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1. Introduction Goodwill Management Limited ("Goodwill") is one of the largest property management company in Hong Kong. It is a wholly owned subsidiary of Henderson Land Development Company Limited ("Henderson"), which is one of the top four land developers in Hong Kong. The chairman Dr. Lee Shau Kee is one of the wealthiest man in the world. Goodwill, Hang Yick Properties Management Limited ("Hang Yick") and Well Born Real Estate Management Limited ("Well Born") are the three property management companies of Henderson. Goodwill is mainly responsible for the leased office tower and shopping arcade. Currently, there are 26 premises under our direct management and 7 premises under our indirect management. Most of the landlords of these premises are Henderson Real Estate Agency Limited, another subsidiary of Henderson. Therefore, Henderson will be our internal customer while the tenants of those premises will be our external customers. 2. The Importance of Michael Porter's "Five Forces of Competition" in the Property Management Industry According to Michael Porter's of Harvard Graduate School of Business, the state of competition in an industry depends on the following five basic forces. The collective strength of these forces determines the ultimate profit potential of an industry. Understanding these sources of competitive pressure, our company can formulate our strategies accordingly so as to achieve the highest efficiency and effectiveness. 2.1 Threat of New EntryFactors like economies of scale, product differentiation, capital requirement, etc., will determine how easy or hard it is for new competitors to enter an industry. In fact, the threat of new entry for the property management industry is quite little. On one hand, the whole property management market is monopolistic. There is merely no legislation or specific requirements for new entrant to get into the market. Notwithstanding, on the other hand, the market for the major market segment as well as the future trend are oligopoly. The new entrant can only take the management of some old or small premises. It is almost impossible for them to obtain the management 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 own property management company to take care of the management of its premises. A few famous independent property management companies like Guardian Property Management Ltd., and Jones Lang Wootton Management Services Ltd. also taken up a considerable share of the remaining market of independent premises without associated management company. Hence, the target market for new individual entrants is very limited and not profitable which hinder the growth of these new entrants. 2.1.1 Economies of ScaleApparently, large companies can realize the economies of scale which lower the average costs. The new entrant will definitely cannot enjoy this advantage since the market share is incomparable to the large company in the industry. 2.1.2 Product DifferentiationBrand identification also creates a barrier to the new entrants. No matter it is a commercial building or residential building, most owners/ tenants will spend more than half of their day in it. Moreover, many valuable assets are keeping there. It is therefore very important to choose a reliable property management company to do the management. New entrants will need to put extra effort in promoting itself, creating brand identification & customer loyalty, etc. 2.1.3 Capital RequirementProperty management can be described as a multidisciplinary profession with a comprehensive coverage across different professions to furnish quality service to the tenants. Therefore, the capital requirement is quite high for property management industry. The major costs include:l salary/wages, retirement & medical benefits of direct staff;l cleaning services;l security guard services;l public utility bills (e.g., water, electricity, telephone, fax, etc.)l repair & maintenance cost (e.g., lifts & escalators, air-conditioning system, public antenna, pumping & drainage, fire alarm system, security system, etc.)l insurance (e.g., property-all-risk, third party liability, employee compensation, machinery breakdown, money-all-risk, fidelity, etc.)l ratesl staff uniforml advertising (for the company & for recruitment of staff)In addition, the new entrants are difficult to achieve economies of scale as well as having better bargaining power & quantity discount. These new entrants will have a price disadvantage compared with the market leaders or competitor with large market share. 2.1.4 Access to Distribution ChannelsAs the major land developers all having its associated management company, the remaining market is small and extremely competitive. The new entrants will need to adopt extensive promotional activities and intensive selling to the landlords/ tenants. 2.1.5 Government PolicyBoth the previous Hong Kong Government and the existing Government of Hong Kong Special Administrative Region put no limits to the entry of new company into the industry. However, there are many laws & regulations that property management company has to comply with it. For example, Building (Administration) Regulations, Building Management Ordinance, Housing Ordinance, etc. 2.2 Bargaining Power of Suppliers/ContractorsFactors like the degree of supplier concentration and the availability of substitute inputs will determine the power that the suppliers/ contractors have over the companies in the industry. Fortunately, the bargaining power of suppliers/ contractors in property management industry is relatively low. The main suppliers that management company requires are security service company, cleaning service company, and some others companies for maintenance and repairing. As their markets are very competitive, the bargaining power of them is insignificant. 2.3 Bargaining Power of BuyersFactors like a buyer's volume, buyer's information, and the availability of substitute products will determine the amount of influence that buyers have in an industry. In fact, the bargaining power of buyers, (which could be the landlords, individual owners or tenants) are only moderate. Especially for those management companies which are affiliated with the land developers/ landlords, the bargaining power is almost not exist. Although it is the individual owners/ tenants who consume the service directly, it is the landlords of the premises who choose and pay the management company. The individual owners/ tenants have only little or even no influence on the decision in selecting the property management company of their building. 2.4 Threat of Substitute Products or ServicesFactors like switching costs and buyer loyalty will determine the degree to which customers are likely to switch their business to another competitors. For the property management industry, the threat of substitute services is minimal. Every building requires a certain level of management and care taking. Owing to the decreasing numbers of single or low-storey houses and increasing numbers of high density estate homes and high-rise buildings, the demand of much formal or professional management service is keep increasing so as to cope with the higher standard of living in Hong Kong. 2.5 Rivalry Among Existing CompetitorsFactors like industry growth and product differences will determine how intense rivalry among companies in the industry. Basically, the competition and rivalry for property management are not so keen just because the potential 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 gradually lowering of inflation rate and implementation of large infrastructure projects now under way will likely continue to enhance the overall growth of the economy. Moreover, the demand for residential premises will continue to be strong due to the positive growth prospect of the Hong Kong population in the near term contributed in part by more than fifty thousand immigrants permitted from the People Republic of China each year. The government planning authorities have recently made known their view that Hong Kong will continue to encounter a sizable shortage of residential units for the first few years after the turn of the decade. With the limited housing supply and a growing housing demand in Hong Kong, the prospect for local residential property market is promising, too. Almost every premise, e.g., factory, shopping arcade, residential building, office building, club house, parking log, etc., needs a management company to look after the daily operation of the building. This huge and booming market is mainly shared by about 20 major companies. Every company has its share of potential market. There is no need to compete or rival intensively to gain market share. 3. The Sources of Competitive Advantages of Goodwill Management Limited - One of the Largest Companies in the Property Management Industry According to Michael Porter's analysis, management must select a strategy that will give its company a competitive advantage. The selected strategy should be based upon the company's strengths and competitors' weaknesses. 3.1 Organizational Aspects 3.1.1 Economies of DiversityHenderson is practicing the economies of diversity and fully utilizes its resources with the three property management companies. These three companies of Henderson can manage different types of property. Goodwill takes care of the shopping arcade and office tower. Hang Yick is responsible for the factory and old residential building. Wellborn looks after the new residential building. Every company concentrates and specializes in a particular type of property.
3.1.2 FlexibilityThe three brotherhood 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...
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