STRAMA (Final) With Missing Parts

Breaking Grounds, Building Dreams, Braving New Horizons:A Strategic Management Paper on DMCI Homes, Inc.

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION AND BACKGROUND OF THE STUDY1.1 Company Profile 5

1.1.1 Brief History and Description of the Company 51.2 Vision-Mission Statements, Goals and Core Values 7

1.3 Rationale of the Study 101.4.Research design and Methodology 10

1.4.1 Research design 101.4.2 Scope and Limitation 11

1.5 Macroenvironmental Analysis 111.5.1 Demographic Changes 111.5.2 Political and Legal Forces 121.5.3 Socio-Cultural Trends 141.5.4 Economic Changes 15

CHAPTER 2: INDUSTRY AND COMPETITOR ANALYSIS2.1 Porter’s Five Forces of Competition 19

2.1.1 Threat of New Entrants 212.1.2 Bargaining Power of Buyers 232.1.3 Threat of Substitute Products 242.1.4 Bargaining Power of Suppliers 252.1.5 Rivalry among Competitors 26

2.2 Competitive Profile Matrix 282.2.1 Key Competitors of DMCI Homes 292.2.2 Critical Success Factors 30

2.3 External Factor Evaluation Matrix 342.3.1 Opportunities 342.3.2 Threats 37

CHAPTER 3: INTERNAL ANALYSIS3.1 SWOT Analysis 393.2 Financial Statement Analysis 42

3.2.1 Vertical Analysis 433.2.2 Horizontal Analysis 453.2.3 Ratio Analysis 46

3.3 Internal Factor Evaluation Matrix 513.3.1 Strengths 523.3.2 Weaknesses 53

CHAPTER 4: STRATEGY FORMULATION, IMPLEMENTATION AND EVALUATION

4.1 Strategy Formulation 55 4.2 Strategy Implementation 71 4.3 Strategy Evaluation 86

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BIBLIOGRAPHY

LIST OF FIGURES

1: Map of Businesses owned by DMCI Holdings 62: DMCI Homes' Income Contribution to DMCI Holdings 73: Core Values: Integrity 84: Core Values: Excellence 85: Core Values: Interdependence 96: Core Values: Customer Orientation 97: Changing Trend of OFW Remittances in Dollars 178: Revenues of Selected Real Estate Developers in Residential Developments 199: Framework of Porter's Five Forces of Competition 2010: Residential Revenues of Developers Catering to the Middle-Income Segment 2811: Graphical Depiction of the Vertical Analysis 4412: SPACE Matrix Graph 6113: Grand Strategy Matrix 6314: Strategy Map 7915: Finance Function Strategy Map 82

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LIST OF TABLES

1: Philippine Population from 2007 to 2010 122: Residential Building Construction in the Philippines (2011) 153: Ranges of Monthly Rates and Wage Differentials by Major Occupation Groups 164: Disposable Income Among Filipinos 185: Competitive Profile Matrix of DMCI Homes and its Competitors 336: DMCI Homes External Factor Evaluation 387: SWOT Summary 418: Common-Size Income Statements from 2007 to 2010 439: Comparative Income Statements from 2009 to 2010 4510: SWOT/TOWS Matrix Rating 5311: SWOT/TOWS Matrix 5712: SPACE Matrix 6013: IFE Table 6414: Strategy Options 6515: QSP Matrix 6616: Financial Projections 7317: Financial Projections (2011 to 2013) 7518: Financial Projection (2014 to 2015) 77

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CHAPTER 1

INTRODUCTION AND BACKGROUND OF THE STUDY

1.1. COMPANY PROFILE

1.1.1. Brief History and Description of the Company

David M. Consunji acquired the knowledge of construction when he was a young, concrete

inspector. He was armed with in-depth facts and the precise system about construction through

his Civil Engineering degree that he earned from the University of the Philippines. After some

time, he decided to eventually start his own contracting company.

He incorporated David M. Consunji Incorporated (DMCI) which was founded on December 24,

1954 in a quaint room in Pandacan, Manila. He had a vision of “Building a generation of

Filipinos.”

DMCI started building chicken houses for the Bureau of Animal Industry. This earned him a

reputation for timeliness of service delivery and punctuality, and quality output. After that, the

Tacloban Coca-Cola Plant and Bacnotan Cement Plant projects were awarded to the company.

Through DMCI’s unwavering quest for progression, its development and research aspect paved

the way for the pioneering of several advanced construction application technologies in the

Philippines. Now, DMCI enjoys the patronage of both its new and repeat institutional clients.

In the year 1999, DMCI expanded with its housing division, which was called DMCI Homes. Its

aim was to build progressive condominiums and house and lots. It all began with Lake View

Manors (1999) followed by more innovations like Hampstead Gardens (2001). By the beginning

of the year 2003, DMCI Homes became stronger, more aggressive and even more competitive.

They constructed the East Ortigas Mansions and added more amenities and facilities for its

residents. Villa Alegre Homes and Mayfield Park were then erected in 2004 with more

improvements and amenities such as the installation of elevators.

As the company kept expanding its business operations, DMCI Homes grew as a household

name in the real estate industry. It began to carve itself a niche in the real estate business.

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All in a span of seven years, DMCI Homes has built the most comfortable, resort-like residential

spaces for urban dwellers. The rapid growth rate of DMCI Homes can be attributed to its thrust

to continuously delight its customers. DMCI Homes will perpetually continue to create modern

residential spaces in the heart of the city on a budget.

The company’s head office is located in Bangkal, Makati, though it has several sales and

property management offices across Metro Manila. Isidro Consunji presides as the president of

DMCI Homes. He is also the president and Chief Executive Officer (CEO) of DMCI Holdings.

Figure 1: Map of Businesses Owned by DMCI Holdings

DMCI Homes has immensely contributed to the over-all income of its parent company, DMCI Holdings,

Inc. Based on percentage shown in Figure 2. Though not really considered as the primary income

generator of DMCI Holdings, Inc.., in its existence, it has proven that it could compete with real estate

giants such as Robinson’s Land, AvidaLand and MegaWorld Corporation.

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In 2010, DMCI Homes generated revenues of 7.7 billion which is a 62% increase from the sales and

reservations in 2009 (Figure 2). Out of the 3,428 units constructed, 3,004 were turned over to buyers.

Figure 2: DMCI Homes' Income Contribution to DMCI Holdings

1.2. Vision-Mission Statements, Goals and Core Values

The following is the vision-mission statement of DMCI Homes:

We shall be the best provider of residential communities designed to create a quality

lifestyle that is responsive to the changing needs and preferences of the market we serve.

In doing so, we are committed to ensuring:

Sustainable growth of our shareholder's investment

A mutually beneficial relationship with our partners in the business.

Care for the environment we work in.

Growth for our people.

while building an organization that espouses integrity, excellence, interdependence and

customer satisfaction.

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According to the investor relations information of DMCI Homes, which can be found in the

company website, its business goal is to provide affordable residential units in urban friendly,

fully serviced communities near places of work, study and leisure. The company identifies

objectives that advance the proposition of “profit with honor”, namely: to ensure customer

satisfaction, sustainable investment growth, mutually beneficial relationship with business

partners, environmental concern, and career development of its people.

DMCI Homes upholds the core values of integrity, excellence, interdependence, and customer

satisfaction.

Figure 1: Integrity

All their actions are guided by what is ethical, fair and right. Believing in profit with honor, they

are committed to good governance and the highest moral standards.

Figure 2: Excellence

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In even the smallest of details, they reject mediocrity and strive for excellence.

Figure 3: Interdependence

With unity in purpose and mutual trust and respect for each other, they work toward shared

aspirations and transcend boundaries along functional and organizational lines.

Their goal is to delight and please their customers. Thus, all activities and programs they

undertake result in innovative projects

Figure 3-6: DMCI Homes' Core Values

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Figure 4: Customer Orrientation


1.3 RATIONALE OF THE STUDY

The real estate industry consists of a collection of industrial and services sectors of the

economy such as construction, brokerage services, mortgage banking, property management,

and even architecture and design.

A number of other sectors of the economy are also intricately linked to the industry. These

include the manufacturing industry of raw materials used in construction, the power industry, the

house financing industry and other upstream and downstream sectors.

The real estate industry is therefore deemed critical to the economic health of the nation as its

impact is felt throughout the economic system.

It is for this reason that the researchers have chosen a company under the real estate industry

as the subject of the strategic management paper. Real estate and housing is the single largest

asset class and wealth holding of individuals and households globally. The development of the

housing sector has been an integral part of Philippine economy. In the Philippines, housing

constitutes a large portion of a household’s expenditure and takes up a substantial part of one’s

income.

The choice of DMCI Homes as the research subject is due to three primary reasons:

1. DMCI Homes caters to the market segment of the middle-income class families.

2. The housing projects of DMCI Homes earned the rating of the very first Triple-A

builder/developer in the country.

3. DMCI Homes is part of a multi-billion peso conglomerate, the DMCI Holdings, Inc.

1.4. RESEARCH DESIGN AND METHODOLOGY

1.4.1. Research Design

Macro-economic data used in the external analysis were gathered from the websites of various

government offices such as Bangko Sentral ng Pilipinas (BSP) and the National Statistics Office

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(NSO). These government offices have projections on macro-economic growth which were

collaborated by projections from economists and other private institutions.

Industry data was gathered from the research done by real estate consultants such as Jones

Lang Lasalle and Colliers International as well as data from Housing and Land Use Regulatory

Board (HLURB). This was supplemented from industry news from the websites of respected

media outlets.

To be able to assess DMCI’s performance relative to its competitors, audited financial

statements were obtained from DMCI Holdings and DMCI Homes as well as its key competitors

from the Securities and Exchange Commission (SEC). Aside from providing financial data, the

published annual reports also served as good sources of internal and competitor information.

Statements from the corporate website of DMCI and its competitors are used to determine

recent developments, marketing activities and other internal and competitor information. To be

able to benchmark the pricing of the company relative to its competitors, various brokers were

contacted online. Competitor prices were benchmarked based on similar projects such as

projects are of similar nature (high rise residential), in close proximity to one another and will be

completed within the same year.

1.4.2 Scope and Limitation

This paper was limited to DMCI Homes’ ventures in the Philippines. The paper focused on how

the company competes in the Philippine market and did not delve into the feasibility of

developing real-estate projects outside the country. The paper also concentrated on the primary

real estate product of DMCI Homes like high rise residential buildings. Its other products and

services such as its resort project and its property management were not focused upon due to

its marginal revenue contribution.

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1.5 MACROENVIRONMENTAL ANALYSIS

1.5.1. Demographic Changes

Demography is defined as the study of population with particular emphasis on changes in terms

of size, distribution and composition.

Population trends are key factors in understanding how the society and the real estate market

change over time. These demographic statistics are an often overlooked but significant factor

that affects how real estate is priced and what types of properties are in demand.

Shifts in demography affect the real estate market in numerous ways, such as a) How could it

affect the demand for homes in popular areas as more people plan to start their retirement? or

b) How could it affect the demand for larger homes if the incomes are smaller?

a. Growing Population

The Philippine population has immensely grown over the years. 2010 posted a 1.8% increase in

population from 2009. The data shown in Table 1 from the Asian Development Bank (2010)

shows the five-year trend of population increase in the Philippines. With 94 million Filipinos

occupying the land, the demand for homes, which is a necessity, would be high and the real

estate industry might look for possibilities of expanding and adding more projects that would

cater to Filipinos looking for a stable home.

The National Capital Region (NCR) has enjoyed a strong real estate market due to many

economic and demographic factors. New housing construction is a major source of employment

and is vital in addressing pent up demand. Fortunately, home ownership is a high priority for

Filipinos with two out of three households owning their home.

Table 1:Philippine Population from 2007 to 2010

Source of data : Asian Development Bank, 2010

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1.5.2. Political and Legal Forces

Legislation is another factor that impacts property demand and prices. Through deductions and

subsidies, the government can temporarily boost demand for real estate for as long as their

term of office permits. Changes in supply and demand can be determined with the help of

current government incentives such as low mortgage rates, the country as a retirement haven

and, introduction of REITs in the Philippine Market which gives companies more opportunities

for profit.

a. Low Mortgage Rates

Mortgage interest rates are currently at historic lows, and home prices have been low lately as

well. If one is to market for a new home, it’s a smart idea to take advantage of the best

mortgage rates and low home prices.

A low mortgage rate has three effects: A client will pay far less for a home. Even one or two percentage points off the rate of a property can drastically reduce the total amount of interest expense for a home resulting to a lower monthly mortgage payment. New homes can be expensive. A lower mortgage payment allowing a few hundred pesos every month to put in a savings account for house-related repairs and projects will prove beneficial. If the mortgage is fixed, the client will be safe from rising interest rates.

b. Philippines as a Retirement Haven

Over the last decade, the Philippines has become a favorite vacation spot for foreigners. These

tourists love the country so much that many of them have decided to invest their retirement

savings and settle here.

The Philippine Retirement Authority (RPA) is implementing the Special Resident Retiree’s Visa

(SRRV) Program to promote the country as a major destination for foreign retirees.

