Perez, Christian Andrew F. Strategic Management Paper.pdf

EXECUTIVE SUMMARY This Research Paper is focused on discussing the possible strategies that would assist and improve DMCI Homes to improve its present standing in the market, as well as to enhance its financial standing in the future. The strategies that are recommended by the researcher are derived from the matrixes that would essentially suggest the best strategy for the business. This paper includes a methodical process of acquiring every piece of data. It contains a research and design methodology, a complete analysis of both external and internal forces, a formulation of the strategy, the different actions necessary to finalize the proposed strategy, and methods in order to maintain the suggested strategy. The results of this paper show that DMCI Homes can either formulate its strategized based on Forward, Backward, Horizontal Integration, Market Penetration Market Development and Product Development. Where these strategies can improve the current position of DMCI Homes.

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CHAPTER 1 INTRODUCTION AND BACKGROUND OF THE STUDY 1.1 COMPANY PROFILE 1.1.1 BRIEF HISTORY AND DESCRIPTION OF THE CORPORATION David M. Consunji acquired the knowledge of construction when he was a young, concrete inspector. He was armed with in-depth facts and the precise system of construction through his Civil Engineering degree that he earned from the University of the Philippines. After some time, he decided to eventually start his own contracting company. He incorporated David M. Consunji Incorporated (DMCI) which was founded on December 24, 1954, in a quaint room in Pandacan, Manila. He had a vision of "Building a generation of Filipinos." DMCI started building chicken houses for the Bureau of Animal Industry. This earned him a reputation for timeliness of service delivery and punctuality and quality output. After that, the Tacloban Coca-Cola Plant and Bacnotan Cement Plant projects were awarded to the company. Through DMCI’s unwavering quest for progression, its development and research aspect paved the way for the pioneering of several advanced construction application technologies in the Philippines. Now, DMCI enjoys the patronage of both its new and repeat institutional clients. In the year 1999, DMCI expanded with its housing division, which was called DMCI Homes. Its aim was to build progressive condominiums and house and lots. It all began with Lake View Manors (1999) followed by more innovations like Hampstead Gardens (2001). By the beginning of the year 2003, DMCI Homes became stronger, more aggressive and even more DMCI Homes – Strategic Management Paper Page 2

competitive. They constructed the East Ortigas Mansions and added more amenities and facilities for its residents. Villa Alegre Homes and Mayfield Park were then erected in 2004 with more improvements and amenities such as the installation of elevators. As the company kept expanding its business operations, DMCI Homes grew as a household name in the real estate industry. It began to carve itself a niche in the real estate business. All in a span of seven years, DMCI Homes has built the most comfortable, resort-like residential spaces for urban dwellers. The rapid growth rate of DMCI Homes can be attributed to its thrust to continuously delight its customers. DMCI Homes will perpetually continue to create modern residential spaces in the heart of the city on a budget. The company's head office is in Bangkal, Makati, though it has several sales and property management offices in Metro Manila. Isidro Consunji presides as the president of DMCI Homes. He is also the president and Chief Executive Officer (CEO) of DMCI Holdings.

Figure 1: Map of Businesses Owned by DMCI Holdings

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Through continuing research, DMCI became a pioneer in several advanced construction application technologies in the Philippines. Taking this into account, DMCI enjoys the patronage of both new and repeat institutional clients whose businesses have benefited from DMCI’s on-orahead-of-schedule completion philosophy. The hundreds of landmark infrastructures constructed by DMCI symbolize the expertise and professionalism of the Filipino engineer. Some of the landmark infrastructures that DMCI built include: •

Solaire Resort & Casino (Entertainment City, Bay City, Paranaque City)

•

SM Megamall (Mandaluyong City)

•

Mactan Shangri-La Hotel (Mactan, Lapu-Lapu City, Cebu)

•

Makati Shangri-La (Makati City)

•

Shangri-La Resorts & Spa Boracay (Malay, Aklan)

•

Manila Hotel (Rizal Park, Manila)

•

Philippine International Convention Center (CCP Complex, Roxas Boulevard, Pasay City)

•

The Westin Philippine Plaza/Sofitel (CCP Complex, Roxas Boulevard, Pasay City)

•

Cultural Center of the Philippines Complex (Roxas Boulevard, Pasay City)

•

Ayala Tower One (Makati City)

•

The New Istana Palace (Sultan’s Palace, Brunei, Darussalam)

•

The Asian Hospital (Filinvest Corporate City, Muntinlupa) DMCI Homes – Strategic Management Paper Page 4

•

The Manila Doctor’s Hospital (UN Avenue, Manila)

•

NAIA Expressway Phase 2

•

Metro Manila Skyway Stage 3 (Sections 1&2)

•

LRT Line 2 East Extension (Masinag Extension)

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1.2 RATIONALE OF THE STUDY Real estate refers to producing, buying and selling real estate. The real estate industry is a critical driver of economic growth. Real estate industry in the Philippines has been booming these past few years and it is without a doubt that every Filipino aims to find a place of their own. As a result, it aims to help the consumers which developer should they choose. The construction and real estate sectors make up around 20% of the Philippine economy, slightly ahead of manufacturing. Over the past few years, construction in the Philippines has been flourishing amid a climate of political stability and upbeat business sentiment, spurred by growth in overseas foreign worker remittances, inbound investments into business process outsourcing, rising numbers of tourist arrivals, and government spending on large and small-scale infrastructure. Positive trading conditions for the residential, office, retail and hospitality segments point to robust demand for private – sector-led building. The reasons for choosing DMCI Homes for this research are the following: First, is that DMCI targets the middle-class and not the high-end. Second, DMCI Homes is under an umbrella company of DMCI Holdings Incorporated which they engage in mining, construction, utilities (Maynilad Water), real estate development (DMCI Homes) and energy (DMCI Power Corporation). DMCI have diversified investments that continue to grow through the years. Third, DMCI earned the rating of the very first Triple-A builder/developer in the country.

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CHAPTER 2 RESEARCH DESIGN AND METHODOLOGY 2.1 DATA AND INFORMATION 2.1.1 RESEARCH DESIGN Descriptive research is aimed at casting light on current issues or problems through a process of data collection that enables them to describe the situation more completely than was possible without employing this method. It is appropriate for this study since this strategic management paper objects to analyze the current condition of the company. The Historical research method was also used because it is important to examine the historical data of the company to formulate strategies. This study involves a comparative analysis of the company's performance during its past three years, therefore, historical research method was used. 2.1.2 RESEARCH DATA Pertinent information was gathered from different sources to be able to discuss all the required discussion in this study. Sources such as news and articles (business world), industry updates through websites, government publications regarding the real estate industry were used. The research includes data collection of Financial Statements of DMCI Homes. 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.

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2.2 SCOPE AND LIMITATION With the intention to comply and complete this paper, the researcher utilized the available resources to measure and interpret the financial performance of the parties involved – that is limited to the company's annual reports from the year 2014 to 2016, including ample information gathered from the different sources. The scope of this paper is limited to DMCI Homes' real estate ventures in the Philippines and two of its other major competitors from the real estate industry namely: Filinvest Land Inc. and Ayala Land. This paper is conducted to analyze and determine the market size and market share of the players based on their revenue by comparing their performance to the industry standards.

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CHAPTER 3 EXTERNAL ANALYSIS 3.1 GENERAL ENVIRONMENT 3.1.1 POLITICAL AND GOVERNMENTAL FORCES 3.1.1.1 TAX REFORM ACCELERATION AND INCLUSION LAW (R.A 10963) This Tax Reform is primarily focused on the support of infrastructure development and on free education in state colleges and universities, universal health care, and free irrigation because according to the 2018 General Appropriations Act, the size of the government budget will be 12% higher than the 2017 National Budget. The 2018 National Budget for the Department of Public Works and Highways (DPWH) amounting to Php 637.86 Billion. This plan of the government will have a great impact to the real estate industry, wherein the time spent on the road may be reduced because of public transportation and public roads which will later improve and will cause consumers to live in their permanent residences rather than leasing condominiums. 3.1.2 ECONOMIC FORCES 3.1.2.1 GROSS DOMESTIC PRODUCT INCREASED BY 6.9% IN 2017 Gross Domestic Product (GDP) grew by 6.9 percent in the third quarter of 2017. Manufacturing, Trade, and Real Estate Renting and Business Activities were the main drivers of growth for the quarter. The Service Sector is the largest sector in the Philippine Economy which accounts for 57% of the total GDP, inside the service sector are its important segments which are: trade , repair of motor vehicles and household goods (17 percent of total GDP); real estate, renting and business activities (11 percent); transport, storage and communication (8 percent); financial DMCI Homes – Strategic Management Paper Page 9

services (7 percent) and public administration, defense and social security (4 percent) Industry accounts for 31 percent of GDP. Within the industry, manufacturing (22 percent of total GDP) and construction (5 percent) are the most important. 3.1.2.2 REAL ESTATE, RENTING, AND OTHER BUSINESS ACTIVITIES (RERBA) SLOWS DOWN RERBA posted a 7.7 percent growth in the third quarter of 2017, slower than the 8.9 percent growth recorded in the third quarter of the previous year. The growth was driven by Renting and Other Business Activities which grew by 11.0 percent as compared with the 13.1 percent growth in the same period of the previous year. Meanwhile, Real Estate expanded by 7.7 percent, slower compared with the 9.7 percent growth recorded in 2016. 3.1.2.3 TOURISM DRIVEN DEMAND The growing number of tourists in the Philippines boosted the interest of OFWs to invest in the tourism industry by investing in condotel developments. Local tourism alone is growing especially with budget fares now offered by various airline companies. Meetings, family vacations, company incentives and conventions also contribute to the strong demand for accommodation needs. Whenever there are tourists, there is also a great demand for accommodations. 3.1.2.4 RISING BUSINESS PROCESS OUTSOURCING IN THE PHILIPPINES With the emerging industry, the real estate industry could benefit from these since most BPOs are situated in the Metro, BPO workers would choose to rent or to buy units near the area. D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 10

Also, the area of the market will probably become popular with investors who can purchase these units to rent them out to BPOs workers or as halfway houses. That is the reason why property developers are really focusing on building low-end apartments in the metropolitan, those with average monthly rents of P8,000 ($167.1) where midscale BPO workers can rent. 3.1.3 SOCIAL, CULTURAL AND DEMOGRAPHIC FORCES 3.1.3.1 EMPLOYMENT, UNEMPLOYMENT AND UNDEREMPLOYMENT RATES The employment rate in January 2018 was estimated at 94.7%. In January 2017, the employment rate was 93.4%. The labor force participation rate (LFPR) in January 2018 was estimated at 62.2% given the population 15 years old and over of 70.9 million. The LFPR in January 2017 was 60.7%. The labor force population consists of the employed and the unemployed 15 years old and over. Workers were grouped into three broad sectors, namely, agriculture, industry, and services sector. Workers in the services sector comprised the largest proportion of the population who are employed. These workers made up 55.9% of the total employed in January 2018. Among them, those engaged in the wholesale and retail trade; repair of motor vehicles and motorcycles accounted for the largest percentage of workers in the services sector. In January 2017, workers in the services sector accounted for 57.1% of the total employed, with those engaged in the wholesale and retail trade; repair of motor vehicles and motorcycles making up the largest proportion of workers. The January 2018 LFS results also showed that in the industry sector,

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workers in the construction and manufacturing subsectors made up the largest groups, accounting for 48.2% and 47.0% of the workers in these subsectors, respectively. Employed persons fall into any of these categories: (1) wage and salary workers, (2) selfemployed workers without any paid employee, (3) employers in own family-operated farm or business, and (4) unpaid family workers. In January 2018, the wage and salary workers made up 61.7% of the total employed, with those working in private establishments continuing to account for the largest share. They made up 48.7% of the total employed in January 2018 and 49.1% in January 2017. The second largest class of workers were the self-employed making up 27.7% of the total employed in January 2018 while it was 27.2% in January 2017. Unpaid family workers accounted for 6.9% of the total employed in January 2018 and 6.3% of the total employed in January 2017. The unemployment rate in January 2018 was estimated at 5.3%. The unemployment rate in January 2017 was 6.6%. Among the regions, NCR (7.8%), Ilocos Region (6.7%), and CALABARZON (6.7%) were the regions with the highest unemployment rates. Among the unemployed persons in January 2018, 65.5% were males. Of the total unemployed, the age group 15 to 24 years comprised 43.2% while the age group 25 to 34, 31.1%. By educational attainment, 21.9% of the unemployed were college graduates, 13.7% were college undergraduates, and 29.4% have completed junior high school. Graduates of junior high school include those high school graduates in the old curriculum.

