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[Music] hello there and welcome along to the industry analysis for the management case study of May twenty nineteen here we're going to be looking at the prefabricated housing industry in the real world and we're going to be drawing some implications some lessons some insights from the real world industry that you can hopefully use then for anticipating some of the issues that might arise on exam day for the case study exam in May before we begin let's just have a quick overview of what we'll be covering in this industry analysis we're gonna start with a very general market overview we're gonna be looking at some key figures trends pertaining to things like growth for example and also some structural issues pertaining to this market from there then we're gonna focus more on the demand side we'll be looking at some customer trends some key drivers in this industry and various other forces which affect demand within the industry broadly speaking from there then we're moving into some more specifics we're looking at the internal workings of this industry and looking at the many manufacturing processes typical of the industry and some of the key materials as well that are used and why that's important especially in this prefabricated housing industry in section four we're gonna focus on regulations which are potentially very important in this industry and we'll see why exactly that's the case in section five we're going to look at one example of a real-world company that I think has many similarities with the pre seen company of jord homes and we'll see why and then in Section six we're going to talk about some opportunities and threats based on everything that we've been talking about in the preceding sections drawing all of that together and that'll bring us to the conclusion then of our industry analysis we also include at the end of this PowerPoint presentation all of the sources that we have relied on in bringing this together and that you can do a deep dive on in your own time if you wish to do so after watching this industry analysis okay so let's start with this market overview here we're looking at the global perspective and these are just some key points to take away from the market in a global sense looking at growth figures are in the first point here you can see the global prefabricated construction market is expected to grow at a compound annual growth rate of around 6% during the period at 2018 to 2022 so that's quite a healthy compound annual growth rate for a four year period so it's looking good for the prefabricated construction market number two point number two here is looking at the key drivers one of them is the rise in global construction and infrastructure development activities in general and of course that pertains especially to developing market in emerging markets for example in China India and in Latin America as well and point number three here a key trend which is influencing this industry is the adoption of what are called dry construction techniques and dry construction techniques simply means relying on things that do not require for example cement and traditional brick laying for example which requires certain kinds of wet materials to be used dry construction techniques rely more on prefabricated materials and of course unsurprisingly then that is influencing this particular industry the more popular those kinds of techniques become in general the more that's going to create a growth opportunities for the prefab prefabricated construction industry as a whole but the key number to remember there is the compound annual growth rate of around six percent projected towards 2022 we're going to focus primarily here on the EU market in terms of looking at some more fine-grained numbers and figures the reason being of course that the company in the pre scene is a fictional based a fictional country which is however in Europe so we do know that it's some kind of European country it's modelled on some real European country probably it takes elements from a number of different European countries but whatever the case it is definitely important to look at the European context when studying the real world industry in order to get a sense of where things are where things are likely to go in the coming years as well so with that in mind let's take a look at this useful little chart here this is again projections 220 20 and we're looking at compound annual growth rates both for the value of the market overall and in terms of the quantity of prefabricated houses coming onto the market and as you can see there in terms of value that we're seeing the biggest compound annual growth rate of 7.7% from 2014 to 2020 so again pretty healthy numbers there and it's expected to continue beyond as we saw into 2022 globally speaking and in terms of quantities you can see then up there you've got a quantity a 5.4 percent roughly in terms of a quantity growth to 2020 so both in terms of value in terms of quantity we're looking at positive numbers but we'll explain a little bit more about why the value of the market is outstripping somewhat the quantity growth in a few slides we'll see a little bit more detail in that respect so here you can see the market volume of 1 & 2 family housing 1 & 2 family housing is basically another way of talking about detached and semi-detached houses that is to say the detached house is one that is freestanding a standalone house intended for one family and two family housing is basically units that are constructed such that they can accommodate two families in other words they are semi-detached houses in the traditional sense so we're looking here at the market volume for both of those kinds of houses overall is expected to continue its growth between 2017 and 2020 - this is again in the European context but at a slower pace than the prefabricated housing industry as we'll see we're looking here at 2% per annum from 2017 to 2022 if you look at the text here in the right column so that is the housing market overall but when we look then by contrast at the prefabricated housing industry in particular for 1 & 2 family houses we're looking at an annual growth of 3% so 3 percent per annum growth from 2017 to 2022 now that might seem quite marginal in terms of just a 1% difference but you got to remember that is one present difference per annum so that's gonna compound over the years into a significant difference so that indicates that the prefabricated housing market is actually growing at a faster rate at least within this segment of 1+2 family houses growing at a faster rate than is the general market for one and two family houses that's taking in regular traditional construction methods on-site construction methods so that is obviously a very healthy signifier for this market going forward to 2022 the market value as well of prefabricated one and two family housing is projected to grow faster than the volume growth as we saw a due to favorable pricing trends for various reasons and one of the key reasons here on the