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Ateneo Graduate School of Business

Strategic Management Paper

on

Submitted to:

Professor Surtida

STRAMA G06

Submitted by:

Ryan Carlo Santos

MBA Candidate

12 December 2009

1
Table of Contents

Executive Summary 4
I. Introduction 6
II. Research Design and Methodology 10
1. Research Design
2. Scope and Limitation
III. External Analysis 12
1. Economic Performance and Forecast
2. Political and Government Aspects
3. Environmental Factors
IV. Industry and Competitor Analysis 22
1. Industry and Market Segments
i. Residential Housing Product Categories
ii. Market Size and Growth
iii. Market Segments and Trends
iv. Pricing
v. Distribution Channels
vi. Advertising and Promotion
2. Porter’s Five Forces of Competitive Analysis
3. Competitive Profile Matrix
4. External Factor Evaluation Matrix
5. Strategic Issues based on External Factors
V. Company Analysis 56
1. Vision Mission of the Company
2. Internal Audit
3. McKinsey 7 S Framework
4. Strategic Issues based on Internal Factors
VI. Strategy Formulation 90
1. SWOT Matrix
2. SPACE Matrix
3. Internal-External Matrix
4. GRAND Strategy Matrix
5. Summary of Strategies
6. Quantitative Strategic Planning Matrix

2
VII. Strategic Objectives and Recommended Strategies 104
1. Strategic Objectives
2. Recommended Business Strategies
3. Recommended Organizational Strategies.
4. Financial Projections
VIII. Departmental Actions and Functional Strategies 126
1. Strategy Map
2. Departmental Actions and Functional Strategies
IX. Strategy Evaluation and Performance Metrics 133
1. Balanced Scorecard
2. Contingency Planning
X. References 137
XI. Appendix 139

3
EXECUTIVE SUMMARY

DMCI Homes is the property development arm of DMCI Holdings, a diversified corporation with

interests in construction, mining, power generation, water distribution, infrastructure and property

development. The property developer envisions being the leading builder of residential communities for

the middle income market.

The property industry is recovering from the economic down turn through the growth of key customer

segments such as the OFW and BPO market as well as the emergence of a new business district. The

industry has now settled as reflected by a modest year-on-year growth rate of 2% and stable raw materials

and housing prices. Other external factors property developers face include the projected rise of the

interest rates and the impact of climate change. Overall responsiveness of DMCI to its external

environment is modest. Its 2.70 EFE rating is due to its lackluster response to the growth of alternative

markets (BPO and retirement industry) moderated by its average response to the economic recovery and

continued growth of the OFW sector.

The real estate industry is led by three major players each dominating in a specific income segment. In the

middle income segment, Megaworld is a clear market leader both based on CSF rating and market share.

DMCI has a modest competitive position with a CSF rating of 2.30 given its weak capitalization and poor

accessibility of its location moderated by its price competitiveness. An opportunity exists for DMCI to be

a clear second given that the market followers have relatively similar market shares.

Internally, most of the company’s strengths are owed to its synergy with DMCI’s construction

subsidiaries. The operational synergy has allowed DMCI to pursue an overall cost leadership – best value

strategy. Despite this, DMCI is given a modest IFE rating of 2.35 due to its financial weakness caused by

4
its poor capitalization and slower inventory turnover. The latter is a symptom of an inadequate

distribution network which is not able to absorb the significant buildup in inventory.

Market Development and Market Penetration strategies will be most appropriate strategy for the company

to achieve its strategic objective to be a strong market follower. Market development strategies will be

geared to address emerging markets by (1) offering innovative housing solutions to the BPO market and

(2) strengthening international market presence in countries with a large and growing OFW population.

Market penetration strategies includes (1) launching an integrated marketing communications plan (2)

upgrading the company’s website to be e-commerce capable (3) enticing existing homeowners to provide

referrals and (4) strategic land banking initiatives around the BGC area. Intensive strategies will be

complemented by a (1) robust sales and operations planning to have leaner inventory levels and (2)

capital build up to resolve solvency issues, funding gaps and high financing costs.

Through these strategies, DMCI’s vision to be a clear #2 in terms of market share will be realized with

revenues reaching 9.3B by 2012. The operations strategy of introducing S&O planning will align the

company’s turnover of inventory closer to the industry standard. Owing to its financing strategy, DMCI

will not only be more solvent but cost of financing will also be reduced. This is a prudent measure given

an expected high interest environment. Increase in revenues, better control of inventory and financing

cost will allow DMCI’s net income to grow further to 1.5B by 2012 from 916M this year.

5
I. INTRODUCTION

In 1954, David Consunji formed DM Consunji. The construction company won the bid to construct

chicken houses for the Bureau of Animal Industry. From its earlier projects, DM Consunji has earned a

reputation of on time delivery, quality work and a pioneer of advanced construction technology. Today,

DMCI is acknowledged as the first triple A rated Philippine construction company and an industry leader.

It has built over 500 projects including major landmarks such as Mactan Shangri-la Hotel, Manila Hotel,

Westin Philippine Plaza, Asian Hospital, Manila Doctor’s Hospital and the New Istana Palace in Brunei.

From its construction ventures, DM Consunji evolved into DMCI Holdings. DMCI Holdings is a multi-

billion peso conglomerate majority owned by the Consunji family1. DMCI Holdings has a diverse

business interests such as mining (Semirara Mining), power (DMCI Power), water (Maynilad and Subic

Water) and infrastructure (Tarlac La Union Express Way). In 1999, DMCI Holdings formed its housing

division – DMCI Project Developers under the brand name DMCI Homes.2 DMCI Homes capitalizes on

its synergy with DM Consunji (construction) to control the quality and cost of its developments.3

DMCI Businesses:

1
As of 31 December 2008, DMCI Holdings is 51% owned by Dacon Corporation which is a holding company for the business interests of the
Consunji family.
2
DMCI Homes is a wholly owned marketing subsidiary of DMCI Project Developer. For this paper, DMCI Project Developers Inc and DMCI
Homes will be synonymously referred to as DMCI Homes.
3
http://www.dmcihomes.com/company_history.php

6
For ten years, DMCI Homes has been offering residential communities to modest income families and

has since built 25 projects mostly concentrated in the Mega Manila area. The developer began with Lake

View Manors (1999) followed with Hampstead Gardens (2001). In 2003, it was more aggressive by

building bigger developments with more amenities through its East Ortigas Mansions, Villa Alegre and

Mayfield Park developments. DMCI Homes’ current subdivision and condominium projects include

Cypress Towers in Fort Bonifacio Global City (BGC), Magnolia Place in Quezon City and Dansalan

Gardens in Mandaluyong. Its developments are identified with resort-type amenities and large open

spaces. DMCI has also entered into residential leisure estate development through its Alta Vista project in

Boracay.

The company currently targets young middle income families and distributes its products through its in-

house sales and external brokers both locally and abroad. The company formed partnerships with foreign

brokers in 12 countries in Asia, Europe and United States to capitalize on the emerging OFW market.

DMCI Homes is contributing a larger part of DMCI Holding’s revenues and income. In 2008, its revenue

contribution increased from 13% to 19% of DMCI holdings Php 21.1B consolidated revenue. Property

development is the third largest income contributor next to construction and mining (top contributor).

DMCI Homes also contributes to 26% of the conglomerate’s Php 2.0 B consolidated net income4.

4
2008 DMCI Holdings Annual report.

7
DMCI Homes Revenue Contribution5

DMCI Homes Income Contribution6

Revenues as of 2nd quarter of 2009 has reached 1.87 billion (2% higher from last year) with sales volume

of 679 residential and 212 parking units with half of the sales coming from existing projects such as

Dansalan Gardens, Riverfront residences and Raya gardens. The remaining revenues are coming from

newer projects such as Cypress Towers and Tivoli Gardens.

5
Total Revenues in millions of Pesos. For DMCI Homes, includes real estate sales, finance income, fx gains,
dividends and other income .
6
Net Income in millions of Pesos.

8
The company’s head office is located in Bangkal, Makati though it has several sales and property

management offices across Metro Manila. Isidro Consunji resides as the president of DMCI Homes. He is

also the president and CEO of DMCI Holdings. The day to day operations of DMCI Homes is being done

by its managing director – Alfredo Austria7. As of end of September 2009, the company has around 300

probationary and permanent employees8.

7
2007 DMCI Holdings Annual Report.
8
Interview with Teresa Tiongson (DMCI Homes Senior HR Manager)

9
II. RESEARCH DESIGN AND METHODOLOGY

Research Design

Macro economic data used in the external analysis was gathered from the websites of various government

offices such as the Bangko Sentral ng Pilipinas and the National Statistics Office. These government

offices also have projections on macro economic growth which was collaborated by projections from the

Economist and other private research 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 such as Philippine

Daily Inquirer, ABS-CBN and Business World.

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

obtained from both DMCI Holdings and DMCI Homes as well as its key competitors from the Securities

and Exchange Commission. Aside from providing financial data, the published annual reports also serves

as a good source 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 i.e. projects are of similar nature (high rise

residential), in close proximity to one another and will be completed within the same year.

10
To provide a complete internal assessment of the company, a questionnaire was emailed to senior DMCI

Homes managers last November 2009. Their opinions provided insight to the company’s internal

environment.

Scope and Limitation

This paper will be limited to DMCI Homes’ real estate ventures in the Philippines. The paper will focus

on how the company can compete in the Philippine market and will no longer delve into the feasibility of

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

estate product of DMCI Homes i.e. high rise residential real estate. Its other products and services such as

its resort project and its property management will no longer be focused on due to its marginal revenue

contribution.

Due to the timing of the submission of this paper, only the 2006 to 3rd quarter 2009 audited financial

statements were obtained from the Securities and Exchange Commission. Annual 2009 financial

statements were projected based on the 2009 income and sales projection of DMCI. The strategies

recommended in this paper will affect the financials of the company in 2010 onwards.

11
III. EXTERNAL ANALYSIS

3.1 Economic Performance and Forecast

3.1.1 OFW remittances to grow by 6%

Remittances of Overseas Filipino Workers have experienced remarkable growth in the past years. In

2008, remittances were valued by the Bangko Sentral ng Pilipinas at $16.4B. This is 13.7% higher from

last year. With the global economic downturn causing massive workforce downsizing in the United States

and Europe, the BSP initially forecasted a flat growth for 20099. To cope with the global crisis, the

government has aggressively marketed our Filipino workers abroad and forged hiring agreements with the

Middle East, Japan, Canada, Korea and Australia. These measures were felt in the first months of the year

as there was a 2.8% YOY increase as of May 2009 ($6.98B)10

The tenacity of the OFW remittances growth caused BSP to revise its figures to $17.1B or a 4% growth.

Economic recovery is seen to happen in 2010. As the US and European labor market begins to recover,

2010 OFW remittances has also been upwardly revised to $18B or a 6% growth11.

9
http://www.bsp.gov.ph/publications/media.asp?id=2119
10
http://www.bsp.gov.ph/publications/media.asp?id=2014&yr=2009
11
Chipongian, Lee. “BSP ups BOP forecast for 2010 to 5B”. 14 Oct 09. http://www.mb.com.ph/node/224721/

12
As of September 2009, the US remains the top destinations for OFWs though the number of OFWs

deployed dropped by 10% due to the economic crisis. Among the fastest growing countries for OFW

deployment are Canada, Japan, Germany and Norway12.

Relevance:

Overseas Filipino Workers have been widely acknowledged as a major 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 primary residence but also as an

investment. The BSP estimates 11.2% of OFW remittances go to real estate purchases13 or Php 91 B

potential market (Refer to Appendix 2: Market Segmentation).

12
www.bsp.gov.ph
13
http://www.bsp.gov.ph/publications/media.asp?id=2031

13
DMCI is targeting OFWs both through its sales offices both locally and abroad. 15% of the company’s

2007 sales are from its international offices, most of which are OFWs. 14 This is lower compared to other

real estate companies such as Ayala Land where 25% of sales are from OFWs15. In terms of market

presence, DMCI has offices in 12 countries. DMCI has sales offices and broker partners in 7 out of 10 top

OFW destinations.16

3.1.2 Global Economic Recovery from the Subprime crisis

From late 2008 to 2009, prices of mortgaged back securities crashed resulting in the collapse (and bail-

out) of major investment banks. The inaccessibility of credit caused US and European citizens to defer

their housing spending. US residential home sales for June 2009 were down 21.3% compared to previous

year17. European housing market is also expected to remain weak as evidenced by falling housing prices18.

The Philippines suffered to a less extent. GDP slowed down but remained positive to 0.5%19. According

to Colliers International, the slowing economy slowed down office and residential markets although the

commercial real estate market remains resilient.

Driven by the coordinated intervention of the government, continued growth of countries like China and

renewed investor confidence, global recovery is seen at the latter part of the year.20. The pump priming

activities of the government has positively affected the economy and the Philippines is expected to

14
http://www.dmcihomes.com
15
2008 Ayala Land Annual Report.
16
www.bsp.gov.ph
17
http://www.census.gov/const/newressales.pdf
18
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId =dc59446f-d563-41a9-947c-19ad8b3edd54
19
Murray, Dr Jane. “Asia Pacific Economy: Signs of a turnaround but outlook remains subdued”. 2nd quarter 20009.
www.joneslanglasalle.com
20
http://business.inquirer.net/money/breakingnews/view/20090425-201415/Signs-of-recovery-seen

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gradually recover from the crisis this year. The gradual economic recovery has positively impacted the

residential real estate sector at the 2nd quarter of 200921.

Relevance:

DMCI has the opportunity to take advantage of a possible rebound of sales from crisis hit countries. 67%

of 2007 international sales are from US and Europe, countries which are hit the hardest by the crisis. The

company has tie-ups with real estate brokers in 11 countries around Asia, Europe and United States22.

3.1.3 Emergence of Bonifacio Global City as a new business center

After the government privatized the Bonifacio Global City (BGC) in Taguig, BGC experienced

continuous growth. Colliers International mentioned that in the next three years, BGC’s residential supply

will rise by 8,297 units and 25 major residential projects will be completed23. By 2012, BGC’s gross floor

area will be at 2.6 million sq meters which is double the size this year. Residential units will reach 8,422

units, which is at par with Makati and exceeding Ortigas’ 7,000 units. The Taguig city government is also

investing heavily to improve the business center’s infrastructure by upgrading its transport system,

21
www.colliers.com
22
http://www.dmcihomes.com
23
http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Report/PDFs/Knowledge_1Q_
2009.pdf

15
building additional roads and creating additional amenities such as a science museum. Additional BGC

landmarks will include the 6 star Shangri-la Hotel (to be completed 2012), St Lukes Medical Center and

the country’s tallest tower24.

Relevance:

Megaworld, one of DMCI’s key competitors, has recently won the bid over Robinsons Land for the 8.38

hectare northern area of the BGC at a cost of 80,000 per square meter. It intends to spend 15.6B over the

next 20 years to develop this part of the BGC.

DMCI also has a development near the area. Cypress Towers, a 10,700 sq m. development located

adjacent to BGC25. DMCI also has a large lot (around 80 hectares) along C5 road and adjacent to the

BGC26 which the company can potentially use for future projects.

3.1.4 Continued growth of the BPO sector

The Business Process Outsourcing sector is composed of outsourced or off-shored back office, customer

care and research functions. By 2010, Jones Lang La Salle projects the industry to grow tremendously and

become a major contributor to the country’s economic growth. The Philippines will get 10% of the

market share representing USD 13 B or 8.5% of our GDP (compared to $3.3B or 5% of the 2006 GDP).

The sector will employ 900,000 employees in 2010 up from 285,000 in 200627.

Relevance:

24
Liu, Kristine Jane. “Bonifacio Global City expects to equal Makati Space by 2012.” Business World. 21 Sept
2009. http://www.abs-cbnnews.com/business/09/20/09/bonifacio-global-city-expects-equal-makati-space-2012
25
www.dmcihomes.com
26
Bworlsonline.com/online/property/inside.php?id=008
27
Marcelo, Kathy. What does the O&O roadmap say? May 2008. www.joneslanglasalleleechiu.com

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The BPO sector is a growing market of real estate companies. 82% of offices are located in Metro Manila.