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3.1.3.2 LIFESTYLE Despite stubbornly high levels of income inequality, the middle class is expanding, driving increased demand for a wide range of modern products and services. Both average disposable income and consumer expenditure have increased, particularly among younger, educated urban households. Younger consumers have also helped drive the considerable growth of internet and mobile internet retailing. The increasing number of single-person and smaller households is boosting demand for compact household items. The country’s 7,641 islands offer plenty of lifestyle choices for expats who want to live there. Rural farmhouses, condominiums, and rooms in shared apartments are all available. As is the case almost everywhere in the world, housing is not as widely available in urban centers. The rent is also higher than in remote rural areas. The rents are highest in Metro Manila. The best and safest way to find a place to stay during your expat life in the Philippines is through recommendations from friends and colleagues. Internet listings like Philippines Properties and classified ads in local newspapers are also great ways to start. The typical lease for upper-end apartments in the Philippines lasts twelve months, and you are usually expected to pay rent for the entire year in advance with postdated checks. Shorter contracts are not common for these types of rentals.

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3.1.3.3 MORE YOUNG PROFESSIONALS TEND TO HAVE PROPERTY PURCHASING ABILITY A more visible effect is seen in the residential property division. Mid-end condominium market grew as more young professionals tend to have property purchasing ability. Higher income in the BPO workforce has become the target of property developers. BPO employees are usually single and residential units such as studio-type ones are more preferred. This workforce (in BPO) is potentially seen to be ‘the upgraders' soon by the time they get into marriage. Residential unit renting also make up a great part of the property industry and is a great support in the demand of the residential market. 3.1.4 NATURAL ENVIRONMENT FORCES 3.1.4.1 CROWDED METRO MANILA Metro Manila is one of the world’s most densely populated urban conurbations. In fact, at 43,079 inhabitants per square kilometer, Manila proper alone is the world’s most densely populated city, according to Forbes. Notorious for traffic jams, Manila was also ranked by Forbes as the world’s most congested city. 3.1.4.2 METRO MANILA IS LOSING ITS GREEN AREAS Since people prefer to live in the area, more infrastructures are being built for the demand which results in lesser green areas since it is being replaced by condominiums, subdivisions, and the likes.

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3.1.4.3 METRO MANILA IS VERY VULNERABLE TO NATURAL CALAMITIES

The Philippine capital sits on an active fault line, putting us at risk for earthquakes and tsunamis, and the country lies on the firing line of typhoons forming in the northwest Pacific Basin. There can be no guarantee that the occurrence of such natural calamities will not substantially interrupt the Corporation’s operations. These factors, which are not within the Corporation’s control, could potentially have substantial effects on the Corporation’s housing and land development projects, many of which are large, complex estates with infrastructure, such as buildings, roads and perimeter walls, which are susceptible to damage.

3.1.4.4 ENHANCED RISK OF FLOODING IN KEY METROPOLITAN AREAS IN MANILA WHICH ARE DEEMED BELOW SEA LEVEL None of DMCI Homes' developments were severely affected during the typhoon "Yolanda". DMCI had the foresight to choose less flood prone areas and invest in a good drainage system for all its development, as “Metro Manila can never be flood-free”, as the former MMDA Chairman Francis Tolentino said.

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3.1.5 LEGAL FORCES 3.1.5.1 MACEDA LAW Republic Act No. 6552, also known as the "Realty Installment Buyer Protection Act" and more commonly known as the "Maceda Law" is an act to protect real estate buyers with regards to installment payments. Since installment payments and real estate transactions need to have a clear set up between the buyer and developer, the law clearly states the time frame when the installment payments should be made. The law also states that the seller can cancel the contract if the buyer is not able to settle the installment payments once the grace period expires after the buyer receives the notice of cancellation. 3.1.5.2 PRESIDENTIAL DECREE NO. 957 (SUBDIVISION AND CONDOMINIUM BUYERS’ PROTECTIVE DECREE) The Subdivision and Condominium Buyers' Protective Decree", Presidential Decree No. 957 (P.D. 957) aims to help buyers know their real estate rights, especially if the sellers and developers seem to be engaged in fraudulent activities. This is primarily important since most sellers will do any scheme just to sell their condominiums and land properties such as false advertisements telling that there is "no down payment". Developers should only present real facts in their promotional materials when selling their units. "No down payment" simply means that no lump sum money is required to pay for the unit since the down payment price is distributed among the allowable term set by the developers for their condo project.

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If developer or seller reverses their registration certificate and their license to sell, the buyer can file a complaint, provided it is under the grounds of having a bad business reputation, being involved in fraudulent transactions, and does not conduct their business practices according to the law. A common problem for most buyers is the delayed turnover of their condominiums. P.D. 957 states that buyers can halt their payment after giving due notice to the developers and acquiring clearance from the Board, and they can also ask for the reimbursement of their total payment including amortization interests. 3.1.5.3 REPUBLIC ACT NO. 4726 (THE CONDOMINIUM ACT) The Condominium Act”, also known as the Republic Act No. 4726 (RA 4726) is an act “to define condominium, establish requirements for its creation, and govern its incidents”. Enacted on June 18, 1966, this act allows people the right to co-own lands, aside from their absolute ownership of their unit. This act further explains the extent of their influence when it comes to the unit that they purchased. The rights of the buyers are well-explained to ensure that developers or sellers do not abuse or mislead them when it comes to their units. Included in the provisions are common areas regulations, and the exclusive rights of a condo owner, such as refinishing or decorating his own unit, and to sell or dispose his unit unless there is a master deed which indicates that the property must be offered to other unit owners before it is offered to other interested buyers. The act also allows foreign nationals to acquire units if they do not own the land where their unit is built.

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3.1.6 TECHNOLOGICAL FORCES 3.1.6.1 INCREASING SECURITY BY IMPLEMENTING THE USE OF ELECTRONIC KEY PASSES Since some competitors are already making use of electronic key passes, DMCI should employ the use of electronic key passes to improve the security of their property vicinity since it is easy for unauthorized persons to enter the building instead of continuing the use of manual logbook where people can easily fake their identity names and it will also be difficult for security personnel to identify whether these persons entering are really tenants or owners in the building. They should also make use of electronic key passes in their parking areas so that there is no difficulty in identifying if the vehicles are used by the condo owners/tenants. 3.1.6.2 CREATION OF A MOBILE APP Since majority of the Filipinos are using smartphones, they should create a mobile app where prospective buyers can see details of certain properties such as the places where condominiums are located, prices of the units, and a list of agents that they can contact or through the app in which they can talk to a representative for their inquiries.

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3.1.6.3 DEVELOPERS AND AGENTS HAVE FOUND VALUE IN INCREASING THEIR BRAND’S VISIBILITY AND BOOSTING QUALITY TRAFFIC THROUGH SOCIAL MEDIA From the evolving social media, it will be easier for developers and agents to have a greater opportunity to advertise the properties. For instance, agents can simply make a blog and post details about the properties, they can post at buy-and-sell sites, or simply post it on social networking sites which are usually free unless you pay for the advertisement for more exposure.

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3.2

INDUSTRY AND COMPETITOR ANALYSIS 3.2.1 PORTER’S FIVE FORCES

FORCES Rivalry among competing firms

Strong force

Potential entry of new competitors

Weak force

Bargaining power of consumers

Weak force

Potential development of substitute

Strong force

products Bargaining power of suppliers

Moderate force

3.2.1.1 RIVALRY AMONG COMPETING FIRMS – STRONG DMCI Homes’ real estate ventures in the Philippines and two of its other major competitors from the real estate industry namely: Filinvest Land Inc. and Ayala Land.

With over a century of envisioning, building, and developing master planned, mixed-use, and sustainable communities, Ayala Land's rich history, and illustrious reputation remain unparalleled in the country. It leads the industry in raising the standard of commitment to innovation and value appreciation. It stands for trailblazing quality. Considered as one of the largest residential areas here in the Philippines which is known with their high standards when it comes to quality of life and now over 27 communities were established as the company continuously "Enhancing and enriching lives for more people."

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FLI is a pioneer in the development of very large master-planned township developments which provide a convenient mix of commercial, industrial and residential uses. FLI currently has over 150 projects located in 48 cities and municipalities nationwide. The Company has an extensive network of sales offices, in-house sales agents and independent brokers located throughout the Philippines, as well as accredited brokers in countries and regions with large Overseas Filipino Workers (OFW) and expatriate Filipino populations (such as Japan, Italy, the United Kingdom and the Middle East). Approximately half of FLI’s real estate sales are directly or indirectly derived from Overseas Filipinos (OFs).

KEY PERFORMANCE INDICATORS (KPI)

DMCI Homes

Filinvest Land

Gross Profit Margin

58.59%

49%

Operating Profit Margin

31.07%

44%

Net Profit Margin

21.49%

30%

Return on Assets

4.73%

4%

Return on Equity

14.6%

9%

Php 0.636

Php 6.95

Earnings per Share

Ayala Land

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3.2.1.2 POTENTIAL ENTRY OF NEW COMPETITORS – WEAK The industry is capital intensive which requires continuous land acquisitions and construction of buildings. A new entrant should have to have a minimum capital expenditure budget of 32.5 billion pesos to level its corporation to the existing real estate developers like AyalaLand, Inc., DMCI Homes, and Filinvest Land Inc. Total Capital Expenditures in 2016 (in Billions) DMCI Homes

Php 32.5B

Ayala Land Inc.

