CONSTRUCTION MANAGEMENT

INDUSTRY STRUCTURE
HAS NO MAJOR IMPACT ON SINGAPORE’S
CONSTRUCTION PRODUCTIVITY
by Dr Low Sui Pheng, Professor, Department of Building, and
Director, Centre for Project Management and Construc on Law,
Na onal University of Singapore
This ar cle examines whether fragmenta on in Singapore’s construc on
industry is one of the root causes for its rela vely lower produc vity, mea-
sured in terms of value added per worker, as compared to the produc vity in
the construc on industry, in advanced countries. In rela on to construc on
market structures, this study also examines the leadership provided by large
Dr Low Sui Pheng
firms in enhancing the performance of the industry, and recommends suitable
measures to address construc on produc vity issues associated with industry structures.
Based on a recent compara ve study of the construc on industry in Singapore and in four advanced
countries (namely Australia, Japan, UK and USA), conducted by the author for the Building and Con-
struc on Authority (BCA), the observa on is that Singapore’s industry structure is not significantly
different from those of advanced countries. Compared to these countries, the extent of fragmenta on
in Singapore is actually less pronounced. Hence, fragmenta on does not appear to be a key factor for
the rela vely lower value-added produc vity in Singapore.

INTRODUCTION advanced countries with high construc on produc vity.

Produc vity issues have always been one of the key
concerns of Singapore, in the quest to move the country
away from low-cost, labour-intensive industries to high
value-adding, knowledge-crea on ac vi es. Produc vity
in the construc on industry is especially challenging,
given the uniqueness and complexi es of building proj-
ects, around which the industry structure has evolved
over me to become what it is today. Issues rela ng to
the fragmenta on of the construc on industry have also
been observed, wherein:
• Different projects take place in different sub-categories
(eg residen al versus commercial buildings), with dif-
ferent stakeholders that are supported by a transient
workforce.
• Design and construc on have tradi onally been sepa-
rated in the industry.
• The industry structure reflects extensive subcontract-
ing and mul -layer subcontrac ng prac ces, support-
ed by a large number of small firms.
The study observes that the construc on industry struc-
ture in Singapore is not unique. In terms of firm profile
and subcontrac ng prac ces, it is similar to those of
Hence, fragmenta on does not seem to be the cause of
rela vely lower value-added produc vity in Singapore.
COMPARISONS OF CONSTRUCTION INDUSTRY
STRUCTURES
Firm size and employment
The construc on industry structure of Singapore is no
different from those exis ng in Australia, Japan, US and
UK. Historically, the number of firms in all these five
countries grew in tandem with growth in the construc-
on industry and there appears to be li le or no barriers
to entry by new businesses into the industry. Based on
official sta s cs and the largely similar data repor ng
formats for Singapore, US and UK, Table 1 shows that
there are more small firms than large firms in these
countries.
In the UK, the propor on of firms with 1-13 employees is
par cularly large, at 95.56%. A separate analysis showed
that the propor on of small firms in Australia, employing
0-19 persons, was also large, at 97.7%. The high propor-
on of very small firms in both UK and Australia could
be partly due to the generally higher propor on of small
housing/residen al developments in these countries.

