FIGURES show that the construction industry in Singapore has continued to do well even as other sectors continue to reel under the impact of the economic downturn. This is the reason why Expand Construction can predict that 2009 and 2010 will be its best performing years since its incorporation in 2000, while other small and medium enterprises (SMEs) are struggling for survival.

Von Lee, group executive chairman of Expand Construction, points out that a major problem facing the construction industry is the increase in raw material prices last year. However, he believes that the next two years will be relatively easier for his company as a result of the decisions and strategies implemented.

Expand Construction has been able to overcome the challenges of the current economic downturn by relying on the experiences it accumulated over the years. Mr Lee said that cutting costs is the most effective survival skill he has learnt during the period of the construction gloom from 2002 to 2004.

Therefore, Expand Construction has adopted a long-term operational approach called 'asset light', which means that it loans construction equipment from other companies without having to buy them itself.

Mr Lee explained: 'If we acquire an inventory of assets like cranes, the company will still need to cover the cost of ownership even when it enters a gloomy period where there are fewer projects available. This will cause our basic overheads to remain at a high level.'

He believes that being 'asset light' is the best way to manage costs. This has helped the company avoid having to take on less desirable projects to help cover its basic running costs. It has also provided more leeway for it to choose the projects it deems as helpful in bringing its business to another level.

When it was first founded, the company focused mainly on alteration and addition (A&A) related projects rather than major construction projects because this required less machinery and equipment, and start-up costs were lower. Its main focus then was mainly on management coordination. The company has since become a leader in the field.

Mr Lee said he remembered that the company stuck to a more conservative approach during the property market boom in 2005 and 2006. The company ruled out participation in two kinds of projects: long-term projects and projects which required large amounts of raw materials.

He pointed out that projects lasting for two to three years normally bring higher risks. The company prefers projects that take less than 12 months to complete. Expand Construction's decision to avoid projects that require large amounts of raw materials seems to be vindicated now following the surge in the prices of raw materials caused partially by the land sand export ban imposed by Indonesia.

Had the company won a project based on the material prices at the time, the subsequent surge in prices would have certainly affected its profitability.

In fact, material prices continued to increase to unprecedented levels last year. Lee believes that these prices will not remain high for too long and will come down sooner or later. In addition, more new suppliers in the industry has also led to an increase in supply. This has led him to conclude that prices have already hit a ceiling despite market forecasts that they will continue to rise.

Therefore, Expand Construction has been actively engaged in bidding for government contracts. It obtained contracts worth a total of approximately $200 million in the second half of last year. Fortunately, the major players were busy directing their attention at other new projects at the time, thereby resulting in less intense competition.

The company's profit has since increased following a fall in material prices. It is now able to invest more funds to attract talents, boost management capabilities and product quality as well as to expand its investment portfolio.

Expand Construction obtained its A2 construction contractor rating last year, which allows it to compete for projects worth as much as $105 million compared to $500,000 when company first started operation. The company predicts that it will get upgraded to A1 rating next year, which will remove the ceiling on the scale of the projects it is allowed to compete for.

Expand Construction is ranked in the top 60 among the more than 3,000 construction companies in Singapore. It saw a total revenue of $45 million last year and expects this to increase to between $70 million to $80 million this year.

Apart from Expand Construction, Lee also heads nine other companies under the Expand Group, which includes Evergreen Consumers (the first company he established), Evergreen Engineering & Construction which specialises in mechanical and electrical engineering, as well as Voda Land which focuses on real estate development.

Mr Lee, 39, graduated from the School of Civil and Environmental Engineering at Nanyang Technological University (NTU). Upon graduation, he first joined the Housing and Development Board (HDB) for three years. After that, he decided to team up with his elder brother to establish their own business. In 1998, they started Evergreen Consumers, a company which manufactured nameplates and directory boards.

Mr Lee said, 'The business was quite small. Our products were selling at $2 to $3 per piece, which means every order only brought in around $150 to $200. We did everything ourselves - product design, manufacturing, marketing and even delivery. Our annual revenue was $150,000 back then.'

Although his academic background was unrelated to the industry, Mr Lee was able to gain a foothold in the industry due to the low costs required.

However, after more than a year, Mr Lee came to realise the industry's limitations; the industry only had small and medium enterprises. That was when he turned his attention towards something he had familiarity with - the construction industry. Consequently, Expand Construction was formed in 2000.

Since then, Mr Lee has involved himself in various other industries, including property development and share investment. By diversifying his business operations, he hopes to mitigate losses of particular operations with better results from others.

The company launched its property development business in 2006. It managed to sell all of its properties in 2007. That was when the industry peaked, and the company saw impressive returns.

Mr Lee said, 'Between 2007 and 2008, a lot of people had advised me to keep expanding my business. I opted for a more conservative approach and I was selling instead of buying. Judging from the current economic situation, it appears that I'd made the right decision. Property prices have been falling since then. I think it's now time to re-enter the market and expand our business in this area once again.'

During the a property lull, the group managed to purchase the Ever Expand Building for $3.65 million. The building's value has since grown to between $17 million and $19 million. The group is renting out part of the building and the rent alone is sufficient to cover the group's basic investment costs.

Two years ago, Expand Construction also took over the Catalist-listed company NH Ceramics. Mr Lee became NH Ceramics's executive chairman. He said the company was suffering an annual loss of $5 million when the acquisition took place. The company recently released its first-half performance results, showing a profit of $1.9 million.

Currently, around three companies out of the ten in the group meet the criteria for a public listing. However, at this juncture, public listing is not part of Lee's plans. The company has a healthy turnover and does not require any additional capital. The company also hopes to maintain the capacity to respond quickly to changes in the market if necessary.

Sometimes, listed companies will make short term decisions to create a more impressive quarterly performance, said Lee. He believed that small and medium enterprises need to maintain a long term vision and to operate on more far-sighted strategies. Only companies that prepare themselves can hope to turn crises into opportunities.

For now, attracting talent remains the company's biggest challenge. All of the group's operations are currently based in Singapore. Mr Lee hopes to expand overseas, a plan which will require suitable talent in order to succeed.

Mr Lee predicts that the annual revenue of the group will see a rise from last year's $100 million to this year's $150 million to $200 million. As the group's profitability rises, it is now able to invest more on talent. Mr Lee stressed the importance of managing talent well and said SMEs must invest in talent.

More talents needed to expand overseas business operations

The group is now looking forward to attracting more talents to the company in order to expand its business operations overseas. Talent is crucial for a company to bring its business to a higher level, said Mr Lee. SME should not hesitate in investing to attract the right talent.

Mr Lee stated that his group is better positioned in this respect as compared to the past. As the group's projects are more profitable, it is now able to allocate sufficient resources to attract talent.

According to Tan Siew Meng, Head of Commercial Banking at HSBC, the results of a recent SME development survey sponsored by HSBC shows that manpower problems are the third biggest factor hindering their growth.

She pointed out that the economic downturn has given smaller companies an advantage in attracting talent, as larger companies are retrenching and downsizing, forcing many experienced and capable professionals to seek new job opportunities. Expand Construction will have no problems attracting suitable talent to expand its business.