In terms of office spaces, the sector will need 5.2 million square meters in 2010. Only 2.5 million sq.

meters are currently available and 1.7 million sq. meters are under construction. The scarce supply of 1

million sq. meters will be mostly in the Makati and Bonifacio Global City area.28 The demand for office

spaces will also extend to the residential sector. With 900,000 employees earning an average of $3,600

annually and spending 13.2% of that income on housing, the industry can potentially gain Php 20.4 B in

property sales (see Appendix 2: Market Segment Sizes).

3.1.5 Construction Raw Materials Prices to remain stable

In the previous years, there was a sharp rise in the global prices of construction materials such as cement

and steel due to the construction boom in China. By 2009, prices have stabilized due to the economic

downturn.

To measure the inflation of construction raw materials, the NSO prepares an index containing the prices

of major construction raw materials such as cement, steel, wood, pvc, glass etc in the National Capital

Region (NCR). The index has a base figure of 100 for 1985 prices.

In 2009, the index has been stable at the 458 to 465 range29. There is an expected temporary uptick in the

last quarter of 2009 due to the reconstruction of typhoon affected houses in the NCR. By 2010, prices are

expected to remain stable due to a modest economic recovery causing benign inflation of 3.5% to 5.5%

per government forecast30.

28
Marcelo, Kathy. What does the O&O roadmap say? May 2008. www.joneslanglasalleleechiu.com
29
www.census.gov.ph
30
Remo, Michelle. “Inflation Outlook Still Benign.” 2 November 2009. www.inq7.net

17
Relevance:

57% of company’s revenues are allocated to cost of construction. The cost includes cost of construction

and raw materials. Housing prices are heavily influenced by the cost of raw materials. Last year for

instance, when the CMWP Index shot up from 393 at the start of the year to 465.1 by the end of the year,

DMCI Homes had to increase its selling prices by 12% to recoup costs.

3.1.6 Interest Rates are projected to rise

As projected by The Economist, average lending rate will increase from 8.5% in 2009 to 9.6% in 2013.

Higher interest rates are mainly due to the inflationary impacts of increased spending in a recovering

economy31.

31
3 July 09 .http://www.economist.com/countries/Philippines/

18
Projected Lending Rate:

Relevance:

Bank lending rate is the base rate which housing loan interest rates are based. A higher lending rate will

mean a higher housing loan rate to potential home buyers. As clients would normally buy homes on

credit, stable home loan rates will encourage buying activity and be an opportunity for both the industry

and company.

3.2 Political and Government Aspects

3.2.1 Potential Charter Change

House Speaker Prospero Nograles has set in Congress’ agenda House Resolution No 737 which opens

land ownership to foreigners. Despite hesitations from the public, charter change will be at the top of the

legislative agenda of the house for the current session. Protests are mainly against the political

amendments to the constitution and less on the opening of land ownership32.

32
Cabacungan, Gil C. Jr. “Nograles: Charter change train back on track. “18 July 2009.
http://www.inquirer.net/specialfeatures/charterchange/view.php?db=1&article=20090718-216018

19
Relevance:

The passage of the law will allow the company to sell titled developments such as subdivision lots to

foreigners. It will also remove the maximum number of condominium units that can be sold to foreigners.

Currently, DMCI can only sell 40% of condominium certificates to foreigners33. Opening of land

ownership can generate potential sales for DMCI especially if DMCI will strengthen the operations of its

international offices in 12 countries.

3.2.2 Continued promotion of the Philippines as a retirement haven

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

Program to promote the country as a major destination for foreign retirees34. Continued patronage of the

new administration come 2010 will benefit the real estate sector. According to Philippine Retirement

Authority Chairman, Edgar Aglipay, there are 20,000 retirees who have registered with the agency in

2008. The figure is expected to grow to 24,000 retirees this year35. These 24,000 retirees have registered

with the agency to avail of tax perks if they buy real estate in the country.

Relevance:

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

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

since DMCI’s 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.

33
http://www.bcphilippineslawyers.com/foreign-ownership-of-land-in-the-philippines/371/
34
Fajardo, Fernando.” Can foreigner-retirees buy land here?” 22 Oct 2008.
http://globalnation.inquirer.net/cebudailynews/opinion/view/20081022-167846/Can_foreigner-
retirees_buy_land_here%3F
35
Ho, Abigail. 25 Aug 2009. US European Firms Eye RP retirement industry. www. Inq7.net

20
3.3 Environmental Factors

3.3.1 Heightened risk of flooding due to climate change

Last September 2009, the country was devastated by one of the worst typhoons to hit the country. One

month worth of rain fell in 6 hours when Typhoon Ondoy hit Metro Manila. This caused 5 meter high

floods and devastated houses in Cainta, Pasig and Marikina area36.

The UN notes that the intensified typhoon causing massive flooding is expected to continue as the

Philippines suffer the effects of climate change37. Floods will severely affect real estate developments

located low lying areas.

Relevance:

With the recent events, a growing consideration of home buyers is the risk of flooding in a development.

After being heavily hit by typhoon Ondoy, real estate projects in low lying areas such as Marikina, Pasig

and Cainta have suffered falling property values and experienced a drop in demand.

DMCI’s East Raya Gardens in Pasig was not severely affected by the flooding due to good drainage in

the area. Other DMCI developments were also spared38. Other industry players were not as fortunate.

Provident Securities, the developer of Provident Village in Marikina, is not only faced with a drop in

housing prices but bad publicity and law suits from its residents.

36
Ramos, Marlon. “Too much rain too soon.” 27 Sept 2009. www.inq7.net
37
Abbugao, Martin. “Floods a wake up call for climate change.” 29 Sept 2009. www.inq7.net
38
www.dmcihomes.com

21
IV. Industry and Competitor Analysis

4.1 Industry and Market Segments

4.1.1 Residential Housing Product Categories

HLURB is a government agency that issues housing licenses needed before a developer can sell a unit. It

classifies residential developments into four categories (1) high rise residential condominium (2) low cost

(3) socialized housing (4) medium cost & open market house and lot.

Condominium

House Bill 398 defines a condominium as “an interest in a real property consisting of a separate interest in

a unit in a … residential building and an undivided interest in common areas of the building ...”39

In 2007, HLURB recorded 77 projects that applied for licenses40. These projects had a total inventory of

19,369 units available for sale. By 2008, the number of condominium units being sold jumped by 150%

to 49,459 units41. At an average price of Php 3M (See Appendix 3: Competitor Pricing Survey), total size

of the high rise condominium market is at Php 148B – growing by Php 90B from last year.

39
http://erbl.pids.gov.ph/listbills.phtml?id=167
40
www.hlurb.com
41
http://colliers.com/

22
This housing type is one of the key products of DMCI as 16 out of its 25 developments belong to this

category.

House and Lot

House and Lot developments refer to a housing project where the land title is transferred to the buyer.

HLURB classifies these further as open market and middle income housing. Both types are not being sold

as socialized or low income housing. They’re being targeted to middle income and high end market.

House and lot can be sold as an independent unit or part of a subdivision development.

In 2007, there were 262 projects registered under this category42. These projects have an inventory of

58,943 units in 2007 which dropped by 9% to 53,513 units in 2008. This product category is valued at

Php 160B.

DMCI has 9 out of 25 projects belonging to this category.

Low Cost and Socialized Housing

Under the law, the socialized housing projects are high density developments worth Php 300,000 or

below. Low cost housing projects are worth between Php 300,000 to Php 1,250,000. Both are geared

towards low income families. This product category enjoys government perks such as tax incentives and

subsidies.

There were 345 developments as of 2007 in both of these sectors which are composed of 91,655 units. In

2008, this product category grew by 49% to 118,576. 14% of which is from the socialized housing and

the rest for low cost housing. Total market size given the prices is at Php 109 B.

42
www.hlurb.com

23
DMCI is currently not offering products belonging in this category.

4.1.2 Market Size and Growth (Value and Volume)

As of 2008, the total Philippine residential market is valued at 418B comprised of 221,548 units. In value,

the biggest contributor is medium cost and open market house and lots (38% on the industry). However,

this sector contracted by 9%. High rise residential condominiums are increasingly becoming a bigger part

of the market growing by 155% to contribute to 35% of the industry value. The low cost/socialized

24
housing products have the most number of units but because of the lower selling price, contribute only

26% of the industry value.

The Philippine housing sector has grown by 35% in 2008 with the high rise residential developments

contributing to most of the growth (155%). Year on year, the industry contracted by 3% during the second

quarter of 2009 as there was a 28% drop in the low cost housing sector. In the next 3 years, there will be

20,420 new units launched to the market most of them in the Bonifacio Global City where 25 new

condominium units will be completed (see external analysis).

4.1.3 Market Segments and Trends

4.1.3.1 Segmentation through Economic classification

The real estate market has been traditionally segmented based on economic classification as measured by

the budget of the buyer for a house. Given this criteria, the market can be segmented according to luxury,

affordable and low-cost buyers.

25
Luxury buyers are individuals belonging in the upper A market with an annual family income of above

2,000,00043. According to Colliers International, average price of homes being targeted for this group is

Php 129K/sq m as of 1Q 200944. Aside from having a high price per square meter, units are traditionally

bigger. Average size of a unit is around 140 sq meters for a 2 to 3 bedroom unit and costs an average of

Php 17 million (See Appendix 3: Competitor Pricing Survey). Luxury homes are also grander and are

centrally located within a business or a recreational area. Major real estate players that are tapping this

sector are Ayala Land Premier and Rockwell Land.

According to Colliers international, there are 5,420 units being sold to the luxury segment. Given the

price and size of the unit, this translates to Php 97 billion in market size or 23% of the industry (See

Appendix 2: Market Segment Size). According to Colliers international, growth rates for the luxury

segment will be flat as indicated by lower capital values of prime 3 bedroom units45.

43
Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle class.” 3 July 09.
www.bworld.com.ph
44
www.colliers.com
45
www.colliers.com

26
The middle income segment, also called the affordable segment, is catered to modest income buyers with

an annual family income ranging from Php 500,000 to Php 2,000,00046. Prices of these homes are higher

than 1.25 million but lower than the prices of luxury buyers. The segment is being targeted by numerous

firms including DMCI because of its size. The segment valued at 211M represents half of the industry

value (See Appendix 2: Market Segment Size).

The low cost segment is being catered to the CDE market with an annual family income of less than Php

500,00047. These buyers have a housing budget of less than Php 1,250,000. Buyers of this segment can

access financing from Pag-ibig. In 2007, there were 345 projects being launched for this sector bringing

in a total of 109B market size. The value of this segment grew by 58% in 2008.

4.1.3.2 Segmentation through source of income

46
Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle class.” 3 July 09.
www.bworld.com.ph
47
Definition per NSCB. Cabralez, Aizl. “ The growing significance of the middle class.” 3 July 09.
www.bworld.com.ph

27
The residential real estate market can be further segmented to highlight the emerging sectors of the

economy. The two major drivers of the Philippine economy are the continued growth of OFW and BPO

sector. As indicated in the external analysis, they are potential growth drivers of the industry.

11.2% of the projected $17.1 B worth of OFW remittances will go to housing. This provides potential

revenues worth 91B to the industry. With the 4% growth this year and 6% growth next year, real estate

companies are devoting more resources to cater to this segment. DMCI for instance has 15% of revenues

coming from OFWs while 24% of Ayala Land’s real estate sales are also from that sector.

Another segment to watch is the BPO segment. Since 2006, the sector more than doubled (215%) in the

number of workers it employs. By 2010, the sector will have 900,000 employees.48 At an average annual

compensation of $3,60049 and 13.2% of this income is spent on housing50, the sector is expected to be

worth Php 20B or 5% of the total industry.

4.1.3.3 Market Volume of Segments

Below is the summary of the number of units per market segment which was calculated based on segment

value and average price. The middle income segment was further categorized according to source of

income.

48
See external analysis
49
http://www.magellan-solutions.com/call-center-industry_people.htm
50
www.census.gov.ph. 2006 data of family expenditure of upper 70% income group.

28
4.1.4 Pricing

Pricing strategy will depend on the economic classification being targeted by the firm. Pricing groups can

be classified by luxury, affordable and low cost pricing schemes. Affordable pricing is targeted to middle

income buyers. The price of a development can depend on the price per square meter and the unit size.

Unit size will also depend on the economic group the developer is targeting.

DMCI is currently marking its developments in the affordable pricing scheme similar to its key

competitors – Megaworld, Robinsons Land and Avida Land. (See Appendix 3: Competitor Pricing Survey

for a detailed list of prices per project)

29
4.1.5 Distribution Channels

The developer can choose to either distribute their products via in-house sales or external brokers.

In house Sales

Real estate companies have their own sales personnel to distribute their products. In house sales can be

located within or outside the country. Aside from a fixed salary, real estate companies also compensates

its in-house sales agents via commission over sales.

83% of DMCI’s sales are from in house sales.

External Brokers

Developers can opt to form brokering agreements with external firms. The commissions paid to external

brokers are much higher compared to commission paid to in-house sales. Commission rate of the industry

averages at 6% of listed price. Commissions are shared by the sales agent and the brokerage firm.

External brokers can be contracted to exclusively distribute the project of a single developer.

17% of DMCI’s sales are coursed via brokers.

30
Re-sellers

Buyers can also act as alternative distribution channel. There are investors who acquire properties for the

purpose of re-selling the property once the prices have appreciated. This distribution channel acts both as

a distribution channel and as a competitor since they can capture demand that could otherwise have gone

to the developer.

4.1.6 Advertising and Promotion

To stimulate demand, developers use several media types. Outdoor advertising is the most popular media

type being used. Outdoor ads are being placed along major thorough fares in Metro Manila such as

EDSA. Companies are also utilizing television, radio and print ads in their brand building activities.

Increasingly, companies are using its websites to inform clients of new projects and construction updates

of existing projects. Companies such as Ayala Land are also making their websites e-commerce capable

by creating the infrastructure to allow online reservations. Property developers are also using public

relations by contracting writers to discuss its property offerings.

Promotion spending has been increasing at an average rate of 27%51 primarily through the promotion of

the company’s high rise development. As discussed in the external analysis, high rise developments

jumped by 150%. To stimulate demand from the increasing supply, companies have increased their

promotion activities.

51
Based from the 2007 and 2008 marketing and advertising expenses of key competitors.

31
32
4.2 Porter’s 5 Forces of Competitive Analysis

The residential real estate industry is composed of numerous small and large players. The 9 major players

enumerated below 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 scope

of the industry does not include rental properties although this is an important substitute.

The following are the major market players with industry orientation and their 2007 vs 2008 residential

real estate revenues.

Ayala Land, Megaworld and Vista Land have the largest market share representing 3.7%, 3.0% and 2.5%

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

Ayala Land Premier and Alveo Land dominates the high rise industry. Ayala Land also has ventures in

the middle income segment through Avida Land and is venturing into the low cost housing. Megaworld is

the leader of the middle income segment while Vista Land through Camella Homes leads the low cost

segment.

33
Concentrating in the middle income segment, there is a large disparity in revenue share of Megaworld

with the market followers (DMCI, Robinsons, Avida, SM, Filinvest). However, the market followers have

the same level of sales (2 to 4 Billion).

4.2.1 Threat of Competition - Strong

Competitive rivalry is intense due to the numerous players in the real estate market, flat prices, industry

growth and high exit barriers.

Numerous players in the industry

According to HLURB, in the first half of 2008 alone, there were already 937 housing projects registered

with the agency. Out of this, there were 63 condominium projects being built in the Philippines52.

52
www.hlurb.com

34
Housing prices will remain flat

Nominal and real housing prices will have a near flat growth rate from a height of 10-15% in mid 2007.53

The drop came from the impact of the subprime crisis where buyers especially OFWs deferred their

housing purchases.

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)54. Exiting

the industry will be costly given the large amount of fixed asset investment.

4.2.2 Threat of New Entrants – Weak

Entry Barrier – High Capital Requirement

53
http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Report/PDFs/Knowledge_1Q_2009.pdf
54
2008 Ayala Land Annual Report.

