purchased - i.e. land
prices are
disproportionately high considering land conditions and the
current Zoning
plan;
Design risk: e.g. program of requirements cannot be realised or
the design
cannot be kept within budget due to delays as a result of
changes imposed by
the market or the planning application process;
Entitlement risk: e.g. lack of approval of the zoning plan or
building permit;
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20
Financing risk: e.g. financing cannot be arranged;
Construction risk: e.g. tendered construction costs exceed the
budget or there
is a delay in the construction process;
Leasing risk: e.g. time-to-market lags behind schedule and as a
result the
design does not meet the current demand of the space market
(e.g. a decrease
in rental prices) due to economic fluctuations or changes in
market supply;
and,
Sale risks: e.g. incorrect estimate of yield development.
From a managerial perspective, events with a positive impact are
regarded as
opportunities and events with a negative impact are regarded as
risks
(MacCrimmon and Wehrung 1986; March and Shapira 1987; Akintoye
and
MacLeod. 1997). Developers can not only choose to invest, they
can also
influence the risk factors of a project (Keizer et al., 2002).
This means that the
decision challenge is dynamic (Halman 1994). However, this
ability is limited by
a lack of control, information and time. MacCrimmon and Wehrung
(1986) have
said that;
If we had complete control over the situation, we could
determine the best
outcome and there would be no risk. If we had complete
information about which
event would occur, we could select the best alternative based on
this knowledge
and again there would be no risk. If we had unlimited time in
which to decide
which alternative to choose, we could wait until the outcome of
the uncertain
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21
event was resolved and then choose the best alternative alter
the fact. This
scenario also involves no risk.
However, practice is nearly the exact opposite of MacCrimmon and
Wehrung‘s
ideal. Developers constantly need to make critical decisions
based on limited
information and within tight timeframes. The result is high
potential risk.
Mitigating this risk to boost the potential profit of a project
is heavily dependent
on the property developers‘ management skills.
In today‘s world, information technology is increasingly
widespread, economies
are going global, specialisation and integration are the two
main trends in the real
estate development industry, and competition between developers
is becoming
increasingly fierce. As a result, property development companies
have evolved
into a wide range of types and sizes. There are large companies
with extensive
development programmes capable of undertaking complex projects,
spreading
their attention and applying their skills across the market, and
there are small
companies content to operate on a more modest scale in selective
sectors such as
office, retail, industrial or residential (Ratcliffe et al.
2004).
Increasingly, real estate development requires greater
information about
prospective markets and marketing, patterns of urban growth,
property legislation,
local planning regulations, the procurement and disposal
elements of building
design, site development and construction techniques, methods of
controlling
financial risk and managing schedule. Greater complexity in
property
development has also resulted in more specialisation. As more
affiliated
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22
professionals become involved, the size of the development team
has grown and
the role of some of the professional disciplines has changed.
(Ratcliffe et al. 2004)
Development in real estate in the 2000s is different from that
in the 1990s and is
likely to be different from that in the 2010s. Although
developers may not
continually address societal trends and changes in the
short-term, over the longer-
term these trends and changes have a tremendous effect on what
developers do.
2.2.3 Features of Real Estate Industry in China
China‘s real estate industry has made great progress over the
past three decades
and is considered to be the main engine of China‘s economic
growth (Fung et al.
2006; Hinton and Tao 2006). Since 1978, the Chinese government
has reformed
its land administration and housing systems as a part of a
nationwide economic
restructuring program. The central government has begun to
adjust its land
allocation system with the intention of transforming it from a
socialist central-
planning economic system to one with a market orientation
(Hinton and Tao
2006). A land tenure system was introduced to replace collective
ownership, while
state direct allocation and planning of land use gave way to a
market-oriented
allocation system (Qu, Heerink, and Wang 1995; Dowall 1993;
World Bank
1993). Housing reform has tried to convert urban housing from a
merit good that
is allocated among its users as a welfare entitlement to a
commodity that is
allocated according to free-market mechanisms (Chen 1996; Wang
and Murie
1996; World Bank 1992). A series of government policies have
been introduced to
hasten this transformation, including abolition of the
administrative housing
allocation system and reforms of the finance, land supply and
taxation systems, all
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23
of which have created a favourable operating environment for
real estate
developers (Choi 1998). General reviews of these processes are
discussed from
the perspectives of the historic development of the real estate
market in China and
the opportunities and constraints for the real estate
developer.
Historic development of the real estate market in China
A persistent obstacle to the study of China‘s real estate market
is the fragmented,
erroneous or lack of data (Wong, 1999). This situation makes a
thorough
understanding of the evolvement of the China real estate market
an arduous task.
