Unit One

Construction market

As any field in the world always there is market for each field, construction
industry also is having a market. The conditions and the requirements of these
markets are the same for construction market, but they may be changed with small
range.

Demand and supply

All the rules of demand and supply can be used in construction marketing. For
example goods and services are classifies into two types; necessities and luxuries
according to the consideration of the person is the same in construction residents and
hospitals are necessities where stadiums and gardens are luxuries, and for the same
building some items may be necessities like structure and finishes and so, where items
like decoration is luxury. The economic status is an important factor in one's views
regarding luxuries and necessities. The simple relationship between price and the
demand can be shown on the figure below:; as the demand increased, the price will
increase. For the necessities and luxuries the relationship between demand and price
is different from each other. The extent to which price changes influence demand
varies according to the elasticity of the demand. The demand for the products is said
elastic when a decrease in the selling price results in a considerable increase in sales.
On the other hand, if a change in selling price produces little or no effect on the
demand, the demand is said to be inelastic .therefore there is difference between
necessities and luxuries in the elasticity of the demand.

Necessities
Demand

Luxuries

P
Price

Demand – price relationship

Competition in construction market

As the other markets, four types of competition can be seen as the following:
 1. Perfect competition
Perfect competition occurs in a situation in which any given product is supplied by a
number of vendors and there is no restriction against additional vendors entering the
market. The margin of the profit here is too little because of the large number of
vendor that they can offer the product; in construction many of the contractors can
contribute of the tendering of building of houses and small buildings but the profit is
too little.

2. Monopoly
Monopoly is at the opposite pole from perfect competition, A perfect monopoly exists
when a unique product or service is available from only single vendor and that vendor
can prevent the entry of all others into the market. Pure monopoly cannot be seen
because of that there no product or services without the ability of substitution. Here
contracting companies working in dams, airports, etc. can be examples for monopoly
in construction. The margin profit for these companies is less than that of perfect
competition, and may two or three times than the first.

3. Semi monopoly
This type permit for the limited time through the assurance of patents or copyrights
that can help to maintain the uniqueness of the product by preventing identical
products from being marketed.

4. Opligopoly
This type of competition exists when there are s few suppliers of products or service
that action by one will almost inevitably result in similar action by the others, as the
manufacturer of pre-cast units in isolated town raises the price of the unit.

The Transaction Cost Model in marketing

The transaction cost model categorises the environmental factors that influence a
company as external and internal. The internal factors are the company and product
characteristics while the external factors are the external foreign market
characteristics

External factors affecting the demand

Many factors can affect the demand can be seen as follows:
1. Price of the product or service: when the price increases the quantity of
sales will decrease.
2. Price of the substitute product: hen the price of the substitute product
increases the demand on the first product will increase.
3. Income limit: the size of sales for any product will increase as the limit
of the income for the people increase.

Internal factors:
1. The capital assigned for the project.
2. the speciality of the company
3. technical ability as professional, skilled, persons
This model points out that the risks encountered in the overseas operation are
moderated by the level of control attained by the choice of an entry mode, which
consequently affects the long-term return of the foreign investment. Risk is identified
here as the possibility of loss arising from trade barriers, intensity of competition and
political and policy instability. Return is explained as the long-term effectiveness and
profit.

Perhaps the only shortfall of this model is that it does not explore the effect of the
home country environment on the overall effect of the trade-offs between risks and
return.

Conceptual Model of Transaction Cost Market Entry Mode

Internal Factors Risk/Return External

Factors
Cost/Control

Tradeoffs

Optimal Foreign Market Entry Mode Choice

Profit Maximisation