Green_Lifestyle_of_Serviced_Apartment

Service  Apartment  with  Green  Lifestyle   -­‐  Recommenda:on  Proposal  to  CityLife   Investments   BSE  Group  28   Emily  WU            Hee  Jun  LIM   Lillian  LI                Tony  CHENG     William  YANG        Jian  NI   Agenda •  •  •  •  •  •  •  Project  Goals  and  Approach   Industry  Analysis   Company  Analysis   Customer  Analysis   Compe:tor  Analysis   The  Next  Steps   Sustainability  for  the  Future   Agenda •  •  •  •  •  •  •  Project  Goals  and  Approach   Industry  Analysis   Company  Analysis   Customer  Analysis   Compe:tor  Analysis   The  Next  Steps   Sustainability  for  the  Future   The  goals  of  the  project  are  threefold… •  Provide  concrete  evidences  on  why  CityLife  should  and  must  operate  in  a   green  and  sustainable  fashion  in  order  to  survive  in  China’s  saturated  and   compe::ve  housing  market Why •  Iden:fy  specific  areas  of  its  opera:ons  where  CityLife  can  immediately   bring  in  “green”  concepts  to  differen:ate  itself  from  compe:tors  and   subs:tutes,  such  that  CityLife  can  aggressively  increase  its  opera:ng   Where margin  or  minimally  maintain  its  supply-­‐demand  balance •  Offer  a  strategic  roadmap  for  CityLife  to  gain  economies  of  scale  using   green  concepts  and  CSR  as  points  of  differen:a:on,  so  that  it  can  drive   profitability  in  a  sustainable  and  socially-­‐responsible  manner How We  structure  our  team  to  align  with  CityLife’s  func:onal  divisions Rental  /  Suppliers   Tony  CHENG   Jian  NI   • Iden:fy  /  research  eco-­‐friendly  furniture,  fixture,  and   appliance  suppliers  suitable  for  CityLife • Conduct  execu:ve  interview  CityLife’s  rent-­‐in  sales   representa:ves • Research  /  site-­‐visit  CityLife’s  subs:tutes  and  compe:tors • Inves:gate  CityLife’s  current  marke:ng  strategy  and  its   posi:oning  in  the  value-­‐chain • Assess  CityLife’s  strategic  and  internal  capabili:es  of  realizing   the  goals  of  sustainability • Conduct  execu:ve  interviews  with  CityLife’s  sales  division • Survey  and  analyze  CityLife’s  current  tenants  on  their   sa:sfac:on  level  with  CityLife’s  services • Inves:gate  areas  in  which  CityLife  can  add  “green”  concepts  to   their  services • Conduct  execu:ve  interviews  with  customer  service  division Sales   Emily  WU   William  YANG Customer  Service   Lillian  LI   Hee  Jun  LIM The  project’s  analysis  consists  of  four  dimensions   Industry  Analysis   Compe9tor  Analysis   What’s  the  trend  of  the  industry'   What’s  the  industry  standard  on  eco-­‐friendly   research'   Approach   • Interview  business  partners     • Interview  with  func:ons  leaders   • Internet  research         Company  Analysis     What  is  Citylife’s  posi:on  in  the  industry'     What  is  Citylife’s  capacity  and  strength'   What  is  the  bargain  power  in  the  value  chain'   Approach   • Interview  the  general  manager   • Interview  func:ons  leaders   Who  are  the  rivals  and  subs:tutes'   How  the  eco-­‐friendly  leaders  in  this  industry   operate'   Approach   • Desktop  search   • Interview  a  carbon  neutral  hotel   • Secondary  data  research  on  direct  compe:tors       Customer  Analysis   Whether  eco-­‐friendly  factors  are  important  in   purchasing  decision'   Who  are  the  target  customer  segment  for  a   company  promo:ng  eco-­‐friendly  concept'   Approach   • Customer  sa:sfac:on  survey   • Customer  interview     Agenda •  •  •  •  •  •  •  Project  Goals  and  Approach   Industry  Analysis   Company  Analysis   Customer  Analysis   Compe:tor  Analysis   The  Next  Steps   Sustainability  for  the  Future   Service  apartments  provide  hotel-­‐like  services  to  tenants  who  need  high-­‐level  service   and  stay  for  an  extended  period  of  :me   Market  PorAolio   Long   Customer  Category   Short-­‐term   • Tourists   • Conference   Medium-­‐term   • Business  trips     • Reloca:on   Long-­‐term   • Reloca:on   • Immigrants   Period  of  Stay     Rent-­‐in Serviced     Apartment   Motel  /   Inn Low   Hotel Short   Service  Level   High   •  •  •  The  service  apartment  concept  came  to  China  around  1990s.     It  targets  on  high-­‐end  market  segment,  providing  hotel-­‐like  service  and  apartment-­‐style   administra:on.     