nining thesis final january 2007

8/2/2019 Nining Thesis Final January 2007

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THE ANALYSIS OF APARTMENT INDUSTRY

COMPETITIVE STRATEGY AT CBD JALAN SUDIRMAN

IN JAKARTA

By

Sri Yulianingsih Sumantri

(Indonesia)

This paper was submitted in partial fulfillment of the requirements for the

Master of Business Administration (MBA) degree at the Maastricht School of

Management (MSM), Maastricht, The Netherlands and Magister Manajemen

(MM) at Trisakti International Business School, Jakarta, April 2006

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CHAPTER I

INTRODUCTION

1.1. BACKGROUND

The Jakarta market (as of first Quarter 2005) had a total number of 32,372 apartment units,

an increase of 1.8% Quarter to Quarter with two completed projects in South and Central

Jakarta.There were five new projects introduced in the quarter which will boost the market

with an additional 1,940 units will also be launched. Among types of apartments, the semi-

furnished units are now popular in attracting buyers.

West Jakarta was the largest apartment unit provider in Jakarta up to this quarter; in 2007

North Jakarta will replace West Jakarta.Jakarta Condominium stock will grow tremendously in

2007 and double the number of existing units.

Luxury apartments were bought for collection purposes as well as investment.For several

quarters, price per sq m remained unchanged, owing to tight competition, and remained in the

range of Rp 5 million/sq m (lower segment) up to Rp 24 million/sq m (luxury segment).

Coldwell Banker Commercial Indonesia said in its quarterly overview 1 on the Greater

Jakarta property market that the total stock of condominiums at the end of the first quarter of

2005 stood at 35,001 units, with 7,977 units in prime locations and the remaining 27,024 units

in secondary areas. The property brokerage company also reported that total stock of

apartments remained at 10,549 units, similar to last year.

Meanwhile, ongoing condominium construction projects -- including the Sudirman

Mansion, SCBD Suites (Sudirman Central Business District), Senayan Residence, Mediterania

Lagoon Residence and Mediterania Boulevard Residence -- have achieved between 90 percentand 100 percent absorption rates.

Coldwell has forecast that the condominium market would remain buoyant in the short term

as developers continue to flood the market with plenty of supply. It added that there were 68

condominium blocks under construction, and that would bring it to a total of 45,000 units over

the next three years and would also create tougher competition, falling occupancy levels and

declining sales prices. While rental fees for apartments remain relatively stable, according to

Coldwell, ranging between US$2.84 and $27.06 per square meter per month, an increase of1 Colliers International Quarterly research Report, 1Q 2005, Jakarta, 2005.

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0.72 percent from December. About 85 apartment units were leased in this year's first quarter,

totalling 7,776 units that have been leased since 1999.

Coldwell said two apartment projects were expected to finish by mid 2005, namely the

Aston Rasuna with 96 units and the Marriott Executive Apartment with 72 units, both of which

are in South Jakarta.

For lease able retail properties, Coldwell said overall occupancy in this year's first quarter

increased by 0.59 percent, compared to the first quarter in 2004 although no new retail center

was completed during the quarter.

The vibrant condition forced rental prices to increase by 6.88 percent to Rp 260,373 per

square meter monthly for secondary locations and to Rp 570,938 per square meter for primary

locations.

For strata-titled properties, the stock remains at 1.03 million square meters as no new

supply was added due to delayed construction. The selling price for strata-titled retail property

remains stable in the range of Rp 50 million to Rp 283 million per square meter, while projects

under construction are offered at Rp 30 million to Rp 98.5 million per square meter, an increase

of 6.63 percent over the fourth quarter 2004.

The Indonesian apartment market is expected to remain strong as apartments are still seen

as more profitable investments given the currently low deposit interest rates. But the threat of

oversupply persists. Data from property consultants and analysts show a jump in the annual

supply of apartments on the market. Not only is the number of units due to be completed this

year on the rise, but also that of those scheduled to be finished in the coming years. Collier

International Indonesia (CII) predicts Jakarta apartment supply will experience significant

growth of 56.3 percent in 2006. This will bring an additional 21,385 units onto the market and

result in a massive increase in cumulative supply to more than 59,300 units. Property analyst

Panangian Simanungkalit was quoted by Kompas as saying that around 6,500 new apartments

have been constructed each year between 1998 and 2005, compared to 1,300 each year between

1980 and 1998. With 2006's annual supply going to be the highest annual supply ever in the

market's history, the threat of oversupply has started to cause concern among some market

players. However, others remain optimistic about market prospects.

Jakarta's traffic congestion has persuaded many people to move to apartments that are near

their offices. For these sorts of people, apartment living is more than just a lifestyle, it is a

necessity. Aside from targeting people like these, CBD (Central Business District) apartments

in Jakarta are also aimed at investors. Rather than putting their money in low-return bank

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deposits, wealthy Indonesians hope to gain more by purchasing apartments in and around the

CBD and prestigious areas in South Jakarta, such as Kemang and Pondok Indah.

1.2. PROBLEM STATEMENT

With a large number of new developments due to come on the market in 2005 and in

coming years, Jakarta will remain a hot market for apartments. But outside Jakarta, particularly

in Singapore and Australia, developers are also boosting their efforts to persuade wealthy

Indonesians to invest in the apartment markets in those countries. The effort to attract

Indonesian buyers has paid off, with Kompas daily reporting that Indonesians constitute the

biggest overseas buyers of Singapore property, followed by people from Malaysia, BruneiDarussalam, Hong Kong and Shanghai. However, optimism is still high among Indonesian

developers that they will not lack buyers. Investors have suffered losses in the Singapore

apartment market due to a drop in property prices of between 35 percent and 45 percent, and

low rental income.

Research conducted by Procon (Property consultant) mentioning the motivation to live in

an apartment in Jakarta. The majority of respondents mostly chose to live in an apartment

mainly for living 48%, for investment purpose 31%, for second home 13%, and for other

family member 8%.2

Figure 1-1. Motivation to Buy Apartment

Source: Colliers International Indonesia, Research Department, 2005.

2 Kompas,Eksekutif Muda Pembeli Apartemen, May 06, 2004

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living

48%

investment

31%

second home

13%

other family

8%


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There are some important criteria for choosing apartments, such as location in the heart of

the city, comfortable environment, close to work place, layout of apartment, complete facilities,

building design and quality, and also important is comprehensive safety. Among all locations,

Sudirman CBD become the most chosen location 34% followed by South Jakarta 17%, CBD

HR Rasuna Said 15%. The rest consists of CBD Mega Kuningan 8%, CBD SCBD 6%, CBD

Thamrin 4%, Satrio 4%, Jakarta Utara 4%, Jakarta Barat 6%, Jakarta Pusat 2%.3

Figure 1-2. Location Preference of Apartment


Many predispositions of people to select the representative apartment which might have

several considerations such as close to business activities, shopping centre and the like become

the problem for the development of competitive strategy for the apartment industry in Jakarta

especially at the Sudirman CBD in order to fight the competition. .

1.3. RESEARCH OBJECTIVES

The objectives of this research are:

1. To outline the situation and highlight the developments in the apartment industry at the

CBD Jalan Sudirman in Jakarta in particular for both new companies and leading

companies which have previously built and developed several apartments at that area.

2. To discuss the various challenges confronting competitive advantages in the apartment

industry at the CBD Jalan Sudirman in Jakarta.

3 Ibid.

5

CBD Jalan Sudirman

34%

South Jakarta

17%

CBD Jalan Rasuna

15%

West Jakarta

6%

North Jakarta

4%

CBD-SCBD Area

6%

CBD Jalan Satrio

4%Mega Kuningan

8%

CBD Jalan Thamrin

4%Central Jakarta

2%


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3. To establish suitable strategies that apartment industry at the CBD Jalan Sudirman in

Jakarta should adopt to ensure their future viability.

1.4. THEORETICAL FRAMEWORK

The study will focus on business-level intended competitive strategy within the

apartment industry. Since the strategy professed by company executives may differ from the

strategy that a company actually implements, intended strategies may differ from realized

strategies (Snow and Hambrick 1980).

Figure 1-3. Theoretical Framework

Realized strategies may be the result of deliberate strategic decisions (intended

strategies) or they may reflect reactions to industry changes that have no underlying strategic

basis. However, focusing on intended strategy allows the use of strategic self typing by top

management personnel. The perceptions and opinions of this group largely determine the

organizations strategy (Snow and Hambrick 1980). Focusing on intended strategy also allows

strategic change in the industry to be predicted.

