Abstract
This paper reviews the
growth and development of
Facility Management in China.
By adopting an observational
approach the paper identifies
core levels of service provision
offered within the China
facility management market,
i.e., single services, packaged
services, management contracting,
managing agents through
and total facility management
contracts. The paper concludes
by reflecting on those factors
likely to influence the
growth and opportunity of
facility management within
mainland China.
Key words: Facility Management,
Hong Kong, China
Introduction
The Peoples Republic of
China (PRC) is geographically
the world’s third
largest country and the
largest by population. China’s
population in 2004 was 1,298
million. By the year 2010
the population is forecast
to be 1,371 million. Approximately
25% of the population is
aged 14 or younger; 68%
are between 15 and 65; and
7% are 65 or older. China
is currently changing from
a command economy to a market-based
one and from a rural (60%),
agricultural society to
an industrial, urban (40%)
one. At the moment China
is the fastest growing economy
in the world. Official statistics
indicate that per capita
GDP grew by approximately
8 per cent a year (in real
terms) for the last twenty-five
years. However, GDP growth
tends to be higher along
China’s eastern coast,
in the south and within
China’s Special Economic
Zones. For example, GDP
growth in 2002 in Beijing
was 10%; Shanghai 11%; Xian
13%; Shenzen; 15%; and Dongguan
18%, (DTZ, 2003).
The World Bank reported
that China’s economic
growth has been driven by
four factors (World Bank,
1997):
-
A high
savings rate, which has
supported vigorous rates
of investment and capital
accumulation.
-
Structural
change, which has been
both a cause and an effect
for growth, e.g. the shift
in agriculture’s
share of GDP from 71 per
cent in 1978 to about
50 per cent in 1995. [Agriculture’s
share of GDP had dropped
to 15% by 2002.]
-
Pragmatic
and incremental reforms
resulting in a move from
a planned economy in 1978
to post-1993 a “socialist
market economy with Chinese
characteristics”.
-
Economic
conditions, e.g. the “advantages
of backwardness”
whereby poor countries
grow more quickly than
rich ones.
China’s joining the
World Trade Organization
(WTO) in 2001 also helped
to speed up the alignment
of China's domestic market
with the international market.
This is evidenced in a recent
Chinese government report
stating that foreign direct
investment (FDI) reached
record levels in search
of lower labor and production
costs as well as access
to the world’s largest
single domestic market.
In 2004, China attracted
FDI of more than US$60.6
billion, up 13 per cent
from the previous year.
The big push to set up operations
in China is prompted by
a number of factors, including
– low wages, large
talent pool, large domestic
demand, proximity to manufacturing,
ties to the rest of Asia,
good (and improving) infrastructure,
Government incentives and
breaking down of trade barriers.
Industries are also moving
to China in large numbers
driven by internal consumer
demand. Research on 225
companies that have recently
set up in China shows that
telecom is the number one
industry (19% of all firms),
followed by electronics
(12%), hardware peripherals
and software (10%) and business
process outsourcing (9%),
White 2005.
FM in China
Given the pace of development
in China and the amount
of direct foreign investment
how significant is Facility
Management (FM) in China?
Anecdotal evidence would
indicate that China currently
lags behind Europe and the
USA both in impact and import.
For example, in China the
term Facility Management,
when translated into Chinese
- ???? - typically includes
the characters for Property
Management. Hence, the two
terms are frequently used
as synonyms. Property management
in China has traditionally
related to the timely collection
of rents and an ability
to minimize tenant complaints.
Service provision has been
normally restricted to the
common areas of a building
- lift lobbies and vestibules,
the building fabric as well
as common services such
as HVACR, cleaning and security.
The management of the tenant
space rarely occurs, and
the idea of managing the
property for the benefit
of tenants is consequently
lacking. This attitude leads
building owners to be unwilling
to invest in new services
and equipment that they
perceive as only benefiting
the tenant. However, this
historical view is slowly
changing. For example, recently
a number of Hong Kong based
facility management firms
have successfully set up
joint venture teams to provide
FM services in China. Focusing
mainly on foreign investments,
these companies offer a
comprehensive range of services,
Table 1.
