An Assessment of The South African Facilities Management Industry. March 2012 Final Deliverable

Transcription

1 An Assessment of The South African Facilities Management Industry March 2012 Final Deliverable 1

2 Project Background, Methodology and Definitions Project Background The South African Facilities Management Association (SAFMA) is an organisation that advances the interests of the Facilities Management (FM) Community in South Africa SAFMA s key objectives include: Facilitating and promoting skills development Promoting awareness and growth of the industry Creating a hub for knowledge and information In order to gain better insight into the South African FM industry and provide its members with a substantiated view, SAFMA approached Frost & Sullivan to undertake a detailed assessment of this industry In response to this request, Frost & Sullivan conducted an assessment of this industry, the results of which are presented in this report South African FM Industry: Report Structure, Executive Summary 2. Introduction to The South African Facilities Management Market 3. Overview of The South African Facilities Management Market 4. Outsourced Facilities Management Market 5. In-house Facilities Management Market 6.Service Perception and Skills Analysis 7. Strategic Conclusions Source: Frost & Sullivan 2

3 Project Background, Methodology and Definitions Project Methodology and Definitions In conducting this analysis Frost & Sullivan utilised both primary and secondary research methods South African FM Market: Project Approach, 2010 Primary research involved collecting empirical data from market participants regarding market revenues, growth rates and employment figures. This was done through telephonic interviews with key individuals within relevant organisations Secondary research involved utilising Frost & Sullivan s internal database as well as publicly available information such as company annual financial statements and industry publications *Some organisations were contacted more than once Source: Frost & Sullivan Approximately 45* interviews were conducted across 36 organisations in this industry. The majority of the interviews where targeted towards in-house FM companies that include major banks and engineering firms Eight out of the13 major outsourced FM companies participated in this analysis 3

4 SAFMA Table of Contents Executive Summary Slide 6 Introduction Slide 6 Industry Overview Slide 7 Key Market Drivers and Restraints Slide 9 Summary of Major Findings Slide 10 Introduction to The South African Facilities Management Market Slide 16 Project Rationale Slide 17 Aim and Objectives of the Project Slide 18 Scope of the Project Slide 19 Consulting Approach Slide 20 Methodology Slide 21 Definitions and Acronyms Slide 22 Overview of The South African Facilities Management Market Slide 24 Industry Overview Slide 25 Regulatory Environment Slide 28 Industry Challenges Slide 31 Market Drivers Slide 39 Market Restraints Slide 42 Market Revenues and Growth Forecast Slide 45 4

5 SAFMA Table of Contents (Contd ) Outsourced Facilities Management Market Slide 47 Market Overview Slide 48 Market Revenues and Growth Forecast Slide 51 Employment Analysis Slide 60 Competitor Analysis Slide 62 In-house Facilities Management Market Slide 67 Market Overview Slide 68 Market Revenues and Growth Forecast Slide 71 Employment Analysis Slide 79 Service Perception and Skills Analysis Slide 81 Service Perception Analysis Slide 82 Skills Analysis Slide 85 Strategic Conclusions Slide 88 Key Market Issues Slide 89 Current Initiatives Slide 91 Conclusion Slide 93 5

6 Executive Summary Introduction The South African Facilities Management (FM) industry is currently at its growth stage and experiencing steady growth South African Facilities Management Market: Market Overview, 2010 The industry is yet to receive formal recognition from government institutions such as Statistics South Africa, which has potentially been a hindrance to the development of the industry In 2009 the economic recession drove most companies to implement more cost-effective measures of running and maintaining their operations. This involved outsourcing some of their FM services in order to reduce labour costs and focus more on their core operations Source: Frost & Sullivan The South African FM market is expected to become more formalised as industry participants keep track of market developments This is anticipated to improve on the level of service delivery thereby increase demand for FM services This analysis aims to map out the FM industry, determine the size of the market and its sectors and determine the current levels of employment in the industry 6

7 Executive Summary Industry Overview South African Facilities Management Market: Market Segmentation, 2010 South African Facilities Management Market Outsourced FM Market In-house FM Market Integrated FM Companies Functional Service Providers FM Managers Functional Service Providers (In-house) Functional Service Providers (Outsourced) Source: Frost & Sullivan The South African FM market is segmented into outsourced and in-house FM market segments The outsourced FM market is characterised by integrated facilities management companies as well as functional services providers The in-house FM market is characterised by functional service providers that are managed by endusers internally 7

