Strategic Assets Driving Organizational Capabilities of Thai Construction Firms

Piyanut Wethyavivorn1; Chotchai Charoenngam2; and Wasan Teerajetgul3

Introduction

Globalization presents formidable challenges to developing countries as they struggle to compete in the world market. A firm’s success is less dependent on the attractiveness of its industry or country’s environment, and more on firm specific factors that determine its competitive advantage (Hawawini et al. 2004). Firms need to extend their thinking beyond national borders when it comes to competition, capabilities, and customers.

In the construction industry, globalization together with the improved knowledge-based economy and information revolution has fundamentally altered the market (Chinowsky and Meredith 2000). The client’s needs in the industry have moved toward a greater emphasis on speed of delivery and value-based services (Yisa et al. 1996; Jaafari 2000). Innovative construction procurement methods such as design-build, build-own-operate-transfer, and design-build-finance-operate have therefore emerged in response to these shifting needs. In addition, protocols of the World Trade Organization have lowered barriers to entry into previously insulated markets, resulting in ever more intense competition (Ngowi et al. 2005). In order to secure long-term competitiveness in this new scenario, managers of construction firms must shift their focus from a project level to an organizational strategic direction, simultaneously aligning all project goals along with the firm’s overall strategy. Since the early 1990s, processes of adopting strategic management in the construction industry have been discussed by many scholars, such as Betts and Ofori (1992), Warszawski (1996), Price and Newson (2003), and Cheah et al.
(2004).

Based on literature in the field of strategic management derived from resource-based theory, strategic assets leading to sustainable competitive advantage are characterized as: valuable, scarce, difficult to trade, difficult to imitate, and difficult to substitute (Barney 1991; Peteraf 1993). Due to the nature of these characteristics, tangible resources such as capital and construction equipment, despite being essential, can hardly contribute to enhancing competitive advantage. Rather, intangible resources such as human resources, knowledge, reputation, customer loyalty, valuable relationships, and technological as well as managerial competencies are necessary as complementary sources of enhancement. However, some studies further suggest that firms with comparable tangible and intangible resources still perform differently due to a particular asset called organizational capability, which is the firm’s mechanism of transforming its tangible and intangible resources for the purpose of delivering services (Stalk et al. 1992; Teece et al. 1997; Eisenhardt and Martin 2000). In the construction industry, several capabilities have been proposed as increasing competitive advantages: innovation capability, learning organization, strategic partnering, information management, and the ability to provide project finance.

During the last decade, the Thai government has continuously invested in large infrastructure projects such as the Bangkok Sky Train lines, underground train lines, cable-stayed bridges, and the renowned Suvarnabhumi International Airport. These projects required high technological capabilities which could not be fulfilled solely by local contractors. As a result, a number of international engineering and construction firms from Europe, United States, Japan, and China entered the region to undertake these sophisticated projects. Furthermore, following Thailand’s free trade agreements with many countries, a number of foreign investors began investing in large capital projects such as power plants, manufacturing plants, luxury hotels, and residential projects throughout the country in alarming numbers. Local contractors who wished to survive in this new environment or enter into the emerging market in the region needed to successfully craft effective strategies and quickly develop the required resources and capabilities to seize upcoming opportunities (Ogunlana et al. 1996; Tam 1999; Teerajetgul and Charoenngam 2006; Waroonkun, T., and Stewart, R. A. (2007). “Modeling the international technology transfer process in construction projects: Evidence from Thailand.” J. Technol. Transf.).

This study therefore aims to identify strategic assets driving a construction firm’s capabilities in enhancing their competitive advantage in the Thai construction industry. From this, owners and managers can comprehensively evaluate their firm’s capabilities and focus on the strategic assets that need strengthening in order to compete successfully in the market.

Strategic Assets and Competitiveness of Firms

Organizations possess various resources and competencies in some key routines and activities. However, the lack of capability to effectively deploy these resources and competencies seems to be a critical problem. The resources in this study are human resources, physical resources, marketing resources, and technological resources. Competencies refer to a specific skill or ability used to perform a specific task. Capability here is defined as a firm’s capacity to deploy integrated resources and competencies to operate the business. Different capabilities require different combinations of resources and competencies. The competitiveness of a firm is the result of the performance of these capabilities when compared to its rivals.

To understand how competitive advantage in construction firms develops, a framework adopting the concept of strategic assets driving organizational capability to achieve organizational goals was proposed, as shown in Fig. 1. A firm’s resources and competencies can be sources of competitive advantage if they are matched with strategic industry factors (Amit and Schoemaker 1993). These strategic industry factors are industry-specific. They are determined at a market level and as a result of complex interactions among external stakeholders including clients, competitors, suppliers, and government regulations. A firm can identify its strategic assets by analyzing its sources of competitive advantage, and then craft an effective strategy to compete in the future target market to achieve organizational goals.