Expatriates  who  need  high-­‐level  service  and  medium-­‐term  stay  are  the  target  customers     The  apartment  supply  in  the  key  loca:on  is  limited,  thus  there  are  service  compe::on   as  well  as  the  growing  pressure  on  rent   Supp ly The  resold  apartment  trend  in  Jing’an  area   • The  rise  of  real  estate  price  is  slowing  down,  but  it   already  increased  by  19%  over  the  past  12  month.     •   Apartment  supply  in  the  Metro  area  is  limited,  even   though  the  house  empty  rate  in  Shanghai  con:nues   to  rise.     • Rental  price  demanded  by  landlords  are  s:ll  growing   despite  stagna:ng  economic  condi:ons   Data  source:  www.fangjia.com   n Dema d The  popula9on  of  expatriates  by  district   • There  are  over  0.2  million  expatriates  who  work  and   live  in  Shanghai  (according  to  2010  census)   • Demand  for  housing  by  expatriates  in  China  remains   constant  despite  economic  downturn   Data  source:  www.fangjia.com   Agenda •  •  •  •  •  •  •  Project  Goals  and  Approach   Industry  Analysis   Company  Analysis   Customer  Analysis   Compe:tor  Analysis   The  Next  Steps   Sustainability  for  the  Future   Execu:ve  interviews  were  conducted  to  provide  a  detailed  understanding  of  CityLife’s   current  business  model Date ‘13/1/06 ‘13/1/22 ‘13/1/29 ‘13/2/26 Citylife Attendants Ted Judy (GM) Judy (GM) Judy (GM) Joan (Sales) David (Service) Judy X. (Rent-In) Ted Agenda 1.  Implement introduction 2.  Share the profile of CityLife 1.  Discuss CityLife’s business model & value chain 1.  Discuss how to use sustainability & green strategy to brand CityLife in details 1.  Discuss the sales function in the value chain 2.  Discuss the service function the value chain 1.  Implement middle-term report 2.  Discuss the short and long-term strategy to achieve the business model sustainability ‘13/2/26 From  top  management’s  perspec:ve,  CityLife’s  margin  is  decreasing  given  the  reliance   on  the  agents  and  is  in  need  of  new  service  offering  and  re-­‐posi:oning From GM’s point of view… Owners (suppliers) Agent City Life Agent Tenants (expatriates) -  Provide the asset management services to apartment owners to increase the revenue -  Plan to approach the end customer directly by sales representatives to reduce the commission fee to agency -  Enhance high quality service, which provide to end customer to establish the brand reputation -  Promote the green concept as a differentiation point from competitors From  sales’  perspec:ve,  CityLife’s  major  concern  is  to  match  supply  with  demand,   “green  concept”  is  non-­‐existent  and  provides  liele  value  to  sales  opera:on… From sales and rent-in’s point of view… Owners (suppliers) Agent City Life Agent Tenants (expatriates) -  The owner is not sensitive to environmental-friendly issues -  Not enough high-quality apartment could be rented-in -  The apartment owners always want to rent to end customers directly to make higher rental fees -  The most important factor to affect rent is the rental price rather than green concept -  There is no talent to implement green concept after previous PIC left Citylife -  CityLife relies on word of mouth to promote itself Customer  Service  crew  appears  to  provide  most  value  to  the  tenants,  but  currently   undermined  by  the  opera:on  without  a  core  service  concept  as  its  backbone From customer service’s point of view Owners (suppliers) Agent City Life Agent Tenants (expatriates) -  -  -  -  CityLife’s tenants really appreciate customer services’ services such as the 24-hour hotline, a-yi and shi-fu’s services whenever necessary Single tenants are less aware of living conditions other than basic needs; tenants with families are more sensitive to environments and lifestyle Current spreads of CityLife’s units make customer services difficult to provide consistent and standardized services to all units, especially when contracts are all customized and each unit has different level of services Green concepts are not enforced in the daily service offerings; more emphasized for furniture and fixtures, dependent upon tenants’ requests Agenda •  •  •  •  •  •  •  Project  Goals  and  Approach   Industry  Analysis   Company  Analysis   Customer  Analysis   Compe:tor  Analysis   The  Next  Steps   Sustainability  for  the  Future   CityLife’s  customers  cluster  in  Shanghai’s  metropolitan  districts  and  exhibit  unique   profiles   Lujiazui   West  Nanjing  Road   Century  Park   •  •  •  •  Expatriates  working  in  MNC  or  running    own   businesses  in  Shanghai   Stay  period  variances  from  6  months  to  years,   but  mainly  within  one  year   The  family  size  is  from  single  one  to  small   family  with  one  child   Age  mainly  from  30s  to  40s   •  •  •  •  CityLife  now  manages  over  three  hundred   proper:es  in  Shanghai.     