Nonetheless, the evolution of this market is divided into three
stages by
referencing available existing literature as shown in figure
2.1.
Figure 2-1 Three Stages of Development of Chinese Real Estate
Market
• The pre-reform era (1947-1977)Stage 1
• The conceptual reform period (1978-1988)Stage 2
• The experimental reform period (1989-1995)Stage 3
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24
The pre-reform era: 1947-1977
The pre-reform era comprised two parts. The first part was the
period between
1947 and 1957 when the fundamental structure of the land system
was established
(Shillinglaw 1974; Tang 1994; Ratcliffe et al. 2004). The second
part is the
turbulent period from 1958 to 1977 when the rational development
of the real
estate system was literally halted by radical social campaigns
(Ratcliffe et al. 2004;
Wong 1999; Li 1996). During in these thirty years, private
property ownership
was abolished and replaced by state and collective ownership
under which land
and real estate were distributed by assignment instead of by
market rules. As a
consequence, the real estate market practically ceased to
exist.
The Conceptual reform period: 1978-1988
Major reforms were introduced after Deng Xiaoping came to power
in the late 70s.
These reforms were to transform China from a highly centralised
planned
economy that was virtually closed to the outside world into one
that is more open
and operates with some market aspects (Wong 1999). This
market-oriented
economic reform not only brought an end to the monopoly public
economy, but
also ended the institution of free land use (Zhu 1994). Many
reform measures
were put forward during in this period. The changes introduced
in the late 70s and
early 80s were gradual and often more conceptual than
implemental in nature, as
in the example of the amendment to the constitution in 1982.
Although the use of
land as capital had been permitted since 1979, the 1982
amendment to the
constitution still explicitly forbade the transfer of land for
value. Nevertheless, it
introduced the first official land nationalisation policy,
clearing the path for
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25
further land reforms. Afterwards despite the public denial of
land as a commodity,
in truth a charged land-use system was forming as more and more
cities started
collecting fees for the use of land (Wong 1999).
The experimental reform period: 1989-1995
While the period between 1978 and 1988 was essentially a period
of conceptual
reform, the third stage commencing after 1988 marks the
beginning of an
experimental reform process towards increased market activities.
A breakthrough
in the land system was seen at the end of 1987 when the first
transactions in land
was made in Shenzhen after land had been prohibited from
entering the market for
decades. In 1988 the constitution was revised to permit the
transaction or land use
rights. However, as a result of the June 4th incident and
subsequent stringent
policies, market activities declined between 1989 and 1991. Deng
Xiaoping
consequently made his famous Southern Tour in 1992, reaffirming
the
continuance of economic reform. Immediately the economy was
boosted and the
real estate industry became one of the ―hot spots‖ for
investment. The expansion
of the industry between 1992 and mid 1993 exposed serious
weaknesses in the
market. Backwardness in the system including ineffective
administration, lack of
legislation and chaotic market signals were magnified during the
rapid expansion.
This in turn led to disordered development that was fuelled
mainly by speculation
from state organisations and overseas investors. By mid 1993 the
market became
so overheated that it was affecting the wellbeing of the
economy. Consequently, a
severe administrative clamp down was imposed in the form an
austerity program
(Wong 1999).
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26
Opportunities and constraints in the current Chinese real estate
market
The experimentation with real estate market reform in China from
1989 to 1995
ran up against numerous barriers such as an undeveloped market,
irregular and
conflicting regulatory mechanisms, inadequate legal system and
over-extension.
To break down these barriers, many readjustments both in the
market and within
government were put forward in subsequent years.
First it is necessary to look at structural problems in the
market system. The
explicit rules and regulations which form the framework of the
market are
essentially established by the administrative and legislative
systems. However,
these systems have their own problems. An ambiguous definition
of power in the
administrative system caused discord between different
government bodies;
notably, the State Land Administration Bureau and the Ministry
of Construction,
both of whom oversee the administration of land and real estate.
Furthermore, the
legislative system was inadequate which caused a heavy reliance
on local
legislation. This often resulted in confusion and divergence
from central policies
(Urban Real Property Law 1995). Some laws were impractical as
they were
equivocal and lacking a clear stipulation about penalties. The
legislative process
was found to lag persistently behind developments in the market.
Finally, the
implementation and execution of legislation was found to be
ineffective. Hence,
there is still a long way to go to establish a mature market
system for real estate in
China.