The theoretical framework will follow Porters 5 forces which were identified into

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variables as explained further in Chapter III.

1.5. RESEARCH QUESTIONS

Based on the research ideas, the research questions have been generated at the

beginning of the research process. The idea of this research is to set clear conclusions in order

to answer these research questions based on the data collected.

The major research questions are:

1. What are the developments in the apartment industry at CBD Jalan Sudirman in

Jakarta?

2. How to gain competitive advantage in the market for apartment industry as one of

potential investment at CBD Jalan Sudirman in Jakarta?

3. What are the strategies that apartment industry at CBD Jalan Sudirman in Jakarta

should adopt to ensure their future viability?

The minor research questions are:

1. What are the forces which influence the apartment industry competitiveness at the CBD

Jalan Sudirman in Jakarta?

2. What are the detailed action plans to for the CBD Jalan Sudirman Apartments?

3. What are the specific priorities for the CBD Jalan Sudirman Apartments to ensure their

future viability?

The research questions above were used as a base from which to write a set of research

objectives. The research objectives below are evidence of the clear sense of purpose and

direction in conducting this research.

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1.6. RESEARCH METHODOLOGY

1.6.1. Research Design

The research design were a descriptive research using survey methods. This research is

considered as an inductive research. Questionnaire were used as research instrument.

Quantitative strategic data were gathered via an 18-item measure adapted from Dess and Davis

(1982, 1984)4. The measure developed by Dess and Davis were judged to have met the three

concerns in strategic measurement as presented by Thomas and Venkatraman (1988): (1) It

captured (with minor changes) the basis of competition in the industry; (2) It had a strong

relationship to existing strategic topologies-specifically, Porter (1980); and (3) the works of

Dess and Davis (1982, 1984) provide evidence of the validity and reliability of the measure.

Minor changes were made in the measure to ensure applicability to the apartment industry.

Data Collection

Primary source were used to gather data from the sample firms. While the secondary

information were obtained from Colliers International, property reports, internet and news. In

multi industry companies, the questionnaire were directed to the management of the business

unit apartment, tenants and brokers.

Five sample of Apartment companies consist of:

1. Pavilion Apartment

2. Batavia Apartment

3. Istana Sahid Apartment

4. Plaza Apartment

5. Sudirman Tower Condominium

The samples include the category of apartment type: fully-furnished service apartment,

unfurnished and fully-furnished without service.

Data Analysis Methods

4 Dess G.G. and P.S. Davis (1984), Porters (1980) generic strategies as determinants of strategic groupmembership and organizational performance.Academy Management Journal. 27(3); 467-487.

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The result from the questionnaire were put into a calculation to obtain mean value of

each variable for competitiveness factors and threat factors. The mean values became the

source for the gap analysis.

The formula for mean factors are as follow5:

Xi - XnMean value of competitiveness = ------------------

n

Yi - YnMean value of threat = ------------------

n

Gap of competitiveness = Xi - X

Gap of threat = Yi - Y

Where:

Xi - Xn = value of competitiveness scale

Yi - Yn= value of threat scale

n = number of samples

X = total means of Xi - Xn

Y = total means of Yi - Yn

Competitive factors and threat factors were developed to find gaps on attributes and

categories. The scores then were put into the graph, to determine the gaps among attributes and

categories in relation to the competitive advantage value.

The gaps of each attribute in each quadrant of the graph were identified, and evaluated

in comparison with the performance standards, to find the appropriate reasons why the gaps

occur and thus determine the basis for operating strategy formulation. The operations strategy

were formulated based on the results whereby each result was translated into strategic actions

to meet the performance standards. The strategy will allow apartment industry to continuously

upgrade their performance.


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CHAPTER II

LITERATURE REVIEW

2.1. COMPETITIVE STRATEGY

Every firm competing in an industry has a competitive strategy, whether explicit or

implicit.

Essentially, developing a competitive strategy is developing a broad formula for how a

business is going to compete, what its goals should be, and what policies were needed to carry

out those goals.

This chapter will review a classic approach strategy formulation that has become a

standard in the field. Figure 2 1 and 2 2 illustrate this approach.

Figure 2 1 illustrates that competitive strategy is a combination of the ends (goals) for

which the firm is striving and the means (policies) by which it is seeking to get there.

Figure 2 1 The Wheel of Competitive Strategy

Source: Porter, M.E. (1980) Competitive Strategy, New York, Free Press.

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ManufacturingLabor

Purchasing Distribution

Research andDevelopment

Sales

Financeand Control

Marketing

Product LineTarget Markets

Goals


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Figure 2 1, which can be called the Wheel of Competitive Strategy, is a device for

articulating the key aspects of a firms competitive strategy on a single page. In the hub of the

wheel are the firms goals, which are its broad definition of how it wants to compete and its

specific economic and non-economic objectives. The spokes of the wheel are the key operating

policies with which the firm is seeking to achieve these goals. Under each heading on the wheel

a succinct statement of the key operating policies in that functional area should be derived from

the companys activities. Depending on the nature of the business, management can be more or

less specific in articulating these key operating policies; once they are specified, the concept of

strategy can be used to guide the overall behaviour of the firm. Like a wheel, the spokes

(policies) must radiate from and reflect the hub (goals), and the spokes must be connected with

each other or the wheel will not roll.

Figure 2 2 Competitive Strategy

Source: Porter, M.E. (1980) Competitive Strategy, New York, Free Press.

Figure 2 2 illustrates that at the broadest level formulating competitive strategy involves the

consideration of four key factors that determine the limits of what a company cab successfully

accomplish. The companys strengths and weaknesses are its profile of assets and skills relative

to competitors, including financial resources, technological posture, brand identification, and so

on. The personal values of an organization are the motivations and needs of the key executives

and other personnel who must implement the chosen strategy. Strengths and weaknesses

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PersonalValues

of the KeyImplementers

BroaderSocietal

Expectations

CompanyStrengths

andWeaknesses

IndustryOpportunities

and Threats(Economic and

Technical)

CompetitiveStrategy

FactorsExternal

to theCompany

FactorsInternalto the

Company


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combined with values determine the internal (to the company) limits to the competitive strategy

a company can successfully adopt.

The external limits are determined by its industry and broader environment. Industry

opportunities and threats define the competitive environment, with its attendant risks and

potential rewards. Societal expectations reflect the impact on the company of such things as

government policy, social concerns, evolving mores, and many others. These four factors must

be considered before a business can develop a realistic and implementable set of goals and

policies.

2.2. FIVE FORCES OF PORTER MODEL

Michael Porter described a concept that has become known as the "five forces model".

This concept involves a relationship between competitors within an industry, potential

competitors, suppliers, buyers and alternative solutions to the problem being addressed. Many

researchers used the five-forces model as a basic structure and built on it with concepts from

the works of many other authors.

While each industry involves all of these factors, the relational strengths vary.

Researcher uses input from the user to create a unique model of their industry. Then thousands

of "rules" are applied to evaluate hundreds of marketing and business concepts as they relate to

the user's unique circumstances.

This results in a set of analyses, including:

a success potential rating in eleven key areas

a list of strategic strengths and weaknesses

observations on strategic inconsistencies a written critique of your strategy

a graphic analysis of key marketing concepts

a written draft of a marketing plan

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Porter explains that there are five forces that determine industry attractiveness and long-

run industry profitability. These five "competitive forces" are:

- The threat of entry of new competitors (new entrants)

- The threat of substitutes

- The bargaining power of buyers

- The bargaining power of suppliers

- The degree of rivalry between existing competitors

Threat of New Entrants

New entrants to an industry can raise the level of competition, thereby reducing its

attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry

barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to

enter (e.g. estate agency, restaurants). Key barriers to entry include

- Economies of scale

- Capital / investment requirements

- Customer switching costs

- Access to industry distribution channels

- The likelihood of retaliation from existing industry players.

Threat of Substitutes

The presence of substitute products can lower industry attractiveness and profitability

because they limit price levels. The threat of substitute products depends on:

- Buyers' willingness to substitute

- The relative price and performance of substitutes

- The costs of switching to substitutes

Bargaining Power of Suppliers

Suppliers are the businesses that supply materials & other products into the industry.