8 Executive Summary Industry Overview (Contd ) Integrated facilities management companies provide multiple services that include hard and soft services as well as business support Hard services refer to services that are central to the operations of a company. Essentially, hard services include technical services such as upgrading and maintenance building technologies Soft services are services that are regarded as being non-core to the operations of a company. Soft services generally include cleaning, catering, gardening and security Business support services generally include administrative services such as HR management, administration and finance, supply chain management and risk management. Further, they include typical FM services such as reception, switchboard and CAFM support services. Facilities Management Market South African Facilities Management Market: Market Segmentation, 2010 Source: Frost and Sullivan Most FM companies use internal expertise for hard services and outsource soft services to functional service providers Integrated Facilities Management Functional Service Providers Generally functional service providers provide soft services such as cleaning, catering, health and safety and asset management services Hard Services Soft Services Business Support Soft Services 8

9 Executive Summary Key Market Drivers and Restraints The South African FM market is characterised by various market drivers that include amongst others: Cost benefits of outsourcing FM services The need for companies to focus on core operations through outsourcing the asset management function These drivers have varying degrees of impact on the market. The cost benefits of outsourcing FM services are expected to have the greatest impact on the market in the medium to long term Major market restraints currently affecting the FM market include: Stiff opposition to outsourcing FM services in the industrial sector Perception that FM services can be managed more cost effectively in-house Delayed approval of government contracts Infrastructure development in the commercial and public sectors South African FM Market: Overview of Market Drivers, 2010 South African FM Market: Overview of Market Restraints, 2010 Stiff opposition to outsourcing FM services in the industrial sector Increased focus on energy management and green buildings The need for companies to focus on core operations through outsourcing the asset management function Perception that FM services can be managed more cost effectively inhouse Cost benefits of outsourcing FM services Delayed approval of government contracts Source: Frost & Sullivan 9

10 Executive Summary Summary of Major Findings Market Revenues In 2010 the South African FM market was valued at ZAR24,814.4 million Approximately 70.0 percent of total market revenues were generated by the in-house FM market segment Most end-users currently prefer managing functional service providers internally. This gives them greater control over the quality of service delivered South African FM Market: Percentage Revenue Breakdown, 2010 Outsourced FM Services, 30.0% South African FM Market: Overview of Market Revenue, 2010 Sector Revenues (ZAR Million) Commercial 17,411.6 Public 4,917.9 Industrial 2,484.9 Total 24,814.4 Note: All figures are rounded; the base year is Source: Frost & Sullivan The commercial sector contributed the bulk of market revenues. In 2010 this segment generated approximately ZAR17,411.6 million, representing 70.2 percent of total market revenues In-house FM Services, 70.0% Note: All figures are rounded; the base year is Source: Frost & Sullivan The public and industrial sectors generated approximately 19.8 and 10.0 percent respectively Currently, these market segments make extensive use of in-house FM management rather than outsourcing this function 10

11 Executive Summary Summary of Major Findings (Contd ) South African FM Market: Market Revenues and Growth Rates, Revenues (ZAR Million) Revenue Growth (%) Revenues (ZAR Million) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Revenue Growth (%) Revenues (ZAR Million) 24, , , , , ,428.4 Revenue Growth (%) Market Revenues (Contd ) Note: All figures are rounded; the base year is Source: Frost & Sullivan The South African FM market is anticipated to achieve a growth rate of approximately 6.3 percent in Between 2011 and 2015 the market is anticipated to experience steady growth and achieve a growth rate of 7.2 percent by 2015 Growth in market will be mainly driven by infrastructure development and the increased need by enduser to outsource their FM functions. This will allow companies to focus on their core operations 11

12 Executive Summary Summary of Major Findings (Contd ) Outsourced FM Market: Employment and Skills Analysis, 2010 Integrated Facilities Management Company FM Managers Functional Service Providers (In-house) Functional Service Providers (Outsourced) Employment and Skills Analysis Source: Frost & Sullivan The outsourced FM market is characterised by integrated facilities management (IFM) companies. These companies employ both FM managers and functional service providers. Further, FM companies also outsource functional service providers in cases where they lack the relevant expertise In 2010 the South African outsourced FM market employed 6,395 people. These included FM managers and in-house functional service providers. However, the figure excluded outsourced functional service providers 12

