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Diagnosis of the Ability of Value Innovation and Its stochastic temptation: Evidenced from China Construction Industry

Xian University of Architecture &Technology Xian, P.R. China zhangjingxiao2004@hotmail.com Xian University of Architecture &Technology Xian, P.R. China xjdjwx@yahoo.com.cn Xian University of Architecture &Technology Xian, P.R. China Lihui9922@126.com

AbstractDuring the transform periods of China construction industry, the government mainly regulates and integrates the home construction market via the control of enterprises quality. However, there are a few good effects for the added value and the continual growth of construction companies in the international construction market, especially the being double dilemma of the building industry in China construction industry, so, it is necessary to rebuild and re-categorize the market to realize the growth value based on the new concept of value innovation of construction products. In view of the relative literatures, we find that researchers focus on the temptation of other fields non on construction project, further China construction industry. Standing on the concept, this study has briefly described the transform from traditional market to the niche market, developed the Temptation of Institution Economic into construction project and constructed the Stochastic Temptation model of project to value innovation for construction companies. Through the diagnosis of Stochastic Temptation model of project, the relative risk range and the minimum stochastic risk have been identified. The study show that this model could make construction enterprises revolving in the construction projects pursuing the value innovation, sensibly avoid the stochastic temptation and maximize the limited resource investment of project to acquire the best benefits. Form the characteristic of quality government of China construction industry, this study make General Contract, Special Subcontract and Labor service as three disjoint sets, and based on this idea, the market contain curve of value innovation for China Construction Enterprises also has been built. The quantification of market contain curve has been confirmed as a three cubed curve, and the corresponding curve of value innovation also has been approved, which is showed that its movement are the converse double wave crests. Finally, this study provides mathematical forms to calculate the corresponding market contain capability and the ability of value innovation for China construction enterprises. It is further showed that under the current reform background and quality government of China construction industry, these models could take on the load of forewarning diagnosis of the contain capability and its value innovation for China construction market. Keywords-China construction industry; Forewarning; Temptation; Value innovation Diagnosis model;

I.

INTRODUCTION

Value innovation of construction enterprises have been defined that construction enterprises recombine or rebuilt the core and relative factors of construction products to realize the created new value or the transfer value from the inner or outer of China construction industry by means of a mode of production.[1] Generally speaking, the identification of value refers to the following three kinds [2]: first, it refers to the belonging, ability, regulation and configuration of the world, which is objective matter and follows the law of unity of opposites dealing with the relationships with other configurations. Second, value is a reflection of social necessary labor in the article; especially in the economics, it refers to undifferentiated human labor condensed on the article. Third, it refers to the important positive function, from the theory of modern ecological perspective, which is good to human being and can not be measured with general value and price in the market, such as air, ocean and green vegetation. Based on the three kinds of value and the definition of value innovation, the realized value in the value innovation of China construction enterprises mainly refers to commerce value, nature value and social value. Currently, the increasing growth of China construction industry and the unfavorable pose of China construction companies, especially the double dilemma of the major building enterprises, force the construction enterprises to enrich its business and jump out of the pernicious competition in the similar market by the practice of value innovation, which also reflects the request of construction companies to re-identify the market position during the process of practicing the goals. Obviously, these requests drive the value innovation of China construction enterprises, particular that construction companies revolving in construction project as the unit run the business, and this feature makes construction enterprises pay attention to the stochastic risks of project market, which also brings about the business value and social value. How to measure the stochastic risk of project reflecting the request of market position for China construction enterprises is just one task of this study. On the other hand, China construction industry regulates the enterprises structure mainly by the quality management, while in the real practice, this reform is struggling for the ideal object on the path bristled with thorns. This tells us that the request of market position must integrate the regulation of industrial structure to define, practice and realize the market goal. In other words, the market contain capability of value innovation and its direction for construction enterprises will be another corresponding unavoidable major problem under current construction enterprises structure. So, how to sensibly construct and explain the Market contain curve of value innovation for China Construction Enterprises and Value innovation Curve of China Construction Enterprises is another focus in the following research. According to predecessor hypothesis in the relative research[1,3,4],

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construction enterprises are continually ascribed as the personified economical individuals; risk is benefit and it attracts the temptation companies with greed and wants, so, the demand of the market positions for construction enterprises in the current construction market facing the stochastic risks, could be deemed as the pursuit of stochastic temptations, while the process of quantifying the stochastic temptations, the market contain capability of value innovation and its direction is the diagnosis procedure for China construction industry.

condition for value innovation of construction enterprises should be expressed as (3): (1 From (3), we

pr )( w0 + b) + w1 pr Dpr w0
can get the form

(3). (4):

b(

1 1) ( w0 w1 ) + D pr

(4), which is similar to the

II.

