2 The Importance Of Michael Porter

2. The Importance Of Michael Porter & # 8217 ; s & # 8221 ; Essay, Research Paper

1. Introduction Goodwill Management Limited ( & # 8221 ; Goodwill & # 8221 ; ) is one of the largest belongings direction company in Hong Kong. It is a entirely owned subordinate of Henderson Land Development Company Limited ( & # 8221 ; Henderson & # 8221 ; ) , which is one of the top four land developers in Hong Kong. The president Dr. Lee Shau Kee is one of the wealthiest adult male in the universe. Goodwill, Hang Yick Properties Management Limited ( & # 8221 ; Hang Yick & # 8221 ; ) and Well Born Real Estate Management Limited ( & # 8221 ; Well Born & # 8221 ; ) are the three belongings direction companies of Henderson. Goodwill is chiefly responsible for the leased office tower and shopping arcade. Presently, there are 26 premises under our direct direction and 7 premises under our indirect direction. Most of the landlords of these premises are Henderson Real Estate Agency Limited, another subordinate of Henderson. Therefore, Henderson will be our internal client while the renters of those premises will be our external clients. 2. The Importance of Michael Porter & # 8217 ; s & # 8220 ; Five Forces of Competition & # 8221 ; in the Property Management Industry Harmonizing to Michael Porter & # 8217 ; s of Harvard Graduate School of Business, the province of competition in an industry depends on the undermentioned five basic forces. The corporate strength of these forces determines the ultimate net income potency of an industry. Understanding these beginnings of competitory force per unit area, our company can explicate our schemes consequently so as to accomplish the highest efficiency and effectivity. 2.1 Menace of New EntryFactors like economic systems of graduated table, merchandise distinction, capital demand, etc. , will find how easy or difficult it is for new rivals to come in an industry. In fact, the menace of new entry for the belongings direction industry is rather small. On one manus, the whole belongings direction market is monopolistic. There is simply no statute law or specific demands for new entrant to acquire into the market. Notwithstanding, on the other manus, the market for the major market section every bit good as the future tendency are oligopoly. The new entrant can merely take the direction of some old or little premises. It is about impossible for them to obtain the direction of any premises of the major developers. The four largest land developers ( Cheung Kong ( Holdings ) Ltd. , Henderson Land Development Co. Ltd. , New World Development Co. Ltd. , and Sun Hung Kai Properties Ltd. ) all set up its ain belongings direction company to take attention of the direction of its premises. A few celebrated independent belongings direction companies like Guardian Property Management Ltd. , and Jones Lang Wootton Management Services Ltd. besides taken up a considerable portion of the staying market of independent premises without associated direction company. Hence, the mark market for new single entrants is really limited and non profitable which hinder the growing of these new entrants. 2.1.1 Economies of ScaleApparently, big companies can recognize the economic systems of graduated table which lower the mean costs. The new entrant will decidedly can non bask this advantage since the market portion is uncomparable to the big company in the industry. 2.1.2 Product DifferentiationBrand designation besides creates a barrier to the new entrants. No affair it is a commercial edifice or residential edifice, most owners/ renters will pass more than half of their twenty-four hours in it. Furthermore, many valuable assets are maintaining at that place. It is hence really of import to take a dependable belongings direction company to make the direction. New entrants will necessitate to set excess attempt in advancing itself, making trade name designation & A ; client trueness, etc. 2.1.3 Capital RequirementProperty direction can be described as a multidisciplinary profession with a comprehensive coverage across different professions to supply quality service to the renters. Therefore, the capital demand is rather high for belongings direction industry. The major costs include: cubic decimeter salary/wages, retirement & A ; medical benefits of direct staff ; cubic decimeter cleansing services ; l security guard services ; l public public-service corporation measures ( e.g. , H2O, electricity, telephone, facsimile, etc. ) cubic decimeter fix & A ; care cost ( e.g. , lifts & A ; escalators, air-conditioning system, public aerial, pumping & A ; drainage, fire dismay system, security system, etc. ) cubic decimeter insurance ( e.g. , property-all-risk, 3rd party liability, employee compensation, machinery dislocation, money-all-risk, fidelity, etc. ) cubic decimeter ratesl staff uniforml advertisement ( for the company & A ; for enlisting of staff ) In add-on, the new entrants are hard to accomplish economic systems of graduated table every bit good as holding better dickering power & A ; measure price reduction. These new entrants will hold a monetary value disadvantage compared with the market leaders or rival with big market portion. 