13 Executive Summary Summary of Major Findings (Contd ) Employment and Skills Analysis (Contd ) Approximately 6.7 percent of the total number of employees in the outsourced FM market were FM managers while the majority, 93.3 percent, were functional service providers The number of employees is anticipated to increase from 6,395 to 7,788 between 2010 and Growth in the number of employees is anticipated to achieve a CAGR of 4.0 percent between 2010 and 2015 The number of people employed in the in-house FM market proved difficult to quantify However, most employees in the in-house FM services market were involved in the provision of cleaning, security and catering services These three segments represented 73.0 percent of the total number of people employed Outsourced FM Market: Percentage Breakdown of Number of Employees, 2010 FM Managers, 6.7% Functional (In-house), 93.3% In-house FM Market: Percentage Breakdown of Number of Employees, 2010 Gardening, 10.6% Building repair and maintenance, 5.4% Security, 24.4% Electrical and lighting, 1.7% Catering, 12.4% FM Management, 8.4% Hygiene services, 0.9% Cleaning, 36.2% Note: All figures are rounded; the base year is Source: Frost & Sullivan 13

14 Executive Summary Summary of Major Findings (Contd ) Employment and Skills Analysis (Contd ) Some of the most critical skills in the South African FM market include FM management, technical knowledge and the coordination of various FM services These skills are currently in short supply due to the lack of adequate training programmes and accredited training facilities in South Africa Currently, the FM market lacks an accredited qualification for FM managers. This is negatively affecting market development as employers are unable to determine the correct skills set required for competent employees South African FM Market: Overview of Skills Rating (1-low, 10-high), 2010 Numeracy Computer Literacy Training FM Management Tender Processing Technical Knowledge 9.0 Coordination 8.0 People Skills Note: All figures are rounded; the base year is Source: Frost & Sullivan FM managers are required to possess a unique combination of skills that include finance, HR and technical skills amongst others. This makes it difficult to identify relevant individuals in the market Due to the lack of critical skills in this market, most companies have resorted to internally training their employees in order to ensure that their skills are up to standard and that best practices are upheld in the industry Key 1 Least Important 10 Most Important 14

15 Executive Summary Summary of Major Findings (Contd ) Service Perception Most organisations currently view FM services as a cost that negatively impacts on profits FM services are considered to be secondary requirements that do not form part of a company s core operations. Hence companies strive to minimise any costs related to FM services South African FM Market: Overview of Service Rating (1-low, 10-high), 2010 Key Administrative 5.0 Gardening Catering 1 Least Important 10 Most Important FM Management Cleaning Building Maintanance and Repair 9.0 Security Technical Support Source: Frost & Sullivan South African FM Market: Service Rating, 2010 Rank Attribute 1 FM Management 2 Building Maintenance and Repair 3 Technical Support 4 Security 5 Cleaning 6 Catering 7 Gardening 8 Administrative Source: Frost & Sullivan FM management, building maintenance and repair and technical support are considered to be the most important services in this industry However the level of service delivery has been severely compromised due to the critical skills shortage in the country 15

16 SAFMA Table of Contents Introduction to The South African Facilities Management Market Project Rationale Slide 17 Aim and Objectives of the Project Slide 18 Scope of the Project Slide 19 Consulting Approach Slide 20 Methodology Slide 21 Definitions and Acronyms Slide 22 16

17 Introduction to The South African Facilities Management Market Project Rationale The South African Facilities Management Association (hereafter SAFMA) supports, represents and advances the cause and interests of the Facilities Management (hereafter FM) Community in South Africa. Some of SAFMA s key objectives include: To facilitate, promote and support skills development and thereby enhance the supply of skills To create a home for the industry for reference knowledge, information or direction To promote awareness and growth of the facilities management industry and enhance the credibility of FM In light of these objectives, SAFMA wishes to gain better insight into the South African FM industry with the aim of better supporting their members and presenting a substantiated view of the FM industry to members and government Key Report Chapters Regulatory Environment Industry Challenges and Market Dynamics Market Revenues and Growth Forecast Employment Analysis Skills Analysis Service Perception Source: Frost & Sullivan 17

18 Introduction to The South African Facilities Management Market Aim and Objectives of the Project OBJECTIVE 1: Develop an overall view of the FM market in South Africa to establish market dynamics and the current operating environment The aim of this project was to provide SAFMA and its members with insight into the South African FM services market and determine market size, number of people employed and the importance of the market in South Africa OBJECTIVE 2: Perform an in-depth analysis of the outsourced FM market including market quantification, competitive landscape and current employment levels OBJECTIVE 3: Analyse the status of the in-house FM market including market quantification and current employment levels OBJECTIVE 4: Develop an understanding of the perception of FM services and the skills involved OBJECTIVE 5: Provision of strategic conclusions drawn from the research conducted 18

