Business Analysis Project Study on Sunway Group
The analysis will look for a critical appraisal of the construction business of Sunway group comparing it with its benchmark company IJM Corporation and the Gamuda Berhad. It will discuss about the issues and problem which that are faced by the company. Besides this it will also look for solution for this issue which are being faced by the Sunway group. The issues regarding the company and industry will be widely discussed (Ishak and Ali, 2015).
1.2 Industry Background
Construction business is a process of creating, making and constructing various buildings and infrastructure. Some mistakenly take it as a manufacturing process but manufacturing induces mass production of the similar commodity but construction is not a mass production process. Construction needs proper planning, designing and implementation in order to carry out the process.
1.3 Company background
Sunway group is a Malaysian based company and was formed in the merging of the two companies namely Sunway city and Sunway Holdings. There are various business which is controlled by the Sunway City including construction business. The founder of Sunway group is Jeffrey Cheah and is the current chairman of the company. Construction business is one of the core businesses of this group and is the main process of earning profit.
1.4 Key issues
The main issue or problem of the analysis is the competitive standard of the Sunway group company to its benchmark company namely IJM Corporation and Gamuda Berhad. The construction business is affected by various factor delivering some issues in the competition in the market the issues are to be properly evaluated regarding the affects of issues on the construction industry which affects the business of the Sunway group. The issue of labor is a concern for this sector labor requirement is high so the issues of labor are other key issues of the discussion. The issues are to be evaluated regarding the financing structure of the construction industry which will affect the productivity rate of the companies in the competitive market. Issues regarding the place and political pressures are also to be considered as the key issues of the industry and its competition in the market (Wei and Yazdanifard, 2015).
|Sunway Group||IJM corporation||Gamuda Berhad|
|Target customer ||Local as well as foreign construction||Foreign constructions for better recognition||Local and domestic market takeover|
|Benefits||Good service ||Better designing||Cheap cost|
1.5 Rationale of my choice of company
The main motivation of selecting the Sunway group for this study is because its consistency in the market and the heritage which is been related to the company in comparison with other companies. The Sunway group offers high service in their business process of construction. I was looking for a company which will provide me better knowledge about the marketing supremacy in the construction market. Sunway group has provided me with all the requirements regarding the marketing trends and the issues in competition with other companies. The company has been a good company overall with its performance on the market.
2. Financial analysis
Financial analysis refers to the process of analysis of the financial status of the organization at a certain point of time. This is done by identifying the key indicators like return on assets, return on invested capital, etc. and making a comparative analysis of the same with the financial status of the competitors (Baños-Caballero et al. 2014). Ratio analysis is the most common form of financial analysis that is used to a quick overview of the organization’s financial status.
2.1 Ratio Analysis:
2.1.1 Profitability ratios: Return on invested capital:
This ratio is used to measure the amount of return generated from the capital invested by the organization.
Initially it is noted that, the return on invested capital of Sunway group is higher (20.14 %) as compared to the ROIC of the other two organizations IJM (5.91 %) and Gamuda (8.34 %) in the year 2013. However, it was noted that, the ROIC of Sunway group (5.25 % in the year 2016) gradually decreases over the years. Thus, it is evident that, the organization is not able to generate good amount return from the capital invested. It indicates that, the operation efficiency of the organization has decreased and needs to be improved.
2.1.2 Net profit margin
The net profit margin is one of the key profitability ratios and is used to determine the margin of the net profit earned by the organization after the payment of taxes and other expenses.
It is evident from the above chart that, the net profit margin of Sunway Group is lower (13.79 % in the year 2012) as compared to its competitors IJM and Gamuda. Although it is noted that the organization was able to generate high margin of profit in the year 2013 (31.57 %), it was not able to retain the same percentage of profitability. It indicates that, the organization is not able to operate efficiently and generate good profitability.
2.1.3 Return on assets:
The return on assets is one of the key indicators of the organization’s profitability and is used to determine the profit generated by the organization in respect to the total assets held by the organization (Baños-Caballero et al. 2014).
From the above chart, it is evident that, the return on assets of the organization is comparatively low (3.37 % in the year 2016) as compared to the other two companies. Although the organization was able to generate a high amount of return on its assets that stands at 14.84 % in the year 2014, however, it is noted that, again the return on assets of the organization gradually decreased over the years. This indicates that, the organization is not able to use efficiently its assets to generate income.
2.1.4 Liquidity ratio: Current ratio
The current ratio of the organization is used to determine the ability of the organization to pay off its short term obligations. It is also used to determine the liquidity hold by the organization.
From the above chart, it is noted that the current ratio of the organization is low in comparison to its other two competitors. Although it is noted that, the current ratio of the organization is more than 1 and is consistent over the years, this shows that the organization is efficiently able to pay off its short term obligations. However, the organization needs to improve its current ratio so that they are able to get a competitive edge in the market.