Scaeered  in  different  mansions  which  locate   around  the  CBDs.   Easily  access  to  public  transporta:on  and   community  facili:es.   Apartments  with  2  bedroom  or  3  bedroom   We  surveyed  30+  exis:ng  tenants  of  CityLife  on  their  sa:sfac:on  of  various  factors   Hardware  Factors   Eco-­‐related  Factors   Public  Service  Factors   Sokware  Factors   Data  source:    Result  from  customer  sa:sfac:on  survey  in  March  2013   Eco-­‐friendly  factors  appear  to  be  the  area  where  CityLife’s  current  services  score  the   least,  but  affect  overall  sa:sfac:on  the  most…   •  •  It  is  one  compe::on  advantage  when   CityLife  started  up.     The  competency  did  not  improve   along  with  the  growing  awareness   and  needs  of  the  tenant.   The  tenants  expect  CityLife  to   improve  on  eco-­‐friendly  opera:on.     Most  frequently  men:oned  items  are   electrical  equipments,  cleaning   supplies,  energy  saving  design.   •  •  Agenda •  •  •  •  •  •  •  Project  Goals  and  Approach   Industry  Analysis   Company  Analysis   Customer  Analysis   Compe:tor  Analysis   The  Next  Steps   Sustainability  for  the  Future   CityLife  faces  direct  compe:tors  in  the  market,  who  are  quickly  establishing   themselves  as  “green  living”  service  providers  with  a  profitable  business  model Dimensions   CityLife   AquaSpace   Profitability   10   Service   5   0   Pormolio   Pormolio   •  Long  stay  rent   •  Asset  Management   (weak)   5  dispersed  areas  in   Shanghai   More  daily  services   Similar  rental  price  range;   Cost  is    higher  due  to   segmented  loca:ons  and   more  services.   Planned  to  emphasize  but   did  not  do  so  well.   Awareness  of  Green  in   clients  are  not  high.   •  Short  stay  rent   •  Long  stay  rent   •  Asset  Management   (strong)   Focus  in  Lujiazhui   Basic  service  only   Similar  rental  price  range;   Cost  is  lower  due  to  synergy   of  focus  of  the  loca:on  and   less  service.   Not  men:oned   Scale   Service   Profitability   Green   Scale   CityLife   AquaSpace   Green   ht Insig As  compe:tors  are  gaining  advantages  on  the    dimensions  of  profitability  and  pormolio,  CityLife  can  differen:ate   by  strengthening  in  services  and  “green”  concept   URBN  Hotel’s  success  in  Shanghai  derives  from  its  consistent  “green”  message  delivery   to  its  guests,  allowing  them  to  pass  on  the  awareness  through  words-­‐of-­‐mouth w   tervie In    On  13,  March,  we  went  to  URBN  hotel  to  interview  with   Heidi  Lei  who  is  the  marke:ng  &  PR  manager  of  the  hotel.     The  goal  is  to  learn  concepts  that  can  be  leveraged.     • Recycle  materials:     URBN  is  a  sustainable  project.  The  interiors  are  made  with   100%  locally  sourced  or  recycled  materials.   • Green  project  for  customers:   URBN  provides  green  and  environment  solu:ons  for  its   clients.  For  example,  it  provides  organic  food  for  its   consumers.  And  there  are  a  lot  of  slogan  or  guide  in  its   rooms  to  educate  its  clients  how  to  live  easily  and   environmental-­‐friendly.   • Save-­‐carbon  project:   Heidi  Lei  said  URBN  has  a  program  for  every  client  that  can   calculate  their  consump:on  of  carbon  so  that  it  can  give   some  advices  to  its  clients.   We  also  visited  URBN  Hotel,  China's  first  carbon-­‐neutral  hotel  in  downtown  Shanghai,   which  is  a  close  subs:tute  of  CityLife’s  current  service  offerings Project  Material   •  URBN  is  a  sustainable  project.  The   interiors  are  made  with  100%  locally   sourced  or  recycled  materials.   Design  and  Opera9on   •  They  install  energy-­‐efficient   technologies  and  hea:ng  and  cooling   systems,  and  use  organic  products  for   cleaning  and  maintenance.   Customer  Engagement   •  Calculate  customer’s  consump:on  of   carbon,  and  encourage  them  pay  for   the  “Carbon  Neutrality”.   •  Agreement  with  Climate  Bridge     Agenda •  •  •  •  •  •  •  Project  Goals  and  Approach   Industry  Analysis   Company  Analysis   Customer  Analysis   Compe:tor  Analysis   The  Next  Steps   Sustainability  for  the  Future   The  SWOT  analysis  for  CityLife  points  out  the  problem  that  weaknesses  and  threats  of  CityLife   seem  to  outpace  strengths  and  opportuni:es Strengths:   -­‐  High  quality  aker  service   implementa:on   -­‐  Knowhow  of  decora:on  and  design   Weaknesses:   -­‐  -­‐  -­‐  Less  bargaining  power  with  apartment  unit   owner  because  low  volume  of  units   Sales  and  service  department  had  different   understanding  of  company  value   Weak  opera:ng  cash  flow   Internal External Opportuni9es:     -­‐   Good  word  of  mouth  from  exis:ng   customer  for  increasing  new  customers   -­‐   Remove  the  agency  and  nego:ate  with   HR  of  MNC  directly   -­‐   Tenants  growing  awareness  on   environmental  considera:on   Threats:     -­‐  Similar  compe:tors  are  increasing   -­‐  Apartments  owner  is  more  willing  to   rent  the  house  directly  to  tenants,   bypassing  CityLife   Our  recommended  execu:on  strategy  aims  to  push  CityLife  into  the  premium  sector   of  its  kind  with  green  and  sustainability  as  its  differen:ator   “Green”  brand  establishment  (Short-­‐Term) •  Adopt  our  recommended    model  to  enforce  “green”   and  “sustainability”  into  its  customer  service •  Establish  CityLife’s  brand  as  a  green-­‐concept  service  apartment   provider Bypassing  Agents  (Long-­‐Term) •     CityLife’s  premium-­‐service  and  green  concepts  will  create  posi:ve  network            externali:es •     Its  uniqueness  in  the  market  will  allow  apartment  owners  (housing  suppliers)  and            MNC  HRs  (customers)  to  engage  with  CityLife  directly,  diminishing  the  roles  of  the            agents  on  both  ends  of  the  chain,  maximizing  CityLife’s  margin In  the  short  run,  CityLife  needs  to  quickly  re-­‐establish  its  brand  as  a  green,  CSR  service   apartment  provider,  providing  consistent  eco-­‐friendly  services  and  lifestyle  to  its  tenants Provide eco-friendly sheets washing service and promote bulk, non-daily laundry Provide carpool / sharing services and convenient locations for living CityLife’s   Green   Lifestyle Leverage TZG’s organic food business to provide organic food services or discounts Provide confortable premium apartments with green designs  CityLife’s   Green   Lifestyle Food safety solution •  Provide the delivery service of organic food and vegetables, leveraging TZG’s organic food stores Convenient green transportation solution •  •  •  Provide bicycle rentals to let tenants move around neighborhood; additional source of income Build a car-pooling platform and coordinate service to the tenants Offer apartments that are nearby subways or public transportations  CityLife’s   Green   Lifestyle Green living solution •  •  •  •  Eco-friendly laundry and detergent Promote multiple-day laundry rather than daily service Offer reusable shopping bags for grocery Non-toxic chemicals for housekeeping Safety living solution •  •  •  Provide environmentally friendly furniture and fixture Standardize each room with air and water filter Rather than by request, have all the units inspected and approved for no harmful odor In  the  long  run,  City  Life  should  bypass  agents  and  approach  house  owners  and   tenants  directly,  removing  agents  from  the  current  business  model   Although  ver:cal  integra:ng  the  agent  service  can  give  City  Life  more  market  power,  we  don’t  recommend  this   approach:   -­‐  Agent  market  has  no  dominator,  thus  less  risks  exist   -­‐  Ver:cal  integra:on  will  create  no  entry  barrier   -­‐  Ver9cal  integra9on  is  too  risky,  expensive,  non-­‐flexible  and  difficult  to  reserve,  especially  for  such  a  small   company  as  City  Life.   Thus  we  recommend  to  BYPASS  the  agents  and  directly  contact  the  suppliers  and  end  customers.  It  will:   -­‐  Reduce  transac9on  cost  for  agency     -­‐  Improve  reac9on  speed  to  demand  from  clients   -­‐  makes  City  Life  much  easy  to  build  up  its  KPI  system.  In  the  past,  it  is  hard  for  City  Life  to  classify    the  revenue   from  different  departments.  Under  the  new  opera:on  model,  City  Life  can  obtain  more  informa:on  to  do  a   performance  compensa:on.   Besides  leveraging  the  “Green”  service,  our  strategy  also  can  reduce  the  opera:ng  cost  of   CityLife,  especially  for  agencies’  commission  and  service  cost.     