Potential sales can come from condominium purchases by foreign retirees. Foreign retirees are

allowed by the current law to buy condominium developments. These represent potential sales

to a real estate company especially that real estate projects are resort themed with substantial

land area being used for recreational facilities. These are features foreign retirees are

considering when buying a second home.

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c. Introduction of REITs in the Philippine Market

A Real Estate Investment Trust (REIT) is a company that owns and manages income-

generating real estate property such as offices, stores, apartments and industrial estates. It

usually pays 90% of its net income as dividends.

The introduction of REIT in the Philippines receives special tax considerations and typically offer

investors high yields, as well as highly liquid method of investing in real estate, by broadening

the participation of the Filipino to equalize the wealth.

1.5.3. Socio-Cultural Trends

Socio-culture relates the roles of different ethnic groups, gender and culture; with all these

elements combined, it forms a personality. Socio-culture is the way people act and develop

based on ethnic group, gender and traditions. Filipinos have different lifestyles which may affect

the real estate industry.

a. Rising Demand for Condominiums

The growth of the condominium sector has also been helped by the fact that condominiums are

free from the title registration and property appraisal problems which cover land properties in the

Philippines.

According to Condominium Boom in Metro Manila (2011), demand for residential condominiums

in Metro Manila has been boosted by strong economic growth, particularly by the rapid growth

of business process outsourcing firms, including call centers. Call center agents from a new

breed of young urban professionals with tremendous purchasing power. Because most call

center agents work at night, they need condominium units that are right next to their work place.

b. Renewed Interest in Property as a Long-Term Investment for Yield/Inheritance

The increasing number of residential buildings in the first quarter of 2011 indicates that Filipinos

are again viewing properties as long term investments after the crisis that hit the United States

of America in 2008.

According to the National Statistics Office, residential building construction exhibited an

increase of 32.6% amounting to Php28.2 billion from Php21.3 billion during the same quarter of

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2010 and most of these constructions are located in the National Capital Region. The bulk of

these constructions comprise the single type of units followed by apartments as shown in Table

1B.

Source of data: National Statistics Office, 2010

Table 2 shows that residential constructions are greater than non-residential and other

construction activities. This means that Filipinos are still acquiring properties despite the

economic slowdown that the country is experiencing as an effect of the economic decline in the

United States. This is due to the Filipinos perception of a house as a necessity as his culture

dictates and the preference of most Filipinos to own a house where they would raise their

families.

1.5.4. Economic Forces

Economic environment refers to the nature of the economic system of the country, its structural

anatomy, the economic policies of the government, the organization of the capital market, the

nature of factor endowment, business cycles, the socio-economic infrastructure, etc.

A strategist visualizes the external factors affecting the business, anticipates prospective market

situations and targets maximum profits at minimal expenditures.

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Table 2:Residential Building Construction in the Philippines (2011)


a. Wealth & Incomes Unaffected During Global Crisis

Despite the global financial crisis experienced worldwide, the average family income of Filipino

household is increasing at a steady pace. Table 3 presents data in different occupational

groups’ wages.

The steady increase of family income is accounted for by the economic measures taken by the

government that enabled the country to survive the crisis. Families even posted a higher

savings rate in 2009 compared to 2006. The local economy did not really feel the effect of the

said crisis (except for the import and export industry) because buyers’ consumption locally

sustained their operations. Money in the economy is in consumers’ savings accounts. Targeting

these capable individuals to consider buying a unit is an opportunity for DMCI Homes.

Table 3:Ranges of Ave. Monthly Rates and Wage Differentials by Major Occupation Groups

Source of data : Bureau of Labor and Employment Statistics, 2010 Occupational Wages Survey

b. Growing OFW Remittance

Since 2010, Overseas Filipino Workers remittances continue to flow inside the country despite

the political instability of countries where OFWs are located. Threats of another European

economy crumbling down are just around the corner; however, the remittances that they bring to

the country continue to increase (Figure 7). OFWs have been widely acknowledged as a major

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contributor to the Philippine economy. Remittances not only fuel consumer spending but also

investments in real estate. OFWs and their families in the country are buying real estate not only

for their residence but also as an investment.

The growing remittances from abroad are a key for the government to sustain the growth that

began in mid 2010. This can be an advantage for a company such as DMCI Homes since their

units can be deemed as an investment for migrant workers and their families staying in the

Philippines. Remittances of Overseas Filipino Workers have grown remarkably in the past

years. According to Bangko Sentral ng Pilipinas (BSP), OFW remittances went up by 8.2% to a

new record level of $18.76 billion in 2010 from $17.35 billion in 2009, exceeding the revised 8%

growth forecast set by the BSP for 2010. A significant portion of remittances is spent on

housing.

Figure 7: Changing Trend of OFW Remittances in Dollars

c. Increasing Disposable Income

According to the National Statistical Coordination Board (NSCB), property developers built

thousands of new residential units starting 2010 because of the increasing demand from the

new middle class—the Filipinos working abroad, business process outsourcing professionals,

and the college-educated new entrants to the labor force.

Disposable income is the amount of money that households have available for spending and

saving after income taxes have been accounted for. Disposable personal income is often

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monitors as one of the many key economic indicators used to gauge the overall state of the

economy.

Table 4:Increase in the Disposable Income of Filipinos from 2007-2010

Data from Euromonitor International, a world leader in strategy research for consumer markets

showed a steady increase in the annual disposable income of the Philippines from 2007 to 2011

(Table 4). This signifies a lift on the purchasing power of Filipinos to buy goods and services.

This excess money in the circulation can be headed toward investing in condominium units.

Even income growth for each province is increasing like the revenues in Metro Manila.

d. Emergence of Regional Growth Centers

Growth in other parts of the country is fast. Metro Manila is not the only area in the Philippines

today where business is doing very well. Areas like Cebu and Davao are rapidly catching up.

Aside from the two cities mentioned above, each province of the country also has a growth

center where products and services of the province are traded. Countryside development is

slowly taking place and improvements would mean more demand for specific goods and

services.

Construction projects in these areas are steadily catching up with the developments made in

Metro Manila. This is especially true in CALABARZON to where industries were transferred from

Metro Manila for a larger operational space.

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CHAPTER 2

INDUSTRY AND COMPETITOR ANALYSIS

Ayala Land, Megaworld and Vista Land have the largest market share of the residential

industry. Each of these companies leads in a different market segment. Ayala’s Ayala Land

Premier and Alveo Land dominates the high rise industry of the luxury segment and also has

ventures in the middle income segment through Avida Land and is venturing into the low cost

housing via its Amaia Land. Megaworld is the leader of the middle

Figure 8: Revenues of Selected Real Estate Developers in Residential Developments

2.1. PORTER'S FIVE FORCES OF COMPETITION

The subject under study, DMCI Homes, ranks fifth among the players in the real estate industry.

Concepts from Porter’s five forces of competition were used to analyze five interacting factors

critical for an industry to become and remain competitive. The five forces analysis is used to

understand the dynamics of competition within the industry to which the subject under study

belongs. Figure 9 presents the framework containing the key factors from Porter’s Competitive

Analysis, which impacts DMCI Homes.

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Figure 9: Framework of Porter’s Five Forces of Competition

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2.1.1. Threat of New Entrants --- WEAK

Identifying the possibility and probability of new entrants in the industry is critical because they

can intrude in market share and profitability of existing competitors. New entrants in the

residential real estate industry are relatively weak in terms of competing against the industry

giants. Admittedly in recent times, there are a lot of voluminous players in the residential real

estate industry and only a few of them make a name for themselves and leave an indelible mark

among the buyers.

a. Entry Barrier #1 -- Diseconomies of Scale

Economies of scale give big players in the residential real estate industry access to a larger

market by allowing them to operate with greater geographical reach. As for the new entrants in

the industry, however, size does have its limits. After a point, an increase in output actually

causes an increase in production costs. And this will yield to a much higher spending without

assurance of real-time growth in terms of market penetration.

b. Entry Barrier #2 -- Weak Brand Identity and Differentiation

Brand identity is fundamental to consumer recognition and symbolizes the brand’s difference

from its competitors. However, companies in the residential real estate industry compete in

terms of project theme and designs. The Bali Oasis of Filinvest Land, for example, employed

Indonesian architectural design and thus attracted a lot of potential clients who ended up buying

units in their newly constructed project. For new entrants to get a strong hold of a position, they

need to have innovative concept designs that would trounce the huge players in the industry.

c. Entry Barrier #3 -- High Capital Requirements

Sizeable capital is needed to enter the industry. Large capital is needed for the construction of

high rise residential projects and purchase of land. Huge players in the industry such as

Megaworld has already allotted Php25 billion for its capital and development expenditures in

2011, inclusive of residential, office and retail space. Robinsons Land on the other hand has

announced Php13.5 billion as capital expenditure for year 2011 to expand its property portfolio

which includes the development of shopping malls and other office buildings, the construction of

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residential condos, as well as the construction of new hotels and acquisition of land. Avida Land

of Ayala which caters the ‘affordable’ market has a Php15.18 billion capital expenditure

allocated for residential development alone.

DMCI Homes, the subject under study, has Php8 billion to fund all its projects and ventures for

2011. On the average, an entrant must have a capital of Php15042 billion to pose a significant

threat to aforementioned companies.

d. Entry Barrier #4 -- High Switching Costs

Companies usually employ strategies that incur some sort of high cost in order to dissuade

customers from switching to the competitors. For example, many players in the industry charge

very high cancellation fees for canceling a contract. They usually do this in hopes that the costs

involved with switching to a competitor will be high enough to prevent their customers from

doing so. Thus, it makes new entrants in the industry weak to battle it out with competitors of

established names and reputation.

e. Entry Barrier #5 -- Insubstantial Access to Distribution

New entrants have to establish their distribution in a market with established distribution

channels to secure a space for themselves. However, in the residential real estate industry,

huge companies have already gained huge networks and channels of distribution and this

makes it hard for recent entrants to outplay the industry giants.

f. Entry Barrier #6 -- Low Land Availability

Every business in the industry is dependent, in large part, on the availability of large tracts of

land suitable for development. As the new entrant and its competitors attempt to locate sites for

development, it may become more difficult to locate parcels of suitable size in locations and at

prices acceptable to the standards of the recent entrants.

g. Entry Barrier #7 -- Non-Absolute Cost Advantages

Entities with absolute advantages can produce something using a smaller number of inputs than

another party producing the same product. As such, absolute advantage can reduce costs and

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boost profits. But as for the new entrants, it is quite impossible to be competitive in this segment

because a huge amount of capital is needed to allocate for the funding of raw materials and

construction contractors for a new project; adding to that would be costs attributable to key

persons that need to be hired for the completion of a project.

h. Entry Barrier #8 -- Government Policies

Possible zoning changes, building permits, traffic studies, and the environmental impacts must

be keenly studied first by a new entrant before constructing a project. Eton Properties, a new

entrant in the industry, had one of its construction projects suspended when a lack of building

permit was discovered after the collapse of the building. Lack of sufficient documents leads to

cancellation of construction licenses by the Housing and Land Regulatory Board. Therefore, it is

expected of new entrants to abide by the provisions of the building code and the requirements

deemed necessary by the Philippine government to construct new projects.

i. Entry Barrier #9 -- Expected Retaliation

Competition in the industry has been high. Players are making huge plans on how to outplay

each other. Each has its own strategies for retaliation. The industry has players that easily

retaliate and quickly respond to whatever new gimmicks competitors create to gain advantage

over the others. This makes it hard for new entrants to enter because they cannot easily play in

a game wherein competitors have quick responses to overturn the scenario. The industry has

been much like a game of chess where players need to quickly think to outsmart, outperform

and ultimately dethrone the giant players from their already established positions in the industry.

2.1.2. Bargaining Power of Buyers --- WEAK

The bargaining power of buyers is relatively weak in the high-rise residential real estate industry

in the Philippines. It is because buyers have less power when they are fragmented, and when

companies produce a significant portion of homes, or if switching costs are high. These factors,

which are all present in the status quo, greatly affect the capacity of buyers to bargain for prices

at their advantage.

a. Power #1 – Buyer’s Price Sensitivity and Low Volume Purchase

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Real estate is a high ticket purchase and buyers usually can only afford to buy one home at a

time. Buyer’s lack of ability to buy in bulk prevents buyers from buying significantly off the

developer’s standard price. Individuals cannot purchase real estate properties in bulk due to the

high capitalization required in acquiring such.

Units sold by the DMCI Homes as well as its competitors amounts to, on an average basis,

Php2 million. And this amount is materially significant and high which makes buyers unable to

content the price specified by the developers.

b. Power #2 – High Buyer Switching Costs Relative to Firm Switching Costs

Since homes are such a monumental investment, the cost for a buyer to switch homes is

normally prohibitive. Because there are many buyers competing for houses from a lot of

developers, new home prices are high and buyers have very little room for negotiation unless

they choose to purchase existing homes.

c. Power #3 – Purchase is Very Important to Buyers

Homes are considered basic necessities by everyone. To prove, huge amounts of remittances

by the OFWs go to real estate spending aside from other basic personal necessities. And since

there is a high demand for homes, prices rise in the market. And if prices are high, this prevents

the consumer to bargain better at his/her advantage.

The real estate business has been booming for the last two years after a recovery from the

subprime crisis that hit the United States. People get to have money for spending for their basic

needs. And usually, homers are one of everyone’s priorities.

