CoreNet Global

A record number of corporate real estate professionals from across Asia and around the globe have convened in Hong Kong for the 2005 Asia Global Summit, themed "Dynamic Enterprises in Dynamic Markets: Surviving and Thriving Across Asia."

Richard Watton, chair of CoreNet Global Asia and Real Estate Business Services Executive – Asia-Pacific and EMEA, JPMorgan Chase N.A., kicked off the Summit on Tuesday with an energetic welcome for attendees. "We have 265 delegates from 16 countries," he announced. "That’s a record for an Asia Summit and truly makes this an international Summit."

Watton then introduced the guest of honor, Mr. Michael Suen, GBS, JP, Secretary for Housing Planning & Lands, Housing Planning & Lands Bureau. "It is my privilege to welcome you to the CoreNet Global 2005 Asia Summit in Hong Kong," Suen said. "We are honored to be the destination of the Summit for the second time."

Following Suen’s remarks, Bruce Davidson, Vice Chair of CoreNet Global’s Singapore Chapter and Regional Director for Jones Lang LaSalle (sponsor of General Session I) came forward to introduce the first keynote speaker, John Saunders.

Saunders is Head of Regional Property Research at Credit Lyonnais Securities Asia. John’s research team was recently named the No. 1 regional property research team in the Asiamoney 2004 Broker’s Poll following, among other things, its lone prediction of a residential recovery in Hong Kong after six years of serial deflation.

Saunders presented the complex set of factors – capital surplus, wage growth, and GDP growth – that is contributing to China’s rapid expansion and emergence as a global powerhouse.

The "Money Train," he explained, refers to the huge levels of liquidity that have built up in Asia. In Japan, for instance, the liquid money supply is 74.9 percent of 2004 GDP. Taiwan (72.2 percent) and China (70.3 percent) aren’t far behind. By comparison, "there basically is no liquidity in the U.S. or U.K."

China’s high level of liquidity, wage growth and GDP growth, combined with the continued weakening of the U.S. dollar and growing inflation, will drive up the cost of doing business in Asia over the next four to five years, Saunders predicted.

Nick Axford, Head of Research & Consulting EMEA for CB Richard Ellis, began the discussion on multi-national companies’ corporate social responsibility (CSR) strategies by introducing the factors driving the dramatic increase in adoption of these initiatives:

CSR is a logical extension of the traditional concerns of corporate real estate about the operational efficiency of facilities. In fact, says Axford, buildings are at the heart of the carbon dioxide emissions and greenhouse gases problem in the United Kingdom – over 40% are attributed to property and energy consumption in buildings. So, while it’s clear that corporate real estate has a legitimate role in the environmental and economic aspects of CSR, are these matters really important in the boardroom? What about the social dimension?

According to Axford, who led the sustainability research team as a member of CoreNet Global’s Corporate Real Estate 2010 Research and Leadership Development Program, there is strong evidence of a strong correlation between high-performing businesses and the adoption of sustainable business practices, as indicated, for example, by the Dow Jones Sustainability Index (DJSI).

Two case studies illustrated the emerging role of corporate real estate in the practice of corporate social responsibility – BP and Motorola.

Rasmussen highlighted the specific activities within BP’s global real estate, facility management and construction teams that have instrumental in achieving the culture change and enabled BP to satisfy it’s goal for a sustainable future – in particular, a series of workshops that allow employees to get directly involved in shaping strategy an action plans. According to Neils, BP’s Green Office Program is a great example of a grassroots initiative that is now an integral part of the sustainability culture. This program encourages workers from across BP to get excited about what they can personally do to improve the environmental viability of things within their control – paper, plastic and water consumption, for example.

James Yao, Director Corporate Real Estate APAC for Motorola, opened his case study presentation by stating that "... this topic is bigger than corporate real estate." He emphasized that sustainable strategies and behaviors penetrate all aspects of Motorola’s operations, including product design and manufacturing – for example, considering the eventual need thinking to recycle Motorola phones during the initial design of the product. Yao introduced Motorola’s ECOMOTO initiative, emphasizing:

Of particular interest to the CoreNet Global Asia Summit audience, James talked about the development of green buildings and the factors influencing adoption in different regions of the world:

The looming energy crisis in China is influencing the development of new government directives, as well as corporate strategy. Yao stated that the viability of a solar panel roof and other energy-saving technologies is being explored for the company’s new corporate campus in Beijing. “Enterprises are government mandated to achieve 65% energy savings by the year 2020” says Yao. A participant added that the Chinese government had stated its intention to mandate LEED^TM certification of newly constructed buildings in the near future.

Three concurrent education programs were offered following General Session I, including "China’s Place in Offshoring." Presenters included:

Moderator Randy White, Senior Director, DTZ Debenham Tie Leung, began the session with a general overview.

"China has quickly evolved into a major growth market and mature platform for many business functions," he said. "What we see happening in China has a different flavor from what we see in India."

A few companies have moved their regional headquarters to China. And the latest trend is for some firms to put R&D operations in China, sometimes employing hundreds or even thousands of people.

White said the big push to set up operations in China is prompted by numerous factors, including:

"China has been very aggressive when it comes to incentives," White observed. One downside is the fact that "people have legitimate concerns about intellectual property rights in China," he said.

Recent DTZ research on 225 companies that have set up in China shows that telecom is the No. 1 industry (19 percent of all firms), followed by electronics (12 percent), hardware peripherals and software (10 percent each) and business process outsourcing/BPO (9 percent).