Php 85B

Filinvest Land Inc.

Php 20B

DMCI Homes allocated around P27.5 billion will be used for the total development cost of new projects. The remaining P 5 billion will fund land acquisitions.

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3.2.1.3 BARGAINING POWER OF CONSUMERS – WEAK Real estate is measured as one of the high-cost inventories, together with automobiles, thus, the ability to acquire in large amount prevents the developers to profit in an instant to think that there is a need to surmount the expense incurred. Plus, the fact that our culture of being a familyoriented where even extended families are accommodated in one place can make some of the buyers whose capable of purchasing become cautious in deciding whether to buy or not. 3.2.1.4 POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCTS – STRONG Property offerings of residential developers such as greater number of options for financial products with flexible terms that potential buyers may avail rent to own spaces depending on their choice are more convincing to avail while considering the locations are mostly within the commercial areas targeting those employees to somehow lessen their travel time and cost for their allowances. As compared if the house and lot is to acquire, it is not burdensome at some point when it comes to the cash flow of the buyer; only the deposit for three months, one month advance as the tenant enters into a contract then the monthly rate afterwards, as a standard requirement, unlike down payment that roughly ranges 10 to 30% of its current price and its installment payment with interest depends on the term of payment.

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3.2.1.5 BARGAINING POWER OF SUPPLIERS – MODERATE Construction services and raw materials such as cement and metals are the main compositions of the company's cost aside from parcels of land. The prices are dictated by the world market, only monitored, and will not vary as to the location of the construction site but rather the competition in the raw materials and construction services due to numerous providers and contractors. 3.3 SUMMARY AND CONCLUSION 3.3.1 EXTERNAL AND EVALUATION MATRIX External Factor Evaluation Matrix Key External Factors

Weight

Rating

Weighted Score

a. Rising number of BPOs in Metro Manila

.11

4

.44

b. Young investors capacity to spend

.10

3

.30

c. Increase in labor force participation

.08

3

.24

d. Tourism-driven demand

.11

4

.44

e. Increase in GDP by 6.9%

.05

3

.15

f. Brand Visibility through social media

.10

3

.30

a. Climate Change

.09

3

.27

b. Congestion and Traffic in Mega Manila

.08

3

.24

c. Risk of flooding in Metro Manila

.09

3

.27

d. Tax Reform effected in 2018

.09

4

.36

e. RERBA slows down by 7.7 %

.10

3

.30

Opportunities

Threats

TOTAL

1

3.31

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OPPORTUNITIES 1. RISING NUMBER OF BPO’S IN METRO MANILA With the emerging industry, the real estate industry could benefit from these since most BPOs are situated in Metro Manila, BPO workers would opt to rent or to buy units near the area. Also, the area of the market will probably become popular with investors who can purchase these units to rent them out to BPOs workers or as halfway houses. That is the reason why property developers are really focusing on building low-end apartments in the metropolitan, those with average monthly rents of P8,000 ($167.1) where mid-scale BPO workers can rent. 2. YOUNG INVESTORS CAPACITY TO SPEND Mid-end condominium market grew as more young professionals tend to have property purchasing ability. Higher income in the BPO workforce has become the target of property developers. BPO employees are usually single and residential units such as studio-type ones are more preferred. Residential unit renting also make up a great part of the property industry and is a great support in the demand of the residential market. 3. INCREASE IN LABOR FORCE PARTICIPATION The employment rate in January 2018 was estimated at 94.7%. In January 2017, the employment rate was 93.4%. The labor force participation rate (LFPR) in January 2018 was estimated at 62.2% given the population 15 years old and over of 70.9 million. The LFPR in January 2017 was 60.7%. The labor force population consists of the employed and the unemployed 15 years old and over.

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The unemployment rate in January 2018 was estimated at 5.3%. The unemployment rate in January 2017 was 6.6%. Among the regions, NCR (7.8%), Ilocos Region (6.7%), and CALABARZON (6.7%) were the regions with the highest unemployment rates. Among the unemployed persons in January 2018, 65.5% were males. Of the total unemployed, the age group 15 to 24 years comprised 43.2% while the age group 25 to 34, 31.1%. By educational attainment, 21.9 %of the unemployed were college graduates, 13.7% were college undergraduates, and 29.4% have completed junior high school. Graduates of junior high school include those high school graduates in the old curriculum. 4.TOURISM-DRIVEN DEMAND The growing number of tourists in the Philippines boosted the interest of OFWs to invest in the tourism industry by investing in condotel developments. Local tourism alone is growing especially with budget fares now offered by various airline companies. Meetings, family vacations, company incentives and conventions also contribute to the strong demand for accommodation needs. Whenever there are tourists, there is also a great demand for accommodations.

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5. INCREASE IN GDP BY 6.9% Gross Domestic Product (GDP) grew by 6.9 percent in the third quarter of 2017. Manufacturing, Trade, and Real Estate Renting and Business Activities were the main drivers of growth for the quarter. The Service Sector is the largest sector in the Philippine Economy which accounts for 57% of the total GDP, inside the service sector are its important segments which are: trade , repair of motor vehicles and household goods (17 percent of total GDP); real estate, renting and business activities (11 percent); transport, storage and communication (8 percent); financial services (7 percent) and public administration, defense and social security (4 percent) Industry accounts for 31 percent of GDP. Within the industry, manufacturing (22 percent of total GDP) and construction (5 percent) are the most important. 6. BRAND VISIBILITY THROUGH SOCIAL MEDIA From the evolving social media, it will be easier for developers and agents to have a greater opportunity to advertise the properties. For instance, agents can simply make a blog and post details about the properties, they can post at buy-and-sell sites, or simply post it on social networking sites which are usually free unless you pay for the advertisement for more exposure.

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THREATS 1. CLIMATE CHANGE There can be no guarantee that the occurrence of such natural calamities will not substantially interrupt the Corporation’s operations. These factors, which are not within the Corporation’s control, could potentially have substantial effects on the Corporation’s housing and land development projects, many of which are large, complex estates with infrastructure, such as buildings, roads and perimeter walls, which are susceptible to damage. 2. CONGESTION AND TRAFFIC IN MEGA MANILA Metro Manila is one of the world’s most densely populated urban conurbations. In fact, at 43,079 inhabitants per square kilometer, Manila proper alone is the world’s most densely populated city, according to Forbes. Notorious for traffic jams, Manila was also ranked by Forbes as the world’s most congested city. 3. RISK OF FLOODING IN METRO MANILA None of DMCI Homes' developments were severely affected during the typhoon "Yolanda". DMCI had the foresight to choose less flood prone areas and invest in a good drainage system for all its development, as “Metro Manila can never be flood-free”, as the former MMDA Chairman Francis Tolentino said.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 28

4. TAX REFORM EFFECTED IN 2018 This Tax Reform is primarily focused on the support of infrastructure development and on free education in state colleges and universities, universal health care, and free irrigation because according to the 2018 General Appropriations Act, the size of the government budget will be 12% higher than the 2017 National Budget. The 2018 National Budget for the Department of Public Works and Highways (DPWH) amounting to Php 637.86 Billion. This plan of the government will have a great impact to the real estate industry, wherein the time spent on the road may be reduced because of public transportation and public roads which will later improve and will cause consumers to live in their permanent residences rather than leasing condominiums. 5. RERBA SLOWS DOWN BY 7.7 % RERBA posted a 7.7 percent growth in the third quarter of 2017, slower than the 8.9 percent growth recorded in the third quarter of the previous year. The growth was driven by Renting and Other Business Activities which grew by 11.0 percent as compared with the 13.1 percent growth in the same period of the previous year. Meanwhile, Real Estate expanded by 7.7 percent, slower compared with the 9.7 percent growth recorded in 2016.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 29

3.3.2 COMPETITIVE PROFILE MATRIX Competitive Profile Matrix DMCI Homes Critical Success Factors

Ayala Land

Filinvest Land

Weight

Rating

Score

Rating

Score

Rating

Score

Price Competitiveness

.05

3

.15

3

.15

3

.15

Target Market

.10

4

.40

4

.40

4

.40

Capitalization

.10

1

.10

3

.30

2

.20

Overall Project Quality

.15

4

.60

4

.60

3

.45

Design Innovation

.20

4

.80

3

.60

3

.60

Consumer Loyalty

.05

4

.20

4

.20

4

.20

Location

.15

3

.45

4

.60

4

.60

Product and Service Quality

.15

4

.60

4

.60

4

.60

Advertisement

.05

1

.05

3

.15

1

.05

Total

1

3.35

3.40

3.25

From the identified critical success factors in the industry, DMCI Homes and its key competitors were assigned the following ratings (from 1-4, 4 being the strongest). The table above shows the Competitive Profile Matrix of DMCI Homes and its competitors based on the researcher’s ratings. Based from the CPM ratings, Ayala Land is labeled as the overall to player. It has a competitive advantage over DMCI and its other competitors. Ayala Land’s strength over the rest of the competitors is in the areas of Capitalization, Location, Advertisements, and Consumer Loyalty. DMCI Homes’ overall CPM rating was lower due to its weak capitalization, advertisements, and consumer loyalty.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 30

CHAPTER 4 COMPANY ANALYSIS COMPANY’S VISION AND MISSION STATEMENT 4.1 VISION, MISSION STATEMENT, AND CORE VALUES 4.1.1 VISION STATEMENT To be an exceptional residential real estate holding company in the Philippines, committed to providing the utmost quality of service that promotes a convenient lifestyle and wholesome community by sustainably satisfying the ever – constant changing customer needs. 4.1.2 MISSION STATEMENT DMCI Homes is the country’s first Triple A builder/developer of premium quality, urbanfriendly, 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. We shall be the best provider of residential communities designed to create quality lifestyle responsive to the changing needs and preferences of the market we serve... 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 D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 31

to promote the growth of our people While building an organization that espouses Integrity, Excellence, and Interdependence. 4.1.3 CORE VALUES

INTEGRITY

EXCELLENCE

All our actions are guided by what is ethical, We reject mediocrity and strive for fair, and right. Believing in profit with excellence in even the smallest of details. honor,

we

are

committed

to

good

governance and the highest moral standards.

INTERDEPENDENCE

CUSTOMER ORIENTATION

With unity in purpose and mutual trust and Our goal is to delight and please our respect for each other, we work toward customers. Thus, all activities and programs we undertake result in innovative projects D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 32

shared aspirations and transcend boundaries and in the enhancement of productivity and along functional and organizational lines.

quality.

4.2 REVIEW OF THE EXISTING VISION AND MISSION 4.2.1 VISION STATEMENT Parameter

Y/N

Does it clearly answer the question: What do we want to become?

Y

To become and exceptional real holding company in the Philippines.

Is it concise inspirational?

yet

Y

To create quality lifestyle responsive to the changing needs and preferences of the market that they serve.

Does it give a clear indicati on as to when it should be attained?

Y

Businesses are in a going concern principle; its vision and mission should be continuous as to its action.

enough

Why? estate

4.2.2 MISSION STATEMENT Parameter

Y/N

Why?

