JLL Company in Russia & CIS - Case Study Example

JLL Company in Russia & CIS Table of Contents Table of Contents 2 JLL: EMEA Region and All over the World 3 Company Background & Services 3 s4 Financial Analysis & Market Share 5 JLL: Commonwealth of Independent States (CIS) region 7 Company Background, Services, Customers & Financials 7 Introduction PricewaterhouseCoopers (2014) reported continual growth of investment management activities in global real estate sector. In the next six years, real estate companies will observe two phenomenon’s such as, 1- slow saturation of real estate market in Europe, the Middle East and Africa (EMEA) region and increase in price competitiveness and 2- rise of opportunity to grow in Commonwealth of Independent States (CIS) region (PricewaterhouseCoopers, 2014). In order to analyze potential of these two phenomenons, the study has selected JLL (Jones Lang LaSalle Incorporated) Company which specializes in providing financial and professional services to real estate sector (Jones Langla Salle, 2014a). While analyzing the business operation of the JLL Company in EMEA and CIS, the study will use structural dimension of strategy framework (Rumelt, 2009; Olson, Slater and Hult, 2005). JLL: EMEA Region and All over the World Company Background & Services JLL is financial and professional services company that specializes in delivering investment management as well as financial solution to real estate sector (Jones Langla Salle, 2014a). The company is headquartered at Chicago, Illinois, USA. During 1999, JLL was founded through merger between Jones Lang Wootton and LaSalle Partners. In the last 15 years, JLL has involved in series of merger and acquisition activities to consolidate the real estate market and achieve leadership position in the field of real estate investment management sector. For example, the Chicago based real estate investment giant has completed more than 35 merger & acquisition activities and such strategic initiatives has fuelled organic as well as inorganic growth (Jones Lang LaSalle Incorporated, 2013). Li, Guohui and Eppler (2008) also suggested that companies can achieve organic as well as inorganic growth through strategic partnership and acquisition of resources. JLL offers real estate services (“RES”) to business segments located in three geographic region such as, 1- Europe, Middle East and Africa (EMEA), 2- the Americas and 3- Asia Pacific. As of 31st December 2013, JLL has earned annual revenue of $4.0 billion while services being offered to more than 70 countries (Jones Lang LaSalle Incorporated, 2013). Across the EMEA region and all over the world, the real estate investment giant has established more than 200 corporate offices in 1000 cities of different countries. Current employee base of the company exceeds the mark of 50,000 (Jones Lang LaSalle Incorporated, 2013). Service vertical of the company has two value drivers such as, 1- Corporate & Occupiers and 2- Investors & Developers (Jones Langla Salle, 2014b). Corporate & Occupiers: under this service vertical, JLL offers range of services such as administration/transaction management, facility management, portfolio management, strategic consulting, hotels & hospitality sector development, project financing, advisory services to retail customers and real estate research services (Jones Langla Salle, 2014b). Investors & Developers: under this service vertical, JLL offers range of services such as managing capital market transaction, asset management, corporate financing, property management, valuation of investment and supply chain & logistics consulting (Jones Langla Salle, 2014b). As of 31st December 2013, the Chicago based real estate investment giant has provided corporate facility management as well as property services covering 2.6 billion square feet (Jones Lang LaSalle Incorporated, 2013). During 2013, JLL has completed more than 30,000 transactions on behalf of landlord and tenant clients. On the other hand, capital markets services of the real estate investment giant worth more than $60 billion of client transactions. Investment management services of the company are named as LaSalle Investment Management which manages real estate assets having worth more than $47 billion (Jones Lang LaSalle Incorporated, 2013). Customers In EMEA region and rest of the world, JLL Company targets three types of customer segments such as, 1- retail and business clients looking for corporate facility and property management services, 2- landlord and tenant clients who are seeking advisory services and 3- clients looking for capital markets and investment management services (Jones Lang LaSalle Incorporated, 2013). For example, JLL Company provides corporate facility and property management services to UK based Premier Inn (one of the key player in budget hotel segment). On the other hand, landlord and tenant clients of Middle East countries take regular support from the Chicago based real estate giant regarding valuation of property, transaction management