35
Sizeable capital is needed to enter the industry. Large capital is needed for the construction of high rise

residential projects and purchase of land. Based from published reports55, the key players have an average

CAPEX budget of 8.3B. A new entrant should have this amount of capital to pose a significant threat to

the company.

Entry Barrier – Land Availability

Another important barrier is the high cost and limited availability of good locations. Prices of Makati

CBD and Ortigas Area for instance, are steadily increasing at .6% to .9% per year56. A new entrant must

also obtain a large area of land. Land area of a typical DMCI property is around 8000 square meters57. A

new entrant must obtain a single track of land close to that size to compete with a developer the size of

DMCI.

Recent New Entrant

A new entrant should overcome the strong entry barriers of capital and land requirements. One new

entrant is Eton Properties of the Lucio Tan group. Eton Properties used the massive land bank of other

Lucio Tan subsidiaries such as Philippine Airlines, Philippine National Bank and Allied Bank to

overcome the barrier of entry of land availability. Being a member of the Lucio Tan group of companies

55
2008 Annual Reports of Key Competitors.
56
http://colliers.com/Content/Repositories/Base/Markets/Philippines/English/Market_Report/PDFs/Knowledge_1Q_
2009.pdf
57
DMCI Holdings SEC Disclosure Form 17-Q.1st Quarter 2009.

36
also allowed it access to capital. Despite these advantages, Eton Properties has negligibly affected the

industry with only 90M in sales or a 0.02% market share58.

4.2.3 Bargaining Power of Suppliers – Moderate

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 57% of the industry’s revenues (See Financial Statement Analysis).

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

prices are being monitored but not being controlled by the DTI. Current raw materials prices have

stabilized (see external analysis). 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.

4.2.4 Bargaining Power of Buyers – Weak

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 bargaining significantly off the developer’s

standard price. Aside from lack of economies of scale, bargaining power of buyers is also weakened by

the fact that housing is a primary human need.

4.2.5 Potential for Substitutes - Strong

58
http://etonpropertiesphilippines.com

37
Substitutes are residential houses that are constructed from the ground up by the owner of the property.

House design is more customized compared to the standard property offerings of residential developers.

However, location of the property is farther from commercial business districts.

Another major substitute are 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.

38
4.3 COMPETETIVE PROFILE MATRIX

The choice of competitors was limited to three – Robinsons Land, Avida Land and Megaworld

Corporation. These companies were chosen on the basis of the similarity pricing and level of quality.

Quality was defined on the basis of property design, amenities and property maintenance. Prices per

square meter were bench marked across different companies for completed projects within Metro Manila.

These properties deliver the same level of quality and their prices range from Php 80,000 to 100,000 per

square meter. These companies are in the affordable segment or companies targeting middle income

families. Given these categories, the Rockwell land, Alveo Land, Ayala land Premier and Camella Homes

were excluded since they are not competing in the same income segment as DMCI homes.

4.3.1 Key competitors of DMCI

Competitor #1 Robinsons Land

Robinson’s Land is the property arm of JGB holdings which is owned by the Gokongwei family.

Robinson’s Land is engaged in various sectors of the property market. It develops and markets

commercial spaces, office spaces and residential comes. In 2008, its sales from its residential division

reached Php 4.4 Billion and its second quarter 2009 sales have already reached Php 1.887 Billion. Its

existing developments include Trion Tower (Fort) and Gateway Regency (Pioneer).

Robinson’s Land targets the middle income group similar to DMCI as exemplified by its USP “Great

Homes, great value”. Price range of a typical development is at Php 90 thousand per square meter which

is close to DMCI’s properties priced at Php 81 thousand per square meter. Quality of development is also

similar to DMCI.

39
Competitor # 2 Megaworld

Megaworld, a property development firm founded by Andrew Tan, is engaged in residential, office and

commercial development. It is considered as the market leader in the middle income residential segment

with developments priced at Php 90,000 per square meter59. Full year residential revenue is Php 12.43 B

out of its total 15.4B 2008 revenues.

Megaworld is known for its township developments which follows its USP, “Live, work and play”.

Township developments combine residential, commercial and office buildings in an area. Its most notable

development is Eastwood City.

Competitor #3 Avida Land

Ayala Company is a diversified conglomerate with interest in telecommunications (Globe), banking

(BPI), semi-conductors (Integrated Microelectronics) and water distribution (Manila Water). Ayala Land,

its property arm, is the country’s most experienced property developer.

Ayala land is further divided into commercial properties (Ayala Malls), corporate businesses (Laguna

Technopark and Ayala businesscapes), geographic businesses (Cebu Holdings) and residential

development. Its residential area is segmented by target market. Ayala Land Premier and Alveo Land

caters to the luxury sector with developments such Serendra, while Avida Land caters to the affordable

segment with projects such as Avida Towers.

Among the Ayala subsidiaries, Avida land is DMCI’s direct competitor. Price per square meters for

Avida Towers is at Php 100 thousand per square meter similar to DMCI. Quality of property design and

59
2008 Megaworld Annual Report.

40
amenities is also similar to DMCI Homes. Avida and DMCI both target the same market. Avida’s target

market is mentioned in its USP (“Affordable living at its best”) and its mission statement (“We are the

recognized leader and the most preferred provider of quality shelters and communities for the average

Filipino family”)60.

4.3.2 Critical Success Factors

CSF # 1 Adequate Capitalization

Capitalization can be measured by the equity value in its balance sheet and through a leverage ratio(debt

to assets ratio). Higher debt would limit future borrowings or attract capital to fund future projects. The

parent company’s capitalization should also be considered since the company can finance projects

through its parent company.

Importance Weight: 30%

Large capital is needed to be able to purchase land, develop properties and fund other strategies..

CSF # 2 Price Competitiveness

To compare on the basis of price, newly constructed projects of a company were chosen based on their

proximity to one another and the stage of completion of the project. Prices were scanned for new

developments located around the same area.

Importance Weight: 20%

Real estate is a big ticket purchase. Middle market buyers will do their due diligence to get the best value

for their money. The price sensitivity of buyers makes the price of the development a key component in

60
http://www.avidaland.com/about_us1.php

41
their buying decisions. Customers will be looking at a product that offers them the greatest value for

money.

Real estate developers will need to address the competitiveness of the pricing of their product while

protecting their margins. Players that are targeting the middle market (such as DMCI Homes) are focusing

on the affordability of their homes.

CSF # 3 Accessibility of Location

Proximity of a location to a business or commercial district

Importance Weight: 20%

Buyers consider the location of the development in the purchase decisions. The area should be wide

enough to accommodate a high rise building and amenities. It should also be in proximity to business

centers or schools. Thus, acquisition of large lots in areas with high population densities is a key factor to

the success of a player in the industry.

CSF # 4 Wide distribution network

Adequate number of internal and external sales personnel is necessary to move inventory. Reach of

distribution should be both local and international buyers. This can be measured through number of

international and local offices sales offices.

Importance Weight: 10%

To be successful in the industry, a developer should have a wide distribution network. Distribution

includes in house sales and external brokers both inside and outside the country. Sale of real estate

requires long sales effort since it’s a high ticket item. Thus, the company should have adequate number of

sales people to build relationships with prospects and turn them to potential sales.

42
CSF # 5 Number and quality of amenities in the development

A survey was done where two of DMCI’s and its key competitor’s developments was visited to assess the

quality and number of amenities of a project. The allocated area for the amenities was also evaluated

against the total land area of a project.

Importance Weight: 5%

Good property design and amenities draws clients to purchase a property. Common amenities such as

swimming pool, gardens and recreational areas add value to the development.

CSF # 6 Size of Unit

The size of a unit is measured as number of Square Meters of a standard 2 bedroom unit

Importance Weight: 5%

Buyers are looking at the size of the unit. The unit should be big enough for the occupants to live

comfortably.

CSF #7 Track record of developer

This is measured by the reputation of projects the developer has successfully completed.

Importance Weight: 5%

The track record of the developer is an important consideration for the buyer. Condominium projects are

usually sold on a pre-selling basis. In pre-selling, the buyer will not see the actual development but only a

model of it. The buyer has to trust the developer to deliver the quality it promised. For trust to be

established, the buyer will consider the track record of the firm.

43
CSF#8 Marketing Capability

This can be measured through the marketing spend of the company for 2008. The importance of

promotions activities to the company can be quantified by the budget allocated to it.

Importance Weight: 5%

For companies to compete well, it has to allocate a budget for marketing activities such as product

promotion to increase brand awareness and recall.

4.3.3 DMCI Homes CSF ratings

CSF#1 DMCI’s Capitalization61 (1)

DMCI Homes has a total capital of Php 3.9 B as of 2008 bringing its debt to assets ratio of 0.67 which is

higher than the industry average of 0.45. DMCI is the most heavily leveraged among the four companies.

CSF#2 DMCI’s Price Competitiveness (4)

Based from the price scanning done on the recent developments of the key competitors, DMCI’s current

development (Cypress Towers in Taguig) is currently selling at Php 81,034 per sq meter. This is the

lowest among the four companies.

In its annual statement, DMCI noted that its pricing 10-15% better than competitors owing to its

operational synergy with DMCI’s Triple A construction subsidiary.

CSF#3 DMCI’s Accessibility of Developments (1)

61
See Comparative Financial Ratio

44
DMCI intentionally locates its developments outside of a Central Business District to lower unit cost. For

instance, Cypress Tower is built adjacent to the Fort (near C5). DMCI’s Dansalan Gardens is built outside

Pioneer area in Boni while Tivoli Gardens, is built outside the Makati Business area.

CSF#4 DMCI’s Distribution Network (2)

DMCI has international sales offices in 12 countries fewer than Megaworld and Avida Land. Its local

reach is also limited compared to Avida and Megaworld and at par with Robinsons Land.

CSF#5 DMCI’s Number and Quality of Amenities (4)

DMCI projects follow a resort living theme. Surveying the four sample developments, DMCI has the

most number and best quality amenities. It also allocates larger land area to common facilities.

CSF#6 DMCI’s Size of Unit (4)

A typical two bedroom unit is 58 sq meter (Cypress Tower). This is at par with Robinsons Land.

CSF#7 DMCI’s Track Record (3)

DMCI is only 5 years in the industry and has completed 11 developments. Despite being relatively new in

the industry, a higher rating was given owing to its affiliation with its sister company, DM Consunji

which is a triple A builder and has built landmarks such as Mactan Shangrila-Hotel, Manila Hotel,

Westin Philippine Plaza, Asian Hospital, Manila Doctor’s Hospital and the New Istana Palace in Brunei.

CSF#8 Marketing Capability (4)

It has the largest marketing budget of 228M for 2008. Promotion activities include TV and outdoor

advertisements.

4.3.4 Robinsons Land CSF Rating

45
CSF#1 Robinsons’ Capitalization (3)

Robinsons Land has a total capital of Php 22 B as of 2008 bringing its debt to assets ratio of 0.43.

Robinsons Land is also a publicly listed company which allows it access to additional capital through the

stock market.

CSF#2 Robinsons’ Price Competitiveness (3)

Robinsons’ current development, Trion Tower in the Fort, Taguig is currently selling at Php 90,439 per sq

unit (as of 20 Aug 09) based on quotes of an online seller.

CSF#3 Robinsons’ Accessibility of Developments (4)

Developments are built within the business districts. Its developments (Gateway, Trion Tower) are within

the business districts of Fort Bonifacio and Pioneer. Some of its developments are also placed

strategically near Robinsons Malls.

CSF#4 Robinsons’ Distribution Network (3)

Robinsons distribution network locally and abroad which is at par with DMCI.

CSF#5 Robinsons’ Number and Quality of Amenities (3)

From the survey done, Robinsons Land projects have good but limited number of amenities compared to

DMCI. In terms of quality of its common areas, its at par with Avida and Megaworld.

CSF#6 Robinson’s unit size (3)

A typical two bedroom unit is sized at 57 sq. m. (Trion towers)

CSF#7 Robinson’s Land Track Record (3)

46
Robinsons land has 6 major residential developments aside from the commercial and office spaces it has

built. Most notable developments include the various Robinsons Malls dotting the country.

CSF#8 Marketing Capability (3)

Robinson’s marketing spend is at par with Megaworld at 103M for 2008. Outdoor advertisements focus

on the affordability of Robinsons Land developments.

4.3.5 Megaworld’s CSF Rating

CSF#1 Megaworld’s Capitalization (4)

Megaworld has a total capital of Php 24 B as of 2008 and is the least leveraged with a leverage ratio of

0.40. Megaworld is also a publicly listed company allowing it to directly access funds from the stock

market to fund its investments.

CSF#2 Megaworld’s Price Competitiveness (3)

Megaworld’s current development, Mckinley Hill in Fort, Taguig is currently selling at Php 87,179 per

sq unit (as of 10 Aug 09) based on quotes of an online seller.

CSF#3 Megaworld’s Accessibility of developments (4)

Megaworld’s residential developments are in close proximity with office spaces and commercial districts.

It pioneered the concept of townships embodying its USP, “Live-work-play-learn”. Eastwood City for

instance has a mix of residential condominiums, malls and office

CSF#4 Megaworld’s Distribution Network (3)

Megaworld has a large distribution network abroad. It has market leadership over major OFW

destinations such as the Middle East. It also has a respectable distribution network locally which is at par

with DMCI and Robinsons Land.

47
CSF#5 Megaworld’s Number and Quality of Amenities (2)

From the survey done, Megaworld has the least number of amenities from the four companies. Its

developments also have the smallest allocated land area devoted for amenities.

CSF#6 Megaworld’s Unit Size (4)

A typical two bedroom unit has a size of 92 sq. m. (McKinley hill)

CSF#7 Megaworld’s Track Record (3)

Megaworld has built 6 townships which contains a mix of residential, commercial and office spaces. Its

most popular development is Eastwood city. One township will have several condominium, office and

commercial buildings.

CSF#8 Megaworld’s Marketing Capability (3)

Megaworld’s marketing spend is at par with Megaworld at 118M for 2008.

4.3.6 Avida’s CSF Ratings

CSF#1 Avida’s Capitalization (3)

Avida has a total capital of Php 2.9 B as of 2008 and with a total debt to assets ratio of 0.52. However, its

affiliation with Ayala Land should be taken into account. Ayala Land is a publicly listed real estate

company and is the most well capitalized property developer with a total equity of 55B. Ayala Land’s

capitalization offsets the capitalization of its subsidiary, Avida.

CSF#2 Avida’s Price Competitiveness (2)

48
Avida Land’s current development (Avida Towers Makati West in Makati62 is currently selling at Php

100,040 per sq unit (as of 20 Aug 09). Avida’s developments are the most expensive among the four

companies.

CSF#3 Avida’s Accessibility of developments (3)

Avida’s developments are situated near but not within a business area. Its development in Makati for

instance is a close drive to the Central Business District but is still outside the CBD.

CSF#4 Avida’s Distribution Network (4)

Avida Land has a wide distribution network both locally and abroad owing to its affiliation with Ayala

Land, the country’s largest real estate developer.

CSF#5 Avida’s Number and Quality of Amenities (3)

Based from the survey conducted, Avida Land has adequate number of amenities comparable to

Robinson’s Land.

CSF#6 Avida’s Unit Size (2)

A typical two bedroom unit has a size of 50 sq. m. (Avida Towers – Makati West)

CSF#7 Avida’s Track Record (4)

Aside from the 27 projects for Avida Land, it also leverages off the experience of its parent company

Ayala Land. Ayala Land claims that its its the largest and most experience property developer in the

Philippines.

62
Avida has no development in Taguig to compare with Megaworld, DMCI and Robinson Land.

49
CSF#8 Avida’s Marketing Capability (3)

Avida Land’s marketing spend is the smallest among the four companies at 74M last 2008.

4.3.7 Competitive Profile Matrix (CPM) Ratings

From the identified critical success factors, DMCI and its key competitors are assigned the following

ratings.

Based from CSF ratings, Megaworld has the competitive advantage over DMCI and other key

competitors. Its competitive advantage has also 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 location and unit size. Megaworld also has modest ratings in terms of price

competitiveness, distribution network, track record and marketing capability.

In terms of market share, there is no clear market follower. In terms of CSF rating, Robinsons Land is

ahead of DMCI and Avida through its more accessible developments and its modest ratings in other areas.

