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NETWORKING EVENT November 27th, 2013
Sponsored by
CREDO BUSINESS CONSULTING &
IDAMA FACILITIES MANAGEMENT SOLUTIONS
Opportunities & Challenges for
the GCC FM Industry
27th November 2013
3
Example Credo FM clients
Strategy consultancy specialising in business services
Deep experience in FM globally
– Client list includes many of the world’s leading FM players
Offices in London and Dubai
Introduction to Credo
4
Credo GCC FM Survey
Example survey participants
Survey conducted June / July 2013
Interviewed 35 of the leading FM customers, suppliers and experts in the region
Supported with additional Credo research and analysis in the region and internationally
5
Three key issues concerned our interviewees
Market growth Supplier margins Contract and
delivery dynamics
Where is growth going to come from?
Will margins continue to be squeezed?
Will there be more opportunity for new
contract types / delivery methods?
Historically Dubai’s infrastructure investment and growing use of outsourcing has driven the region’s market
Supplier margins were very high before the financial crisis (10 – 15%) but are now closer to developed market levels (5%)
For the most part contracts are very basic. Attempts to introduce more sophisticated structures to regain control of margins have met with little success
1. 2. 3.
6
UAE, $5.3bn
UAE, $2.5bn
KSA, $9.5bn
KSA, $1.8bn
Qatar, $2.7bn Qatar, $1.0bn
Bahrain, $1.7bn Bahrain, $0.6bn
Kuwait, $1.6bn Kuwait, $0.3bn
Oman, $0.9bn Oman, $0.1bn $21.8bn $6.4bn
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Total spend on FM Outsourced FM spend
1. Market Growth
Total FM spend in the region is $22bn. Around 30% is currently outsourced in
total but the outsource rate varies considerable from country to country
Outsource rate
c.15% c.20%
c.35%
c.35%
c.20%
c.45%
GCC FM Market size
7
1. Market Growth
In much of the region, growth will come from both increasing investment and
higher rates of outsourcing. UAE will be more dependent on investment growth
UK
US
UAE
Spain
Qatar
Scandinavia
Kuwait
KSA
France Germany
Oman
Italy
0%
1%
2%
3%
4%
5%
0% 10% 20% 30% 40% 50% 60% 70%
To
tal
spen
d o
n F
M m
ark
et a
s a
% G
DP
Growth driven mainly by increasing outsourcing
Relatively small markets High potential for growth
Outsourcing rate
Growth driven mainly by increasing spend on FM
Relatively large markets Low potential for growth
GCC
Other
Key
8
1. Market Growth
Nevertheless, survey participants still expected UAE (Dubai in particular) to
lead FM market growth going forward, with KSA and Qatar close behind…
Survey results; geographic growth
Weighted # of mentions Drivers
• Revived construction market
• Strong construction market, some outsourcing growth
• Rapid construction in preparation for World Cup 2022
• Public spending continues to drive construction
• Under-developed outsourcing, no imminent increase expected
• Some outsourcing, relatively limited construction
• Awareness of outsourcing low, construction relatively limited
• Few projects expected outside of key cities
Dubai
Saudi Arabia
Qatar
Abu Dhabi
Oman
Bahrain
Kuwait
Other UAE
9
1. Market Growth
… a view supported by some of the fundamental industry drivers
Forecast GDP Growth
Forecast Construction Growth
Bubble size represents total spend on FM
Saudi
Arabia
United Arab
Emirates
Qatar
Kuwait
Bahrain
Oman
5%
6%
7%
8%
9%
10%
11%
1% 2% 3% 4% 5% 6%
10
2. Supplier Margins
Average margins in the UAE fell substantially during the recession and are now
at developed market levels. There is little to suggest that this will be reversed
Margins
Price Costs
Need for quality
Competition Visa
requirements Inflation / FX Wages
Price pressure
Flat
Positive impact on margins
Negative impact on margins
Historic
Future
Key
• Developed customer procurement
• Growing sub-set of market
• No change (excl. JOP)
• Domestic & international pressure
• Further cost increases expected
• Weakening currencies of labour sources
11
2. Supplier Margins
Suppliers’ experience is that customers are almost entirely focussed on price,
although their may be a growing subset with a need for quality
Key Purchase Criteria
Suppliers
Customers
Key
Price
Quality
Track record
Specialisation
Individuals on bid team
Specific relationships
Scale
Int’l name & experience
Accrediations
Level of self delivery
Level of customisation
Service breadth & bundling
Weighted importance of criteria “The market in the entire region is completely cost-driven…customers are unwilling to pay the higher price for a more professional service.”