19 Introduction to The South African Facilities Management Market Scope of the project SERVICE SCOPE Outsourced FM In-house FM TARGET MARKET SCOPE Public (including parastatal) sector Commercial sector Industrial sector GEOGRAPHIC SCOPE South Africa 19

20 Introduction to The South African Facilities Management Market Consulting Approach Frost & Sullivan utilised tried and tested marketing techniques to provide structure to the research and an easy format to compare results across different market segments. The project was carried out using primary research (telephone or face-to-face interviews) and secondary (published and online material) as the principle methods of data gathering. The focus of the interviews for this project primarily included the respondent types outlined in figure below. Respondent Type Target Designations Type of Information Facilities management companies Functional service providers Company Directors General managers HR managers Marketing and Sales managers The size of the market and their operations The trends in the market Key participants Employment numbers Drivers, restraints and Challenges Commercial, industrial and public sector end-users Company Directors Facilities managers Procurement managers General managers Office managers Perception of FM FM requirements Own Skill abilities Reason for using outsourced or inhouse FM 20

21 Introduction to The South African Facilities Management Market Methodology For the primary research, Frost & Sullivan developed discussion guidelines for the targeted respondents. Our experienced team of consultants, with good technical and commercial understanding of the industry, had discussions / interviews with senior stakeholders / managers in the targeted organisations. This approach enabled Frost & Sullivan to go beyond basic market information and obtain an in-depth understanding of end-user perceptions within the FM market Frost & Sullivan utilised a 3 step approach to perform the analysis 1. Internal Expertise 2. Secondary Research 3. Primary research Frost and Sullivan tapped into the cross-industry expertise in the various business units to understand industry dynamics Secondary research was utilised to determine key market dynamics and the competitive landscape in the Facilities Management market Primary research focused on obtaining specific insight from market participants regarding their needs and capabilities Market analysis to support SAFMA understand the South African FM market 21

22 Introduction to The South African Facilities Management Market Definitions and Acronyms Definitions Outsourced FM Services: The service provided by a dedicated Integrated Facilities Management (IFM) company who manages a selection of contracted service providers with the aim of providing maintenance and operational services to a business facilities In-House FM Services: The internal management of all functional service providers by end-users Commercial Sector: The commercial sector is characterised by shopping malls, retail outlets, corporate offices and the tourism and hospitality industries Public Sector: The public sector involves local, provincial and national government buildings. In addition it also includes public healthcare and educational institutions as well as other public buildings such as airports, bus and railways stations Industrial Sector: The industrial sector includes companies in the energy and power, automotive, food and beverage, mining, petrochemical, manufacturing and steel Hard Services: These refer to services that are central to the operations of a company. Essentially, hard services include technical services such as upgrading and maintenance of building technologies Soft Services: These are services that are regarded as being non-core to the operations of a company. Soft services generally include cleaning, catering, gardening and security 22

23 Introduction to The South African Facilities Management Market Definitions and Acronyms (Contd ) Acronyms SAFMA: South African Facilities Management IFM: Integrated Facilities Management BIFMA: British Institute of Facilities Management IFMA: International Facilities Management Association GBCSA: Green Buildings Council of South Africa 23

24 SAFMA Table of Contents Overview of The South African Facilities Management Market Industry Overview Slide 25 Regulatory Environment Slide 28 Industry Challenges Slide 31 Market Drivers Slide 39 Market Restraints Slide 42 Market Revenues and Growth Forecast Slide 45 24

25 Overview of The South African Facilities Management Market Industry Overview The South African Facilities Management (FM) industry is characterised by both outsourced and in-house FM services The industry has enjoyed steady growth in recent years and although being a large employer of people, it lacks formal recognition and direct support from government For example, the FM industry is not recognised or tracked by Statistics South Africa Generally, functional services employ more people when compared outsourced FM services South African FM Market: Industry Segmentation, 2010 Functional Service Providers Facilities Management Services Market Outsourced FM Services Integrated FM Service Providers In-house FM Services Functional Service Providers Source: Frost & Sullivan Further, in-house FM services are much more preferred than outsourced services due to various reasons that include security concerns in some sectors The outsourced portion of the FM industry is dominated by large, well established companies and in recent years the sector s growth has attracted international players 25