2.1.3. Threat of Substitute Products --- STRONG

There are only two substitutes available for buyers to choose from. One is renting a property

and the other is owning a residential house that is constructed from the ground up by the owner.

The former is sometimes the option while the latter has always been a formidable choice. This

makes the threat of substitutes against high-rise residential buildings strong.

a. Threat #1 – Buyer’s Propensity to Substitute

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Owning a stable home is one of the priorities of every OFW abroad. OFWs are a new segment

of buyers and are more inclined to buying the alternatives of luxury living. Also, those who

belong to the low-income segment are the ones more inclined to renting rather than owning,

b. Threat #2 – Relative Price Performance of Substitutes

A residential house constructed from the ground up typically amounts to more or less Php3

million which is not far to the amount of owning up a unit in a high-rise residential condominium.

Due to proximity in price range, buyers tend to settle more for a residential-type of house in

subdivisions and villages rather than those high-rise residential units. They find it more fulfilling

as a long term investment and they get to design their own homes specified to how they want it

to look like.

Another major substitute is properties for rent. In the near term, renting is cheaper compared to

buying a new home. Unlike buying a home which requires 10%-30% down payment and

subsequent amortizations, there is a smaller cash outlay in renting a house.

c. Threat #3 – Perceived Level of Product Differentiation

For a buyer, owning a high-rise residential unit is no less different from owning a home in a

subdivision or village. However, what makes high-rise residential condos different from a village

or a subdivision is its luxurious-type of amenities and the quality security that it offers. High-rise

residential condos are usually high-fenced and have only two gateways. On the other hand,

residential subdivisions are quite prone to burglary because of its huge scope of area that are

often overlooked by security personnel manning it. Also, subdivisions or villages are often

sometimes not high-fenced. There is not much difference between owning a house in a

subdivision or a village and choosing to live in a high-rise residential condo unit. They offer the

same amenities but are somehow different in terms of quality and the way developers package

their project.

2.1.4. Bargaining Power of Suppliers --- MODERATE

Suppliers are powerful if there are only a few suppliers, a large number of purchasers, and

significant costs of switching suppliers. The cost of items bought from suppliers e.g. raw

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materials, components, can have a significant impact on a company’s profitability. If suppliers

have high bargaining power over a company, then in theory the company’s industry is less

attractive. However, the bargaining power of suppliers in the high-rise residential real estate

industry is moderate in the Philippine setting.

a. Power #1 – High Number of Suppliers

Major suppliers of the industry are the construction contractors and raw material suppliers.

Major raw materials in building construction are cement and steel. Raw material suppliers,

construction contractors and other suppliers consume more than 50% of the industry’s

revenues.

b. Power #2 – Cost of Inputs Relative to Selling Price of the Product

Every homebuilder requires a large number of inputs beyond land including wood, concrete,

plastic, gravel, oil, gasoline, steel and other raw materials; all necessary components in

homebuilding. Prices for some of these materials are non-negotiable. For instance, the price of

gasoline and oil, which affect all companies equally and do not lead to a strategic advantage for

suppliers. However, the fragmented nature of the supplier market in all other construction

supplier to homebuilding companies severely limits supplier power.

c. Power #3 – Lack of Substitute Inputs

Prices of raw materials such as steel and cement are correlated with the world prices. Local

cement and steel prices are being monitored but not being controlled by the Department of

Trade and Industry. Current raw material prices have stabilized. Competition in the raw material

and construction services industry is stiff due to the numerous raw material providers and

construction contractors. In terms of substitutes, there are no substitutes for major raw materials

and construction services. Overall, bargaining power of suppliers is moderate due to the

numerous suppliers tempered by the lack of substitute to these key inputs.

2.1.5. Rivalry among Competitors --- STRONG

The large amount of initial capital required to build a unit leaves the entire industry to large

companies that have sufficient capital and are willing to risk the required amount of money.

This factor makes competition in the industry tough. Thus, the degree of rivalry among

competitors in the high-rise resident real estate industry is deemed strong.

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a. Threat #1 -- High Number of Players in the Industry

According to HLURB, in the year 2010, there were already 111 condominium housing projects

registered with the agency. 83 of these condominium projects are being built in the Philippines.

The residential real estate industry is composed of numerous small and large players. The 8

major players in the industry represent only 13% of the market share. There are numerous

market players all over the country with most of the major players servicing key Philippine cities

like Metro Manila. The major players are Megaworld, Ayala Land, SMDC, Vista Land, Filinvest

Land, Rockwell Land, Robinsons Land and DMCI Homes, not to mention small scale

construction companies who agree to build medium rise buildings that can function both as a

condominium and hotel.

b. Threat #2 -- High Exit Barriers

Residential condominium industry is capital intensive. Investments have to be made in land

acquisition and building construction. For instance, Ayala Land has spent Php 7.7 B in 2008 and

8.7 B in 2009 to develop its residential real estate businesses (Ayala Land Premier, Alveo Land

and Avida Land). Exiting the industry will be costly given the large amount of fixed asset

investment. The huge players in the industry cannot just forsake and let go the huge amount

they have invested as capital for their ongoing projects.

c. Threat #3 -- Low Degree of Differentiation

In industries where the products are commodities, there is greater competition present

compared to industries where competitors can differentiate their products, resulting to less

rivalry. In the high-rise real estate residential industry most construction projects rely on almost

the same structural design. Most players also offer all their units bare leaving the buyers to

make their own improvement with each unit. This provides unit owners the freedom to design

their home according to their preference. Hence, there is a low degree of differentiation among

new and implemented projects of every developer.

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d. Threat #4 -- Strategic Objectives

When competitors are pursuing aggressive growth strategies, rivalry is more intense. DMCI

Homes, for example, has employed the idea of designing vertical communities that are naturally

lighted and ventilated, letting air circulate freely. As a result, residents get a resort-like feeling,

especially with the sky garden and sky patio. The giants in the high-rise residential real estate

industry had strategized to prepare for Real Estate Investment Trust (REIT) listing and those

who are subsidiaries of a holdings company leverages synergies with other business interests

of their parent company.

2.2. COMPETITIVE PROFILE MATRIX

The following are the players who cater to the middle-income market segment of property

buyers with their revenues from real estate sales in 2009 and 2010:

Figure 10: Residential Revenues of Developers Catering to the Middle-Income Segment

Among the market players enumerated in Figure 10, the competitors to be bench-marked

against DMCI Homes were limited down to three - Avida Land, Megaworld and Robinsons Land.

These three real estate developers cater to the same market segment and targets the same

28


market of buyers as DMCI Homes. They represent the three topmost players in the middle-

income segment of high rise residential real estate industry.

In the succeeding part a profile of each of DMCI Homes' key competitors, as identified by the

researchers, is provided to bench-mark the subject under study against its rivals in the industry.

2.2.1. Key Competitors of DMCI Homes

The following are the profiles of the top three (3) competitors of DMCI Homes. They were

chosen on the basis that they cater to the same segment of buyers as DMCI Homes.

a. Competitor #1 - Avida Land

Since Ayala Land Inc. started expanding the reach of their businesses to serve a much broader

segment of the population: from the very rich, to the fast and rising achievers, to the

hardworking middle class who form the backbone of the nation, Ayala Land, Inc. established

Laguna Properties Holdings Inc. (LPHI) in 1991 to provide the housing needs of employees and

junior executives in the Ayala Land-developed industrial estate Laguna Technopark. Since then,

LPHI has developed 27 projects from 13 different locations.

In 2006, the name Laguna Properties Holdings, Inc. was changed to Avida Land Corporation.

This new name is more in tune with Ayala Land's commitment to transform the lives of the

hardworking middle class.

Combined real estate and hotel revenues in 2010 was P3,008.1 million against P2,491.4 billion

in 2009. RLC’s Residential Division accounted for 32% of the Company’s total revenues for that

year. Its realized revenues increased by 35% to P997 million due to increase in completion level

of existing projects.

b. Competitor #2 - Megaworld

Megaworld was founded by Andrew Tan and incorporated under Philippine law on August

24,1989 under the name of Megaworld Properties & Holdings, Inc. Megaworld was primarily

organized to engage in real estate development, leasing and marketing.

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From 1989 to 1996, it garnered a reputation for building high-end residential condominiums and

office buildings on a stand-alone basis throughout Metro Manila. In 1996, it shifted its focus to

providing office buildings to support BPO businesses when it began development of the

Eastwood City community township.

Since its incorporation in 1989, the Company and its affiliates have launched approximately 222

residential buildings, office buildings and hotels consisting an aggregate of more than 5.7million

square meters.

Megaworld's real estate portfolio includes residential condominium units, subdivision lots and

townhouses, as well as office projects and retail space. Its consolidated revenues for the year

2010 were P20,541.8 million. Real estate sales of residential developments accounted for 64%

of the company's consolidated revenues in 2010.

c. Competitor #3 - Robinsons Land

Robinsons Land, one of the Philippines' leading real estate companies, is involved in the

development and operation of shopping malls and hotels, and is also one of the country's most

reputable developers of mixed-use properties, such as office buildings, residential

condominiums, as well as land and residential housing developments, including socialized

housing projects located in key cities and other urban areas nationwide.

It was incorporated on June 4, 1980 to serve as the real estate arm of JG Summit Holdings,

Inc., one of the country's largest conglomerates.

In 2010 Robinsons Land posted a net income of P3.59 billion in its fiscal year ending September

2010, higher by 10 percent than the previous period. The higher revenues are particularly from

its hotel operations. Revenues from the residential division fell 26 percent to P3.22 billion due to

lower construction completion.

2.2.2. Critical Success Factors

The researchers have identified eight (8) critical success factors (CSF) for a developer to thrive

and survive in the residential real estate industry. The researchers have taken into consideration

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more than 20 factors and have narrowed it down to eight which is the maximum requirement for

constructing a competitive profile matrix.

These factors are considered to be of primary concern both to the developer and its target

buyers. In this study, particular weights were assigned to ascertain the importance of each in

contributing to the success of the company.

a. CSF #1 - Adequacy in Capitalization

The residential real estate industry is capital intensive. To put up a project needs more than a

million in capitalization to finance all expenses that are forecasted to be incurred.

Thus, this factor was given a weight of 0.25.

b. CSF #2 - Competitiveness in Pricing

One of the aspects at which a buyer looks into is how a unit is priced reasonably. Compared on

the basis of price are newly constructed projects of DMCI Homes and its rivals that are in

proximity to one another and at similar states of completion.

This was given 0.15 weight by the researchers because of the established price sensitivity of

buyers and their willingness to buy a product that will give them the greatest value for their

money.

c. CSF #3 - Accessibility of Site Locations

Another aspect that buyers consider is the proximity of their home to commercial areas and

educational institutions. Especially for urban dwellers, it is of importance that they get to access

anything they want in a fast and easy way. Hence, this aspect was also assigned a weight of

0.15.

d. CSF#4 - Overall Project Quality

Overall project quality means the quality of amenities and good property design that the

developer sells to buyers. The overall project quality gives an indelible impression to buyers and

31


makes them think if they would be willing to shell out a huge amount of money to buy that one

unit in that particular condominium.

This got a 0.15 weight because amenities add value to what is being sold by the developer.

e. CSF #5 - Scope of Distribution Network

An adequate number of internal and external sales personnel is necessary to move inventories.

Wide reach of distribution should extend to both local and international buyers.

This was given a weight of 0.10 because the company should have adequate number of sales

people to build relationships with prospects and turn them to potential buyers to generate

revenues.

f. CSF #6 - Track Record of Developer

Another factor that customers look upon is the track record of a developer. Buyers tend to

choose developers who have a name and a reputation over small scale developers who are not

known partly due to just a few developments.

A 0.10 weight was given to this factor because the industry is such a competitive arena. It is a

must to have an established name and reputation.

g. CSF#7 - Extent of Marketing Capability

A company must advertise its developments through many forms of media to strongly penetrate

its it market. Through the media, the developments are exposed to potential buyers and creates

an impact in the buyers' minds.

It was given a 0.05 rating because, for companies to compete well, they have to allocate a

budget for marketing activities such as product promotion to increase brand awareness.

h. CSF #8 - Market Share/Financial Position

A strong financial position is important to continue the operation of a business. It must be able to

generate income and pay off its liabilities on time. Because of this it was given a weight of 0.05.

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Competitive Profile Matrix (CPM) Ratings

From the identified critical success factors in the industry, DMCI and its key competitors were

assigned the following ratings (from 1-5, with 1 as the highest). Table 5 shows the Competitive

Profile Matrix of DMCI Homes and its competitors based on the group’s rating.

