How David Beat Goliath?
HONG KONG, Oct 30, 2014 - (ACN Newswire) - Many property developers have been adversely affected in a declining market. In fact, everybody knows that the golden days of "lying down to earn money without any efforts" have long passed. Large property developers have begun to to test the water to diversify through building subway lines, selling mineral water, running logistics businesses, etc. Facing daunting external pressures, if large developers want to maintain the original scale and pace of growth, they have to search for new drivers.
While large developers have been hurt, the situation is even worse for the smaller ones as the Matthew effect of the rich getting richer and the poor getting poorer is gradually becoming evident. According to statistics, the aggregate of M&A transactions in the industry has already totaled RMB98.8 billion in the first half of the year, higher than the RMB84.2 billion recorded during the same period last year. The value of each transaction this year was RMB1.3 billion in average, 255% higher than that of RMB366 million last year. The data strongly indicates that the property industry has entered a period of consolidation.
So, is there any way out for the mid-sized and small players? "Small but beautiful" is not a fairytale, so believe it or not, there is. There is a concept of "hidden champions" in economics in which these "champions" are not in the market spotlight, but they are the leaders in their respective niche markets, where they occupy a high market share and have devised unique competitive strategies.
Not long ago, The Affiliated High School of Peking University ("PKU Affiliated High School") and the PKU Resources Group signed a strategic cooperative agreement. At the time, both parties announced that the first batch of branches of PKU Affiliated High School will be opened in the projects of PKU Resources Group in Tianjin and Kaifeng. In addition to the educational facilities, PKU Resources Group also cooperates with Peking University and Founder Group, leveraging their competitive edge in financial services, IT, and medical sectors and incorporating such advanced facilities into different projects.
News of this strategy made many property developers green with envy. To boost sales through introducing schools and building housing within the catchment area of respected institutions of learning is an ideal business model and a bold venture for many developers. However, the reality of the market is cruel with many constraints such as matching of educational resources and enrollment quota for schools, so what most developers can do is just sigh with regret.
While PKU Resources is not large, it can still succeed in operating this business model. Wang Enge, President of Peking University, made an insightful comment, "Today, the same DNA of Peking University they share has facilitated their further integration, so they can take the first step to develop elementary education facilities based on Peking University's program and explore a reform and development model for the elementary education with features of Peking University's own program."
There is no way you cannot admire the success of their innovative efforts. PKU Affiliated High School and the PKU Resources Group are brothers in a business sense. Opening schools in other regions is nothing unusual given their respective business focuses as they are simply "integrating resources" that they already have.The case of PKU Resources is simply an example of how smaller developers can unlock their potentials in their respective areas of expertise. In fact, large developers are facing a dilemma. Adapting to change may point to a possibility of overpowering subordinates, while not changing may turn them into a frog in boiling water. And those "small beautiful" enterprises may occupy a strategically important position, establish a high technological entry barrier and enjoy a virtual monopoly and growing economies of scale.
This explains why many small developers are doing very well. Similar to PKU Resources, the fate of these companies are not tied up with the major trends. Actually the market trend has a minimal impact on them as they have focused on integration of resources and R&D. Under the current cooling market, focusing on further development, more effective integration of resources and innovation can enhance their competitive edge.
But the art of beating Goliath is never easy to master. To get the best results, smaller property developers need to stand out in three ways: unique resources, unique technologies and unique operational advantages.
Many developers had emerged during the "golden decade" of the property development industry. They entered the industry with no resources, no technology and no innovative ideas but huge capital resources. At that time, land premiums and the availability of property were increasing, and no one cared so much about technology and finished product. However, the market has since become highly volatile, although many developers seem to believe that they can overcome challenges with the strategies of boosting sales with lower prices and maintaining cash flow.
However, cutting prices is only a temporary fix. Exploring resources, enhancing product technologies, expanding integration and returning to the provision of quality product are the things that count. Even in these turbulent tides, small-to-mid-sized developers can distinguish themselves like PKU Resources and succeed despite the challenging conditions.
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