In contrast to the structural level of market administration,
the operational level is
concerned with how rules and conventions are implemented and how
the market
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27
actually functions within the structural framework. Significant
operational
problems in the Chinese property market include the lack of
regulation of first tier
land supply, irregular administrative behaviour, lack of
development of subsidiary
services for the operation of the real estate market, lack of a
supporting secondary
market, and the over-speculative nature of the market
(Wong1999).
Obviously, many of these problems must be viewed in the context
of the reform
process that has been going on in China. The uncertainty of
issues and policy,
weak legal enforcement, imperfect market mechanisms,
unstructured
administration system and decentralised administration can all
be identified as
contributors to these structural and operational problems.
However, as a transitional market in a transitional economy,
some phenomenon
are only transient characteristics of the market while others
will stay and form an
integral part of the system affecting future development. Since
the overheating of
the real estate market in 1992 and 1993, the government has
introduced many
changes, including the re-centralisation of the land supply
administration,
promulgation of legislation targeting areas with problematic
track records such as
property rights, mortgage and land distribution methods, and
clearance of
unreasonable fees in real estate development and expansion of
mortgage services
(Wong 1999). These changes deeply influenced further development
of the real
estate market.
In addition, the successful bid to host the 2008 Olympic Games
in Beijing and
entry of China into the World Trade Organisation (WTO) in 2001
sped up a series
of gradual reforms of the legal and regulatory systems further
improving the real
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28
estate investment environment (Fung et al. 2006). The government
is actively
seeking to encourage real investors and discourage speculators.
Polices were
continuously formulated according to market conditions with the
objectives of
developing a healthy real estate industry and hasten the
transition from market
initiation and experimentation to consolidation and
maturity.
Now the constraints and opportunities of the real estate market
are discussed in
the context of this analysis of the development and
characteristics of market
system of real estate in China.
Opportunities
The opportunities for the further development of China‘s real
estate market will
be triggered by improved institutional and operational factors.
With continued
strong economic growth, urbanisation will intensify.
Furthermore, there is a
strong Chinese tradition to own one‘s own housing. This will
generate a large and
sustainable demand for residential housing and make China one of
the world's
largest residential markets. Housing prices and turnover have
consistently risen in
recently years. For example, housing prices increased by 68% in
China between
2001 and 2004 (Woods and Smith 2005). In 2007 alone the sales
price of houses
increased by 10.5% in major cities as compared to 2006 (Xie
2008). China is
providing ample opportunity for real estate developers to expand
their businesses.
Constraints
Although both China‘s real estate market and economy appear to
have
considerable growth potential, there are significant constraints
to be overcome.
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29
With the booming market of recent years, real estate prices have
consistently risen
faster than overall inflation (Fung et al. 2006). The surge in
property prices and
rising real estate investment has gained wide attention, in
particular in relation to
the macroeconomic consequences and affordability for ordinary
people (Peng et al.
2008). For example, housing prices in China are comparable to
those of high-
income nations but per capita income in China remains low by
international
standards (Zhang and Fung 2006). Concerned that this reflects an
overheated real
estate market, the Chinese authorities have applied regulatory
policies to control
the housing supply structure in the hopes of averting an asset
bubble.
Additionally, further development of the market will be
constantly constrained by
the pace of development of China‘s institutions including the
appropriate
legislation to regulate market activities and the establishment
of a more efficient
and effective administrative framework, especially at the
contextual level.
Contextual problems include policy uncertainties, weak legal
enforcement,
imperfect market mechanisms, frequent administrative
interference, and an
unstructured and decentralised administrative system. The market
remains unduly
affected by government policies and the ―invisible hand‖ of
government often
shapes market outcomes.
As a result of the restructuring of the market system and
adjustments to
administrative polices, as well as the special characteristics
of the real estate
industry of China, real estate developers in China have faced
considerable
pressure on their operations. Competition among real estate
developers has
continuously intensified and many have struggled for survival
(Li and Li 2009).
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30
As identified by Xie (2008), the number of real estate
enterprises of China in 2007
decreased by 39.8% compared to 2006. Because of this rapid and
unpredictable
change, self-analysis in search of competitive advantage has
been widespread
amongst real estate companies in China. Improved competitiveness
is considered
essential for their survival in the current hyper-competitive
market.
2.3 REVIEW OF COMPETITIVENESS
2.3.1 Definition of Competition
To understand competitiveness, you must first understand what
competition is.
Competitiveness is embodied by competition. Almost every paper
on this subject
struggles with the definition of competitiveness (Belkacem
2002). Various
definitions of competition are provided by scholars. One opinion
holds that the
logical precision of a word or concept like competitiveness is
not important as
long as the outcome of it is good (Turner 1991). Other
researchers (e.g.