Avida Land leads in distribution network and track record owing to its affiliation with Ayala Land. DMCI

lags in CSF rating which is also reflected in its market share. Despite being the price leader with a strong

marketing capability, its overall CSF rating was lower due to its weak capitalization and lower

accessibility of location.

50
4.4 External Factor Evaluation

External Factor Evaluation (EFE) Matrix summarizes and evaluates various external factors including

environmental and competitive factors facilitate strategy formulation. (David, 2009).

There are many factors that affect DMCI but a set of priority factors that has the greatest impact to DMCI

Homes’ success were selected and importance is given based on its potential impact to its bottom line.

4.4.1 Opportunities and DMCI Homes’ responsiveness

O1 - OFW remittances to grow by 6% [see Environmental Analysis – Economic]

Rating 3 - DMCI initially lessened its exposure to the overseas market when the economic crisis hit and

the BSP initially forecasted a flat OFW remittance growth. When remittances became more resilient,

DMCI continued to hire more overseas agents and has been launching road shows in countries like Tokyo

to entice international clients to choose DMCI Homes. DMCI also launched a website specifically for the

overseas market.

Despite having more aggressive marketing efforts, a 3 rating was given since the company has less

international offices compared to Ayala/Avida and Megaworld. 24% of the units Avida sells was

distributed to the overseas market compared to DMCI of only 15%.

51
Weight of 15% was given to the factor since the OFW segment contributes to 29% of the industry’s

revenues or 91B annually.

O2 - Global Economic Recovery from the Subprime crisis [see Environmental Analysis – Economic]

Rating 3 - DMCI has used its price competitiveness to draw customers to buy its existing project launches

(Dansalan Gardens, Tivoli Gardens and Cypress Towers) despite the subprime crisis this year. DMCI

lowered its markup and retained its 10-15% price advantage over key competitors. Impact of DMCI’s

responsiveness to the crisis is evidenced by DMCI’s 61% jump in unit sales.

DMCI is also positioning for the global economic recovery projected in the latter part of the year by

launching several new projects next year such as Magnolia Place in Quezon City and East Raya in

Paranaque.

Weight of 15% was given due to the domino effect the recovery has on both housing prices and demand.

Housing prices for instance have remained flat when the crisis hit. With the recovery of the economy,

revenues can grow further with rising prices and greater demand.

O3 - Emergence of Bonifacio Global City as a new business center [see Environmental Analysis –

Economic]

Rating 3 - DMCI’s key competitors have developments within the growing Bonifacio Global City (BGC).

Avida Land’s sister company Ayala Land Premier and Alveo Land developed Serendra, a known BGC

landmark. Megaworld and Robinsons also launched Mckinley Hill and Trion tower, both in the center of

the BGC business district.

52
In contrast, DMCI’s strategy is to build in close proximity but outside a business district like BGC.

DMCI’s Cypress Towers along C-5 highway which is close but outside BGC. DMCI Home’s landbank

does not include lots within BGC.

O4 - Continued growth of the BPO sector [see Environmental Analysis – Economic]

Rating 1 – DMCI is currently not targeting this sector. Unlike companies such as Robinsons Land and

Megaworld, DMCI does not have a commercial real estate arm. Robinsons and Megaworld strategically

build BPO offices near their condominium projects to be able to fully capture the BPO market.

O5 - Construction Raw Materials Prices to remain stable

Rating 4 – DMCI has an advantage in sourcing its raw materials by using its steel fabrication subsidiary

(AG&P) to source steel raw materials at a lower rate. Through AG&P, DMCI is also able to lock-in steel

prices. With its construction arm – DM Consunji, it is able to integrate other raw material requirements

with that of DM Consunji to command lower prices.

O6 – Potential Sales due to continued promotion of the Philippines as a retirement haven and relaxing

of constitutional limitations on land ownership [see Environmental Analysis – Political]

Rating 1 - DMCI is not specifically targeting retirees. In its vision statement, DMCI targets young

families with modest income. Compared to competitors such as Avida Land and Megaworld, the

company also has less sales offices abroad.

Importance of the opportunity is given a lower weight (10%) given the less likelihood of the potential

charter change to happen with the political noise generated by the upcoming elections.

O7 - Falling market share of Megaworld (market leader) [see market analysis]

53
Rating 2 - Megaworld is the clear market leader of the middle income residential sector. However, its

market share has fallen from 3.5% to 3%. Market share of Avida has remained stable while Robinsons

and DMCI market share is increasing. The falling market share of the industry leader presents as an

opportunity for DMCI and other players to gain additional market share. A 2 rating was given since

DMCI does not have enough capital to launch an aggressive direct attack over the market leader/

O8- 2% growth rate of high rise residential segment [see market analysis]

Rating 3 – High rise residential developments are on the rise. The sector grew by 155% in 2008 followed

by a more modest 2% year on year growth in the second half of 2009. DMCI has responded to a modest

growth in the sector by increasing its real estate available for sale.

4.4.2 Threat and DMCI Homes’ responsiveness

T1 - Interest Rates are projected to rise [see Environmental Analysis – Economic]

Rating 1 – DMCI is poorly positioned for a rise of interest rates due to its heavy reliance on short term

debt. (see financial analysis). 54% of its liabilities are maturing in less than 1 year. These will need to be

re-priced at a higher interest rate leading to higher financing costs.

T2 - Heightened risk of flooding due to climate change [see Environmental Analysis – Environmental]

Rating 4 – During the recent flooding, none of DMCI’s developments were severely affected. DMCI had

the foresight to choose less flood prone areas and invest in a good drainage system for all its

developments.

T3 - Strong Rivalry of competition [see 5 forces]

Rating 3 – DMCI increased its marketing budget by 22% in 2008. This has caused an increase in market

share unlike Avida and Megaworld whose market shares either remained stagnant or contracted. In terms

of marketing budget, DMCI has the largest marketing budget among the key players.

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4.4.3 EFE Matrix

4.4.4 Strategic Issues based on External Factors

A major opportunity the company should take advantage of positioning for the global economic recovery

projected in the last quarter of 2009. By timing the completion of its future developments by 2010, allows

the company to weather out the economic downturn while preparing for its expected recovery next year.

This strategy is similar to the actions of the other firms as there was a general drop of project releases this

year in favor of a 2010-2012 release.

55
It should also look into the growing markets such as OFWs, BPOs and retirement market. Market

development strategies can be used to target these market segments.

Based from the CPM, the company is behind its key competitors due to its lower capitalization. Despite

this, its market share is growing faster than the growth in market value due to its price competitiveness.

DMCI should find ways to improve its capital base to be able to fund its expansionary activities.

V. COMPANY ANALYSIS

5.1 Vision and Mission of the Company

5.1.1 Vision Statement and Evaluation

DMCI Homes does not have its own vision separate from DMCI Holdings. However, it has strategic

objectives that upon examination are actually the property subsidiary’s vision.

DMCI Homes

• DMCI Homes is committed to be the best provider of residential communities designed to create

a quality lifestyle and to be responsive to the changing needs and preferences of the market we

serve.

• In so doing, we are committed:

a. to ensure customer satisfaction,

b. to achieve a sustainable growth on our shareholders’ investment,

c. to maintain a mutually beneficial relationship with our partners in the business,

d. to care for the environment we work in,

e. to promote the growth of our people.

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Vision Statement Evaluation

5.1.2 Mission Statement Analysis and Evaluation

The mission statement of DMCI Homes is:

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“DMCI Homes is the country’s first Triple A builder/developer of premium quality, urban-friendly, fully

serviced communities for the underserved young families of modest income that aspire to live

comfortably near their place of work, of study and of leisure.

In so doing, we are committed…

to ensure customer satisfaction,

to achieve a sustainable growth on our shareholders’ investment,

to maintain a mutually beneficial relationship with our partners in the business,

to care for the environment we work in,

to promote the growth of our people…

while building an organization that espouses Integrity, Excellence and Interdependence.”

Mission Statement Evaluation

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5.1.3 Recommendations

Recommended Vision

• By 2015, DMCI Homes is committed to be a strong second in the middle income residential

market and be in a position to challenge the market leader by providing quality residential

communities responsive to the changing needs and preferences of the market we serve.

The new vision now indicates the measure of DMCI’s success i.e. to be the second biggest middle income

residential real estate provider in terms of market share. The second section of the original vision

discussing what the company is committed to was removed so as not to be redundant with its mission

statement.

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The new vision is attainable yet apparitional given the time table and its current position in the market.

There is a clear market leader in the different income segments of the residential real estate market.

Ayala, Megaworld and Vista Land dominate the luxury, middle income and low cost segment

respectively. Ayala Land and Vista Land have interests in all income segments but leads in only one.

Megaworld has residential real estate sales of 12B while the rest of the players have sales hovering in the

3-4B level. Given the time constraints, it’s unrealistic for DMCI to quadruple its sales in three years to be

the leader. Aiming to be a clear number 2 in the middle income sector is already a challenging and

rewarding goal for the next five years.

Recommended Mission

“As the country’s first Triple A developer, DMCI Homes creates premium quality, urban-friendly, fully

serviced communities for the modest income families that aspire to live comfortably near their place of

work, of study and of leisure.

In so doing, we are committed…

to find new ways to delight our customers

to achieve a sustainable growth on our shareholders’ investment,

to maintain a mutually beneficial relationship with our partners in the business,

to care for the environment we work in,

to have an energized, capable and customer focused workforce

while building an organization that espouses Integrity, Excellence and Teamwork.”

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Rather than just mentioning that it’s the country’s first triple A builder, the mission now discusses on how

it affects the level of quality it provides i.e. through the creation of premium quality communities. The

new mission also now emphasizes innovation as a way to satisfy customers.

The statement of promoting employee growth was revised. The new mission statement states that it

workforce should be highly motivated and customer driven. The company will also place a premium in

developing its employees.

5.2 INTERNAL AUDIT

5.2.1 Management Audit

Strategic Management Concept

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A business plan is being done and implemented for both DMCI Homes and DMCI Holdings. To fully

capitalize on the synergy between DMCI Homes and its parent company, strategies of DMCI Homes are

aligned to that of DMCI Holdings.

“Company goals are communicated as early as the on-boarding stages or upon hiring of new employees

through manuals and an employee orientation program. Likewise, company goals, its vision, mission,

core values and other organizational information are communicated through an internal website or

Intranet. Strategies are communicated down the line by each group’s respective Department or Division

Head.”63 The company could further improve the communication of its objectives through its vision

given the deficiencies of the company’s vision (see vision analysis).

There is a top to bottom decision structure in DMCI. Major decisions are made by the upper management

given the recommendations and information provided by lower level managers. Lower level managers get

involved in the decision making process through business planning sessions done twice a year involving

all levels of management. Action points from and departmental goals from the meeting are delegated to

specific departments and managers, which are held accountable through their performance appraisals.

Motivational Factors

Job descriptions are well defined showing both the knowledge and skills needed as well as the specific

duties of a particular role. To measure the achievements of the individual, annual performance appraisals

are given for managers to have the opportunity to direct the behavior of the employee towards the

execution of the company’s objectives.

63
Tiongson, Teresa. DMCI Homes Senior HR manager.

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The company’s retention strategy involves employee development, recognition, compensation and

managing company culture. Employees are trained based on their annual development plans. Employee

development includes classroom training and on the job mentoring and coaching. High potential

employees are also recognized through service excellence awards.

DMCI provides above industry total compensation package to attract and retain talent. The company also

considers the working environment as a key motivational factor for employees. The working environment

is being managed through several activities such as company sponsored events to encourage team work

and to espouse work-life balance.

These measures have been effective in retaining talent as the overall attrition rate of DMCI is at 14% as of

September 2009. Based from the 2008 Watson Wyatt Real Estate Compensation and Benefits Survey,
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this figure is lower from the real estate industry standard of 19% .

5.2.2 Marketing Audit

Segmentation of Markets

DMCI Homes segments the industry via income group and focuses on the middle income segment. This

mode of segmentation is similar to the first level segmentation recommended in this paper.

From this initial segmentation, players such as DMCI further segments the market further via local and

international sales. For DMCI, international sales (mostly from OFWs) represent 15% of its sales. This is

smaller compared to Ayala where 25% of sales are from OFWs. The biggest contributor in the

international segment is sales coming from Europe (54% of international sales) followed by the middle

east (22%), USA (13%) and Pan Asia (11%). This mode of segmentation is coherent to the segmentation

64
Tiongson, Teresa. DMCI Homes Senior HR manager.

63
via source of income described in the earlier section of this paper. DMCI is not targeting alternative

segments such as the BPO and retirement markets.

Positioning

DMCI Homes is not as well positioned compared to its competitors. It has a lower CSF compared to its

key competitors owing to the lower accessibility of its developments. Its weaker position relative to other

players is also reflected in its lower market share (described further in the next section). In both market

share and CSF ratings, DMCI is number four.

It also has an average position relative to its external environment as quantified by its EFE rating of 2.70

mainly due to its lack of response to the growing BPO segment and its failure to fully capitalize on the

falling market share of the market leader.

Market Shares

The company’s market share has been steadily increasing. Its market share grew by 33% from last 2007

to be at par with Avida Land. As noted in the market analysis section, there is a clear market leader for

the middle income industry i.e. Megaworld. However, market followers such as DMCI Homes,

Robinsons Land and Avida Land have similar market shares.

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Sales and Distribution Systems

The company is distributing its products via internal and external brokers within and outside the country.

The company is compensating its external brokers to be at par with its competitors. External brokers

receive a 6% commission over selling price. Half of the commission goes to the broker firm and half goes

to the sales personnel. Commissions expense doubled to 201 M in 2008 compared to 100M last 2007.

2008 sales and reservations grew by 31% from last year. Despite declining from last year due to the

unfavorable economic conditions, sales volume is well above the planned target. Initially, DMCI targeted

2,600 units in 200965 but sales volume has already exceeded 3,700 units in the third quarter of 200966 due

to a surge in third quarter sales. Unit sales are projected to reach 5,095 units.

Product

Compared to its key competitors, DMCI boast greater control over product quality through its synergy

with DM Consunji, which is a triple A rated construction company with 50 years in construction

experience. By using the latest construction technology, DM Consunji ensures durability of developments

and full compliance with UBC 1997 and HLURB guidelines.

DMCI developments are also turned over to buyers at a faster rate of 3 years compared to the industry at 5

years.

In terms of construction design, individual units are larger than Avida and Robinsons Land. DMCI’s

developments are resort living themed. Differentiating itself key competitors, DMCI developments have

more areas allocated to amenities such as gardens, swimming pools and common areas (see CPM).

65
www.bloomberg.com
66
3rd quarter 2009 DMCI SEC filing.

65
Pricing

DMCI is pricing its products appropriately. The company is targeting the middle income or affordable

segment. This segment is not as price sensitive as the low cost segment but price is still a primary

consideration in a consumer’s buying decision. DMCI responds to this by pricing its developments 10-

15% lower compared to the average industry price67. Among its key competitors, DMCI is the price

leader.

Promotions Capability

Due to the continued promotion activities of DMCI, market share grew by 33%. Budget was better

utilized in relations for revenues gained. For every peso spent in advertising, 17 pesos of sales are

generate (compared to 10 pesos last year).

Promotions activities include outdoor advertising. The company has several billboards along high traffic

areas such as EDSA. The message of the outdoor advertisements is that DMCI developments offer a

relaxing living environment with a great view where buyers can retreat from the busy city life.

DMCI also recently launched a TV commercial for its subdivision development. The 30 second

commercial features celebrity endorser Marc Nelson with an advertising message that DMCI offers a

modern and comfortable living environment.

5.2.3 Financial Audit68

67
2nd Quarter 2009 DMC SEC Filing.
68
See Appendix 4: Financial Statements

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GROWTH

Sales Volume Growth

Sale volume is projected to be at 5095 units in 2009 down from 5732 units in the previous year. Units

sold include both residential and parking units. Historically, 23.1% of units sold are parking units69. Year

on year, the number of sold units (both residential and parking units) has fallen 11% during the third

quarter. Full year 2009 volume growth is assumed at that rate.

