Market Know-How: Outsourcing Solutions

Sergei Abazarov, commercial development director at the company Vash Dom, says that outsourcing is an efficient tool for dealing with certain strategic tasks, which inevitably arise during commercial real estate development. “That [outsourcing] enables the company to focus on its core tasks without any damage to the quality of the end-product,” Abazarov says.

“Responsibility for certain operations within the production process is delegated to external companies who – given in their specialization in the management namely of those specific operations, are able to tackle them much sooner, cheaper and better, than we,” Valekh Rzayev, public relations director at Forum Properties.

Jobs to Outsource

Andrei Khalturin, general director of RIGroup, notes that the structure of a development firm directly depends on its growth strategy and objectives set by shareholders. The developer may have his own departments in charge of all business segments, from design to sales, and may even assume the role of a contractor for his schemes. But gathering strong managers versed in all those fields and ensuring maximum efficiency of each segment is an almost impossible mission.

That is why at different stages of the project certain operations may be outsourced, so that the company could direct its energy towards its core businesses. For example, when working on the commercial concept of the project the developer may commission a marketing survey by an external consultant. Valekh Rzayev says that Forum Properties finds it more convenient to hire specialized building firms rather than keep hundreds of builders on the company’s payroll. Quite often architectural design is outsourced as well, making it possible for the developer to hire a design bureau whose solution is seen as optimal in terms of style and planning, he adds. “For example, Forum Properties’ unique residential estate – the Roman House – was designed by Mikhail Filippov’s studio. We also work closely with Sergei Kiselyov and Partners studio, and with Sergei Choban. We also outsource design and installation of engineering systems in buildings under construction,” he says.

Developers often hire professional property consultants to perform market valuation of building plots or projects or to develop the concept of the future building. Real estate agencies are invited as sales or leasing agents.

The main advantages of outsourcing property management, according to Cushman & Wakefield / Stiles & Riabokobylko (CWSR), are as follows: the developer conserves his energy and may direct it at his core operations; he may reduce his own workforce and does not have to maintain contacts with utility providers and controlling bodies on his own. “Our clients attach significance to advice on competent maintenance of properties in accordance with Russian laws and regulations governing equipment and operation of properties, timely procurement of consumables, licensing, etc,” spokesperson for CWSR, Yelena Vassilieva, explains.

Sergei Abazarov says most often commercial developers outsource catering and cleaning services. “That boosts efficiency of operations, quality of infrastructure, makes it possible to offer customers services that are subject to licensing,” he explains. Andrei Korolyov, chief operating officer at Becar Commercial Property, agrees that cleaning services and technical maintenance of buildings are often outsourced.

“The developer may delegate the entire process of property operation to an external entity, or specific tasks, such as cleaning, waste disposal, operation of elevators and escalators, telecommunications support, maintenance of power supply networks, engineering lines, etc. Professional mall and office developers hire servicing companies as early as during construction stages. Companies offering security services also may be hired,” Khalturin says.

Dmitry Shmelyov, commercial director at ST Group Region, says that developers sometimes outsource even landscape design. A classic developer, in his opinion, is the one who outsources all jobs, excluding administration of the project and business development. Alexander Gurianov, public relations director at Century 21, adds that developers often need to address marketing and public relations tasks, manufacturing of advertising materials and promotional items. “To deal with those tasks developers often contact external companies either if they do not have their own departments to take care of that or if they are committed to outsource such services. Much depends on the size of the order. Outsourcing companies most often take over marketing, public relations, advertising, publishing, organization of corporate events and promotion, which often comprises all the aforementioned jobs,” Gurianov says.

Other frequently outsourced jobs are accounting and legal counseling. In particular, registration of a title to a real property is a highly complicated procedure whereby both companies and individuals encounter a variety of difficulties. As a result the Moscow market has seen emergence of a new business segment offering assistance in preparing and submitting applications for registration of titles and property deals. “On the whole it is quite possible to outsource all non-core operations and focus on coordination of the project,” Andrei Khalturin concludes.

Outsourcing Companies - Who Are They

Outsourcing companies are quite often selected through a tender. “A variety of factors are taken into consideration including bidders’ expertise and track record, size (professional workforce), feedback from major clients, optimal price/quality ratio, etc.,” Khalturin says.

