In the past, few companies had international teams to develop effective strategies, create standards and employ consistent work processes across all property types and all business units.
Organizations with locations worldwide would often have corporate real estate resources available but, more often would rely on the foreign business units themselves to negotiate and coordinate CRE decisions. Very often professionals given the authority to make decisions were sales directors, logistics managers, human resource coordinators or the business leaders themselves.
Many of these professionals did not possess the requisite real estate expertise as they already had a full-time role on which their career advancements would be judged so real estate and facilities was not given the priority it deserved. Sometimes the tactical decisions were made without strategy and proved inefficient at best, costly at worst.
Expanding manufacturing companies entering new markets and navigating transitional economies often had to evaluate joint ventures, consortiums or establish their own facilities. Securing office space and lease vs. buy decisions were driven by cost, flexibility and corporate policy.
Some of the inherent challenges include:
- unpredictable time for permitting and approvals – different countries have differing levels of approval processes
- bureaucratic inconsistencies – difficult to identify officials responsible in administering laws governing the operation and ownership of facilities
- government/legal uncertainty – interpretation and inconsistency of laws/legislation and lack of coordination between authorities
- animosity toward foreign investment – varying levels of acceptance of civil servants to welcome foreign companies to operate within their country
- unsatisfactory transportation and telecommunications infrastructure – critical to the success of getting materials to/from market and transferring data are acceptable modes of transport, internet and telephony
- differences with property rights and real estate law – privatization of land, reform and ownership present unique challenges that require substantial internal/external counsel to determine rights and privileges
Today, managing global portfolios is made easier based on several factors:
Sarbanes-Oxley Compliance – With the passage of the Sarbanes-Oxley Act in 2002, US-based public corporations and the companies that support them are now held to a higher standard of accountability. Compliance requires that automated or manual CRE procedures must be documented and consistently repeatable across multiple business units to reduce the number of different business processes being monitored. An information system provide a secure environment to document every transaction and process producing more reliable information and improves the accuracy of the audit trail.
Information Systems – Enterprise-wide information systems help CRE professionals become more productive and knowledge-based decision support more effective. Systems can manage transaction risks, facilitate work requests and perform property services due to more complete and accurate information. A team of professionals located in one country with counterparts located around the globe can utilize a common information platform enabling enterprises to operate more efficiently, responsively and profitably. Systems enable roll up reporting to aggregate occupancy cost information, calculate future rent obligations and manage environmental sustainability initiatives.
Use of Outsourced Professionals – The emergence of truly international service providers allow global companies to align with real estate service providers who can provide brokerage, tenant representation, and construction/project management to develop and execute strategy and establish global management agreements. While compensation models pose another set of challenges, the benefits of accessing a global network with local market knowledge are irreplaceable.
The good news is that the ability to overcome challenges to managing large, complex portfolios are made much easier with a combination of compliance, technology and people.
What solutions have you found to be effective in managing a global corporate real estate portfolio?