38 THE SINGAPORE ENGINEER

September 2017
CONSTRUCTION MANAGEMENT
Number of Percentage of firms (%)
employees in firm Singapore US
1-9 54.90 77.68
10-49 34.20 18.97
50-99 6.70 1.99
100-499 3.50 1.11
500 persons & over 0.40 0.20
(Note: the percentages may not sum up to 100%, because of rounding off)
Table 1: Comparison of the rela ve propor ons of the different categories of construc on firms (determined on the basis of the number of employees),
within the respec ve construc on industries in Singapore, US and UK.
For example, in the 3rd Quarter of 2014, the UK Office
for Na onal Sta s cs reported the following figures for
firms opera ng under the ‘Main Trades’: 18.5% (commer-
cial buildings), 47.5% (residen al buildings) and 34.0%
(civil engineering). Addi onally, among the significant
47.5% of firms in the residen al buildings sector, there
were many small firms.
Collec vely, these results showed that the percep bly high
propor on of small firms in Singapore is actually lower
than the propor ons of small firms in US, UK and Austra-
lia. In fact, in percentage terms, there are generally more
small firms in US, UK and Australia, than in Singapore.
Propor on of subcontrac ng
The larger number of small firms as well as the larger
propor on of employment in these small firms appear
to point to the significant prac ce of subcontrac ng in all
these five countries. Of these countries, only Australia,
Japan and Singapore publish sta s cs rela ng to subcon-
trac ng prac ces in the construc on industry. In both
Australia and Japan, these sta s cs are presented, based
on the income derived from subcontrac ng. In Singapore,
sta s cs rela ng to subcontrac ng prac ce are presented,
based on the amount of subcontract work done by others,
and expressed as a ra o of construc on turnover.
From Figure 1, it can be seen that subcontrac ng prac-
ces are extensive in Australia (40%), Japan (37%) and
Singapore (39%) and we can extend the conclusion to
the UK and US, as well, even though no subcontrac ng
sta s cs are available from these two countries. The
subcontrac ng prac ce seems to be underpinned and
supported by the large number of small firms in the five
countries, which further reinforced the observa on that
Singapore’s construc on industry structure is similar to
those of advanced countries.
SUBCONTRACTING PRACTICES
To be er understand why subcontrac ng is extensively
prac sed locally and its effect on produc vity, in-depth
interviews were conducted with 11 main contractors and
five subcontractors, in Singapore. The interviews revealed
that main contractors turned to subcontrac ng prac ces to
counter market uncertain es and reduce business risks, and
when they do not have the necessary exper se to do a job.
40 THE SINGAPORE ENGINEER
September 2017
Percentage of firms (%) Number of
UK employees in firm
95.56 1-13
3.79 14-59
0.37 60-114
0.24 115-599
0.04 600 persons & over
40.1%
39.2%
37%
AUSTRALIA JAPAN SINGAPORE
Figure 1: Extent of subcontrac ng in Australia, Japan and Singapore.
As subcontractors are specialists and are more proficient
in their own trades, compared to general main contrac-
tors, subcontrac ng can help raise produc vity if the
main contractor has good project management to deal
with both the large numbers as well as mul ple-layers of
subcontractors.
This study further reviewed the extant literature on
studies related to mul -layer subcontrac ng in various
countries. The literature review showed that subcon-
trac ng is ac vely and extensively prac sed worldwide
for pragma c reasons, related to economics and effi-
ciency. There is no difference between the mul -layer
subcontrac ng prac ces in Singapore and those in other
advanced countries, as summarised in Table 2.
Further in-depth interviews conducted with foreign main
contractors opera ng in Singapore also suggested that
there is no difference between the mul -layer subcon-
trac ng prac ces in Singapore and those in the home
countries of the interviewees (a majority of them were
from Japan).
There might be a rela onship between the size of a
project and mul -layer subcontrac ng prac ces. For
instance, more complicated and larger building projects
would involve more layers of subcontrac ng. However,
the extent of this rela onship should be viewed on a

