Issue Focus

The domestic construction market seems to have entered a recession since the second half of 2018, and the recession is likely to continue until the early mid-2020s. Therefore, domestic construction companies need to establish and implement strategies to successfully overcome the construction recession that will continue for the time being. The management strategies that construction companies should take during the recession period can be broadly classified into first, strategy to secure viability, and second, preemptive investment strategy to capture future growth opportunities. The ten specific action plans(10 commandments) of the management strategy to secure the viability of construction companies during the recession period are as follows. 1: Quickly reduce inventory related to residential and non-residential construction, including unsold houses, at the beginning of the recession. As the recession progresses, inventory costs rise and inventory reduction becomes more difficult. 2: Reduce material procurement and subcontracting costs through realigning contracts with suppliers and restructuring them. However, share your results with your suppliers. 3: Seek to innovate production processes during recessions. 4: Secure cash liquidity through efficient marketing expenses as soon as the recession enters. However, aggressively spend marketing expenses on inventory reduction. 5: As construction products are difficult to differentiate and the price elasticity of demand is high, pay attention to the loss of customer and corporate image due to a price increases such as sale prices and bid prices. 6: Use a defensive strategy through pricing model change(post-payment, post-rental sales, etc.) rather than participating in price reduction competition between construction companies. 7: For companies with increased sales of housing and non-residential construction businesses during the boom, actively change their business portfolio. In the medium term, consider restructuring the business as there is a lack of a promising market to replace the decline in sales of housing and non-residential construction businesses. 8: When restructuring a business, be careful not to damage your core competitiveness and assets for the recovery period after the mid-2020s. 9: Establish and implement a plan to relocate personnel and reduce labor costs based on the analysis of completion times by construction sites. 10: Consider restructuring the workforce, considering the characteristics of construction firms whose competitiveness is internalized in internal employees. In addition, develop a knowledge management system with manuals to prevent the loss of competitiveness due to the leakage of talent. If construction firms have secured enough cash liquidity and improved financial weakness through austerity management in the early stages of the recession, it is advisable to actively adapt preemptive investment strategies. Firms that have been tightening their business during the recession have better cash liquidity than those who have made preemptive investments, but they fall into a trap of tightening management that cannot grow because they can't preempt new opportunities. Low interest rates and low stock prices in times of recession mean lower capital procurement costs for investments, and lower costs for materials, labor, and equipment to build fixed capital, making the same investments cheaper than during boom times. In addition, the construction industry has a long lead time for construction products, so there is a high possibility of supply shortages at the beginning of the recovery period. Therefore, the preemptive investment strategy during the recession period gives the advantage of preempting the recovery period to enable companies to secure future growth opportunities. The recession is expected to be most severe in the next two to three years, which is the most favorable in terms of investment costs for materials, labor and equipment. In addition, after the next two to three years, the economy is expected to enter the recovery phase, and thus, it is possible to realize the advantage of preempting the recovery period by taking preemptive investments such as securing business sites and manpower allocation.