CUSTOMERS: Who are the firm’s customers?

Y

“for the underserved young families of modest income that aspire to live comfortably near their place of work, of study and of leisure”

PRODUCTS OR SERVICES: What are the firm’s major products or services?

Y

"builder/developer of premium quality, urban-friendly, fully serviced communities"

MARKETS: Geographically, where does the firm compete?

N

The Mission statement does not indicate what market should they target.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 33

TECHNOLOGY: Is the firm technologically current?

Y

It uses current technologies for its operations.

CONCERN FOR SURVIVAL, GROWTH, AND PROFITABILITY: Is the firm committed to growth and financial soundness?

Y

“to achieve a sustainable growth on our shareholders’ investment”

PHILOSOPHY: What are the basic beliefs, values, aspirations and ethical priorities of the firm?

Y

While building an organization that espouses Integrity, Excellence, and Interdependence”

SELF-CONCEPT: What is the firm’s distinctive competence or major competitive advantage?

Y

“DMCI Homes is the country’s first Triple A builder/developer”

CONCERN FOR PUBLIC IMAGE: Is the firm responsive to social, community and environmental concerns?

Y

“to maintain a mutually beneficial relationship with our partner in the business”

CONCERN FOR EMPLOYEES: Are employees an asset of the firm?

Y

"to promote the growth of our people"

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 34

4.3 MANAGEMENT 4.3.1 PLANNING As a company of innovative builders and engineering experts that develop modern day living solutions for urban families, DMCI Homes adopts and implement a business plan. Strategies of DMCI Homes are aligned to that of DMCI Holdings so that synergy between DMCI Homes and its parent company will be fully capitalized. 4.3.2 ORGANIZING About the company’s decision structure, top-bottom structure is adopted. This structure allows the upper management to make major decisions through the recommendations and information provided by lower-level managers. Accordingly, lower level managers get involved in the decision-making process through business planning sessions were done twice a year involving all levels of management. Action points and departmental goals from the meeting are delegated to specific departments and managers, which are held accountable for their performance evaluations.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 35

Name

Position

Isidro A. Consunji

Chairman, President, and Chief Executive Officer

Herbert M. Consunji

CFO, Executive Director, and Chief Compliance Officer

Maria Luisa C. Austria

Administration and Accounting Officer

Luz Consuelo A. Consunji

Non – Executive Director

Jorge A. Consunji

Non – Executive Director

Cesar A. Buenaventura

Vice Chairman

David M. Consunji

Chairman Emeritus

Victor A. Consunji

Non – Executive Director

Maria Edwina C. Laperal

Treasurer and Executive Director

Victor S. Limlingan

Managing Director and Investor Relations Contact

Cherubim O. Mojica

Corporate Communications Officer

Tara Ann C. Reyes

Investor Relations Officer

Noel A. Laman

Secretary

Honorio O. Reyes Lao

Independent Director

Antonio Jose Uy Periquet

Independent Director

4.3.3 MOTIVATING To motivate employees, DMCI Homes makes sure that the high potential employees stand recognized publicly through service excellence awards. To retain talent, the company provides a total compensation package. The working environment is also managed through several activities such as company sponsored events to encourage teamwork and to promote work-life balance. These motivational factors cause low attrition rates. D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 36

4.3.4 STAFFING Measurable company objectives and goals are communicated as early as training stages or upon hiring of new employees through manuals and an employee orientation program. The company also uses an internal website (Intranet) thus; vision, mission, core values and other organizational information are communicated. Furthermore, strategies are communicated down the line by each group’s respective Department or Division Head. 4.3.5 CONTROLLING The company ensures that job descriptions are well defined, showing the knowledge and skills needed, as well as the specific duties of a position. Annual performance evaluations are also done for managers to be able to measure the productivity or achievements of each employee, to have the opportunity to direct the behavior of each employee towards the execution of the established objectives. Retention strategy which involves employee development, recognition, compensation and managing company culture is also significant to the company. Employee development includes classroom training and, on the job mentoring and coaching.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 37

MANAGEMENT AUDIT CHECKLIST Checklist •

Are the company

YES/NO

Explanation

Yes

It is brief in the organization

objectives and goals

chart that all offices are well

measurable and well

communicated

communicated? •

Do managers at all

Yes

Most of the officers of the

hierarchical levels plan

corporation belong to one

effectively?

family, therefore, the power of each office is respected and well effective.

•

Do managers delegates

Yes

The corporate organizational chart is clear and strictly

authority well?

implemented •

Is the organization’s

Yes

The position mostly belongs to a family, so there is a great

structure appropriate?

chance of being fraudulent. •

Are job descriptions

Yes

The position and its job are in the bylaws of the corporation

and job specifications clear? •

Is employee morale high?

Yes

DMCI Homes provides employee benefits and salary packages, because it believes that these are in line with the industry standards in the Philippines which are designed to help it compete in the market for quality employees.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 38

4.4 MARKETING 4.4.1 CUSTOMER ANALYSIS DMCI Homes is a Triple-A builder with a strong commitment to quality. It provides middle-class Filipino families with residential communities that create a quality lifestyle. DMCI Homes residences provide high-definition photos which highlight the unique amenities that their condominiums offer. They may not have enough television advertisements but when you visit their website, you will be surprised with great photos of their residential units. The company believes that great photos not only attract potential tenants, they are also more likely to be shared on social media. 4.4.2 PRODUCT AND SERVICE PLANNING DMCI Homes’ residential communities are strategically situated near malls, schools, hospitals, and government offices, DMCI Homes’ residential communities make living hassle-free and convenient. They are easily accessible by public transportation. 4.4.3 DISTRIBUTION DMCI Homes distribute their products via internal and external brokers. For buyers’ convenience, there is an available website provided for them to easily find DMCI Homes that are for rent or for sale. The website has categorized property features to make it easier to compare. DMCI Homes only contract sales professionals who have undergone the Foundation Training. Only those who successfully pass the Accreditation Exam and the Oral Revalidation Exercise will be contracted and be allowed to market its projects.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 39

DMCI Homes is proud of its top-caliber sellers. The Elite Club is an exclusive list of top sellers who have delivered unit sales beyond their quota. 4.4.4 PRICING Price and payment terms for DMCI Homes differ due to some factors like location and size. Usually, 30% minimum down payment and a 20% minimum down payment payable over the construction period is required for a High – rise condominium unit and Mid-rise condominium unit, respectively, with a reservation fee of Php 20,000 for the unit and a Php 10,000 for the parking (optional unless parking is required). The balance may be settled through cash, in-house financing, with a maximum term of 10 years or External financing through accredited partner banks or PAG – IBIG financing. Projects of DMCI Homes have flexible payment schemes offered with partner-banks (Banco de Oro, United Coconut Planters Bank, Philippine National Bank, BPI Family Savings Bank) and PAG – IBIG financing which is applicable only for RFO (ready for occupancy) projects. As a fast-growing residential property developer focusing on the middle-income market, affordability is the key. Since DMCI Homes is both builder and developer, it has full control of the project quality and schedules, thereby giving clients a product of high quality and timely turnover with prices that are competitive and within reach of the middle-income market.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 40

4.4.5 MARKETING RESEARCH DMCI has been awarded as the contractor-developer of AFP Off-Base housing that includes master planning, design, construction, and marketing. DMCI Homes employ a Marketing Research Analyst who is held responsible for conducting feasibility and competing market scenario, conduct studies, monitor industry and competition news and manage customer database processing with analysts results, the company will be able to monitor market trends. Checklist •

Are markets

YES/NO

Explanation

Yes

The target market of DMCI

segmented

Homes which is the low and

effectively?

middle-class earners is efficiently segmented.

•

•

Is the organization

Yes

According to surveys, DMCI

positioned well among

Homes has the best value for

competitors?

money.

Has the firm’s market

Yes

The Market share of DMCI Homes is growing year by

share been increasing?

year. •

Are present channels

Yes

DMCI Homes have been

of distribution reliable

doing good in distributing its

and cost-effective?

services nationwide through their agents/ brokers.

•

Does the firm have an

Yes

DMCI Homes hires

effective sales

additional third-party agents

organization?

who are based on branches to focus on acquiring new clients

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 41

•

Does the firm conduct

Yes

DMCI Homes continues to research possible land bank

market research?

that may acquire •

•

•

•

•

Are the product

Yes

DMCI Homes offer high-

quality & customer

quality products and provide

service good?

excellent customer service

Are the firm’s

Yes

The prices of DMCI Homes

products and services

is quite lower than their

priced appropriately?

competitors.

Does the firm have an

Yes

DMCI Homes focus on

effective promotion,

Billboards, social media and

advertising, and

through online

publicity strategies?

advertisements.

Are the marketing,

Yes

DMCI Homes successfully

planning, and

implements their planning

budgeting effective?

and budgeting.

Do the firm’s

Yes

DMCI Homes managers are

marketing managers

well educated and well

have adequate

attached to the suppliers as

experience and

well as to the government.

training? •

Is the firm’s Internet

Yes

DMCI Homes presence is

presence excellent as

active on the internet using

compared to rivals?

their website

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 42

4.5 FINANCE/ ACCOUNTING 4.5.1 FINANCIAL STATEMENTS Balance sheet 2014

2015

2016

2,756,384,808

5,679,429,701

3,868,999,775

74,530,000

-

-

Receivables - net

5,837,208,402

5,296,442,309

5,686,986,231

Real Estate Inventories

24,234,512,281

28,379,911,517

31,622,758,783

Other current assets

1,386,719,987

1,665,415,120

2,187,162,918

TOTAL CURRENT ASSETS

34,289,355,478

41,021,198,647

43,365,907,707

2,836,006,407

3,168,835,402

2,300,542,230

Net Pension Asset

68,525,781

-

-

Investments in associates, joint ventures and others

278,835,751

320,969,268

341,194,947

Investment properties

158,523,614

229,502,655

155,125,788

1,055,727,336

1,103,558,815

1,053,940,342

71,292,253

85,412,461

77,491,126

Deferred tax assets – net

3,216

2,900

-

Other noncurrent assets

264,797,837

283,734,520

252,242,006

ASSETS Current Assets: Cash and cash equivalents Financial assets at fair value through profit or loss

Noncurrent Assets: Noncurrent receivables

Property, plant and equipment Software Cost

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 43

TOTAL NON-CURRENT ASSETS

4,733,730,195

5,192,016,021

4,180,536,439

TOTAL ASSETS

39,023,085,673

46,213,214,668

47,546,444,146

Accounts and other payables

1,259,409,508

1,418,681,904

1,245,917,952

Customers’ advances and deposits

5,404,412,817

5,647,171,901

9,178,277,946

Payable to related parties

530,440,644

550,684,260

232,799,388

-

100,000,000

LIABILITIES AND EQUITY Current Liabilities:

Dividends Payable Current portion of long-term debt

461,490,756

5,601,570,092

861,234,841

Current Portion of Liabilities for purchase land

1,865,351,506

2,201,291,422

623,150,513

TOTAL CURRENT LIABILITIES

9,521,105,231

15,419,399,579

11,241,380,640

15,736,245,438

13,589,491,438

17,479,587,785

312,929,207

816,135,420

906,622,242

-

325,498

53,079,093

Deferred tax liability

1,434,626,384

2,008,909,675

2,647,010,891

TOTAL NON-CURRENT LIABILITIES

17,483,801,029

16,414,862,031

21,086,300,011

TOTAL LIABILITIES

27,004,906,260

31,834,261,610

32,327,680,651

Noncurrent Liabilities: Long-term debt - net of current portion Liabilities for purchased land - net of current portion Pension liabilities - net

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 44

EQUITY Equity attributable to equity holders of the Parent Company: Capital Stock

3,487,727,328

3,487,727,328

3,487,727,328

Paid-in capital

15,260,667

15,260,667

15,260,667

Appropriated Retained earnings

5,000,000

7,500,000,000

7,000,000,000

Unappropriated Retained Earnings

3,214,013,422

3,100,126,477

4,445,357,676

Remeasurements gains on defined benefit plans

222,022,065

193,064,950

183,084,079

11,939,023,482

14,296,179,422

15,131,429,750

79,155,931

82,773,636

87,333,745

TOTAL EQUITY

12,018,179,413

14,378,953,058

15,218,763,495

TOTAL LIABILITIES AND EQUITY

39,023,085,673

46,213,214,668

47,564,444,146

Stockholders' Equity – Parent Non-controlling interests

Table 4.5.1 Statement of Financial Position of DMCI Homes

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 45

INCOME Real estate sales

2014 12,232,699,569

2015 13,461,859,381

2016 10,039,174,952

Revenue from hotel services

100,719,589

133,426,032

193,376,576

Property Management Revenue

67,191,574

81,265,374

104,722,831

Finance income

270,950,963

310,453,227

254,657,308

Dividend income

9,887,500

4,289,500

-

Equity in net earnings

69,113,137

60,715,517

60,881,478

Other income

947,570,797

485,563,279

1,113,622,662

13,698,133,129

14,537,570,310

11,766,435,807

6,408,116,800

6,673,502,217

5,425,160,117

Cost of hotel services

61,133,263

80,984,690

100,939,845

Cost of services

36,947,068

49,083,110

55,010,227

Finance cost

127,604,628

185,479,128

300,626,628

TOTAL COST OF SALES AND SERVICES

6,633,801,759

6,989,049,145

5,881,736,517

GROSS PROFIT

7,064,331,370

7,548,521,165

5,884,699,290

OPERATING EXPENSES

2,501,184,007

2,462,295,342

2,765,965,997

INCOME BEFORE INCOME TAX

4,563,147,363

5,086,225,823

3,118,733,293

1,273,676,255

1,498,945,063

897,458,425

TOTAL INCOME COSTS OF SALES AND SERVICES Cost of real estate

PROVISION FOR INCOME TAX

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 46

NET INCOME

3,289,471,108

3,587,280,760

2,221,274,868

NET INCOME ATTRIBUTABLE TO Equity holders of the Parent Company

3,289,217,634

Non-controlling interests

253,474

3,586,113,055

2,216,714,759

1,167,705

4,560,109

Table 4.5.1 Statement of Comprehensive Income of DMCI Homes

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 47

4.5.2 RATIO ANALYSIS 4.5.2.1 LIQUIDITY RATIOS Liquidity Ratios are the ratios that measure the ability of a company to meet its shortterm debt obligations. These ratios measure the ability of a company to pay off its short-term liabilities when they fall due. These ratios come off the balance sheet and hence measure the liquidity of the company on an ordinary day. 4.5.2.1.1CURRENT RATIO This ratio is obtained by dividing the "Total Current Assets" of DMCI Homes by its "Total Current Liabilities". A refinement of quick ratio and indicates the extent to which readily available funds can pay off current liabilities. It expresses the working capital relationship of the current assets available to meet the company's current obligations.

Formula

Current Ratio =

Current Assets Current Liabilities

2014

2015

2016

3.60

2.66

3.86

This means that in 2014, DMCI Homes had a strong financial position in the market and that it has sufficient liquid assets to maintain its operations. A higher current ratio is always more favorable than a lower current ratio because it shows the company can more easily make current debt payments. However, this strong financial condition decreased by 0.94 in 2015 and eventually increased by 1.2 in 2016. D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 48

4.5.2.1.2 QUICK RATIO This ratio is obtained by dividing the "Total Quick Assets" of DMCI Homes by its "Total Current Liabilities". The ratio tells creditors how much of the company's short-term debt can be met by selling all the company's liquid assets at very short notice.

Formula

Quick Ratio =

Quick Assets Current Liabilities

2014

2015

2016

1.06

0.71

0.85

This means that DMCI Homes' quick ratio did not improve considerably in 2015 and 2016 because based on the result, the ratio says that DMCI Homes doesn't have the capacity to pay its current liabilities if these were due immediately. But in 2014 DMCI Homes was able to meet its short-term obligation using most of its liquid assets because a quick ratio of 0.90 or 1.00 is the acceptable quick ratio in most industries because companies could pay off its current liabilities without selling any long-term assets.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 49

4.5.2.1.3 SOLVENCY RATIO This ratio identifies a going concern issue and a firm's ability to pay its bills in the short term and long term. Solvency ratios focus more on the long-term sustainability of a company instead of the current liability payments.

Formula

Solvency Ratio =

Net Income + Depreciation Total Liabilities

2014

2015

2016

0.13

0.12

0.08

This means that in the year 2016, DMCI Homes’ solvency ratio resulted in a favorable ratio although it only decreased from 2015 going to 2016, showing that DMCI Homes can meet longterm liabilities from the past few years. For the year 2016 shows the lowest solvency ratio it usually implies a more stable business with the potential of longevity because a company with a lower ratio also has lower overall debt.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 50

4.5.2.2 LEVERAGE RATIOS 4.5.2.2.1 DEBT TO EQUITY RATIO This ratio is obtained by dividing the "Total Liabilities" of DMCI Homes by its "Total Equity". The ratio measures how the company is leveraging its debt against the capital employed by its owners.

Formula Debt to Equity Ratio=

Total Liabilities Total Equity

2014

2015

2016

2.25

2.21

2.12

This means that DMCI Homes has been aggressive in financing its growth with debt. In the year 2014, DMCI Homes with a higher debt to equity ratio of 2.25 compared to 2015 and 2016 are considered riskier to creditors and investors than with a lower ratio. In the years 2015 and 2016 also shows a high debt to equity ratio. This implies that for every peso of DMCI Homes owned by the shareholders, it owes 2.21 to creditors in 2015 and 2.12 in 2016.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 51

4.5.2.3 EFFICIENCY RATIOS Efficiency ratios are ratios that come off the balance sheet and the Income Statement. The efficiency ratio is typically used to analyze how well a company uses its assets and liabilities internally. An efficiency ratio can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity, and the general use of inventory and machinery. 4.5.2.3.1 INVENTORY TURNOVER RATIO The ratio is obtained by dividing the "Net Sales" of DMCI Homes by its "Total Inventory". The ratio is regarded as a test of Efficiency and indicates the rapidity with which DMCI Homes can move its merchandise.

Formula Inventory Turnover Ratio =

2014 Net Sales Inventory

50.5

2015

2016

47.43

31.75

DMCI’s inventory turnover ratio decreased by 3.07 in 2015. This means that the company has a low inventory turnover ratio. It is simply an unfavorable scenario, a low turnover means that the corporation is not able to sell its products efficiently, we can see in the horizontal analysis that DMCI Homes are buying too much inventory for demand which increased in 2015 or we can assume that they are throwing out expired or deteriorated products. These conditions often cause the corporation to sell products at discounts to clear these out. A lower inventory turnover ratio can result from inventory buildup intended to meet pending spikes in demand. The company should predict pending sales growth for the ratio to improve in the next period. D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 52

4.5.2.3.2 ACCOUNTS PAYABLE TO SALES RATIO This ratio is obtained by dividing the "Accounts Payables" of DMCI Homes by its "Net Sales". This ratio indicates how much of the suppliers’ money the company uses to fund its sales. The higher the ratio means that the company is using its suppliers as a source of cheap financing. The working capital of such companies could be funded by their suppliers.

Formula

A/P to Sales Ratio =

Accounts Payable Net Sales

X100 %

2014

2015

2016

10.30%

10.53%

12.41%

This means that DMCI Homes turned out to have improved from the previous year of accounts payable against its sales, thus the company has been efficient in converting its sales into cash and promptly able to pay its suppliers. Short-term creditors, financial managers & lenders to DMCI Homes might use these accounts payable ratios as indicators of the company’s financial strength to make punctual payments on its accounts payable & liabilities outstanding. Payment requirements will usually vary from supplier to supplier, depending on its size and financial capabilities. DMCI Homes resulted on increasing by 1.88% from 2015 to 2016 means “A high ratio means there is a relatively short time between the purchase of goods and services and payment for them. Conversely, a lower accounts payable turnover ratio usually signifies that a company is slow in paying its suppliers.

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But a high accounts payable turnover ratio is not always in the best interest of a company. Numerous companies extend the period of credit turnover (i.e. lower accounts payable turnover ratios) getting extra liquidity. 4.5.2.4 PROFITABILITY RATIOS Profitability Ratios focus on a company's return on investment in inventory and other assets. These ratios basically show how well companies can achieve profits from their operations. 4.5.2.4.1 RETURN ON SALES The return on sales of DMCI Homes determines its ability to withstand competition and adverse conditions like rising costs, falling prices or declining sales in the future. The profit margin ratio shows what percentage of sales are left over after all expenses are paid by the business.

Formula Net Profit Margin =

Net Income Net Sales

X100 %

2014

2015

2016

26.9%

26.23%

21.49%

This means that DMCI Homes has quite a high rate of return on sales the increase in the rate in 2014 and 2015 is significant and identifies the company as more successful than in 2016. This tells us that DMCI Homes was able to generate income from the 26.9% of its invested capital in 2014 and 26.23% in 2015 and it measures how much profits are produced at a certain level of sales. Thus, DMCI Homes was able to convert what it has invested into net income for the company. D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 54

4.5.2.4.2 RETURN ON ASSETS The return on assets of DMCI Homes determines its ability to utilize the assets it employed efficiently and effectively to earn a good return. This ratio measures how efficiently a company can manage its assets to produce profits during a period.

Formula Net Income Profit Margin = Total Assets

X100 %

2014

2015

2016

8.43%

7.76%

4.67%

This means that DMCI Homes had less ability to convert what it has invested into net income for the company from the 7.76% of its invested capital in 2015 to 4.67% in 2016. It only makes sense that a higher ratio is more favorable to investors because it shows that the company is more effectively managing its assets to produce greater amounts of net income.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 55

4.5.2.4.3 RETURN ON EQUITY The return on equity of DMCI Homes measures the ability of the management of the company to generate adequate returns for the capital invested by the company owners. This measures the ability of a firm to generate profits from its shareholders' investments in the company.