Table 1: Comprehensive
range of Facility Management
services offered in China
| Defects
liability management |
Space
management &
utilization |
| Project
management for
interior alteration
and renovation |
Building maintenance
(preventative
& corrective) |
| Clean
room management |
24
x 7 hekp desk |
| Contract
management services
for E&M equipment |
Janitorial
& cleaning
services |
| Landscaping
& gardening
services |
Reception
service |
| Risk
management |
Mailroom
management |
| Financial
management |
|
|
Most Hong Kong facility
management companies operating
in China work in a limited
number of China’s
major cities, e.g. Beijing,
Shanghai, Guangzhou and
Shenzen. However, at least
one firm has developed a
wide network of clients
and geographical spread,
Figure 1, targeting China’s
second tier cities. The
company currently manages
over 300 properties under
management in 46 cities,
covering 250 million square
feet with turnover in excess
of RMB40m (~US$5m), (Fong,
2003).
Figure 1: China Coverage
for DTZ
FM companies
operating in China recognize
that a demanding global
business community not only
wants but also needs the
kind of customer service
provision found in the West.
For without this, owners
run the risk of losing tenants
in an ever growing competitive
market place, and tenants
risk losing business if
the daily functioning of
their office and commercial
space does not match demands
for a more effective (and
responsive) workplace. These
are not always forthcoming
although the top end of
the market is responsive
to customer needs. Nevertheless,
the adoption of a more mature
facility management perspective
among China’s emerging
property managers bodes
well for the future. Recent
evidence would also indicate
that major Chinese companies
demand similar facility
management services to their
international counterparts.
One experienced facility
management professional
recently stated that service
teams in China tend to be
manned by younger and more
energetic staff when compared
to Hong Kong. They also
tended to lack experience
and knowledge of international
standards. This is a problem
where little training material
has, to date, been translated
into Chinese. International
companies and Chinese firms
that aspire to be recognized
as international leaders,
however demand quality services
and these tend to be provided,
initially at least, by non-local
vendors working in partnership
with joint venture property
managers. Unfortunately,
short contract terms - typically
two to three years –
has encouraged some clients
/ property owners to exclude
the Hong Kong based FM contractor
at contract renewal, awarding
on the second contract the
work to the joint venture
partner.
Facility Management
in Hong Kong
The development of facility
management in Mainland China
may be contrasted with that
of Hong Kong where many
experienced FM professionals
now work within the city.
For example, the local Chapter
of the International Facility
Management Association (IFMA)
has ~200 members, the largest
Chapter membership outside
of North America. Approximately
25% of the Hong Kong IFMA
Chapter members are designated
as “Certified Facility
Managers”, the highest
proportion of all IFMA Chapters.
The Hong Kong Institute
of Facilities Managers (HKIFM)
has over 300 members and
BIFM 30 plus.
The practice of FM in Hong
Kong is beginning to emerge
from a culture of contracting
out (outsourcing) work packages
/ individual service providers
to one of bundling inter-related
components. These are:
Hong Kong’s
FM market is less mature
when compared to either
the UK or North America.
It also retains a property
management bias. For example,
the Chinese name for Eastpoint
- one of Hong Kong’s
major FM companies - is
Ji Bon. This translates
as “setting up / managing
property”. However,
the FM market is maturing,
with a significant number
of managing agent contracts
currently in operation as
well as a small number of
Total FM contracts.
FM companies operating
in Hong Kong may be classified,
Figure 2:
-
Single
Services: Those companies
concerned with single
service contracting, concentrate
on the delivery of one
particular service type
such as cleaning, building
maintenance or lifts for
example.
-
Packaged
Services: When companies
draw together a variety
of types of service to
provide a range of service
delivery this is called
a packaged service, or
multiple services. For
example, a security company
may offer manned guarding,
burglar alarm maintenance
and electronic entry systems.