Countries Subcontrac ng layers
Singapore 2-4
Hong Kong 4 Lo, 2000; Tam, 2001; Yik and Lai, 2008; Tam et al, 2011
Japan 3-5
South Korea 3-5
United Kingdom ≥3
United States 5-6
European countries Typically starts with 3
Table 2: Summary of subcontrac ng layers in different countries.
case-by-case basis. In addi on, there is a rela onship
between the types of trades in the construc on indus-
try and mul -layer subcontrac ng prac ces. Again, this
rela onship seems to vary and should also be viewed on
a case-by-case basis.
All the main contractors interviewed were of the view
that mul -layer subcontrac ng cannot be eliminated
completely in the construc on industry. The interview-
ees seemed to have accepted mul -layer subcontrac ng
as part and parcel of work prac ces in the industry.
Nonetheless, while the interviewees were generally of
the view that mul -layer subcontrac ng cannot be elim-
inated completely, they remain open to opportuni es
to reduce the number of layers, on a case-by-case basis.
This is especially so, if they no ce that too many layers of
subcontractors are hampering work progress and affect-
ing quality standards in their projects.
In addi on, regardless of the number of ers one sees in
mul -layer subcontrac ng, it appears that clear, mely
communica ons and coordina on are the two most
important factors for effec ve project management.
FRAGMENTATION AND CONSTRUCTION
PRODUCTIVITY
The findings of a normalisa on exercise (Figure 2), using
construc on output per firm as a proxy for fragmenta-
on, showed that the industry structure in Singapore
appears to be less fragmented than those in Australia,
Japan, UK and US. However, while Singapore’s construc-
on industry structure appears to be less fragmented,
Singapore’s construc on produc vity is lower than that
in Australia, Japan, UK and US, based on value added
produc vity (VAP) or value added per worker.
Previous studies elsewhere have however concluded that
VAP is not a reliable indicator, due to its many inherent
limita ons (Low, 2015). Specifically, the low wage level in
Singapore has resulted in lower VAP, given that remu-
nera on cons tutes a significant por on of construc on
value added. The presence of strong labour unions in
CONSTRUCTION MANAGEMENT
Sources
Interviews with 30 local/foreign main/subcontractors in
Singapore
Hippoh, 1983; Hasegawa, 1988; Levy, 1990; van Kooij,
1991; Yau, 1991; Reeves, 2002; An and Tsunemi, 2011;
MLIT, 2015
Yun, 2010
Oyegoke et al, 2012; DBIS, 2013
Ardi and Cho bhongs, 2005; Warrick, 2006; Beck, 2012;
Smith and Brand, 2010
Houwerzijl and Peters, 2008
Notes: 1. As a proxy, greater Construc on Output/Firm denotes less
fragmenta on. 2. Construc on output/firm and labour produc vity data
were derived, based on reference years 2013 and 2011-2013, respec vely.
Figure 2: Normalisa on based on Construc on Output/Firm.
the advanced countries, who would nego ate for higher
minimum wages for their members, means higher labour
costs in these countries.
RAISING CONSTRUCTION PRODUCTIVITY
The construc on industry has a fragmented industry
structure due to the unique nature of construc on and
building works as well as due to the ease with which
new businesses can readily enter and exit the market. If
properly managed, specialist (mul -layer) subcontrac ng
actually serves to support and not undermine construc-
on produc vity, because of the unique nature of the
industry.
Hence, granted that the industry structure and
mul -layer subcontrac ng prac ce is here to stay, a
three-pronged approach is recommended to address
construc on produc vity issues associated with industry
structures. The three areas in this approach are:
(a) Technology Enhancement
(b) Project Management
THE SINGAPORE ENGINEER 41
September 2017
CONSTRUCTION MANAGEMENT
(c) Launching a na onal drive for construc on research
and development (R&D), as a rallying point for the local
construc on industry, along the lines of that prac sed
by top Japanese contractors.
It is noteworthy that significant por ons of this three-
pronged approach are already in place, to some extent,
in Singapore, through the ini a ves of BCA, to promote
the adop on of Design for Manufacturing and Assembly
(DfMA) technologies, lean construc on, Building Infor-
ma on Modelling (BIM) as well as Virtual Design and
Construc on (VDC). These should help to reduce the
number of workers on-site as well as wastage, which
should then alter the industry structure in Singapore, so
as to achieve higher labour produc vity in construc on.
It will also help to further enhance communica ons and
coordina on in project management prac ces.
The study also found that Singapore does not have a
consistent core of local contractors to anchor and lead
the industry, unlike in Japan where the group of top
Japanese contractors (eg Obayashi, Kajima, Shimizu,
Taisei and Takenaka) con nues to thrive and seems to
have provided long-term stability and core leadership
in upgrading the Japanese construc on industry, in the
areas of produc vity and technology, through their
campus-like research ins tutes as well as their empha-
sis on reducing wastage through lean thinking.
Therefore, by pu ng in place a na onal drive for
construc on R&D, such as the recent establishment of
the Built Environment Research & Innova on Ins tute
(BERII) and the Built Environment Technology Centre
(BETC), by BCA, resources can be pooled to facilitate
more impac ul R&D ac vi es at the na onal level, that
will help local contractors to level up and strengthen
their capabili es through technology licensing, with
a long-term view of expor ng their services overseas.
These various ini a ves by BCA, to drive innova on,
will transform the construc on industry so that it will
achieve higher labour produc vity.
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