Tailoring Business Processes for Success in the Construction and Development Industry in India

Jonathan Lance, MRICS, and Simon Taylor, FRICS, explain why it is important to tailor business processes to maximize the return on investment in an evolving market like India.



With its huge population base, one of the largest workforces in the world, and a burgeoning middle-class, India has attracted the attention of investors globally, looking for the next world area of growth. During the past couple of decades the economy has undergone a rapid transformation with a shift from government-controlled enterprises toward a free-market economy similar to the United States. The growth currently is being fueled by entrepreneurs, who are stepping in to take advantage of opportunities in several sectors, where years of pent-up demand are translating into huge returns. As an example, during the past decade, the private telecom sector has replaced an outdated government-managed communication system with a network that has empowered every corner of the country. The number of mobile phone subscribers has increased from a base of 10 million in 2002 to 400 million subscribers in 2009, at an annual growth exceeding 60 percent.

The impact of the investment growth is most evident in the real estate sector. High growth in sectors such as telecom, information technology and business process outsourcing has fueled the development of commercial real estate with more being added every year. Concurrently, the higher purchasing power of the middle class has fueled fresh demand for quality residential real estate. In addition, the development industry has benefited from higher demand from consumer-driven service sectors such as retail, hospitality, education and healthcare. According to the Cushman and Wakefield Investment Report of 2009, during a five year period from 2009-2013, pan-India demand for commercial office space is estimated to be 196 million sq. ft. , with demand for retail space estimated to be 43 million sq. ft. and demand for residential estimated to be 7.5 million housing units. With investments starting to flow again after the slowdown experienced due to the global financial crisis, the high demand for real estate ensures a strong trajectory of growth in the sector.

While the landscape of the country is changing overnight with new real estate being added every day, what is more interesting is the transformation of the Indian economy and its impact on the people. The visible transformations are obvious to all those who visit the country and compare transformed cities like Gurgaon to older cities like neighboring New Delhi. With an overloaded and outdated infrastructure, New Delhi is unable to meet the needs of residents or businesses. But newer cities like Gurgaon are filling the void, by providing world-class buildings and trying to avoid the mistakes of its older neighbor. Malls are replacing traditional open air markets, hotel development has been prolific to match commercial development and high rise apartment buildings are replacing independent houses sprawled out over a large area. However, an invisible transformation is also happening in the mindset of the population.

The discerning consumer is more aware of global standards and is becoming more selective, and as the middle class develops and provides necessary technical expertise to support economic growth, businesses are stepping in to fill the demand-supply gaps for consumer goods like technology and international couture, and taking advantage of emerging global trends such as medical tourism.

However, the transition for any economy that goes from government control to free-market at an extremely rapid pace is not easy. With India it is no different. It takes time and investment to update the infrastructure required and to develop a trained workforce able to support continuous growth and provide input to the development of efficient business practices. Business processes in Western countries are tailored to an expensive workforce and focus on cutting costs by replacing the workforce with technological innovations, to increase productivity and generate cost savings.

The rapid growth of the Indian economy has put an immense strain on the availability of skilled human resources. The problem has been exacerbated by years of underinvestment in education and vocational training, which are still regulated by outdated government policies. This has resulted in a large pool of unskilled workers that is extremely cheap and smaller pools of available trained workers as the demand for skills grows. The problems are compounded by the Diaspora, as many highly skilled Indians move overseas to areas where the market for their expertise is already developed.

As the old economy and culture learns to co-exist with the new, these market restraints represent roadblocks to success of business models, if such restraints are not addressed upfront. In particular, business models designed to work in the West will meet with little or no success if they are not tailored to suit the current workforce and consumer culture and do not account for the rapid, transformational dynamism of the Indian economy.

Real Estate Development and Construction in India

Construction industry methods of design and execution vary widely, as can contractual obligations and environmental impacts. As such, the construction industry is, even to this day, uniquely different to any other product development process that is able to take advantage of repetition, environmental control and a high degree of automation. How successful a construction project will be will depend on how well the inputs (management, creativity, materials, labor, etc.) are designed, planned and controlled to manage arising variances (e.g. impact of execution risks during the construction period). By controlling the quality of the inputs, firms are able to identify innovative methods of execution by using new materials, equipment and processes to improve cost, schedule and/or quality (performance). However, to capture that value improvement, the team must be able to draw on thought leadership and consistent expertise in sufficient numbers to develop the new processes, and execute them to a high degree of certainty and tolerance. Since the workforce is integral to the development process, it is important to understand the main differences to appreciate the need to tailor construction plans to India.