Formula

Profit Margin =

Net Income X100 Total Equity %

2014

2015

2016

27.4%

24.9%

14.6%

DMCI Homes has a high return on equity ratios although there was a decrease in 2015 and 2016 by 2.5% and 10.3%, respectively. This means that the management has been inefficient in utilizing its equity base in generating better returns for its investors. The investors want to see a high return on equity ratio because this indicates that the company is using its investors' funds effectively.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 56

4.6 PRODUCTION/ OPERATIONS DMCI Homes boast greater control over product quality through its synergy with DM Consunji Inc., which is a triple-A rated construction company with more than 63 years of construction experience. Using the latest construction technology, DMCI ensures the durability of developments. In terms of passing such rights to buyers, DMCI developments are turned over at a faster rate of 3 years compared to the industry at 5 years. In terms of construction design, individual units of DMCI have larger cuts than Filinvest Land Inc. and Ayala Land. DMCI's developments are resort living theme. 4.6.1 PROCESS The Company's main activities include the development, management, and selling of various real estate such as condominium units, subdivision lots, buildings, resorts, and others. The Company's business goal is to provide affordable residential units in urban-friendly, serviced communities near places of work, study, and leisure. DMCI Homes endeavors to achieve objectives that advance the proposition of "profit with honor", namely, to ensure business partners, environmental compliance, and career development of its people.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 57

4.6.2 CAPACITY DMCI Homes is wholly – owned subsidiary by DMCI Holdings, Inc. a leading conglomerate in the Philippines with interests in construction, real estate, power, and mining. DMCI – HI is listed at the PSE with a market capitalization of Php 179.06 billion as of December 31, 2016. One of the Company's affiliates is D.M. Consunji Inc. ("DMC" I), a DMCI – HI wholly – owned subsidiary and one of the Philippines' leading Triple-A rated general construction companies. 4.6.3 INVENTORY 4.6.3.1 LAND INVENTORY In line with its goal of providing well – located residential options, DMCI Homes purchase properties within the Metro Manila area. The Company's land development begins one to two years from property acquisition to avoid carrying costs, resulting in more competitive sales pricing. Potential land acquisitions are assessed based on strategic locations, acquisition price relative to prevailing market prices, presence of competition in the area, shape of the lot, potential legal and technical hindrances to development, and local governments requirements for development. Based on the Company's development standards, the minimum land area required for the Company's five-story and mid-rise developments is one hectare, with a zonal classification of R – 2. Ten-story and mid-rise developments have a minimum land area requirement of 5,000 square meters, with a zonal classification of R – 3. High – rise developments require a minimum land area of 3,000 square meters and zonal classification of R – 3.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 58

Figure 4.6.3.1 The Company’s current land inventory available for development The Company is currently exploring opportunities for diversification of its property developments in key urban centers in the Northern Luzon and Western Mindanao regions. Future land acquisitions will be funded by debt finance and internally generated funds. In addition to its land inventory, the Company owns its corporate headquarters, located at 1321 Apolinario St. Bangkal, Makati City, Philippines, 1228. The property has a total land area of approximately one hectare, upon which stands a six-story building with annex, with a total floor area of approximately 35,000 square meters.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 59

4.6.3.2 ENCUMBRANCES Certain parcels of land of the Company which are minor in size considering the total landholdings of the Company are subjected to proceedings arising out of claims of certain individuals. While the results of litigation cannot be predicted with certainty, the Company believes that the outcome of these proceedings will not have a material adverse effect on the property, considering the nature of the claims asserted in the proceedings. Properties of the Company in which projects which have been created are subjects to restrictions arising from the nature of the projects created over them. For instance, properties over which a condominium building has been constructed would have restrictions annotated on the title of such property arising from the master deed restrictions on the use of the property for condominium use. 4.6.3.3 LEASED PROPERTIES The Company has entered leases of spaces in commercial areas in Metro Manila in which model units for its projects are set – up. The leases may be renewed based on the marketing needs of the Company. Due to the small space involved, the lease rental payments are not substantial. Further information on these leases is provided in the figure below.

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Figure 5.4.3 Leased properties for the purpose building model units 4.6.4 WORKFORCE The Company has 1,097 employees as of December 31, 2016. Employees of the Company can be classified based on their positions. The total number of employees consists of 870 Rank and File Employees, 138 Junior-Senior Supervisor employees, 70 Assistant Manager to the Manager employees, 14 Senior Manager to the Vice Presidents, and 5 Senior Vice President to the President. The employees of the Company are non – unionized and are not covered by collective bargaining agreements. They receive supplemental benefits such as health care benefit plan, dental care benefits plan, and group accident insurance coverage.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 61

4.6.5 SUPPLIERS The Company’s sources and availability of raw materials and the names of principal suppliers are shown in the figure below.

Figure 5.4.5 List of Names of the Raw Material Suppliers of DMCI Homes 4.6.6 CUSTOMERS The country's middle-income socio-economic group is emerging as the most promising real estate market., and this has intensified competition in the property development business for that market segment. The Company's significant sales growth in recent years has made it one of the dominant players in the middle – income residential market category, and its pioneering construction and development methods, specifically in mid-rise developments have been used as a model by some competitors due to the success of these concepts.

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To leverage against real estate groups positioned in the same market category, DMCI Homes maximizes its investments by drawing on the Company's strengths and resources as both developer and builder, enabling it to offer attractive, even lower prices than the direct competition, and produce value for home buyers without adversely affecting its profitability. Aside from offering competitively – priced, high-quality units, DMCI Homes ensures good property location and on-time project completion.

4.7 RESEARCH AND DEVELOPMENT With persistent research, DMCI is a pioneer in the application of advanced construction technologies in the Philippines. It is renowned for completing technologically complex projects on or ahead of schedule. Furthermore, it enjoys the patronage of both new and repeats institutional clients.

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4.7 SUMMARY AND CONCLUSION 4.7.1 INTERNAL FACTOR EVALUATION MATRIX Internal Factor Evaluation Matrix Key Internal Factors

Weight

Rating Weighted Score

Strengths 1. Great Control of Quality

0.15

4

0.60

2. Faster Lead time in project developments

0.10

4

0.40

3. Unique capability in architectural design concepts

0.10

4

0.40

4. Sound Financial Condition

0.05

3

0.15

5. Cost advantages over key rivals

0.10

3

0.30

1. Lag rivals in advertising and promotions

0.05

3

0.15

2. Small Capitalization in its projects

0.15

3

0.45

3. Developments are not located in central business

0.05

3

0.15

4. Developments are limited to residential types

0.15

4

0.60

5. Small geographic coverage

0.10

2

0.20

and facilities

Weaknesses

areas

TOTAL

100%

3.40

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 64

STRENGTHS 1.

GREAT CONTROL OF QUALITY Raw materials and construction services are being sourced within DMCI Homes' parent

company which is the DMCI Holdings group. Thus, the company has an advantage of having been affiliated with a triple A construction company. 2.

FASTER LEAD TIME IN PROJECT DEVELOPMENTS DMCI Homes can build up its inventory at a faster pace and can be more responsive to a

changing market environment because it can deliver a project in three years compared to the industry average of five years. 3.

UNIQUE CAPABILITY IN ARCHITECTURAL DESIGN CONCEPTS AND

FACILITIES DMCI Homes has pioneered genuine resort- inspired daily living with its pioneering midrise developments. The company is renowned among condo dwellers in the local property market for offering unique and refreshing living concepts. 4.

SOUND FINANCIAL CONDITION DMCI Homes has a strong financial condition because of its proven strong sales record. It

has been able to utilize its capital investments and convert these into income. It is very liquid and can pay off its short-term liabilities on time.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 65

5.

COST ADVANTAGES OVER KEY RIVALS Since DMCI Homes work with DM Consunji, as stated in the first listed strength, it has

also allowed the company to control the cost of all its developments. This has given the company the ability to price its developments lower compared to its competitors namely- Ayala Land and Filinvest Land. WEAKNESSES 1.

LAG RIVALS IN ADVERTISING AND PROMOTIONS DMCI Homes has a weak distribution channel. They are behind their competitors in

advertising their projects. The Commercials of DMCI Homes on televisions, print ads are exceptionally rare. Based on observations, the company is not utilizing the opportunity in promoting their products in social medias like uploading videos on Facebook or YouTube. Being inactive in advertising allows the company’s competitor to have an edge over the company. Furthermore, because of the lack in distribution channels, DMCI Homes is not the leader in the market that they target. 2.

SMALL CAPITALIZATION IN ITS PROJECTS Compared to its competitors, DMCI Homes has a relative small capitalization allotted for

real estate development. And because of this small capitalization, it is not considered to be the primary source of income of DMCI Holdings.

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3.

DEVELOPMENTS ARE NOT LOCATED IN CENTRAL BUSINESS AREAS Unlike its key competitors, DMCI Homes’ projects are not centrally located. This is a

strategic choice of the company. However, the downside of this is that the accessibility of the location is a key decision factor of a buyer. Ayala Land for instance locates its developments within business areas. 4.

DEVELOPMENTS ARE LIMITED TO RESIDENTIAL TYPES Unlike its key competitors, DMCI is limited in developing only the residential market. It

has no experience in developing commercial and office real estate. Ayala Land has been developing commercial real estate through Ayala Malls. Robinson ‘s and MegaWorld also has offices and commercial developments. Their projects combine office and commercial spaces or what MegaWorld termed as township developments such as Eastwood City. Regarding this, DMCI is left behind in terms of building office or commercial spaces. 5.

SMALL GEOGRAPHIC COVERAGE 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 within and outside the country.

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CHAPTER 5 STRATEGY FORMULATION 5.1 SWOT MATRIX Strengths

Weaknesses

S1.

Great Control of Quality

W1.

Lag rivals in advertising and

S2.

Faster Lead time in project

promotions

developments

W2.

S3.

projects

Unique capability in

Small Capitalization in its

architectural design concepts and

W3.

facilities

central business areas in Metro Manila

S4.

Sound Financial Condition

W4.

S5.

Cost advantages over key

residential types

rivals

W5.

Developments are not located in

Developments are limited to

Small geographic coverage

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 68

Opportunities

SO Strategies

O1.Rising number of BPOs in 1. Continue offering cheap Metro Manila O2.Young investors capacity to spend O3.Increase

labor

force

participation

1. Offer promotions for

condominium units to attract locals

products that are already

and foreigners. ( S5, O1, O4) MP

developed outside the

2. Penetrate the market of young in

WO Strategies

investors through dynamic, fastpaced, and quality condominium

coverage of Metro Manila. (W5, O2, O6) MP, MD 2. Present the company’s

O4.Tourism-driven demand

units located within the center of

products as the best and the

O5.Increase in GDP by 6.9%

Metro Manila at an affordable

most affordable among all

O6.Brand

price. (S3, S5, O2) MP

other substitute products

Visibility

through

social media

3. Construct inexpensive yet quality

for people who are finding

high-rise residential buildings,

a home in Metro Manila

condominium units specifically

(W4, O1, O2) MP, MD

catered to foreigners according to their taste and lifestyle (S3, S5, O4) MP, PD Threats

ST Strategies

WT Strategies

T1. Climate Change

1. Develop residential properties

1. Develop more projects

T2. Congestion and Traffic in Mega Manila T3. Risk of flooding in Metro Manila

intended for low and middle-

outside Metro Manila (W4,

income earners in Metro Manila.

