SEGMENTATION OF THE CONSTRUCTION MARKET IN VARIOUS COUNTRIES

IN ASEAN

(INDONESIA VS THAILAND)

Sokovoli Basutuka Odrovakavula1

Program Studi Teknik Sipil, Universitas Atma Jaya Yogyakarta, Jl. Babarsari No.44
Yogyakarta
Email: odrototo@gmail.com

1. INTRODUCTION
A. BACKGROUND

The construction industry influences Indonesian economic development. It is an

essential contributor to the process of development by providing the physical
foundations on which development efforts and improved living standards are
established (World Bank, 1984). The construction industry builds and provides
infrastructure for other economic sectors, such as agriculture, energy, tourism,
manufacturing, trade and others. The construction industry's influence on other
economic sectors can be measured using a spreading index and a sensitivity index based
on input-output (I/O) analysis. A spreading index indicates backward linkages, which
provide opportunities to create investments for other sectors due to a demand in one
sector of the economy. A sensitivity index indicates forward linkages, which are the
provision of inputs by one economic sector for utilisation by other sectors of the
economy (Bulmer-Thomas, 1982).
Indonesia's construction industry, already worth 10% of the country’s massive
GDP, which will grow into one of the largest in the world in the coming decade. On the
report, we can note that construction business in Indonesia contribute tremendously on
the growth of the nation’s economy. Since Indonesia is an archipelago nation, the
competitiveness of doing business tends to varies and differs in several provinces, also
with different kinds of factors involved resulting in unsuccessful business practise. The
increasing direction of economic globalization recently has prompted Indonesia
Government to play an active role at the international level to work with various
countries. . Economic cooperation between countries is done as one form of efforts to
promote the welfare of the Indonesian nation as stated in the 1945 Constitution

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 The trend of national construction market growth continues to increase year by
year together with the high demand for infrastructure development in our country. Just
like other industries, the market of construction services in Indonesia is strongly
influenced by the purchasing power of the people and the government, which is related
closely with the development of Indonesia's macro economy impaired by the economic
crisis happened in the year of 1997/1998.
ASEAN Economic Community is a form of ASEAN economic integration that
is the free trade system between ASEAN countries. The definition of ASEAN economic
integration in general is the removal of constraints between the economies of ASEAN
countries. Operationally, ASEAN economic integration can be defined as the lifting of
discrimination and political unification (policy) such as norms, rules, and procedures

The objective of ASEAN economic integration is to increase the volume of trade

in goods and services, increase the mobility of capital and labour, increase production,
increase production efficiency and improve product competitiveness. Satisfactory
infrastructure can help increase the rate of economic growth in Indonesia. The
Government of Indonesia has supported the trade of this service starting from Indonesia
ratified the establishment of the World Trade Organization (WTO) and became one of
the 153 countries that have registered as WTO members through Law Number 7 Year
1994 About Ratification of Agreement Establishing The World Trade Organization,
then through Presidential Decree No. 88/1995 on the Ratification of ASEAN
Framework Agreement on Services, Law No. 18/1999 on Construction Services, Law
Number 25 Year 2007 on Investment, Law No. 7 of 2014 on Trade

The Government of Indonesia makes a variety of policies aimed at facilitating

the process of trade in goods and services in the era of the MEA, but also to reduce the
constraints that become obstacles for the government and business actors of Indonesia
and foreign business actors in trade liberalization that took place today. Reducing this
will surely have an impact on the competitive of construction services in the current
ASEAN economic society.

The positive and negative impacts arising from various policies taken by the
Indonesian government will determine the future policy direction of the Indonesian
government in facing market challenges in the ASEAN region in order to create
efficient trade and fair competition. Moving from the impact of the Indonesian

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government policy taken against the competition of trade in construction services in the
framework of the MEA, the authors formulate the following issues: On how to analyse
the impact of ASEAN's trade policy in the field of construction? Second: What is the
comparison of trade service competition in the field of construction between Indonesia
and other ASEAN member countries in ASEAN?

