Past modes of behaviour probably will not carry you through the next decade. The questions are how do you think about the strategy for your business and how do you do that in a constructive way.

Looking at any industry, one comes across two basic questions that has to be answered if to develop an effective strategy. The first question has to do with what's going on in the industry itself. Industries differ dramatically in their profit potential and their profit potential changes over time. You have to understand this because there is something about the game that is going to determine how successful you are to be. There are some games that are good to play in and some that are not.

Real estate isn't just an industry. It's a whole sector of economy. It is composed of many distinct businesses, each of which is an industry. So developing shopping malls, putting up prime downtown commercial space, and even brokerage are all industries.

Each of these industries has a different economic logic. Each of them is different in terms of its fundamental attractiveness. One has to understand how attractive the industries are in which one is competing and how they are likely to change over time.

The second basic question in strategy has to do with one's position within the industry. No matter where you are operating, you are to decide exactly how your company is going to compete and how you are going to position your company to be a superior performer. No matter how attractive or unattractive an industry is, it may do a lot better than others, because it has found exactly the right position.

How can you understand your industry vis-a-vis the competitive environment, and how can you understand how to position your company within that environment?

Basically in any industry, there are four forces of competition. The first is rivalry amongst competitors. This takes many forms. One of which is the threat of substitute products or services. The second is the threat of new entrants. This is always a threat whenever there is something profitable going on. If they do enter, they are going to erode the profitability of that segment. The third and fourth forces are the bargaining power of the suppliers, from whom you are purchasing critical inputs, and the bargaining power of the buyer to whom you are trying to sell.

The development business is driving a lot of economics that is facing the other businesses within the real estate sector. In development, it's useful to think of two buyers: the tenant and the financial buyer.Often, the financial buyer is considered to be a supplier but I think it is more useful to see as a buyer.

Now what has been happening to the industry over the last decade? Entry barriers have been low and a lot of new competitors have come in. Some of that competition has come from financial buyers. These new competitors have gotten the capital to build a lot of new projects. This heightening of competition has combined with a slowing on the demand side to lead to overcapacity. But this overcapacity and the active competition have also triggered some shifts in the nature of competition.

We see all kinds of modifications in the nature of contracts, the structure of deals, and the way in which deals are cut. This is a reflection of the rising competition in the industry. People are agreeing to things that they never had to in the past. Part of the problem is that, historically, some of the financial buyers were not very sophisticated and they were willing to finance competitors that were doing dumb things. And this industry has a real dumb competitor problem. Not just because they do uneconomic projects that lead to overcapacity but also because they change practices. They change the rules and start doing things like development for a fee. No one used to do that before and it leads you down a line of competitive development that is not constructive.

This is bad enough but what is more disturbing is what has been happening on the buyer side. On the tenant side, we not only have fewer tenants but we also have fewer large tenants who can come in and essentially guarantee that your project is going to be successful. They have more clout and exercising that clout. They are cutting better deals and are bargaining away your profitability in the process. The brokers who are really in between you and the tenants have grown and consolidated. They have always been there but their role as a bargaining force against you has accentuated the structural problems.

Now let's talk about the segments in terms of property types and target customers. There are many different types of projects and many types of customers. In the retail side we have malls, strip centres, power strip centre, outlet centre. Each of them is a little different. Each of them has somewhat different tenants. On the commercial side there is downtown and suburban and prime and standard kinds. Now, the name of the game going forward is choice. But as we go forward you have to have true advantage to be an above average performer, and the companies in the industry that are going to make real money are those that bring something distinctive How can you tell what it is that you bring something distinctive to? Your existing portfolio has some powerful lessons in it about your real skills.

I think there are really two critical dimensions for success in real estate business. The first is finding the good deals. Finding those projects, those tenants, those locations that are going to be economically attractive. The second critical dimension is executing those deals well. Why do you find good deals? You find them because you have special insight into tenants in that particular area, because you have more than usual knowledge of a particular geographic region, because you understand that particular type of project better than others. Because you have superior market intelligence, you have superior economic intelligence. Why do you have superior economic intelligence or market intelligence? Because you have a strategy. Because you've done those types of projects before.

Why do you build a project well once you've found one? You build it well because you have the knowledge and resources and expertise that have grown out of experience of doing that kind of project. Even if you look at this as a deal-by-deal basis, the critical determinants of whether a deal is going to be profitable, whether you've found a good one in the first place, and whether you execute it, are very much driven by whether you have a strategy. Strategy means saying no or yes to certain kinds of things, certain kinds of deals certain types of tenants that you are not really interested in.

Ahmad Tawfeeq Husain is a civil engineer.