right as you can see is the shift towards what are called turnkey solutions with twenty to thirty percent higher average prices and therefore greater value added versus what are called floorcovering finishes so the difference between turnkey and floorcovering is basically that if a turnkey solution or a turnkey finish is a house of prefabricated house that comes with all of the fittings and furnishings and appliances included the idea here is that you can simply turn the key and the house is ready so it's an entirely finished house from start to finish all the furniture is included all of the finishings are included all of the appliances are included the electrics the electrics the plumbing and all of that is included whereas the floor covering simply includes surface finishes and indeed some of those plumbing and electronics as well so the turnkey solutions it seems are growing at a much faster rate than the other versions within this segment versus floor covering for example and that is accounting for that increase value and because they can charge of course higher prices for turnkey solutions and it's looking like turnkey solutions are becoming increasingly popular within the prefabricated industry as a whole so that is a really important development from the perspective of a company like the one we're dealing with in the pre scene that is also very important and indeed potentially beneficial because of course they specialize in those kinds of turnkey solutions where every single feature every single furnishing is thought of is planned is included in the costing and is delivered to the customer at the end so a really important development in that respect for a company like jord turns key solutions as well they account for more than 50% of the prefabricated one and two family housing market in Europe and are forecast to outgrow the market in general so again another indication there that these turnkey solutions in which you can simply if turned the key once you're finished and everything is ready to go everything is all there for you are becoming increasingly popular and already account for at the majority of the prefabricated detached and semi-detached housing market here's an interesting a point which is interest rates and their potential impact on this particular market currently there are a historically low level in the European context and they're expected to moderately increase from 2019 that is this year onwards now why is this particularly relevant well you can see here there's one manufacturer who is quoted as saying expected interest rate increases will mostly impact the low price segment of the priest fabricated industry as these people are most reliant on cheap loans and again that is very telling and significant for a company like the one we're dealing with in the pre scene because of course jord homes is catering almost exclusively to the higher end and the higher price segment of the prefabricated housing market and for that reason this is good news even the if there are interest rate rises it's unlikely to really negatively impact a company like jord homes and it's more likely to impact some of the lower end prefabricated housing companies market entry barriers are important to consider in this industry particularly of course from a competitive point of view and for a competitor point of view a company like jord of courses always going to prefer a situation as with any company in any industry in which competition is kept to a minimum it's perhaps a little bit less of a concern of course for the premium and luxury manufacturers because of course they have more of an interest in internally restricting their own supply and for that reason perhaps the pressures of competitive entry are a little bit lower but still of course it's always going to be better other things being equal that fewer new entrants come on the scene and so we can see here what those particular barriers to entry are in terms of their relevance you can see here on the right you have a little pie chart which indicates the degree of relevance of the particular barrier and the first one here the most relevant one is technical capabilities suppliers are prefabricated houses have to cover a broad spectrum of specialities and capabilities for example architecture and housing design trends construction and engineering pre-production and on-site assembly project planning and execution in order to match customers high quality demand and price expectations so as you would have seen in the priests eeen there's a great degree of vertical integration in some of these companies they include so many different steps it's really a one-stop shop and for that reason there is a real barrier in terms of compiling and getting together all of the technical capabilities and capacities that one needs in order to set up a company like at your homes or a prefabricated housing company that is effective and that is well coordinated so that's a huge barrier to entry right there another important barrier to entry is sales networks and channels the establishment of a comprehensive and attractive online channel is required providing detailed building specifications pictures videos configuration tools and showcases that's important as well from a marketing point of view of course and we're going to talk a little bit more about marketing towards the end of this industry analysis as well Brandin track record of course are always going to be important as in any industry and capital intensity is an issue here because of course we're talking about big manufacturing facilities in the case of many of these companies that's going require a lot of capital investment and of course that's yet another barrier to entry we're looking here at the prevalence of high end versus low end houses within the prefabricated housing market in general and we're looking at the particular some particular nations within the European context some of the most important Americas for prefabricated housing in the European context and looking at the breakdown you can see here at the bottom we've got a price segments broken down as 250,000 plus euros for a home between 150 and 250 thousand euros and then under 150 thousand euros as well for a prefabricated house and as you can see in the case of you the UK the overwhelming majority of the new houses that are pre prefabricated are in the middle to high price ranges and you see if you look through these other countries Switzerland here that's again reflected a similar kind of pattern the majority vast majority indeed in the Swiss context are very high-end 250 thousand plus of course that may well reflect the general higher prices in Switzerland's economy as a whole but also you see the same in Scandinavian countries the vast majority of prefabricated houses are upper end or mid range 150 thousand plus the same again in Germany you can see a huge majority are either above 150,000 or above 250 thousand euros and Austria is again no different a slightly higher percentage under 150 thousand but still the majority are in the higher price