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

iv

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,

v

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

vii

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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1

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

2

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

3

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.

4

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

5

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

6

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

7

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

8

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

9

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.

10

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

11

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).

12

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.

13

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

14

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

15

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

16

(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

17

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.

18

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

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;

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

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

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

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

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

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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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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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

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.

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).

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

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

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

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