Revenue Growth

Revenues are recognized by the company when the unit is fully complete and 20% of its contract price

has been collected. This complies with International Accounting Standards of full accrual or completed

contract method of real estate revenue recognition. This is different from the percentage completion

method adopted by other real estate companies. There is a delay in realizing DMCI’s revenues. In 2008

for instance, total reservations reached 9.8 Billion compared of recognized revenue of only 3.9 Billion70

or 40% of the total reservation sales. By the 3rd quarter of 2009, out of the 6.4 Billion in sales and

reservations, 3.5B of which will be reported as the recognized sales. Full Year 2009 Recognized sales

against sales reservation is assumed to follow the same ratio as 3rd quarter 2009 (55%).

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Ratio of Parking units to total Units sold is 212:891 in 2nd quarter of 2009 and 229:1016 in 2nd quarter of 2008.
Thus, average of 23.1% of total units sold is parking
70
DMCI 2008 Annual Report.

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By the third quarter of 2009, recognized revenues grew by 6% while sales reservations dropped by 11%.

Recognized revenues are mostly coming from high rise units, which take longer to complete thus the

large discrepancy between recognized revenues and sales reservations. Recognized revenues rose due to

new projects such as Royal Palm Residences in Taguig and Tivoli Gardens in Mandaluyong, and from

existing projects such as Dansalan Gardens and Raya Gardens. There was a drop in revenues from two

existing projects – Rosewood Park and Bonifacio Residences.

The increment in price was relatively lower to the increase in cost given the thrust of the company to be

price competitive (10-15% lower than the industry) in order to maintain sales velocity and gain market

share. Lower sales reservations were due to the economic downturn and reduced sales from OFWs. Sales

are expected to recover due to the easing of these threats. Consequently, the company projects net income

to grow by 74% to Php 916 million by 2009.

Comparative growth rate

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Comparing to the industry71, DMCI homes is growing at a faster rate in both residential real estate sales

and net income. Residential real estate sales doubled in 2008 compared to the 41% average growth rate of

its key competitors. The market leader in the middle market segment grew the slowest at 18%. DMCI

Homes’ net income also grew much faster (233% growth) compared to its key competitors average of

39%.

Profitability

Margin Growth

There was a drop of gross profit margin in 2008 from 58% to 43% due to increase in construction cost

particularly on the cost of raw materials (see external analysis). Despite the rise in cost of sales, the

company decided to minimally increase its price and retain its 10-15% price advantage over competitors.

Operating margin likewise fell from 29% to 22% due to increased commission and marketing expenses.

Net income margin nearly doubled to 15% in 2008 due to a one-off write-off in 2007.

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Comparative revenues are done through the company’s and its competitor’s recognized revenues.

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Significant portion of the company’s gross profit is being allocated to marketing, selling and financing

activities. Financing cost which grew to 149% was mainly due to the 179% growth in bank loans.

Comparative Margins

DMCI Homes’ gross profit margin is higher compared to the industry due to its lower build cost owing to

its synergy with DMCI’s Triple A construction subsidiary. Both operating and net income margin are

lower compared to the industry due to DMCI’s higher marketing, commission and finance expenses

relative to its sales.

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Return on Assets

Return on Assets improved from 2% in 2007 to 5% in 2008. Despite this, the company generates less

income out of its assets compared to its key competitors. A factor of the lower ROA is the lower net

income margin of the company compared to the competitor average owing to its higher operating and

financing costs. DMCI also has highest inventory level (at 6.5 B in 2008) among its competitors.

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Given these factors, the company should aggressively reduce its inventory levels. The liquidation of its

inventory will also generate cash to reduce its debt and lower financing cost. Lower inventory levels and

financing cost will improve its ROA.

Return on Equity

DMCI’s ROE was up from 6% to 15% in 2008. DMCI’s ROE is almost at par with the key competitor

average. 2007 ROE was lower due to a one time write off. 2008 Return on Equity of the four players are

similar to one another (within the 14% to 17% range).

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Activity and Efficiency

Inventory Turnover

On an average, the industry is able to convert inventory to sales within 6 months (inventory ratio of 2.04)

Robinson’s Land is the most efficient in selling its inventory. Despite improving from 2007, DMCI’s

2008 inventory is still the worst in the industry at 0.34 owing to its having the largest available inventory

(6.5 B). DMCI has been building up its inventory but its distribution channel is not large enough to

offload inventory in a slow economy. DMCI should thus be more aggressive in selling its existing

inventory especially in an improved 2010 macro economic environment.

Accounts Receivable Turnover

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DMCI is able to collect its accounts receivable at a faster rate compared to Megaworld and Avida. DMCI

is next to Robinsons Land as having the fastest AR turnover (1.75). Ahead of the market leader

(Megaworld with an AR turnover at 1.20), DMCI’s turnover rate slightly improved from 2007 which was

at 1.72.

Asset Turnover

Asset Turnover has been improving due to the faster rise of sales compared to assets. This is a positive

indicator of how DMCI Homes is utilizing its assets to generate sales. Its asset turnover is slightly lower

compared to key competitors but higher compared to Megaworld and Robinsons Land. Avida Land has

the highest asset turnover at 0.58 mainly due to its lower total assets compared to the rest of the players.

Liquidity

DMCI is second to Megaworld as the most liquid in terms of current ratio. However, DMCI has a lower

than competitor average quick ratio. The large gap between its 2.23 current ratio versus its 0.60 quick

ratio is mainly due to its high inventory level of 6.5 B.

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Despite its poorer quick ratio, DMCI Homes’ has improved its liquidity compared to last year. This was

due to the company’s increasing cash and accounts receivable owing to a marked increase in its sales for

2008.

Cash Flow

The company’s cash is mainly being provided by financing activities. There has been a marked increase

in cash provided by bank loans. Cash is mostly being invested in properties as part of the company’s

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strategic land banking initiatives. The company is net cash outflow in its operations due to the increase in

the real estate available for sale and development.

Based on the company’s cash flow, the company is on a growth mode. The company is aggressively

financing through debt its strategic land banking and inventory build-up activities.

Working Capital

DMCI has more than doubled its working capital last 2008. This is mostly due to the drastic inventory

build up of the company last year. The company has more than enough current assets to cover its current

liabilities and has a surplus of 4.9 B.

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Solvency

Leverage Ratio

DMCI is the most highly leveraged compared to its key competitors. 2/3 of the company’s assets are

being funded via debt compared to the industry at only 0.45. This has increased the company’s financing

cost and has significantly reduced profits. Higher debt will also limit the company’s ability to fund its

expansion and strategies.

DMCI’s debt to equity ratio is also higher at 2.07, an increase from 1.84 last 2007. To reduce the risk of

insolvency, the company should raise its capital via equity.

Funding Gap

54% of DMCI’s debt is funded through the rediscounting of its contracts receivable. This instrument has a

maximum tenor of 120 days and bears an interest between 8.75% to 10%. It dependency to less than 1

year debt leaves DMCI Homes prone to liquidity risks. Given the nature of the real estate business,

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property development takes a long time to recoup the cash invested. By funding a long term investment

with short term debt, DMCI bears the risk of not being able to continuously fund its operations.

With increasing interest rates (see external analysis), DMCI’s financing cost will increase further if it

does not reduce its reliance to short term debt.

Capital Budgeting

DMCI’s planned capital expenditure of Php 8 billion in 2009. Its CAPEX budget is comparable to the

industry average of Php 8.3 Billion. Based from the company’s cash flow, the company allocates its

capital budget through strategic land banking initiatives and real estate development.

5.2.4 Production Audit

DMCI has a greater control over product quality compared to its competitors owing to its synergy with

DM Consunji, DMCI Holdings’ construction arm. DM Consunji has over 50 years in the construction

industry and is a Triple A rated construction firm. In the area of technical competency, DM Consunji also

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boasts of using the latest construction technology in all of its developments including its projects with

DMCI Homes72. This also allows faster turnover of its developments. It can complete a high rise

condominium at a lead time of three years compared to the industry average of 5 years73.

Steel, a primary raw material, is also sourced from another subsidiary, AG&P. These synergies have

enabled the company not only to save on build cost, but also control the quality of its property

developments.

DMCI developments are fully compliant with UBC 1997 which is an international standard for high rise

developments that certifies that the building can withstand an earthquake with a 7-8 richter scale

magnitude74. DMCI is also compliant with HLURB policies on maximum number of units that can be

sold given a land area and the minimum amount of common areas per a development. Critical features

such as sewerage systems, utilities and safety features are being fully complied with.

5.2.5 Information Systems

Structure

Currently, there’s no Chief Information Officer for DMCI Homes. Also, Information Systems forms part

of the administration division. Functions of the IT include the introduction and maintenance of various

systems used by DMCI Homes and the management of the company’s website. DMCI outsources its

systems maintenance to a third party contractor.

Utilization of Information Systems

72
www.dmcihomes.com
73
2007 Annual Report.

79
A major information system being used by the firm is an online tracking tool for its inventory. Available

sold units are being encoded in a project’s sales office and linked to the company’s head office and the

company’s intranet site.

The company’s internet site is being used to inform the public, buyers, employees and other shareholders.

The website does not have any e-commerce capability. DMCI maintains two websites, a main site and

another specifically targeted to its international clientele. The website also publishes financial information

for investors, new projects for buyers, hiring requirements for job seekers and sales performance for

brokers. The website is being maintained for the current projects however, information regarding the

firm’s financial information and hiring requirements have not been updated.

Information security

Systems are protected using alphanumeric passwords. For instance, accessing broker information via the

net requires a 6 digit password given only to intended users. These measures are meant to limit

information flow to authorized personnel.

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5.3 McKinsey 7S Framework

5.3.1 Strategy

DMCI Homes is a forward integration of DM Consunji Inc. Despite being a relatively new player in the

real-estate industry, DMCI Homes was able to quickly grow by taking advantage of DM Consunji’s 50

year construction experience. This allowed DMCI Homes to be a significant player in an industry whose

customers value the track record of the developer (see key success factor).

The integration strategy also allows DMCI homes greater control of the quality of their developments. In

terms of turnover rate, DMCI homes can deliver a high rise development in three years from

groundbreaking unlike other industry players which take five years. Its construction experience has also

allowed it to deliver a design concept DMCI in now being recognized for, which its labels as a resort

themed community. For a development offered to the middle income group, it has more areas devoted for

amenities compared to its competitors.

Based from Porter’s strategies, the company uses Overall Cost leadership – Best Value strategy. One of

the key selling propositions of the company is that it offers the greatest value for money. DMCI Homes

offers 10%-15% lower selling price compared to its key competitors while offering the same level of

quality (measure by amenities and unit size). The company’s cost structure allows this strategy through

the company’s integration strategy with DMCI’s triple A rated construction arm. By eliminating

additional layers from construction to developer, DMCI Home’s per unit construction cost is lower

compared to other players in the industry. To lower its prices further, DMCI projects are positioning

outside main business and commercial districts.

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Evaluation: Effective

Capitalizing on its construction company’s track record and offering the lowest price per square meter

(both key success factors), allowed DMCI to nearly double its market share (92% 2008 growth) and grow

faster than the industry. These are made possible by the company’s integration and overall cost

leadership strategies.

Its overall cost leadership strategy is aligned with its values. Its current mission statement specifically

targets families with modest income and its cost leadership strategy provides the greatest value for money

to its middle income clients. However, its not being centrally located is against its mission to build

communities near the family’s place of work, study or leisure.

The company’s integration strategy is also in line with its core value of interdependence which is also

stated in the company’s mission statement.

5.3.2 Shared Values

Based from its mission statement, the company espouses these core values: Integrity, Excellence,

Interdependence and customer focus. Its mission statement focuses the company’s effort to build

communities for modest income families

Evaluation: Effective

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Shared values are effective since they are in line with the current strategy of the firm. The firm chooses to

concentrate on modest income families as stated in its mission statement. To realize this mission, the

company utilizes a cost leadership strategy. One of the company’s core values is interdependence. This

value capitalizes on the synergies of the other business lines of DMCI.

5.3.3 Structure

The Company’s organization structure is mainly hierarchical with a functional structure. The division of

labor is grouped by the main activity or function that needs to be performed in the organization.

Accounting, finance and human resources are under administration group. Aside from in-house sales, the

sales group also manages the company’s relationship with external brokers both locally and abroad. A

separate customer care group was established to ensure the delivery of after sales customers to the

existing residents of a DMCI homes community. Design and construction is involved in building of

developments. Business development handles long term investments such as strategic land banking

initiatives. These refer to acquisition of land with the intention of resale or used in project development.

In relation to its parent company, DMCI Homes is the primary real estate arm of DMCI Holdings but DM

Consunji (its construction arm) also has housing projects.

Evaluation: Needs Improvement

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The ownership of DMCI group’s housing arm is not clearly delegated. While most of the housing

products are with DMCI Homes, DM Consunji (construction) also offers housing products. As further

elaborated in the organizational strategies, all of DMCI’s property businesses should be concentrated in

DMCI Homes.

5.3.4 Systems

A business plan is being prepared on an annual basis and implemented throughout the year. Departmental

goals are included in the business plan which can be tweaked given an internal or external development.

The plan is being discussed during the annual organizational and budget meetings set twice a year.

To generate information needed to plan sales activities, sales data is being uploaded by internal and

external brokers via the company’s website. The actual sales are being measured against the sales forecast

to tweak strategies further. The business development division will also look at the profitability of a

development to determine if a new project is still viable.

The company’s performance management system is also being utilized to align employee performance

with the company’s strategy. The measurement which includes both qualitative and quantitative

objectives is geared towards the overall direction of the company.

Evaluation: Helpful

Systems are being used to plan strategies and implement them. In the area of implementation,

performance of goals are being monitored systematically mainly through sales targets. Employees are

being rewarded through meeting goals and drive strategies through a performance management system.

5.3.5 Style

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Work Life Balance

DMCI espouses a work life balance program targeted to strengthen the morale of its employees and

improve teamwork within the organization. It has launched several activities such as company sponsored

retreats, birthday celebrations, sports fest with other DMCI subsidiaries and an annual employees’ day.

Rewards Program

DMCI recognizes teams and individuals whose contributions led in the achievement of DMCI’s business

strategy. A “customer care champion” award is given to any employee that demonstrated outstanding

service to the customer. A results oriented culture is also being espoused by giving recognition and

monetary rewards to teams who have exceeded the target given to them such as an award to the in house

sales for delivering sales above their budget.

Evaluation: Effective

The work-life balance and rewards program has motivated employees to be customer oriented while

creating a fun team-based culture. This is in line with the company’s shared value of interdependence and

customer focus. The program has also increased the employee’s morale and reduced the company’s

attrition rate. As of end of September 2009 our overall attrition rate is at 14% versus industry experience

of 19% (Source: 2008 Watson Wyatt Real Estate Compensation & Benefits Survey).75 The company’s

style has positively contributed in aligning the culture of the company with the company’s strategy and

shared values (interdependence and customer focus).

5.3.6 Staff

Employee growth is being espoused through training, coaching and mentoring activities. Through the

development plan, the competency need of an employee is being discussed annually between the

75
Tiongson, Teresa. DMCI Homes Senior HR Manager.

85
employee and his supervisor. The supervisor and the employee will then agree on how this need can be

best addressed through classroom training, coaching or mentoring programs.

Classroom courses include trainings on skills required for the job (such as sales training for in-house

agents). A sample training plan would be company orientation, sales documentation, turnover process

and price calculations for members of the sales team. Classroom trainings are done in a class room size of

20 to 40 people. Hands-on training is being carried out with regular coaching and mentoring from the

supervisor76.

Evaluation: Effective

Development plans are aligned to the skills needed for the company to achieve its chosen strategy. The

periodic review of the development plans allows the manager to assign the relevant training, coaching or

mentoring program needed to close the skill gap of the employee. This allows the employee to fully

contribute in attaining the goals of the organization.

5.3.7 Skills

Real estate is a very client driven business. To be successful in the real estate business, the employees

should have the necessary skills to fully service its clients. As stated in the company’s vision statement,

DMCI should be responsive to the ever changing needs of the customer. Employees should thus have the

skill to manage customer relationships and be attuned to their needs. Various training programs are given

to employees for them to develop this skill set.

