The role of finance in competitiveness of indigenous contractors in Hong Kong

Abstract

Although competitiveness has been extensively researched at the national and corporation levels, its synergistic role with financial and technological capabilities has never been addressed. The purpose of this research study is to establish a conceptual model that finance and competitiveness are correlated. The relationship is derived using a model that presents profitability of indigenous contractors as a function of plant and machinery, debt equity and market capitalization. After concluding from the pilot study that there is a mismatch of demand and supply of construction finance, this research study moves on to analyse the market structure where indigenous contractors are competing. Although the Herfindahl Hershamann Index (HHI) suggested that the market concentration in the building sector is not present and the market structure is in the category of perfect competition, nearly 50% of the contract works, quantified as contract value, were awarded to the top five contractors. In other words, the building sector is dominated by large sized companies. By adopting a resource-based and core competence study approach, it is believed that technological superiority is the main reason explaining why these companies could outplay in the conduct of labour-intensive building projects. The development, and thus the competitiveness, of indigenous contractors is hindered by their lack of finance. Since construction companies are surviving at the expense of cut-throat tender competition, they receive poor reception from banks and brokers which are representing the fundamental sources of finance, debt and equity to companies. With the financial data collected from Hydra, Datastream and Perfect Analysis, a cross-section of 30 companies with 10 years interval, companies of Hong Kong and Japan, was drawn to run the panel data fixed effect analysis with the aim to demonstrate the inter-relationship between the technology and financial capability of indigenous contractors. Findings support that profitability is a function of plant and machinery, sound access to finance and market capitalization. In short, finance and competitiveness are positively correlated. This research study contributes not only new knowledge to the area of competitiveness and financing, but also the introduction of a new methodology for investigating competitiveness issues. Moreover, this research study provides a framework of reference for conducting comparative studies in other regions.