"The roar of excavators blends with the rhythm of hammers in Bangladesh, where infrastructure dreams are becoming concrete realities. This report examines the forces fueling these constructions, investigating the industry’s impact on the economy, society, and the global landscape."
The business model of the construction industry provides a comprehensive overview of project management, from tender to execution. The model highlights the importance of collaboration with various entities such as construction companies, sub-contractors, vendors, joint venture partners, and consultants from funding organizations. It also underscores the involvement of government entities in project management and direction. This model is a testament to the collective efforts of diverse professionals and resources, including civil engineers, architects, electrical engineers, project management teams, and construction worker & support staff, all contributing to the successful completion of the project. It is a clear representation of the structure, relationships, and resource management involved in a project’s tendering and execution process.
Initially, a formal offer or proposal, known as a tender, is made to carry out work. This tender is awarded to a primary contractor or construction company which becomes responsible for the execution of the project. It becomes the main point of contact for all project-related activities. The project is the final output or the goal that needs to be achieved, which involves the collective efforts of various professionals and resources.
The primary contractor or construction company collaborates with various entities to ensure the successful construction and completion of the project. These collaborators include subcontractors and vendors who provide specialized services or materials, joint venture partners who share the risks and rewards associated with the project, consultants from funding organizations who offer expert advice and may also provide financial support for the project, and government officials involved in managing and directing the project.
Each collaborator contributes specific professionals or resources for project management. These include civil engineers, architects, electrical engineers, a project management team, and construction worker & support staff. This business model highlights the importance of collaboration and resource management in achieving the project goals. It provides a clear structure and outlines the relationships involved in a project tendering and execution process.
The cost drivers of the engineering and construction industry in Bangladesh include:
1. Raw Materials: The cost of construction materials such as steel, cement, and other construction materials can significantly impact the overall cost of construction projects.
2. Construction Worker / Labor Costs: The cost of skilled construction worker / labor is another significant factor. The industry often faces a shortage of skilled construction workers, which can drive up costs.
3. Equipment and Machinery: The cost of procuring and maintaining construction equipment and machinery can also contribute to the overall project cost.
4. Regulatory Compliance: Costs associated with ensuring compliance with local construction codes and regulations can also impact the overall project cost.
5. Inflation and Volatility in Construction Material Prices: The industry is grappling with ongoing inflation, volatility in construction material prices and increasing construction worker / labor costs.
Additionally, the growth drivers of the construction and engineering industry in Bangladesh the following:
1. Infrastructure Development: Both large-scale and small-scale infrastructure development are major drivers of the construction sector. This includes the construction of roads, bridges, power plants, and other public works projects.
2. Urbanization: Rapid urbanization is leading to increased demand for residential and commercial buildings. As more people move from rural to urban areas, the need for better construction facilities and road infrastructure developments in the country is augmenting.
3. Government Initiatives: The government of Bangladesh has proposed a budget worth BDT 603,681 crore (USD 72.42 billion), and BDT 225,324 crore (USD 26.28 billion) is allocated for the Annual Development Program (2023-24 FY: Parliament passes budget, The Daily Star). This includes the construction of megaprojects nationwide, such as the Rooppur Nuclear Power Plant, Matarbari ultra-supercritical coal-fired power plant, Padma Bridge, Hazrat Shahjalal International Airport, etc.
4. Investments in Transport, Energy, and Housing Infrastructure Projects: The construction industry is expected to rebound to growth of 7.2% this year, supported by investments on transport, energy, and housing infrastructure projects.
5. Increase in Personal Income Levels: Rising personal income levels are leading to increased demand for residential construction.
6. Demand for Construction Materials: The growth in demand for construction materials increases the demand for steel and cement products.
The Porter’s Five Forces analysis for the Engineering and Construction industry in Bangladesh are outlined below. These factors impact how businesses compete and conduct business in Bangladesh's E&C sector, hence defining the sector's strategic landscape.
1. Threat of New Entrants: The construction industry requires significant capital investment and technical expertise, which can pose a high barrier to new entrants.
2. Bargaining Power of Buyers: The bargaining power of suppliers is low due to the abundance of suppliers for raw materials needed in the construction industry. Construction companies often have the flexibility to switch suppliers without significant cost.
3. Threat of Substitute Products or Services: The threat of substitutes in the construction industry is relatively low as the services provided by engineering and construction firms are often specialized and difficult to replace.
4. Bargaining Power of Suppliers: Suppliers of construction materials and equipment can have significant bargaining power, especially if the materials are scarce or specialized.
5. Intensity of Competitive Rivalry: The construction industry is highly competitive, with many firms vying for contracts. This competition can be influenced by factors such as price, quality, and reputation.
The construction and engineering industry's prognosis for 2024 is shaped by several significant trends. Firstly, there's a strong emphasis on sustainable construction, driven by corporate requirements, evolving market dynamics, environmental regulations, and customer demand for green buildings, all while controlling construction costs. Secondly, there's a notable push towards digitalization and AI advancement to improve operational efficiency and address various industry challenges. Thirdly, market uncertainty looms large, with residential and nonresidential sectors facing different impacts, including inflation, construction material price fluctuations, increasing labor costs, and shortages of skilled construction workers.
Consequently, construction companies are compelled to adjust their operating strategies to navigate through these fluctuations in costs, demand, and customer preferences. Moreover, the industry is witnessing a shift in workforce norms to address talent and skill shortages. Despite these challenges, there's a prevailing optimism in the sector. Projects in manufacturing, transportation, and sustainable energy infrastructure stand to benefit from funding allocated in legislation from 2021 and 2022. Overall, the construction industry anticipates growth, with expectations of increased profit margins and staffing levels in the first half of 2024.
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