The outsourcing of FM operations is also widespread in the U.K. In particular, government agencies have adopted a system known as compulsory competitive tendering (CCT) that covers all operations exceeding 140,000 pounds (approximately 30 million yen) annually. Under CCT, many FM operations are outsourced to the private sector.
In the U.S., a new business field called ESCO (energy service company) has gained attention. The ESCO diagnoses a building's energy usage, and is paid a fee based on the amount that energy costs are reduced. The market is estimated to have grown to 100 to 200 billion yen in size.
(1) FM and Changes in the Business Environment
With Japanese companies earnestly pursuing cost reduction following the collapse of the bubble economy, a foundation is forming for the penetration of facility management. Restructuring and reengineering personnel cutbacks and organizational changes are raising the need for reevaluating office space. In addition, the collapse of the land price myth and management focused on return on equity, emphasis on the effective and efficient use of real estate. To pursue a management innovation, there is a growing need to restrain investment and construct offices suited to the particular work or process at appropriate prices.
In particular, as information technology advances, companies will need to introduce information equipment and construct LANs. Facility management services will benefit from the resulting changes in work flow and demand for expertise in building more efficient and flexible networks
Demand for facility management services will also come from indirect factors such as enhancement of security, concern over earthquake resistance, aging of employees and increase in female employees, and growing techno-stress.
(2) Supply and Demand Factors Affecting FM Development
In addition to the background changes mentioned above, below we consider demand and supply side factors that will support the development of facility management services in the future.
1. Demand Side Factors
a) Expansion of remodeling market
Office remodeling is a major cause behind the introduction of facility management. Despite sluggishness in overall construction volume, the remodeling market was propelled by an increase in construction stock and advances in information technology to post 4.2 percent annual growth from 1990 to 1995, compared to only 1.6 percent for new construction.
According to a survey by NLI Research Institute, in the Tokyo 23-ward area alone, 55 high-rise buildings are old enough to be candidates for office remodeling, amounting to 3.8 million square meters.
b) Easing of Skeleton Leasing Standards
Easing of the construction standards law in March 1997 has enabled "skeleton leasing," in which offices can be leased before the interior is finished. In the usual method, because the building owner finishes the interior before leasing, tenants are sometimes forced to remodel the interior to suit their needs, and are also obligated to restore the interior's original condition upon leaving. However, with skeleton leasing, tenants will be able to design the interior as they wish, thus stimulating demand for facility management services.
c) Market expansion to non-office facilities
The facility management market is spreading beyond offices to educational, medical, research and other facilities. Thus the potential market is huge. For example, there are signs that medical facilities are dividing medical functions from business functions. With hospital managements expected to further emphasize cost reductions in the future, facility management will attract greater attention.
2. Supply Side Factors
a) Advanced and more comprehensive services
On the supply side, facility management services are expected to become more advanced and comprehensive. If FM companies provide total services as in the U.S. and Europe-including asset and facility strategy building and portfolio planning, consulting for outsourcing evaluation, and facility-related project management-they will offer users added value and enhanced efficiency, while also improving their own profit margins.
b) Possibility of outsourcing
Outsourcing, a practice which has recently been penetrating into Japan, is a promising area for FM. Outsourcing has been common in facility management because companies find it easy to distinguish this area as a non-core business.
However, due to employment considerations, outsourcing is not likely to be as drastic as in the West, where companies commonly eliminate entire divisions. Still, outsourcing of FM services can be expected to grow in the public sector, such as in the operation of public museums and libraries.
(3) Future Trends
As stated earlier, the difficulty of knowing comprehensive facility costs due to indirect factors such as accounting practices, and strong resistance to disclosing the cost if known, are barriers to the penetration of facility management. Another persistent obstacle is the typically Japanese notion that comfortable offices are an extravagance.
Nonetheless, we predict that facility management services will grow gradually along the following lines.
1. Specialization by Area
For the foreseeable future, the facility management services market will be comprised of many specialized niche service providers. However, since users may find that using a different provider for each facet of business may increase costs, the market needs to be an appropriate competitive environment for services and prices. for growth
2. Spin-offs that provide comprehensive services
One likely source of new entrants are spin-offs of facility management divisions of large companies. As these spin-offs gradually acquire outside customers, they can grow to become independent providers of comprehensive services. In that case, the leading candidates are companies that own many facilities across the country. Another possibility is for users that have achieved efficiency by incorporating facility management to use their expertise to become independent providers.
More time is needed for the emergence of businesses that provide the type of advanced services seen in the West. These businesses will cause the facility management services market to grow further.