Hard FM Supplier, Dubai
“A combination of price and quality is key. A good price draws the eye, but then you would evaluate the quality and technical capabilities.”
Multi-sector customer, Dubai
“Our building is very technical and requires technical specialist knowledge, which is the primary attribute we look for in a supplier.”
Multi-sector customer, Dubai
Margins are likely to continue to decline towards mature market levels of 5% and under
12
3. Contracts & Delivery Development
In more mature FM markets suppliers need to look to more sophisticated
contract & delivery mechanisms to combat margin pressure
All single service contracts
Fully outsourced TFM
Headcount based Performance based – supplier has complete control of delivery
Short contracts, no customer loyalty
Long term collaborative partnership, shared benefits
Basic systems, high subcontracting
Tech. supports optimum quality & cost; specialist subcontracting only
UK
UK
Nascent Developing Developed
Bundled, but excluding management provision
Some outcome based metrics but headcount still included
Technology enhances delivery, reduced subcontracting
Longer term contracts; some use of performance rewards
UAE
UK
UAE
UAE
UAE
UK Bundling & TFM
Performance & Control
Contract Length & Investment
Delivery
13
3. Contracts & Delivery Development
Performance & Control is the area in which customers are most interested.
There was also demand for increased use of bundling and technology
All single service contracts
Headcount based
Short contracts, no customer loyalty
Basic systems, high subcontracting
Nascent Developing
Bundled, but excluding management provision
Some outcome based metrics but headcount still included
Technology enhances delivery, reduced subcontracting
Longer term contracts; some use of performance rewards
Bundling & TFM
Performance & Control
Contract Length & Investment
Delivery
UAE
UAE
UAE
UAE
• Customers typically appreciate value in bundling
• Difficulties with licensing and subcontracting
• Customers want more KPI based contracts
• Focus on headcount as driver of value remains
• Long term contracts generally viewed poorly by customers who dislike being ‘locked in’
• Customers excited to drive savings through use of tech.
• Reluctance from suppliers to invest in delivery R&D
Likely evolution
Key
14
Conclusions
Our survey indicates the shape of the GCC FM market going forward and
some of the challenges that participants will face
Where is growth going
to come from?
Will margins continue
to be squeezed?
Will there be
opportunities for new
contract types /
delivery methods?
UAE (Dubai) is expected to lead the region’s growth again
KSA and Qatar are also forecast to grow strongly but opportunities may be harder to access
Prices in the UAE are not expected to rise and cost increases look set to continue
Other markets / niche sectors may offer better margins to those willing to go after them
The bulk of the market is likely to continue to use basic contracts
However, some customers are open to more sophisticated approaches, particularly outcome-based contracts & technology enhanced delivery
Growth is returning
Where should suppliers position themselves to take
advantage?
Opportunities for new contract structures exist
What can suppliers do to access these?
Margin decline looks set to continue
How can suppliers adapt in order to manage this?
Implementing Strategy:
It's a people thing
BEN CHURCHILL
Managing Director
Emrill
PANEL DISCUSSION
• Alistair Stranack
Director Middle East - Credo Business Consulting
• Ali Al Suwaidi
MEFMA Board Member / VP – Idama Facilities Management
Solutions
• Ben Churchill
Managing Director - Emrill Services
• Moayyad Massad
Head/Branch Manager of Abu Dhabi - Imdaad
NETWORKING EVENT November 27th, 2013
Sponsored by
CREDO BUSINESS CONSULTING &
IDAMA FACILITIES MANAGEMENT SOLUTIONS