Commercial Construction Business Plan

Market Analysis Summary

The total market demand in the U.S. commercial construction industry sector is huge. It is estimated that the total demand was $173 billion for fiscal year 1999. For the California, Washington, and Oregon area, the total demand is $24.6 billion. Even with HHC's expected large-scale growth due to its contacts and reputation, the market is so large that, by the end of 2003, HHC's projected market share for the Pacific Northwest will only be one quarter of one percent.

HHC has a focus on meeting the development demand for urban located properties.  HHC will hope to bid on government projects as resources permit.

The Market Analysis chart and table show the estimated total number of potential customers in the three states HHC will be operating in. The majority of the company's revenue lies on commercial contracts. This market sector provides significant growth and ample projects for the future. 

4.1 Market Segmentation

HHC will focus on two market sub-segments of the commercial construction industry segment. The first will be the urban projects segment and the second will be the local, state, and federal government contracts segments.

Urban Projects

HHC focuses on construction and wreckage/re-construction projects within urban locations.  Large office buildings make up a majority of these projects.  HHC desires to establish and maintain long-term relationships with clients to develop a referral network and future repeated business. Recent industry trends seem to suggest that this segment will retain a relatively high growth rate for the foreseeable future.

Government Contract Projects

Government contract projects make up approximately 15% of revenues.  High visibility and competitive bids are critical to capture this segment of the market. One of the reasons why this segment is attractive is its relative stability. Contracts from these sources are not dependent on the current market conditions and will provide revenue even during an economic downturn.

4.2 Target Market Segment Strategy

HHC will focus on its target market, the large urban areas, by maintaining and increasing its relationship base with commercial real estate clientele.  By offering a unique and impeccable level of workmanship along with competitive costs, HHC will be able to procure and maintain a healthy level of market share.

4.3 Market Needs

As companies located in downtown urban areas are continually modernizing and growing, the demand for commercial construction services has steadily increased over the past 20 years. Currently this growth stands at nine percent. The need for uniquely-savvy commercial construction services is significant, as companies seek to maintain a professional image.

4.4 Service Business Analysis

The construction industry is a capital-intensive field that requires large investments in long-term assets such as bulldozers, cranes, cement mixers, etc. In addition, variable material costs such as I-beams, roofing tiles, paint, etc., are also very high. This means that for the commercial construction segment, which focuses on large scope projects, that entry/exit into the industry is quite difficult. The industry is fragmented with a vast number of very small companies. Most do not employ more than 40 individuals. HHC will be employing a significantly larger number beyond its first year in operation, and will therefore have the ability to bid for the largest and most profitable contracts.

Due to such large number of companies and the intense competition, margins are relatively low for the construction business as a whole. For the commercial segment, the margins are somewhat higher due to the high cost of construction.

Because each building is a unique product, the costs are very high relative to other assets, and the clients need such assets at a specific time,  the company's reputation in quality, on-time delivery, and cost are the crucial elements used in assessing a contractor.

The construction business is also seasonal, with the largest number of contracts arising in the spring and summer. The number starts to decrease in the early fall, and the drop continues through the winter months of December through February, which are the low point during any year.

In the Pacific Northwest, the major competitors in the commercial segment are Cree Construction, Kirtley-Cole, and Wilder Construction. Each of these companies focuses on the same type of clientele as HHC. However, HHC offers more services, such as paving, road/highway construction, and environmental construction. With the exception of Kirtley-Cole, each of these competitors has such a broad range of customers that a more focused company, such as HHC, will be able to defeat the competition through more attention to client needs.

4.5 Competition and Buying Patterns

There are over 550 commercial contractors nationwide. HHC will primarily compete on the basis of its level of workmanship and relationships among the commercial real estate community.

Large competitors are providers of services to a broad range of commercial, industrial, utility, and institutional customers, typically through principal operating subsidiaries and joint ventures. The specialties of our competitors are:

• Design, installation, integration, start-up, operation, and maintenance of distribution systems for electrical power.
• Lighting systems.
• Low-voltage systems, such as fire alarm, security, communications and process control systems.
• Voice and data communications systems.
• Heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems.
• Plumbing, process, and high-purity piping systems.

Some competitors also provide services needed to support the operation of customers' facilities. These services include:

• Site-based operations and maintenance.
• Mobile maintenance and service.
• Mall modification and retrofit projects.
• Consulting, program development, and management for energy systems and the maintenance of facilities.

Facilities services are being provided to a wide range of commercial, industrial, utility, and institutional facilities, often including those at which construction services have been provided, and others at which construction services were provided by other contractors. Facilities services are frequently combined to provide integrated service packages, which include mechanical and electrical services.

Mechanical and electrical construction services and facilities services are typically offered directly to corporations, municipalities, and other governmental entities, owners/developers and tenants of buildings. Companies are also providing these services indirectly by acting as subcontractors to construction managers, general contractors, systems suppliers and other subcontractors. While the facilities services business is also highly fragmented, a number of large corporations, such as Johnson Controls, Inc. and the Fluor Corporation, are engaged in this field, and there are other companies seeking to consolidate facilities services businesses.