Term Paper on Selling in the Construction Industry
Thesis: The U.S. construction industry is very vast and diverse. It includes a cross section of activities and people who ranges from electricians, plumbers etc. working all by themselves on residential as well as small commercial complexes to marketing professionals who work for huge construction and engineering organizations involved in designing and building enormous projects. Introduction: The construction sector encompasses associations primarily involved in the construction of buildings and various other structures, heavy construction apart from buildings, along with renovations, modification, installation and maintenance and preservation. To add to this list are the organizations who are involved in demolition of structures, evacuation of building sites along with sale of materials collected from the demolition of structures. This sector also includes those firms engaged in detonation, test drilling, landfill, leveling, earthmoving, excavating, land drainage, and other land preparation. The federal government of US through their census of construction industries, from time to time provides periodical and comprehensive statistics about the various construction setups and buildings, along with details on the repair, subcontracting and other construction-related activities. One such comprehensive reports that is put together almost every year is the Preliminary Industry Series reports consists of the earliest census results and the national statistics for each 4-digit industry about 15 months after the census year. These reports also consist of tables of the value of construction work by type of construction, comparisons of current and previous census statistics. [Census Of Construction Industries, 2004] As per the U.S. Bureau of Labor Statistics, in 1997, there were as much as 667,000 construction companies in the United States which included about 37,000 heavy contractors, 197,000 building contractors and 431,900 trade contractors. The government of United States has been spending enormously on construction and the figure for the year 2001 is as huge as $480 billion. This mammoth figure amounted to about 4.7 percent of the United States’ Gross Domestic Product with accounted to the sum of all money spent in the United States in 2001. The figure however, does not include architectural and engineering services which further amounted to another huge figure. When compared, spending in the entire US manufacturing sector was $1,423 billion which came to about 14 percent of GDP. To add to this statistics was that in the year 2001 the US construction industry gave jobs to about 8.4 billion people apart from another 1 million people who worked in the architecture and engineering units. [U.S. Construction, Architecture and Engineering Industry: An Overview for International Investors, 2004] The construction industry in the United States is highly regulated which is not only through the central source like the Ministry of Construction but the regulations are mainly because construction includes a number of important public policies which includes secruity, selling process, ethics, partnership etc. With regards to the construction
industry, business can be carried out in various ways in the United States like sole proprietorships, partnerships, joint ventures, limited partnerships, limited liability partnerships, limited liability companies and corporations. To succeed in the industry, it is important to choose the correct structure for the construction company which again depends on taking into consideration a whole lot of norms and regulations. Considering an example, in a place like California, contractor licenses will not be provided to limited liability partnerships and limited liability companies whereas in New York, construction companies cannot provide engineering or architectural consultation. So it is important to consider the licensing laws of the particular state for the contractor to decide on a particular business structure. As per the survey conducted in 1997 by Standard & Poor of 5124 construction companies, it was found that only 50 of them, amounts to about 1 per cent had made investments of over $50 million. About 58 percent of the companies had assets of $500,000 to $5 million. The low capital requirements and low barriers to entry indicate that the market in the construction industry is very favorable and competitive. If the owners are competitive enough they are able to take advantage of the situation and make tremendous profits. Partnership / ownership In terms of owners as well as partnerships in the construction industry, there are two types of project owners in the United States, public owners as well as private owners. The public owners are mostly government agencies at various levels of government in the United States which includes both the federal as well as the government from any of the 50 states and their relevant agencies apart from the local governments which include cities, counties or districts. Whereas the private owners in the construction sector include individuals, families, and/or any form of business as well as non-profit organizations. These two types of owners are involved in building of small as well as heavy construction projects of all magnitudes. In the year 1999, almost 24 per cent of US construction spending was focused on public projects and the rest which amounted to 76 percent was on private projects. In terms of the business climate of American construction industry, it is seen that it has had low capital requirements along with low economic barriers for gaining entrance into the industry. Contractors usually have low fixed overheads as their workforce is concentrated mostly in the field or project sites rather than in offices so there is not much requirement for infrastructure. Workers are hired as and when there is a need. Large pieces of equipment is also not bought as it might increase the overhead, rather it is hired when needed. Analysis: Selling process Over the recent years, interest rates have been favouring home buyers and commercial organisations which has resulted in them expanding at a very fast pace. However, the construction industry has been caught in some kind of a dilemma about the whole situation. Owing to such an invasion of building projects across the United States, an increased number of general as well as sub-contractors are feeling that though work is
