Reliable Builders, Inc.: An Entrepreneur Seizes Opportunities for Success in the Construction Industry

Article excerpt

CASE DESCRIPTION

This case highlights the importance of recognizing opportunities and seizing them in areas that may not be one's expertise. This case has a difficulty level of three and up, appropriate for junior level and beyond. The case is designed to be taught in two to three class hours in a management or an entrepreneurship course, and is expected to require about three hours of outside preparation for students, consisting mainly of reading the case and familiarizing themselves with the business environments on the U.S. territory of Guam in the Western Pacific region.

CASE SYNOPSIS

The entrepreneur in this case is a Korean national who moved to Guam in the 1970's with a degree in English. Issues examined include recognizing opportunities and challenges and opportunities for growth in various market segments. The entrepreneur in this case study used diversification from the private sector into the military and federal projects sector as a strategy for growth in a confined island market. Implications of diversifying into this market are identified and discussed, along with other growth and confined market challenges.

INTRODUCTION

In 1977, Reliable Builders, Inc. (RBI) began its operation in construction when Guam was greatly devastated by Super Typhoon Pamela in the previous year. Buildings were ruined, houses were destroyed, electric posts were uprooted, and cables were cut. Debris and ruins were everywhere. This created an opportunity for RBI to actively engage in the construction business by accommodating the high demands for building and repairs of residential houses. Approximately 120 houses were built for programs funded and financed by the Farmers Home Administration (FHA). FHA is an agency under the Department of Agriculture that facilitates loans for low-income, rural areas in the U.S. for farms, homes and community facilities and the Small Business Association (SBA) up to 1984.

In 1985 to 1990, there was an influx of investors from Asian countries that triggered the booming of the construction industry. Hotels, business establishments and residential homes were constructed thus creating the need to expand the construction company pool.

RBI performed several government projects as a Prime Contractor and joined in the development of condominiums and hotels under the labor subcontract with Sumitomo construction Company from Japan. This expanded the coverage of work that RBI could perform.

During the 1990's, the construction industry on Guam plunged due to various environmental factors including the Korean Airlines (KAL) 801 crash in August 1997, Typhoon Paka in December 1997 and the Asian IMF currency crisis in 1998 (Guam Economic Development Authority-Invest Guam). On an island which relies heavily on tourism, the unemployment rate in 1999 was 15.2% (Guam Department of Labor, n.d.). Investors pulled back funding and crippled the local construction industry.

STRATEGY ANALYSIS

Unable to bid for projects in the private commercial sector, RBI realized that the company had to diversify. In 1991, RBI began venturing into small sized military projects both for the Navy and Air Force on Guam along with the local private sector. RBI decided to shift its strategy to focus solely on government contracts.

Though the company was successful in acquiring various projects through competitive bidding from the U.S. Navy and Air Force in the 1990's, the U.S. Federal government replaced the competitive bids method to the Request for Proposal (RFP) method, by which meant that the government would not automatically award the project to the lowest bidder, but also considered a company's technical qualifications. Though the company's prices were often lower than its competition, RBI could not compete with the larger contractors' technical qualifications. The larger contractors also had a higher bonding capacity, which allowed competitors to bid for jobs that RBI could not bid for. …