2. PROBLEM STATEMENT

Assess the economic growth of the country of Indonesia and the country of
Thailand with its regulation of the construction industry, comparing competitiveness in
the construction industry sector and assessing the project of collaboration in the
construction industry

3. OBJECTIVE

The purpose of this study is to describe the analysis of the impact of the
Indonesian government's policy on the competition of trade in construction services in
ASEAN and to know the comparison of trade competition services in the field of
construction between Indonesia with ASEAN member countries. Further to understand
a bit about construction concepts in terms of regulation, economic growth towards the
economy and different sector of projects.

4. DISCUSSION

A. ANALYSIS OF THE INDONESIAN GOVERNMENT'S POLICY ON

COMPETITION OF TRADE IN CONSTRUCTION SERVICES IN ASEAN

Indonesian government policy on trade service competition in the field of

construction in ASEAN

1. Law No. 18/1999 on Construction Services

The Law on Construction Services regulates the types, forms, and areas of
construction services, contracting, responsibility of providers and users, the arrangement
of public participation of construction services, building failures, the role of
construction service society, coaching, dispute resolution and criminal provisions.
Contextually due to changes occurring at the community level and business climate,

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some provisions in the law on construction services pay attention to the development of
construction services business at the global level.

2. Regulation of the Minister of Public Works No. 8/2011 concerning Sub

classification and sub commissioning of construction services business

The business classification in this ministerial regulation is derived from law

number 18 of 1999 concerning construction services that are more specified for the
classification of types of construction services. The classification of construction
services business in Indonesia is also divided into 3 classifications, namely planning,
implementation, and supervision that is used to simplify the auction of construction
services later.

3 Regulation of the Minister of Public Works No. 09 / PRT / M / 2013 About:

Competency Requirements for Sub communication of Experts and Skilled Personnel for
Construction Services.

The Government of Indonesia makes this regulation to facilitate skilled

workers and skilled workers in their wage system with qualifications set by the
government.

4 Law Number 25 Year 2007 on Investment

Law number 25 year 2007 on capital investment provides investment facilities by

considering the level of economic competitiveness and state financial and promote
conditions compared to facilities provided by other countries

5 Law No. 7 of 2014 on Trade

Law No. 7 of 2014 is a government policy related to service providers and service
users, while for trading construction services that are specifically regulated through law
number 18 of 1999 on construction services.

6 Law Number 11 Year 2014 on Engineering

Act No. 11 of 2014 on Engineering is also one of the Indonesian government's

steps in restricting foreign engineers in Indonesia and making domestic engineers have a
quality competitiveness with engineers from other ASEAN countries.

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B. COMPARISON OF TRADE SERVICE COMPETITION IN THE FIELD OF
CONSTRUCTION BETWEEN INDONESIA AND OTHER ASEAN MEMBER
COUNTRIES

Trade and investment in the services sector can be limited through formal
restrictions or through various domestic regulations. It aims on at restricting access to
the domestic service market with local and / or foreign companies, or affording
domestic service suppliers that have a competitive advantage through measures that
discriminate against foreign service suppliers are referred to as market access
restrictions and measures discriminatory. In the GATS-inspired AFAS trade agreement,
the types of trade and investment restrictions fall under the terms of "market access" and
"national treatment," which is a major obligation towards service liberalization to
remove barriers and facilitate business growth.

The ease of doing business in Indonesia which is ranked 7 out of 10 business

convenience in other ASEAN countries indicates a lack of commitment of Indonesian
government policy to create business climate in Indonesia for business actors to do
business in Indonesia. Businesses who want to start a business in Indonesia very little in
2016, this is because it is very difficult to start a business in Indonesia. Indonesia ranks
9th from ASEAN member countries for ease in starting a business in a country. Laos as
a country whose population has per capita income has defeated Indonesia in the ease of
starting a business in the country.