Evaluation: Good

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Tiongson, Teresa. DMCI Senior HR Manager.

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The skill focus is in line with the shared values (as stated in the company’s mission statement). The

company places a monetary reward and recognition to clients who exemplify this skill through its

“customer is king” reward program.

5.4 IFE MATRIX

5.4.1 Strengths

Greater control of quality due to synergy with a Triple A construction subsidiary

Rating 4 -The company has an advantage of being affiliated with a triple A construction company. Raw

material (steel) and construction services are being sourced within the DMCI Holdings group. This allows

the company to have greater control over the quality of its projects.

Faster lead time in construction of projects

Rating 4 - DMCI Homes can deliver a high rise project in 3 years compared to the industry average of 5

years. This has allowed DMCI to build up its inventory at a faster pace and can be more responsive to a

changing market environment.

Resort Living Concept in its developments (more amenities compared to competitors)

Rating 4 -DMCI Homes’ has a resort living theme in its projects. It projects DMCI developments as a

retreat against the hustle and bustle of the city. Its developments have more amenities and have more land

area allocated to common areas.

Ability to price 10-15% lower compared to competitors due to lower construction cost

Rating 4 - The synergy with DM Consunji has also allowed DMCI Homes to control the cost of its

developments. This has given the company the ability to price its developments at a 10-15% cost

advantage compared to its competitors.

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14% attrition rate compared to the industry at 19%

Rating 3 – There is a lower turnover of its employees compared to the industry accounted for by more

motivated employees. This has allowed DMCI Homes to retain talent and provide continuity in strategy

implementation.

5.4.2 Weaknesses

Less Solvent with a debt to assets ratio of 0.67 compared to the industry at 0.45

Rating 1 - DMCI Homes is the most highly leveraged among its key competitors. 67% of its assets are

being funded by debt versus the industry average of 0.45. It is also more leveraged in 2008 compared to

last year. Also, there is a funding gap since most of the company’s liabilities are being funded via short to

medium term debt that are used to fund long term property investments.

Fewer distribution channels locally and abroad

Rating 2 - 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 in the country and

outside the country.

Slower inventory turnover of .34 vs industry of 2.04 due to distribution network not able to cope

with inventory buildup

Rating 2 – DMCI’s weak distribution channels impacted its ability to convert its inventory into sales.

When DMCI built up its inventory on 2008, its distribution network was not able to cope with the

increase in inventory.

Developments are not centrally located

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Rating 1 - Unlike its key competitors, DMCI Homes projects are not centrally located. This is a strategic

choice of the company to lower its production cost without sacrificing the quality of the development.

The downside of this is that the accessibility of the location is a key decision factor of a buyer (see CPM).

Robinsons Land and Megaworld for instance locates its developments within a business area.

Furthermore, they also construct office and commercial areas.

Projects limited to residential developments. No experience in other types of real estate projects.

Rating 1 - Unlike its key competitors, DMCI is limited in developing only to residential market. It has no

experience to develop commercial and office real estate. Avida Land’s parent company Ayala Land

develops commercial real estate through Ayala Malls and has a vast experience developing office

projects. Robinson’s and Megaworld also has office and commercial developments. Their projects

combine office and commercial spaces or what Megaworld coins as township developments. These give

its developments better accessibility. In contrast, DMCI on the has no experience in building office

spaces or malls.

5.4.3 IFE Matrix

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5.5 Strategic Issues based on Internal Factors

DMCI delivers high quality products at a reasonable price owing to its operational synergy with DMCI’s

construction subsidiaries. Despite the quality of its products and competitive pricing, inventory is being

converted to sales at a slower rate compared to its competitors. Its limited distribution network compared

to its key competitors prevents the company from fully taking advantage of its strengths in product and

pricing. A possible strategy the firm can employ is to strengthen its distribution network both locally and

abroad.

Another important weakness is the company’s limited capitalization. Its limited capital prevents it from

aggressively competing in the industry. DMCI should increase its capital base and rely less on short term

debt to finance its operations to lower its financing cost and improve its long term viability.

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VI. STRATEGY FORMULATION

The information gathered through the CPM, EFE and IFE matrices will be used to develop strategies for

DMCI Homes. SWOT Matrix, SPACE, Internal-External (IE) matrix, Grand Strategy, Summary of

Strategies and Quantitative Strategic Planning Matrix (QSPM) will be utilized in strategy formulation.

6.1 SWOT MATRIX

The SWOT matrix helps develop four types of strategies: Strengths – Opportunities, Weakness-

Opportunities, Strength-Threats and Weaknesses-Threats.

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Market Development Strategies:

W2 & O4 - Partner with BPOs for DMCI to provide housing solutions to BPO workers

W2 & O3 - Strengthen international presence especially in untapped countries by partnering with external

brokers

S1 & S2 & O3 - Pursue an integrated marketing communications plan to strengthen brand awareness

among OFWs. (impacting T3)

Market Penetration strategies:

O2 & S5 - Develop and expand BGC property through strategic land banking initiatives

W2 & O3 - Enhance website to include e-commerce capability and promote it as an alternative

distribution channel

W5, O6 & O7 Establish Sales and Operations Planning to keep demand and supply in balance.

S1 & T3 - Launch incentive program for satisfied home owners to refer family and friends to DMCI

Homes (affects W2)

Product Development strategies:

W3, O2 & O4 - Combine BPO office buildings with residential developments for land outside BGC (also

affects W4)

S3 & O5 - Redesign developments to make them fully service communities designed for second home

investors such as retirees

O1 & T3 - Use construction experience to pioneer green buildings

O1 & T3 - Update design of buildings and locate developments to lessen the risk of flooding and

emphasize this feature as one of its USPs.

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Integration strategy:

T2, T3, S1 & S2 - Strengthen synergy with construction arm to lower construction services to maintain

price advantage

Other strategy:

W1 & T1 - Do an IPO as soon as the economy has recovered in 2010. (impacted by O1)

6.2 SPACE MATRIX

The Strategic Position and Action Evaluation (SPACE) matrix allows for the company to choose the most

appropriate set of strategies. The four possible sets of strategies in the SPACE Matrix can be

conservative, aggressive, defensive or competitive strategy. As an input, internal factors pertaining to

financial strength and competitive advantage are selected along with external factors pertaining to

environmental stability and industry strength.

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

DMCI’s low capitalization is a main hindrance to its continued growth as it prevents the funding

of expansionary strategies and can affect the long term viability of the company. This has been

given a +1 rating. Slow inventory turnover (given a +2) is also a concern since it has affected the

operating cash flow of the firm. DMCI has not been able to move inventory as fast as its

competitors due to its weaker distribution channel.

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

The high rise residential real estate market is growing modestly at 2% year on year. A +5 rating

was given to this factor as the company has several current and future projects belonging in this

category. A 5 rating is also given to the falling market share of Megaworld which presents an

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opportunity for Megaworld to capture Megaworld’s lost market share. A +5 rating is given to the

stable price of construction materials since this will stabilize the industry. A +1 rating is given to

the intense competitive rivalry since this will pose a hindrance to DMCI to gain market share.

The intense competitive rivalry mentioned in the 5 forces section of this paper attributes this

intense rivalry to the industry’s high exist barriers, flat housing prices and numerous competitors.

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

The global economic recovery from the subprime crisis is a key environmental stabilizing factor

since this will bring back the local demand for housing. OFW remittances are also an important

stabilizing factor for the company and the industry. The industry and the company are becoming

increasingly reliant on OFW remittances for the continued growth of the residential real estate

market. Both of these factors were given a -1.

The growth of the outsourcing sector and the retirement industry stabilizes the industry but they

are given less weight since the company is currently not targeting them. These factors were given

a rating of -2 and -3 respectively.

The continued development of BGC is an opportunity for the industry and the firm to create

developments within the area. For DMCI, this is a direct opportunity since it has a development

adjacent to this area. This factor is given a -2 rating.

The threats to the industry include the rising interest rates and the impact of climate change.

Rising interest rates will be a deterrent for both home buyers and the industry players to finance

their real estate purchases and expansion. This is given a -5 rating. Climate change is also given a

-4 rating given its impact to current and future developments but DMCI is well positioned to meet

this threat (see EFE).

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

DMCI Homes synergy with its Triple A rated construction arm has allowed it to control the

delivery time of its products and profitably price 10 to 15% lower than its competitors through its

lower production cost. These are key success factors in the industry and are the company’s key

USPs. Thus, they were assigned a -1 rating. Its lower attrition rate compared to the industry is

also an advantage though the attrition is still high. So, a -3 rating was given to this factor.

DMCI’s greater number of amenities compared to other players was assigned a rating of -2 since

this is one of the industry’s key success factor.

Its key disadvantages are its limited distribution network compared to its key competitors and its

developments not being centrally located. These are also key success factors to the industry thus a

-6 rating was assigned. Its limited experience in the other fields of real estate is also a hindrance

in delivering full real estate solutions to its clients.

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SPACE Matrix:

Based from the strategic management tool, the company belongs in the competitive quadrant. It should

pursue market penetration, market development, product development and integration strategies77.

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6.3 INTERNAL-EXTERNAL MATRIX

The internal-external matrix assigns positions to the firm in a nine cell display based on its IFE and EFE

scores. If the firm falls in cell 1,2 and 4, grow and build strategies are recommended. Hold and Maintain

strategies are advised for firms falling in cells 3, 5 and 7. Firms should consider harvest or divest

strategies if they fall in cells 6, 8 and 9.

Based on the IE matrix, DMCI Homes falls in cell 5. Hold and maintain strategies are recommended

under this group. Intensive strategies such as market penetration and product development can be used.

6.4 GRAND STRATEGY MATRIX

Using the grand strategy matrix, firms are grouped into four quadrants depending on the firms

competitive position and the industry’s growth.

Market Growth Rate – Faster than GDP

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GDP is expected to be at 0.5%. In contrast, the total real estate industry is expected to grow by 36%

driven by high rise residential real estate (155% growth) to which DMCI belongs to. The continued

growth of OFW remittances and potential industry sales coming from the BPO sector and the retirement

market will further spur growth.

Competitive Position – Moderately Weak

DMCI Homes has a weak competitive position brought about by its lack of adequate capital and limited

distribution network. Although market share is gradually increasing, it still lags behind key competitors

CPM ratings.

DMCI falls under the second quadrant in the grand strategy matrix. Under this quadrant, market

development, market penetration, product development and horizontal integration are available.

Divestiture and liquidation is not attractive given the improving competitive position of DMCI.

6.5 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.

Among the strategy options, market penetration, market development and product development are

consistently recommended by SPACE, IE and GRAND matrices.

6.6 QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM)

The Quantitative Strategic Planning Matrix is a tool to determine the relative attractiveness of feasible

alternative actions. Based from the summary of strategies, product development, market development and

market penetration are the three strategies to consider.

On Opportunities:

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Market penetration is effective when the market shares of major competitors are declining while total

industry sales have been increasing78. Thus, market penetration is highly applicable for the opportunities

of global economic recovery, industry growth and declining market share of Avida and Megaworld. With

increased marketing effort of present products, sales volume can be quickly achieved in a growing

market. A 4 rating is given to these two opportunities. A 3 rating was given to market development as

alternative markets will also grow along with the overall growth in the industry. The attractiveness of

product development will be possibly acceptable if there is a need for a new variety of residential real

estate in the growing market.

Market penetration is highly applicable to take advantage of the continued growth of the BGC. DMCI has

an existing project and significant land bank adjacent to the BGC area. This can be marketed to the

growing number of office workers in the BGC area which is already an existing market of the company.

Product development’s applicability to this strategy is rated a 3 since this gives DMCI an opportunity to

delve in other types of developments such as office and commercial real estate within BGC. Market

development can possibly be applied since DMCI can opt to niche in specific types of BGC workers such

as the BPO workers whose sector is one of the major drivers of growth in the BGC.

Market development is most applicable to take advantage of the growth of niche markets such as BPO

sector, OFW and retirees. A 3 rating was given to product development since this can be a supplementary

strategy to market development. DMCI can tailor fit its developments to match the needs of its target

market. Market penetration is given a 1 rating since DMCI does not directly target these niche markets.

On Threats

Product development can be best applied to the threat of climate change. DMCI can opt to build new type

of projects that has adopted to the threat of climate change (such as using flood prevention technology)
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and being more responsive to it (such as green buildings). Market development is given a 3 rating since it

can supplement the product development strategy by marketing the new type of development to home

buyers concerned with climate change. Market penetration is not applicable to this threat.

Market development can be best applied to answer the threat of higher raw material costs. DMCI can opt

to market to less price sensitive segments such as the luxury segment. Product development will

supplement this strategy (thus given a 3) since DMCI would need to redesign its developments if it wants

to tap a high end market. Market penetration is minimally applicable.

Weaker housing prices and intensive competitive rivalry can be best responded by market penetration.

DMCI has a cost advantage over its competitors through its synergy with its construction arm. DMCI can

reinforce this through its more aggressive marketing campaigns to aggressively compete in an

increasingly competitive price sensitive market. Market development is given a 3 rating since DMCI can

opt to target less price sensitive and less competitive markets such as the luxury segment. A 2 rating is

given to product development since it will supplement the market development strategy (given a 3 rating).

On Strengths

The synergy of DMCI Homes with the construction subsidiary of its parent company can best be applied

through a market penetration strategy. The ability of DMCI to deliver its units faster and a higher quality

can be emphasized through an aggressive marketing campaign. Product Development, which is given a 3

rating, can also utilize the strength of control of its construction operations. The company can easily

execute new designs of projects through the technological advantage of its construction arm. The

introduction of a new product can be supplemented by a market development strategy thus its given a 2

rating.

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Market Penetration can be best used to take advantage of DMCI’s cost advantage (thus a 4 rating). DMCI

can reinforce its value proposition through a more aggressive marketing strategy to its existing market. A

2 rating is given to market development since price competitiveness can be possibly be used to capture a

new market such as the young BPO workers just starting in their career. The strength of price

competitiveness is not acceptable in a product development strategy.

On Weaknesses

The weakness of limited distribution network can be addressed either by strengthening the distribution

channels through a market penetration strategy, which was given a 4 rating. A possible alternative is to

develop new distribution channels to tap newer markets such as delving into online sales. Product

development is given a 1 rating since adding new products will add to the strain of an already weak

distribution network.

A product development strategy (rated a 4) can best counter the weakness of having developments that

are not centrally located. By developing townships for instance or a combination of residential,

commercial and office real estate, its residential spaces will be in closer proximity to the buyer’s place of

work and leisure. The product development strategy is supplemented by a market development strategy

(rated a 3) since a new market should be developed if DMCI seeks to expand to commercial and office

real estate. Market penetration strategy is minimally applicable.

A product development strategy will also be the best strategy to consider to address DMCI’s limited

product line. By developing new products such as office spaces, DMCI can gain the experience it needs in

this area. Market development and market penetration will just concentrate on selling existing residential

real estate products without broadening the product offering of the company.

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VII. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES

7.1 Strategic Objectives

The strategic objective of DMCI homes is to be the clear second in the middle market residential industry.

From the market analysis, there is a wide lead of the big three real estate companies (Ayala, Megaworld

and Vista Land) versus the lower tier companies. The big three companies have competencies in different

segments of the market. Ayala Land through Ayala Land Premier and Alveo Land is dominant in the

luxury real estate market although it also has interest in the middle income segment (Avida) and is

entering the low cost segment. Megaworld is the market leader in the middle income segment. Vista Land

prevails in the low cost segment through its subsidiary Camella Homes although it also has interest in the

high end and middle income segment (Brittany and Crown Asia).

Megaworld dominates the middle income segment with sales reaching 12 Billion but there is no clear

second. Robinsons Land, DMCI and Avida are all within the 2-4 Billion sales level. The large disparity

between the market leader and followers makes it unlikely for players like DMCI to aim for the market

leader position within a three year horizon. However, given that the market followers have equal position,

DMCI can best succeed if it can become the strong number 2 within the next 3 years. Aiming to be the

number two both a challenging and rewarding goal as having a 2.1% market share will increase its profits

by 66% over a three year time period.