Dmitry Shmelyov says that ST Group Region often holds tenders and invites international firms to make bids. By encouraging more bids both from domestic and foreign operators it is easier to obtain the best quality at acceptable prices, he is convinced. Customers also attach utmost significance to timing. At the latest tender held by ST Group Region a Turkish firm pledged to build 60,000sqm in 36 months, whereas a Chinese bidder promised to do the same job in 24 months, although at a price four times higher. The contract went to the Chinese.

Abazarov believes that the choice of an outsourcing company hinges on its reputation, experience, participation in completed projects, transparency and, of course, quality of service. Valekh Rzayev names the same criteria – reputation, expertise and quality. “Any decision to delegate a certain job to an outsourcing company is in fact an offer of hand and heart, no matter how coquettish that may sound. Importance needs to be attached to professional skills and personal qualities of their experts. At times you may come across a brilliant professional with whom it is hard to work, then cooperation stalls or the result of mutual efforts proves to be quite unsatisfactory,” Rzayev says.

Customers also demand that a sufficient number of employees be involved in the operation. “If someone is stuck in the elevator of an office center maintenance services in charge must take care of the problem as soon is possible. Or, for example, in case sliding doors are out of service in winter. The state of the entire property depends on how fast repair workers arrive. The company must also have top quality equipment,” Korolyov says. Some jobs should better be outsourced to companies authorized by specialized government bodies to carry out such operations. “For example where fire safety systems are concerned it would be advisable to hire a firm recommended by local fire authorities,” Korolyov adds.

Companies involved in businesses where creative approach is required such as architectural design or advertising are to provide a portfolio and feedback from other clients. “A large portfolio of orders and a feedback from agencies who have already enlisted services of that company is the priority,” Gurianov says. “The presence of the names of major leading realties on that list is likely to prompt the company seeking to outsource the job to decide in favor of that contender.”

The essence of outsourcing lies in offering top quality services at acceptable prices. Each company decides for itself on the optimal price/quality ratio. Dmitry Shmelyov, for example, says that design costs for a unique commercial property in Siberia will differ radically from the cost of design of affordable housing.

Although contracts are awarded mostly through tenders, certain business segments are monopolized. For example, Andrei Korolyov says, monopoly holders are suppliers of fire safety equipment, security firms and power suppliers. Andrei Khalturin adds that as the services market grows monopolies are becoming increasingly rare. However, in the capital, for example, the company MZhR (Moszhilregistratsiya) holds the monopoly on the market of services for registration of titles and deals with real property.

Virtually no monopoly holders have been left in advertising and public relations. “Although earlier, when the market was only being formed, there was only one company that manufactured neon shields, the other offered laser cutting of plastic. The third one produced display-letters for shields,” Alexander Gurianov recalls. Today, the market has expanded and those services are available from a variety of firms.

How to Outsource

A separate issue is organization of cooperation between the developer and a hired contractor. All experts agree that the client and the outsourcing company must enter into an agreement expounding all subtleties of their relationship: the duties and scope of authority of the contractor, accountability, timing and payment. Besides, the contract must provide for all contingencies that may arise so as to avoid disputes. In the course of its work the outsourcer is subject to control on the part of the developer.

Sergei Abazarov names three factors of successful cooperation. “To begin with, the outsourcer is to sign a contract that sets deadlines for all jobs and expounds obligations the outsourcer undertakes. Secondly, the outsourcer reports to the customer regularly on his progress and results of his work. Thirdly, the company must know the best solution to each problem,” the expert says. Payments are made usually in installments, paid in advance.

Of course, outsourcing has its advantages and disadvantages. The advantages include the opportunity to focus on core operations, being aware that all operations outsourced to external entities would be performed properly and finalized on time. The disadvantage is that an outsourcing company is hard to control if the customer is not versed in its field of business. While a unit operating within the company is always near at hand and its progress is easy to check and to control an outsourcer appears in your office only at agreed time and is not as attentive to the customer’s wishes. But then, finding a loyal company and establishing control over quality and timing is after all the job for a truly professional developer.