Apart from Singapore, Malaysia, Thailand and Brunei which have a high level
of business convenience, Indonesia is still lagging behind those countries if considering

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Indonesia has the largest and most extensive population and number of ASEAN
member countries.

D. COMPARISON OF INVESTMENT COMPETITIVENESS IN THE FIELD OF

CONSTRUCTION SERVICES BETWEEN INDONESIA AND OTHER ASEAN
MEMBER COUNTRIES

The development of inter-enterprise investment flows in ASEAN is currently

controlled by Singapore, Malaysia and Thailand. Myanmar became the country with the
largest investment objective in this era. Indonesia itself is only in the 5th place for the
investment destination country which is considered promising. Foreign companies that
invest in the construction services sector prefer a country with a good development
index and a regulation that facilitates their investment. Myanmar, Vietnam, Cambodia
and Laos are developing countries that are doing massive domestic development.
Several construction companies from Singapore, Malaysia and Thailand have won
tender auction development infrastructure in Myanmar, Vietnam, Cambodia and Laos
countries. Indonesia's own construction services business has also won auction of
infrastructure works and invested in some of these countries, but business players from
Singapore, Malaysia and Thailand are still dominating investment flows in the
construction services sector in ASEAN.

Figure 2 : The Investment Destination State of the Construction Service Sector in

ASEAN

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E. COMPARISON OF LABOUR COMPETITION IN CONSTRUCTION
SERVICE BETWEEN INDONESIA AND OTHER ASEAN MEMBER
COUNTRIES

Competitiveness in the construction sector that is very influential with the

competition of trade in services is the workforce in the construction sector which
includes skilled labour, architecture and engineering scholars. The quality of Indonesia's
internal infrastructure is only ranked 5th in ASEAN. Indonesia's human resources are
only ranked 6th in ASEAN.

Figure 3: Comparison of Indonesian workforce based on qualified standard Mutual

Recognition Arrangements (MRA) work standards.

The factor of confidence in the workforce of Singapore also makes the engineers
and architects of Indonesia at a standing point. The comparison of the competitiveness
of labour among countries in ASEAN in 2016 gives the value that the competitiveness
of Indonesian labour is still a big obstacle for the trade of service competition.

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F. MARKET IN THAILAND

Thailand is in the middle of the Indochina Peninsula in Southeast Asia bordering

on the north with Myanmar and Laos, to the east with Laos and Cambodia, to the south
with the bays of Thailand and Malaysia, and to the west with the Andaman Sea and the
southern tip with Myanmar.

Thailand has a total land area of 513,120 km² and Bangkok's City is its capital,
which is also the centre of politics, commerce, industry and culture. Thailand's
population of more than 67 million, is ranked 20th. About 75 percent of the population
is Thai; China (14 percent); Malay (3 percent) and other ethnic (8 percent). the majority
of Thai citizens embrace Buddhism (94.6 percent); the other is Islam (4.6 percent);
Christian (0.7 percent) and others (0.1 percent).

Thailand is a country with well-developed infrastructure, has a free economy,

pro-investment policy, and a strong export industry. Thailand's economy has weathered
internal and external economic shocks in recent years. The global economic crisis
greatly reduced Thailand's exports, with most sectors experiencing a double-digit
decline. In 2009, the economy tapered 2.3 percent.

However, in 2010, the Thai economy increased 7.8 percent, the fastest pace
since 1995, as exports rose sharply. At the end of 2011 economic growth declined due
to flood disaster in the northern industrial area of Bangkok that crippled the
manufacturing sector. the industry recovered since the second quarter of 2012 and PdB
increased 5.8 percent in 2012.