W5, T1, T3) PD, MP, MD

(S1, S3, S5,) PD

2. Upload videos on social

2. Take advantage of the company’s

media sites (i.e. Facebook,

T4. Tax Reform effected in 2018

Triple A builder reputation and

Twitter, YouTube) showing all

T5. RERBA slows down by

adapt new technological

amenities of their products.

advancements to withstand

(W1, T5) MP, MD

7.7%

flooding and other calamities. (S1, S3, S5, T1, T3) PD

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 69

A TALLY OF STRATEGIES IN SWOT STRATEGY OPTIONS

Frequency

Forward Integration Backward Integration Horizontal Integration Market Penetration

7

Market Development

4

Product Development

4

Related Diversification Unrelated Diversification Retrenchment Divestiture Liquidation

ANALYSIS OF SWOT MATRIX The SWOT Matrix assesses both internal and external aspects of the business. The SO strategies are laid out to use the company’s strengths in maximizing its opportunities. To improve the company’s weaknesses, the WO strategies are presented. While the ST strategies use strengths to minimize the given threats, the WT strategies demand the company to do something to improve weaknesses and minimize threats. Based on the presented strategies, it basically falls on two strategies- market penetration and product development, and market development

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5.2 STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX

X = -.57 Y = 2.5

STRATEGIES FOR THE CONSERVATIVE MATRIX DMCI Homes belongs to the conservative quadrant. This means that the conservative posture arises when DMCI Homes is financially strong but is unlikely to make significant returns to the business. The strategy is to look for related diversification, market penetration, market development, and product development opportunities in more attractive competitive situations.

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SPACE MATRIX Financial Position

Rate

Stability Position

Rate

Cash Flow

6

Technological Changes

-4

Inventory Turnover

5

Demand Variability

-1

Earnings per Share

3

Price Range of Competing

-2

Products Price Earnings Ratio

3

Competitive Pressure

-1

Working Capital

6

Risk Involved in Business

-3

Return on Investment

6

Barriers to entry into market

-3

Total

29

Total

-14

Average

4.8333

Average

-2.3333

Rate

Industry Position

Rate

Market Share

-5

Growth Potential

4

Product Quality

-3

Financial Stability

4

Customer Loyalty

-6

Productivity, capacity utilization

5

Capacity Utilization

-3

Resource Utilization

3

Control over Suppliers and

-4

Profit Potential

4

Technological Know – How

-5

Ease of entry into market

1

Product Life Cycle

-3

Growth Potential

4

Total

-29

Total

25

Competitive Position

Distributors

Average

-4.1429

Average

3.5714

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 72

CONCLUSION SP Average is -2.33

CP Average is -4.14

IP Average is 3.57

FP Average is 4.83

Directional Vector Coordinates: x-axis: -0.57 Directional Vector Coordinates: y-axis: 2.5 SPACE MATRIX ANALYSIS DMCI Homes should be more conservative in approach in undertaking strategies for them to maintain or surpass their current position in the market. Since the directional vector of DMCI Homes is in the conservative quadrant (upper left quadrant) of the SPACE Matrix, this means that DMCI Homes should employ the strategies that would be found in the Quadrant 2 of the Grand Strategy Matrix.

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5.3 BOSTON CONSULTING GROUP (BCG MATRIX)

High +15

High

Relative Market Share Medium

Low

1.0

0.50

0.0

STAR

Question Mark

Industry Sales Growth Rate Medium 0

Cash Cows

Dogs

Low -15

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 74

ANALYSIS OF BCG MATRIX After computing the necessary pieces of information to construct the matrix and evaluating these data, DMCI Homes has fallen into the first Quadrant (Question Mark) which indicates that parts of a business have high growth prospects but has a low market share given that the market share is 13% and the growth rate is 10%. The result is a rage net cash consumption. The company is consuming a lot of cash but is bringing little in return. However, since these business units are rapidly growing, they do have the potential to turn themselves into Stars. Companies are recommended to invest in question marks if the product has the potential for growth, or to sell if it is in the contrary. DMCI Homes must be analyzed carefully to determine whether they are worth the investment required to grow their market share.

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5.4 INTERNAL- EXTERNAL (IE) MATRIX TOTAL IFE RATING

IFE = 3.40

STRONG

AVERAGE

WEAK

EFE = 3.31

3.0 to 4.0

2.0 to 2.99

1.0 to 1.99

HIGH

I

II

III

IV

V

VI

VII

VIII

IX

3.00 to 4.00 MEDIUM 2.00 to 2.99 LOW 1.00 to 1.99

ANALYSIS OF IE MATRIX Based on the IE Matrix, DMCI Homes falls into the first cell: Grow and Build are the strategies which are recommended for companies which fall in that particular cell. This requires intensive and aggressive tactical strategies. The strategies should focus on market penetration, market development, and product development. From an operational perspective, a backward, forward and horizontal integration should also be considered.

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5.5 GRAND STRATEGY MATRIX

ANALYSIS OF GRAND STRATEGY MATRIX a. COMPETITIVE POSITION DMCI Homes has weak competitive position brought about by its lack of adequate capitalization for expansionary activities, its limited distribution network and its global presence. Although their market share is progressively increasing, it still lags behind key competitors in

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terms of capitalization and diversified product lines within the same industry such as the construction of retail spaces within constructed high – rise residential buildings. Furthermore, DMCI Homes lacks presence in key business districts. They often construct projects outside recognized business districts in Metro Manila like Bonifacio Global City and Makati Central Business Districts. Because of this, they cannot easily penetrate the market of young professionals who would opt to reside within these areas. b. MARKET GROWTH The immense traffic in Metro Manila, causes working individuals to acquire condominium units for their convenience which adds to market growth. There also those OFW’s who would acquire real properties as their investment and for their personal use which also helps in increasing the market growth. Since owning a condominium unit is cheaper compared to buying or building a house, individuals prefer condominiums instead which adds to the improvement of the market growth. Another is that people prefer modern living which could also be the reason of choosing condominiums. Furthermore, they prefer instant or readily available units with lots of amenities.

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5.6 SUMMARY OF MATRICES AND ANALYSES STRATEGY OPTIONS

SWOT SPACE

IE

GRAND

BCG

TOTAL

INTEGRATION STRATEGIES Forward Integration

✓

1

Backward Integration

✓

1

Horizontal Integration

✓

✓

2

Market Penetration

✓

✓

✓

✓

✓

5

Market Development

✓

✓

✓

✓

✓

5

Product Development

✓

✓

✓

✓

✓

5

DIVERSIFICATION STRATEGIES Related Diversification

✓

1

Unrelated Diversification

0

Retrenchment

0

Divestiture

✓

Liquidation

✓

✓

2 1

ANALYSIS OF THE SUMMARY OF MATRICES AND ANALYSES Of amongst the strategy decisions, market penetration, product development, and market development are constantly suggested by the SPACE, IE, and GRAND matrices. The mentioned strategies may be used by the company since it has garnered the highest total score equivalent to three. Moreover, the unrelated diversification and retrenchment strategies are assessed to be not suitable to the company since it never appeared in the results of any of the matrices presented.

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5.7 QUANTITATIVE STRATEGIC PLANNING MATRIX STRATEGIC ALTERNATIVES (Market

(Product

(Market

Penetration)

Development)

Development)

Present

Develop more

Upload videos on

products as

projects

social media sites

the best and

outside Metro

(i.e. Facebook,

the most

Manila

Twitter, YouTube)

affordable for

showing all

people who

amenities of their

are finding a

products

home in Metro Manila Key Factors

Weight

AS

TAS

AS

TAS

AS

TAS

.11

4

.44

3

0.33

4

0.44

Young investors capacity to spend

.10

3

0.30

3

0.30

3

0.30

Increase in labor force participation

.08

3

0.24

2

0.16

2

0.16

Tourism-driven demand

.11

3

0.33

4

0.44

4

0.44

Increase in GDP by 6.9%

.05

2

0.10

2

0.10

2

0.10

Brand Visibility through social media

.10

4

0.40

4

0.40

4

0.40

Climate Change

.09

3

0.27

4

0.36

3

0.27

Congestion and Traffic in Mega

.08

4

0.32

3

0.24

3

0.24

.09

3

0.27

3

0.27

3

0.27

Opportunities Rising number of BPOs in Metro Manila

Threats

Manila Risk of flooding in Metro Manila

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 80

Tax Reform effected in 2018

.09

2

0.18

4

0.36

2

0.18

RERBA slows down by 7.7%

.10

3

0.30

2

0.20

2

0.20

Total

1.00

3.11

3.16

3.00

Strengths Great Control of Quality

0.15

3

0.45

4

0.60

3

0.45

project

0.10

4

0.40

3

0.30

3

0.30

Unique capability in architectural

0.10

4

0.40

4

0.40

3

0.30

Sound Financial Condition

0.05

2

0.10

2

0.10

2

0.10

Cost advantages over key rivals

0.10

4

0.40

3

0.30

2

0.20

0.05

3

0.15

2

0.10

3

0.15

Small Capitalization in its projects

0.15

4

0.60

3

0.45

2

0.30

Developments are not located in

0.05

4

0.20

4

0.20

3

0.15

0.15

3

0.45

3

0.45

3

0.45

Small geographic coverage

.10

4

0.40

3

0.30

3

0.30

Total

1.00

Faster

Lead

time

in

developments

design concepts and facilities

Weaknesses Lag rivals in advertising and promotions

central business areas Developments are limited to residential types

Grand Total

3.55

3.20

2.70

6.66

6.36

5.70

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 81

ANALYSIS OF THE QUANTITATIVE STRATEGIC PLANNING MATRIX Based on the table above, it can be concluded that the most suggested for DMCI Homes from the results of the matrices used would be Market Penetration, because it garnered the highest total attractiveness score among the three strategies evaluated.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 82

CHAPTER 6 OBJECTIVES, STRATEGY RECOMMENDATIONS, AND ACTION PLANS 6.1 REVISED VISION AND MISSION STATEMENT 6.1.1 REVISED VISION STATEMENT To be the leading real estate holding company and elevating the lifestyle of the common Filipino into a more comfortable and convenient lifestyle. Parameter

Y/N

Does it clearly answer the question: What do we want to become?

Y

To be the company.

Is it concise inspirational?

yet

Y

To elevate the lifestyle of the common Filipino into a more comfortable and convenient lifestyle.

Does it give a clear indication as to when it should be attained?