Rental  Income   Management  &   Service  income                              698,157     1.88%                              445,857     CM                              252,300     36.14%     Cost   M  &  S   income   2%   Revenue                36,392,397     Revenue     Cost:  Rental  Cost   Sales  commission     98.12%    27,421,825     1,555,179   20.38%   CM                    7,415,394     Source:  City  Life’s  Income  Statement  (2012)   ht Insig • According  to  income  statement  in  2012,  we  can  lean  that  City  Life’s  revenue  can  mainly   divided  to  two  parts-­‐  Rental  Income  and  Management  Income.     • Management  service  has  higher  contribu9on  margin  than  rental  service.   • Due  to  higher  and  higher  rent-­‐in  cost,  it’s  :me  for  City  Life  to  enlarge  its  management   service  parts,  which  has  higher  margin.   Rental   Income   98%   Our  team  believes  that  CityLife  can  reduce  its  service  cost  in  the  short-­‐run  and  then  reduce  its   cost  of  commission  in  the  long  run  by  exercising  the  new  strategy. Rental  cost   Business  tax  of  CL   Sales  commission  to  agent   Allowance  to    tenant   Apartment  service  cost     Cleaning  materials   Warehouse  expenses   Guest  shuele   Parking  rental   Total  cost  without  expenses             27,421,825       348,732       1,555,179       437,246       1,363,833       23,410       164,607       278,530       42,000       31,635,363             86.68%   1.10%   4.92%   1.38%   4.31%   0.07%   0.52%   0.88%   0.13%   100.00%   Although  the  rental  cost  become  higher  and   higher  due  to  the  increasing  fee,  our  strategy  of   focusing  on  service  can  make  City  Life  have   more  cash  for  opera9on  instead  of  ren9ng  in   apartments  at  beginning  stage.   Sales  commission  can  be  reduced  a  lot  if  City  Life   can  build  Up  its  own  system  to  manage  its  end-­‐ users.(Bypass  the  agencies)   By  leveraging  its  unique  green  service,  City  Life  not   only  can  enlarge  its  customers  but  also  can  reduce   its  apartment  service  cost.       Agenda •  •  •  •  •  •  •  Project  Goals  and  Approach   Industry  Analysis   Company  Analysis   Customer  Analysis   Compe:tor  Analysis   The  Next  Steps   Sustainability  for  the  Future   Resul:ng  from  the  four-­‐dimension  analysis,  our  recommended  strategy  for  CityLife  have  two  fronts:  defensive   (internal)  and  offensive  (external),  which  requires  a  balance  during  the  execu:on   Defensive  Strategy   •  Maintaining  the  exis:ng  service  in  English  and  hospitality   •  Draw  up  a  code  of  conduct  for  Stakeholders:  Supplier  and  employees   •  Set  up  compliance  system  of  monitoring  in  design,  renova:ons,  and  surroundings   •  •  Offensive  Strategy   Brand  reposi:oning  :  Highlight  the  image  of  company  with  strong  Greed  brand   Set  up  internal  “CSR  fund”,  which  is  accumulated  from  the  small  por:on  of  profit  by  all  stakeholders,  used  to  fund  CSR  ac:vi:es  and  internal  awareness   Balance  between  Defensive  Strategy  and  Offensive  Strategy     CityLife  needs  to  engage  all  its  stakeholders  in  the  value  chain  and  its  surrounding  communi:es  to  establish  CSR   awareness,  which  will  help  drive  its  profitability  and  intended  points  of  differen:a:on  from  compe:tors   Affiliate   Company   Primary  Key   stakeholders   Supplier’s   Workers   Sub-­‐contractors   TZG  Group   Suppliers   Tenants   Ra:ng     Agency   Government   Employees   NGO   Real  Estate   Agency   Community   Landlords   Media   Set up Integrated Code of Conduct for primary stakeholders Actively comply with government regulation or community codes CityLife  should  enforce  internal  regulatory  structure  on  primary  key  stakeholders   1st  Level  of   Influence   CityLife     Enhance  the  func:on  of  internal   compliance  team   Set  up  CSR  commieee   2nd  Level  of   Influence   Adver:se  the  code   of  conduct     Employees     Suppliers   Allow  to  provide  the   good  by  the  supplier   to  meet  the  minimal   CSR  condi:on   3rd  Level  of   Influence    Build  the   membership   between  CityLife   workers  and   supplier  workers     Supplier  Worker   Sub-­‐contractors   Establish  Enterprise   Resource  system  for   Informa:on-­‐sharing       There  are  eco-­‐friendly  cer:fica:ons  and  ra:ng  agencies  available  to  help  endorse   CityLife’s  apartments  and  service  offerings’  green  efforts   Furniture  