Export and tourism results are the mainstay of Thailand's economy. In 2012,
Thailand's total foreign trade amounted to U $ 477.11 billion, up 5.7 percent (yoy)
compared to 2011. Thailand's biggest trading partners in 2012 are Japan, rrt, United
States, Malaysia and Indonesia. total exports grew 3.12 percent to U $ 229.52 billion,
and total imports increased 8.22 percent to U $ 247.6 billion in 2012. Indonesia is
Thailand's 5th largest trading partner. The Thailand-Indonesia trade graphics in 2012
amounted to U $ 19.3 billion, up 10.56 percent (yoy) compared to 2011 with total
exports being U $ 11.31 billion (+11.22 percent) and imports at U $ 8, 1 billion (+9.64
percent), with a deficit on the Indonesian side amounting to U $ 3.2 billion. In the
period from January to October 2013, total Thaid-Indonesia trade totaled U $ 16,492.2,

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up 1.99 percent (yoy) with total exports U $ 9,381.5 to Indonesia. Thailand's main
export commodities to Indonesia include agricultural products such as tapioca, agro-
industrial products driven mainly by imports of sugar, processed foods and beverages,
as well as manufactured products such as cars and accessories, machinery and electrical
equipment. Meanwhile, Thailand's largest import from Indonesia is crude oil, coal,
machinery, accessories vehicles and frozen fish. in the tourism sector, Thailand visited
22,303,065 tourists in 2012. This number increased to 24,137,568 tourists in the period
from January to November 2013 with the domination of tourists from China, Malaysia,
Japan, Russia, South Korea and India.

Opportunities The non-oil and gas market in Thailand dynamics and the rapid
growth of non-oil and gas markets Thailand attracts foreign business actors to do
business and invest in Thailand. The products of Thailand and Indonesia have similar
similarities to handicraft products including woven and songket commodities. However,
Indonesia still has an opportunity to meet the Thai market for non-made products in the
country (complementary product), including: confectioneries, fresh / frozen fish, fresh /
frozen shrimp, fresh / frozen lobster, civet coffee, textiles, glass blocks, pulp and paper,
plastics, rubber, ceramics, auto parts, coconut, food / beverages, as well as medicines
and supplements. one of Indonesia's largest non-oil and gas export opportunities to
Thailand is the halal food industry. This is considering the number of Muslims in
Thailand to reach 6 million people or the second largest in Thailand, especially in the
southern part of Thailand directly adjacent to Malaysia.

Thailand itself targets a halal food import increase of at least 10 percent per year
between 2010-2014. The import includes vegetables, fruits, fisheries, and livestock
products. Meanwhile, imports of Muslim fashion products including Indonesian origin
to the Thai market is estimated at 180 million US dollars with an average growth of 8-
8.5 percent per year. in addition to fulfilling the demand for halal food, business
opportunities and other investments for Indonesia is the accessories and equipment of
worship. recorded the number of Muslim visitors increasing every year (447 820
Indonesian migrants to Thailand in 2012). given the limited availability of halal
restaurants in Bangkok, especially in the Pratunam area is flooded by migrants from
Indonesia and other muslim tourists make investment in the field of culinary is
potentially potential or promising. Thailand also encourages entrepreneurs in the

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services, tourism and health sectors as well as hotels and restaurants to improve the
diverse needs of Muslim visitors.

To calculate the market size, the report considers the construction market
revenue as a part of the GDP. The performance of the construction market in Thailand is
forecast with the help of the predicted CAGR, after analysis of the present condition of
the market. The analysts forecast the construction market in Thailand to grow at a
CAGR of 7.99% during the period 2018-2022.