The cost of items bought from suppliers (e.g. raw materials, components) can have a significant

impact on a company's profitability. If suppliers have high bargaining power over a company,

then in theory the company's industry is less attractive. The bargaining power of suppliers were

high when:

- There are many buyers and few dominant suppliers

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- There are undifferentiated, highly valued products

- Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers

threatening to set up their own retail outlets)

- Buyers do not threaten to integrate backwards into supply

- The industry is not a key customer group to the suppliers

Bargaining Power of Buyers

Buyers are the people / organizations who create demand in an industry. The bargaining

power of buyers is greater when:

- There are few dominant buyers and many sellers in the industry

- Products are standardized

- Buyers threaten to integrate backward into the industry

- Suppliers do not threaten to integrate forward into the buyer's industry

- The industry is not a key supplying group for buyers

Intensity of Rivalry

The intensity of rivalry between competitors in an industry will depend on:

- The structure of competition - for example, rivalry is more intense where there are

many small or equally sized competitors; rivalry is less when an industry has a clear

market leader

- The structure of industry costs - for example, industries with high fixed costs encourage

competitors to fill unused capacity by price cutting competitors to fill unused capacity

by price cutting

- Degree of differentiation - industries where products are commodities (e.g. steel, coal)

have greater rivalry; industries where competitors can differentiate their products have

less rivalry

- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there

is a significant cost associated with the decision to buy a product from an alternative

supplier

- Strategic objectives - when competitors are pursuing aggressive growth strategies,

rivalry is more intense. Where competitors are "milking" profits in a mature industry,

the degree of rivalry is less

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- Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing

down factories) - then competitors tend to exhibit greater rivalry. (Source: tutor2u,

2003).

2.3. PREVIOUS STUDIES OF APARTMENT COMPETITIVE STRATEGIES

Study by Romano (2000) mentioning that in the past, swimming pools, exercise centers,

and other amenities were used to help position a property against its competition. Now,

high-end-properties are using such technology-based amenities as high-speed Internet

access and home theaters to provide market differentiation. In a sign of the times, last year

Summit Properties hired an individual with a background in information technology for the

newly created position of Intelligent Community Project Manager. This individual provides

a liaison between technology providers, development, and property management functions,

keeping the real estate company up-to-date on new technologies it should consider for

residents. BRE Properties Inc. offers residents of its communities a broadband Internet

product - Velocity HSI - that is point-to-point, T1 speed, 1 megabyte or better, and video

quality. The degree of interest in and acceptance of high-tech amenities, however, depends

on more than resident demographics; it also varies by market. In addition to providing

Internet access, many companies are finding value in providing Internet content to their

residents. At present most of the demand is coming from the luxury apartment segment

(Romano, 2000).

While Flahive (1998) researched the Princeton at Mt. Vernon, one of the most high-tech

apartment communities in Massachusetts. Each of the 144 apartments offers high-speed

Internet access and 6 telephone lines. Smart features cannot make an old apartment

community new again, but they can make it more competitive. To determine whether smart

features are appropriate for an older apartment community, property developers and

managers should consider both practicality and market conditions. Because most smart

features involve rewiring, it is impractical to add them unless you are already opening the

walls. Market factors to consider include location, corporate furnished suites,

differentiation from the competition, and image. The addition of smart features in relatively

inexpensive during a rehabilitation but can give potential residents an entirely different

perspective on a property (Flahive, 1998)

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Previous studies by Rossiter of Colliers International Indonesia regarding the Jakarta

Apartment Market for Strata-Titled Apartments mentioning that at the end of fourth quarter

2001, strata-titled apartment supply remained stable at approximately 24,295 units. 320

new units entered the market from the completion of Muara Indah Apartments in North

Jakarta on August 2001. Over the next 12 months, 486 units are expected to enter the

market from 2 projects within the CBD area. Uncertainty locally has seen an increasing

number of upper class Indonesians looking off shore to invest in residential property.

Occupancy rates for strata-titled apartments reflect some optimism in the market with an

increase of 0.6% to 78.9%.

Supply At the end of 2001, strata-titled apartments in Jakarta totalled approximately

24,295 units. The only new stock on the market came from the completion of the Muara

Indah Apartments in Pluit, North Jakarta. This apartment development commenced in 1997,

taking 4 years to complete due to the financial crisis that struck in 1998. It was completed

in August 2001, adding 320 units to the total Jakarta supply.

According to the distribution of strata-titled apartments in Jakarta, Central Jakarta

(including the CBD area) accounts for 46% of the total supply, while West Jakarta accounts

for 22% of the total supply. The other municipalities in Jakarta, which are North Jakarta,

South Jakarta and East Jakarta, account for 19%, 12% and 1% of the total strata-titled

apartment units, respectively.

Cumulative and Annual Supply in terms of the number of strata-titled developments in

Jakarta, 22 projects or 30% are located in South Jakarta, according to a Colliers

International survey. These developments are mostly small-scale, averaging 122 units per

project for a total of 2,704 units. Among the large-scale developments in Jakarta, Taman

Rasuna Apartments with 3,070 units in the CBD area is the biggest, followed by Taman

Anggrek Apartments with 2,824 units in West Jakarta and Wisma Gading Permai

Apartments with 1,021 units in North Jakarta.

In South Jakarta and the CBD area, the majority of occupants are resident expatriates,

while in the other regions (specifically in West and North Jakarta), the dominant occupants

are local citizens using strata-title apartments for temporary living or for investment.

Based on a Colliers survey, there are approximately 22 residential projects with a total

of 13,000 units throughout Jakarta that have been put on hold due to the financial crisis.

Those are equal to 54% of the total strata-titled apartment units in Jakarta.

No new development is forecasted to enter the strata-titled market in Jakarta over the

remainder of 2002. However, several apartment developments have reached the finishing

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stage in their construction. These include the Four Seasons Apartments (Tower 3 and 4)

and Pavilion Park Apartments (Tower 2 and 4). Completion of these two developments in

2002 would add an additional 486 units, increasing total supply by 2% to 24,781 units.

Demand of the fourth quarter of 2001 witnessed the return in sales activity for strata-

titled apartments in Jakarta. Occupancy rates increased 0.6% to 78.9% during the fourth

quarter. Approximately 4,800 strata-titled apartment units remain un-sold throughout

Jakarta. The low level absorption indicates that many people are still reluctant to invest in

the local market due to the slow progress in macro economic recovery that has created an

insecure business environment.

Historical Occupancy Rates for Strata-Titled Apartments despite sluggish local market

conditions, there remains pent-up demand to invest with local investors investigating

offshore markets as an alternative to investing in the Jakarta market. Countries such as

Singapore, Australia and Malaysia have provided better investment conditions resulting in

an increasing out flow of capital from Indonesia. Malaysia has gained more popularity

within the last six months due to its average apartment unit price being relatively low

compared to average unit prices for apartments in Singapore and Australia. The usual

motive for Indonesians to purchase apartments outside the country is to provide

accommodation for a family member who works or studies abroad.

Looking at the overall market performance of strata-titled apartments in Jakarta,

premium grade apartments currently enjoy a relatively high occupancy rate of

approximately 87% compared to the middle class apartments with the average level of

70%. Premium grade apartments are mostly located in the CBD area, and many of them

provide the service of a luxury hotel.

Price and Capital Values as of the forth quarter of 2001, the average selling price per

square meter for strata-titled apartments in Jakarta was approximately US$2,450 for

premium grade apartments and Rp 6,400,000 for secondary grade apartments. Despite the

limited number of transactions within the market, selling prices actually increased 3% to

7% at some apartments. Other developers, however, have maintained or lowered asking

prices in order to attract potential buyers in the low demand market.

With an increasing expectation that IBRA and other creditors will offer increasing

numbers of residential apartments to the market in 2002, we forecast that selling prices for

secondary grade apartments will decline over the coming 12 months, while selling prices

for premium grade apartments are likely to remain stable despite the possible entry of Four

Seasons Tower 3 and 4 to the market.

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Residential Apartments with no additional supply of leased apartments within this

quarter, the total stock level remained at approximately 6,207 units. 100 new units from the

completion of Golf Pondok Indah Apartments will enter the market within the third quarter.

Since many apartment developers implemented flexible marketing strategies, there was no

clear distinction between those apartments for sale and those for lease. It is now an

increasing trend for expatriates to lease apartments instead of houses due to security and

personal safety concerns in Jakarta. The average occupancy for leased apartments stood at

the level of 69.3%, a 2.3% increase compared to previous quarter. The rental rates are

expected to remain stable, while service charges are expected to increase 5% to 10%

following the increase in the cost of public utilities

Supply as at fourth Quarter 2001, the supply of leased apartments in Jakarta remained

unchanged at approximately 6,207 units. From the total number of leased apartments

throughout Jakarta, approximately 2,600 units or 43% are developed as serviced

apartments. Due to market demand and in order to anticipate growing trends, more leased

apartments are now providing in-house services including daily maid assistance as an

optional feature for occupants.