-
Management
Contracting: Management
contracting companies
will provide a balance
of both delivery and management
and tend to focus on a
small number of service
types. In these cases,
client organizations tend
to deal with a number
of management contractors
and retain overall managerial
control.
-
Managing
Agents: Management Agents
provide a management-only
service for their clients.
Where a management agent
is appointed by a client,
they tend to contract
directly with those companies
delivering facilities.
-
Total
Facilities Management:
Total Facilities Management
(TFM) companies manage
and deliver a wide range
of services either directly
or by sub-contract. They
offer their clients a
comprehensive service
with their primary emphasis
being their management
ability. In such cases
the client relinquishes
the hands-on management
of facilities.
-
Infrastructure
FM: Infrastructure FM
companies are a relatively
recent development in
the FM marketplace. Such
companies are prepared
to offer a ‘one-stop-shop’
for all client needs,
including non- core service
areas such as finance,
human resources, project
management and property
management in addition
to more traditional FM
support services.
Figure 2: Categories of
Facilities Management
Company
Hong Kong’s
facility management industry
has emerged quickly during
the last five years with an
estimated US$5 billion turnover,
(SMCP, 2003). A recent study
by the HKIFM (2003) estimated
that the residential sector
to be worth 50% of the market,
followed by commercial properties
accounting for 21% and offices
at 16%. That the residential
sector should dominate the
current market is perhaps
a reflection of its immaturity,
where the sector is dominated
by traditional property management
issues. It is also linked
to the Hong Kong Government’s
drive to outsource public
sector housing estate management.
The Hong Kong Housing Authority
(HA) has typically built in
excess of 50,000 flats / apartments
per annum. These are either
let or sold to the public.
To date the HA has built and
manages 651,900 rental housing
units and built and sold 399,100
housing units under the Home
Ownership Scheme. It has also
developed 2.34 million square
foot of commercial / factory
property and currently owns
and manages 100,000 car parking
spaces.
Traditionally,
the management of HA property
was undertaken in house. A
policy change in the mid-90s
dictated that new estates
would be managed by the private
sector. Later this was extended,
on an incremental basis, to
all existing estates. Known
as the ‘phased service
transfer programme’,
an initiative to increase
private sector involvement
in HA estate and maintenance
management, a total of 322,000
housing units have been outsourced
(in terms of estate property
management) to the private
sector by the end of 2003,
(HA, 2003). Private sector
involvement relates primarily
to cleaning, security, rent
collection, minor repairs,
maintenance and improvements
work as well as tenant advisory
services. A significant number
of contracts have been awarded
to either Hong Kong based
property management companies
or start up firms manned by
ex-HA employees. The HA has
adopted a two envelop system
for contractor selection.
This ensures that the technical
and service capability of
the contractor meets minimum
requirements before the tender
(bid) figure is appraised.
The HA retains an ‘intelligent
client’ role to monitor
and supervise the contract.
Generally the transfer of
HA estate management has worked
well although the tenant advisory
service is frequently cited
as being problematic.
Within the
commercial sector Hong Kong’s
FM industry is dominated by
property management functions.
For example, it has been estimated
that operations and maintenance
accounts for ~45% of operational
budgets, security 30% and
cleaning 20%, (SCMP 2003).
The sector also tends to provide
facility management services
to linked organizations, i.e.
the holding group, often a
developer, hires internally
a property / facility management
company from within its own
stable of companies. This
is not to say that no independent
FM companies exist. They do
and would appear to be prospering
although “contracts
are issued on a piecemeal
basis, by clients who are
unsure of the ability of the
market to service requests
and who break up potentially
viable contracts into unviable
localized instructions”,
(Eddleston, 2003). Facility
management service companies
operating in Hong Kong are
currently under extreme pressure
to cut costs. This has been
initially achieved by outsourcing
manpower intensive activities
such as cleaning and security.