More Opportunities in the Greater Bangkok Area Like many emerging

economies in the region, Thailand has undergone rapid urbanisation. According to
the United Nations, the share of Thailand’s urban population increased to 50.4% in
2015 – up from 38.8% in 2006 – with most of the growth centred around the Bangkok
area. Coupled with a sustained improvement in household incomes, this will support the
growth of consumer spending on discretionary items, such as lifestyle products and
services, while providing good opportunities for Hong Kong suppliers.
While the World Bank classifies Thailand as an upper-middle-income economy,
the country’s monthly income and expenditure per capita averaged US$273 and
US$215, respectively, in 2015. In Greater Bangkok, the respective figures were US$443
and US$334, some 60% higher than the national average. Hong Kong suppliers offering
mid-to-high-end products would find it more cost-effective to focus on the Greater
Bangkok Area, where purchasing power is higher and the retail sector and distribution
channels are more organised and developed.
The ASEAN Exchange, a collaboration of the ASEAN stock exchanges kicked
off in September 2012 and now has 3 participating exchanges. The system uses an
electronic order routing system that allows brokers from the three exchanges to connect
their clients to trading on the exchanges of the other countries. The potential for
ASEAN capital market collaboration is huge. In 2010, aggregate gross domestic savings
of ASEAN nations amounted to $616 billion, with the largest contributions coming
from Indonesia, Singapore and Thailand. To facilitate the mobility of savings across
national borders, the AEC has put in place standardized offering and distribution rules
and disclosure requirements, as well as an enhanced withholding tax structure to attract
cross-border investors in debt paper, with a view to lowering transaction costs and
exploiting economies of scale.

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G. CONSTRUCTION OVERVIEW IN THAILAND

Construction accounts for 8.5% of Thai GDP so the sector’s health has important
consequences for employment and linkages with related sectors, such as construction
materials and real estate. The sector is split domestically into construction for the public
and private sectors, with investment in the two occurring at a ratio of around 55:45.

Figure 4: Ratio of Construction Investment to GDP

1. PUBLIC CONSTRUCTION

The lion’s shares of these projects are concerned with infrastructure. These run
to around 70% of the total value of public construction, with the remaining 30% being
accounted for by government buildings, housing for civil servants, and other items such
as structures for water and public utility management. Large companies gain advantages
in contracting for government work, especially for large infrastructure projects, due to
their experience, expertise, financial strength, and specialist techniques and
technologies. SMEs working in public construction tend to operate as subcontractors.

2. PRIVATE CONSTRUCTION
55% of this sector is accounted for by construction of residential property, 11%
by industrial property, 10% by commercial property, and the remaining 24% by other
projects, such as hotels and golf courses. Larger operators with experience, financial
strength, and management framework will be able to undertake large-scale projects,
while SMEs tend to work with lower-valued projects.

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 Figure 5 : Public and Private Construction Investment (at current prices)

3. CONSTRUCTION INSTITUTE OF THAILAND

The cabinet of Thailand comes up with an idea of establishing an institute, with its
objective as a networking institute of the Ministry. The Institute (CIT) is a core
organization to coordinate between public and private sector, driving sustainable
development in construction industry of Thailand and making justice and equality to all
involved stakeholders.

Figure 6: Structure of construction industry in Thailand

The figure above elaborates the amount of business and total employment . it can be
seen that small and medium enterprises play a crucial role in supply chain of
construction sector. The investment value in construction sector is more than 1 trillion
baht. The combination of small and medium enterprises directly and subcontractor of
large enterprises is total 85%.

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 4. PROPORTION OF CURRENT SPENDING FOR DOMESTIC
CONSTRUCTION
The competitiveness position of constructors for domestic construction will be further
graphically elaborated on the figure 7 below. The current spending for domestic
construction stands at 85% for Small and medium enterprises and 15% for Larger
enterprises.

Figure 5 : Technology Vs Project Value – SME and Large

The figure above, we can see that larger enterprises use medium – high technology
in construction for high investment value projects, compared to small and medium
enterprises in construction business use standard medium technology in construction for
low investment value project or subcontracted projects.

Small- and medium-sized companies form the majority of the country’s industrial
firms. They are labor intensive, have low import content of raw material inputs, and can
link with large firms by subcontracting work for them. Not all small- and medium-sized
firms are less technically efficient or less productive than large firms. The number of
small-sized firms is also found to grow the fastest during the slow real income growth
period. In this sense, one might view SMEs, particularly the especially small ones, as a
cushion against low employment during difficult times. SMEs could create employment
for former employees of failed firms, and at the same time prepare new entrepreneurs
who might graduate to run large firms in better times.