The source of that investment is most often North America (29 percent). Also contributing significant investment are firms in Europe (18 percent), Japan and Korea (15 percent each) and Hong Kong (13 percent).

Where are companies locating in the world’s most populous country? "Shanghai is hands-down the dominant destination by far in China," White said. "It cuts across all kinds of industries."

Shanghai and Beijing are the two most expensive places in China. But they’re also the places that have the top-end talent, White noted. Meanwhile, Dalian and Guangzhou are popular destinations for back-office functions and BPO.

Reilly has spent the last eight years in China developing BPO centers for his clients. Guangzhou is Capgemini’s base of operations in China and supports clients including IKEA, Pizza Hut, Starbucks and TXU Energy, among others.

"For BPO we’ve always focused on China, and I’m glad we did because India is getting kind of crowded," he said. "India we see as a location for IT outsourcing."

A ready supply of talented people is a huge plus for China, Reilly said. "There are 3 million college graduates each year in China, and China now accounts for 23 percent of the world’s working-age population."

The city of Dalian, Zheng pointed out, is China’s No.2 location for IT-related investment, second only to Beijing. "It offers good English-speaking capabilities and strong Japanese and Korean capabilities, plus a moderate competitive environment and below-average costs compared to other leading locations," he said.

Intel’s presence in China continues to grow. "In 1998, we had less than 500 people in China," Chin said. "We are pushing 5,000 now." Intel recently announced plans to build a new R&D campus on the western side of Shanghai.

China is low cost, but at the same time it is high risk, Chin said, particularly as it relates to intellectual property risk.

After a networking break (sponsored by RMZ Corp.) came General Session II, sponsored by Haworth.

Frank Rexach, Vice President and General Manager Asia Pacific for Haworth (and Program Chair for CoreNet Global’s Singapore Chapter), introduced keynoter Michael J. Enright. Enright is Sun Hung Kai Professor of Business Administration, University of Hong Kong and a leading expert and advisor on competitiveness, regional economic development and international business strategy.

"China’s emergence is being met with a mixture of admiration and concern," Enright said. "China has now become one of the world’s largest economies and by 2020 likely will be the second-largest economy in the world."

China’s growth is having a dramatic impact on many industries, often in places far away. "Two-thirds of U.S. textile workers will lose their jobs during the next two years due to the rise of the textile industry in China," Enright predicted.

Fully one-third of workers in the U.S. furniture industry have lost their jobs during the past two and a half years, he said. "It is now cheaper to import wood from the southeastern United States into China, make the furniture there, and export the finished furniture back into the southeastern United States than it is simply to make it there," he said.

Industries are moving to China in large numbers, Enright noted, driven by skyrocketing consumer demand. In 1997, there were 13.8 million mobile phone subscriptions in China; by 2003 that figure had swelled to 269 million. Similarly, domestic mortgage lending, which totaled just $2 billion in 1997, reached $142 billion in 2003.

China is driving commodity markets globally. For instance, China is consuming almost half of all the cement being manufactured in the world. It is gobbling up over one-third of all iron ore and more than one-fourth of total world steel production.

"Most economists see 7-8 percent economic growth in China as far as they can see," Enright said. "But China’s development does not seem to have had a negative impact on growth in East Asia. Japan’s emergence from its doldrums is being attributed to growing trade with China."

Clearly, China will have a significant impact on industries worldwide and markets and locations far away. Enright sums it up this way: "For each location and industry segment, you need to ask: Is China primarily a market, a competitor or a partner?"

After a networking break, (sponsored by K Raheja Construction Co.), came General Session III, sponsored by Colliers International.

George McKay, Director Corporate Services Asia Pacific for Colliers International and a member of the Asia 2005 Summit Program Planning Committee, introduced Tuesday’s General Session III participants.

Facilitating panel discussion was Linda DeMars, Vice President Program Development, CoreNet Global. Panelists included Irene Masterton, Head of Real Estate Services, Standard Chartered Bank; Ronald Patterson, UT Realty Manager, Global Real Estate Operations, United Technologies Corp.; and Richard Watton, Real Estate Business Services Executive – Asia-Pacific and EMEA, JPMorgan Chase N.A.

At the 2004 Asia Summit in Mumbai, delegates were introduced to Corporate Real Estate 2010, an industry-wide research initiative of CoreNet Global around envisioning work, exploring how people are connected, and determining what corporate real estate (CRE) leaders must do in order to prepare themselves and their organizations for the integrated, networked world. General Session III in Hong Kong built on that foundation.

"Networks are not new," said DeMars. "What is new is the incredible size and scale of these networks and the interdependence of the organizations in them."

Value creation for CRE executives in the networked world, she said, will derive from enabling worker productivity, optimizing a broad range of corporate resources and becoming a workplace strategist armed with new management skills, not just traditional real estate skills.

Change management, for instance, has been integral to the success of UT Realty, the centralized real estate organization for industrial powerhouse United Technologies Corp. Formed just a few years ago, UT Realty had to plow new ground in a culture with a long history of a decentralized approach to real estate. "We were able to create a new corporate policy that said all real estate deals must come through our department," Patterson said.

Watton, who has responsibility for JPMorgan’s portfolio in both Europe and Asia, agrees that change management skills can be crucial. "We own the property budget," he said. "And the biggest challenge we have is convincing people in the business units who once got involved in making real estate decisions – but can’t now – that we’re both playing for the same team. You’ve got to turn that around so they see we’re on the same side."

At Standard Chartered Bank, "we’re much more involved in working with IT and HR," Masterton said – clear evidence of building stronger internal networks to help optimize resources.