Table 5;Competitive Profile Matrix of DMCI Homes and its Competitors

CRITICAL SUCCESS FACTORS

Weight

DMCI Homes MegaworldRobinsons

LandAvida Land

Rating ScoreRatin

gScore

Rating

Score Rating Score

1Adequacy in Capitalization

0.25 1 0.25 4 1.00 3 0.75 3 0.75

2Competitiveness in Pricing

0.15 4 0.60 3 0.45 3 0.45 2 0.30

3Accessibility of Site Locations

0.15 1 0.15 4 0.60 4 0.60 3 0.45

4Overall Project Quality

0.15 3 0.45 4 0.60 3 0.45 2 0.30

5Scope of Distribution Network

0.10 3 0.30 3 0.30 3 0.30 4. 0.40

6Track Record of Developer

0.10 3 0.30 3 0.30 3 0.30 4 0.40

7Extent of Marketing Capability

0.05 3 0.15 3 0.15 4 0.20 2 0.10

8Market Share or Financial Position

0.05 2 0.10 4 0.20 3 0.15 2 0.10

TOTAL 1.00 2.30 3.60 3.20 2.80

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Based on the CSF ratings, Megaworld has the competitive advantage over DMCI and its other

key competitors. Its competitive advantage has allowed Megaworld to be the leader in market

share in the middle income segment.

Megaworld’s strength over the rest of the companies is in the area of capitalization, accessibility

of site location, overall project quality and financial position. Megaworld also has modest ratings

in terms of price competitiveness, scope of distribution network, track record of developer and

marketing capability.

2.3. EXTERNAL FACTOR EVALUATION MATRIX

External Factor Evaluation (EFE) matrix method is a strategic-management tool often used for

assessment of current business conditions. The EFE matrix is a good tool to visualize and

prioritize the opportunities and threats that a business is facing.

External factors assessed in the EFE matrix are the ones that are subjected to the will of social,

economic, political, legal, and other external forces.

2.3.1. Opportunities

a. Record liquidity, low mortgage rates

Rating 2 - Shaving one or two percentage points off of the mortgage rate can drastically reduce

the total amount of interest expense one spends on a home. DMCI Homes can take advantage

of this trend to attract more potential buyers at the segment of the market that they are targeting

because the lower the mortgage rate in the market, the lower a buyer pays for down payment

and the bigger the equity cushion.

b. Introduction of Real Estate Investment Trust (REITs) in the Philippine Market

Rating 1 - REIT has the characteristics of both a fixed income and a variable income instrument.

This gives the investor an advantage, especially those who are not so aggressive but are also

not so conservative. If DMCI Homes consider this, it also has a downside effect because a

decreased demand may have a negative effect on the REIT just like in stocks.

34


c. Promotion of the Philippines as a retirement haven for foreigners by the PRA

Rating 3 –The PRA is mandated to attract foreign nationals and former Filipino citizens to

invest, reside and retire in the Philippines by providing them the best quality of life in the most

attractive package. This particular market might be another potential add-up to the market that

DMCI Homes may cater to in the near future.

d. Growing population with favorable demographics and a large base of more financially

empowered young professionals

Rating 3 – Young professionals choose downtowns as a place of residence. Central business

districts have also been impacted by contributions to the labor force of entrepreneurial activity,

and the purchasing preferences of the young professionals. This, for DMCI Homes, can be

another opportunity market to tap. DMCI Homes can have young professionals as one of their

new key consumer segments.

e. Rising demand for condominiums and in-city developments; trend towards smaller unit

sizes

Rating 4 - Today, more home buyers are seeking the conveniences of Manila condo living and

moving from single detached family dwellings towards the comforts of condominium ownership.

The rising demand is due to the fact that owning a condominium unit is convenient and an

inexpensive housing option. For a starter, expenses on maintenance are lower.

Aside from cheaper running cost, a condominium homeowner is entitled to use all amenities and

facilities in the complex such as fitness gym, swimming pools, basketball courts, tennis courts,

function rooms, children’s center and others. These amenities and facilities are included in the

monthly fees.

Utilization of the rising trend in demand among home buyers would be a key factor in

maintaining a competitive position in the market. If DMCI Homes would utilize the opportunity to

its advantage, it will definitely generate income for the company.

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f. Renewed interest in property as a long-term investment for yield/inheritance

Rating 2 - Most adults agree that buying a home is the best long-term investment a person can

make. A residential property provides an asset-backed income stream which, despite being

subject to periodical peaks and troughs like anything else, still incurs growth per annum.

And since there is renewed interest, DMCI Homes can likely realize strong capital growth. And

that could be a good point at which to enter the market.

g. Wealth and Incomes are unaffected during recent crisis

Rating 3 - Since the recent crisis have left no impact among home buyers, people in the country

still have that inclination towards spending their money. And the basic things for which they

would spend their money are those which are necessary. A home is a basic commodity. This

opportunity for DMCI Homes would translate definitely to increase in sales since people have

the strong propensity to spend.

h. Income boost from OFW remittance flows

Rating 4 - Strong inflows from overseas Filipino worker remittances continue to boost the real

estate sector, as more developers expand development projects outside Metro Manila. When

remittances became more resilient, DMCI Homes continued to hire more overseas agents and

launch road shows in foreign countries like Japan to entice international clients to choose DMCI

Homes. DMCI has also launched a website specifically for the overseas market.

DMCI Homes can utilize this opportunity to widen the scope of their consumer segment from

middle income to the low cost ones.

i. Increasing disposable income with higher propensity to spend

Rating 4 - Since the marginal propensity to consume indicates that the household sector prefer

buying homes for additional long-term investment with their extra income, DMCI Homes can

take advantage of this opportunity to attract more buyers to their property developments that are

not even in key business districts.

36


j. Emergence of regional growth centers in provincial areas

Rating 3 - Davao is emerging as the center for tourism and recreation and real estate projects.

Its potential is due mainly to its location in the East Asian Growth Area. Cebu, on the other

hand, is now well-established as a high-tech manufacturing center, having one of the most

successful export processing zones. It is also known for its active tourism industry. The

following provinces can give DMCI Homes another market to tap outside of Metro Manila. It can

be another target place for potential buyers.

k. Philippines ranked 2nd worldwide for Business Processing Outsourcing market share;

industry employment to grow 25%

Rating 2 - With more than twice the supply in 2010,office stock across major business districts

inMetro Manila is expected to grow in 2011. There is a significant demand for BPO offices

shaping up in major Central Business Districts, notably in Bonifacio Global City. If DMCI Homes

will penetrate and establish sales offices in business districts it will definitely boost their income

besides that earned from their usual residential constructions.

2.3.2. Threats

a. Increasing intensity of competition among the industry's numerous players which may

squeeze profit margins

Rating 4 - Today's real estate professionals are changing the way they do business: offering

potential buyers the chance to view detailed listings online, using websites to gather leads on

potential customers, and using the internet to match buyers and sellers. DMCI Homes should be

at par with its key competitors in terms of e-commerce capability no matter what.

b. Heightened risk of flooding in key metropolitan areas in Manila which are deemed below

sea level

Rating 2 - None of DMCI Homes' developments were severely affected during the typhoon

"Ketsana". DMCI had the foresight to choose less flood prone areas and invest in a good

drainage system for all its developments.

37

Table 6:DMCI Homes External Factor Evaluation


c. Vulnerability to uncontrollable economic forces such as scares of terrorism attacks

Rating 2 - Uncontrollable economic setbacks due to terrorism scares affect investors in general.

And DMCI Homes is widely dependent on the market sentiment. It should be able to counter the

negative effect forces such as those.

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CHAPTER 3

INTERNAL ANALYSIS

3.1. SWOT ANALYSIS

Used was the SWOT analysis to identify DMCI Homes' internal strengths and weaknesses

relative to the external opportunities and threats that surround the residential real estate

industry. The following are the strengths, weaknesses, opportunities and threats identified after

an extensive environmental scanning:

Strengths

Greater control of quality due to strong sustained synergy with other Consunji-owned

businesses, particularly with DM Consunji Inc. (construction)

Cost advantages over key rivals; developments are priced lower than developments by

competitors

Distinctive competence in architectural design concepts among its development projects;

quality amenities and other add-ups for leisure

Strong financial condition; ample financial resources to grow and expand the business;

high equity/cash position

Low property retention ratio to properties developed

Weaknesses

Small geographic coverage; lack of adequate global distribution capability; weak dealer

networks

Small capitalization in its developments compared to the large amount of capitalization

by the huge and strong players in the industry

Behind rivals in e-commerce capability and R&D; subpar performance in advertising and

promotions

39


Developments limited to residential-types alone; No relative experience in constructing

commercial and retail spaces and other real estate projects

Developments not located in central business areas such as the Makati CBD and BGC-

CBD

Opportunities

Record liquidity, low mortgage rates

Promotion of the Philippines as a retirement haven for foreigners by the PRA

Growing population with favorable demographics and a large base of more financially

empowered young professionals

Rising demand for condominiums and in-city developments; trend towards smaller unit

sizes

Renewed interest in property as a long-term investment for yield/inheritance

Wealth and Incomes unaffected during recent crisis

Income boost from OFW remittance flows

Increasing disposable income with higher propensity to spend

Emergence of regional growth centers in provincial areas

Philippines ranked 2nd worldwide for BPO market share; Industry employment to grow

25%

Threats

Increasing intensity of competition among the industry's numerous players which may

squeeze profit margins

Heightened risk of flooding in key metropolitan areas in Manila which are deemed below

sea level

Vulnerability to uncontrollable economic forces such as scares of terrorism attacks

Table 7:

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SWOT Summary

STRENGTHS WEAKNESSES

Greater control of quality due to strong sustained synergy with other Consunji-owned businesses, particularly with DM Consunji Inc. (construction)

Cost advantages over key rivals; developments are priced lower than developments by competitors

Distinctive competence in architectural design concepts among its development projects; quality amenities and other add-ups for leisure

Strong financial condition; ample financial resources to grow and expand the business; high equity/cash position


Small geographic coverage; lack of adequate global distribution capability; weak dealer networks

Small capitalization in its developments compared to large amount capitalization of the huge and strong players in the industry

Behind rivals in e-commerce capability and R&D; subpar performance in advertising and promotions

Developments are limited to residential-types alone; No relative experience in constructing commercial and retail spaces and other real estate projects

Developments are not located in central business areas such as the Makati CBD and BGC-CBD

OPPORTUNITIES THREATS

Record liquidity, low mortgage rates Promotion of the Philippines as a

retirement haven for foreigners by the PRA

Growing population with favorable demographics and a large base of more financially empowered young professionals

Rising demand for condominiums and in-city developments; trend towards smaller unit sizes


Wealth and Incomes are unaffected during recent crisis




Philippines ranked 2nd worldwide for BPO market share; Industry employment to grow 25%

Increasing intensity of competition among the industry's numerous players which may squeeze profit margins

Heightened risk of flooding in key metropolitan areas in Manila which are deemed below sea level


41


3.2. FINANCIAL STATEMENT ANALYSIS

A conduct of a financial statement analysis identifies the key financial strengths and

weaknesses of a particular company by properly establishing relationship between the items in

the balance sheet and the income statement.

With that in mind, the researchers were able to come up with an analysis of significant amounts

that were provided in the notes section of DMCI Holdings.

3.2.1. Vertical Analysis

The researchers have used vertical analysis to prepare and present common size statements.

Each item is stated as a percentage of a sum total of which that item is a part. Key financial

changes and trends were highlighted by the use of the common size statements.

a. Income Statements from 2007 to 2010

(please refer to the next page for the illustration)

42


43


Figure 11: Graphical Depiction of the Vertical Analysis

3.2.2. Horizontal Analysis

Horizontal analysis was employed to compare ratios or line items in DMCI Homes' income

statements over a certain period of time. This is to study the percentage changes in the

comparative income statements of DMCI Homes.

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Table 9:Comparative Income Statements from 2009 to 2010

2010 2009 Change in Peso

Percent Change

Revenue 7,704,893 6,963,108 741,785 9.63%Other Income (expense) - net 177,748 83,018 94,730 53.29%

7,882,642 7,046,126 836,516 10.61%Cost of sales and services 4,758,532 4,756,934 1,598 0.03%General and administrative expense (before depreciation and amortization)

1,355,238 1,172,899 182,339 13.45%

6,113,770 5,929,833 183,937 3.01%EBITDA 1,768,871 1,116,293 652,578 36.89%Other income (expenses)Finance income (cost) 76,981 307,619 (230,638) (299.95%)Depreciation and amortization (50,786) (51,111) 325 (0.64%)

Pretax income 1,795,066 1,372,801 422,265 23.52%Provision for income tax 509,067 352,943 156,124 30.67%Income before income from discontinued operations

1,285,999 1,019,858 266,141 20.70%

Post-tax income from discontinued operations --- --- --- ---

1,285,999 1,019,858 266,141 20.70%Net income attributable to non-controlling interest

--- --- --- ---

Net income attributable to equity holders 1,285,999 1,019,858 266,141 20.70%

The income statements reveal that net sales actually increased by 10.61% during 2010. And the

increase in the cost of sales and services which is at 0.03% did not significantly affect the net

income which posted an increase of 20.70%. Although, DMCI Homes has incurred an increase

in expenses of 13.45% it was still able to generate income because of its good performance.

3.2.3. Ratio Analysis

A quantitative analysis of information in DMCI Homes' financial statements was constructed

using the ratio analysis. These ratios were calculated from current year numbers and were then

compared to previous years of operation.

45


a. Liquidity Ratios

Liquidity Ratios are ratios that come off the balance sheet and hence measure the liquidity of

the company on a particular day. These ratios are important in measuring the ability of a

company to meet both its short term and long term obligations.