The CBD area has the largest number of leased apartments in Jakarta with

approximately 2,532 units or 42% of the total supply. North and East Jakarta combined

have only 2% of the total stock. Compared to the other municipalities in Jakarta, South

Jakarta is more progressive in apartment developments as investors still consider it to be an

area with good prospects. According to a Colliers International survey, there are

approximately 1,400 units of leased apartments planned for construction in the South

Jakarta area that remain on hold due to the crisis.

According to historical data, there was no significant development within the past two

years. Since strata-titled types dominated the apartment market in Jakarta, many developers

were reluctant to built rental apartments due to the lengthy investment return. However,

when the demand for strata-titled apartments started to decline in 1997 following the

economic crisis, many developers adopted flexible marketing strategies by converting some

of their strata-type units into leased apartments in order to generate cash flow.

Over the next 12 months, 100 new units will enter the Jakarta leased apartment market.

Golf Pondok Indah Apartments, which are located in South Jakarta, are scheduled to launch

50 new units in March and another 50 new units in July.

Demand increasing concerns over personal safety and security has fuelled the trend

among expatriates to lease apartments instead of houses. Such a trend is reflected in the

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growing demand for leased apartments over the past 12 months. Besides adding further

security measures for tenants, developers and owners of strata-titled residential property

will also provide a host of attractive and flexible leasing terms, including a 12-month lease

period.

Concerns about the recent floods at some exclusive residential areas such as Kemang

and Cipete are expected to further increase the trend among some wealthy families and

expatriates to move into leased apartments with service as they are available at daily and

weekly rates. Also, some property developments in Mega Kuningan, such as the Wisma

Asiatic office building, are expected to increase demand for leased apartments in the

Kuningan and Casablanca areas.

As at fourth quarter 2001, Colliers recorded an approximately 2.3% increase in

occupancy of leased apartments in Jakarta, putting the average occupancy rate at 69.3%.

Premium grade leased apartments continue to out-perform the market with current

occupancy above 85%. Despite the slight increase in market performance, a total of 1,905

units remain vacant, approximately 70% of which are secondary grade apartments. Colliers

predicts that occupancy levels will continue to improve over the next 12 months, with

occupancy rates expected to rise above 70%.

CHAPTER III

RESEARCH METHODOLOGY

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3.1. INTRODUCTION

The study will focus on business-level intended competitive strategy within the

apartment industry. Since the strategy professed by company executives may differ from the

strategy that a company actually implements, intended strategies may differ from realized

strategies (Snow and Hambrick 1980).

3.2. PROBLEM STATEMENT

With a large number of new developments due to come on the market in 2005 and in

coming years, Jakarta will remain a hot market for apartments. But outside Jakarta, particularly

in Singapore and Australia, developers are also boosting their efforts to persuade wealthy

Indonesians to invest in the apartment markets in those countries. The effort to attract

Indonesian buyers has paid off, with Kompas daily reporting that Indonesians constitute the

biggest overseas buyers of Singapore property, followed by people from Malaysia, Brunei

Darussalam, Hong Kong and Shanghai. However, optimism is still high among Indonesian

developers that they will not lack buyers. Investors have suffered losses in the Singapore

apartment market due to a drop in property prices of between 35 percent and 45 percent, and

low rental income.

Many predispositions of people to select the representative apartment which might have

several considerations such as close to business activities, shopping centre and the like become

the problem for the development of competitive strategy for the apartment industry in Jakarta

especially at the Sudirman CBD in order to fight the competition. .

3.3. RESEARCH OBJECTIVES

The objectives of this research are:

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1. To outline the situation and highlight the developments in the apartment industry at the

CBD Jalan Sudirman in Jakarta in particular for both new companies and leading

companies which have previously built and developed several apartments at that area.

2. To discuss the various challenges confronting competitive advantages in the apartment

industry at the CBD Jalan Sudirman in Jakarta.

3. To establish suitable strategies that apartment industry at the CBD Jalan Sudirman in

Jakarta should adopt to ensure their future viability.

3.4. THEORETICAL FRAMEWORK

The proposed model will adopt the Porters Five Forces which influence the competitive

advantage of industry.

3.4.1. Variables

Variables will consist of five dimensions:

1. Threat of New Entrants

2. Threat of Substitutes

3. Bargaining Power of Suppliers

4. Bargaining Power of Buyers

5. Intensity of Rivalry

New entrants to apartment industry can raise the level of competition, thereby reducing

its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry

barriers exist in apartment industries. The presence of apartment substitute can lower apartment

industry attractiveness and profitability because they limit price levels.

Suppliers are the businesses that supply materials & other products into the apartment

industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a

significant impact on a company's profitability. If suppliers have high bargaining power over a

company, then in theory the apartment 's industry is less attractive. Buyers are the people /

organizations who create demand in apartment industry.

The intensity of rivalry between competitors in apartment industry will depend on the

structure of competition, the structure of industry costs and degree of differentiation, switching

costs, strategic objectives and exit barriers.

Realized strategies may be the result of deliberate strategic decisions (intended

strategies) or they may reflect reactions to industry changes that have no underlying strategic

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basis. However, focusing on intended strategy allows the use of strategic self typing by top

management personnel. The perceptions and opinions of this group largely determine the

organizations strategy (Snow and Hambrick 1980). Focusing on intended strategy also allows

strategic change in the industry to be predicted.

The Theoretical Framework will follow Porters 5 forces that were identified into

variables.

3.4.2. Assumptions

The assumption of this research is that The Five Dimensions of the research are the

factors that influence the competitiveness of Apartments in Jakarta. The reason is that there is

a relationship between competitors within apartment industry, potential competitors, suppliers,

buyers and alternative solutions to the problem being addressed. Many researchers used the

five-forces model as a basic structure and built on it with concepts from the works of many

other authors.

3.4.3. Limitations

The research will limit the study only for Apartments at CBD Jalan Sudirman Area. The time

limitations for primary data gathering will cover the period of February 2006 only. While

secondary data obtained from 2000 2006.

3.5. RESEARCH QUESTIONS

Based on the research ideas, the research questions have been generated at the

beginning of the research process. The idea of this research is to set clear conclusions in order

to answer these research questions based on the data collected.

The research questions are:

1. What are the forces which influence the apartment industry competitiveness at CBD

Jalan Sudirman in Jakarta?

2. What are the detailed action plans to for CBD Jalan Sudirman Apartments?

3. What are the specific priorities for the CBD Jalan Sudirman Apartments to ensure their

future viability?

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The research questions above were used as a base from which to write a set of research

objectives. The research objectives below are evidence of the clear sense of purpose and

direction in conducting this research.

3.6. RESEARCH METHODOLOGY

The research methodology is one the most important part of this research. It consists of

set of rules and procedures that require consistent applications. It determines the tools and

techniques by which the researcher systematically arrive at the solution of the statement of the

problem and objective of the study.

3.6.1 Research Design

Research design instrument were using questionnaire. Quantitative strategic data were

gathered via an 18-item measure adapted from Dess and Davis (1982, 1984)6. The measure

developed by Dess and Davis were judged to have met the three concerns in strategic factors as

presented by Thomas and Venkatraman (1988):

1. It captured (with minor changes) the basis of competition in the industry;

2. It had a strong relationship to existing strategic topologies-specifically, Porter

(1980); and

3. The works of Dess and Davis (1982, 1984) provide evidence of the validity and

reliability of the measure.

Table 3 1 Variables and Measurements

Dimension Code Indicator Competitive

Factors

Threat Factors

Threat of

New

Entrants

NE1 Demand of new apartments Ordinal 1 - 5 Ordinal 1 5

NE2 Investment requirements to buildapartment

Ordinal 1 - 5 Ordinal 1 - 5


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NE3 Customer switching costs Ordinal 1 - 5 Ordinal 1 - 5

NE4 Access to marketing channels(broker, property agents)


Threat ofSubstitutes

TS5 Consumer's willingness tosubstituteOrdinal 1 - 5 Ordinal 1 - 5

TS6 The relative price andperformance of substitutes


TS7 The costs of switching tosubstitutes


Bargaining

Power of

Suppliers

PS8 There are many demand and fewdominant suppliers


PS9 There are undifferentiated, highlyvalued products


PS10 Suppliers threaten to integrateforward into the industry


PS11 Consumers do not threaten tointegrate backwards into supply


Bargaining

Power of

Buyers

PB12 There are few dominantconsumers and many apartmentsupply.


