BE 3603 Pre Contracts Management B.Sc.

(Hons) in Quantity Surveying

Level III - Semester II Project Work II Characteristic Comparison - Construction Industry Vs Hotel Industry

Student Name(s) Britto A.D. Kodippily T.T. Madusanka R.A.I.K. Ranasinghe R.H.M.L. Ranjan K.P.H. Sujeekaran S. Thiwanka R.A.Y. Withanachchi U.T.

Reg. No. 092610R 092647K 092659A 092674M 092677C 092691M 092694B 092701X

Lecturers Names

: Mr. Suranga Jayasena : Mrs. Dilani Abeynayake

Date of Assignment : 8th March 2012 Date of Submission : 15th March 2012

Department of Building Economics Faculty of Architecture University of Moratuwa

Pre Contract Management BE 3603

Construction Industry and Hotel Industry

Table of Contents
1 2 Introduction........................................................................................................................................1 Similarities .........................................................................................................................................2 2.1 2.2 2.3 3 Structure of the Industry .............................................................................................................2 Demand and Supply ...................................................................................................................2 Discrete Prices ............................................................................................................................2

Differences .........................................................................................................................................3 3.1 3.2 3.3 3.4 3.5 3.6 Employment ...............................................................................................................................3 Effect of Exchange Rate Fluctuations ........................................................................................3 Susceptibility to the Geo-Political Environment ........................................................................3 Involvement of Technology .......................................................................................................4 Competition within the Industry.................................................................................................4 Nature of Outputs of the Industries ............................................................................................4

4 5

Conclusions........................................................................................................................................5 References..........................................................................................................................................6

Department of Building Economics

Pre Contract Management BE 3603

Introduction

The construction industry is divided into two major segments. The construction of buildings segment includes contractors, who are usually called general contractors, build residential, industrial, commercial, and other buildings. Heavy and civil engineering construction contractors build sewers, roads, highways, bridges, tunnels. Increase in demand for civil engineering and building construction is the caused by increased demand of other industries, especially hotel industry. In general, hotel industry offers two major types of services, namely accommodation and dining services. Customers of the industry include the domestic household, foreign visitors and institutional buyers. Research shows that the domestic households selection of hotels and other lodging facilities are affected mainly by three factors namely competitive pricing, availability of services and facilities type and extent of free services (free local calls, continental breakfast, etc.) This report focuses on the similarities as well as differences of the two industries.

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Similarities

The two industries have some shared characteristics. Both the industries are structured with participants of different levels, both the industries have cyclical demand and outputs of both the industries have discrete prices. Those factors are elaborated below,

2.1 Structure of the Industry

Structure of the both the industries are generally similar, where one can identify large hotels managed and owned by multinational companies as well as family run hotels, large construction companies engaged in national level projects as well as small local construction companies.

2.2 Demand and Supply

Since local tourism is not very prominent, the demand for hotel industry is largely depended upon tourist arrivals-which are depended upon disposable income of tourists and political stability of the country. When the political situation of the country stable the hotel industry has flourished and vice versa. Similarly, the demand for construction industry is also fluctuating, which is known as cyclical nature of demand. There are construction booms and recessions. Variation in investments, both public and private, lead to periods of strong activity during which large-scale projects are started, which may be followed by calmer times. But the factors affecting those fluctuations are different for two industries.

2.3 Discrete Prices

The outputs of both the industries are coming from various price levels. There are five star luxurious hotels as well as simple guest houses that cater the needs of different customers. The service provide by hotels are not homogeneous. The construction projects also come in different magnitudes and different price levels.

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Differences

The construction industry and hotel industry has certain disparities when consider the characteristics of them. The basic factors that differentiate two industries are described below.