and selling of property. In African nations, JLL Company assists corporate clients and high net worth individuals regarding management of investment in property and maximizing return from capital market (Jones Lang LaSalle Incorporated, 2013). Financial Analysis & Market Share According to Zahra and George (2002) and Lehner (2004), multinational enterprises need to maintain sufficient financial (equity capital, investment availed from investors and debt capital) and non-financial (human resource, intellectual capital and technological capabilities) resources capability in order to implement strategic growth initiatives. In such context, JLL Company emphasizes on merger & acquisition activities in order to improve resource capability that can help the company to expand operations in Europe, Middle East and Africa (EMEA), the Americas and Asia Pacific. Real estate services of the Chicago based property giant can be categorized into five areas such as Leasing, Property & Facility Management, Capital Markets & Hotels, Advisory, Consulting & Other and Project & Development Services (Jones Lang LaSalle Incorporated, 2013). Cross tabulation of revenue earned from real estate service categories and regional geographies can be illustrated in the following manner ($ in millions); Figure 1: Revenue Earned in Real Estate Vertical of JLL (Source: Jones Lang LaSalle Incorporated, 2013) It is evident from the above diagram that market the Americas is the most important market for JLL Company in terms of volume as well value of transaction being generated. Except real estate project development and services, revenue growth has become stagnated for the real estate giant in EMEA region. Figure 2: Financial Data (Source: Jones Lang LaSalle Incorporated, 2013) From 2010 to 2013, JLL (Jones Lang LaSalle Incorporated) Company has witnessed continual growth in terms of revenue, operating income and market capitalization. In 2013, operating expenses of the company has reduced significantly. Net profit as well as profitability of the company has significantly increased due to combined impact of rise in revenue and decrease in operating expenses. Considering the research works of Hill and Jones (2012), it can be said that JLL has used ‘deliberate strategy’ mode decrease operating expenses through low cost resource acquisition and service diversification. In EMEA region, growth in terms of revenue, earning and market capitalization has become stagnated due to three reasons, 1- direct impact of economic slowdown caused by recession and sovereign debt crisis, 2- saturation of market opportunity due to entry of many players having similar kind of offering and 3- increase in real estate raw material cost and fluctuation in oil prices. In such context, JLL should look for exploiting opportunities in untapped markets like Commonwealth of Independent States (CIS) region. JLL: Commonwealth of Independent States (CIS) region Company Background, Services, Customers & Financials Interesting fact is that JLL has not been able to penetrate much in other 8 countries of CIS region except Russia. Figure 3: Geographic Penetration of JLL (Source: Jones Lang LaSalle Incorporated, 2013) In comparison to EMEA region or the Americas, only 5% of operating revenue is being generated for JLL from business operations in CIS region. CIS division of JLL offers mainly three services such as, 1- real estate outsourcing services to large companies and corporate clients looking for developing new property areas, 2- managing investment of real estate investors in Capital Markets and 3- consulting and helping landlord and tenant clients who are seeking advisory services (through sales, finance transactions and acquisitions). In Russia, JLL has delivered more than 323,000 square meter office space while at the end of July 2014, 11 new buildings (all buildings are located in Moscow) are delivered by the Chicago based real estate giant. Throughout Russia, Class A (54% of total volume of office space), B+ (44% of total volume of office space) and Class B- office spaces (2%) are delivered by JLL. Commercial, industrial and residential real estate sector are being covered by offerings of JLL. For example, President Plaza and Arcus III in Moscow delivered by JLL can be categorized as commercial real estate while commission of BC on Poklonnaya belongs to industrial real estate sector. As part of residential real estate offering, JLL has developed Third Transportation Ring (TTR) in Moscow (Jones Langla Salle., 2014c). Figure 4: Real Estate Portfolio of JLL in Russia (Source: Jones Langla Salle., 2014c) JLL targets commercial and industrial real estate sector in Russia due to three reasons, 1- demand for commercial spaces and office spaces is growing at year on year growth of 7.7%, 2- due to relaxation of government policies, industrial sector is growing consistently with the help of foreign direct investment (FDI) and 3- these two sectors are being underserved by existing real estate players (local as well international). However, beginning