PB13 Products are standardized Ordinal 1 - 5 Ordinal 1 - 5

PB14 Consumers threaten to integratebackward into the industry


PB15 Apartment suppliers do notthreaten to integrate forward intothe consumers


Table 3 1 (continued)

Intensity of

Rivalry

IR16 The structure of competition(rivalry is less when apartmentindustry has a clear marketleader)

Ordinal 1 - 5 Ordinal 1 5

IR17 The structure of apartmentindustry costs (apartment withhigh fixed costs encouragecompetitors to fill unusedcapacity by price cutting)


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IR18 Degree of differentiationapartment industries wherestandard of living increased


Source: Dess G.G. and P.S. Davis (1984), Porters (1980) generic strategies as determinantsof strategic group membership and organizational performance.AcademyManagement Journal. 27(3); 467-487.

Minor changes were made in the measure to ensure applicability to the apartment

industry. The content validity of the resulting measure were checked through a review by

knowledgeable Apartment management personnel. Table 3-1 lists the variables included in the

measure. The measure were incorporated into a questionnaire that also included questions

concerning the category of respondents (management, tenant or broker). The 18 items wereincluded in the measure and were rated for their importance to the companys competitive

strategy using 5-point Likert-type scales that ranged from, 1 = Not Important to 5 = Extremely

Important. The questionnaire also will ask recipients to indicate how the threat of competition

using 5-point Likert-type scales that ranged from, 1 = Not threatening to 5 = Extremely

threatening, which they expected each item to be in their companys future (next 5 years)

competitive strategy.

3.6.2. Data Collection Instruments

The population of Jakarta apartment market (as of first Quarter 2005) had a total

number of 32,372 apartment units (Colliers, 2006). While the sample were used in this study

consisted of the managements, tenants and brokers from 5 Apartments management. Sample

companies were identified through a review. The reason of taking the samples from CBD Jalan

Sudirman is that this area represent 34% of location preference as shown in Figure 1-2.This non-probabalistic approach to company selection were resulted in a purposive

(judgment) sample and limits traditional probability-based extrapolations of the study results to

the entire industry. However, it was felt that given limited research resources, strategic change

within the industry could best be investigated by examining larger, influential firms. Purposive

sampling also will allow the sample to be controlled for the potentially confounding effects of

extreme variations in company scope and resources (Dess and Davis 1984). Non-probability

samples are commonly used in marketing research (Green and Tull 1978). In addition, a non-

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random, purposive sample of large firms within an industry can outperform randomzed

sampling schemes for estimating industry parameters.

Survey techniques were used to gather data from the sample firms. In multi industry

companies, the questionnaire were directed to the management of the business unit apartment,

tenants and brokers. In some cases, it will not possible to contact the top executive, and senior

marketing / sales people were substituted. The questionnaire were conducted during March

2006 for five sample companies located at the Jalan Sudirman CBD. The questionnaire consists

of the five forces influencing the competitive strategy of apartment in CBD Jalan Sudirman

(see Appendix A). The questionnaires were returned by the time analysis began.

Five sample of Apartment companies consist of:

1. Pavilion Apartment

2. Batavia Apartment

3. Istana Sahid Apartment

4. Plaza Apartment

5. Sudirman Tower Condominium

The samples include the category of apartment type: fully-furnished service apartment,

unfurnished and fully-furnished without service.

3.6.3. Data Analysis Methods

The result from the questionnaire were put into a calculation to obtain mean value of

each variable for competitiveness factors and threat factors. The mean values became the

source for the gap analysis.

The formula for mean factors are as follow7:

Xi - XnMean value of competitiveness = ------------------

n

Yi - YnMean value of threat = ------------------

n

Gap of competitiveness = Xi - X

Gap of threat = Yi - Y


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Where:

Xi - Xn = value of competitiveness scale

Yi - Yn= value of threat scale

n = number of samples

X = total means of Xi - Xn

Y = total means of Yi - Yn

Competitive factors and threat factors were developed to find gaps on attributes and

categories. The scores then were put into the graph, to determine the gaps among attributes and

categories in relation to the competitive advantage value.

The gaps of each attribute in each quadrant of the graph were identified, and evaluatedin comparison with the performance standards, to find the appropriate reasons why the gaps

occur and thus determine the basis for operating strategy formulation. The operations strategy

were formulated based on the results whereby each result was translated into strategic actions

to meet the performance standards. The strategy will allow apartment industry to continuously

upgrade their performance.

CHAPTER IV

DATA AND ANALYSIS

4.1. DESCRIPTIVE DATA ANALYSIS

Condominium developments grew in number. During the reviewed quarter, five new

projects comprising 1,940 units were launched in the market with completion dates between

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fourth quarter of 2005 and 2007. Four additional projects consisting of 1,950 units will also be

launched at the beginning of the second quarter.

Dua Mutiara Group led by Tan Kian livened up the Jakarta market with their fourth-

prestigious project development The Ritz Carlton-Pacific Place situated in the strategic

Sudirman CBD. This mixed-use development offers 80-luxury strata-titled living units

together with office space, a hotel and a retail center. The development compliments the

groups previous portfolios such as Sudirman Place, Airlangga (Mega Kuningan) and May

Flower (Sudirman), all located in the CBD area.

By this quarter, the existing condominium stock, now registered at 32,372 units, combined

with the above future projects, will raise the Jakarta cumulative supply to 67,080 units in 2007.

See Appendix C.

Figure 4-1.

CBD

25%

CentralJakarta

17%

South

Jakarta

10%

North

Jakarta

22%

EastJakarta

0%

West

Jakarta

26%


The supply rate grew by 1.8%, compared to the last quarter, due to the completion of 32

units at Daksa Residences and 532 units at Mediterania Palace Residence (Tower A).

Accordingly, this increased Central and South Jakartas portion. However, West Jakarta still

maintained the largest share thanks to the units available at Taman Anggrek Apartment and

Mediterania Garden Residence (Tower 1) contributing more than 2.500 units each.

Cll calculated that the Jakarta apartment market is set to average an annual growth of

28.9% during second quarter 2005 2007 period. Significant growth of 56.3% is expected to

materialize in 2006, bringing an additional 21.385 units onto the market and resulting in a

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Existing Apartment Supply Jakarta, 1Q 2005


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rocketing cumulative supply of more than 59.300 units. The 2006 annual supply were recorded

as the highest annual supply ever in the markets history.

The demand for apartment considering the investment factors such as capital gains and

yields from leasing units remain middle class buyers primary objective when purchasing. In

contrast, the trend among the wealthy classes is to purchase luxury units for collection

purposes.

Figure 4-2.

South

Jakarta

8%

Central

Jakarta

16%

CBD

23%

West

Jakarta

25%

East

Jakarta

1%

North

Jakarta

27%


Strategic location coupled with price and design concept also influenced buyers

decisions. These factors drove sales at Airlangga, Sudirman Residence, The Peak, Mediterania

Gajah Mada and Mediterania Lagoon.

The average take-up rate of both existing and future developments was slightly down

by 0.9% to 74.5% in this quarter. Around 91% of the existing units were sold, of which 74%were occupied, leaving 8.417 units vacant. South Jakarta enjoyed good occupancy at an

average of 85%, as expatriates remained an almost captive market. West Jakarta also

experienced better occupancy rates (83%) due to limited supply and most owners wishing to

also occupy the residence. Meanwhile, information gathered from projects under-construction,

suggests an absorption rate of 51.9%.

Availability of strategic land for residential developments within the city is becoming

increasingly rare and the few existing sites are cost prohibitive. Yet, the worsening trafficcongestion has shifted the trend to high-rise living. The phenomenon of a suppy-driven

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Future Apartment Supply Jakarta, 2007


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situation is amplified by the need to have a comfortable home with good proximity to the

workplace and city entertainment spots. Furthermore, many projects offer attractive pricing,

comparable to a landed house in the outskirts of Jakarta.

Table 4-1. Market Price of Apartment Types

Market

Seg

men

t

Average Asking Price (per sq m)* Project

Rupiah US Dollar

Low < 6 million < 631.6 Taman Semanan Indah, The

City Resort Residence, Teluk

IntanMiddle-Low 10 million

15 million

> 1.052.6

1.578.9

Menara 7 Gading, Senayan

Residence, Somerset Berlian,

Setiabudi Residence

Upper > 15 million

20 million

> 1.578.9

2.105.3

The Peak, SCBD Suite,

Pacific Place

Luxury > 20 million > 2.105.3 Airlangga, Oakwood Premier

Cozmo

Another trend is locating mid-low apartment developments next to campuses. For

example, Mediterania Garden Residence 1 in West Jakarta has very close access to Tirsaksi and

Tarumanegara Universities. Another on going project, Margonda in Depok, aims to capture

student tenants and offer an alternative to traditional student accommodation at an affordable

price. Students looking for a lifestyle factor may seek this type of apartment instead of the

more traditional rented house.