LITERATURE RETORSPECTS

literature [17], so, it is also called the stochastic temptation of projects for value innovation of construction enterprises. Under this condition, there are three situations: fist, the percentage of stochastic risk is 100, i.e. pr = 1 , then (4) should be changed as (5): ( w1 w0 ) D (5). The form (5) tells us that the risk of value innovation of construction enterprises will be serious, particularly in the project market M 1 . Herein, the 100 percent risk is just a logical integrity illustration. Obviously, no construction enterprises will play in the market full of explosive mines without any benefits, except the martyrs. Second, there is no stochastic risk in the market, i.e.

The desire and demand of organizations innovation is only effectively stimulated and the motivation of enterprises will be aroused, XIAO D S has discussed five aspects about the obstacle temptations in the organizations innovation. [5] As another organization form, enterprises cluster also face kinds of risks and temptations, coming from political, finance, market, the running of cluster and so on, and at the different period, the influence degree and the value of risks are changed. [6] Generally Speaking, the process of innovation for enterprises organization has been affected by the inner and the outer temptations, WANG Z N and WU Y Y [7] have provided three-dimension method with the vague math to construct the forewarning model. However, this study stand on the construction project, analysis the limited resource investment with index function, based on the temptation model of Institution Economics to develop the stochastic temptation model of projects; so we can say that no matter the methodology or the research content, it is different from the existing. Note, this study regards the construction enterprise as renting-seeker, which is going to pursuit the value innovation not the so called political rent [9] or the rent between the owner and contractor in the construction market [10].

pr is not suitable to the form (4) and (6) is directly got from (3): b 0 (6). This form tells us that once there are benefits in the project market M 1 , value innovation of
Under this condition, construction enterprises should be taken. However, no risk market is just an idea condition, so the range of stochastic risk the zero probability, i.e. get (8): p r

pr = 0 .

Pr

should reject

pr

(7). Then from (4), we can (8).

b ( w 0 w1 ) + b + D

3.2 Diagnosis model of stochastic temptation of projects


Under the form (7) and (8), suppose that construction

III. STOCHASTIC TEMPTATIONS OF PROJECTS FOR CONSTRUCTION ENTERPRISES VALUE INNOVATION 3.1 Identification of the minimum stochastic temptation
In this part, we will introduce the temptation model of institution economics [11] into construction projects and develop it to identify the minimum stochastic temptation. During the process of construction services, one construction enterprise Ei ( 1 i n ) exploring M 0 project market gets the common benefit w . Now, it turns to one of high interests EPC projects, acquires the added benefit b , which is also the new market position M 1 and the corresponding stochastic risk is expressed as pr ( 0 pr 1 , 1 r n ), then, the necessary and sufficient condition for the construction enterprises to

enterprise Ei plan to run innovation

i {1, 2,

N project market, and the sector of value Mi for construction enterprises is N } .The total resource investment cost Z will be

used for the new market position, in order to be universal in the diagnosis process, so the detection of diagnosis function uses the index form b(i, z ) :

b(i, z ) = 1 e az
investment cost

i {1, 2,

N}

9 . decides the resource

Diagnosis of the benefits in the new market

Mi

Zi

of the new market M i , while the Diagnosis of

the benefits dependents on the stochastic risks

Pri

exploring this

M 1 project market is showed by (1); (1 pr )( w + b) w (1). At the same time, further suppose that the benefit of project market M 1 is w0 , and the loss in the situation of pr is w1 . Under this situation, the necessary and sufficient
explore the condition should be changed as (2):

market. So, it is true that there is a close relationship between

Z and

Pri

as well as the temptation function of value innovation. In other

words, the diagnosis of value innovation for construction enterprise could be turned into the following question that how to sensibly distribute

with

b(i, z )

under P . Using the Lagrange ri

(1 pr )( w0 + b) + pr w1 w0 (2). If construction enterprises have failed in this project market, the companys performance will suffer a disadvantage. Herein, the loss of finance, human resource and social resource brought by the butterfly effects of performances defeat is called the loss of intangible performance, expressed as D , which will be explained in the following research. When we consider the loss of intangible performance, then, the necessary and sufficient

multifactor methods to solve this problem, and let the multifactor and Lagrange function

F (i, , Z )

to construct the Lagrange form as (10): (10), (11),


az

F (i , , Z ) = pri b(i , Z ) Z
=

pri (1 e

) Z

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So

dF ( i , , Z ) dZ

= ap ri e

az

(12),

IV.