ranges and the only exception is in the Polish market which is to some extent at least a developing market still and that may explain the reason why we're seeing a prevalence of under 150 thousand prefabricated homes but all of that again within the European context at least is good news for a company like George because of course they're relying on high price segments and it looks like there's no danger that demand in the high price segments in many of those European markets is going to be declining anytime soon and indeed the trends seem to be pretty steady that they're going to continue to be majority share going to high price segments we're looking now in section two at demand issues pertaining to customers in particular and some of the key drivers and forces underlying demand the prefabricated housing market volume and price are expected to be favorably or positively driven by a number of key trends here I'm going to focus on those that pertain specifically to the prefabricated industry because there are some other drivers that generally apply to the housing market overall but I'm more interested in those that are driving a demand will be due to the specific nature of the prefabricated industry and offerings themselves the first one here is planning security customers increasingly value planning security regarding budget and move in date and prefab constructions usually outperform the traditional solid or on-site construction processes as we saw on the priests eeen that's one of the key attractions of this method of house construction is that you can get the costs very detailed cost plans prior to actually the build of the house going ahead so that you can plan and control costs more effectively and you're not going to be hit with any nasty surprises or an expected costs being tacked on further down the line most of these prefabricated housing companies they lock in those costs at the time of signing the contract and that gives a huge amount of peace of mind to customers of course and a great deal of security going forward as the house build house build begins so that's a huge factor here as you can see in terms o
relevance that's one of the most important right across the board in all of the European markets know there pertains to the turnkey solutions the fact that they're a one-stop shop solution is really really attractive as well it seems again you can see the relevance of that particular force or driving factor and as it says one partner from design to construction facilitates the entire process and that is of the company the prefabricated housing company in question and thereby reduces the possibility of errors especially for individuals and of course the headaches associated with coordination if you are actually in charge of building a house yourself and having to contract all the different parties the architects and the contractors and electricians and plumbers and so on and so forth if that's your responsibility that is a huge headache in terms of coordination in terms of things like costs and planning and with a company like jord or any other real-world company in this industry they take on that burden and they get rid of that stress for you so that's a huge attraction as well and another important factor here in terms of relevance is technology acceptance the technology acceptance for prefabricated houses is increasing across focus regions that is to say in the European markets and prefab houses are increasingly seen to be modern now we're going to come back to that because I think perception is a tricky issue here especially when it comes to for example those higher-end or premium manufacturers within the prefabricated housing market such as jord homes and as we'll see later on poof house and there is a delicate balance I think that needs to be struck there in terms of trying to popularize this technology and also maintaining some degree of exclusivity for the higher-end players within the industry market feedback here we've got some interesting qualitative analysis based on some surveys that were performed and we see here some very interesting customer feedback in particular here's one customer in Germany on the left you can see I value the reliability of the house cost estimations once the contract is signed the house price is fixed in Scandinavia we see one customer when deciding on my house I was in contact with five companies all of them provided me with detailed information on potential move-in dates planning security was definitely a strong criterion for my choice here's a customer from the UK knowing the exact move-in date helped us to plan and organize moving out of our previous home additionally we appreciated the possibility to agree upon a reliable how construction budget opt front and in Austrian Switzerland I would always prefer a prefabricated house after having had horrible experiences with architects not meeting deadlines you can see the overarching theme there is reliability in planning cost and deadlines those are the key drivers in this market and they are going to be pushing demand increasingly towards this segment in the coming years taking more and more of America's share from the traditional methods of construction and house building in general so really important to keep those kinds of comments and feedback in mind because those are gonna be key selling points for any company within this sector the one-stop solution is very important as well and you can see here's some more customer reports and feedback here's a customer from Switzerland who and I decided for my second home in Switzerland I just wanted to have one point of contact for me it was of utmost importance that my involvement in the process was limited as a businessman I simply do not have the time so being able to outsource the stress of planning and coordination and dealing with all the different parties necessary to get a house built from spero start to finish that really is a huge draw for this industry and another customer here on the right building a house and organizing all necessary process steps can be quite cumbersome I really appreciated having one point of contact that guides me through the process and you can see also some other comments interesting there from manufacturers and market experts if you want to look in your own time in terms of their perception of the benefits of the one-stop such one-stop solution but I think for from a customer and demand point of view those two comments there are very telling indeed this is a key selling point another key competitive advantage that these kinds of companies have over the traditional methods of house building now customer perceptions we touched on this a little bit earlier this is a really important point I think from the marketing point of view which we're going to talk of a little bit more about later on but some do still associate prefabricated homes with cheap or temporary dwellings I don't know about you some of you but certainly when I was younger I do recall the word prefab being associated with a cold damp poorly insulated makeshift