Current Ratio

This ratio is obtained by dividing the "Total Current Assets" of DMCI Homes by its "Total Current

Liabilities". The ratio is regarded as a test of liquidity for the company. It expresses the working

capital relationship of the current assets available to meet the company's current obligations.

Formula 2009 2010

Current Ratio =Current Assets

Current Liabilities1.90x 1.80x

This means that in 2009, DMCI Homes had a strong financial position in the market and that it

has sufficient liquid assets to maintain its operations. However, this strong financial condition

slightly decreased by 0.10 in 2010.

Quick Ratio

This ratio is obtained by dividing the "Total Quick Assets" of DMCI Homes by its "Total Current

Liabilities". The ratio is regarded as an acid test of liquidity for a company. It expresses the true

"working capital" relationship of its cash, accounts receivables, prepayments and notes

receivables available to meet the company's current obligations.

Formula 2009 2010

Quick Ratio =Quick Assets

Current Liabilities0.72x 0.69x

This means that DMCI Homes' quick ratio did not improve considerably in 2010. The two ratios

obtained are neither good nor acceptable. It is because a quick ratio of 0.90 or 1.00 is the

acceptable quick ratio in most industries.

46


From the result of the computation, the ratios say that DMCI Homes doesn't have the capacity

to pay its current liabilities if these were due immediately.

Debt to Equity Ratio

This ratio is obtained by dividing the "Total Liabilities" of DMCI Homes by its "Total Equity". The

ratio measures how the company is leveraging its debt against the capital employed by its

owners. If the liabilities exceed the net worth, the creditors have more stake than the

shareowners.

Formula 2009 2010

Quick Ratio =Total Liabilities

Total Equity1.54 1.85

This means that DMCI Homes has been aggressive in financing its growth with debt. Both 2009

and 2010 have a high debt to equity ratio. This implies that for every peso of DMCI Homes

owned by the shareholders, it owes 1.54 to creditors in 2009 and 1.85 in 2010.

b. Efficiency Ratios

Efficiency ratios are ratios that come off the balance sheet and the Income Statement. These

ratios are important in measuring the efficiency of a company in either turning their inventory,

sales, assets, and accounts receivables or payables. It also ties with the ability of a company to

meet both its short term and long term obligations. This is because if the creditors do not get

paid on time neither will the company settle accounts on time.

Inventory Turnover Ratio

The ratio is obtained by dividing the "Net Sales" of DMCI Homes by its "Total Inventory". The

ratio is regarded as a test of Efficiency and indicates the rapidity with which DMCI Homes is

able to move its merchandise.

Formula 2009 2010

Inventory Turnover Ratio =COGS

Inventory68.15x 47.36

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This means that DMCI Homes has strong sales because it has a high inventory turnover ratio. It

only takes DMCI Homes one annual inventory turn before fully realizing the sales. And it

actually got better in 2010 because it was able to sell a substantial number of its property

developments.

Accounts Payable to Sales Ratio

This ratio is obtained by dividing the "Accounts Payables" of DMCI Homes by its "Net Sales".

This ratio indicates how much of the suppliers’ money the company uses to fund its sales. The

higher the ratio means that the company is using its suppliers as a source of cheap financing.

The working capital of such companies could be funded by their suppliers.

Formula 2009 2010

A/P to Sales Ratio =Accounts Payable

Net SalesX100% 59.65% 79.33%

Short term creditors, financial managers & lenders to DMCI Homes might use these accounts

payable ratios as indicators of the company’s financial strength to make punctual payments on

its accounts payable & liabilities outstanding. And since DMCI Homes turned out to have high

ratios of accounts payable against its sales, the company has been efficient in converting its

sales into cash and promptly able to pay its suppliers.

c. Profitability Ratios

Profitability Ratios show how successful a company is in terms of generating returns or profits

on the Investment that it has made in the business. If a business is liquid and efficient it should

also be profitable.

Return on Sales

The return on sales of DMCI Homes determines its ability to withstand competition and adverse

conditions like rising costs, falling prices or declining sales in the future. The ratio measures the

percentage of profits earned per peso of sales and thus is a measure of efficiency of the

company.

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Formula 2009 2010

Profit Margin =Net IncomeNet Sales

X100% 14.47% 16.31%

Since DMCI Homes has quite a high rate of return on sales, it means that it has more sales

peso in providing profit for the company. The increase in the rate in 2010 is significant and

identifies the company as more successful than in 2009.

Return on Assets

The return on assets of DMCI Homes determines its ability to utilize the assets it employed

efficiently and effectively to earn a good return. The ratio measures the percentage of profits

earned per peso of asset and thus is a measure of efficiency of the company in generating

profits on its assets.

Formula 2009 2010

Profit Margin =Net IncomeTotal Assets

X100% 6.23% 6.24%

This tells us that DMCI Homes was able to generate income from the 6.23% of its invested

capital in 2009 and 6.24% in 2010. DMCI Homes was able to convert what it has invested into

net income for the company.

Return on Equity

The return on equity of DMCI Homes measures the ability of the management of the company

to generate adequate returns for the capital invested by the company owners. Generally a

return of 10% would be desirable to provide dividends to owners and have funds for future

growth of the company.

Formula 2009 2010

Profit Margin =Net IncomeTotal Equity

X100% 15.85% 17.79%

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DMCI Homes has high return on equity ratios. This means that the management has been

efficient in utilizing its equity base and generating better returns for its investors.

3.3. INTERNAL FACTOR EVALUATION MATRIX

Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing or evaluating

major strengths and weaknesses in functional areas of a business. It evaluates how a company

is performing with regard to identified internal strengths and weaknesses of a company.

3.3.1. Strengths

a. Greater control of quality due to strong sustained synergy with other Consunji-owned

businesses, particularly with DM Consunji Inc. (construction)

Rating 4 - The company has an advantage of having been affiliated with a triple A construction

company. Raw materials and construction services are being sourced within DMCI Homes'

parent company which is the DMCI Holdings group. This allows the company to have greater

control over the quality of its projects.

b. Cost advantages over key rivals; developments are priced lower than developments by

competitors

Rating 3 - The synergy with DM Consunji, as stated in the first listed strength, has also allowed

DMCI Homes to control the cost of all its developments. This has given the company the ability

to price its developments lower compared to its competitors.

c. Distinctive competence in architectural design concepts among its development projects;

quality amenities and other add-ups for leisure

Rating 3 - DMCI Homes’ has a resort living theme in its projects. It projects DMCI developments

as a threat against the hustle and bustle of the typical urban jungle. Its developments have more

amenities and more land area allocated to common areas which buyers prefer more.

d. Strong financial condition; ample financial resources to grow and expand the business;

high equity/cash position

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Rating 2 - DMCI Homes has a strong financial condition because of its proven strong sales

record. It has been able to utilize its capital investments and convert these into income. It is very

liquid and has the ability to pay off its short term liabilities on time.

e. Low property retention ratio to properties developed

Rating 2 - DMCI Homes has turned over 3,004 units to buyers as against to 3,428 units

constructed. Therefore, it has been able to turnover 87.63% of all its constructions to buyers. It

has 12.37% low property retention rate.

3.3.2. Weaknesses

a. Small geographic coverage; lack of adequate global distribution capability; weak dealer

networks

Rating 3 - DMCI Homes has a smaller distribution channel compared to its key competitors. Its

key competitors have more sales offices and partnerships with external brokers both within and

outside the country.

b. Small capitalization in its developments compared to large amount capitalization of the

huge and strong players in the industry

Rating 4 - Compared to its competitors, DMCI Homes has a relative small capitalization allotted

for real estate development. And because of this small capitalization, it is not considered to be

the primary source of income of DMCI Holdings.

c. Behind rivals in e-commerce capability and Research & Development; subpar

performance in advertising and promotions

Rating 2 - DMCI Homes has weak distribution channels. Commercials of DMCI Homes

on televisions, print ads and other forms of media are rare. They lag behind their

competitors in advertising their property developments. This is one of the reason

why they are not the leader in the market that they target.

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d. Developments are limited to residential-types alone; No relative experience in

constructing commercial and retail spaces and other real estate projects

Rating 3 - Unlike its key competitors, DMCI is limited in developing only the residential market. It

has no experience in developing commercial and office real estate. Avida Land’s parent

company Ayala Land develops commercial real estate through Ayala Malls. Robinson’s and

Megaworld also has office and commercial developments. Their projects combine office and

commercial spaces or what Megaworld coins as township developments such as Eastwood

City. In contrast, DMCI has no experience in building office or commercial spaces.

e. Developments are not located in central business areas such as the Makati Central

Business Districts and Bonifacio Global City – Central Business District (BGC-CBD)

Rating 2 - Unlike its key competitors, DMCI Homes projects are not centrally located. This is a

strategic choice of the company. However, the downside of this is that the accessibility of the

location is a key decision factor of a buyer. Robinsons Land and Megaworld for instance locates

its developments within business areas such as the Bonifacio Global City. Furthermore, they

also construct office and commercial areas aside from residential ones.

Table 10:SWOT/TOWS Matrix Rating

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INTERNAL FACTOR IMPORTANCE WEIGHT

RATING(1 TO 4)

WEIGHTED SCORE

STRENGTHSGreater control of quality due to strong sustained synergy with other Consunji-owned businesses, particularly with DM Consunji Inc. (construction)

20% 4 0.80

Cost advantages over key rivals; developments are priced lower than developments by competitors

10% 3 0.30


10% 3 0.30


5% 2 0.10


5% 2 0.10

WEAKNESSESSmall geographic coverage; lack of adequate global distribution capability; weak dealer networks

10% 3 0.30

Small capitalization in its developments compared to the large amount of capitalization by the huge and strong players in the industry

15% 4 0.60

Behind rivals in e-commerce capability and R&D; subpar performance in advertising and promotions

5% 2 0.10

Developments are limited to residential-types alone; No relative experience in constructing commercial and retail spaces and other real estate projects

15% 3 0.45

Developments are not located in central business areas such as the Makati CBD and BGC-CBD

5% 2 0.10

TOTAL 100% 3.15

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CHAPTER 4

STRATEGY FORMULATION, IMPLEMENTATION AND EVALUATION

4.1. STRATEGY FORMULATION

The information gathered from the CPM, IFE and EFE matrices will be used to formulate the

strategies for DMCI Homes. To formulate the strategies, the research employed the following

strategic tools: SWOT Matrix, SPACE Matrix, Internal-External Matrix, Grand Strategy Matrix

and Summary of Strategies.

To select the best strategy to be used by the DMCI Homes, the study employed Quality

Strategic Planning Matrix (QSPM). The strategy with the heaviest weight in QSPM are

discussed in the succeeding parts of this chapter.

4.1.1. SWOT/TOWS Matrix

The SWOT/TOWS Matrix assess both internal and external aspects of the business. The SWOT

framework is a tool for auditing an organization and its environment. These are as follows.

a. Product Development Strategies:

Product development strategies are those strategies of improving the current state of DMCI

Homes' primary products which are high-rise residential buildings.

Utilize the company's cost advantage and low mortgage rates to give the consumers the

marginal propensity to save. (S2, O1)

Prepare the company for an IPO in the near future. (S4, O2)

Construct inexpensive high-rise residential buildings specifically catered to foreign

retirees according to their specific tastes and lifestyles. (S2, S3, O3)

Construct and offer new units with new and innovative architectural design concepts

which are to be priced lower than the company's key competitors without incurring

excessive construction costs. (S1, S2, S3, O5)

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Erect a high-rise residential building that incurs a gradual speed of depreciation and

displays timeless architectural designs.(S3, O6)

Make use of the company's reputation as a developer offering condominium units that

are relatively cheaper than those of key competitors to attract OFWs to invest in a unit.

(S2, S5, O8)

Present DMCI Homes as a company constructing units for people who cannot afford to

pay high mortgages to take advantage of their project variety that are limited to

residential-types alone give buyers an image of the company that is family-gracious.

(W4, O1)

Present the company's units as the cheapest and best substitutes for individuals looking

for a home that can also be considered as a long term investment for their family. (W4,

O6)

Present DMCI Homes as the most affordable choice among the leading developers of

the country in its marketing strategies.(S2, T1)

Adopt the latest technological advancement in the field of construction through DMCI

Constructions to reduce the effect of calamities like floods in the existing projects of the

company.(T2, S1)

Strengthen R&D to modernize facilities according to consumers' preferences. (W3, T1)

Strengthen risk management organization and processes through increased R&D

spending on quality security control. (W3, T3)

b. Market Penetration Strategies

Market penetration strategies are those strategies through which DMCI Homes would target a

specific segment of the middle-income class and from there build a strong base for their

company to establish a particular market that they would cater to.

Penetrate the market of young professionals through dynamic, fast-paced and avant-

garde quality condominium units located at the heart of the metro at an affordable price.