26 Overview of The South African Facilities Management Market Industry Overview (Contd ) In 2010, approximately 30.0 percent of the revenues generated in this market were attributed to the outsourced FM segment. The bulk, 70.0 percent, was attributed to the in-house FM segment Currently, most end-users in this market prefer internally managing functional service providers. This is viewed as a cheaper alternative to outsourcing FM management services Hence, opportunities exist for FM companies to provide services to end-users currently utilising in-house FM services South African FM Market: Industry Overview, 2010 In-house FM Services, 70.0% Outsourced FM Services, 30.0% Note: All figures are rounded; the base year is Source: Frost & Sullivan The recent economic recession stimulated demand for FM services across all end-user segments in South Africa. Infrastructure development, concessionary agreements and the anticipated establishment of FM as an official industry are expected to continue driving demand for FM services 26

27 Overview of The South African Facilities Management Market Industry Overview (Contd ) The South African FM market segments are currently at various stages in their life cycle The commercial sector is the most advanced segment in this market, currently experiencing the highest growth and development Between 2010 and 2015, this sector is anticipated to continue experiencing high growth as most companies outsource their FM functions in order to focus on their core business operations The public and industrial sectors are currently in their early growth stages but are expected to progress into the high growth stages during the forecasted period Growth Stage South African FM Market: Life Cycle Analysis, Development Growth Mature Decline Commercial Public Industrial The adoption of the Immovable Asset Management Act in 2007 is expected to Market Age drive demand for FM services in the public sector Source: Frost & Sullivan The industrial sector is currently the least developed FM segment in South Africa. However the expansion of industrial activities is expected to drive demand for FM services in South Africa 27

28 Overview of The South African Facilities Management Market Regulatory Environment Currently, there s no specific legislation that directly regulates the FM industry in South Africa However, various pieces of legislation have an indirect impact on the market and these include: Occupational Health and Safety Act (2007) Black Economic Empowerment Act (2003) Labour Relations Act (1995) Immovable Asset Management Act (2007) Construction Industry Development Board Act (2000) The GBCSA aims to promote the development of green buildings in the commercial property sector. This is achieved by providing a forum for all participants to collaborate in promoting sustainable building and energy saving practices The adoption of green building practices is anticipated to influence demand for FM services as organisations seek specialist services for energy and environmental management The establishment of various associations such as the South African Facilities Management Association (SAFMA) and the Green Building Council of South Africa (GBCSA) has facilitated the formalisation of the industry SAFMA aims to promote the development of the FM industry by facilitating skills development and networking among industry participants 28

29 Overview of The South African Facilities Management Market Regulatory Environment (Contd ) Occupational Health and Safety Act (1993) Black Economic Empowerment (BEE) Act (2003) Labour Relations Act (1995) The Occupational Health and Safety Act (1993) aims at providing for the health and safety of persons at work in connection with the operation and maintenance of the industrial plants and machinery The need to provide for the health and safety of employees has necessitated the need for FM services The Black Economic Empowerment (BEE) Act aims at addressing historic imbalances in South African society. It includes measures such as employment equity, skills development, ownership, management, socioeconomic development and preferential procurement BEE is an important criteria for awarding tenders in South Africa as companies that possess sound BEE credentials have an advantage in the tender selection process The Labour Relations Act stipulates that every employer is required to provide employees with written contracts of employment, which regulate the terms and conditions of employment Often, this piece of legislation acts as a barrier under circumstances where an organisation decides to outsources its services, resulting in the retrenchment of some employees 29

30 Overview of The South African Facilities Management Market Regulatory Environment (Contd ) Immovable Asset Management Act (2007) Construction Industry Development Board Act (2000) The Immovable Asset Management Act provides for a framework for the management of assets that are owned and operated by government departments The act aims at ensuring the alignment of immovable asset operations with service delivery objectives This aim is achieved through various objects that include: Ensuring accountability for capital and current works Monitoring the acquisition, reuse and disposal of immovable assets Proper maintenance of current immovable assets The protection of the environment and South Africa s cultural heritage through proper utilisation of immovable assets The act is anticipated to create numerous opportunities for FM companies operating in the public sector The Construction Industry Development Board Act (CIDB) was established through an act of Parliament (Act 38 of 2000), with the aim of providing strategic leadership and promoting sustainable growth in the construction industry This act stipulates the standards that FM companies operating in this industry need to comply with 30

31 Overview of The South African Facilities Management Market Industry Challenges The South African FM market is characterised by various challenges that are currently affecting the development of the industry South African FM Market: Overview of Industry Challenges, 2010 Industry challenges are viewed as obstacles that all companies experience and which they need to overcome in order to attain a competitive advantage in this industry Major challenges that currently exist include the critical shortage of skilled personnel and the limited recognition of the FM industry in South Africa. These challenges are anticipated to have the greatest impact on the market in the medium to long term Other challenges that include limited interaction between FM companies and end-users are expected to have a low impact in the medium to long term. The need to formalise the industry will necessitate stakeholder interaction and collaboration among various participants 1. Critical shortage of skilled personnel 6. Limited interaction between FM companies and endusers 5.Lack of competition within the market 2. Limited recognition of the FM industry in South Africa 4. Lack of appreciation of FM services by end-users 3. Lack of adequate BEE partners Source: Frost & Sullivan 31

