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This chapter covers past literature to provide a comprehensive theoretical explanation of the current circumstances of Singapore’s construction industry and adopted practices and outlines the effects of such adopted practices in Singapore.

4.1 Resource-Based View Approach

As discussed in earlier sections, fragmentation in Singapore’s construction industry is prevalent, which leads to the rampant practice of subcontracting. The underlying reasons for these occurrences could be partially explained by the renowned resource-based view (RBV) approach. According to Porter (1991), the RBV is part of a key theory involving competitive advantage, and this literature is more prominent and more extensively adopted and, as such, deserves more in-depth study. Concurring with his view, Kraaijenbrink, Spender, and Groen (2009) mentioned that the RBV theory has become one of the most influential and cited theories in the history of management theorising. The prominence of the RBV theory has its origins in the realm of competitive advantage, where the presence of valuable resources or competences that firms possess are often intangible assets, such as skills, reputation, etc. These resources are seen as relatively immobile, which constitute strengths that should be nurtured (Porter, 1991).

Basically, in the RBV model, resources have a major role in helping companies achieve higher organisational performance (Barney, 1991; Rothaermel, 2012). There are two types of resources: tangible and intangible. Tangible assets are physical resources that can easily be bought in the market; thus, they confer little advantage to the companies in the long run. Intangible assets are everything else that has no physical presence but can still be owned by the company. Brand reputation, trademarks, and intellectual property are all intangible assets. Unlike physical resources, brand reputation is built over a long time and is something that other companies cannot buy from the market. Intangible resources usually stay within a company and are the main sources of sustainable competitive advantage.

In addition, advocates of RBV have proposed that firms look inside their own respective companies to find the sources of competitive advantage instead of looking at the competitive environment and that it is much more feasible to exploit external opportunities using existing resources in a new way rather than trying to acquire new skills for each different opportunity (Barney, 1991; Rothaermel, 2012).

4.1.1 RBV Framework and Its Assumptions

The RBV theory, like any other theory, operates based on a set of key assumptions. An illustration of the RBV framework is also shown below for a better understanding of this theory.

4.1.1.1 Overall RBV Framework

The RBV framework in Fig. 4.1 depicts the various factors at play that enable firms to achieve competitive advantage and seeks to explain each of its components that contributes to a firm’s competitive advantage (Rothaermel, 2012).

Fig. 4.1
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Overall RBV framework diagram

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4.1.1.2 VRIO Framework

Although having heterogeneous and immobile resources is critical in achieving competitive advantage, it is not enough if the firm wants to sustain it. Barney (1991) has identified a valuable, rare, inimitable, and non-substitutable (VRIN) framework that examines whether resources are valuable, rare, costly to imitate, and non-substitutable. The framework was later improved from VRIN to VRIO by determining whether the firm is organised to be able to exploit these resources (Rothaermel, 2012). In determining whether a firm is able to attain sustained competitive advantage (SCA), the following questions are asked:

  • Question of Value. Resources are valuable if they help organisations to increase the value offered to the customers. This is done by increasing differentiation or/and decreasing the costs of the production. The resources that cannot meet this condition lead to competitive disadvantage.

  • Question of Rarity. Resources that can only be acquired by one or a few companies are considered rare. When more than a few companies have the same resource or capability, it results in competitive parity.

  • Question of Imitability. A company that has a valuable and rare resource can achieve at least temporary competitive advantage. However, the resource must also be costly to imitate or to substitute for a rival if a company wants to achieve SCA.

  • Question of Organisation. The resource itself does not confer any advantage for a company if it is not organised to capture the value from them. Only the firm that is capable of exploiting the valuable, rare, and imitable resources can achieve SCA.

A firm will achieve SCA if it has the resources and capabilities to answer ‘yes’ to all questions that are posed in the framework, as shown in Fig. 4.2.

Fig. 4.2
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VRIO framework

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The central premise of the RBV approach is about sustaining a firm’s competitive advantage, such that they can effectively outcompete their rivals within the industry. Peteraf and Barney have defined competitive advantage as:

An enterprise has a Competitive Advantage if it is able to create more economic value than the marginal (break-even) competitor in its product market. […] The Economic Value created by an enterprise in the course of providing a good or service is the difference between the perceived benefits gained by the purchasers of the good and the economic cost to the enterprise (2003, p. 314).