2.1.5 Financial health: Financial leverage of the organization:
The financial leverage of the organization also sometimes known as the gearing or the equity ratio is one of the key ratios in measuring the financial health of the organization and is used to determine the amount of assets that is hold by the organization in relation to its total equity (Delen et al. 2013). In simple terms, it is the amount of variation between the debt and the equity of the organization. It is to be noted that the financial leverage of the organization may be influenced by a lot of factors like that of the tax paid, the availability of significant collaterals, cash flow from operating activities, etc.
It is evident that higher amount of financial leverage indicates that the market risks of the organization is comparatively high (Bodie, 2013). In case such situation arises, it is necessary for the organization to stabilize the risks and operate efficiently. From the above chart it can established that the financial leverage of the organization is comparatively lower than its competitors. It indicates that, the organization is in a better position than its competitors in terms of the amount of risk held by the organizations.
3. Analysis of Strategic Issues
Strategic analysis is defined as the process of developing a strategic view to a business to pursue the purpose and objectives of the business. It includes industry analysis, competitor analysis and operational and organizational analysis (Khan et al. 2014 p-510).
3.1 Business Environment analysis
3.1.1 Pestle Analysis
Pestle analysis refers to the micro environmental factors. It mainly deals with external analysis mainly conducting a strategic analysis of market research analysis. It is a strategic component used mainly to analyze the growth or decline in the market positions.
The political environment can pose a serious threat to the business sector in many ways. It could lead to a major loss to construction business. Sunway construction Malaysia, is company the political problems affect the working process. Government policies change which leads to a threat in the working procedures of a Sunway. The rivalry amongst the political parties also leads to a downfall in the working procedure of the company. The political factors are a major drawback to the construction company. A major amount of the profit or earning is delivered to the political parties for the sanction purposes and smooth working of the company. Construction sites are mostly affected (Osman, 2014).
The economic factors also pose a serious threat to the construction industry. The high budget buildings are being sold to the people belonging to the higher class. Due to the fluctuation in the economy the demand for high budget properties of Sunway is getting affected. Sunway is getting affected by the downfall in the construction industry.
Social factors affect the working of a construction company as it tends to minimize the amount of sales of the company. The people who are not willing to settle in a definite area doesn't go for a property which is settled elsewhere. The working of a society creates an impact on the construction companies. Properties are constructed on an area where there is a demand by the people of the society (Sambasivan, 2007 p-520).
The development of a technology creates a great impact on the working of a business sector. Real estate sector highly depends on the technological use of the equipments required for the construction of the company. Sunway uses a lot of technologically advanced equipments for the construction of properties. The construction of Sunway of a property highly depends on the technological use of the factors required for the construction process.
People want a clean environment. An environment where there will be no pollution. Pollution free environment in which the world is craving for now. In order to keep the area clean the people residing in that area should have a positive mind set up. There should be initiatives taken to keep the area clean in which they live. Properties where there is a a greenery is sold at a greater price. Clients or the customers to this industry are in the need for a clean home area. Environmental factors have as great impact on the sale of such properties.
Legislative criteria are an important factor affecting the construction of Sunway. The taxes imposed by the government sets the price of an area. Buying and selling properties involves tax payment to the government as well as a result of which the business of Sunway is affected. The imposition of GST (goods and service tax) has posed a crucial strategic threat to every industry in the market.
The business of Sunway is affected greatly by the factors stated above. The Pestle analysis which has been done states the problem or drawbacks which affect the business of Sunway construction Malaysia.
3.1.2. Porter 5 Force
According to the Porter’s 5 forces there are 5 elements which can affect the efficient business run of the company they are as follows:
Threats of New Entrants
There is always a possibility of a new entrant, which can enter a market an can also takeover the market soon and can cause damage to the business of the Sunway group. In the construction industry, it is not that easy for a new entrant to come in and take over the market but there always remains a high possibility for new entrant to come in with new technologies and harm the business of the organization.
Threats of Substitutes
In the construction industry, the threat of substitute is less but it might happen as the customers and consumers in the market change their needs and demands and treat the other as an alternative. The Sunway group also faces threat that it can be substituted in comparison to others because of its financial instability. It may have due factors like buyer switching cost, substandard product, quality depreciation which are very high in the construction and real estate industry.
Bargaining Power of customers
This also a potential threat to the organization as it is seen that the bargaininh power of the customers is also considered as one of the outputs in the market. It depends on the ability of the customer to put pressure on the organization. This is concern for the financial position of the Sunway because if the all customer align and demand for lower price it will hamper the revenue of the company.
Bargaining Power of the Supplier
The bargain power the suppliers define the cost on which the supplier will supply the raw materials. It will also be concerning factor for the financial status of the Sunway group because if the supplier’s demands higher cost for the supplies it will do harm to the company’s financial position.
In every industry, the competition is major determinant, which affects the business of the organization. The factors, which will affect the efficiency of the Sunway Group, are innovation by other organization, firm concentration ratio and firm concentration strategy.
Figure 1: Porter Five Forces
4. Identifying Strategies
4.1 Ansoff’s matrix
The matrix is used in to recommend strategies which enable the company in determining and implementing different business strategy.
After the analysis on The Sunway group in both Qualitative and quantitative way, it can used identify and develop its different business strategies (Mee San et al. 2017 p-240).