In the construction industry, several intangible resources and capabilities have been considered to provide a competitive advantage. Innovation capability through knowledge management was emphasized by Egbu (2004), whereas an ability to develop a learning organization through strategic alliances was stressed by Holt et al. (2000). On the other hand, some studies have highlighted project management capability through particular aspects such as project information technology (Stewart 2007), speed of delivery (Mahmoud-Jouini et al. 2004), environmentally-friendly building processes (Ngowi 2001; Wenblad 2001), and value creation to clients (Abidin and Pasquire 2007). Finally, many studies, especially with reference to the large-scale public-private participation sector, have stressed that the ability to raise funds serves as an advantage for contractors operating in this particular market (Hassan and McCaffer 2002).

Capability Framework

The capability framework used to investigate strategic assets driving the competitiveness of a firm was developed from earlier studies including the explanation of organizational capabilities by Ansoff (1965), the generic value chain by Porter (1985), the classification of resources by Grant (1991), and the core capabilities model of Rangone (1999). Additionally, classification of a construction firm’s resources by Warszawski (1996) was reviewed to incorporate capabilities particularly essential for construction business operations. A framework of six organizational capabilities, namely marketing, project procurement, construction, financial, business management, and learning and innovation, was established. Then resources and competencies supporting each capability were gathered from previous literature in order to design the survey instrument used to identify strategic assets.

Conclusions and Managerial Implications

The competitiveness of a firm greatly depends on its capability to transform its resources to create a unique value in the target market. Through factor analysis, 14 strategic assets driving the six organizational capabilities, which enhance a firm’s competitive advantage within the Thai construction market, were identified. Most construction firms in Thailand attempt to build strong relationships with various stakeholders such as bankers, suppliers, subcontractors, designers, etc., in order to gain a competitive advantage. Since these relationships are attached to key individuals, the benefits from these relationships are often limited. For a construction firm to reap the full benefits of these relationships, the firm must focus on developing three essential strategic assets: explicit strategic management, excellent human resources management, and continuous development and innovation.

First, a construction firm should set a realistic vision and a corresponding set of long-term goals. This vision must be constantly communicated to all employees. The firm should develop an effective performance evaluation system and constantly conduct SWOT analysis in order to craft an effective strategy.

Second, the firm should put more emphasis on recruiting and retaining competent staff. Management must carefully craft an appropriate promotion policy together with an attractive salary structure and fringe benefits. Staff knowledge and skills should be expanded continuously through an efficient learning system. This eventually provides firm ground for continuous development and innovation within the firm.

Finally, management should more aggressively seek business partners such as international design and construction firms with the superior technology required to achieve the firm’s strategy. The firm must develop a policy to support continual monitoring and trial of new products, equipment, and other up-to-date technologies. Development of these three essential strategic assets could help to develop the other strategic assets more efficiently. The findings hereof should provide the insights required to comprehensively understand a construction firm’s capabilities. Further study could explore the relationships among these assets in order to understand the mechanism of these assets in driving the competitiveness of construction firms in Thailand.

This paper was published in the “Journal of Construction Engineering and Management”, Vol. 135, No. 11, November 1, 2009. Full article is available upon request.

Abstract is also copied and posted.

Abstract: This research study aims to identify strategic assets which currently drive and enhance the organizational capabilities of construction firms. There were 258 sets of questionnaires assessing the level of importance given to 106 substantial resources underlying six organizational capabilities of Thai construction firms that were analyzed. Using factor analysis, these 106 items were reduced to 14, which were termed strategic assets. These 14 strategic assets were then classified based on their influence on the six organizational capabilities. The results indicate that Thai construction firms concentrate mostly on developing excellent reputation, creating strong bargaining power with suppliers and subcontractors, and strengthening the firm’s financial stability. However, they do not give much importance to effective risk and investment management, continuous development and innovation, and explicit strategic management. These findings provide in-depth insight to comprehensively understanding a Thai construction firm’s capabilities. These 14 strategic assets should thereafter be used to develop a practical tool for managers of construction firms to evaluate their firm’s strengths and weaknesses as well as to identify strategic assets required to enhance competitiveness in the market.

DOI: 10.1061/_ASCE_CO.1943-7862.0000091
CE Database subject headings: Assets; Construction companies; Organizations; Thailand; Business management.

1Lecturer, Dept. of Civil Engineering, Kasetsart Univ., 50 Phaholyothin Rd., Bangkok 10900, Thailand _corresponding author_.

E-mail: fengpyv@ku.ac.th

2Associate Professor, School of Engineering and Technology, Asian
Institute of Technology, P.O. Box 4, Klong Luang, Pathum Thani 12120, Thailand.

3Lecturer, Dept. of Civil Engineering, Srinakharinwirot Univ.,
Rangsit-Nakhonnayok Rd., Nakhonnayok 26120, Thailand.