As such, for a firm to achieve a state of SCA, it must acquire and control VRIN resources and capabilities from within the firm and have the organisation in place that can absorb and apply them (Barney, 1991, 1994, 2002). This proposition is shared by several related analyses, such as core competences (Hamel & Prahalad, 1994), dynamic capabilities (Helfat & Peteraf, 2003; Teece, Pisano, & Shuen, 1997), and the knowledge-based view (Grant, 1996). The implicit focus of RBV is on the underpinnings of the successful diversification of a firm’s resources, such as the adoption of subcontracting practices by firms in the local construction industry context to minimise risks (Porter, 1991). Therefore, it is also essential when diversifying to understand a firm’s distinctive strengths, for instance, the trade specialisation of a particular firm.

4.1.1.3 Assumptions of the RBV Approach

The RBV approach adopts two assumptions in analysing sources of competitive advantage (c.f. Barney, 1991; Peteraf & Barney, 2003). First, this model assumes that firms within an industry (or within a strategic group) may be heterogeneous with respect to the bundle of resources that they control (Bridoux, 2004). It means that the skills, capabilities, and other resources that organisations possess differ from one company to another. If organisations would have the same amount and mix of resources, they could not employ different strategies to outcompete each other (Rothaermel, 2012). Second, it assumes that resource heterogeneity may persist over time because the resources used to implement firms’ strategies are not perfectly mobile across firms (i.e., some of the resources cannot be traded in factor markets and are difficult to accumulate and imitate). Resource heterogeneity (or uniqueness) is considered a necessary condition for a resource bundle to contribute to a competitive advantage (Bridoux, 2004). The argument is ‘If all firms in a market have the same stock of resources, no strategy is available to one firm that would not also be available to all other firms in the market’ (Cool, Almeida, Costa, & Dierickx, 2002, p. 57).

4.1.2 Applicability of RBV Approach to Local Construction Industry

As firms in the construction industry strive to compete with each other, naturally their first instinct is to search for opportunities to exploit via adopting the most appropriate strategy. As mentioned, one of the key assumptions of RBV is the immobility of resources. Although this gives some form of competitive advantage for a firm over their rivals in areas such as brand equity, processes, and intellectual property, all these are just temporary. In order to outlast, outwit, and outcompete their competitors, the practice of subcontracting by most firms is deemed to provide a SCA over their rivals. This is usually a key strategy employed by construction firms here and abroad. Hence, most firms resort to subcontracting their work out to another party, or at times, to multiple parties. The challenge, however, would be to ensure smooth coordination of specialised and differentiated tasks at the site level, which will lead to the need for intense interaction between the players (Shirazi, Langford, & Rowlinson, 1996).

For instance, in Singapore’s construction industry, all construction firms face constraints in their availability of resources in terms of labour, capital, and time. Key challenges in Singapore’s construction industry that were highlighted by the Economic Review Committee in its construction working group report include an overcapacity of local construction resources, the upgrade capabilities of local firms to compete with established foreign firms, and the size and financial constraints faced by the construction sector when venturing overseas. Moreover, other issues include the presence of numerous small firms that do not encourage industry upgrading and economies of scale and that many contractors are still constrained by costs and time to initiate or adopt better techniques or invest in research and development.

Therefore, with respect to the RBV theory, construction firms must navigate such treacherous environments by employing a suitable strategy based on the availability of the firm’s resources. For instance, a reputable local main contractor like Woh Hup Pte. Ltd. can employ its intangible assets like its strong brand reputation and its intellectual property in construction automation to promote its construction services in the industry to prospective clients, thereby enabling it to attain more projects than its rivals. The SMEs, who are usually subcontractors, can rely on their set of specialised skills in certain niche areas, such as tiling, water-proofing, glass making, and installation services, in order to distinguish themselves from their rivals in the industry.