Suppliers’   Criteria     •  ISO14000   •      •  CQC   •  CTC   Raw   material   •  No  standards  available  in   China  now   •  Raw  wood    furniture  or  CARB   cer:ficated   •  Tex:le:  Oeko-­‐Tex  cer:ficated   Produc:on   •  Waste  reduc:on   •  Raw  material  u:liza:on   Depose  &   Recycle   •  Waste  reduc:on   •  Raw  material  u:liza:on   Appliance  Suppliers’   Criteria     CityLife  should  enhance  ‘green”  awareness  internally    through  trainings  and  externally   through  partnerships  with  other  green  en::es   Carry  out  regular  training  sessions  to  address   the  significance  of  green  service  to  employees Annually  host  “green  service  contest”  and  reward   from  the  “Green  Fund” Sponsor  na:onal  environmentalist  campaigns  and   Partner  with  NGOs  in  recycling  or  waste  reduc:on         Appendix   In  this  Profit  sharing  system,  The  five  stakeholders  -­‐  suppliers,  two  agents,  and  tenants-­‐  are   involved  in  the  value  chain  of  serviced  APT  business  model Apartment Unit Owners Agents CityLife Agents Tenants 50% -­‐ Owners  lease  out   units  to  CityLife   via  local  agents   -­‐ Pay  lielie   aeen:on  on   post-­‐leasing   maintenance 5% -­‐ Agencies  who   help  CityLife   search  for   available  units   -­‐ Collect  upfront   agency  fees   when  CityLife   signs  with  unit   owners   Insigh 20% -­‐ Rents-­‐in   apartment  units   for  re-­‐leasing  to   foreign   expatriates   -­‐ Provide   property-­‐ management   services 10% -­‐ Reloca:on   agencies  refer   MNC  clients  to   CityLife   -­‐ Collect  upfront   commission   aker  CityLife   signs  with   MNC’s  HR   15% -­‐ Foreign   expatriates   sent  by  MNCs   -­‐ Unfamiliar   with  Shanghai   lifestyle  but   expects  APT   equivalent  to   EU  or  USA   t • There  are  acute  and  sensi:ve  conflict  to  allocate  the  profit  to  stakeholders,   which  is  aeributed  to  no  clear  role  or  guideline.   Suppliers  in  the  value  chain  –  Landlords  or  their  agents,  are  taking  an  advantageous  posi:on   in  the  value  chain,  due  to  the  housing  market  boom  in  Shanghai  for  the  past  20  years   Apartment Unit Owners Agents CityLife Agents Tenants Posi:on  in  the  value  chain:  High  (20%)   -­‐  Apartment  owners  can  be  considered  the   “suppliers’  of  the  value  chain,  providing  units   for  CityLife  to  rent-­‐in  and  re-­‐lease  to  tenants.   -­‐  Chinese  housing  market’s  rocket  growth  led   to  y.o.y  increase  of  housing  prices  and  rental   fees,  combining  with  shortage  of  available   units-­‐for-­‐rent  (supply  shortage)   -­‐  Apartment  owners  view  rentals  as   investments  and  see  liele  value  provided  by   CityLife  –  agrees  only  to  shorter  terms  and  re-­‐ nego:ate  for  higher  rental  fees  /  year   -­‐  Have  many  sources  of  demand  –  foreign   expatriates  are  only  one  of  the  many  types  of   tenants Posi:on  in  the  value  chain:  Low  (5%)   -­‐  These  local  agents  are  situated  near  the  proper:es   themselves,  looking  for  units  available  for  sale  or  lease   -­‐  Create  its  value  by  represen:ng  apartment  owners  who   possess  the  units  as  investments  but  have  liele  :me  to   handle  actual  leasing  nego:a:ons;  opportunity  for  CityLife  to   bypass  them   -­‐  Have  liele  to  no  incen:ve  to  handle  post-­‐leasing  services   such  as  repairs  and  maintenance  (unless  for  the  purpose  of   con:nuing  representa:on  in  the  future   -­‐  In  the  current  value  chain,  these  agents  will  align  their   interests  with  the  unit  owners  given  the  shortage  of  supply   and  the  saturated  market  of  housing  agents   -­‐  Will  maximize  its  revenue  by  agreeing  only  to  shorter  leasing   terms  with  CityLife,  hoping  for  more  frequent  transac:ons   and  y.o.y  increase  of  rental  commission   Though  genera9ng  liele  value  to  the  industry,  reloca:on  agents  capture  substan:al  value   forsaken  by  CityLife  in  the  current  business  model Apartment Unit Owners Agents CityLife Agents Tenants Posi:on  in  the  value  chain:  Low  to  Medium  (10%)   -­‐  These  reloca:on  service  providers  offer   bundling  services  for  expatriates  to  seele  down   in  China  with  ease,  including  pick-­‐ups  from  the   airport,  registra:on  at  police  sta:ons,  health   examina:ons…etc.   -­‐  Create  most  value  by  maintaining  close   rela:onships  with  MNC’s  HRs,  represen9ng   most  of  CityLife’s  current  tenants  and   poten9al  clients   -­‐  The  services  provided  are  highly  replicable,  but   CityLife’s  growing  reliance  on  them  to  contact   MNC  HRs  increased  their  value  and  let  these   agents  capture  a  substan:al  por:on  of  the   revenues  given  by  the  tenants  to  CityLife   Posi:on  in  the  value  chain:  Medium  to  High  (15%)   -­‐  As  the  end-­‐users  of  the  value  chain,  the  foreign  expatriates   look  for  not  only  high-­‐quality  apartments  that  provide  the   right  décor  and  loca:on  convenience,  they  also  demand   services  that  can  help  them  seele  in  China  comfortably   without  much  trouble   -­‐  As  rental  prices  increase  dras:cally  in  China  and  MNC’s   spending  on  expatriates’  expense  becomes  more   conserva:ve,  the  end-­‐users  are  more  price-­‐sensi:ve,  their   WTP  decreases,  unless  added-­‐value  services  are  evident  and   affordable   -­‐  Environmental  issues  in  China  are  growing  concerns  for   these  tenants,  resul:ng  in  increasing  demand  on   environmentally-­‐friendly  and  healthy  living  condi:ons   -­‐  Familiarity  of  living  in  China  allows  more  experience-­‐sharing   amongst  expatriates;  reloca:on  services  are  not  as  crucial   Posi9oned  in  the  center  of  the  chain,  CityLife  could  have  maximized  its  value  genera:on,  but   its  business  model’s  overreliance  on  agents  on  both  ends  quickly  squeezed  out  its  value Apartment Unit Owners Agents CityLife Agents Tenants Posi:on  in  the  value  chain:  Medium  (20%)   -­‐  As  the  “property  management”  service  provider,  CityLife  derives  its  value  in  the  chain  from  two  sources:  revenue   differences  generated  by  the  rent-­‐in’s  and  lease-­‐out’s  and  the  current  post-­‐rental  services  provided  to  the  tenants   -­‐  CityLife  could  capture  most  value  if  it  could  sign  long-­‐term  (3  to  5  years)  leases  with  apartment  owners  with  fixed   rental  fees;  on  the  other  front  it  could  lease  the  units  to  foreign  expatriates  whose  company  HR’s  could  afford  to   sign  longer  tenant  terms  (high  WTP),  genera:ng  high  differen:al  margin  in  between   -­‐  The  unfavorable  macroeconomic  condi:ons  and  CityLife’s  managerial  decisions  led  to  a  “triple  whammy”  effect  on   CityLife’s  value-­‐crea:on  ability  in  the  value  chain:   -­‐  Shanghai  and  major  Chinese  ci:es’  housing  prices  soared  in  the  past  three  years,  resul:ng  in  high  rents  and   shortage  of  available  units  for  rent,  resul:ng  in  unit  owners’  demand  for  shorter  terms  and  higher  rent,   increasing  CityLife’s  rental  costs   -­‐  The  global  economic  slowdown’s  effect  trickled  down  to  MNC’s  decision  to  send  fewer  overseas  expatriates   to  China,  decreasing  the  demand  side  of  the  value  chain,  further  eroding  CityLife’s  revenue   -­‐  CityLife’s  over-­‐reliance  on  agents  on  both  supplier  and  customer  sides  increased  its  searching  costs  and   passed  on  the  value  to  them,  which  could  have  been  retained  by  CityLife  itself       On  the  ver9cal  aspect  of  Five  forces  analysis,  ever-­‐growing  compe::on  in  the  finite  size  of   market  is  leading  the  profit  of  CityLife  to  be  decrease - The threat of entry depress margin - The threat of substitution decrease demand Threat of entry increase because… •  Low-middle barriers to entry •  Low investment required •  Less legal and regulatory barriers •  Attractive of China market size Threat  of  Entry Internal  Rivalry Subs:tutes   Complements Supplier  Power Buyer  Power Threat from substitutes/complements increase because… •  High service quality of 5 start hotel •  Apartment owner could directly negotiate with agency in order to rent to tenants On  the  horizontal  aspect  of  Five  forces  analysis,  CityLife  is  highly  likely  to  face  “Nut-­‐Cracker”   situa:on  due  to    the  claim  on  the  increased  pie  of  its  profit  by  stakeholders Bargaining power of suppliers increase because… •  High price sensitivity •  Switching cost is low for suppliers •  Well informed about market value •  Credible threat of vertical integration Bargaining power of buyers increase because… •  High price sensitivity •  Requirement for location, environmental cared facility •  Switching cost is low for buyers •  Over capacity of suppliers Threat  of  Entry Internal  Rivalry Subs:tutes   Complements Supplier  Power Intensity of rivalry increases because… •  Incentives to price rivalry •  Low differentiation from competitors •  Infrequent orders depends on the season or other factors •  Excess capacity Buyer  Power - Bargaining Power in input market (supplier) Pending  constraints  and  risks  factors  exist  that  CityLife  need  to  take  into  considera:on  before  adop:ng  our  proposed   strategy  and  ac:on  plans   d     s  face m Proble tyLife   by  Ci -­‐  -­‐  -­‐  -­‐  Does  not  have  enough  cash:  CityLife  rent-­‐ins  the  departments,  but  it  cannot  find  the  end  customers  soon.   