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5. CONCLUSION

The quality of human resources in Indonesia is still not good enough to compete
with countries that have a good competitiveness of human resources. While the
obstacles for business actors in the service trade competition in the construction sector
is the condition, the weak construction market entrepreneurs where large contractors
from overseas dominate the market although the number of foreign contractors is fewer
than the Indonesian contractor.

The standardization of skilled workers and engineers has not been able to compete
with the standardization of other ASEAN countries; the restriction of capital ownership
from the Indonesian government encourages the lack of investor interest to invest in
Indonesia, the increasing number of foreign workers entering Indonesia, the lack of
interest in domestic construction entrepreneurs.

Indonesia is a country that has a low business ease due to various regulations that
make it difficult for business actors to start their business in Indonesia. Thailand is a
country with the most invested business actors in the construction services sector with
investment in various countries in ASEAN.

Though Construction in Thailand, in normal times not all small- and medium-sized
firms are capable of generating more employment than large firms. Rather, it depends
on the production techniques firms’ use. For labour-intensive export-oriented industries,
firms will be able to generate high employment regardless of size. For capital-intensive
industries, most small firms are less productive than large firms, and their expansion
will not be able to generate high employment despite the large number of small firms.

Public construction, especially civil engineering projects, will benefit from the
progress of mega-projects in the near future. The majority of these are specified by the
2016 and 2017 Action Plans and have a total value of THB2,339bn over the period
2016-2024. In addition to these, small and mid-sized projects will also add to the total
value of government projects and help construction companies build a steady backlog.

The state of private construction will tend to improve in 2018 on a strengthening

economy and improving consumer purchasing power. Competition between operators
will remain high but large and mid-sized businesses which concentrate on the residential
and commercial markets are expected to continue to meet with supply of work. In

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addition, they will have the opportunity to develop the CLM market, especially in the
areas of infrastructure, residential buildings, hotels, and commercial and industrial
buildings.

SMES, however, remain in a somewhat difficult position; in particular those

engaged in general construction work without a specialized market. The majority of
these companies are traditional builders and rely on skilled labor and have yet to exploit
technological innovation to better meet market demands. In addition, smaller companies
are more exposed to uncertainties in the demand for construction work and price-cutting
by larger operators.

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6. REFERENCES

Soemitro, Ronny Hanitijio., 1995, Legal Research Methodology and Jurimetry,

Jakarta: Ghalia Indonesia.

Randy Kristovandy Tanesia, Dwi Suryani, Frederick Martce Yudha, Juniastuti

Ramba “MARKET SEGMENTATION STUDY AND MARKETING STRATEGY
CONSTRUCTION SERVICES BUSINESSES IN ASEAN COUNTRIES

Handbook of Directorate of Trade Service Negotiations and Directorate General of

International Trade Cooperation Ministry of Trade Republic of Indonesia, 2015,
Readiness of National Construction Service Sector.

Source of Indonesian Embassy (Bangkok)

Understanding the ASEAN Economic Community (AEC)

ASEAN Economic Integration, 2015, https://www.academia.edu/9503310/

(accessed on July 25, 2015)

Krajewski, Mark. 2003, National Regulation and Trade Liberalization in Services.

The Hague: Kluwer Law International

Muhammad, Abdulkadir., 2004, Law and Legal Research, Bandung: Citra Aditya
Bakti

CONSTRUCTION MARKET IN THAILAND – INDUSTRY ANALYSIS, SIZE,

SHARE, TRENDS, GROWTH AND FORECAST 2018 – 2023 -

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analysis-size-share-trends- growth-and- forecast-2018-2023_183249.html

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Soeparto1

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http://netisplus.net/seminar/pdf/151001/cit.pdf

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CONTRACTOR, available online at:
https://www.krungsri.com/bank/getmedia/546a9e27-9f1d-4302-b0ff-
e5830ee1bf18/IO_Construction_Contractor_2017_EN.aspx

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