A resource performance analysis of contractors in Hong Kong

This paper examines the relationship between resources and performance of contractors in the public sector, and the roles of the clients. The public building and housing sector in Hong Kong was dominated by three contractors. During a period of 15 years between 1988 and 2002, the annual market shares of these three contractors altogether ranged between 24% and 74% of the total annual contract value. The study builds on Barney's resource-based hypothesis that it is the heterogeneity in resources and capability efficiency that distinguishes the market leaders from the rest. With panel data analyses, the sales and profits of the companies are regressed on their asset structure, plant and machinery resources, and other control variables including capital structure to examine possible statistical causality. It is found that profits are related with sales, but plant and machinery is not a statistically significant variable in causing sales. The results suggest that leading firms are able to consistently dominate the market because they are efficient in construction management rather than innovative in technology per se. They are resourceful more in managing the construction process than in developing and applying sophisticated technologies. We offer one explanation for further discussion. Because the building and prefabrication technology required by the public sector is well-known and well-established, contractors need to be managerially efficient rather than technologically superior to be competitive. Leading contractors in the public sector have consistently secured enough contracts to exploit economy of scale and to move up the learning curve, thus enabling them to adopt cost leadership strategies to create and sustain their competitiveness. Yet the side effect of this quest for efficiency is that the quality of building is not good enough. The Hong Kong Housing Authority is the largest building client in Hong Kong if not the world. Its role as an agent of change for the betterment of the construction industry does not seem to have been fully capitalized.