Analysis of Competitive Environments, Business Strategies, and Performance in Hong Kong’s Construction Industry

Abstract

Nearly all construction works are traditionally awarded through a competitive tendering process. A contractor’s competitive strategy thus determines its success or failure in different competitive environments. This study aims to explore the contingency relationships between the competitive environments, business strategies adopted and contractors’ subsequent performance in the construction industry. The study was based on Porter’s competitive-force framework to analyse competitive environments in the construction industry, together with the modified version of Porter’s generic strategies of cost leadership and differentiation. The performance measure was based on the profit margin on turnover. Five hypotheses were developed and tested by comparing the resultant performances of two generic strategies with five competitive forces. Questionnaires were used to collect data to test the five hypotheses. Significant interactions were found between three industrial competitive forces (the threat of new entrants, the intensity of rivalry among competitors, and the bargaining power of clients) and two business strategies (the low-cost strategy and the differentiation strategy). The main effects were found to be significant for the remaining two competitive forces (the threat of a substitute and the bargaining power of subcontractors and suppliers). In general, these results confirm the proposition made by this study that contingency relationships exist among three industrial competitive forces, low-cost and differentiation strategies, and contractors’ performance.