• David Heron

The long reach of manufactured buildings

One of the biggest challenges for offsite manufacturers of buildings is to maintain a steady level of factory utilization, against the backdrop of cyclical demand for Real Estate. Several manufacturers, some of whom have built award-winning buildings, have failed when demand slowed down, and cash ran out. So how do you avoid stumbling before you’ve got up to speed?

One way to increase demand to a level that keeps the factory busy is to increase the size of the available market. So, for instance, the manufacturer can choose to expand the offering from pure residential, and add Hotels and Offices too. This approach presents several challenges. Firstly, if all segments sit within the same geographic area – let’s say Amsterdam for example – then demand across segments is probably correlated to the strength of the local economy. So, while this approach will fill the order book during the good times when business slows, it slows across all segments and you're back where you started. Furthermore, by attempting to deliver manufactured solutions to many segments, it increases manufacturing ad sales complexity and inevitably cost. The consequence: the business is still exposed to the market cycle, while costs and complexity are up.

An alternative approach is to maintain focus on one segment and to increase the geographic size of the target market.

Traditionally, expansion, particularly international expansion, for construction companies that build on-site is difficult. In part, this is because the construction industry comprises millions of SME’s and developing a network of local sub-contractors is time-consuming. Furthermore, there is already a shortage of people with the necessary skills, and everyone has their existing relationships. Consequently, it’s tough, if not impossible to grow quickly.

On the other hand, an offsite manufactured solution, especially a modular solution, doesn’t suffer as much from a lack of available trades: up to 90% of the work is done in a factory. So, if you can get the logistics costs right, the challenge becomes one of marketing and selling your manufactured product to a customer a long long way away from your factory. In principle, finding a local sales channel is far easier than building a network of sub-contractors. And that’s exactly what a few companies are doing. As an example:

  • The Swiss manufacturer, Erne AG, are delivering schools to various locations in Germany. Their factory is in Switzerland, not a country typically known as a low-cost offshore manufacturing location

  • PolCom & DMD Modular are manufacturing fully furnished modules in Poland and delivering to the East Coast of the U.S. to be assembled into some of the world’s tallest modular buildings

  • CIMC Modular manufactures and distributes hotels and student accommodation from its plant in southern China to the UK, Australia and the west coast of the US, among others. In terms of scale, one project in the UK comprised of 800 modules for 1,300 student bedrooms across 6 buildings

And there are more examples, from Morocco to the UK, Germany to New Zealand and elsewhere. Not only can it be done, it is being done, and it’s being done more and more often.

These examples highlight once again the fundamental transformation that is beginning to occur to the entire construction eco-system. Yes, we are at the beginning. Yes, it’s tiny. Yes, it’s going to take a long time. But the changes that digitally enabled, offsite manufactured solutions bring to construction, have profound implications on the business strategy of anyone involved in Real Estate development. Have you thought about what it means for your business yet, and which opportunities are opening up?

© 2020 David Heron

+41 79 547 4113

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