Hence, to reiterate, RBV is an efficiency-based explanation for performance differences (Barney, 1991; Conner, 1991; Peteraf & Barney, 2003; Teece, Pisano, & Shuen, 1997), where a firm’s resources must be organised to capture value. In addition, they should be valuable, rare, and imperfectly imitable or substitutable in order to be source of a SCA (Barney, 1991). This would eventually guide the firm to make critical choices, which will form the basis of their strategy to achieve SCA (Porter, 1991) in a highly-competitive ‘red-ocean market’.

4.1.3 Critique of the RBV Theory

Nonetheless, having introduced the RBV theory to account for the occurrence of prevalent subcontracting practices in Singapore’s construction industry, various researchers have cautioned about the shortcomings in the RBV approach. Kraaijenbrink, Spender, and Groen (2009) have tried to review and assess the principal critiques evident in the RBV literature, arguing they fall into eight categories, of which, one of the categories caught the attention of the research team and warrants scrutiny due to its limited applicability. These eight categories are summarised in Annex 1. Other relevant critiques have also been discussed below.

  • Critique: RBV’s applicability is too limited

It was mentioned that one limitation is the applicability of the RBV. It applies only to firms striving to attain SCA. For firms satisfied with their competitive position, the RBV does not bring much insight, as its relevance directly follows from managers’ aspirations and intentions.

In addition, Barney (2002) indicated an important limit to the applicability of the RBV. It holds only as long as the ‘rules of the game’ in an industry remain relatively fixed. In unpredictable environments in which new technologies and/or new markets emerge and the value of resources can drastically change, there is a need to go beyond the RBV to explain a firm’s SCA.

  • Critique: RBV Theory is too firm - centric and neglects surrounding environments

Porter (1991) commented that the RBV theory is most introspective and centred on the firm itself, thereby implying that the external factors might affect their goal of achieving SCA. Moreover, the assumed heterogeneity and immobility are not, however, sufficient conditions for SCA, according to what is expected from the RBV approach (Bridoux, 2004). This is discussed by Peteraf (1993); she presented four conditions underlying SCA: superior resources (heterogeneity within an industry), ex post limit to competition, imperfect resource mobility, and ex ante limits to competition. This relates to the fact that the RBV theory itself does not provide sufficient coverage to explain how factors from external environments influence a firm’s ability to achieve SCA, such as an economic downturn, where for instance, the construction industry in the UK suffered a 39% decline in output in 1993 due to an economic downturn (Latham, 1994). Therefore, not only must the firm consider its own resources but it must also take into account its surrounding environment when formulating an appropriate and realistic strategy to achieve SCA in the long run, based on the choices made by the firm. This will also help to explain the issue of rampant subcontracting in the local construction industry in a more holistic manner.

4.1.4 Complementary Theory with the RBV Approach

The scrutiny and assessment of RBV have also pointed to a number of unresolved problems in the RBV approach. As such, some of these problems justify the adopted approach, such as to integrate the RBV theory and the firm’s surrounding competitive environment. Bridoux (2004) suggested that the exercise of market power can help to build and protect the competitive advantage. Porter (1991) adopted a similar definition of competitive advantage, which facilitates the integration of both perspectives (Bridoux, 2004).

This is also supported by Barney (1991) and Rothaermel (2012), who, based on the chart in Fig. 4.3, recommended that another theory must be combined with the RBV theory to maximise a firm’s success by achieving and sustain competitive advantage. It is called industry effects.

Fig. 4.3
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Chart on factors affecting organisational performance

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As depicted in Fig. 4.3, from 30 to 45% of superior organisational performance can be explained by firm effects (RBV) and 20% by industry effects (I/O view aka competitive environment). In addition, numerous RBV authors (Amit & Schoemaker, 1993; Barney, 1991; Conner, 1991; Mahoney & Pandian, 1992; Peteraf, 1993; Peteraf & Barney, 2003; Wernerfelt, 1984) have recognised that the resource-based perspective and industrial organisation tools, such as Porter’s Five Forces Model, complement each other in explaining the sources of firm performance (Bridoux, 2004). Foss (1996, p. 19) summarised the thematic complementarities between Porter’s framework and the RBV. The RBV is helpful in ascertaining the dangers of future competitive imitation through an analysis of the resources and capabilities of competitors. Porter may add an understanding of the external environment with concepts such as commitment, the role played by exit barriers, etc. (Bridoux, 2004). Besides thematic complementarities, there are also conceptual complementarities. Spanos and Lioukas (2001) presented two such similarities: (1) the RBV perspective and Porter’s (1980) framework share the view that persistent above-normal returns are possible, and (2) both perspectives seek to explain the same phenomenon of interest (i.e., SCA). In addition, both perspectives assume that managers are rational and that a firm’s ultimate goal is to increase its performance.

