Smoothing the way with transaction management
Company executives with an eye on setting up headquarters or satellite offices in mainland cities accept they will come across the need for guanxi at some stage.
Some have less palatable names to describe this use of connections and well-placed individuals to smooth deals and secure that new office in a strategic location. Yet as the mainland becomes more vital to multinational ambitions, companies and property agents are realising they need more than good old guanxi to secure the best office lease terms.
Welcome to the world of transaction management - a new field of expertise on the rise in the property agency business. And it is becoming more crucial when international companies want to reduce and manage risk while navigating the mainland's complex - and in some cases arbitrary - property laws.
'Companies need another layer on top to control problems that may arise as well as providing a good landlord check on their portfolio,' said Ben Tindale, head of transaction management in China for Jones Lang LaSalle.
A transaction manager will be an expert in mainland and international real estate with a strong background in accountancy and compliance, Mr Tindale told a forum at the Office Space Asia Conference in Hong Kong recently.
Agents and executives at the helm of office leasing deals have their own share of horror stories to relate about deals gone wrong. These range from buildings crumbling because anti-freeze was used in the cement, to senior executives pulling their hair out as they are left waiting way beyond the completion date to move into a supposedly swish, gleaming high-rise. As for recourse to the courts and arbitration, well that's another grey area when it comes to mainland deals and a situation best avoided by ... you guessed it, using a transaction management (TM) team.
Microsoft and HSBC are two examples of multinationals that insist on TM when sourcing, but use it in different ways. With only three transaction managers, Microsoft managed 2.5million sq ft of new office space across the mainland by using a small TM team.
The software giant was also an early entrant into the China property market and worked with high-level government contacts as well as 'leveraging off' the services of Jones Lang LaSalle.
HSBC has retained a TM specialist to deal with expansion across the mainland and uses the guanxi of Jones Lang LaSalle in coastal regions, Mr Tindale said.
Smaller companies not only face the vagaries of undeveloped commercial property laws, but a catch-22 before opening a premises. 'To register as a business in China, every business needs an address. But to get a lease you need a business,' Mr Tindale said. 'Transaction management would sort out this catch-22 situation. Instead of throwing your arms up in protest, the TM will be able to guide you through that.'
Mr Tindale said privileged information at a local level was essential to corporations looking to set up office, particularly as second-tier cities with populations of a million plus were now on the rise as Beijing and Shanghai were at a peak.
TMs not only work as strategic partners to secure leases, their expertise can also be applied to upgrade and prolong the shelf life of a client's office. Guidance in compliance issues in other property-related areas can also be given, from environmental issues to how the office is organised and designed.