dF ( i , , Z ) Let = ap ri e a z = 0 (13), solving (13), we can dZ get (14): 1 a p ri (14), Z = ln


i

DIAGNOSIS OF MARKET CONTAIN CAPABILITY & DIRECTION OF VALUE INNOVATION FOR CONSTRUCTION ENTERPRISES

From the relationships between the total resource investment

Z and possible every project resource investment Z i , (15) ~ (18) is


got:
N

Z
i=1

N i=1

1 ap ln a

(15),
ri

1 a N [ p r1 p r 2 ln a N

p rN ]

Z (16),

a N [ pr1 pr 2 e aZ

prN ]

N
1

(17),

Whether construction enterprises successfully diagnosis that it satisfies the necessary and sufficient conditions of value innovation or not, not only dependents on checking the stochastic risks of project markets but rely on the judgments, sense and willing and so on to construct the market positions of companies. Currently, it is true that from the relative compare perspective, there are a few super general contractor and it leads to the corresponding project market is almost bare; however, the path to this market is made by golden. Specify subcontractors hustle in the similar market positions, leads to the fearful competition and little benefits; at the same time, the labor service companies have not transform from the traditional labor to high tech and capital, limited in the narrow market and being in a paradox dilemma. According to the features of current government of China construction industry, let the number of construction enterprises Ec and the production value MV of the corresponding legal market deem as a point ( Ecx , Mv y ) in the reference frame. So, three qualify hierarchies of China construction industry is regard as three disjoint sets as follows: general contractor ( Ecx1 , Mv y ) , specify
1

when multifactor equals to the minimum value, i.e.


1

a[ pr1 pr 2 eaZ / N

prN ] N (18),

a[ p r 1 p r 2 e

aZ

prN ] N

then, (14) reaches the max

and construction ( Ecx 2 , Mv y 2 ) service ( Ecx 3 , Mv y 3 ) . It is showed in the figure 1.

Subcontractor

labor

value Z i , and the function Z i could be expressed as (19):

Zi =

1 a

ln [ pr 1 pr 2

pri
1

Now, suppose that there is the function L( Ec, MV ) , L ( Ec, MV ) = f ( Ecx , Mv y ) , and three disjoint points match the operation of this function, i.e. (23):

prN ] N e

aZ / N

= ln pri

1 N

ln pr 1 pr 2

prN + (aZ / N ln a )

(19),

unquestionably, the form (19) just is the distribute model of total resource investment based on the stochastic temptation. It is true that the function

Z i get the max value (20): Z i = aZ / N ln a


= Pr N . The form (20) shows us that if the
f ( Ec x1 , Mv y 1 ) = 0 f ( Ec x 2 , Mv y 2 ) = 0 , f ( Ec x 3 , Mv y 3 ) = 0

(20), when Pr 1 = Pr 2 = stochastic risk distribution. Let

pri

in the project market is same to the other

Ec x1 Mv y1

Ec x 2 Mv y 2

Ec x 3 Mv y 3

(23).

N 1 market, the most effect distribute model should be average p ' ri


p ri =
'

is

another

relative

form

of

pri

and

pri pr 1 + p r 2 + + prN

If the activities of the added value in three enterprises sets belong to the co-current flow, and enterprises are homogeneous, let the ability of value innovation for construction enterprises could be expressed by VI , i.e.

(21),

so, the stochastic risks

pri

in the N project market also could be

dL( Ec, Mv) , dEc

VI =

dL( Ec, Mv) dEc

(24). The form (23) and

expressed as the equations (22): p ri p ' ri = + p rN p r1 + p r 2 +


N i =1

(24) could be transferred into Figure 1, which is the market contain curve of value innovation for China construction enterprises. In the fig. 1, the point o expresses the neck-down of value innovation for construction enterprises, i.e.

(22), and

under

the

p ri = 1
'

dL( Ec, Mv) |x = Eco = 0 dEc y = Mvo

(25).

p ' ri

1
'

condition (20), it is easy to find p ri equals to

1 . N

The form (27) proclaims that when the number of construction labor service companies is close a max value, the market competition and other factors will lead to the none benefit phenomena, i.e. the process of value innovation for construction enterprises will be in the dormant situation, waiting for waking up under the a series of government polices.

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The ability of value innovation for construction enterprises could be identified by the forms (25), (26), (27) and Fig.1, which is showed as figure 2. In the Fig.2, the horizontal axis represents the number of construction enterprises Ec ; the vertical axis represents the ability of construction enterprises value innovation VI , and there are three

VI

zero point: the

0 point, the Ec0 point and the Ecw point.