Henricsson et al. 2004) stress that defining competitiveness
does matter. It
determines the contours of the factors influencing it (Belkacem
2002), which in
turn are essential in the diagnosis of any competitive problem
(Scott and Lodge
1985). Hence, defining the concept becomes a task that cannot
simply be ignored
by competitiveness research.
Competitiveness can be defined in a number of ways. According to
IMD (2004),
the concept is a result of a long history of thought from
classical and modern
economists including Adam Smith, David Ricardo, Max Weber,
Joseph
Schumpeter, and Nicholas Negroponte. IMD (2004) summarised a
list of fourteen
typical definitions of competitiveness that have appeared in
literature. Typical
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31
contributors include the World Economic Forum (WEF), IMD, and
the Ciampi
Group. Definitions of competitiveness can also be found in other
publications, for
example, Scott and Lodge (1985), Ivancevich et al. (1997). Among
these, Stigler
(1991) is widely accepted. Stigler defined competition as; ―A
rivalry between
individuals and it arises whenever two or more parties strive
for something that all
cannot obtain.‖
Competition comprises four dimensions:
Competitors. This means those with whom you will be competing,
including
existing and potential competitors.
Competing Objects. This is the specific object of competition,
which includes
such things as profits, market share, material sources, ideas
and innovation,
service networks, customer‘s satisfaction.
Competitive Capability. Independent interested individuals
demonstrate their
special characteristics and abilities during the competitive
process. The
greater quality or ability one has, the greater the chance of
success as
compared with one‘s competitors.
Competed Results. The result of competing is a reasonable
allocation of
competing objects among competitors. If the results are not
mutually
satisfactory, competition will continue.
Based on these four dimensions of competition, each competitor
is seeking to
enhance his competitive capability by specialisation in
particular abilities or by
differentiation of its products or services to successfully
realise the desired
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32
competitive object. Competed results will approach a point of
equilibrium
asymptotically among competitors through repeated competition.
During this
process of repeated competition, each competitor will develop
its specific
competitiveness.
2.3.2 Definition of Competitiveness
The study of ‗competitiveness‘ has proven extremely popular
with
economic/management theorists, business managers and directors
alike in recent
years. It is generally believed that mapping the competitive
environment of an
organisation helps to form a sound basis for business strategy
development
(Feurer and Chaharbaghi 1994). In recent years, various studies
have been
conducted on the subject of competitiveness. These can be
categorised into three
levels: micro, meso and macro. These can be further
characterised as being
applicable to organisation competitiveness, industrial
competitiveness, and
national competitiveness (Nelson 1992). As maintained by Man et
al. (2002),
whatever the levels of focus are, competitiveness is eventually
concerned with the
long-term performance of the subject relative to its competitors
- the result of
being competitive. Waheeduzzaman and Ryans (1996) indicate
that
competitiveness involves multidimensional concepts and
disciplines, including:
comparative advantage and/or the price competitiveness
perspective; the strategy
and management perspective; and the historical and
socio-cultural perspectives.
Different definitions of competitiveness apply to these
different levels. From a
macro perspective, i.e. a national viewpoint, competitiveness
enhances the
prosperity of the nation by improving the real income of its
citizens whose
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33
performance comprise the social, cultural, and economic
variables in international
markets. Scott and Lodge (1985) gave the definition of national
competitiveness
as; ―A country‘s ability to create, produce, distributes and/or
service products in
international trade while earning rising returns on its
resources‖. In the early
1990s, Porter (1990) developed a diamond framework to specify
the role of the
national environment in influencing the international
competitiveness of an
industry. Porter (1990) reveals that four attributes of the home
country
environment have an effect on the context which allows firms to
gain and sustain
competitive advantage. These are: factor conditions, demand
conditions, related
and supporting industries, and context for firm strategy and
rivalry. In Porter‘s
view, two exogenous factors, government and chance, influence
the functioning of
these four major determinants as shown in the figure 2.2. Man et
al. (2002)
proposed four characteristics of competitiveness: long-term
orientation (focusing
on long-term performance), controllability (managing resources
and capabilities),
relativity (performance relative to other firms) and dynamism
(concentrating on a
dynamic process to generate the desired outcomes).
From a micro-meso perspective, the concept of competitiveness at
the company
and industry levels has also been adopted in different contexts.
Industrial
competitiveness is considered as the ability of a company or
industry to meet
challenges posed by foreign