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S P Setia is a construction company in Australia that was launched in 1974. It specializes in building of normal buildings, developing real estate projects and timber processing. They have already been able to establish themselves as a major construction company in Malaysia boasting of three branches in Malaysia's economic regions of Klang Valley, Johor Bahru and Penang. They are also keen on expanding to other major economic hubs of Malaysia. They have also started extending their operations to other countries like Vietnam and Singapore. The demand for real estate development is increasing in South East Asia. Thus, there is a great opportunity for all those companies that are interested in investing in real estate to focus their attention in this market. This is because, there are high prospects that urban areas are still growing and especially in those countries that are still under developed. Due to these changes in the urban population, it is expected that there will be need for more housing units, office apartments, and hospitality resources like hotels.
Some of the reasons that are causing the increase in demand for real estate include the booming tourism industry in Asia that is projected to continue flourishing even as time passes on to the future. Thus to support the tourism sector it will be important for the countries in south east Asia to consider increasing their hotel facilities so as to meet the accommodation and recreational requirements of the tourists, and develop more infrastructure to attract the tourists (Foley, 1999).
Another reason that might lead to the real estate sector growing in the South East Asia is the rising demand for quality education. Constructing institutions of higher education will be important to cater for the rising numbers of students pursuing their career courses. This is because of the expected growth in the economies of these countries due to rising levels of industrialization in the South Eastern Asia. Due to the increase in industrialization, it will definitely lead to establishment of better trading opportunities that will signify a growth in the economies of these countries. Thus owing to these improvements in the industrialization sector the demand for qualified personnel will increase too. Universities or even colleges will therefore be required in order to support these demands for labor. This is because there may arise needs in importing labor and these foreigners will tend to rent houses than construct their own due to being in a foreign country.
With the economies, increasing there may be an increase in the population levels in these countries. Thus, services like health care will come in handy to support these populations. Construction of hospitals and health centers across the entire region will also be a necessity to provide efficient health services to the populations (Cullen & Parboteeah, 2009).
Transaction cost theory of internationalization is the best theory that would support the venture for the company to venture into the Asian property market. The theory involves companies opting to carry out all its operations as an internal entity rather than paying for the services it would be able to offer. This is because if it is a project that is expected to bring in much returns for a longer time span the company might end up benefiting more if they do it themselves rather than sub contracting others to carry out this jobs. It also creates an advantage to the company especially when it expects to remain in the particular industry for long. Staying for long in these markets will require that they carry out all activities for themselves in order to even shelf themselves from the effects that would be caused by changes in prices at the time of entry into the foreign market. This will help to ensure that they continue getting higher profits since only production costs will be impacted on them. Considering the fact that there is an increasing demand in the real estate market and this will continue for a while, it would be better to get into market without outsourcing. This will also make sure that the company is always able to carry out its activities without worrying about the quality of their products since it will continue doing what it is specifically able to do the way it has always done it.
The company has three main sources of income that are general construction of buildings, developing real estate properties and they deal with timber manufacturing. In the construction industry, being able to carry out these three tasks concurrently will ensure that the company is able to enjoy high profits from their operations. This is because these three constitute the major jobs involved in the construction industry and they will only require obtaining very little resources to enable them finish their tasks. These resources would include water, cement and labor. Thus, outsourcing for everything would make the company get to earn little profits than they would if they exploited their already available resources. It will be better to transfer some of their operations to the foreign country in order to maintain their reputation like it is in Malaysia where we have been able to beat our competitors by satisfying our customers. This will also lead to the company being able to cut a niche for itself in the new market as if it has done back here in Malaysia and remain relevant in the new market for long. This is because they will already have reduced the production costs that will make them be able to offer quality services (S P Setia BHD GROUP).
Joint ventures will reduce the profitability in the new market that is characterized by ever-growing demands. It will also lead to the company failing to create an image in the new market since they can never be credited for carrying out a job on their own. With the record and image they have created in Malaysia, it has made them remain a major competitor in the Malaysian real estate market and if they would do the same in a foreign market, then they would still meet the objective of internationalization that is to increase competitiveness.
The reason why it is a good motive to venture into the Asian real estate market is because of the broad range of projects that are there in the region. The company is already able to develop vast real estate projects while at the same time bearing the capabilities to execute basic construction projects. In the Asian market, there is a higher chance of recording even higher profits owing to the professionalism of the company. It is also attributed to the fact that the diversity of the fields that are presenting these development opportunities that should act as an incentive for the company to venture into the Asian real estate market. The hospitality industry that will be characterized by constructions of hotels, accommodation facilities and even recreational facilities already provides three avenues through which the company may capitalize on its ability to create a mark in the foreign market. There is also the education sector that also brings rise to construction of classes and accommodation facilities for students which is another category with many opportunities to exploit (Escobar, 1993).
By getting into the Asian real estate market, the company will be able to exploit many opportunities to maximize on its profits. It might also place the company at a position to enable it diversify its construction business in the south East Asia so that it reaps maximum benefits from the lucrative market. The industrialization also brings rise to many foreign nationals coming into the country. Thus if the company would also focus on constructing residential apartments they would continue reaping these benefits for long since the foreigners will tend to rent houses rather than construct their own housing units in a foreign country. This will also lead to an increase in rents that will also ensure the company enjoys the profits for longer with regular increases in the profit margins. Thus, it seems like a good measure to exploit the Asian real estate market to benefit largely from the numerous opportunities available. This venture will also lead to the company’s growth from its current three branches in Malaysia to more foreign branches in the Asian region.
To be able to capitalize on developments in better locations to develop the company will have to collaborate with the local municipal councils in order to identify the prime locations that will offer better recovery opportunities. This is because the urban areas are the ones that are exposed to rapid development opportunities than is the case with the rural areas and thus with the help of the municipal councils it will facilitate easier acquisition of prime land close or within the urban setting. In order to gain better returns from real estate the locality of the property determines the amounts of rents it will fetch. Hence, the local municipal councils will help to identify even those buildings that can be put under renovation in order to meet the changes in the economy of these countries in the Asian region. By establishing the prime places to carry out the developments, it will ensure that the company recovers its expenditures faster upon completion than if it was to develop the same products in rural setting.
The company should also target to collaborate with the local financial institutions in order to enjoy the financing from these institutions. Since the economy is continually growing, it will be easier for the company to repay any financial assistance it might receive to develop its properties. Through the above partnerships, the company will be sure to enjoy a easy challenge to fit into the new market (Dymsza, 1972).
Instead of running the operations of the company from Malaysia while it is already in another region, it would be easier to open new branches that operate independently from the parent company but still report to it. This is to ensure that they run the company according to the standards of the foreign market only maintaining the standards of the parent company. It would also be easier to run the company’s foreign branches as an independent entity in order to capitalize on the local labor available so that gains the abilities to identify with the requirements of the clients in the foreign country. Exploiting the labor that is locally available will also reduce the amount of monetary resources that will be used to pay the Malaysian employees that would move with the company branch since they would require to be compensated for working in a foreign nation. Due to the differences in the geographical regions, cultures might have a heavy impact on the designs of construction in different parts of the world. Thus by running the company as a part of the parent company will make sure that it has the capability to satisfy the requirements of the new market and thus be able to fit in the market.