4.1.4.1 Proposed Complementary Theory— Porter’s (1980) Five Forces Model

The adoption of Porter’s Five Forces Model is an appropriate choice to complement the RBV theory, given that there are thematic and conceptual complementarities. In addition, the Five Forces Model has been a most influential model and has propelled strategic management to the very core of the management agenda. Therefore, the RBV theory of the firm is extended by incorporating Porter’s Five Forces Model to give an overview of the connections between resources and competition that closely intertwine each other, which better reflects the actual realities faced by firms in the market. Hence, the extended RBV theory suggests that firm’s resources provide the basis for strategy. Strategy should allow the firm to best exploit its resources relative to the competitive environment in order to achieve SCA over their rivals (Bridoux, 2004).

4.2 Porter’s (1980) Five Forces Model

Professor Michael E. Porter (1980) first conceived of the Five Forces Model in the late 1970s. It is a simple but influential tool for the identification of where power lies in certain business circumstances by employing the outside-in perspective (Johnson, Scholes, & Whittington, 2008). The framework, as shown in Fig. 4.4, identifies five forces in the microenvironment that drive competition and threaten a company’s ability to make a profit. Porter (1980) then defined the forces that drive competition, contending that the competitive environment is created by the interaction of five different forces acting on a business.

Fig. 4.4
figure 4

Porter’s five forces framework

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Moreover, Porter (1980) suggested that the competition intensity is governed by the relative strengths of these forces. By understanding the nature of each individual force, organisations will gain crucial insight to enable them to formulate the appropriate strategies to be successful in their markets (Ščeulovs & Gaile-Sarkane, 2010). This is how the attractiveness of the market and its overall profitability can be defined by the market structure (Slater & Olson, 2002). Then, the market structure in turn influences the strategic behaviour of organisations (e.g., market success depends on the competitive strategy). Thus, organisational success is indirectly dependent on the market structure, where the ‘awareness of these forces can help a company stake out a position in its industry that is less vulnerable to attack’ (Porter, 1979a, b, c).

4.2.1 Assumptions and Elaboration of the Five Forces Model

The five key forces that the model uses to identify and evaluate potential opportunities and risk (Karagiannopoulos, Georgopoulos, & Nikolopoulos, 2005) are explained in Table 4.1.

Table 4.1 Porter’s (1980) five forces model
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4.2.2 Applicability of Five Forces Model to the Local Construction Industry

In addition, it is necessary to mention that the five forces have diverse degrees of effect in certain industries and that ‘individual forces and their collective impact will change as the government policies and macroeconomic and environment conditions change’ (Mohapatra, 2012).

4.2.2.1 Implementation of Labour Restricting Policies in Singapore

For instance, the Ministry of Manpower made changes to the labour restructuring policies to improve the image of the construction industry and to achieve productivity-led growth. This is to curtail reliance on foreign labour and to rebrand the construction industry as an efficient, modern, and non-labour-intensive industry. However, this has caused an arrest of growth in the number of foreign workers in Singapore, and many contractors face manpower concerns (Heng, 2015). As such, the construction industry has been struggling to meet the increasing construction demand. Key labour restructuring policies are introduced as follows:

  • Foreign worker levy (FWL),

  • Dependency ratio ceiling (DRC), and

  • Man-year entitlement (MYE) quota.

4.2.2.2 Effects of Labour Restricting Policies in Singapore

The implementation of labour policies has had an immense effect on all construction firms for both large firms and SMEs within the industry. The various implemented labour policies and their associated effect on the firms will be discussed in Table 4.2.