quite a lot, the manpower who would be commit to it and would complete the assigned jobs are not as per their expectations. They also predict that this situation would worsen over a period of time. [Focus On: The Construction Industry, Making The Tough Sell, 2004] Another important factor in the construction industry as well as the selling processes in the industry is the regulations involved with respect to taxes. Sole proprietorships, partnerships, joint ventures, limited partnerships, limited liability partnerships and limited liability companies do not have to pay any taxes and the income that they generate and the payment of taxes is taken care by their business owners. However, corporations pay taxes on their income along with their shareholders paying taxes on the dividends and distributions generated by them which results in doubling up of the taxation. With respect to the licensing, United States does not have any federal construction licensing. However, all architects and engineers are licensed in all the states of United States. Apart from the professionals being licensed or registered, the enterprise also must be licensed. While the rules are so stringent for architects and engineers, in terms of contractors, they are licensed only in some states. In most states, the licensing process is more concentrated on the business entity taking on construction work. However, in the case of some states, the licensing process is also focused on individual workers. Those who are involved in the life safety like the electricians, plumbers, carpenters etc. are also subjected to various regulations. As regards contractor licensing, it is one of the most confusing areas of American law as it keeps changing often and also differs from state to state. Violation of laws in the construction industry may lead to criminal penalties like imprisonment or fines. Owing to the stiff competition among the industry players in the construction industry, in difficult economic timings, usually a company’s marketing department gets the block and depleted from the company’s budget. However, recently as the Central Florida economy was desperately looking out for a respite due to its downturn, the region’s construction industry which included the various general contractors, engineers, architects, geotechnical consultants as well as environmental specialists started working towards generating more and more revenues for the sector in order to revive the economy through beefing up its selling processes. "The key to the job is selling the performance of the professionals in your firm," says Sandy Winkler, business development director and a vice president of Nodarse & Associates Inc. "After all, that is what the customer is buying." A whole lot of construction organizations have employed highly skilled marketing professionals to sell their offerings. These professionals in the construction industry are those who are basically making the hard sell for a company. They are ones who are able to educate their customers on their offerings and eventually become the face of the company. Commenting on her company’s marketing professionals, Linda Lay, director of marketing for Lamm & Co., a construction firm said, "We're selling more than our
services. We're also selling our people and our knowledge." With regard to the industry, companies focusing on construction, architectural designs, engineering etc. are facing problem convincing the clients while selling as their offerings are usually intangible. The selling is usually done through designs or models in terms of architectural design and urban planning, however, in terms of other services, the selling is usually done through testing, observations and studies. An effective marketing strategy in construction services is selling “products” by building relationships. Usually the marketing professionals take the help of a list of contacts along with relationship through word-of-mouth. Relationships are critical as in the construction industries business is usually through repeat orders and referred clienteles. Marketing or selling process is more often done at two levels – the marketing professionals convince their consumers to buy their offerings and to encourage the companies’ personnel to offer the best of services. [Haner-Dorr Noelle, 2002] Ethics As per the construction industry, the most crucial problem faced by the organizations currently is that it required more skilled laborers. To get trained personnel or to train those interested as well as to keep a skilled, stable work pace is becoming a challenge in the industry. As per the statistics obtained by the Census, in every profession which is a part of the construction industry, there is going to be a dearth of skilled professionals. The various governments, federal, state and local, have set up numerous laws and regulations to protect the environment that affect the construction industry. These stringent rules to safeguard the environment include prevention of dirty water from jobsites to spread elsewhere, reduction in air pollution which could be due to the new power plants near the construction sites, standardized amount and quality of insulation required in new buildings to control the energy consumption, usage and disposal of toxic chemicals, monitoring the usage of toxic substances like lead-based paints, asbestos etc. Strict codes and standards have been set up for ethics in the American construction industry. However, as per a recent survey conducted by the Construction Management Association of America and FMI, it was found out that 84 percent of respondents who included owners, architects, construction managers, contractors and subcontractors, had faced various types of unethical acts. Among these about 34 percent mentioned that they had faced unethical practices over and over again. Considering these survey findings, the American government set up strict standards of ethics which were needed to be followed by everybody associated with the construction industry. It is critical that adequate communication is very important during collaboration for completing successful projects without disputes. It is also important that associations related to the construction industry should take the lead in drafting industry ethical codes. Trust and integrity is very vital for this industry and if practices are not followed ethically, the industry and individual companies may be the sufferers which in turn might lead to them losing their reputation.
The construction industry is becoming more and more information technology savvy of late. This ranges from project-specific websites, online equipment auctioning to analyzing the various software relevant to construction. A lot of buying and selling is also taking place through the internet. Though a little late and slow in entering the information technology bandwagon, its usage is increasing every day. Surveys conducted recently indicate that 80 percent of contractors and owners use Web-based communications, 25 percent purchase or sell products over the Internet and 17 percent bid for jobs online. [Berning Paul W & Diveley-Coyne Shaye, 2000] Conclusion: The US construction market is quite complex, aggressive and challenging. However, it always encourages new entrants to set up own business and generate revenues. The market offers opportunities to the contractors who are focused, sincere and well-organized. The construction industry and the people associated with it can thrive in the United States if they have a strong, experienced management, qualified as well as skilled personnel along with sufficient resources.