(S2, S3, O4)

55


Target the portion of the population that has a rising purchasing power due to continuous

increase in income.(S2, S5, O9)

Take advantage of the areas that are being developed by the construction arm of DMCI

Holdings in aiming for places where the local economy is growing rapidly. (S1, O10)

Take advantage of the foreign retirees that are seeking for units that will provide them

the convenience of a tranquil residential environment. (W5, O3)

Make use of developing residential condominium units that would target the rapidly

growing population of financially empowered young professionals.(O4, W4)

Encourage the market with buying power to purchase a condominium unit as an

investment for the future and make use of the existing wealth in the market by means of

an IPO or by borrowing from banks to increase the company's capitalization. (W2,

W4,O7)

Target the families of OFWs and encourage them to purchase a unit for their family

member abroad as a form of lifetime investment.(W4,O8)

Encourage the market with the capacity to buy condominium units as a form of long-term

investment.(W4, O9)

Expand the market of the company to areas outside the metropolitan that are also

developing fast and cater to the demands for residential condominium units in these

areas where small numbers of developers exist since these areas are still considered as

emerging business districts.(W1, W4, W5, O10)

Maximize the presence of the company in cities where there is limited space and make

use of the shift in trends toward smaller unit sizes.(W1, O5)

c. Integration Strategies

Integration strategies are strategies for DMCI Homes to look into the possibility of expanding

aside from the usual residential development that they have been doing for years. These

strategies might help in increasing the revenue contribution of DMCI Homes to its parent

company which is DMCI Holdings.

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Utilize the presence of adequate financial resources to take an aggressive position in

expanding the business through vertical integration.(S2, S4, O7)

Construct residential and commercial units in one. Follow the trend of SMDC and Ayala

Land to increase revenues and create a new brand identity. (S4, O11)

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4.1.2. Strategic Position and Action Evaluation (SPACE) Matrix

The SPACE Matrix is a strategic management tool that focuses on strategy formulation

especially as related to the competitive position of an organization.

There are four possible sets of strategies in the SPACE matrix which can either be aggressive,

conservative, defensive or competitive. The inputs for the SPACE matrix were matched as

follows; internal factors to financial strength and competitive advantage while external factors to

industry strength and environmental stability.

a. Financial Strength (FS) Ratings: For FS, use +1 (worst) and +6 (best)

Although DMCI Homes shows a strong financial condition and contributes more than 10% to its

parent company in its gross revenues, it has been deemed not enough to contend with other

giants like Megaworld, which caters to the same market segment as DMCI Homes does. With

this, the researchers gave a rating of +5 for its above average financial position in the market.

b. Industry Strength (IS) Ratings: For IS, use +1 (worst) and +6 (best)

A +1 rating was given to the increasing intensity of competition in the industry because this

could cause DMCI Homes' market share to decrease. Increased competitive rivalry in the

industry makes it hard for DMCI Homes to fully penetrate the market of varying consumer

segments.

Heightened risk of flooding in key metropolitan areas in Manila was likewise given a rating of +1

because it will also hinder the growth of development companies particularly DMCI Homes.

Properties which are highly exposed to flood-prone areas have a low property retention rate to

property developed.

A +2 rating was given to vulnerability to uncontrollable economic forces because it will only

indirectly harm the industry or not as directly as the previous two will.

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c. Environmental Stability (ES) Ratings: For ES, use -1 (best) and -6 (worst)

Low mortgage rates was rated a -1 by the researchers because it poses a great opportunity for

DMCI Homes to utilize its target market by enthusing them to invest in homes. The same reason

goes with the Filipinos' renewed interest in property as a long-term investment for

yield/inheritance.

A rating of -2 was given to the introduction of REITs in the Philippine market. This is because an

REIT IPO needs a huge capitalization and is also exposed to internal and external risks just like

any other investment.

The promotion of the Philippines as a retirement haven for foreign nationals garnered a rating of

-1 from the researchers because it is another opportunity for DMCI Homes to capitalize on.

Also, another market to penetrate would be that of the young professionals which was rated a -

1. As the market demand for condominiums rise, there would also be a demand for new

projects. This is another opportunity for DMCI Homes to give attention to, thus being given a

rating of -1.

Wealth and incomes were not affected during the recent crisis and Filipinos are now more

inclined to spend. These two got a rating of -1 because it means that people have the money to

spend for necessities such as homes. The last two were rated -2 because they are specifically

not targeted by the DMCI Homes as of now but they pose huge opportunities to be explored.

d. Competitive Advantage (CA) Ratings: For CA, use -1 (best) and -6 (worst)

Because of the strong synergy of Consunji-owned businesses with each other, the factor was

rated a -2. However, there are only specific partnerships formed within the whole holdings

company. A rating of -2 was likewise given to the low property retention rate of DMCI Homes

because they have large pre-sales than their competitors.

Cost advantages from key rivals and distinctive competence from key competitors were both

rated a -1 because they are the strong competitive advantages of DMCI Homes over the other

numerous players in the real estate industry. A rating of -6 was given to the weak dealer

59


networks of DMCI Homes because these slow down their turnover ratio. Subpar performance in

advertising as well as in R&D was rated -6 because they already lagged way behind in this

aspect of competition. A -5 rating was given to the small capitalization of DMCI Homes The

small allotment of budget of DMCI Holdings to DMCI Homes makes it hard for the company to

compete with top caliber players in the real estate industry. The low capitalization prevents

DMCI Homes to pursue on expansionary activities. The lack of experience in also in building

office or commercial spaces was likewise given a -5 rating. A -4 rating was given to the factor of

developments not located in CBDs.

Table 12: SPACE Matrix

Financial Strength (FS)


TotalAverage

555

Industry Strength (IS)Increasing intensity of competition among the industry's numerous players which may squeeze profit marginsHeightened risk of flooding in key metropolitan areas in Manila which are deemed below sea levelVulnerability to uncontrollable economic forces such as scares of terrorism attacks

TotalAverage

1124

1.3Environmental Stability (ES)Record liquidity, low mortgage ratesIntroduction of REITs in the Philippine MarketPromotion of the Philippines as a retirement haven for foreigners by the PRAGrowing population with favorable demographics and a large base of more financially empowered young professionalsRising demand for condominiums and in-city developments; trend towards smaller unit sizesRenewed interest in property as a long-term investment for yield/inheritanceWealth and Incomes unaffected during recent crisisIncreasing disposable income with higher propensity to spendEmergence of regional growth centers in provincial areasPhilippines ranking 2nd worldwide for BPO market share; Industry employment to grow 25%

TotalAverage

-1-2-1-1-1-1-1-1-2-2

-13(1.3)

Competitive Advantage (CA)Greater control of quality due to strong sustained synergy with other Consunji-owned businesses, particularly with DM Consunji Inc. (construction)Cost advantages over key rivals; developments priced lower than developments by competitorsDistinctive competence in architectural design concepts among its development projects; quality amenities and other add-ups for leisureLow property retention ratio of properties developedSmall geographic coverage; lack of adequate global distribution capability; weak dealer networksSmall capitalization in its developments compared to large amount capitalization of the huge and strong players in the industryBehind rivals in e-commerce capability and R&D subpar performance in advertising and promotionsDevelopments limited to residential-types alone; No relative experience in constructing commercial and retail spaces and other real estate projects

-2-1

-1-2-6

-5-6

-5

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Developments not located in central business areas such as the Makati CBD and BGC-CBDTotal

Average

-4-32

(3.6)CONCLUSION

X-Axis (CA Average + IS Average) = (2.3)Y-Axis (ES Average + FS Average) = 3.7

Figure 12: SPACE Matrix Graph

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Based on the strategic management tool, DMCI Homes belongs to the conservative quadrant.

This means that the conservative posture arises when DMCI Homes is financially strong but is

unlikely to make significant returns from the business. The strategy is to look for diversification

opportunities in more attractive competitive situations.

DMCI Homes should be more conservative in approach in undertaking strategies in order for

them to maintain or surpass their current position in the market. And since the directional vector

of DMCI Homes is located in the conservative quadrant (upper-left quadrant) of the SPACE

Matrix, this means that DMCI Homes should employ the strategies that would be found in

quadrant 2 of the Grand Strategy Matrix.

4.1.3. Grand Strategy Matrix

A grand strategy matrix is a very useful instrument in creating different and alternative strategies

for an organization. It has four quadrants; each quadrant contains different sets of strategies

and the entire firm along with its respective divisions must fall into one of the quadrants. The

matrix has two dimensions - competitive position and market growth.

a. Competitive Position

DMCI Homes has a weak competitive position brought about by its lack of adequate

capitalization for expansionary activities and limited distribution network and global presence.

Although market share is gradually increasing, it still lags behind its key competitors in terms of

capitalization and diversified product lines within the same industry such as construction of

commercial and retail spaces within constructed high-rise residential buildings.

Furthermore, DMCI Homes lacks presence in key business districts. They often construct

projects outside recognized business districts in Metro Manila like Bonifacio Global City and

Makati CBD. Because of this, they cannot easily penetrate the market of young professionals

who opted to reside within these metropolitan areas.

b. Market Growth Rate

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The continued flow of OFW remittances and potential industry sales coming from the BPO

sector and the retirement market will spur growth. Furthermore, the young professionals market

will add up to that growth and continuous evidence for demand.

DMCI Homes, however, does not utilize this opportunity. Metro Manila is not the only growth

center in the country. There are a lot of cities in the provinces that are emerging as growth

centers as well. Cebu, for example, has a vibrant hotel industry due to the high influx of tourists.

And this particular city has been a target of foreign retirees because of its serene environment.

To add, OFWs do not reside in Manila alone. More than 50% of OFWs are from the provinces.

And since, most OFWs are from the provinces, DMCI Homes should penetrate the market of

areas that are yet to be infiltrated by its key rivals.

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Figure 13: Grand Strategy Matrix

Since DMCI Homes falls in quadrant two (2), it means that, the company is a having weak

competitive situation but rapid market growth. Firms positioned in Quadrant II need to evaluate

their present approach to the marketplace seriously.

Although their industry is growing, they are unable to compete effectively, and they need to

determine why the firm's current approach is ineffectual and how the company can best change

to improve its competitiveness. Because Quadrant II firms are in a rapid market growth industry,

64


an intensive strategy (as opposed to integrative or diversification) is usually the first option that

should be considered.

4.1.4. Internal-External (IE) Matrix

The internal-external matrix is another strategic management tool used to analyze working

conditions and strategic position of a business. The IE matrix is based on an analysis of internal

and external business factors which are combined into one suggestive model.

If the company falls in cell 1,2 and 4, grow and build strategies are recommended. “Hold and

Maintain” strategies are advised for companies falling in cells 3, 5 and 7. Firms should consider

harvest or divest strategies if they fall in cells 6, 8 and 9.

Table 13:IFE Table

TOTAL IFE RATING3.15

TOTAL EFE RATING 3.25

Strong (3.0 to 4.0)

Average (2.0 to 2.99)

Weak(1.0 to 1.99)

High (3.0 to 4.0)

I II III

Medium (2.0 to 2.99)

IV V VI

Low(1.0 to 1.99)

VII VIII IX

Based on the IE matrix, DMCI Homes falls into the first cell. Grow and build are the strategies

recommended for companies which fall in that particular cell. This means intensive and

aggressive tactical strategies. The strategies should focus on market penetration, market

development, and product development. From the operational perspective, a backward

integration, forward integration, and horizontal integration should also be considered.

4.1.5. Summary of Strategies

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The various recommended strategies of the SPACE, IE and Grand matrices are tallied to

determine the most common strategy options available to the firm.

Table 14:Strategy Options

STRATEGY OPTIONS SPACE IE GRAND TOTAL

Forward Integration X 1

Backward Integration X 1

Horizontal Integration X X X 3

Market Penetration X X X 3

Market Development X X X 3

Product Development X X X 3

Related Diversification X 1

Conglomerate Diversification 0

Joint Venture 0

Retrenchment 0

Divestiture X 1

Liquidation X 1

Among the strategy options, horizontal integration, market penetration and development and

product development are consistently recommended by the SPACE, IE and GRAND matrices.

4.1.6. Quantitative Strategic Planning Matrix (QSPM)

A QSPM is a high-level strategic management approach for evaluating possible strategies. It

provides an analytical method for comparing feasible alternative actions. The approach of

QSPM attempts to objectively select the best strategy using inputs from other management

techniques and some easy computations.

66


The researchers have narrowed down the strategies to be evaluated to three - product

development, market penetration and integration strategy. This is because these are the

primary strategies that have been identified in the TOWS matrix analysis and have been further

recommended by the succeeding strategies employed by the researchers.

Through the QSPM, the researchers were able to identify what particular strategy should be

given attention and be implemented and evaluated in the next part of this chapter.