Obviously, the P point as well as P2 is the max value of VI , 1 identified by the L( Ec, MV ) function and VI . Directly observing Fig.2 shows us that the direction of

VI

are the converse double

wave crests, so, VI is the amplitude of the converse double wave, i.e. it reflects the swing degree as well as the difference between the strongest and the weakest ability of value innovation for construction enterprises. Let the first wave is VI 1 (0 Ec Eco ) and the second wave is

VI 2 ( Eco Ec Ecw )
3 2

, then the corresponding general


Ec Eco )

risk pri in the project market is the same to the other N 1 market, the most effect distribute model should be average distribution; if not same, it should be solved with the form (19). According to the features of current government of China construction industry, let the number of construction enterprises and the production value of the corresponding legal market deem as a point in the reference frame. This study make General Contract, Special Subcontract and Labor service as three disjoint sets, and based on this idea, the market contain curve of value innovation for China Construction Enterprises also has been built. The quantification of market contain curve has been confirmed as a three cubed curve, and the corresponding curve of value innovation also has been approved, which is showed that its movement are the converse double wave crests. Last, the mathematical forms to calculate the corresponding market contain capability and the ability of value innovation for China construction enterprises is provided, which is further showed that under the current reform background and quality government of China construction industry, these models could take on the load of forewarning diagnosis of the contain capability and its value innovation for China construction market. ACKNOWLEDGMENT Thanks for the National Social Science Fund (Grant No. 04XJY016), and professor Yi-fan Tangs kindness and help for the word deal. REFERENCES

functions L ( Ec, MV ) are listed as follows (28):


L1 ( Ec , MV ) = A1 Ec + B1 Ec + C1 Ec + D1 (0

(28).

3 2 L2 ( Ec , MV ) = A2 Ec + B2 Ec + C2 Ec + D2 ( Eco Ec Ec w )

The general equation of VI1 is listed as follows (29):

F ( Ec, VI1 ) = AEc 2 + BEc + C

F (0, 0) = 0 F ( Eco ,0) = 0 F ( Ec p1 ,VI p1 ) = VI p1


VI p1

(29).

Solving the form (29), we can get A =

Ec p1 ( Eco 1)

B=

EcoVI p1 Ec p1 ( Eco 1)

C = 0.

V.

DIAGNOSIS OF MARKET CONTAIN CAPABILITY & DIRECTION OF VALUE INNOVATION FOR CONSTRUCTION ENTERPRISES

By the description of transform from tradition project market to the niche market for the added value and transfer value of construction enterprises, this study construct the stochastic temptation model, which is greatly developed from the temptation model of Institution Economics and disclosures the inner mechanism of investment-to-output in the process of value innovation revolving the projects. The identification of the minimum stochastic risk, make construction enterprises revolving in the construction projects pursuing the value innovation, sensibly avoid the stochastic temptation and maximize the limited resource investment of project to acquire the best benefits. This model shows us that if the stochastic

ZHANG J X, JIN W X. Analysis of the Logical Starting Point of Value Innovation in China Construction Industry[J], Construction Economics (in Chinese), 2008(4):28-31. [2] http://baike.baidu.com/view/208414.htm. [3] ZHANG J X, Study on the model of value innovation in china construction industry PROCEEDINGS of 2007 INTERNATIONAL CONFERENCE ON CONSTRUCTION AND REAL ESTATE, Bristol, ENGLAND, AUG21-22,2007. [4] ZHANG J X, Jin W X, Li H. Value Innovation Circulation of China Construction Industry, The Seventh Wuhan international Conference on E-Business, Wuhan, China, May 31st June 1st, 2008. [5] XIAO D S, Analysis of the obstacle risks for enterprises organization innovation [J], Enterprise Vitality (in Chinese), 2002(1):14-15. [6] NI R, Discerning the temptation risks on the enterprises cluster [J], Productivity Research (in Chinese), 2005(6):212-214. [7] WANG Z N, WU Y Y, Crisis forewarning model of enterprises based on the inner temptations [J], Statistics & Decision (in Chinese), 2007(22):165-167. [8] BHAGWATI J N Directly unproductive profit-seeking(DUP)activities [J] Journal of Political Economy 1982(6) 90. [9] LUO W, WANG M J, Analysis of rent-seeking in China construction industry [J], Statistics and Decision (theoretical) (in Chinese), 2007(4): 49-51. [10] REN Z T, ZHANG S Y, Rentseeking analysis to employer and contractor [J], Journal of Hebei Institute of Architectural Science & Technology (in Chinese), Vol.21, No.1, 2OO4(3): 1-3. [11] ZHUANG X Y, Economic analysis of public management [M], Shanghai: Fudan University Press (in Chinese), 2005, pages 60-65

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