Table 4.2 Labour restructuring policies
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Nonetheless, construction SMEs will bear the brunt of the effect due to the introduction of labour restructuring policies. As quoted by Chai Wai Fook, tax partner at Ernst & Young:

Companies do recognise that there is no choice. The government is not changing direction. Either you innovate and improve productivity or you may be phased out. He said the changes will have a limited effect on the bigger companies; with the muscle to pay higher salaries to local workers, these companies become eligible to hire more foreign ones. Smaller firms may not be able to do this. In the long term, some smaller companies might drop out, simply because they can’t compete, or they may be acquired, or they may acquire competitors so they can amalgamate resources and compete for government projects. (Cited in Tan, 2015 at http://www.businesstimes.com.sg/government-economy/singapore-budget-2015/budget-helps-construction-sector-but-challenges-remain)

Even with the recent lowering of MYE waiver levies, it would make it easier for companies to hire higher skilled workers, but the increase in the basic tier levy for basic skilled workers—from S$550 to S$650 in 2016, and subsequently to S$700 the following year—would see fewer basic skilled (R2) workers hired, doing nothing to alleviate the current labour crunch (Channel News Asia, 2015). This has evoked mixed reactions despite having a one-year respite from the increase in FWL after its announcement for the budget of 2015.

4.2.2.3 Analysis Using the Five Forces Model

Using the context of the implemented labour policies, a form of external factor that influences the nature of competition within the local construction industry via the five forces in the microenvironment, influences the way in which the local firms compete. This drives competition and threatens a company’s ability to make profit (Dälken, 2014; Ščeulovs & Gaile-Sarkane, 2010). As such, Table 4.3 will present an analysis of the Five Forces Model regarding how such external factors will have an effect on the local industry that spurred firms to look towards subcontracting (Betts & Ofori, 1992).

Table 4.3 Analysis using Porter’s Five Forces Model
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From Table 4.3, it is clear that each of these five forces is directly relevant to construction. Tatum (1988) went as far as to suggest that construction has a high fit with each component of the Five Forces Model. Reiterating the earlier point that the market structure, such as the adoption of the MLSS in the local context, in turn influences the strategic behaviour of construction firms. Thus, organisational success is therefore indirectly dependent on the market structure by the implementation of an appropriate competitive strategy, such as the prevalent use of subcontracting practices from one firm to another or to a few other firms in completing work.

4.2.3 Critique of Porter’s Five Forces Model

See Table 4.4.

Table 4.4 Criticisms of Porter’s Five Forces Model
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4.2.4 Complementary Framework Review (RBV Approach and Porter’s Five Forces)

As mentioned earlier, the RBV theory of the firm is extended by incorporating Porter’s Five Forces Model to give an overview of the connections between resources and competition that closely intertwine each other. An example of a complementary framework proposed by Bridoux (2004) integrates both resources and the competitive environment as sources of performance, drivers of strategy, and, particularly, competitive behaviours. It was first developed to focus on the issues of performance and competition in a given (product and/or geographic) market. This framework, as shown in Fig. 4.5, is summarised as follows.

Fig. 4.5
figure 5

Integrated framework of both resources and competitive environment

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As depicted in Fig. 4.5, the resources and competitive environment affect the firm strategy. The firm strategy and performance in turn affect the competitive environment and resources, and all these changes generate new information, which in turn creates new learning opportunities and may lead to the creation and development of new resources. This constitutes a form of strategy creation, where the ongoing sequence of actions and reactions conditioned by the firm resources and competitive environment become exogenous events in the environment of other firms. The term ‘firm’ in the following section refers either to a single product firm in a single geographic market or to a business unit with the same characteristics.

With that, it lays out the plan as to how firms strive to achieve SCA via the complementary framework proposed by Bridoux (2004), as it addresses the shortcomings of the RBV theory by incorporating external forces that influence competition among firms in a competitive market using Porter’s Five Forces Model. This is despite the fact that Porter’s five forces is a rigid model that does not promote flexibility in terms of firm collaboration and is a static model that does not take into account changes in industry structures. Such flaws have made the Five Forces Model outdated.