32 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Challenge 1-2 Years 3-4 Years 5-7 Years Critical shortage of skilled personnel Low High Low High Low High Limited recognition of the FM industry in South Africa Low High Low High Low High Lack of adequate BEE partners Low High Low High Low High Lack of appreciation of FM services by end-users Low High Low High Low High Lack of competition within the market Low High Low High Low High Limited interaction between companies and end-users Low High Low High Low High Key : Low High 32

33 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Critical shortage of skilled personnel Currently, there is a critical shortage of skilled professionals in the South African FM market The FM market lacks skills that are most pertinent in management and those positions that require technical skills There are few people in FM management who possess the diverse set of skills required to perform the role effectively and efficiently. This is exacerbated by the lack of accredited FM management training courses Technical skills in building maintenance and repair, electrical and lighting, plumbing, IT support and HVAC are severely lacking. The lack of skills in these roles is not particular to FM, but to the entire country Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Critical shortage of skilled personnel Lack of adequate BEE partners Limited recognition of the FM industry in South Africa 33

34 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Limited recognition of the FM industry in South Africa The FM industry has not been formally recognised by the South African Government as a key source of employment for thousands of South Africans Industry participants perceive this to be a key contributor to the lack of development of accredited training courses Further, the concept of outsourcing FM services is often misunderstood as implying a loss in control of key functions within an organisation Most institutional property owners value the relationships they have with their customers hence they prefer directly interacting with these clients through managing the FM services themselves Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 34

35 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Lack of adequate BEE partners The formation of strategic BEE partnerships is critical when bidding for government contracts in this industry These partnerships with black-owned companies is an important consideration when companies are awarded tenders Currently, some of the major FM corporations are struggling to form partnerships with local BEE companies due to the limited number of major operators of this nature Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 35

36 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Lack of appreciation of FM services by end-users Most end-users simply regard FM services as cost cutting initiatives. FM is mostly viewed as a method of reducing operating costs rather than a strategic function within an organisation Often they do not recognise FM services such as building maintenance and repairs as an investment that ensures the long term viability and reliability of machinery and infrastructure This results in such services being allocated insufficient funds from the total budgets and eventually receiving limited attention However, research has shown that having a sound FM system enhances corporate performance and development Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 36

37 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Lack of competition within the market The South African outsourced FM market is dominated by a few major companies that offer their services to major end-users in the commercial and industrial sectors Approximately 47.6 percent of the entire outsourced market is controlled by the top three FM service providers High levels of dominance by major companies have limited the degree of competition within this market The presence of large companies inhibits market penetration by smaller FM operators Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 37

38 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Limited interaction between companies and end-users The outsourced FM market is characterised by limited interaction between FM companies and end-users Most FM companies do not fully understand end-user requirements and concerns. This is the reason why most end-users prefer inhouse solutions when compared to outsourced FM services Most end-users do not fully understand the level of skills possessed by some FM companies. This has resulted in a general perception that most companies do not have the relevant skills to effectively provide FM solutions Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 38

39 Overview of The South African Facilities Management Market Market Drivers The South African FM market is currently driven by various factors that include the need to minimise operational costs by outsourcing FM services to professional FM companies South African FM Market: Key Market Drivers, Drivers 1-2 years 3-4 years 5-7 years Other factors that are anticipated to be major drivers of growth include: The need for companies to focus on core operations through outsourcing the asset management function Infrastructure development in the commercial and public sectors Increased focus on energy management and green buildings Market drivers are anticipated to have various impacts on the market. The increased focus on energy management is expected to have a significant impact on the market in the long-term Cost benefits of outsourcing FM services The need for companies to focus on core operations through outsourcing the asset management function Infrastructure development in the commercial and public sectors Increased focus on energy management and green buildings Impact Source: Frost & Sullivan Analysis High Medium Low 39