Y

Businesses are in a going concern principle; its vision and should be continuous in action.

enough

Why? leading

real

estate

holding

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 83

6.1.2 REVISED MISSION STATEMENT As the country’s first Triple A developer, DMCI Homes creates premium quality, urban – friendly, fully served communities for the moderate income earning families that seeks to live comfortably near their place of work, of study and of leisure. In doing so, we are committed… a. To find new and innovative ways to satisfy our customers 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 have an energized, capable, and customer focused workforce while building an organization that espouses Integrity, Excellence, and Teamwork. 6.2 STRATEGIC AND FINANCIAL OBJECTIVES 6.2.1 STRATEGIC OBJECTIVES After analyzing the current standing of the company by using different matrices, the researcher was able to determine strategic objectives that will be strategic to the growth and development of DMCI Homes: •

To increase the Sales of DMCI Homes, by offering its products as the best and most affordable among all other substitute products.

•

To increase the Market Share of DMCI Homes by uploading videos on social media sites (i.e. Facebook, Twitter, YouTube) showing all amenities of their products.

•

To widen the geographical coverage of DMCI Homes by developing projects outside of Metro Manila.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 84

6.2.2 FINANCIAL OBJECTIVES *In thousand pesos Year

Sales Revenue

Net Income

2016

11,766,435,807

2,221,274,868

2017

12,671,274,721

2,392,090,905

2018

13,645,695,747

2,576,042,696

2019

14,695,049,749

2,774,140,379

2020

15,825,099,075

2,987,471,774

2021

17,042,049,194

3,217,208,354

*Sales Revenue is based on 7.69% increase while net income is based on the projected increase in sales 6.3 RECOMMENDED BUSINESS STRATEGIES 6.3.1 MARKET PENETRATION Based on the results of the QSPM, it is clearly evident that the market penetration got the highest attractiveness score. Market Penetration can be defined as the action of increasing an existing products market share or introducing new products to acquire market share. Thus, DMCI Homes should focus on this strategy on the part of strategy implementation. The company should exert its efforts in getting the attention of potential buyers through providing advertisements that would appeal to buyers most especially to the common Filipino, while having an estimated budget of Php 5 million for the succeeding year of operations. To penetrate such wide market, the company should establish its presence within foreign countries where huge numbers of foreigners would like to invest in real estate in the Philippines. Moreover, the company should also be active in participating in international shows to encourage people of different origins; since most of all the potential buyers are accessing the World Wide Web, the company may also penetrate different D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 85

social media sites (i.e. Facebook, Twitter, YouTube and etc.). Through the said approaches, DMCI Homes will increase primarily in customer brand awareness and secondarily will increase in sales and would eventually attain the financial objectives of the company. 6.3.2 PRODUCT DEVELOPMENT Another strategy that DMCI Homes would adapt is product development. Such strategy refers to the process of either improving the previous available product or creating a new product and or service that would satisfy a firm’s customers. Regarding the current situation of DMCI Homes, it may choose to construct a community of high – rise residential buildings that incurs a gradual speed of deprecation and displays architectural designs in provinces while having a budget of Php 10 billion in the succeeding year of operations. The company should make use of the company’s reputation as a Triple A developer that offers its products at a relatively cheaper price rather than those of key competitors and offer units with innovative architectural design concepts to attract more potential buyers especially those local and foreign investors who have the capacity to spend more.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 86

6.4 RECOMMENDED ORGANIZATIONAL STRATEGIES This section presents the weaknesses addressed by the proposed strategy along with the researcher’s recommended organizational strategies: 6.4.1 SMALL GEOGRAPHIC COVERAGE The company should present their products to different nations around the world which would enable the company to garner a large market share in the global real estate industry. DMCI Homes would have an edge over its key competitors since only a handful of companies are only given the chance to showcase their products. 6.4.2 SMALL CAPITALIZATION IN DEVELOPMENTS DMCI Homes should request for additional capitalization to finance all project development all while improving its increase in its market share. 6.4.3 LAG BEHIND RIVALS IN ADVERTISING AND PROMOTIONS Advertisements of DMCI Homes should utilize every available option of advertising its products through TV promotions, social media advertisements, and major promotional advertisements. These advertisements should focus on the brand of DMCI Homes as an exceptional property developer that offers the best quality and offers the best value for money.

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 87

6.5 FINANCIAL PROJECTIONS DMCI Homes Financial Projections December 31, 2017, to 2020 (in

CURRENT

(EST.)

(EST.)

(EST.)

(EST.)

(EST.)

thousand

2016

2017

2018

2019

2020

2021

pesos) Net Sales

11,766,435,807 12671274721 13645695747 14695049749 15825099075 17042049194

Cost of

5,881,736,517

6334042055

6821129889

7345674778

7910557168

8518879014

5,884,699,290

6337232665

6824565857

7349374972

7914541907

8523170180

2,765,965,997

2978668782

3207728412

3454402726

3720046296

4006117856

3,118,733,293 3358563883

3616837446

3894972245

4194495611

4517052324

897,458,425

966472977.9

1040794750

1120831866

1207023837

1299843970

2,221,274,868

2392090905

2576042696

2774140379

2987471774

3217208354

Sales Gross Profit Operating Expenses Income Before Tax Income Tax Expense Net Income

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 88

2016

2017

2018

2019

2020

Current Assets Cash and cash equivalents 3868999775 4166525858 4486931696 4831976744 5203555755 Financial assets at fair value through profit or loss Receivables - net 5686986231 6124315472 6595275332 7102452005 7648630564 Real Estate Inventories 31622758783 34054548933 36673343746 39493523880 42530575867 Other current assets 2187162918 2355355746 2536482603 2731538115 2941593397 TOTAL CURRENT ASSETS 43365907707 46700746010 50292033378 54159490745 58324355583 Noncurrent Assets: Noncurrent receivables 2300542230 2477453927 2667970135 2873137038 3094081276 Net Pension Asset Investments in associates, joint ventures and others 341194947 367432838.4 395688423.7 426116863.5 458885250.3 Investment properties 155125788 167054961.1 179901487.6 193735912 208634203.6 Property, plant and equipment 1053940342 1134988354 1222268959 1316261442 1417481947 Software Cost 77491126 83450193.59 89867513.48 96778325.26 104220578.5 Deferred tax assets – net Other noncurrent assets 252242006 271639416.3 292528487.4 315023928.1 339249268.1 TOTAL NONCURRENT ASSETS 4180536439 4502019691 4848225005 5221053508 5622552523 D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 89

TOTAL ASSETS LIABILITIES AND EQUITY Current Liabilities: Accounts and other payables Customers’ advances and deposits Payable to related parties Dividends Payable Current portion of long-term debt Current Portion of Liabilities for purchase land TOTAL CURRENT LIABILITIES Noncurrent Liabilities: Long-term debt net of current portion Liabilities for purchased land net of current portion Pension liabilities - net Deferred tax liability TOTAL NONCURRENT LIABILITIES TOTAL LIABILITIES

47546444146 51202765701 55140258383 59380544253 63946908106

1245917952

1341729043

1444908006

1556021432

1675679480

9178277946

9884087520 10644173850 11462710819 12344193281

232799388

250701660.9

269980618.7

290742128.2

313100197.9

100000000

107690000

115971361

124889558.7

134493565.7

861234841

927463800.3

998785766.5

1075592392

1158305447

623150513

671070787.4

722676131

778249925.5

838097344.7

11241380640 12105842811 13036782123 14039310669 15118933659

17479587785 18823768086 20271315851 21830180040 23508920886

906622242

976341492.4

1051422153

1132276517

1219348581

53079093

57160875.25

61556546.56

66290244.99

71387964.83

2647010891

2850566029

3069774556

3305840219

3560059332

21086300011 22707836482 24454069107 26334587022 28359716764 32327680651 34813679293 37490851231 40373897690 43478650423

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 90

EQUITY Equity attributable to equity holders of the Parent Company: Capital Stock 3487727328 3755933560 4044764850 4355807267 4690768846 Paid-in capital 15260667 16434212.29 17698003.22 19058979.67 20524615.2 Appropriated Retained earnings 7000000000 7538300000 8117995270 8742269106 9414549601 Unappropriated Retained Earnings 4445357676 4787205681 5155341798 5551787582 5978720048 Remeasurements gains on defined benefit plans 183084079 197163244.7 212325098.2 228652898.2 246236306.1 Stockholders' Equity – Parent 15131429750 16295036698 17548125020 18897575834 20350799415 Non-controlling interests 87333745 94049709.99 101282132.7 109070728.7 117458267.7 TOTAL EQUITY 15218763495 16389086408 17649407153 19006646563 20468257683 TOTAL LIABILITIES AND EQUITY 47564444146 51222149901 55161133228 59403024373 63971116948

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 91

6.6 DEPARTMENTAL PROGRAMS OPERATIONS MANAGEMENT PROGRAM: offer more property developments outside Metro Manila Activities

Team Responsible

Timeline

Plan and execute integrated

Marketing Department

1-3 MONTHS

Human Resource Department

= <1 MONTH

Marketing Department

1-2 MONTHS

Research and Development

2-3 MONTHS

marketing communications plan Hire additional personnel such as architects, engineers and marketing graduates Increase seminars regarding advertising strategies and sales promotions Conduct research

Team

Product Development: offer more property developments outside Metro Manila Activities

Team Responsible

Determine designs based from

Research and Construction

the projections on developments

Timeline 2-3 MONTHS

Department

to be constructed. Production of high-rise

Production Department;

3-4 MONTHS

residential buildings that D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 92

displays unique architectural design concepts, facilities and

Research and Development Department;

other add-ups for leisure Sales and Marketing Department Identify the customer preferences of units in terms of their lifestyle

Increasing security by

Research Department;

1-2 MONTHS

Finance and Sales Department

Production Department;

2-3 MONTHS

implementing the use of electronic key access

IT Department

Creation of DMCI own mobile app

1-2 MONTHS Marketing Department; Production Department and IT Department

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 93

CHAPTER 7 STRATEGY EVALUATION, MONITORING AND CONTROL 7.1 BALANCE SCORECARD FINANCIAL PERSPECTIVE Objective

Performance

Target

Initiatives

Measure

7.69% growth in net Boost sales efforts to Positive amounts in income annually increase profitability the income statements

•

Marketing, Sales and Operation Teams

•

General Management

•

Finance Department

CUSTOMER PERSPECTIVE Objective

Performance

Target

Initiatives

Measure

To delight customers and improve customer Sales Growth relationship

At least 5% increase in accuracy and customer service

•

Customer Unit

•

Sales, Marketing and Construction Department

•

General Management

Care

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 94

INTERNAL BUSINESSES PERSPECTIVE Objective

Performance

Target

Initiatives

Measure

Develop a system and To stabilize training program that Less time lag in convenience in would increase the constructing a unit operations knowledge of the employees

•

Purchasing Department

•

Customer Unit

•

General Management

Care

LEARNING & GROWTH PERSPECTIVE Objective

Performance

Target

Initiatives

Measure

Empower all the To explore new Annual Net Income employees and give avenues for growth of growth recognition to the employees excellent ones

•

Human Resource and General Management

•

Finance Department

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 95

IX. APPENDICES

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 96

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 97

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 98

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 99

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 100

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 101

D M C I H o m e s – S t r a t e g i c M a n a g e m e n t P a p e r P a g e 102

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