Apartment prices varied according to location & accessibility, furniture & interior

design, building quality, unit size, level & view. The name of the apartment or hotel operator

was also an important factor influencing price, especially among strata serviced developments

run by international hotel operators.

Within the reviewed quarter the average asking price in the market did not show any

significant changes and ranged from Rp5 million up to Rp24 million/sq m and beyond. Some

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developments offered semi-furnished units with average asking prices of between Rp10 million

and Rp13 million/sq m such as The Summit Apartment in Kelapa Gading and Sommerset

Berlian Residence in Permata Hijau. Price increments are predicted for the next two quarters

though, in anticipation of continued high fuel costs, which in turn impact construction costs.

Generally, the average asking price in the market is divided according to class segmentation as

shown follow.

4.2. INFERENTIAL DATA ANALYSIS

To measure the competitive advantage of apartment industry was used gap analysis

comparing the standard to performance from the perceptions of management, tenants and

brokers from selected apartment samples. The score points which were modified from Porter 5

Forces and Competitive Strategy were calculated as weight to the response of respondents.

The gap analysis was analyzed by comparing the means of competitive threats

indicators and competitive advantage indicators using compare means method apartment

industry competitive threats and the competitive advantage of achievement of apartment

industry for Apartment industry in Sudirman CBD.

The competitive advantage-competitive threats matrix was then developed to obtain

visualized pattern of competitive advantage and competitive threats of attributes among school.

The matrix contains four quadrants of positions. The quadrant of axis was resulted from the

difference between the actual competitive advantages against the mean of all competitive

advantage of apartment industry.

Table 4 2 Gap Analysis

Dimension Code Indicator Competitive

Factors

ThreatFactors

Threat ofNew

Entrants

NE1 Demand of new apartments 4.20 4.13

NE2 Investment requirements to build apartment 3.73 3.80

NE3 Customer switching costs 3.87 3.80

NE4 Access to marketing channels (broker,property agents)

2.67 1.80

Threat of

Substitutes

TS5 Consumer's willingness to substitute 3.33 3.00

TS6 The relative price and performance of

substitutes

3.07 2.73

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TS7 The costs of switching to substitutes 3.07 2.67

Bargaining

Power of

Suppliers

PS8 There are many demand and few dominantsuppliers

3.87 3.13

PS9 There are undifferentiated, highly valued

products

3.33 2.60

PS10 Suppliers threaten to integrate forward into theindustry

3.80 2.60

PS11 Consumers do not threaten to integratebackwards into supply

3.27 2.27

Bargaining

Power of

Buyers

PB12 There are few dominant consumers and manyapartment supply.

3.60 2.93

PB13 Products are standardized 2.93 2.93

PB14 Consumers threaten to integrate backward intothe industry 2.53 2.53

PB15 Apartment suppliers do not threaten tointegrate forward into the consumers

2.33 2.33

Intensity of

Rivalry

IR16 The structure of competition (rivalry is lesswhen apartment industry has a clear marketleader)

3.67 3.67

IR17 The structure of apartment industry costs(apartment with high fixed costs encouragecompetitors to fill unused capacity by price

cutting)

3.93 4.00

IR18 Degree of differentiation apartment industrieswhere standard of living increased

3.80 3.50

The quadrant of ordinate was resulted from the difference between the actual

competitive threats perceived by management against the mean of all competitive threats of

apartment industry. The details as follow:

Quadrant I : high competitive advantage and high competitive threats

Quadrant II : low competitive advantage and high competitive threatsQuadrant III : low competitive advantage and low competitive threats

Quadrant IV : high competitive advantage and low competitive threats

In order to get the data for each quadrant, the value of variable scores from the

discriminant factors were identified. Data were obtained by averaging the responses of specific

variable. The result is shown in Table 4 2 and Table 4 - 3.

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Table 4 - 3. The Gap Score and Matrix Position

Dimension Code CompetitiveMeasure

DifferenceCompetitive

- Means

ThreatMeasure

DifferenceThreat -Means

MatixPosition

Threat ofNewEntrants

NE1 4.20 0.81 4.13 1.11 INE2 3.73 0.34 3.80 0.78 I

NE3 3.87 0.48 3.80 0.78 I

NE4 2.67 (0.72) 1.80 (1.22) III

Threat ofSubstitutes

TS5 3.33 (0.06) 3.00 (0.02) III

TS6 3.07 (0.32) 2.73 (0.29) III

TS7 3.07 (0.32) 2.67 (0.36) III

BargainingPower ofSuppliers

PS8 3.87 0.48 3.13 0.11 I

PS9 3.33 (0.06) 2.60 (0.42) III

PS10 3.80 0.41 2.60 (0.42) IVPS11 3.27 (0.12) 2.27 (0.76) III

BargainingPower ofBuyers

PB12 3.60 0.21 2.93 (0.09) IV

PB13 2.93 (0.46) 2.93 (0.09) III

PB14 2.53 (0.86) 2.53 (0.49) III

PB15 2.33 (1.06) 2.33 (0.69) III

Intensity ofRivalry

IR16 3.67 0.28 3.67 0.64 I

IR17 3.93 0.54 4.00 0.98 I

IR18 3.80 0.41 3.50 0.48 I

3.39 3.02

The gap analysis for competitive advantage was obtained by subtracting the competitive

advantage value with the competitive advantage means. While the gap analysis for competitive

threats were obtained by subtracting the competitive threats value with the competitive threats

means. The result of the calculations was then put into graphical matrix to visualize the

quadrants as shown in Figure 4 1. Details shown in Appendix B.

Figure 4 3 Competitive advantage-Competitive threats Matrix of Attributes

33-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

-1.50 -1.00 -0.50 0.00 0.50 1.00

Competitive

Threat

NE1

NE2

NE3

NE4

TS5

TS6

TS7

PS8

PS9

PS10

PS11

PB12

PB13

PB14

PB15

IR16IR17

IR18

Quadrant IQuadrant II

Quadrant IVQuadrant III


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NE = Threat of New Entrants

TS = Threat of Substitutes

PS = Bargaining Power of Suppliers

PB = Bargaining Power of Buyers

IR = Intensity of Rivalry

NE - Threat of New Entrants

New entrants to apartment industry can raise the level of competition, thereby reducing

its attractiveness. The threat of new entrants largely depends on the barriers to entry. High entry

barriers exist in apartment industries. Key barriers to entry include

- Economies of scale

- Capital / investment requirements

- Customer switching costs

- Access to industry distribution channels

- The likelihood of retaliation from existing industry players.

TS - Threat of Substitutes

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The presence of apartment substitute can lower apartment industry attractiveness and

profitability because they limit price levels. The threat of apartment substitute depends on:

- Buyers' willingness to substitute

- The relative price and performance of substitutes

- The costs of switching to substitutes

PS - Bargaining Power of Suppliers

Suppliers are the businesses that supply materials & other products into the apartment

industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a

significant impact on a company's profitability. If suppliers have high bargaining power over a

company, then in theory the apartment 's industry is less attractive. The bargaining power of

suppliers were high when:

- There are many buyers and few dominant suppliers

- There are undifferentiated, highly valued products

- Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers

threatening to set up their own retail outlets)

- Buyers do not threaten to integrate backwards into supply

- The industry is not a key customer group to the suppliers

PB - Bargaining Power of Buyers

Buyers are the people / organizations who create demand in apartment industry. The

bargaining power of buyers is greater when:

- There are few dominant buyers and many sellers in the industry

- Products are standardized

- Buyers threaten to integrate backward into the industry

- Suppliers do not threaten to integrate forward into the buyer's industry

- The industry is not a key supplying group for buyers

IR - Intensity of Rivalry

The intensity of rivalry between competitors in apartment industry will depend on:

- The structure of competition - for example, rivalry is more intense where there are

many small or equally sized competitors; rivalry is less when apartment industry has a

clear market leader

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- The structure of industry costs - apartment industries with high fixed costs encourage

competitors to fill unused capacity by price cutting competitors to fill unused capacity

by price cutting

- Degree of differentiation - apartment industries where products are commodities (e.g.

low level housing) have greater rivalry; industries where competitors can differentiate

their products have less rivalry

- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there

is a significant cost associated with the decision to buy a product from an alternative

supplier

- Strategic objectives - when competitors are pursuing aggressive growth strategies,

rivalry is more intense. Where competitors are "milking" profits in a mature industry,

the degree of rivalry is less

- Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing

down factories) - then competitors tend to exhibit greater rivalry.