40 Overview of The South African Facilities Management Market Market Drivers Explained Cost benefits of outsourcing FM services FM services present cost benefits to companies that outsource such services The outsourcing of FM services is viewed by some companies as a viable option to manage their facilities rather than undertaking the function themselves The recent economic recession resulted in companies opting to outsource their FM services in order to reduce operational expenditure The need for companies to focus on core operations through outsourcing the asset management function The outsourcing of FM services enables companies to focus on their core operations This allows such companies to increase their productivity by strategically aligning their FM functions with their corporate objectives in order to focus on their core operations Further, companies require effective management of their assets by outsourcing their FM services Source: Frost & Sullivan Analysis 40

41 Overview of The South African Facilities Management Market Market Drivers Explained (Contd ) Infrastructure development in the commercial and public sectors Increased focus on energy management and green buildings Infrastructure development has resulted in the increased need for FM services in South Africa The public sector, which is mostly funded by the government is currently undertaking extensive infrastructure development projects to boost the current public infrastructure in South Africa Increased construction activity in the public sector, specifically in the healthcare and educational sectors are expected to drive demand for FM services The increased focus on energy management and green buildings has been a major driver of FM services in South Africa The Green Buildings Council of South Africa (GBCSA) was established with the aim of promoting energy saving in the property sector Green buildings is a developing initiative in South Africa and most companies are aligning facilities management with energy saving by making their facilities managers undertake sustainability management functions as well Hence professional input is required from FM providers on the effective installation and maintenance of green technologies and practices in buildings Source: Frost & Sullivan Analysis 41

42 Overview of The South African Facilities Management Market Market Restraints The South African FM market is also characterised by various factors that restrain market growth. These market restraints include: Stiff opposition to outsourcing FM services in the industrial and public sectors Perception that FM services can be managed more cost effectively in-house Delayed approval of government contracts The stiff opposition to the outsourcing of FM services in the public sector is anticipated to have a continuous impact on the market. This is mainly due to the reluctance by most industries to outsource maintenance and repair services from FM companies Further the high levels of unemployment in South Africa have resulted in stiff opposition to outsourced services by labour unions in the public sector South African FM Market: Key Market Restraints, Stiff opposition to outsourcing FM services in the industrial and public sectors Perception that FM services can be managed more cost effectively in-house Delayed approval of government contracts Impact High Medium Low Restraints 1-2 years 3-4 years 5-7 years Source: Frost & Sullivan Analysis 42

43 Overview of The South African Facilities Management Market Market Restraints Explained Stiff opposition to outsourcing FM services in the industrial and public sectors Currently there is stiff opposition to the outsourcing of FM services in the industrial and public sectors The outsourcing of FM functions to private companies is often viewed as a threat to job creation by labour unions such as COSATU Unemployment, which is estimated at approximately 26.0 percent, remains one of South Africa s biggest challenges Most labour organisations are fundamentally opposed to the outsourcing of contracts to private companies because of their ideological views Perception that FM services can be managed more cost effectively inhouse The FM industry is restrained by the perception that FM services can be managed more cost effectively in-house End-users are therefore highly reluctant to outsource their FM functions in order to minimise operational costs Source: Frost & Sullivan Analysis 43

44 Overview of The South African Facilities Management Market Market Restraints Explained (Contd ) Delayed approval of government contracts Most contracts in the public sector are awarded through a competitive bidding process Often this process involves various parties and numerous stages that are rigorous and time consuming. The tendering process for government projects is prolonged and tedious and can be an expensive exercise at times Further, the evaluation and awarding of contracts is often poorly managed and this results in the delayed approval of government tenders Source: Frost & Sullivan Analysis. 44

45 Overview of The South African Facilities Management Market Market Revenues and Growth Forecast Total FM Market: Market Revenues and Growth Rates, Revenues (ZAR Million) Revenue Growth (%) 40, Revenues (ZAR Million) 35,000 30,000 25,000 20,000 15,000 10, Revenue Growth (%) 5, Revenues (ZAR Million) 24, , , , , ,428.4 Revenue Growth (%) Total FM Market 5.8 Note: All figures are rounded; the base year is Source: Frost & Sullivan In 2010 the South Africa FM market was valued at ZAR 24,814.4 million. This market is anticipated to achieve a growth rate of 6.3 percent in 2011 and a CAGR of 6.8 percent between 2010 and