2.1.4 Access to Distribution ChannelsAs the major land developers all holding its associated direction company, the staying market is little and highly competitory. The new entrants will necessitate to follow extended promotional activities and intensive merchandising to the landlords/ renters. 2.1.5 Government PolicyBoth the old Hong Kong Government and the bing Government of Hong Kong Special Administrative Region put no bounds to the entry of new company into the industry. However, there are many Torahs & A ; ordinances that belongings direction company has to follow with it. For illustration, Building ( Administration ) Regulations, Building Management Ordinance, Housing Ordinance, etc. 2.2 Dickering Power of Suppliers/ContractorsFactors like the grade of provider concentration and the handiness of replacement inputs will find the power that the suppliers/ contractors have over the companies in the industry. Fortunately, the bargaining power of suppliers/ contractors in belongings direction industry is comparatively low. The chief providers that direction company requires are security service company, cleaning service company, and some others companies for care and mending. As their markets are really competitory, the bargaining power of them is undistinguished. 2.3 Dickering Power of BuyersFactors like a purchaser & # 8217 ; s volume, purchaser & # 8217 ; s information, and the handiness of replacement merchandises will find the sum of influence that purchasers have in an industry. In fact, the bargaining power of purchasers, ( which could be the landlords, single proprietors or renters ) are merely moderate. Particularly for those direction companies which are affiliated with the land developers/ landlords, the bargaining power is about non be. Although it is the single owners/ renters who consume the service straight, it is the landlords of the premises who choose and pay the direction company. The single owners/ renters have merely small or even no influence on the determination in choosing the belongings direction company of their edifice. 2.4 Menace of Substitute Products or ServicesFactors like exchanging costs and purchaser trueness will find the grade to which clients are likely to exchange their concern to another rivals. For the belongings direction industry, the menace of replacement services is minimum. Every edifice requires a certain degree of direction and attention taking. Owing to the diminishing Numberss of individual or low-storey houses and increasing Numberss of high denseness estate places and high-rise edifices, the demand of much formal or professional direction service is keep increasing so as to get by with the higher criterion of life in Hong Kong. 2.5 Rivalry Among Existing CompetitorsFactors like industry growing and merchandise differences will find how intense competition among companies in the industry. Basically, the competition and competition for belongings direction are non so lament merely because the possible market is keep booming. There will be a continual demand for commercial premises, e.g. , office tower, shopping arcade, etc. , as the economic foundation of Hong Kong remains solid. The bit by bit lowering of rising prices rate and execution of big substructure undertakings now under manner will probably go on to heighten the overall growing of the economic system. Furthermore, the demand for residential premises will go on to be strong due to the positive growing chance of the Hong Kong population in the close term contributed in portion by more than 50 thousand immigrants permitted from the People Republic of China each twelvemonth. The authorities be aftering governments have late made known their position that Hong Kong will go on to meet a ample deficit of residential units for the first few old ages after the bend of the decennary. With the limited lodging supply and a turning lodging demand in Hong Kong, the chance for local residential belongings market is promising, excessively. Almost every premiss, e.g. , mill, shopping arcade, residential edifice, office edifice, nine house, parking log, etc. , needs a direction company to look after the day-to-day operation of the edifice. This immense and dining market is chiefly shared by about 20 major companies. Every company has its portion of possible market. There is no demand to vie or equal intensively to derive market portion. 3. The Sources of Competitive Advantages of Goodwill Management Limited & # 8211 ; One of the Largest Companies in the Property Management Industry Harmonizing to Michael Porter & # 8217 ; s analysis, direction must choose a scheme that will give its company a competitory advantage. The selected scheme should be based upon the company & # 8217 ; s strengths and rivals & # 8217 ; failings. 3.1 Organizational Aspects 3.1.1 Economies of DiversityHenderson is practising the economic systems of diverseness and to the full utilizes its resources with the three belongings direction companies. These three companies of Henderson can pull off different types of belongings. Goodwill takes attention of the shopping arcade and office tower. Hang Yick is responsible for the mill and old residential edifice. Wellborn looks after the new residential edifice. Every company concentrates and specializes in a peculiar type of belongings.