Downward pressure on salaries
in these two areas has been
high, with labour rates dropping
by ~50% in the last two to
thee years. Smaller FM budgets
have also impacted maintenance
costs, with specialist sub-contractors
also under pressure to reduce
their labour rates. Deferred
maintenance programmes also
tend to be extended although
it has been noticeable that
some commercial / office owners
have seized the opportunity
that Hong Kong’s current
downturn in the leasing market
to increase the level of maintenance
and number of renovation projects.
Drivers
for Change
Hong Kong’s
facility management service
sector is changing. Their
client’s are now beginning
to seek companies that can
go beyond single source suppliers,
resulting in a bundling of
non-core activities. Increasingly,
market forces are also taking
this business trend further
by creating partnership agreements
and in some cases strategic
alliances. This is particularly
evident in the financial services
sector where the majority
of international banks have
completely outsourced their
FM functions. Hong Kong companies
are also beginning to downsize
space and adopt alternative
workplace strategies through
IT. Developments in software
are driving this process as
more and more companies apply
Computer Maintenance Management
Systems (CMMS) in the workplace.
These changes may be summarized,
(Brookhouse, 2000):
-
CMMS
tools will increasingly
be adopted by organizations.
These help to produce
accurate inventories,
track direct costs, schedule
maintenance and record
the daily operation of
the premises.
-
Greater
awareness of the cost
of using space and the
adoption of accurate charge
back procedures.
-
Changes
in workplace practices
as we move away from the
use of space based on
hierarchy to one of need.
-
Adoption
of “flexible working”
– time flexible,
place flexible, location
variable - and an increasing
acceptance of the blurring
between “home”
and the “office”.
This will impact investment
decisions between physical
space and cyber space.
-
The
move from permanent staff
to more contract workers.
This is currently driven
by employers seeking to
minimize their future
commitments. Increasingly
employees will drive this
as they seek out more
flexible work opportunities.
-
A reduction
in “the cultural
affinity to property”
as firms recognize that
capital appreciation is
a poor substitute for
direct investment in the
firm’s core business.
-
The
continuing recognition
that “people [are]
the ultimate scarce resource”,
rather than land. This
will influence the way
organizations procure,
locate, design and manage
new buildings.
-
The
facility manager will
act as the catalyst for
change within the organization
on issues related to the
environment and in particular
sustainability.
-
A
growing awareness that
“cultural identity”
influences the practice
of FM. This is an important
issue as major corporations
seek out global partnerships
and common work practices.
The practice
of facility management continues
to evolve and develop in China
and Hong Kong. Globally, it
is driven by changes in the
workplace, by employee / employer
relations – from jobs
for life to contract employment,
by IT with its constant stream
of surprises (not all of whom
are welcome) and by uncertainty.
This last point is crucial.
Hitherto many successful organizations
based a part of their success
on being risk averse, unwilling
(or emotionally unable) to
take a gamble. Success and
continuity came through being
predictable, reliable and
perhaps dull. Today’s
employees, especially those
under 35, show less loyalty,
emphasize personal freedom
and control, demand premium
facilities, including IT,
and expect flexible work schedules.
References
Brookhouse,
S (2000) Managing design after
“the death of distance,
Facilities, Volume 18, number
3 / 4, pp172.
China Economic
Net:
http://en.ce.cn/Business/Macro-economic/200505/12/t20050512_3817950.shtml
Eddleston,
S. (2003) FM Outsourcing:
The Asian Experience, proceedings
of IFMA World Workplace Asia
Conference, Yokohama Japan,
2003
Fong, Alice
(2003) FM in China: Perspective
from Service Provider, graduate
lecture to the Hong Kong Polytechnic
University
HA (2003),
Housing Authority Annual Report
2002/3, http://www.housingauthority.gov.hk/en
HKIFM (2003), http://www.hkifm.org.hk/
White, R
(2005) China’s Place
in Off-shoring, proceedings
of CoreNet Global Asia Summit,
March 21 – 23
World Bank
(1997) China 2020: Development
Challenges in the New Century,
The World Bank, September,
Washington D.C., pp 1-15.
John
D. Gilleard, PhD
The Hong Kong Polytechnic
University
email: bejohn@polyu.edu.hk |
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