46 Overview of The South African Facilities Management Market Market Revenues and Growth Forecast (Contd ) Total FM Market (Cont ) The South African FM market is mostly dominated by the commercial sector. This sector was valued at ZAR 17,411.6 million in 2010 and contributed 70.2 percent of total revenues The public sector was the second biggest market segment with revenue contribution of approximately 19.8 percent The industrial sector remained the smallest segment and contributed 10.0 percent to market revenues South African FM Market: Percentage Breakdown of Market Revenues, 2010 Public Sector, 19.8% Industrial Sector, 10.0% Commercial Sector, 70.2% Sector South African FM Market: Overview of Market Revenues, 2010 Revenues (ZAR Million) Commercial 17,411.6 Public 4,917.9 Industrial 2,484.9 Total 24,814.4 Note: All figures are rounded; the base year is Source: Frost & Sullivan Note: All figures are rounded; the base year is Source: Frost & Sullivan Growth in this market is anticipated to increase constantly during the forecast period and achieve a growth rate of approximately 7.2 percent in 2015 Market growth is expected to be mainly driven by the uptake of outsourced FM services in the commercial sector 46

47 SAFMA Table of Contents Outsourced Facilities Management Market Market Overview Slide 48 Market Revenues and Growth Forecast Slide 51 Employment Analysis Slide 60 Competitor Analysis Slide 62 47

48 Outsourced Facilities Management Market Market Overview Overview The South African outsourced FM market is characterised by integrated facilities management companies that manage a selection of contracted service providers with the aim of providing maintenance and operational services to business facilities Outsourced FM services are divided into three distinct end-user segments namely: Commercial Public Industrial The commercial sector is characterised by endusers in corporate, financial, retail, tourism and hospitality industries The public sector is characterised by both government services and parastals The industrial segment includes all major endusers in the manufacturing and mining sectors Outsourced FM Market: Market Segmentation, 2010 FM Market Public Industrial Commercial Source: Frost and Sullivan The concept of outsourced FM solutions is fairly new to South Africa when compared to the European markets. This is the reason why most end-users still prefer in-house FM solutions However, a significant number end-users are gradually embracing outsourced FM services as they seek to focus on their core business operations 48

49 Outsourced Facilities Management Market Market Overview (Contd ) Outsourced FM Market: Services Offerings, 2010 Outsourced FM Solutions Soft Services Hard Services Business Services Cleaning Catering Gardening Security Landscaping Repairs and maintenance management Hygiene and pest control Storage Health and safety Asset management Procurement services Work-place needs analysis Property maintenance Plumbing Access control HVAC maintenance Technical support IT support Building management System development Strategy implementation Service evaluation Tender management Utilities management Office installations Admin and finance HR management Risk management Supply chain management Regulatory compliance Help desk services Office filing and document management Relocation management Services and product management Structured procurement and logistics Source: Frost & Sullivan 49

50 Outsourced Facilities Management Market Market Overview (Contd ) Overview (Contd ) South African FM companies offer a range of technical and non-technical services Technical services typically include access control and energy management services Non-technical services are the less complex services that include cleaning, catering and gardening services Some FM operators offer full turkey solutions to end-users in this market. These include the management of all aspects of the contract, from initial feasibility to procurement and vendor payments Other operators tend to outsource most of their soft service requirements. However, most of their hard services are provided in-house On the other hand, some FM companies outsource services that are governed by legislation in order to avoid any legal implications The provision of remote monitoring and building management systems is fast becoming a popular service offering in this market Such services are considered to be highly convenient and much more efficient than physical monitoring of facilities 50

51 Outsourced Facilities Management Market Market Revenues and Growth Forecast Total Outsourced FM Market: Market Revenues and Growth Rates, , Revenue (ZAR Million) 8, , , , , , , Revenue Growth (%) 1, Revenues (ZAR Million) 5, , , , , ,003.7 Revenue Growth (%) Total Outsourced Market Note: All figures are rounded; the base year is Source: Frost & Sullivan In 2010 the outsourced FM market was valued at ZAR 5,774.9 million. This market is anticipated to achieve a growth rate of 6.2 percent in 2011 and a CAGR of 6.7 percent between 2010 and

52 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Total Outsourced Market (Contd ) Growth in this market is anticipated to be mainly driven by the need to reduce operating costs by endusers FM services are viewed as viable options to reduce costs associated with the management of facilities Further, end-users can focus on core operations while FM companies manage their FM functions. This enhances the level of productivity within companies The construction of new infrastructure across all the major sectors is expected to have a positive impact on the FM market. Currently, the government of South Africa has developed plans to ensure drastic improvements in the level and quality of infrastructure in the country This infrastructure will require frequent maintenance and repairs, which will create opportunities for FM companies In addition the public sector and government parastatals are slowly realising and appreciating the benefits of outsourcing FM services Major organisations such as Telkom currently outsource their FM functions in order to improve on productivity and achieve cost savings through outsourcing 52