4.3. DISCUSSION AND FINDINGS

Based on the result of the Competitive advantage - Competitive threats Matrix of

attributes, the management perception on the attributes in

1. Quadrant I indicate high competitive advantage and high competitive threats are:

- Threat of new entrants : Demand of new apartments, Investment requirements to build

apartment, Customer switching costs.

- Bargaining power of suppliers: There are many demand and few dominant suppliers.

- Intensity of rivalry: The structure of competition (rivalry is less when apartment

industry has a clear market leader), The structure of apartment industry costs (apartment

with high fixed costs encourage competitors to fill unused capacity by price cutting),

and Degree of differentiation apartment industries where standard of living increased.

2. There are no attributes in quadrant II low competitive advantage and high competitive

threats.

3. Quadrant III indicates low competitive advantage and low competitive threats includes:

- Threat of new entrants: Access to marketing channels (broker, property agents),

- Threat of substitutes: Consumer's willingness to substitute, The relative price and

performance of substitutes, The costs of switching to substitutes,

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- Bargaining power of suppliers: There are undifferentiated, highly valued products,

Consumers do not threaten to integrate backwards into supply, Products are

standardized, Consumers threaten to integrate backward into the industry

- Bargaining power of buyers: Apartment suppliers do not threaten to integrate forward

into the consumers.

4. Quadrant IV indicates high competitive advantage and low competitive threats are:

- Bargaining power of suppliers: suppliers threaten to integrate forward into the industry.

- Bargaining power of buyers: There are few dominant consumers and many apartment

suppliers.

The Strategy is designed to help apartment industry use an integrated approach to

organizational competitive advantage management. The Strategy are built upon the

following set of interrelated variables.

These values and concepts, were drawn in figure below, are embedded beliefs and

behaviours found in apartment industry. They are the foundation for integrating key

requirements within a results-oriented framework that creates a basis for action and feedback.

The gap analysis was then transformed into an operational strategy for detailed

implementation for first priority, second priority, and third priority.

Figure 4 4 Operations Strategy to Increase Competitiveness

No. Action Plan

FIRST PRIORITY : BEWARE OF HIGH THREATS

Threat of new entrants :- Demand of new apartments,- Investment requirements to build apartment,- Customer switching costs

Bargaining power of suppliers:- There are many demand and few dominant suppliers

Intensity of rivalry:- The structure of competition (rivalry is less when apartment industry has a

clear market leader),- The structure of apartment industry costs (apartment with high fixed costs

encourage competitors to fill unused capacity by price cutting),- Degree of differentiation apartment industries where standard of living

increased.

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SECOND PRIORITY: INCREASE COMPETITIVE ADVANTAGE

Threat of new entrants:- Access to marketing channels (broker, property agents)

Threat of substitutes:- Consumer's willingness to substitute- The relative price and performance of substitutes, The costs of switching to

substitutesBargaining power of suppliers:

- There are undifferentiated highly valued products- Consumers do not threaten to integrate backwards into supply- Products are standardized- Consumers threaten to integrate backward into the industry

Bargaining power of buyers:- Apartment suppliers do not threaten to integrate forward into the consumers

THIRD PRIORITY: MAINTAIN HIGH COMPETITIVE ADVANTAGE

Bargaining power of suppliers:

- suppliers threaten to integrate forward into the industryBargaining power of buyers:There are few dominant consumers and many apartment supply

CHAPTER V

CONCLUSION AND RECOMMENDATION

5.1. CONCLUSION

The apartment industry in CBD Jalan Sudirman is a very good investment according to

the most investors. To ensure that the industry continues to expand, sustaining its competitive

edge remains the most important challenge for the industry. To achieve this, the company need

to improve on the efficiency and productivity to reduce cost, explore opportunities to diversify

38

Competitive Advantage ofApartment Industry inCBD Jalan Sudirman


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the income base and widen the demand base for Apartment industry, create innovative

marketing approaches as well as encourage greater integration among the sub-sectors of the

industry.

Major determinant factors for operations strategy to increase competitive advantage for

Private Apartment industry in CBD Jalan Sudirman is categorized by level of urgency:

First Priority by fully aware of High Threats consist of Threat of new entrants: Demand

of new apartments, Investment requirements to build apartment, Customer switching costs;

Bargaining power of suppliers: There are many demand and few dominant suppliers; Intensity

of rivalry: The structure of competition (rivalry is less when apartment industry has a clear

market leader), The structure of apartment industry costs (apartment with high fixed costs

encourage competitors to fill unused capacity by price cutting), Degree of differentiation

apartment industries where standard of living increased.

Second Priority by increasing Competitive Advantage such as: Threat of new entrants:

Access to marketing channels (broker, property agents); Threat of substitutes: Consumer's

willingness to substitute, The relative price and performance of substitutes, The costs of

switching to substitutes; Bargaining power of suppliers: There are undifferentiated highly

valued products, Consumers do not threaten to integrate backwards into supply; Products are

standardized, Consumers threaten to integrate backward into the industry; Bargaining power of

buyers: Apartment suppliers do not threaten to integrate forward into the consumers

Third Priority: Maintaining High Competitive Advantage such as Bargaining power of

suppliers: suppliers threaten to integrate forward into the industry; Bargaining power of buyers:

There are few dominant consumers and many apartment supply.

5.2. RECOMMENDATION

The recommendation especially for investors that in consonance with the changing

needs of liberalization, the structure of apartment regulation liberalized. Expatriate now can

live in Indonesia with better living and, investments in Indonesia have also been liberalized on

a selective basis, thus providing new market opportunities in apartment industries. However,

the continued opportunities the long-term depend on the ability to balance the local

supply/demand situation in order to safeguard the interest of the huge investment business in

Indonesia with the changing needs of manufacturers and consumers in the global market.

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First Priority by fully aware of high threats by paying more attention to the available

facilities to become more attractive than competitors. Prior to investing in the apartment

development, it is important for the developers to pay attention regarding the theme of facilities

in the apartment which is unique and different from competitors. Facilities that should be

attention are like wireless broadband internet, caf, restaurant, mini market where consumers

might quickly visit it in order to meet something required. Another important factor to be aware

of high threats by paying attention to its management. Management is essential thing in

performing something. It is important for customers to know the credibility of management of

an apartment before choosing it.

Second Priority by increasing Competitive Advantage such as being careful before

deciding to sell the units. If the consumers have found the apartment tailor-made to various

considerations, such as: Choose the position of floors in order to reduce the noises coming from

outside of the apartment. It will be better to sell unit of the apartment, which has mostly only

one studio room, since it is selling fast. Paying attention to the view from inside of apartment to

outside of it. The company should consider whether there are available furniture inside of

apartment unit, if not, whether customers might buy it individually; or the developers have

already appointed one of particular company to handle about it.

Third Priority: Maintaining High Competitive Advantage such as knowing the plan and

concept of apartment development in developing its apartment. Considerate the service charge

of apartment where consumers should not forget to considerate its service charge. They have to

multiply it on the basis of stipulated per metre square, with the wide of apartment unit.

5.3. FUTURE WORKS

Future works can be established by extending the coverage of the research not only in

the CBD Jalan Sudirman, but also other parts in Jakarta. The Future research can be developed

to answer the questions how can answer the challenge of industry to be able to continue to

expand, sustaining its competitive edge. Future research should be able to answer how to

improve on the efficiency and productivity to reduce cost, explore opportunities to diversify the

income base and widen the demand base for Apartment industry, create innovative marketing

approaches as well as encourage greater integration among the sub-sectors of the industry.

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REFERENCES

Business Insight (2003). http://www.brs-inc.com/porter.asp, retreived Jan 11, 2006.

Colliers International Quarterly research Report, 1Q 2005, Jakarta, 2005.

Dess G.G. and P.S. Davis (1982). An empirical examination of competitive advantage. West,

St. Paul, 237 p.

Dess G.G. and P.S. Davis (1984). Porters (1980) generic strategies as determinants of strategic

group membership and organizational performance. Academy Management Journal.

27(3); 467-487.

