By Tariq Chauhan, Group CEO of EFS Facilities Services Group.
The general economic indicators indicate testing times and remind businesses to adopt a caution mode. With rising interest rates, supply chain disruptions and the conflict in Europe, a global economic slowdown is a reality.
Unfortunately, like others, the FM (Facilities Management) industry too is slipping into it. The time has come for FM leaders to focus on elements of business resilience as cost escalations driven by interest rates and other market forces require a comprehensive plan to neutralize.
However, the regional FM is overwhelmed with challenges, not just those driven by the global impact but includes regional trends with new players joining the market and impacting the landscape and, unfortunately, this time, not for better. The rising competition is indeed a reality, with more global players eying the regional markets to offset their losses elsewhere. Besides, there are many more local majors entering FM eyeing a gold rush.
Apart from the competition, what is mainly impacting is the free fall in gross margins. What is triggering this? Market consolidation, labour inflation, supply chain costs, and current interest rates are playing havoc.
Portfolio consolidation by large entities is a common issue in Saudi Arabia and the UAE. Mega real estate companies and powerful entities are all consolidating. This is indeed a matter of concern for independent FM operators. These entities continue to consolidate the FM portfolios by moving into self-management, driving down FM costs through aggressive procurement and leaving pure-play FM players with workforce engagements only.
These are also based on input manpower, leaving little room for them to adopt any strategies to innovate or offer output-based service offerings. There is little in these engagements to improve margins.
Stretching payment delays
Further putting FM players under severe pressure is the poor adherence to timely payments by clients. Between them and OA-related businesses in the UAE, the average is crossing 150 days, which is worrying. Being a manpower-centric business, 70-80 per cent of the cost is employees’ salary, which is paid monthly.
With mounting receivables, imagine the cashflow situation of most FM companies. The situation is grim and needs attention from all stakeholders, more so from the large entities.
While we seek market corrections, I recommend FM companies diversify their risk by building a mixed portfolio that reduces the risk of long ageing and introduceS new revenue streams to expand the service matrix. This will provide some profit uptake to improved margins.
My appeal to large clients is to build sustainable strategies and partnerships to support the larger good of the FM industry. Their current disregard of FM’s intrinsic cost and long payment tenors is not helping. These pressures continue to weaken the industry.
Clients must know that their actions are counterproductive to their own long-term goals. The continuing delays and aggressive market consolidation by certain players will only add to the challenges of maintaining sustainable built environments.
Source: Gulf News