New construction in India has a taste for the mid to high rise development formats that are found in any American city. This mostly has been driven by young Indian companies and foreign corporations seeking a foothold in the Indian economy. The demand is for buildings that match the expectations of international companies and that provide the prestige value required by the new entrepreneurs. These buildings strongly imitate the design and layout of similar developments in the West and the speed at which development has needed to take place has meant that focus has been on appearance, rather than life-cycle performance. The balance of value, or utility, enjoyed by the developer and lessee is quickly impacted when design does not reflect the local culture, environment and operational capabilities.

Consider as an example the design and installation of external walling systems. Curtain walling is available internationally and if imported will meet uniform tolerance standards for fabrication. What may not be considered by the designer is the impact of the following factors:

1. Diurnal temperatures, which vary widely during the year. To achieve an energy efficient building, the curtain walling will need to exceed the performance standard of walling used in the Americas, and consider the impact on street side temperature levels due to reflection. Dust and smog also has an effect on overall performance.
2. Construction methods and quality of installation. High performance curtain walling requires attention to detail, in accurate alignment to supporting members, design of attachment and jointing and correct application of gaskets and seals to accommodate expansion. These details assume more importance in harsh climates, particularly where attention to fine detail by the installing crew is less likely to be adhered to, and will promote aesthetic aging quicker.
3. Facility Management processes. In India, the methods and standard of care by custodians is markedly different to that observed in the West, particularly with higher technology components that require specific expertise to maintain. The life-cycle of the building will be reduced or replacements costs will increase above the level typically encountered in the west. Component design will need to anticipate the operations and maintenance regime and ensure materials are hardwearing and accessible for cleaning so unsightly dirt buildup is prevented. This can be significant and many relatively new buildings only three-to four years old easily can look 10 years old if this is not accounted for, which will quickly detract from the value a lessee will see in space more than five years old.

Thus, some steps to help ensure successful investment in India would include: consideration of local strengths and weaknesses, particularly training needs; partnering with local companies able to tailor your vision to the market; and closer analysis of the whole lifecycle, which will impact expected returns.

Training

As described, the middle class is growing rapidly, as investment in new industries increases, and leaders emerge with entrepreneurial skills to develop market solutions. However, it is not growing rapidly enough, and regardless of the plethora of emerging colleges and industry schools, the old culture and traditional practices persist, which means processes must be adjusted to match a narrower skill set until sufficient learning traction is achieved, and innovation can commence. This will affect choice of materials, location, supervision and management style, incentives and how in-house training can be delivered effectively.

Partnerships with Local Companies

Success in one region does not guarantee success in another, particularly one that is newly exposed to Western processes and expectations. Rather than being merely a low cost alternate location for outsourcing/manufacturing capacity, India presents prime opportunity to capture a growing market by developing world class products that support Indian aspirations. This means developing a partnership with local companies (architects, engineers, doctors) who will assist with design and implementation of processes that might be unfamiliar in India. For example, there is little demand for light steel framing or prefabrication systems in construction, primarily because the contracting industry is more familiar with concrete and brick, regardless of the many advantages for low rise construction.

Focus on the Lifecycle Impact of Construction

We described above how lifecycle forecasts will be impacted due to climate, quality of construction and maintenance regimes, among many other factors. If a venture is to be successful over the long term, attention to details not normally considered in the West must be adhered to so that the product will stand the test of time in a different environment and enable a focus on gradual development of local standards and expertise to mirror the changing demographics.

What is required is a step back from casting Indian developments in the image of the West and considering how they need to be modified to account for cultural, environmental and process differences, all of which will change both the end product and the way it is executed. There are notable examples of Western companies entering the market on the basis of replicating past successes, only to fail to deliver sustainable (efficient and ongoing) projects and businesses. As a corollary, some of us remember the early ‘80s house building industry in the United Kingdom, when timber framing was being introduced and gained a terrible reputation due to leaking, mold and structural failure; as we now know the issue was not with the principle of timber framing but with the way it was designed and the standard of construction site quality control, especially in a damp climate. The same holds true for India, where design and construction standards will mature over time but must be guided to maturity by using appropriate materials, enabling training and providing strong input into developing local quality standards to meet international expectations that cope with local restraints. •