4.2.4.1 Viability of Porter’s Five Forces Theory and RBV Approach

Nonetheless, there is little evidence of construction enterprises systematically examining these five forces and their relevance to the strategic planning and management of their firms in the long term. Moreover, Porter’s Five Forces Model falls short in explaining how firms, especially SMEs, would adapt to such challenges in order to survive in such trying times. This is despite complementing it with the RBV approach to explain how firms behave as they factor in their resources, relative to the competitive environment they are facing, which affects their strategy based on choices. It poses the question of whether, under such tough circumstances, the survivability of SMEs is at stake or at risk of elimination by larger firms. For instance, subcontractors who were in the lower rungs of the MLSS hierarchy have struggled to survive as their profit margins are successively cut, down the tiers of the MLSS hierarchy to a point where the lowest tier subcontractors have barely enough to cover the increased cost of hiring foreign workers. As such, there is a need to further examine other literature to enable an appropriate explanation for the rampant subcontracting practices that are occurring in Singapore’s construction industry.

4.3 Flexible Firm Model

A highly probable model that could be adopted to explain the significance of subcontracting practices that are prevalent in the local industry would be the flexible firm model.

4.3.1 Current Industry Climate in Singapore

The adoption of the MLSS has been common in Singapore, coupled with the fact that there has been an approximately 47% increase in the total number of firms in the industry from 1996 to 2013, and more notably a 28% increase in the number of small firms from 2005 to 2013 is shown in Tables 4.4 and 4.5, respectively. This implies that not only is the construction industry booming, the presence of many small firms indicates that there are multiple levels of ongoing subcontracting. This current industry development runs contrary to what has occurred during most of the twentieth century, where SMEs were considered to be a declining sector and archetypical in which “informal” and “pre-modern” labour relations and technologies have hindered the process of economic development (Taymaz & Kilicaslan, 2002). As such, “subcontracting” was considered a form of domination of large firms over small ones where large firms benefited from low wages and flexible work arrangements in small firms, in the context of the construction industry. Therefore, it was thought that the SME sector would be eliminated by more efficient and advanced large firms (Taymaz & Kilicaslan, 2002) but was proved otherwise. As such, the flexible firm model is introduced to explain the prevalence of subcontracting practices, its effects, and the various challenges that have motivated firms to adopt such practices in Singapore.

Table 4.5 Kinds of flexibilities and types of workforce
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New pressures that are affecting the employment plans of the majority of firms are (1) market stagnation, (2) economic uncertainty, (3) technological change, and (4) reduction in working hours. Thus, employment practices are shifting in response to this need for flexibility (Atkinson, 1984) as companies are seeking flexibility in the functional, numerical, and financial aspects. For instance, as reiterated earlier, the government’s imposition of labour restricting policies as part of its strategy to achieve productivity-led growth has caused numerous implications on manpower requirements on many firms in a labour-intensive industry. As such, many firms are forced to adapt rapidly to such changes or face elimination. Hence, the key to their survival is flexibility.

4.3.2 Justification for the Adoption of the Flexible Firm Model

To enable a more robust analysis of changes in a workplace organisation, flexibility is often factored in, especially to analyse labour utilisation (Broadbent, 2002). Atkinson’s flexible firm model (1984) is an example of how theorists have characterised these changes, as it focuses on ways in which the greater use of an adjustable periphery, less rigid work practices, and implementation and utilisation of new technology may contribute to a firm’s profitability and competitiveness (Hunter, McGregor, Macinnes, & Sproull, 1993). It was observed that employers have created a large periphery of non-permanent employees to bear the burden of restructuring.

The two main approaches to flexibility, as proposed by Guerrier and Lockwood (1989), are the following:

  1. 1.

    To develop a core of permanent full-time employees trained in a variety of skills to move from function to function as demands require.

  2. 2.

    To rely on part-time, casual, and short-contract staff to provide the necessary variation in the number of employees required. Usually these employees would only have limited skillsets.