3.1 Employment
When consider the employees welfare and working conditions, it is safe to say that neither industries have a good track record, but construction industry is even worse. Semi skilled or unskilled workers of the construction industry are engaged in riskier works, yet they are not well compensated. Due to certain customs, regulations and the nature of it, the hotel industry seems to outclass the construction industry when reflect on the employees welfare. Statistics show that 83.2% of construction sector workers are informally employed compared with 56.1% of hotel industry. (Sri Lanka Labour Force Survey 2010, p.30) The contribution for the overall employment of the country is different from one industry to the other. 7.8% of national employment accounts from construction industry (5th largest in terms of number of people employed) compared with 1.9% from hotel industry (10th largest in terms number of people employed) The percentage of the people employed in construction industry has steadily aroused from 2001 to 2008 before slightly dwindled in 2009 and 2010 due to recession. But the percentage of people employed in hotel industry has been always around 1.9% since 2001.

3.2 Effect of Exchange Rate Fluctuations

Most of the demand for hotel industry comes from foreign visitors, hence the income generate is from foreign currency. But the inputs of hotel industry are chiefly locally generated. So if the rupee value is depreciating the hotel industry will be benefitted because they earn more rupees from a dollar. By contrast, the demand for construction comes from local clients. (With certain exemptions of NGOs and foreign funding agencies) But considerably large numbers of inputs for construction projects are imported, hence rupee depreciation will have an adverse effect on the industry.

3.3 Susceptibility to the Geo-Political Environment

The demand for hotel industry mainly comes from tourists, therefore that demand is susceptible to political stability, weather, current affairs etc. So one can say that the hotel industry is very sensitive to changes of the environment. If we consider the construction industry, it is clearly evident that the demand for construction is not that sensitive to socio-political conditions prevail in the country. Even during the war or after natural
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Pre Contract Management BE 3603

disaster like tsunami, the construction industry performed at an acceptable level. But it has to be said that, the fiscal policies of the government play a major role in deciding the level of construction demand.

3.4 Involvement of Technology

Construction industry is largely involved with technology and machineries. Adapting to use newer technologies and construction methods is of higher importance for construction organizations. But the hotel industry is largely driven by human resources, involvement of technology is minimal apart from the usage of IT.

3.5 Competition within the Industry

The competition of the two industries is different. The hotel industry spend large sums in promoting their services, it is basically a non-price competition. But the competition of the construction industry is based on price, they hardly advertise themselves. Unlike the hotel industry the nature of product delivering requires the construction organizations to keep their prices secretly. In the hotel industry, the value of brand name is huge, occasionally it is the single most important factor when attracting the demand. The hotel management plays high attention to keep its good name. Sometimes a hotel may not provide an excellent service to its customers, yet having a reputed or well established brand name will make them competitive in the industry. Brand name of the construction organizations is of lesser importance when it comes to selecting a particular builder. Clients of construction projects require value for money, they are not considering the brand name of the builder. That is a one reason that we dont see advertising among construction organizations. Even though the construction clients do not pay much attention to the brand name, quality and magnitude of the previous projects is very important.

3.6 Nature of Outputs of the Industries

The outputs of the hotel industry are intangible, because it is a services industry. The outputs of the construction industry are entirely different from hotel industry outputs. The construction projects are bulky and spread across large geographical area. Process of construction is complex and requires collective involvement of other industries, whereas the hotel industry does not require such involvement to provide services.

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Conclusions

The construction industry and hotel industry collectively account for large part of employment of Sri Lanka. Vast majority of the employees of both industries are informally employed, without having a professional education. That gives the industries the ability to generate job opportunities immensely. Structure of both the industries is similar to some extent, where there is a range of organizations. The demand for construction mainly comes from within the country, but the demand for hotel industry is mainly driven by tourist arrivals. Hence the demand for hotel industry is susceptible to geo-political environment. Because of the same reasons, two industries react differently to exchange rate fluctuations. The construction industry involves large amount of machineries and technology, while the foundation of hotel industry is on inter personal relationships. Our judgment is that both industries have few similarities, but there are vast number of differences.

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Pre Contract Management BE 3603

References
Department of Census and Statistics Sri Lanka 2010, Sri Lanka Labour Force Survey Annual Report

Department of Building Economics