Therefore,  CityLife  may  run  into  liquidity  risk  and  its  opera:on  risk  becomes  higher.   Agencies  charge  too  much  commission:  From  the  supply  side,  the  commission  to  the  agencies  is  not  very  high.   However,  it  is  hard  for  CityLife  now  to  find  enough  numbers  of  suppliers  (house  owners).  From  the  tenants   side,  the  commission  to  agencies  is  exaggeratedly  high,  about  80%  of  the  revenue.  And  it  is  also  not  easy  for   CityLife  to  find  the  suitable  tenants  itself.   The  opera9on  cost  becomes  higher:  Suppliers  (house  owners)  cannot  understand  the  service  and  the  core   value  CityLife  provides.  They  want  to  increase  the  rent  fees  or  even  rent  their  houses  themselves.  Therefore,   the  renewal  ra:o  is  not  high.   Lack  of  internal  standards  at  sales  department:  Although  CityLife  has  strong  sales  team  to  nego:ate  with   clients,  it  does  not  have  sound  sale  standards  and  KPI  index.  For  example,  its  salesmen  have  too  much  right  to   nego:ate  with  client  when  signing  contracts.  Therefore,  CityLife,  some:mes,  downplays  the  value  of   customers  service  in  exchange  for  fast  contact  signings.   Once  CityLife  picks  up  its  momentum  in  greener  opera:on,  it  can  head  towards  a  blue-­‐ocean  strategy,  leveraging  its  unique   green  service  offerings  as  points  of  differen:a:on  from  compe:tors   • Housing  Manager:   City  Life  has  a  very  strong  cleaning   team.  Therefore,  it  should  enlarge   their  service  to  more  house   owners.  Although  numbers  of  the   supplies  want  to  rent  their  houses   themselves  recently,  they  s:ll  need   to  someone  manage  their   departments.  By  doing  this,  City   Life  does  not  have  to  pay  the  large   numbers  of  money  to  rent-­‐in  the   houses,  the  model  that  increases   its  opera:on  risk.  It  just  provides   the  service  and  charges  the  fees  of   management.     • Customized  Service:   Because  City  Life  targets  to  the   business  people  in  the  big  foreign   companies.  Our  group  suggests  that   City  Life  should  do  some  specific   customer  surveys  in  order  to   understand  different  business  people.   For  example,  Japanese  and  Koreans   must  have  different  demand  for  their   life.  By  doing  so,  City  Life  can  provide   more  quality  service  for  their  clients.     • Informa9on  System:   Our  team  recommend  that  City  Life  also  needs   to  set  up  its  supplier  lists  as  soon  as  possible,   so  it  can  manage  its  clients  well.  On  the  other   hand,  if  City  Life  has  the  suitable  tenants,  it   can  introduce  to  its  suppliers  and  charge  for   the  commission.     • Green  Service:   The  core  value  of  City  Life  is  to  provide   beeer  life  for  its  customers.  As  we  analyze  in   posi:on  part,  City  Life  should  provide  more   green  service  for  its  clients.  For  example,   energy-­‐saved  furniture  and  equipment.       Once  CityLife  picks  up  its  momentum  in  greener  opera:on,  it  can  head  towards  a  blue-­‐ocean  strategy,  leveraging  its  unique   green  service  offerings  as  points  of  differen:a:on  from  compe:tors   ELIMINATE:   E-­‐R-­‐R-­‐C  Grid   -­‐  Part  of  Rent-­‐In   Transac9on   -­‐  Unnecessary  Sales   Nego9a9on   RAISE:   -­‐  Quality  of  Service   -­‐  Brand  Image   REDUCE:   CREATE:   -­‐  Liquidity  Risk   -­‐  Demand  of  Cash   -­‐  Cost  of  Opera9on   -­‐  Management   Package   -­‐  More  Service   Package   Once  CityLife  picks  up  its  momentum  in  greener  opera:on,  it  can  head  towards  a  blue-­‐ocean  strategy,  leveraging  its  unique   green  service  offerings  as  points  of  differen:a:on  from  compe:tors   Value  Curve   5   4   3   2   1   -­‐  New    -­‐  Original   House  owners   Tenants   Thank  You!   Q&A