Table 15:DMCI’s QSP Matrix

Key Factors W Product Development

Market Penetration

Integration Strategy

AS TAS AS TAS AS TASStrengthsGreater control of quality due to strong sustained synergy with other Consunji-owned businesses, particularly with DM Consunji Inc. (construction)

0.20 4 0.80 2 0.40 4 0.80

Cost advantages over key rivals; developments priced lower than developments by competitors

0.10 4 0.40 4 0.40 4 0.40


0.10 4 0.40 4 0.40 4 0.40


0.05 4 0.20 4 0.20 4 0.20


0.05 4 0.20 4 0.20 4 0.20

WeaknessesSmall geographic coverage; lack of adequate global distribution capability; weak dealer networks

0.10 2 0.20 3 0.30 3 0.30

Small capitalization in its developments compared to large amount capitalization of the huge and strong players in the industry

0.15 1 0.15 3 0.45 2 0.30

Behind rivals in e-commerce capability and R&D; subpar performance in advertising and

0.05 1 0.05 2 0.10 2 0.10

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promotionsDevelopments limited to residential-types alone; No relative experience in constructing commercial and retail spaces and other real estate projects

0.15 1 0.15 3 0.45 4 0.60

Developments not located in central business areas such as the Makati CBD and BGC-CBD

0.05 2 0.10 3 0.15 3 0.15

Sum Weights 1.00 2.65 3.05 3.45

Key Factors W Product Development

Market Penetration

Integration Strategy

AS TAS AS TAS AS TASOpportunitiesRecord liquidity, low mortgage rates 0.10 4 0.40 4 0.40 4 0.40Introduction of REITs in Philippine Market

0.05 0 0.00 0 0.00 0 0.00

Promotion of the Philippines as a retirement haven for foreigners by the PRA

0.05 3 0.15 4 0.20 3 0.15

Growing population with favorable demographics and a large base of more financially empowered young professionals

0.05 3 0.15 4 0.20 2 0.10

Rising demand for condominiums and in-city developments; trend towards smaller unit sizes

0.15 3 0.45 3 0.45 3 0.45


0.05 3 0.15 3 0.15 3 0.15

Wealth and Incomes unaffected during recent crisis

0.05 3 0.15 4 0.20 3 0.15


0.15 3 0.45 4 0.60 2 0.30


0.10 3 0.30 4 0.40 3 0.30


0.05 3 0.15 4 0.20 3 0.15

Philippines ranking 2nd worldwide for BPO market share; Industry employment to grow 25%

0.05 4 0.20 4 0.20 4 0.20

ThreatsIncreasing intensity of competition among the industry's numerous players which may squeeze profit margins

0.10 3 0.30 3 0.30 3 0.30

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Heightened risk of flooding in key metropolitan areas in Manila which are deemed below sea level

0.05 3 0.15 0 0.00 0 0.00


0.05 0 0.00 0 0.00 0 0.00

Sum Weights 1.00 3.00 3.30 2.65

Sum Total Attractiveness Score 5.65 < 6.35 > 6.10

The best strategy to pursue is the market penetration strategy because it garnered the highest

total attractiveness score among the three strategies evaluated.

This strategy will be discussed further in the succeeding part of this chapter.

4.2. STRATEGY IMPLEMENTATION

This part of chapter four (4) will discuss the strategies under market penetration as proposed by

the researchers in the TOWS analysis.

Furthermore, through this part, the different departments of the organizational chart of DMCI

Homes are given attention as to what actions they need to undertake in contributing to the

revenues of the company.

Also, a financial projection for a period of five (5) years is included in this part together with the

assumptions and basis of their calculations.

4.2.1. Recommended Business Strategies

Since market penetration garnered the highest attractiveness score in the QSPM, it will be the

only strategy that will be focused on in this particular part of strategy implementation. Based on

the TOWS analysis, the following are the strategies formulated by the researchers which were

labelled as market penetration:

a. Penetrate the market of young professionals through dynamic, fast-paced and avant-

garde quality condominium units located at the heart of the metro at an affordable price.

69


(S2, S3, O4); Make use of developing residential condominium units that would target

the rapidly growing population of financially empowered young professionals.(O4, W4)

It has been the edge of DMCI Homes to construct resort-themed condominiums at a lower price

compared to their competitors without compromising its quality. The generation of young

professionals that has emerged in recent years is constantly growing and continuously adding

up to the demand for residential-type of buildings which are near their workplace.

DMCI Homes should penetrate the key business districts in Manila because it is where the large

population of young professionals are concentrated. These young professionals have the mind-

set of buying life-time investments that are close to their workplace and to other commercial

establishments. This generation of the youth are those who want to live in a dynamic setting

where everything they want is as close and as easy to grasp by the hand.

Areas such as the Bonifacio Global City and Makati CBD should be penetrated by the DMCI

Homes in particular. The company usually builds condominiums outside of these two business

districts that is why they lag in behind competitors like Megaworld and Avida Land who have

established their presence in the aforementioned business areas.

If DMCI Homes could not establish even a single project within the key business districts, they

should have at least establish sales offices across those. This is to compromise their lack of

presence within the area by not having a single project but at least by having a sales office that

would in turn attract potential buyers to their projects near those business areas. It would be

more strategic if DMCI Homes would establish an office, like for example in Bonifacio Global

City, to monitor the performance of each sales office strategically located in the area.

b. Target the portion of the population that has a rising purchasing power due to continuous

increase in income.(S2, S5, O9); Target the families of OFWs and encourage them to

purchase a unit for their family member abroad as a form of lifetime investment.(W4,O8)

The portion of the population who has the rising purchasing power are those who are classified

under the middle-income segment of buyers. This segment is primarily comprised of OFWs who

remit their income from abroad to their families in the Philippines.

70


To strongly penetrate the market of OFWs, DMCI Homes should capitalize in establishing sales

offices abroad. DMCI Homes is behind its competitor in terms of its scope of distribution

network. But since DMCI Homes cannot compete in establishing a global distribution network

against its competitors, the researchers advise to modernize the existing website,

dmciinternational.com, which acts only as a catalogue of its projects with only a brief description

of a development and contact information.

The website can be improved to allow for an interactive open house that will allow users to

explore in 3D a selected project of the DMCI Homes. The website will also build its e-commerce

capability by allowing for online reservations that will allow for real time inventory monitoring and

online payment of reservations.

By enhancing its website, DMCI can strengthen its limited distribution network and tap tech

savvy buyers both locally and abroad.

c. Take advantage of the areas that are being developed by the construction arm of DMCI

Holdings in aiming for the places where the local economy is growing rapidly. (S1, O10);

Expand the market of the company to areas outside the metropolitan that are also

developing fast and cater to the demands for residential condominium units in these

areas where small numbers of developers exist since these areas are still considered as

emerging business districts.(W1, W4, W5, O10); Maximize the presence of the company

in cities where there is limited space and make use of the shift in trends toward smaller

unit sizes.(W1, O5)

The construction arm of DMCI Holdings which is a sister company of DMCI Homes has been

winning bids in constructing highways and other related private and government initiated

infrastructure construction projects. Some of these projects are located outside of the metro and

are mainly in provinces. DMCI Homes could take advantage of this and bid for untapped

surrounding areas for residential development.

To utilize the synergy among the businesses under DMCI Holdings, DMCI Homes could be the

first to construct a community of high-rise residential buildings in provincial areas to give

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potential buyers an urban feel. This will in turn contribute to considering provincial areas as

emerging growth centers that would help boost the economy of the country.

To add up, tapping the provincial areas for development would have DMCI Homes garner a

huge market share in the industry because there are only a few developers in those areas, most

of which are not known in the metro.

d. Take advantage of the foreign retirees that are seeking for units that will provide them

convenience of a tranquil residential environment. (W5, O3)

Since the country is being promoted as a retirement haven for foreigners, DMCI Homes could

use this opportunity to expand their target market and cater to those who are not even Filipinos.

This particular market, if tapped, could generate revenues for the company.

To penetrate this particular market, DMCI Homes should establish a presence within foreign

countries where a huge number of foreigners show interest in retiring in the Philippines, This

would again end up in establishing international sales offices to widen the distribution network of

the company.

Also, the Philippine Retirement Authority has made a list of foreigners who have plans of staying

in the Philippines right after they retire. DMCI Homes could use this information to gain insight

as to what particular nationalities show intention of having the last years of their lives in the

Philippines.

DMCI Homes should partner with the Philippine Retirement Authority, if possible, to secure

foreign retirees’ preference for DMCI Homes.

e. Encourage the market with the buying power to purchase a condominium unit as an

investment for the future and make use of the existing wealth in the market by means of

an IPO or by borrowing from banks to increase the company's capitalization. (W2,

W4,O7); Encourage the market with the capacity to buy condominium units as a form of

long-term investment.(W4, O9)

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Homes are considered to be lifetime investments. They do not depreciate but rather appreciate

in value. This mind-set has been prevalent among Filipinos. And the disparity, in terms of value,

of owning a unit in a condominium is none than that of owning a residential house.

This mentality among Filipino buyers should be reiterated in ad campaigns of DMCI Homes.

The company should use an intensive integrated marketing approach to its potential buyers.

This will affect the brand awareness of Filipino buyers relative to DMCI Homes.

In pursuing an intensive integrated marketing approach, DMCI Homes should also strengthen

its public relations. Events outside of the country like international real estate conferences

should be utilized by the company to introduce innovations in their developments and introduce

DMCI Homes to the global market.

With increased capitalization in marketing and promotions and effective advertising, there is a

possibility that it would deliver sales globally. And with the funds gathered, DMCI Homes could

look into the possibility of doing an IPO to be independent of that of DMCI Holdings.

Also, DMCI Homes could look into the opportunity of borrowing money from banks for

capitalization. With their stable financial condition, DMCI Homes could now borrow a huge

amount of money to finance all their expenditures in every new project.

4.2.2. Recommended Organizational Strategies

Market penetration strategies will be implemented by the marketing, sales and customer care

divisions. Additional roles will be added to existing departments in the company.

a. Additional personnel to support international sales divisions

This is in line with market penetration strategy to extend further its presence to the OFW market

and foreign retirees market. Additional personnel will be used to manage and support the

operations of the different international offices of DMCI Homes. These new personnel will be

used to develop partnerships with brokers abroad and to help DMCI Homes comply with foreign

regulations.

b. Additional personnel to institutional sales

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A corporate sales unit will be added to form partnerships with companies in line with the market

penetration strategy to target young professionals. The new unit will forge partnerships with

corporate institutions to provide housing solutions to their employees.

c. Concentrate DMCI Homes as the sole real estate arm of DMCI Holdings

To reduce operating cost and increase focus and functionality, DMCI Holdings should

concentrate all of its property businesses to DMCI Homes. Currently, there is a small portion of

its housing business belonging to its construction arm. These projects should be transferred to

DMCI Homes to fully utilize the property development experience of DMCI Homes.

4.2.3. Financial Projections

The following table shows the comparison of values in the income statement of DMCI Homes

taken from the notes section of the consolidated income statement of DMCI Holdings from 2007

to 2010. The items in the first column are the basis of the items that need calculations for the

financial projections of DMCI Homes. Below the comparison table are the assumptions and the

bases of the projected values for DMCI Homes for a period of five (5) years, from 2011 to 2015.

Table 16:Financial Projections

2007 2008 2009 2010

Revenue 2,455,167 4,736,635 6,963,108 7,704,893Other Income (expense) - net 34,761 70,054 83,018 177,748

2,489,928 4,806,689 7,046,126 7,882,642Cost of sales and services 1,258,498 2,984,329 4,756,934 4,758,532General and administrative expense (before depreciation and amortization)

1,245,950 892,889 1,172,899 1,355,238

2,504,448 3,877,218 5,929,833 6,113,770EBITDA 14,520 929,471 1,116,293 1,768,871Other income (expenses)Finance income (cost) 78,479 82,209 307,619 76,981Depreciation and amortization (20,362) (34,871) (51,111) (50,786)

Pretax income 43,597 976,809 1,372,801 1,795,066Provision for income tax (17,724) 218,421 352,943 509,067Income before income from discontinued operations 61,321 758,388 1,019,858 1,285,999Post-tax income from discontinued operations

--- --- --- ---

61,321 758,388 1,019,858 1,285,999

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Net income attributable to non-controlling interest

--- --- --- ---

Net income attributable to equity holders 61,321 758,388 1,019,858 1,285,999

a. Specific Financial Statement Assumptions

2007 2008 2009 2010 Growth

Sales and Reservation

7,475 9,846 8,687 14, 715 29.78%

Recognized Real Estate Revenues

3,548 4,737 4,301 7,705 34.48%

% of Sales Recognized

47% 48% 50% 52%

*Values are in million, unless volume is indicated.

The table above shows the increasing trend of sales and reservation and the percentage

of revenues recognized from it. The researchers have come up with the average growth

of the first two items through the computation of the historical average growth rate of the

values provided above.

Since the researchers were able to obtain only the income statement from the notes

section of the 2007 to 2010financial reports of DMCI Holdings, the parent company of

the subject under study, the researchers will project values only for that particular

financial statement.

b. General Revenue and Expense Assumptions

The following assumptions formulated for this research will be affecting the revenue item in the

income statement of DMCI Homes:

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According to Jones Lang Lasalle Leechiu, a leading property consultant in the world, the

strength in the Philippine real estate market will likely last until 2015. Hence, there is an

evidence for the continuous surge on demand for properties.

The Cost of Sales will follow the average historical growth rate from 2007 to 2010

because there are no specific strategies geared towards lowering production cost any

further. Current production setup where there exists an operational synergy between

DMCI Homes and its construction sister company will be retained.

Provision for Income Tax will follow the average historical growth rate from 2007 to 2010

assuming that taxation policies regarding property developments do not change.

Finance Income (cost) will follow the average historical growth rate from 2007 to 2010

because there are no specific strategies geared towards incurring that particular item.

Depreciation and Amortization will follow the average historical growth rate from 2007 to

2010 assuming that there is no bubble in the industry that would affect how DMCI

Homes values its property developments which are dependent on interest rates.