Moreover, the flexible firm model can be viewed as a new strategic, innovative tool in response to dealing with a firm’s changing environment. The typical changes in a firm’s environment include economic change, unemployment, legal restrictions on union actions and most importantly global competition (Ofori & Debrah, 1998). The key characteristic of the flexible firm model is that it emphasises the core-periphery workforce, where it allows one to design the workforce to proactively meet its business needs through flexible staffing arrangements. To enable easier comprehension, a visual illustration of the flexible firm model is shown in Fig. 4.6. Its components are explained in the subsequent sections.

Fig. 4.6
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Flexible firm model

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In addition, the extensive use of subcontracting in Singapore is evidenced by the interview results (see Chaps. 7 and 8) conducted by the research team, which indicates that the main contractors are adopting employment approaches similar to those portrayed in Atkinson’s (1984) flexible firm model. This is an area for concern, as such subcontracting practices are a form of human resource (HR) management. If the firm is unclear on the long-term business needs for labour flexibility, staffing activities are often short-term reactions to product or market pressures. This can result in poor employee relations, reduced quality, and reduced productivity. As such, this model warrants further in-depth study to assess whether this model is the key behind the rampant subcontracting that has been ongoing and how it has had an effect on Singapore’s construction productivity.

4.3.3 Features of the Flexible Firm Model

In acknowledging that organisations will require enhanced flexibility to meet the ever-evolving market and competitive pressures, Atkinson (1984) proposed the concept of a flexible firm. This is a strategic model of labour utilisation that is becoming increasingly common as firms face restructuring to meet a number of challenges, such as market uncertainty, cost pressures, and technological change (Atkinson & Meager, 1986). Atkinson pointed out that there are three different kinds of flexibility, namely, functional flexibility, financial flexibility, and numerical flexibility.

4.3.4 Types of Workforce

The creation of the flexible firm model provided the means to analyse the move towards greater use of contingent labour, the adoption of employment strategies such as in sourcing and outsourcing, and the concentrated use of compulsory competitive tendering in the public sector. More importantly, it provides a framework for focusing on the extent of change and the development of new work patterns at the firm level, providing a more complex and useful means of analysis (Procter et al., 1994).

In addition, utilising the concepts of core and periphery, the segmentation of the workforce could be analysed (Atkinson, 1984), where the model could offer a starting point for examining the segmentation of Singapore’s construction labour market and provide direction in the exploration of why subcontractors are predominant in the construction labour workforce. The model employs the distancing strategy, which requires the replacement of standard, traditional employment relationships with commercial ones. Table 4.5 summarises the various kinds of flexibilities and types of workforce (Table 4.6).

Table 4.6 Key criticisms of the flexible firm model
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4.3.5 Applicability of Flexible Firm Model to Local Construction Context

The adoption of the flexible firm model allows for greater use of subcontractors in the Singapore construction industry (Ofori & Debrah, 1998) where the majority of the employees are self-employed, part-timers, and workers for subcontractors. Most important of all, the model is applied to reduce costs in changing global markets, resulting in financial flexibility. This is desired for the construction SMEs where the model offers employees both functional and numerical flexibility (Ofori & Debrah, 1998). This is in addition to the lower operating, overhead, and fixed costs that these SMEs would enjoy with the application of the model. As such, to ensure the effectiveness of the model, it requires a sophisticated interplay of strategic business planning and HR management (Ofori & Debrah, 1998). Hence, the flexible firm model has rekindled interest in research on subcontracting as part of employers’ labour-use strategies (Harrison & Kelley, 1993; O’Reilly, 1992a, b).

Moreover, the flexible firm model provides an early and innovative framework to analyse the move towards greater use of contingent labour and the adoption of employment strategies, such as in sourcing and outsourcing. It also offers a platform to understand the segmentation of Singapore’s construction labour market and provides direction in the exploration of why subcontractors are predominant in the construction labour workforce, as can be seen in the MLSS that is common in Singapore’s construction industry. As such, with the aid of the flexible firm model, one can better appreciate the motivations of firms that employ subcontracting. To reiterate, results from the interviews with main contractors and subcontractors and the subsequent analysis in Chaps. 7 and 8 concur with the theories adopted in the flexible firm model, as they reveal the underlying motivations for construction firms to conduct subcontracting.