structures that were often used in fact in my school's growing up when the schools were being extended or being worked on we had to go to prefabs in order to do our classes as a temporary measure and they always had this kind of gray sheep association so I think that certainly is a perception and a psychological association that persists in many countries I think indeed in European countries especially so the word prefab even especially in its abbreviated form I think has those negative connotations and so that's something that needs to be addressed and dealt with I think by a lot of the companies within this segment there's also I think still some confusion regarding the difference between mobile homes and modular homes and modular is a word that is used interchangeably with prefabricated homes both of those terms prefabricated and modular seem to have some downsides or negative associations and in the case of modular some people think that modular is just a synonym for mobile homes and of course mobile homes have negative connotations with being cheap or being something that perhaps is used for holidays but not as permanent dwellings and so those again are conceptual issues that I think need to be considered very seriously by companies in this segment especially if they want to see the growth of recent years continued and indeed accelerate however interestingly visually as surveys have shown that individuals can actually rarely tell the difference between a modular home or a prefabricated home and a traditional site built home so despite those negative associations that people have when they hear words like mobile or sorry modular homes and words like prefabricated homes or prefab it remains the case that actually when it comes to looking at these homes people are unaware of the fact that some homes that are prefabricated are in fact prefabricated and so it's an interesting little kind of a prediction there that they have these negative associations with margarine prefab homes and yet they're not able even India to even distinguish them visually from traditional construction methods so that is something I think that needs to be leveraged the fact that the appearance of prefabricated and modular homes is actually really impressive and really good when compared to construe traditional construction methods and indistinguishable indeed so I think a lot of people are unaware of that fact and that needs to be put front and center when it comes to things like marketing so now we're moving into the nuts and bolts of the industry we're looking at some of the manufacturing issues and processes and indeed materials and the importance of materials within this industry I think lean manufacturing is really a key in this industry based on looking at various real world companies you come away with a strong impression that lean manufacturing is really central and it is something that is almost necessary within this industry rather than something of a luxury or something that is a kind of competitive advantage over others within the industry it really is becoming a standard most modern prefabricated housing companies rely at least to some extent on lean manufacturing principles and what is lean manufacturing in case you've forgotten from your a1 studies this is the production and management philosophy that considers any part of the enterprise which does not directly add value to the final product to be superfluous in other words it is not necessary lean manufacturing focuses on value creation and the elimination of waste and non-essential processes a key aspect of this is the prin the prefab context in particular is what is called design for manufacture and assembly or DFM a and what is this DF MA in case you haven't come across it yet it's the combination of two related methodology designed for manufacture is the first part which means the design for ease of manufacture of the parts that will form a product so in other words this is the idea that when a product is being designed the designer are actually aware of how this is going to be manufactured and whether or not it's actually going to be relatively easy to manufacture so the idea here is that you don't design something that is almost impossible or really really costly and difficult to actually manufacture and that the manufacturing process is available in form and to some extent at least constrict and determine what kinds of designs are allowed or are permissible or acceptable so this means that there has to be really close kind of interconnectivity and collaboration process between the manufacturers on the one hand and the designers on the other hand design for assembly then is a similar concept except in this case we're thinking of the designers are thinking of the ease of assembly of the final product so you've got the manufacturer of the individual components and parts first and then you have the actual assembly or putting together of the manufactured parts and so the design team also needs to be able to think ahead as to whether or not what they're going to be producing and what they've designed for production is going to be easy and relatively cost free to assemble so those two ideas together form this idea of D F M a and D F M a then of course is central to executing successfully the lean manufacturing philosophy now there are some interesting points to bear in mind here in terms of potential limitations and conflicts that might arise as a result of really trying to enforce the DFM a idea to to rigidly or to strictly it can place restrictions on things for example like customization for customers and it does raise potential issues in terms of design priorities so think of the question here are we designing for the customer or are we designing primarily for ease of manufacturing for ourselves which should take priority so that is actually a really interesting managerial and indeed strategic question to consider here you might be thinking well it's pretty straightforward when you want to have lean manufacturing you've got to design things in a way that will Maxima is cost-saving reduce the amount of waste in manufacturing make it as easy as possible to manufacture and as easy as possible to assemble but then you've got to bear in mind of course that you do have a customer to take into account as well and it might well be that there is actually a conflict between what the customer wants in the one hand in terms of design and what that implies in terms of whether or not it's actually easy to manufacture and easy to assemble and whether it actually is consistent with the procedures and indeed the technologies that are in place existing within the company already that allow for certain kinds of things to be created and certain kinds of things to be assembled so an interesting point to bear in mind there and a potential conflict could arise for a company indeed like jord homes in terms of their customization and the degree to which they want to tailor their designs as much as possible to the at the desires and to the aesthetic wishes of their customers