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Having a market share of 2.1% of the total industry or a 4.1% market share over the middle income

segment will make DMCI a strong market follower in the middle income market segment. After securing

its place as a strong contender against Megaworld, a further study will be needed on DMCI’s next steps to

eventually lead the market.

The company will endeavor improving its IFE (at 2.35) and CPM rating (2.30 versus other market

followers of 2.85 and 3.20) to be more competitive against Avida and Robinsons and improve its market

share. The strategies will make the company more responsive to its external environment (Current EFE

rating is at 2.70).

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7.2 Recommended Business Strategies

7.2.1 Market Development

W2 & O4 - Partner with BPOs for DMCI to provide housing solutions to BPO workers

One of the concerns of the BPO industry is its high turnover rate. DMCI can offer a solution by

partnering with BPOs and banks to provide housing to BPO workers. DMCI can offer discounts to

employees of corporate accounts. BPO workers can enjoy lower rates provided a bond with the BPO

company. 1 bedroom and 2 bedroom units can be marketed directly to these employees. Additionally,

DMCI can approach BPO companies to buy several units that which the companies can allow their

employees to live in as part of their benefits.

A corporate account manager under the sales division will study this segment in detail and propose the

best solution to the housing requirements of the BPO sector.

W2 & O1 & O3 - Strengthen international presence especially in untapped countries by partnering with

external brokers

DMCI should increase the number of external brokers it’s partnering with outside the country to widen its

distribution network to the growing OFW market. Currently, DMCI only covers 12 countries but this can

be increased by partnering with external brokers in countries like the Saudi Arabia, Germany and

Norway. Saudi Arabia is the third most popular destination for OFWs with year on year increasing by

5%. Along with its Dubai office, this will strengthen DMCI’s presence in the Middle East which currently

only constitutes 22% of DMCI’s total international sales. The Middle East is the area where Megaworld,

the leader in the middle market segment, sources most of its international sales from.

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Germany and Norway are also potential countries where DMCI can venture into through a partnership

with a local broker. It is currently the 9th and 10th most popular destination for OFW with deployment

jumping at a rate of 48% and 80% year on year. Along with its UK, France, Italy, Austria and Greece

offices, will further strengthen DMCI’s hold on the European housing market (54% of its international

sales) which is already recovering from the subprime crisis.

To entice external brokers from carrying DMCI products, the commission rate will be increased to 10%

from DMCI’s current 6% which is also the industry standard. The business development along with the

company’s legal team will look into the viability of venturing into other countries and ensuring that all

regulations to enter the country are complied with.

This strategy will be supplemented by an Integrated Marketing Communications strategy (described later)

that will build brand equity to both local and international markets. For the international market, DMCI

will join real estate trade fairs and hosts property conferences to build brand awareness for both potential

buyers and broker partners.

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Contribution of Market Development strategy:

Out of the 91.3B OFW market, a total amount of 15.3B is attributed to middle income buyers. By 2012,

42% of the company’s revenues will be from OFWs up from the current 15%. This is higher compared to

Ayala at 25% of their sales. DMCI will capture 15% of the Middle Income OFW market by 2012.

By 2010, an additional 577 units will be sold to OFWs in addition to the existing 459 units. The figure

will increase by 1480 in 2012 to bring the total volume sold to OFWs to 1939 units. By 2012, the strategy

to develop its OFW market will bring in 5.6 B in revenues and 2.4B in income.

The market development strategy to provide housing solution to the BPO market will allow DMCI to tap

the Php 20 billion BPO housing market. Isolating the middle market, this segment has 3,429 potential

units of demand.

In three years, this strategy will generate 583 units worth of sales. By 2012, 5% of the company’s sales

volume will be coming from this sector. By 2010, 2% of the middle income BPO sector will be captured

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by DMCI. This is a reasonable estimate given that few real estate companies that specifically targets BPO

segment.

Market Penetration strategies:

S1 & S2 & T3 - Pursue an integrated marketing communications plan to strengthen brand awareness

among OFWs

DMCI shall use Integrated Marketing Communication (IMC) to build brand awareness especially to

OFWs. IMC is a marketing communication plan that combines a variety of communications discipline to

provide clarity, consistency and maximum impact through seamless integration of discrete messages79 To

build brand awareness, a mix of market communication modes will be used.

Advertising through local and OFW channels will be used to build up a long term image of the DMCI

Homes brand as a provider of high quality homes at a good value. Public relations such as sponsorship of

articles and blogs will be used to re-enforce the DMCI brand further as a quality property developer.

Events such as real estate conferences and participation in overseas trade fairs will be used to promote

specific projects. Lastly, personal selling done by external brokers will be used to build up buyer

preference, conviction and deliver actual sales.

W2 & O3 - Enhance website to include e-commerce capability and promote it as an alternative

distribution channel

The company has an existing website, dmciinternational.com, but this acts only as a catalogue of the

projects with only a brief description of a development and contact information. The website can be
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improved to allow for an interactive open house that will allow users to explore in 3D a selected property.

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.

S1 & T3 - Launch incentive program for satisfied home owners to refer family and friends to DMCI

Homes

Use of word of mouth advertising would be an effective strategy to penetrate the market further. Existing

home buyers will get either a cash incentive or a discount in the selling price if they refer their family

members and friends. This will be especially effective given tightly knit family ties of Filipinos as buyers

may want to live close to their extended family members.

To be able to effectively promote the referral program, DMCI will need to intensify its Customer

Relationship Management. DMCI should continue to promote the DMCI brand and products to its

existing customers. A relationship manager from customer care group should be assigned to maintain and

strengthen its relationships with existing home buyers and will introduce the referral program to them. An

intensive database will also be kept to determine if existing buyers have relatives or friends to refer to.

W5, O6 & O7 Establish Sales and Operations Planning to keep demand and supply in balance.

Sales and Operations Planning (SOP) refers to the cross functional process aimed to keep demand and

supply in balance80. Through SOP, general management, sales, construction and finance will be all

involved in the planning process. Sales and marketing shall forecast demand for specific projects for the
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next 1 to 2 years which shall be coordinated to construction for output delivery and finance for funding.

The team based approach will ensure that scarce capital will be properly allocated and there is no

unnecessary build up of inventory. Inventory levels will be established by the operations in coordination

with the sales forecast.

O2 & S5 - Develop and expand BGC property through strategic land banking initiatives

DMCI has an existing 80 hectare lot in a property adjacent to BGC. DMCI can expand this further

towards the fort area. From the external analysis, the BGC area is expected to grow further. DMCI should

be forward thinking in strategically buying lots closer to the emerging business district. DMCI can aim to

have 9B in property investments mostly in the BGC area. This is similar to the capex spending of

Megaworld of 15B to buy a lot in BGC.

Impact of Market penetration strategy

The referral program will target participation of 1% of DMCI residents. By 2010, there will be 10,496

families (new and existing home owners). This translates to 105 referrals which will grow up to 188

referrals by 2012. By 2012, total revenue contribution of this strategy is 545M with gross profit of 234M.

To entice buyers to refer, a generous referral fee will be given to existing buyers worth PhP 100,000. In

2012, this will translate to 19M additional cost bringing total benefit for this strategy to be at 216M.

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The integrated marketing communication strategy will provide a boost to both local and international

businesses. For the international businesses, this is already accounted for by the market development

strategy on OFWs. For the local businesses, the sales target of its brokers and in house sales will be

increased by 500 units with the launch of this program. Gross profit provided by the increased sales will

offset the additional marketing cost entailed. The budget will be increased from 242 in 2009 to 500M in

the next three years.

The S&O Planning will enable the more efficient use of the company’s inventory. Through the

coordination of sales and construction, the strategy will allow the company to meet an inventory policy of

5B units for the next three years.

The strategic land banking initiative is a foundation for future growth. Investments to acquire land will be

increased to 6B in 2010 to 9B in 2012. Income from this initiative will be recognized in the future when

the Sales and Operations Planning committee decides to develop these properties.

Finance Strategies

W1 & T1 - Do an IPO as soon as the economy has recovered in 2010. (impacted by O1)

This will increase the company's capitalization for expansion activities while reducing the dependency for

short term debt. Though not specifically tied to any strategy, capital raising activities is an integral part to

implement changes in the organization. A major competitive disadvantage of DMCI is its lack of capital

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compared to its competitors. The company’s dependence in short to medium term debt to finance long

term investments has hindered its ability to finance new projects and strategies. Doing an IPO will raise

equity to fund its capital intensive market development and market penetration strategies. This will also

align its debt to equity ratio with the industry.

To fulfill one of DMCI’s mission which is to reward its shareholders, a dividend policy of 500M pesos

annually will be paid starting 2011.

Equity Impact of Strategy:

The strategy will provide additional 3B in equity to the company on top of its 5B equity base.

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7.3 Recommended Organizational Strategies

The current functional organization lends itself to the market penetration and market development

strategy. The first level of the organization can be retained but additional department within the functional

divisions can be added to promote the market development strategy. Additional roles will be added to

existing departments.

Market penetration strategies will be implemented by the marketing, sales and customer care divisions.

Market development strategies will be implemented by the business development, marketing and sales

divisions.

A total of 50 additional personnel will be added to the organization to man the different strategy. Most of

the personnel will go to additional sales personnel to strengthen the distribution network of DMCI

Homes.

1) Additional personnel to support international sales divisions

This is in line with market penetration strategy to extend further its presence to the OFW market.

W2 & O3 - Increase international presence by adding in house sales and partnering with external

brokers abroad.

Additional personnel will be used to manage and support the operations of the different

international offices. Personnel will be used to develop partnerships with brokers abroad and to

help DMCI comply with foreign regulations in establishing sales offices.

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2) Additional personnel to institutional sales

A corporate sales unit will be added to form partnerships with BPO companies in line with the

market development strategy to target BPO workers:

W2 & O4 - Partner with BPOs for DMCI to provide housing solutions to BPO workers

The new unit will forge partnerships with corporate institutions to provide housing solutions to

their employees. The

3) Additional positions for relationship managers

S1 & T3 - Launch incentive program for satisfied home owners to refer family and friends to

DMCI Homes

For the incentive program strategy to be implemented, existing clients should be satisfied. A

relationship manager will be used to market the incentive program to the DMCI Home owners.

An important duty will also to strengthen the company’s CRM. Relationship managers would

determine potential home owners that would have possible referrals.

4) Concentrate DMCI’s real estate business to DMCI Homes

To reduce operating cost and increase business focus, 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 infrastructure and property development experience of DMCI Homes.

116
7.4 Financial Projections

7.4.1 Basis and Assumptions

2009 Specific FS Assumptions

2009 Financial Statements are projected assuming the firm is status quo on its strategy. Given the timing

of this paper, strategies recommended will be implemented starting 2010.

• 2009 Full Year Volume and Sales and Reservations follow the same growth as 3rd quarter year

on year growth:

Table 1

• 2009 Full Year Net Income was projected by the company to be 916M81

• 2009 Income Tax is the balancing figure to obtain 916M Net Income.

• No Change in Capital Stock, Paid in Capital and Dividend Accounts

• No Change in Bank Loan Account

Industry Assumptions:

• Market size will grow 2%. This is the 2nd quarter 2009 year on year growth rate of the high rise

residential industry (see market analysis) to which most of the company’s products are aligned.

• Middle Income BPO and OFW volume are from the market segmentation section of this paper.

• Middle Income OFW will grow by 6% in 2010 (BSP forecast) and will continue to grow at 6% in

2011 and 2012.

• Middle Income BPO market will remain stable.

81
www.bloomberg.com

117
Revenue Assumptions:

• Base figure will be 2009 sales. This assumes that sales will not go down further given the

improvement in macro economic factors (see external analysis) and continued industry growth

(see market analysis)

• 2006 to 2008 total units was provided in the annual reports but this is a mixture of residential

units and parking units. To determine the historic sales volume of residential units only, a sample

of 3 projects was chosen with a given breakdown of total sales per project and total residential

and parking unit sales. From the sample, parking unit sales account for an average of 40% of total

sales volume. Thus, for every 3 residential units being sold, there are 2 parking slots also sold.

Table 2

• An assumption was made that all residential unit buyers will also avail of the parking slot to

simplify calculations.

• Average price per unit is at PhP 2.9M. The data is coming from the total sales of the three sample

projects over the residential unit sales and rounded off to the nearest 100,000 (see table 2). Under

this assumption, prices of studio type, one bedroom, two bedroom and other unit layouts for

various projects in different locations were averaged out.

• Assumed average price per unit will not change in the next three years. This assumption can be

justified by the flat growth in the housing prices (see external analysis) and that DMCI Homes

would want to still be the price leader in the middle income segment given the intense rivalry in

the industry (see 5 forces).

• Total Sales and Reservation is the average selling price multiplied by the projected volume of

residential units.

118
• The company will continue to adopt the International Accounting standard of completed contract

method where revenues are recognized by the company when the unit is fully complete and 20%

of its contract price has been collected. An assumption was made that 55% of total sales and

reservations will be recognized as revenue. This is the ratio of recognized revenue to sales and

reservation in the third quarter of 2009 (see table 1).

• 2009 sales distribution between local and international sales will follow the 2007 data (15% of

sales are from international sales).

• Finance income will rise in proportion to sales. This account refers to the interest received from

installment contracts receivables which will also rise in proportion to sales.

• No bad debts write off.

• Other income will remain constant.

Expense Assumptions

• Cost of Sales will follow the ratio of 2008 (57%). There are no specific strategies geared towards

further lowering production cost. Current production setup where there exists an operational

synergy between DMCI Homes and its construction sister company will be retained.

• Salaries will increase at a rate of 7% per annum. This is the projected increase mentioned in the

company’s notes to its financial statements.

• Finance cost is 11% of bank loans. This is the average borrowing rate for bank loans the company

pays82.

• Corporate tax rate is at 35% of net income83.

• Other expenses will remain constant. This pertains to the one time write off of investments due to

legal proceedings.

• The following operational costs will remain constant:

82
2008 DMCI Annual Report.
83
2008 DMCI Annual Report.

119
Taxes and licenses
Management Fees
Depreciation and Amortization
Supplies
Outside Services
Communication, light and water
Pension Expense
Entertainment, amusement and
recreation
Professional Fees
Fuel and oil
Association Dues
Rent
Transportation and Travel
Repairs and maintenance
Insurance
Other Operating Expenses

Balance Sheet Assumptions

• Accounts Receivable will grow in proportion to sales.

• Available for sale investment and Investment in Subsidiaries accounts have been historically

constant and will continue to do so until 2012.

• Investment in Properties, Property and Equipment and Other Assets will remain constant until

2012.

• Accounts and Other Payables will grow in proportion to cost of sales.

• Customer Deposit Liabilities will grow in proportion to sales.

• Subscriptions Payable has been historically constant and will continue to do so until 2012.

• Deferred Tax Liability, Pension Liability and Payable to related party accounts will remain

constant until 2012.

• Cash is the balancing figure to match assets with liabilities plus equity.

Sales Targets from Strategies

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• DMCI will capture 6%, 10% and 15% of the middle income OFW segment market from 2010 to

2012. This will be done through its market development and market penetration strategies geared

towards OFWs.

• DMCI will capture 2%, 5% and 10% of the middle income BPO segment market from 2010 to

2012. This will be done through its market development strategy geared towards BPO workers.

• At the start of 2008, DMCI served 4,000 families84. Given the number of residential unit sales,

DMCI now serves 10,496 families. 1% of these families will refer their relatives and friends

through the company’s referral program. The percentage will grow to 3% and 5% in the

succeeding years as the effectively of the drive strengthens.

Expenses Incurred from Strategies

84
2007 Annual Report.

121
• Marketing and advertising will increase from 242M in 2009 to 400M annually in 2010 to 2012.

This is to fund market development and penetration strategies to intensify promotion company’s

products to existing and new clients.

• Commission will increase from 6% to 8% of sales in 2010 to 2012. This is to support market

penetration strategy of widening its distribution network by increasing the number of external

brokers carrying DMCI projects. Additional external brokers will be lured by the higher

commission rate which is above market standard.

