International facilities management opportunities
Copyright: David Lawson/Financial Times 1996
It had been a tough trip. Five countries in as many days and little to show for it other than a black eye and several dog-eared phrase books. 'A guy in Hungary thought I was trying to steal his cleaning contract,' said the battered traveller, begging to remain anonymous after blaming his bruises on a night on the town to jealous colleagues. 'Apparently, his family has lived off it for three generations.'
The potential for misunderstanding is not usually so violent when facilities managers go touting their wares outside traditional markets. But it can be frustrating. 'They don't even have equivalent terms in other languages,' added this novice salesman. That is not surprising, considering how new the concept still is in most countries. Yet that lack of development is the very factor enticing FM specialists into the wider world. As growth slows from more than 30 per cent a year to nearer 20 per cent in mature markets like the UK, Netherlands and US, these suppliers are drawing up game plans for international expansion.
The 12 EU members, for instance, could share an FM market worth some 1,300 billion dollars by the end of the decade, according to estimates by Johnson Controls. Such fantastic figures raise eyebrows among even the most optimistic analysts, who point out that this includes work that will never be out-sourced as well as IT spending. But they agree that the potential is enormous if other nations follow patterns set in the UK and US.
Pitfalls are also legion. Black eyes may be rare but more experienced operators recognise that battling to supplant entrenched suppliers can be figuratively bruising. So they are aiming to export higher-level strategic skills, structured to work through local outlets. The most promising markets are among multi-nationals which seek continental, or even global standards. 'They are no longer seeing the world according to offices or even countries,' says Oliver Jones, managing director of Facilities management for Symonds. 'Today we are looking at time zones such as the Americas, EMEA (Europe, Middle East, Africa) and the Pacific Rim.'
IBM, for instance, tendered out all 8.8m sq ft of its office, manufacturing and storage facilities across 13 countries. Not surprisingly, this was won by Johnson Controls, which already handled the estate in the US, Netherlands and UK. These cover maintenance, cleaning, reprographics, mail room, reception, grounds, engineering and capital projects. A crucial part of the deal is that more than 150 staff will transfer from IBM to Johnson and day-to-day management will be done locally.
But Richard Zipeure, business development director of Johnson Controls Europe, feels this may not be a portent for large groups opening up frontiers. 'Within other multi-nationals there is not such an autonomy,' he says. 'That is why success is dependent on a robust spread of clients.'
The Hungarian encountered by our novice traveller was certainly robust - showing another layer of problems with any business trying to penetrate new markets. Even when control remains local, switching to another source can disrupt managers who have built client relationships.
'Then there are all the other hurdles such as language, contract structure, skills and culture,' says David Miller, managing director of consultants FM2. 'In Germany, for instance, only 10 per cent of catering is out-sourced, the exact opposite of the US.'
On the other hand, mainland Europe and parts of South-east Asia share common factors which could drive the market forward. Cost reduction is paramount in the battle for international efficiency. So is the advance of regulations covering health and safety, and the need for specialists to handle more complex buildings. Some governments are also following the UK lead to privatise services feather-bedded for decades.
Lack of progress is partly because most countries have not yet encountered the driving forces of multi-nationals, global performance benchmarking and the persuasive powers of FM consultants. After all, the UK has only recently realised that the battery of none-core services businesses have handled themselves for centuries can be farmed out in a comprehensive fashion to specialists.
The most promising targets picked out by Johnson Controls in its European study reflect the scale and growth of economies. The lion's share of projected growth in out-sourced facilities across the EU from 260 billion dollars to almost 400 billion billions will be in Germany. This dwarfs the rest of Europe, with growth of 156 billion dollars - the total shared equally between the UK, Italy and France put together.
Then there are the tiger economies of South-east Asia, and waiting beyond them the immeasurable potential of mainland China. The tidal wave of development, particularly mixed-use developments, is providing a fertile hunting ground for FM specialists offering strategic management skills honed in northern Europe and the US.
Most of the top consultants have already merged into international groups or already have global business contacts. Organisations which do not have an existing overseas infrastructure will find the going tough, says Robert Sharp, new managing director of Drake & Scull Technical Services. The group has already begun building on its experience with contracts to manage facilities at Macau Airport and the Armed Forces Officers Club in Abu Dhabi.
US-based Johnson Controls acquired Procord, a management buyout from IBM, to gain a UK foothold. It could move in a similar direction in the Nordic countries after taking over the Stockholm-based company PRN, which had provided IBM's services. FM2, was acquired by Honeywell for the same reason, linking international financial muscle with management expertise.
Symonds reversed this transAtlantic flow by setting up Affiliated Building Services in the US, the home of these international giants, and promptly snapped up the first contract in a phased programme of outsourcing by Nynex. But the UK manager has also felt the need for deeper pockets and wider contacts elsewhere in the world, and is now a subsidiary of Compagnie Generale des Eaux. It has used these to expand in the Asia/Pacific region by acquiring transport consultant Hendersons. A Symonds business has also opened in Australia. This will also aim to tap the immature FM markets across South-east Asia.
These international groups seem likely winners in the increasingly global battle for markets. Novices struggling to protect themselves against irate Hungarian cleaners might be better off sticking to a language they know.