Flahive, Terence F. (1998). The Wired Apartment,Journal of Property Management. Chicago:

May/Jun 1998.Vol.63, Iss. 3; pg. 40, 3 pgs

Green and Tull 1978 Green, P. E., and D. S. Tull. (1978). Research for Marketing Decisions,

New Jersey, IL: Prentice-Hall.

Jakarta Java Kini Magazine, February Edition, 2006.

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Khalik, Abdul (2006). Condo, apartment supply stagnant, prices slightly rise, The Jakarta Post,

Jakarta http://www.skyscrapercity.com/showthread.php?t=138839 retreived Jan 15,

2006.

Porter, Michael E. (1985). Competitive Advantage: Creating and Sustaining Superior

Performance. New York: Free Press. 557p.

Porter, Michael E. (1980). Competitive Strategy: Techniques for Analyzing Industries and

Competitors. New York: Free Press.

Romano, Ellen (2000). Live wires: High-tech apartment amenities Journal of Property

Management. Chicago: May/Jun 2000.Vol.65, Iss. 3; pg. 20, 4 pgs

Rudijanto (2006). Jakarta apartment outlook bright despite threat of oversupply, The Jakarta

Post, Jakarta, http://www.skyscrapercity.com/showthread.php?t=138839 retreived Jan

15, 2006.

Rossiter, Richard (2003). Colliers International Indonesia, Research and Consultancy Manager

for Colliers International Indonesia.

Snow, C.C. and D.C. Hambrick, (1980). Measuring Organizational Strategies: Some

Theoretical and Methodological Problems, Academy of Management Review, October

1980.

Thomas H. and N. Venkatraman (1988). Research on strategic groups: Progress and prognosis.

Journal of Management Study, 25(6): 537-555.

Tutor2u (2003). http://www.tutor2u.net/business/strategy/porter_five_forces.htm retreived Jan

11, 2006.

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Name of apartment :

Respondent category : a. management b. tenant c. broker

Kindly check the number representing the current condition in the Apartment for Competitive Factors and Threat Factors.

No Indicator Competitive Factors *) Threat Factors **)

1Not

Important

2Not so

Important

3Netral

4Importa

nt

5Extremel

yImpotan

t

1Not

Threatening

2Not so

Threatening

3Medium

4Threateni

ng

5Extremely

Threatening

Threat of New Entrants

1 Demand of new apartments 1 2 3 4 5 1 2 3 4 5

2 Investment requirements to buildapartment

1 2 3 4 5 1 2 3 4 5

3 Customer switching costs 1 2 3 4 5 1 2 3 4 5

4 Access to marketing channels (broker,property agents)

1 2 3 4 5 1 2 3 4 5

Threat of Substitutes (Other Living Mode)

5 Consumer's willingness to substitute 1 2 3 4 5 1 2 3 4 5

6 The relative price and performance ofsubstitutes

1 2 3 4 5 1 2 3 4 5

7 The costs of switching to substitutes 1 2 3 4 5 1 2 3 4 5

Bargaining Power of Apartment Suppliers

8 There are many demand and fewdominant suppliers

1 2 3 4 5 1 2 3 4 5

APPENDIX A. QUESTIONNAIRE

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*) Competitive Factors : the advantages of your company compare to other competitors**) Threat Factors : the advantages of the competitors which threatening the performance of your company

9 There are undifferentiated, highlyvalued products

1 2 3 4 5 1 2 3 4 5

10 Suppliers threaten to integrate forwardinto the industry

1 2 3 4 5 1 2 3 4 5

11 Consumers do not threaten to integratebackwards into supply

1 2 3 4 5 1 2 3 4 5

Bargaining Power of Consumers

12 There are few dominant consumers andmany apartment supply.

1 2 3 4 5 1 2 3 4 5

13 Products are standardized 1 2 3 4 5 1 2 3 4 5

14 Consumers threaten to integratebackward into the industry

1 2 3 4 5 1 2 3 4 5

15 Apartment suppliers do not threaten tointegrate forward into the consumers

1 2 3 4 5 1 2 3 4 5

Intensity of Rivalry

16 The structure of competition (rivalry isless when apartment industry has a

clear market leader)

1 2 3 4 5 1 2 3 4 5

17 The structure of apartment industrycosts (apartment with high fixed costsencourage competitors to fill unusedcapacity by price cutting)

1 2 3 4 5 1 2 3 4 5

18 Degree of differentiation apartmentindustries where standard of livingincreased

1 2 3 4 5 1 2 3 4 5

Please rate your importance to the apartments competitive strategy using scales ranged from, 1 = Not Important to 5 = Extremely Important.

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Also indicate how the threat of apartment competition using scales that ranged from, 1 = Not threatening to 5 = Extremely threatening

APPENDIX B. DATA COLLECTION RESULTS

No

Competitive Factors AVG Threat Factors AVG

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

NE

15 4 5 4 5 4 4 4 3 4 4 4 5 4 4 4.20 4 4 4 4 5 5 4 4 4 4 4 3 5 4 4 4.13

25 4 4 4 4 4 4 4 4 3 3 3 3 4 3 3.73 4 4 4 4 2 5 4 4 2 4 4 4 4 5 3 3.80

34 3 4 4 4 3 4 4 5 4 4 3 4 4 4 3.87 4 3 4 4 4 4 4 4 2 4 4 4 3 5 4 3.80

4 3 2 3 3 3 2 5 4 2 2 2 2 3 2 2 2.67 2 2 4 2 2 2 2 2 2 1 1 1 2 1 1 1.80

TS

54 4 4 4 4 4 4 4 4 3 2 2 2 2 3 3.33 4 4 4 4 4 4 4 3 4 4 1 1 2 1 1 3.00

64 3 4 4 4 4 3 3 4 4 2 2 1 2 2 3.07 4 3 3 4 4 4 4 3 3 3 1 1 1 1 2 2.73

73 4 4 4 4 4 3 3 3 3 2 2 2 3 2 3.07 4 3 3 3 4 4 3 3 3 3 1 2 2 1 1 2.67

PS

84 4 4 4 4 3 3 4 3 4 4 4 5 4 4 3.87 4 4 3 4 3 4 4 4 3 3 2 2 2 3 2 3.13

93 3 3 3 3 3 3 4 4 3 4 4 4 3.38 2 4 4 3 2 3 3 2 2 2 2 3 2 2 2.57

103 3 3 3 3 4 4 4 5 5 4 5 5 3.92 3 3 3 3 2 3 3 2 4 2 2 2 2 2 2.57

113 3 3 4 3 3 3 2 4 4 3 4 4 3.31 3 3 3 2 3 3 3 3 2 1 2 1 1 1 2.21

PB

124 4 4 3 3 4 4 4 5 3 3 4 3 3 3.64 4 4 4 4 4 3 3 4 4 1 1 2 1 2 2.93

134 4 4 4 4 4 4 4 4 1 1 1 1 1 2.93 4 4 4 4 4 4 4 3 4 1 1 1 2 1 2.93

14 3 3 3 4 3 3 3 3 4 1 1 2 1 1 2.50 3 3 4 3 3 4 3 3 3 1 2 1 1 1 2.5015

3 3 3 4 3 3 3 2 2 2 1 1 1 1 2.29 3 3 3 3 3 3 3 3 2 1 1 2 1 1 2.29

IR

164 4 4 4 4 3 4 4 5 3 3 3 4 3 3.71 5 4 4 4 4 5 4 4 4 3 2 3 3 3 3.71

174 4 4 4 3 4 4 4 4 4 4 5 4 4 4.00 5 4 4 4 4 4 5 4 4 4 3 4 4 4 4.07

185 4 4 4 3 4 4 3 4 4 4 4 4 3 3.86 4 4 4 4 4 4 3 3 3 3 3 4 3 3.54

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APPENDIX C. List of Future Condominium Projects (as per March 2005)

No Development Location Region Total

units

Status Expected

Completion

Year1 Airlangga Apartment Mega Kuningan South Jakarta 60 Finishing 2005

2 Bellagio Mansion Mega Kuningan CBD 117 Construction 2005

3 Bellagio Residence Mega Kuningan CBD 854 Construction 2005

4 Bellezza de Casa (Tower1)

Permata Hijau South Jakarta 125 Construction 2005

5 Kelapa Gading Square(City House)

Kelapa Gading North Jakarta 32 Construction 2005

6 Mediterania Gajah MadaResidence

Gajah Mada CentralJakarta

1,152 Finishing 2005

7 Mediterania PalaceResidences (Tower B-C) Kemayoran CentralJakarta 1.065 Construction 2005

8 Me

nining thesis final january 2007

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