3.1.2 FlexibilityThe three brotherhoo

d companies, Goodwill, Hang Yick, and Wellborn, take up almost all the management work of the buildings of Henderson. Although they are individual company and there is some classification to determine the role of them, close and direct communications are carried out between them and other departments of Henderson. These companies are high cooperative. Ad hoc arrangement can be done by easy negotiation which provide a flexibility to the company to solve the immediate problems. Long term strategic decision can also be made within the three companies to cope with the situation faced by individual company. For instance, all the resources, such as work force, office equipment, knowledge & experience, office, etc., can be reallocate easily to make a better contribution to the group of companies. 3.1.3 Speed of ResponseGoodwill can have prompt response to the changing environment. Internally, staff of same level, e.g., centre officer, can be transferred to other management office due to shortage of work force, or requirement of particular skills, etc. Externally, sub-contractors can provide labour to our company by only a short notice. Even one contractor cannot meet our requirement, we can request another existing contractor. Also, the Landlord (normally, it will be the Leasing Department of the Henderson Real Estate Agency Limited), will give us valuable information about the tenants in whatever aspects that the landlord or our company will benefit from it. 3.1.4 Financial StrengthsHenderson is a public listed company. The rental income for the period July 1996 to July 1997 amounted to six billion and thirty-eight million Hong Kong dollars. As of 31 Dec 1996, its total capital is HK$66,734 million. The shareholder funds accounted for HK$40,875 million. According to Forbes Magazine, the net wealth of our chairman Dr. Lee as of July 1997 is estimated to be 1144 billion Hong Kong dollars, ranked fourth in the world. 3.1.5 ReputationAlthough Goodwill is only established in 1982, still a new company in the industry, and does not have much reputation, it can benefit from the good reputation of Henderson. Henderson is established in 1976 by the founder Doctor Lee Shau Kee, the existing chairman. Doctor Lee is famous in Hong Kong as well as the world. For example, the promotion slogan of Henderson is Henderson building – the most dependable building”. Moreover, since Goodwill does not need to find customer itself, the reputation is of less importance. The tenants just aware that they rented the premises from Henderson, and the most dependable building and the best services will be provided to them. 3.2 Departmental and Functional Aspects 3.2.1 Marketing Customer BaseThe customers of Goodwill are the tenants of all the building managed by Goodwill. These tenants are provided by the landlord, the Leasing Department of Henderson Real Estate Agency Ltd. Goodwill should have no worry about the source of customers. Customer KnowledgeThe property market of Hong Kong is always boiling. The property information is overflowed. Being one of the largest companies in the industry, news or articles about our company could be found in the public media almost every day. Free promotion and penetration to the general public are easily achieved. PricingAlthough Goodwill only receives its manager remuneration from the Landlord, the tenant needs to pay the management fee to the Landlord for the services provided by our company. This management fee will be based on our proposed budget. The manager remuneration can be seen as an internal arrangement within the same company. As the management fee is more price inelastic than the rent, Henderson will determine a composite charge with the adjustment of the rent and the management fee to get the balance which is more acceptable and appealing to the tenant/ potential tenant. Communication And AdvertisingSince the customers or tenants of Goodwill are naturally given by the landlord of the building, there is very little or even no advertising cost or labour cost incurred in marketing our service. It is an advantage of Goodwill compared with other independent companies which has to find customers themselves. For the cost of recruitment advertising, it is also low as we rely heavily on sub-contractors, the recruitment advertising cost is transferred to the sub-contractors. Goodwill can concentrate its resources on the management of the properties directly. 3.2.2 Reputation Product TechnologyGoodwill will adapt the most advanced and efficient way to provide the best services available to the tenants. In fact, most services are provided by the sub-contractors, we could make use of their research & development and keep our services up or evn above to the market standard. 