4.4 Formulation of a Combinative Explanatory Framework

The combination of the three theories, in the form of a combinative explanatory framework, serves to merge the literature into a common platform that will serve to exemplify the reasons for the presence of the MLSS in the local industry, which has led to the prevalence of subcontracting. Such a theoretical framework would also cause some significant effects in the industry, more notably, in the area of construction productivity, which has been a discussion point since the recent labour productivity decline of −3.0% in 2013 (Building and Construction Authority, 2016).

4.4.1 Features of the Combinative Explanatory Framework

The combinative explanatory framework is as shown in Fig. 4.7.

Fig. 4.7
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Combinative explanatory framework

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In Fig. 4.7, the framework depicts a single construction firm having to manage its own resources and competencies in order to achieve competitive advantage. However, most other firms are also employing the same tactic. In addition, as discussed in Chap. 3, there are many firms in the local industry, which ignites competition (represented in red, indicating a “red-ocean” market or highly-competitive market). Firms should strive to reach the “blue ocean market”, where organizations can enjoy working in a marketplace that is free of competitors, thereby achieving sustained competitive advantage that is desired. Traditionally, firms employ the RBV approach as an initial strategy to enable competition in the red-ocean market. However, as discussed earlier, RBV has a few glaring flaws in its theory and may not be adequate to explain the significance of subcontracting practices that are adopted by these firms. Hence, Porter’s (1980) Five Forces Model has been brought into supplement the flaws in the RBV approach. The five forces are illustrated in the four yellow arrows and the red portions, which represent intense rivalry among firms in the red-ocean market. Nonetheless, despite complementing the RBV theory with Porter’s five forces, valid criticisms of the five forces, such as its inability to account for changing industry structures due to the emergence of new global developments and the inability to factor in collaboration with the changing times, threaten to nullify the reasons subcontracting practices were adopted. As such, the flexible firm theory is brought into account for the ever-evolving market and competitive pressures that the firms face. Such pressures are caused by changing market conditions from external forces beyond the firm’s control, such as changes in government policies, economic downturn, globalisation, and other unspecified external forces, which are labelled in purple. Therefore, by employing the flexible firm theory, the firms can overcome these macro-forces by employing enhanced flexibility in their labour utilisation to ensure survivability. This is represented by the brown arrow that depicts firms that “break-through” or overcome the boundaries caused by macro-forces.

Nonetheless, should firms want to achieve SCA in the long run, an appropriate strategy is required, as represented by the combination of the blue, green, and brown arrows. Firms will enjoy eventual success in a blue ocean market, where firms avoid intense rivalry from many firms. As subcontracting is not just a typical practice but is a strategy that is prevalently adopted in the industry, this combinative explanatory framework proposed by the research team seeks to explain the reasons from a theoretical perspective first, using various available literature to explain its prevalence. In subsequent chapters, the analysis will be conducted from the fieldwork interviews that will seek to reinforce the reasons proposed in this theoretical combinative explanatory framework.

4.4.2 Credibility of Combinative Explanatory Framework

In trying to produce a plausible explanation for the rampant subcontracting done locally and its associated effects on construction productivity in Singapore, the above framework has been proposed by the research team. Nonetheless, some literature points to subcontracting as a system resulting from the large firm’s supremacy over smaller ones and suggests that the SME industry would be eradicated by more efficient and advanced large firms (Taymaz & Kilicaslan, 2002) and would put an end to the extremely fragmented industry plagued with numerous small firms lacking in capacity (Ministry of Trade and Industry, 2010) that have caused extensive subcontracting. This has reduced the continuity of working relationships, rendering the segmented approach of project delivery and management inefficient and thereby a culprit in causing productivity decline. Meanwhile, other literature has proven that, in the Singapore context, SMEs have flourished and extended their influence as they offer numerous economic benefits to their customers and business partners (Ofori & Lim, 2009), which could imply that the SMEs, operating within an MLSS, may not be the root cause of productivity decline despite their thriving presence.

Therefore, to determine the extent to which the subcontracting practices and the MLSS have affected construction productivity locally, detailed interviews have been conducted to qualitatively determine whether this has been the case. The preparatory work and several considerations for the interviews will be discussed in the next chapter.