of the conflict with Ukraine might create unstable political situation in Russia in near future. There are possibilities that such tumultuous political situation might negative affect economic growth and international business opportunity in Russia. Impact of such macro environmental factors on financial performance as well as marketing activities of JLL in Russia needs to be assessed. In CIS region, JLL maintains property portfolio of more than 240 million square meters (Property Xpress, 2014; Jones Lang LaSalle Incorporated, 2013). On the other hand, as of 31st December 2013, the real estate giant had completed in sales, finance transactions and acquisitions worth $60 billion in CIS region (Property Xpress, 2014: Jones Lang LaSalle Incorporated, 2013). On behalf of business clients, some of the major projects for JLL in the CIS region include, A- Alcon which is Class A business complex located in Moscow, B- Avia Park which is shopping and entertainment complex located in Moscow and C- Centralny Detsky Magazin na Lubyanke which is retail and entertainment centre located in Moscow (Property Xpress, 2014). In CIS region, customers of the JLL includes public institutes, entertainment parks, retail chain looking for opening new stores, schools, oil companies planning to expand facilities and others. In Russia, real estate and property management segment of JLL has witnessed double digit growth rate in terms revenue, earning and EBIDTA. Decrease (new corporate tax rate is 20%) in tax rate in Russia and other CIS countries have significantly improved operating profit margin for JLL (Jones Lang LaSalle Incorporated, 2013). Based on the above discussion, it can be said that analyzing financial as well as marketing aspects of JLL in Russia can only identify the plausible external threats/opportunities. In such context, JLL needs to implement organizational changes to tap business opportunity in commercial, industrial and residential real estate sector of Russia. Based on financial and marketing analysis, the study will make suitable recommendation to JLL to implement the required organizational changes to tap business opportunity in Russia. Conclusion It is evident from the above discussing that growth opportunity for JLL is saturating in EMEA market while real estate boom in CIS region can be considered as growth opportunity for the company. In such context, it is up to JLL to take strategic initiatives to tap such growth opportunity and mitigate risks regarding saturation of real estate market in EMEA region. In order to understand business scope for JLL in Russia, the study will need to explore all the major Russian real estate market segments such as commercial, industrial and residential real estate. In the next section, the study will conduct financial as well as marketing analysis of JLL in context to commercial, industrial and residential real estate sector of Russia. As part of financial analysis, variance in investments, income and losses of JLL in Russia will be accounted. On the other hand, as part of marketing analysis, strengths and weaknesses of JLL in Russia will be analyzed through SWOT analysis while SOSTAC (Situation Analysis, Objectives, Strategy, Tactics, Action and Control) approach will be used to understand future marketing activities of JLL in Russia. Details of each approach related to financial as well as marketing analysis will be discussed in the next section. Reference List Hill, C. W. L. and Jones, G. R., 2012. Strategic management theory: An integrated approach. 10th ed. New Jersey: Cengage Learning. Jones Lang LaSalle Incorporated., 2013. Hello We are JLL. [pdf] Jones Lang LaSalle Incorporated. Available at [Accessed 13 August 2014]. Jones Langla Salle., 2014a. About. [online] Available at: [Accessed 9 August 2014]. Jones Langla Salle., 2014b. Services. [online] Available at: [Accessed 9 August 2014]. Jones Langla Salle., 2014c. Moscow office market: within H1 2014 the demand structure changed. [online] Available at: [Accessed 14 August 2014]. Lehner, J., 2004. Strategy Implementation Tactics as Response to Organizational, Strategic, and Environmental Imperatives. Management Revue, 15, pp. 460-480. Li, Y., Guohui, S. and Eppler, M. J., 2008. Making strategy work: A literature review on the factors influencing strategy implementation. Lugano: Institute of Corporate Communication. Olson, E. M., Slater, S. F. and Hult, G. T., 2005. The importance of structure and process to strategy implementation. Business Horizons, 48, pp. 47-54. PricewaterhouseCoopers., 2014. Real Estate 2020 Building the future. [pdf] PwC. Available at [Accessed 9 August 2014]. Property Xpress., 2014. JLL Russia & CIS. [online] Available at: [Accessed 9 August 2014]. Rumelt D. P., 2009. Strategy in a “structural break”. The McKinsey Quarterly: The crisis: A new era in management, (1), pp. 35–42. Zahra, S. A. and George, G., 2002. Absorptive capacity: A review, reconceptualization and extension. Academy of Management Review, 27(2), pp. 185–203. Read More