3.2.3 Service TechnologyAs the company has a sound financial background, we can acquire the most advanced technology and equipment to increase our efficiency and productivity. The tenants will receive the most efficient services Their premises are also maintained with the most advanced technology. Process EfficiencyGoodwill is considering to apply the ISO 9000 certification. We have carried out two process reengineering program in 1997 to smoothen/ simplified the previous complex process. In addition, in December 1997, we invited Hong Kong Productivity Council to perform a review of our operation. By doing these, our working efficiency and morale has been improved substantially. Economies of ScaleAs we are directly managing 26 properties which accounts for more than 5 millions square feet at the moment, we can benefits from the economies of scale due to bulk purchase, quantity discount, high bargaining power, and specialization of work. Service/ Product QualityOur company is famous of having the highest control of services in the industry. All the equipment/ machines are under the maintenance program and tested regularly to ensure the best services could be given all the time. All the sub-contractors will suffer from payment deduction for any substandard service. An independent team of staff is also set up to the review the existing operation of the company. 3.2.4 Personnel Good Management-Worker RelationsThe employee benefits provided by Goodwill is rather competitive and comprehensive. The salary is reasonable in the market. The fringe benefits include: medical allowance, dental allowance, travel allowance, meal allowance, provident funds, life insurance, etc. Therefore, the staff are quite loyalty to the company and the turnover rate is relatively low. When the turnover rate is low, consistent standard and quality of services can be maintained. Workforce FlexibilityGoodwill employed about 250 staff for the operation of its head office and management offices of 26 properties with different size. Most of these 250 staffs are building attendant, center officer, and technician. The labour intensive works, like cleaning service, security guard service, and major maintenance service, are all made use of sub-contractors. Goodwill does not rely on any single sub-contractors for a particular type of service. Most contracts/ agreements are in yearly basis, and only one month notice is necessary for any amendment or termination of the service. Using sub-contractors for the most labour intensive works give Goodwill a lot of flexibility. Additional labour can be requested any time to cope with the short term or abrupt demand. 3.3 Relationship With External Bodies 3.3.1 Customer LoyaltyThe customer loyalty also provides some advantages to the Landlord and our company. As the chain stores are more popular then before, it is more likely they will open new stores in our new shopping arcades to cope with their expansion plan. 4. ConclusionsThe property management industry is keep prospering. The potential market is continual increasing. The five forces of cometition: (i) Threat of New Entry; (ii) Bargaining Power of Supplier/ Contractor; (iii) Bargaining Power of Buyers; (iv) Threat of Substitute of Products or Services; and (v) Rivalry Among Existing Competitors, will have direct effect on the state of competition in the industry. Moreover, the collective strength of these forces will determine the ultimate profit potential of the industry. Acquainted with the information on the sources of competitive pressure, our company can formulate our strategy accordingly so as to achieve the highest efficiency and effectiveness. On the other hand, based upon the company’s strengths and competitors’ weaknesses, the company will realize the sources of competitive advantage. These valuable information would help the company to determine its strategies that will give the company competitive advantages in return. For Goodwill, the main sources of competitive advantages are:1. Organizational Flexibility2. Speed of Response3. Financial Strengths4. Organizational Reputation5. Customer Base6. Process Efficiency7. Economies of Scale8. Service Quality9. Good Management – Worker Relations10. Workforce Flexibility 5. RecommendationsIn spite of the relatively stable industrial environment and the great opportunity available in the market, Goodwill should keep an eye on the five forces of competition: (i) Threat of New Entry; (ii) Bargaining Power of Supplier/ Contractor; (iii) Bargaining Power of Buyers; (iv) Threat of Substitute of Products or Services; and (v) Rivalry Among Existing Competitors, in order to maintain our leading position in the property management industry. Due to the importance and meaningful of these five factors, the company should assess its industrial attractiveness in terms of them. Comparatively, the sources of competitive advantages are more vital to the success of Goodwill. For our long-term success, we must make sure that these competitive advantages are always sustainable. We cannot become complacent. Rather, we should evaluate our competitive advantages on a regular basis and determine whatever strategies are essential to sustain or create a new competitive advantage so as to keep our company one step ahead of the competitors.