Sunway group tries to better its services and quality of work and moulds it in a very attractive manner so the the market is attractive towards it and it enjoys market supremacy. This tactics helps the company to attract new clients and new construction project towards it.
Product and service development-
Generally this tactics is used in production process to adopt different strategies to increase productivity. But construction process is not a production process it is a process in which projects and new infrastructures are built so the Sunway group will try to better it services and the quality of work in order to attract new clients and invite new market share to maintain its supremacy. The company will try to create new ways a building which will help the process being simpler, efficient, faster, and cheaper.
In this case the company will try to find newer markets worldwide in order to expand its business and to increase the clients worldwide it is also important for the company to build up the company outside Malaysia and to target clients of underdeveloped countries as construction has better market there.
The company should apply this tactics to make sure that it can work efficiently outside its territory, for preparing a better marketing strategy there to invite better projects for the company.
Currently Sunway group is currently using the Market development to build up a market outside its territory of Malaysia. (Soltanifar and Ansari, 2016).
Considering the identified management and operational issues that face the Sunway Construction ltd, it would be recommended the following to help the company to expand its business and grow in the market. The market strategies should be reassessed in order to maximize the working conditions of Sunway Construction Malaysia. Steps should be taken in order to deal with the threats which Sunway construction is facing in recent times. Sunway should give priority in building customer loyalty so as to maximize its sales.
Building on work diversity through the launch of new insights will lead to contribution to profit.
Sunway construction has to deal with the legal litigation posed the government.
The points discussed above deals with the threats and recommendations which should be helpful for Sunway constructions to facilitate its business. The main objective of the Sunway construction is to maximize its profits and sales in order to expand its business. Sunway construction Malaysia deals with many drawbacks which act as a hindrance to its work conditions. Sunway should rectify its work techniques for the betterment of their working conditions. Sunway should encourage the development of the thinking scope of the concern to reduce the impact of weaknesses and threats to the company. The company aims at building its base in the international market in order to expand its business. Sunway should improve its client base in order to achieve this business strategy. The business strategy adopted by Sunway should undergo some changes in order to increase its market value. Construction work needs a lot of market strategies to be dealt with. There prevail a number of competitors. Sunway should compete with the competitors in a way that its own place in the global market is not affected. The global market is a wider area in which there exists competition amongst the companies under the same sector. Sunway should look into the matter in order to lead in its sector. Construction depends on a number of factors. Sunway has created its brand value in the Malaysian market and is a known for its excellence in this field. Sunway group is currently using the Market development to build up a market outside its territory of Malaysia. For building up the company's reputation outside Malaysia and for expanding its company outside Malaysia for which the company has to build its client base in the international market and have a survey on the market conditions prevailing in the international market.
6. Limitations of financial models and conventional analysis
As PESTLE model of analysis is a very widely used model of analysis it is preferred and is said to be a very simple model to analyze. It is considered as the easy to use and implement framework and is also a cross functional skill which helps to reduce the impact of weakness and threats to the company, it encourages the development of the thinking scope of the company, provides and enable the organization to identify and search for new opportunities that are there for the organization to prevail in the market and also to help the organization to control the implementation of different strategies in the company (Sohel et al. 2014 ).But Being a very back dated model of analyzing this process needs to be updated. The model in the current days will now may not yield the same result that it used to before as the marketing strategies have changed a lot from the time the model has been created it has lacked flexibility in terms of analyzing. As it is very simple process of analyzing but the analyzer sometimes oversimplifies the data which will deduct the quality of the result. This process is need to be done regularly in order to to achieve the desired result so it has become a very lengthy process in order to get to a desired result. Some information are collected which do not help the analyzing process because of the old way of collecting data which makes this process confusing and decreases its efficiency. Assumptions from the data collected may or may not yield the desired result so it is important that this obstacle is mitigated. The quality of the information on the base of which the result is achieved may vary and PESTLE model is dependent on it so it is important that the model acts independently. Conventional analysis is qualitative research and data analyzing technique. It is very descriptive method based on conventional data received it is also a old prototype analyzing method dependent on the information received the conventional method is dependent on the source of method which may not lead to the desired RESULT. The tools, model, analysis being old methods and not being updated needs to be rectified and needs to be updated to removes its weaknesses (Basu, 2014 p-30).
To conclude on this analytical project it is seems that it is very clear that the company is stable financially as it is experiencing the positive ratio acting as indication. The company shows that it is experiencing a good profitability but the rivals of the Sunway groups that are the IJM corporate and Gamuda Berhad are experiencing better profitability when comparing them with Sunway. Although the company is earning profit in the market but the other companies are experiencing better performance. So financially the Sunway Group is not better than the IJM corporate and Gumada Company. Though the company is doing better in the Malaysian market the company wants to go to foreign market in order to increase its profitability and to rise above its rivals. The solutions to various market obstacles that can be faced by the company has been discussed it is seen that the company wants to create new markets and opportunities in foreign market.
Limitation and the barriers is been faced by the company is also discussed widely using Pestel model of analysis. The limitations and barriers of the pestel analysis method have also been discussed properly so that it can rectify.