Sample: Implementation of International Business Strategy, Results from Real Estate company: CA Co.
4.3 Results from Real Estate company: CA Co.
The company is a leading real estate player in India operating since 2007. It entered Indian markets through a joint venture and the primary business of the company is in the area of developing residential properties, commercial properties, retail and hospitality. Additionally the company also has identified healthcare, education and infrastructure as future business lines for growth in the market. Various aspects of the real estate development is included in the operational span of CA Co. and includes identification of land and its acquisition, planning of the project, designing, marketing and execution.
One of the senior manager from legal department of the company explained that real estate sector is a flourishing one in all of the developing countries. It is a sector where in the demand is rising and the supply is constant. This makes it a luring opportunity as the prices of land and property rise. It leads to the growth of this industry. The formation of strategies in the real estate sector is extremely important as there are several fluctuations in the real estate sector and these have to be considered by the real estate dealers and agents. Buying and selling of property requires building of an understanding about the real estate market as well as the criticalities of this business. It requires the completion of several legal procedures and checking of background while transferring of property along with formation of anticipation about the prices, valuation and future trends of the value of property. This leads to a differentiating factor in case of strategizing at the national level and the global level in a real estate business
The executives interviewed of the company reported that it was necessary to enter Indian real estate market through a joint venture so as to gain a detailed knowledge of the market, needs and preferences of consumers, rules and regulations associated with the industry, etc. As real estate in Indian market is highly regulated it was necessary to enter through a joint venture to get in depth information about various rules and regulations regulating the Indian real estate. Further there are several challenges in Indian real estate that related to limited market history of property, procedural complexities, title complexities, non availability of title insurance and lack of urban planning. These difficulties and challenges can be managed only with the help of local people, who are well aware of the types of ownership of properties, local language, culture and beliefs of people in the market.
The respondents from the finance department reported that Indian real estate markets have potential of huge investments but there lies certain snags to such investment. The opaque nature of business in India is the top most challenge and records of ownership and land titles act as one of the biggest blind spots in valuation of properties.
It was further reported that a real estate business in a country like India is highly dependent on price fluctuations. In this way it becomes very important for a real estate business to focus on price variations. The real estate business in India is governed by its laws regarding land and property. Accordingly the real estate agents formulate their strategies. They form a mediator between buyers and sellers. This helps them make profits through the agent commissions that these firms earn. This requires them to have a network with buyers and sellers. Hence it is difficult to spread this network at an international or global level. The work flow of the real estate business is based on the number of dealings that they make it possible o occur. This involves the clause that they earn commissions only when dealing takes place and do not earn commissions just for showing several properties to the client. Real estate agents earn commissions from both the buyers and sellers of the property. They have fixed percentages as commissions in case of sale of property as well as renting out of property. These form the basic factors and criteria that impact the real estate business. The real estate business requires a well populated market where in the value of land is high and the property is limited. In case of nations where in land is freely available, a real estate business might have to suffer unless and until they are not involved in land development and construction businesses at the same time. In this way a real estate business operates on several strategies and needs to consider specific elements like legal system and market demands of a nation before it can enter international markets or form its global strategies.
The strategic department of the organization reported that the most critical and the most challenging task while operating in Indian markets is creation of right products and right business models suiting the country's environment. The long term sustainability of the company depends highly on its ability to design its business model and its way of responding to unique market challenges and opportunities raised by the market. Here it was necessary to localize the parts of the value chain for obtaining Indian cots and capability benefits. The company focused on labour/capital trade-off, brand recognition, cost structure, regulation and global platforms and scale to achieve the efficiency in its operations in India.
The senior managers for strategic department explained that one of the best practice for a real estate business while forming its global strategies is to focus on the demographics of a nation as well as its legal environment apart from the market conditions and the market functioning. Some of the markets functioning indicate that land prices shall vary based on demand and supply. Other markets like that of several developed countries indicate that there has to be a rise in demand for the real estate sector to pick up momentum which cannot happen in the near future. As the supply is greater than the demand, the market potential for a real estate business is really low. This results in a real estate business having to diversify into project development and construction businesses in order to survive as the scope of real estate businesses is limited. Then the best practice for global strategies in real estate sector becomes to choose among similar countries where development takes place based on similar market conditions and then utilize their knowledge and experience in several markets. In this way they can form global strategies only in a wider context. The best practices of several firms indicates that they require the usage of customized strategies for each of the countries and even in each of the states in actual practice, mainly due to the large variation in market conditions and procedure for buying, selling and renting of land and building. For example, there are several moral hazards in case of investing and banking and the one that is being faced in case of Afghanistan and investments in Kabul bank as the assets of this bank are mostly illiquid leading to several possible issues in the long run. Its dependence on the United States of America is an ethical dilemma as the amount of risk it bears is not associated with the position of America and this might lead to it acting very differently. So, it cannot be possible to deal in a similar manner in USA and in Afghanistan. Similar factors and differences are required to be considered while operating in Indian markets.
While designing country-specific models and business strategies some major challenges faced by CA Co. were the large variations in paying capacity of people in India, distinct tastes and habits from rest of the world and large diversity found itself in India, dispersed population and fragmented real estate sector of the country. Further the interviewed executives reveled that the nature of this business is high risk and high return, thus complicating the conducting process of this business. Moreover there are several legal issues that occur in conducting real estate business all over the world. There would be a requirement of a high capital in order to conduct a large scale real estate business. Competition and several such factors including macro environmental factors, political and demographical factors also led to several problems in the real estate sector. Hence most of the real estate firms prefer conducting global strategies which are based on customization of strategies in order to suit the needs of the specific markets as well as the specific segments. In this way it is possible to ensure that there are several factors that are considered before entering the international real estate market as it can otherwise lead to numerous problems.
The company realized the need of offering tailored made products to Indian markets. While operating in India it is necessary to understand the climate of the country along with the working conditions and specific design requirements to suit Indian needs and preferences. The company worked by taking a long term view of Indian markets and building strong reputation for high standards of quality of the products as well as the service provided to the customers. The company has also invested heavily on its people and allowed them to localize all the operations from marketing teams to senior management. This provided the company a key benefit of having people that have a real and an in depth understanding of Indian markets as well as strong linkage with the supply chain of India. The executives of the company reported that the lessons learned in India have helped the company in expanding elsewhere in developing countries in a successful manner. The company has followed the route of joint ventures to enter in other developing countries also. This has helped the company in gaining the advantage of local linkage and ensures the success of the venture by offering products as per the needs and preferences of Indian consumers. In this way they have been able to manage their business as not only dealings in property are propagated as need for space but also as an investment option.
The HR department of the company reported that it is difficult to conduct operations in India. This is due to the large diversity found in the country that affects the differences in needs and preferences of consumers. There is shortfall in infrastructure in India. Further labour laws of India prove to be a challenge for real estate companies. All such conditions call for taking a long term view of Indian markets and building a presence there for the future. When CA Co. started its operations in India there was a need of setting up of a new mindset about the transferable capabilities and the process of allocating the resources. As opposed to leveraging the existing internal knowledge of the firm there was need to unlearn and new perspectives on appropriate metrics and valuable capabilities were required. This was so because the company realized that sharing of existing knowledge could result in preventing the success because of the existing biases and thus new ways were to be found out for overcoming the gaps and biases in existing knowledge base related with Indian property market. In order to move further in Indian markets there was a need to have high level of strategic support. For building this support the company focused on benchmarking the competitors and using the metrics for evaluating economic as well as social benefits. Going beyond the traditional capabilities and mindset allowed the company to take the advantage of the substantial opportunities provided by Indian real estate markets.
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