• Workforce will grow from 300 to 350 employees in 2010 to 2012. Additional 50 employees will

be primarily utilized in sales as part of its market penetration strategy of widening its distribution

network through additional sales.

• Additional referral cost of Php 50,000 for every new buyer will be incurred as part of the market

penetration strategy of launching a referral program.

Changes in Equity due to Financing Strategy

• IPO will proceed in 2010 and will generate Php 3B in funds. It was assumed to calculate for the

Paid in capital and capital stock that the selling price is at P2 for a P1 par value.

• To compensate shareholders, a dividend policy of 1B per year will be implemented starting 2011.

Balance Sheet Targets

• Ending inventory levels will be targeted at 10B to improve inventory turnover ratio.

• Bank Loans will drop to 1B in 2010 and 500M in 2011 to 2012. Bank loans will be paid using

proceeds from the IPO and internally generated funds to lower the leverage of the company and

reduce financing costs.

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7.4.2 Projected Income Statement85:

85
Values in millions of pesos unless volume is indicated.

123
124
125
Through the market penetration and market development strategies, sales will grow by 87% in 2010 and

will stabilize to 13-14% in the subsequent years. The revenues gained from these strategies will more than

offset the expenses incurred to widen its distribution network and launch an integrated marketing

communications program. Net income is projected to grow further by 14% to 19% with total return on

stockholder’s equity to be at 14% by 2012.

Solvency of the company will drastically improve to a healthier 50% debt to asset ratio. Proceeds of the

planned IPO will be used to reduce the loans of the company. This will be a prudent measure given that

the interest rates are projected to rise (see external analysis). This measure has paid off as it the reduction

of interest will positively impact the company’s bottom line.

Balance sheet management will also be more prudent by setting an inventory policy. Maintaining a set

inventory level is done through the strategy on having a more robust sales and operations planning. This

will positively impact the turnover of company’s inventory which is one of the company’s financial

weakness.

126
VIII. DEPARTMENTAL PROGRAMS

8.1 Strategy Map

A strategy map is a “visual representation of the cause and effect relationship among the components of

an organization’s strategy.”86

86
Galbraith, Jay. “Designing Organizations: an executive briefing on strategy, structure and process.” 1st ed. 1995.

127
8.2 Departmental Programs

The implementation of the market penetration and development strategies will rely on division and their

functional programs and action plans.

Marketing

Integrated Marketing Communications

Marketing will lead in the planning and execution of the integrated marketing communications plan of the

company to raise brand awareness (S1 & S2 & T3 - Pursue an integrated marketing communications plan

to strengthen brand awareness among OFWs). The IMC plan’s target audience will be middle income

OFWs looking to settle in the Philippines or provide homes to their families. The communication

objective is to build brand awareness87 or the ability to identify the DMCI brand among OFWs in the

housing category.

Overall advertising message will be that DMCI Homes delivers their dreams for their families 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 ad message. Aggregate communications budget for

both local and international campaigns will be 400M annually.

Given the Integrated Marketing approach, DMCI will utilize several communications mode to deliver a

coherent and effective message and promote brand awareness. TV advertisements will focus on the

DMCI brand (as opposed to a specific project) as a property developer that offers optimal quality and

value for money to their families in the Philippines. 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. Detailed product information will also be

87
Kotler, Philip & Keller, Kevin. Marketing Management. 4th Edition.

128
published in the company’s enhanced website. Publicity will be used by sponsoring magazine articles and

property blogs to write about specific projects.

Referral Program

Marketing will support customer care in the referral program. Marketing will provide the needed printed

materials to properly communicate the message of the referral program. The material should not only

emphasize the possible monetary rewards of referring a family member to DMCI developments but the

chance to be close to your extended family and friends.

Sales

Online Sales Strategy

The sales division will lead in the execution of the e-commerce strategy (W2 & O3 - Enhance website to

include e-commerce capability and promote it as an alternative distribution channel). The Sales team will

develop the infrastructure to be able to handle the logistics of an e-commerce capable website. Sales will

link their inventory management system to the enhanced website so both buyers and brokers are made

aware of specific units that are still available in real time. 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 the other departments for the other components of the website.

Marketing will provide the sales team the ad content of the website. The content will be in line with the

integrated marketing communications plan of marketing. Construction will provide pictures and updates

of current projects to be able to update buyers of the status of their investment and to emphasize a key

strength of DMCI which is its fast delivery time. Design will provide the look of a particular

development. This will be uploaded in the website as a part of the 3D Open House feature of the website.

129
Sales will outsource the actual development of the website to a third party vendor. By June 2010, the new

website will be launched complete with e-commerce capabilities (online reservation).

Development of the BPO Market

As indicated in the SWOT matrix, BPO workers will be targeted as a possible new market to tap, (W2 &

O4 - Partner with BPOs for DMCI to provide housing to BPO workers). To be able to innovate a housing

solution to BPO workers, the key accounts unit under sales will lead this initiative. Together with

marketing, finance and construction, they will formulate a corporate housing package specifically geared

toward BPO workers. A comprehensive product offering is expected to be available by the March 2010

and sales activities to begin by April 2010.

Development of the OFW Market

Another market development strategy is to tap the OFW segment (W2 & O1 & O3 - Strengthen

international presence especially in untapped countries by partnering with external brokers). The sales

department will lead this initiative by forging partnerships with various external brokers in countries

DMCI has no presence in. An external broker will be employed to market DMCI in Saudi Arabia, whose

OFW deployment is growing at 5%. Germany and Norway are also among the top destinations of OFWS

but DMCI does not have presence. The sales team will also partner with external brokers in these

European countries. Aside from widening DMCI’s presence in popular OFW destinations, DMCI will

also strengthen its hold over Canada and Japan which also has an increasing number of OFW

deployments.

Customer Care

Customer care will lead in the market penetration strategy to tap the more than 10,000 existing home

owners of DMCI (S1 & T3 - Launch incentive program for satisfied home owners to refer family and

130
friends to DMCI Homes). For the referral program to work, existing home owners should continue to

remain satisfied. The relationship manager within the customer care department will be in charge of this.

A more important duty of the customer care group is to update the CRM of DMCI not just for prospective

clients but for existing home owners. In satisfying the current needs of the home owners, customer care

will also data mine for possible referrals that can be obtained from existing home owners. The

relationship manager will then concentrate his/her efforts in these identified customers and introduce the

existing products of DMCI as well as the financial incentive of referring someone to the program.

Construction

Construction will lead in the Sales and Operations Planning strategy (W5, O6 & O7 Establish Sales and

Operations Planning to keep demand and supply in balance). Operations will chair monthly meetings

with sales to determine forecasted demand for units. Sales will provide indication as to the type of units

that are on demand (studio type, 1 bedroom, 2 bedrooms). Construction will design its developments

based on the projection provided by sales. Through S&O planning, inventory levels will be monitored by

the construction department. By Jan 2010, the construction group through the regular coordination with

sales team, will maintain inventory levels at 5B and eventually quicken inventory turnover to 1.79 in

2012 from its current 0.54.

Operational synergy with DMCI group will also be strengthened to reduce cost and manage quality better.

All of the construction and steel fabrication requirements of DMCI Homes will be coursed through DM

Consunji (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.

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Business Development

The Business Development division will lead in the company’s expansionary strategy in the BGC area

(O2 & S5 - Develop and expand BGC property through strategic land banking initiatives). The business

development will approach the BGC administration and other realtors to acquire new tracts of land such

as the newly opened Northern BGC area. Expansionary activities will occur within three years after the

planned IPO. Investment in properties will grow from the current 1.7B to 9B by 2012 or by 7.2B in 3

years. At the current price of 8,000 per square meter, DMCI aims to gain 90,475 additional square meters

out of the total 2.6M available area in BGC. Additional properties will be utilized for additional mid and

high rise developments.

Finance

Finance will own the IPO strategy. (W1 & O1 - Do an IPO as soon as the economy has recovered in

2010.) Within 2010, tt will coordinate with the underwriters to raise the needed capital to fund new

projects and the new strategies. Finance will target total proceeds of 3 B pesos. If the IPO is well

received, the remaining capital requirement can be sourced via a re-launch of the stocks. If not, the

remaining capital raising can be either deferred until market conditions improve or it can be funded via

debt. To compensate its existing and new stockholders, a dividend policy of 500M annually start 2011.

Finance will use the proceeds of the IPO not only to fund expansionary strategies (such as strategic land

banking strategy) but also to pay off its short term debt. Bulk of the company’s debt are short term debt

(see financial analysis). Given that interest rates are expected to rise further (see external analysis), paying

off the short term debt of DMCI will save on finance cost and improve the company’s profitability.

Success in lowering its leverage will be measured by its improving debt to asset ratio which will move

from .68 to .50 by 2012.

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Human Resources

Human resources will need to hire and train 50 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 from

6% to 10%. This will support the strategy to attract additional brokers by compensating them higher than

other property developers.

HR will also review the performance appraisal system to include customer service to both new and

existing customers as a key performance indicator to sales and customer care personnel. Sales quotas

indicated in the performance appraisal system will be revised to focus more on sales coming from OFWs

and BPOs to align it with the market development strategies.

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IX. Strategy Evaluation and Performance Metrics
9.1 Balanced Scorecard

Balanced scorecard is an important strategy evaluation tool that allows firms to evaluate strategy from a

financial, customer knowledge, internal business processes and learning and growth.

Financial Perspective

Objectives Goals – Dashboard Responsibilities DACI


Meets expectation D – Driver
Alert A – Accountable
Below Expectation C – Consulted
I – Informed
Growth in Net Income (vs 2010: D – Marketing, Sales and
previous year) ● ≥ 14% Operation Teams
● 5-14% A – General Management
● <5% C – Finance
I – Business Development
2011:
● ≥21%
● 10-21%
● <10%

2012:
● ≥19%
● 10-19%
● <10%
Growth in Real Estate Revenues 2010: D – Marketing and Sales
(vs previous year) ● ≥ 87% A – General Management
● 50-87% C – Finance & Construction
● <50% I – Business Development

2011:
● ≥14%
● 5-14%
● <5%

2012:
● ≥13%
● 5-13%
● <5%
Improved Capitalization Debt to Assets D – Finance
● ≤ 0.50 A – General Management
● 0.50-0.60 C – Business Development
● >0.60 I - Construction

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Customer Perspective

Objectives Goals – Dashboard Responsibilities DACI


Meets expectation D – Driver
Alert A – Accountable
Below Expectation C – Consulted
I – Informed
Tap existing home owners for ● ≥1% D – Customer Care and Sales
referrals (% referral/# of home ● <1% A – General Management
owners) C – Marketing
I – Construction
Penetrate BPO Market 2010: D – Marketing and Sales
(Market share of Middle Income ● ≥ 2% A – General Management
BPO market) ● 1% C – Business Development
● 0% I – Finance & Construction

2011:
● ≥4%
● 2-4%
● <2%

2012:
● ≥6%
● 3-6%
● <3%
Increase Market Share for 2010: D – Marketing and Sales
Middle Income OFW market ● ≥ 6% A – General Management
● 3-6% C – Business Development
● <3% I – Finance & Construction

2011:
● ≥8%
● 4-8%
● <4%

2012:
● ≥10%
● 5-10%
● <5%

Strong Market follower in the 2010: D – Marketing and Sales


middle income real estate ● ≥ 1.6% A – General Management
industry ● 1.0-1.6% C – Business Development
(total market share) ● <1% I – Finance & Construction

2011:
● ≥1.8%
● 1.0-1.8%

135
● <2.6%

2012:
● ≥2.0%
● 1.0-2.0%
● <1%

Operations Perspective

Objectives Goals – Dashboard Responsibilities DACI


Meets expectation D – Driver
Alert A – Accountable
Below Expectation C – Consulted
I – Informed
Enable e-commerce capability of Full launch of new e-commerce D – Sales
website capable website A – General Management
● on or before June 2010 C –Marketing
● July to Sept 2010 I – Customer Care
● After Sept 2010
Strategic Land Banking Additional Land area gained by D – Business Development
initiatives in the BGC area 2012: A – General Management
● >=90,475 sq m C –Sales, Construction and
● 40,000 – 90,475 sq m Finance
● <40,000 sq m I – Marketing

Learning and Growth Perspective

Objectives Goals – Dashboard Responsibilities DACI


Meets expectation D – Driver
Alert A – Accountable
Below Expectation C – Consulted
I – Informed
Acquire and retain Talent ● 350 D – Human resources
# of employees ● 320-350 A – General Management
● <320 C –Sales
I – Finance

136
9.2 Contingency Planning

Downside Potential Events

Key Concerns Action Plans

Economic crisis extends until • Determine impact to industry growth

2010 • Defer IPO to 2011 and re-prioritize new projects to 2011

Significant decline in OFW • Determine the country which caused the sudden decline and

remittance lessen exposure to the country affected.

• Re-allocate resources for local home sales.

Decline of BPO market • Re-allocate resources for retail market

IPO will not be well received • Defer second tranche (40% of needed capital) until market

conditions improve or fund via debt

Raw materials prices to rise • Increase prices to compensate for rising raw material costs

Upside Potential Events

Key Concerns Action Plans

OFW remittances higher than • Re-allocate resources to countries with a faster OFW

expected remittance growth

- END OF PAPER –

137
X. REFERENCES

1. Fred, David. Strategic Management. 7th edition. 2009.


2. Kotler, Philip & Keller, Kevin. Marketing Management. 4th Edition.
3. Jacobs, Robert, Chase, Richard & Aquilano, Nicholas. Operations and Supply Management.
th
12 edition. 2009.
4. Galbraith, Jay. “Designing Organizations: an executive briefing on strategy, structure and
process.” 1st ed. 1995.
5. Securities and Exchange Commission Audited Financial Statements for DMCI Holdings, DMCI
Project Developers, Ayala Land, Avida Land, Megaworld and Robinsons Land
6. Tiongson. Teresa. Senior DMCI Homes HR Manager. Personal Communication. November
2009.
7. www.dmcihomes.com
8. www.bsp.gov.ph
9. www.hlurb.gov.ph/article/articleprint/382/-1/102/
10. www.census.gov/const/newressales.pdf
11. www.abs-cbnnews.com
12. www.colliers.com
13. www.erbl.pids.gov.ph
14. www.joneslanglasalle.com
15. www.fxstreet.com/news/forex-news
16. www.bcphilippineslawyers.com/foreign-ownership-of-land-in-the-philippines/371/
17. www.magellan-solutions.com/call-center-industry_people.htm
18. www.sulit.com.ph
19. www.eton.com.ph
20. www.smdevelopment.com
21. www.vistaland.com.ph
22. www.avidaland.com
23. www.bloomberg.com
24. Chipongian, Lee. “BSP ups BOP forecast for 2010 to 5B”. 14 Oct 09.
http://www.mb.com.ph/node/224721/
25. Murray, Dr Jane. “Asia Pacific Economy: Signs of a turnaround but outlook remains subdued”.
2nd quarter 20009.
26. Marcelo, Kathy. “What does the O&O roadmap say?” May 2008. joneslanglasalleleechiu.com

138
27. Liu, Kristine Jane. “Bonifacio Global City expects to equal Makati Space by 2012.” Business
World. 21 Sept 2009.
28. Cabacungan, Gil C. Jr. “Nograles: Charter change train back on track. “18 July 2009.
www.inquirer.net
29. Fajardo, Fernando.” Can foreigner-retirees buy land here?” 22 Oct 2008. globalnation.inquirer.net
30. Ho, Abigail. 25 Aug 2009. US European Firms Eye RP retirement industry. www. Inq7.net
31. Ramos, Marlon. “Too much rain too soon.” 27 Sept 2009. www.inq7.net
32. Abbugao, Martin. “Floods a wake up call for climate change.” 29 Sept 2009. www.inq7.net
33. Cabralez, Aizl. “ The growing significance of the middle class.” 3 July 09. www.bworld.com.ph

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XI. APPENDICES:

Appendix 1 – Market Size

Appendix 2 – Market Segment Size

Appendix 3 – Competitor Pricing Survey

Appendix 4 – DMCI Audited Financial Statements

Appendix 5 – Competitor Financial Ratios

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Appendix 4: Audited Financial Statements

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