Other income (expense) will follow the historical growth rate from 2007 to 2010 because

there are no specific strategies that are deemed by the researchers that would affect that

particular item.

Table 17: Financial Projections (2011 to 2013)

2011 2012 2013

Revenue 8,818,466.93

9,876,682.96 11,061,884.92

Other Income (expense) - net 190,000 210,000 225,000

9,008,466.93

10,086,682.96 11,286,884.92

Cost of sales and services 5,584,029.63

6,254,113.19 7,004,606.77

General and administrative expense (before depreciation and amortization)

2,092,093.10

2,343,144.27 2,624,321.58

7,676,122.73

8,597,257.46 9,628,928.35

EBITDA 1,332,344.20

1,489,425.50 1,657,956.57

Other income (expenses)Finance income (cost) 285,453.77 319,708.23 358,073.21Depreciation and amortization -88,184.67 -98,766.83 -110,618.85

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Pretax income 1,135,075.10

1,268,484.10 1,410,502.21

Provision for income tax 341,293.28 382,248.48 428,118.29

Income before income from discontinued operations

793,781.82 886,235.62 982,383.92

Post-tax income from discontinued operations

--- --- ---


--- --- ---

Net income attributable to equity holders

793,781.82 886,235.62 982,383.92

c. 2011 Economic Indicators Assumptions that would affect the industry

The following are the assumptions applied in the research that will be affecting the items

projected in the income statement of DMCI Homes:

GDP is estimated to grow to 16,776.63 billion pesos

Unemployment Rate is estimated to remain to 7.2%

Value of Oil Imports is estimated to grow to 572.09 billion pesos

Average Consumer Prices is estimated to be at 174.214

Gross National Savings as a percentage of GDP is estimated at 18.66%

Investments as a percentage of GDP is estimated at 15.75%

d. 2012 Economic Indicators Assumptions that would affect the industry

The following are the assumptions made by the researchers that will be affecting the items in

the income statement of DMCI Homes:


Unemployment Rate is estimated to remain to 7,2%



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e. 2013 Economic Indicators Assumptions that would affect the industry



GDP is estimated to grow to 18,985,73 billion pesos

Unemployment Rate is estimated to be at 7%




Investments as a percentage of GDP is estimated at 16%

Table 18: Financial Projection (2014 to 2015)

2014 2015

Revenue 12,389,311.11 13,876,028.44Other Income (expense) - net 229,000 232,000

12,618,311.11 14,108,028.44

Cost of sales and services 7,845,159.58 8,786,578.73General and administrative expense (before depreciation and amortization)

2,939,240.17 3,291,948.99

10,784,399.75 12,078,527.72

EBITDA 1,833,911.36 2,029,500.72Other income (expenses)Finance income (cost) 401,042 449,167.04Depreciation and amortization -123,893.11 -138,760.28

Pretax income 1,556,762.47 1,719,093.96Provision for income tax 479,492.49 537,031.59

Income before income from discontinued operations

1,077,269.98 1,182,062.37

Post-tax income from discontinued operations

--- ---


--- ---

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Net income attributable to equity holders

1,077,269.98 1,182,062.37

f. 2014 Economic Indicators Assumptions that would affect the industry









g. 2014 Economic Indicators Assumptions that would affect the industry









4.2.4. Strategy Map

A strategy map is a diagram that is used to document the primary strategic goals being pursued

by an organization.

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Figure 14: Strategy Map

4.2.5. Departmental Programs

The implementation of the market penetration strategies will basically rely on equal division of

labor among the departments of the business organization and their functional programs and

action plans.

a. Sales and Marketing Department

The marketing department will lead in the planning and execution of the integrated marketing

communications plan of the company to raise brand awareness (O4, W4 -target the rapidly

growing population of financially empowered young professionals; W5, O3 - Take advantage of

the foreign retirees)

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Overall advertising message will be that DMCI Homes delivers their dream to have a quality

house they can call home. The marketing department will contract an advertising company to

propose and execute the ad campaign based on this message.

DMCI will utilize several forms of media to deliver and promote brand awareness among its

target markets. TV advertisements will focus on the DMCI brand as a property developer that

offers optimal quality and value for money. Events will also be organized to inform both external

brokers and buyers of the features and unique selling propositions of specific developments.

DMCI will participate in real estate fairs and organize buyer conventions.

The sales division will lead in the effective execution of the e-commerce strategy. Sales will link

the inventory management system to the enhanced website so both buyers and brokers are

made aware of specific units that are still available. Sales will also assign sales personnel to

handle the reservations coming online and ensure that adequate follow-ups are made to convert

the reservations into actual sales.

The sales team will coordinate with other departments for the other components of the website.

Marketing will provide the sales team the ad content of the website. Construction will provide

pictures and updates of current projects to be able to update buyers of the status of their

investment.

As indicated in the TOWS matrix analysis, young professionals will be targeted as a possible

new market to tap. To be able to innovate a housing solution to these young professionals,

together with marketing, finance and construction, the sales department should formulate a

corporate housing package specifically geared towards them.

Another market penetration strategy is to tap the OFW segment. The sales department will lead

this initiative by forging partnerships with various external brokers in countries where DMCI has

established no presence yet.

b. Construction Department

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Construction will chair monthly meetings with sales to determine forecasted demand for units.

Sales department will provide indication as to the type of units that are in demand (e.g. studio

type, 1 BR unit, 2 BR unit, tandem).Construction will design its developments based on the

projection provided by sales.

Synergy with businesses under the DMCI Holdings will be strengthened to reduce cost and

manage quality better. All of the construction and steel fabrication requirements of DMCI Homes

will be coursed through DMConsunji (construction) and AG&P (Steel fabrication). Additionally,

DMCI Homes’ purchases will be priced lower since it is an internal counterparty of these DMCI

subsidiaries.

DMCI Homes’ raw material requirements will be integrated to DMCI Group’s requirements. This

will give DMCI additional bargaining power to lower the acquisition price of its raw materials and

reduce DMCI Homes’ build cost.

c. Business Development Department

The Business Development division will lead in the company’s expansionary strategy in the key

business districts. The business development will approach the BGC administration and other

realtors to acquire new tracts of land.

d. Finance Department

The finance function strategy map tells all the things that the Finance Department should do in

assisting the other departments of DMCI Homes.

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Figure 15: Finance Function Strategy Map

e. Human Resources Department

Human resources will need to hire and train additional personnel to man the different strategies

of DMCI such as the improvement of its distribution channel. As a motivational tool for its

employees, DMCI will send high performing sales personnel to international sales offices. HR

will also launch training to prepare new hires for the real estate licensure exam which is a

requirement by the government.

To encourage partnerships with external brokers, HR will increase the commission rate of

brokers. This will support the strategy to attract additional brokers by compensating them higher

than other property developers do.

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4.3. STRATEGY EVALUATION

The final stage in strategic management is strategy evaluation and control. All strategies are

subject to future modification because internal and external factors are constantly changing. In

the strategy evaluation and control process, it is determined whether the chosen strategy is

achieving the organization's objectives or not.

4.3.1. Balanced Scorecard

A balanced scorecard is a performance management tool used to translate strategy to

operational terms and make the strategy a continuous process.

a. Financial Perspective

Financial Objective Targets Financial Metrics

Revenue growth and mix Quarterly growth for segment Sales growth by segment

Revenue growth and mixAnnual revenue will come from new product.

Percentage of revenue from new products

Revenue growth and mixAnnual revenue will come from new customer segment

Percentage of revenue from new customers

Revenue growth and mixIncrease profitability in new customer segment by the end of the year.

Customer profitability

Revenue growth and mixIncrease profitability of new product line by the end of the year.

Product profitability

Revenue growth and mixReduce the percentage of unprofitable customers by the end of the year.

Percentage of unprofitable customers

Cost reduction/productivityIncrease cost reduction rate by the end of the year.

Cost reduction rate

Cost reduction/productivity

Reduce general and administrative expenses as a percentage of sales to meet competitors' expense ratios.

Indirect expenses as a cost of sales

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Asset utilizationIncrease research and development as a percentage of sales by the end of the year.

Research and development as a percentage of sales

Asset utilizationIncrease working capital by the end of the year.

Working capital ratio

Market performanceImprove economic value added by the end of the year.

Economic value added

b. Customer Perspective

Customer Objective Targets Customer MetricsMarket share Increase market share in new

target market by the end of the year.

Market share by peso

Market share Increase the number of units sold by the end of the year.

Market share by units

Market share Contract with at least 75% of all customers within target market

Percentage of key customers within target market

Customer acquisition Increase number of proposals by the end of the year.

Proposal rate

Customer acquisition Increase proposal win rate by the end of the year.

Win rate

Customer profitability Reduce percentage of unprofitable customers by the end of the year.

Percentage of unprofitable customers

Customer satisfaction Increase customer satisfaction (as measured by external survey) so that all customers are "somewhat" or "very" satisfied.

Customer satisfaction percentage

Customer satisfaction Reduce the number of unresolved issues by the end of the year.

Number of unresolved issues

Customer satisfaction Reduce the number of returns by the end of the year.

Number of customer returns

c. Operations Perspective

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Internal Objective Type Targets Business Process MetricsInnovation A small percentage of revenues

will come from new product line.Percentage of sales from new products.

Innovation New developments will be brought to market.

Time to market for new developments.

Operations Purchase price variance on raw materials will decrease.

Purchase price variance

Operations The cost to produce one unit will decrease from $35/unit to $32/unit by the end of the year.

Process cost

Post-sales service Warranty costs will be reduced by at least 50% by the end of the year.

Warranty and repair costs

Post-sales service Warranty issues will be resolved within a faster time frame.

Cycle time for warranty and repair issues

d. Learning and Growth Perspective

Learning Objective Type Targets Learning and Growth Metrics

Employee retentionReduce overall turnover by end of year.

Annual turnover percentage

Employee retentionReduce voluntary turnover percentage by the end of the year.

Voluntary annual turnover percentage

Employee retentionReduce turnover of key personnel by the end of the year.

Key personnel turnover percentage

Employee satisfactionEnsure that 75% of employees feel involved with key decisions by the end of the year.

Involvement with decisions

Employee satisfaction

Ensure that 90% of top-rated employees feel they receive positive recognition for their achievements.

Recognition

4.3.2. Contingency Planning

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A contingency plan is a plan devised for an exceptional risk which is impractical or impossible to

avoid. That is why the researchers have included a contingency plan in early preparation for

events that might happen although totally unforeseen.

a. Downside Potential Events

Key Concerns Action Plans

Decline in OFW income remittance

Re-allocate resources to boost local home sales and countries which are not hardly severed by any crisis.

Lessen exposure to foreign countries affected by a financial crisis.

Decline of demand in the BPO market Re-allocate resources to retail market

Raw materials and contract prices rise Slightly increase prices to cover material costs

b. Upside Potential Events

Key Concerns Action Plans

Unexpected rise in OFW income remittance

Re-allocate resources to foreign countries with increased OFW population with faster remittance growth

Sudden surge of demand in the BPO market

Continue partnerships with other corporation to offer an affordable housing package solution to their employees

4.4. Conclusion and Recommendation for Further Study

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The researchers suggest that the following controls be done:

Review the fundamental bases of the organization’s strategy.

Measure the organizational performance; this activity includes comparing expected

results to actual results, investigating deviations from plans, evaluating individual

performance, and examining progress being made toward meeting stated objectives.

Take corrective actions if necessary; it is necessary if some changes occur in the

company and it requires resorting to changes not suitable to present strategies.

We conclude that the strategy to be implemented on DMCI Homes be Market Penetration - seek

increased market share for present products or services in present markets through greater

marketing offers by increasing the number of sales persons, increasing advertising

expenditures, offering extensive sales promotion items, or increasing publicity efforts. By

increasing primarily in advertising and promotion, DMCI Homes can provide more information to

the public about their property developments.

The researchers believe, however, that further research is needed for the improvement of the

study. We, therefore. acknowledge and welcome any effort that would bring progress to this

strategic management paper.

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BIBLIOGRAPHY

Dela Cruz, Roderick. Philippines’ per capita income hits $2,000, finally. Manila Standard Today. Date retrieved: 2011 September 23. http://www.manilastandardtoday.com/insideNews.htm?f=2011/april/4/news2.isx&d=2011/april/4

Demographic and Economic Indicators. Euromonitor.com Date retrieved: 2011 September 16. http://www.euromonitor.com/philippines/country-factfile

DMCI Information. DMCI Corporate Website. Date retrieved: 2011 September 05. www.dmci.com.ph

National Labor Statistics. Date retrieved: 2011 October 4. http://www.bles.dole.gov.ph/PUBLICATIONS/LABSTAT%20UPDATES/vol15_25.pdf

National Statistics Coordination Board. Date retrieved: 2011 October 4. csb.gov.ph

Philippines: High Yields on Metro Manila Condominiums, OECD & Governmental Bodies Information. Date retrieved: 2011 October 5. http://www.oecdrccseoul.org/article/philippines-high-yields-on-metro-manila-condominiums

Wong, Chiu-Ying. GUEST POST: REITs in the Philippines. Date retrieved: 2011 October 7.http://blogs.inquirer.net/moneysmarts/2008/10/24/guest-post-reits-in-the-philippines/

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