It’s been a long time since my last blog, and I am a bit weary of commenting on the vagaries of the economy and their effect upon the industry. Suffice it to say the economy is roiling and will eventually smooth out. In the meantime, we must move forward.
Let’s talk about the economics of the industry beginning with competitive strategy. Going back to Porter’s seminal work on strategy, the four industry influencers are:
• Customers – we immediately think of homebuyers, but they are not necessarily the direct customer. Our industry often serves the homebuilder who then serves the homebuyer. There are other channels such as direct retail, retail lots, etc., but most have been tried and found wanting. For the purpose of our discussions, presume the customer is the homebuilder. (I welcome other opinions.)
• Suppliers – we all know the supply chain; the only challenge is moving back far enough in the chain to secure good pricing. This is a function of either volume or market position, but smaller shops pay top dollar.
• Substitutes – there are plenty of substitutes, but that is hardly a major issue. The issue is how modular companies become the substitutes in the site-built industry.
• Entrants -- volume homebuilders may backwards integrate into the business by setting up their own modular shops; thus one of the competitors/entrants is large customers. Suppliers are unlikely entrants into the market; it could put them into competition with some of their customers and might not increase margins enough to be worthwhile. But entrants are not limited to these groups; virtually anyone can enter this business. The primary barrier to entry is knowhow, and some folks choose to charge in whether they know what they are doing or not. Other classic barriers-to-entry – capital, specialized equipment, etc. – are relatively low hurdles.
In later blogs I will comment on constraints and scalability.
Let’s talk about the economics of the industry beginning with competitive strategy. Going back to Porter’s seminal work on strategy, the four industry influencers are:
• Customers – we immediately think of homebuyers, but they are not necessarily the direct customer. Our industry often serves the homebuilder who then serves the homebuyer. There are other channels such as direct retail, retail lots, etc., but most have been tried and found wanting. For the purpose of our discussions, presume the customer is the homebuilder. (I welcome other opinions.)
• Suppliers – we all know the supply chain; the only challenge is moving back far enough in the chain to secure good pricing. This is a function of either volume or market position, but smaller shops pay top dollar.
• Substitutes – there are plenty of substitutes, but that is hardly a major issue. The issue is how modular companies become the substitutes in the site-built industry.
• Entrants -- volume homebuilders may backwards integrate into the business by setting up their own modular shops; thus one of the competitors/entrants is large customers. Suppliers are unlikely entrants into the market; it could put them into competition with some of their customers and might not increase margins enough to be worthwhile. But entrants are not limited to these groups; virtually anyone can enter this business. The primary barrier to entry is knowhow, and some folks choose to charge in whether they know what they are doing or not. Other classic barriers-to-entry – capital, specialized equipment, etc. – are relatively low hurdles.
In later blogs I will comment on constraints and scalability.
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