In today’s world, internationalization is inevitable for companies competing in the global world, where their production, target market, business model were integrated across different frontiers (Robins 2000) and between different people in different countries (Schulte 2000)
In this report, we will discuss about Fraser and Neave and the potential of a joint venture with University of Queensland, Brisbane to build student hostels within the university’s premises. The entry mode will be suggested based on supporting context and company analysis. Predicted impact of action will be considered and suggestions for further expansion of the university hostel market under the name of Fraser and Neave will also be made.
2.1 Context Analysis
2.1.1 Australia in business context
Australia, being an open economy with open policies for trade and investments, she has attracted many foreign investors without the need of providing any special incentives (Euromonitor business environment: Australia 2013). Reaching a $986.7 billion of total GDP in year 2013, $618.9 billion comes from FDI alone.
Due to harsh contractions in mining financial tightening by both the state and federal governments and the strong Australian dollar, the country’s economic growth will ease in the year 2013. (Euromonitor Australia Country Profile 2013)
2.1.2 Australia: Cultural Analysis
Culture is a ‘powerful social construct’ (Boyacigiller, 2004) in diverse multicultural workforces, particularly vital in the sustainability and success for any international business (Doney, 1998).
Through a series of empirical studies, Australia being a country of low
context culture (Markus G 2011, 75) has 4 main characteristics identified of their community (Australia World View, 2001) and (Communicaid: Doing Business in Australia):
1. Linear, logical, individualistic, and action-oriented people. Australians are generally results orientated. Therefore when dealing business with Australians, statistics and figures are essential for a successful deal. Since they can be seen to have confrontational and strong opinions, business dealings with them would need to back up with research or evidence in order to convince them.
2. Community likes to avoid uncertainties
As Australians are people who like to avoid uncertainties, they tend to be very straight to the point with their words with the intention of having them taken literally. To avoid any misunderstanding or future conflicts, business dealings with them would have to be very literal with all conditions on the table for discussion. Implicit messages will most probably go unnoticed.
3. Adopts a very egalitarian culture
Australians avoids differentiation between individuals and are often preferred to be impartial, modest and have mutual respect for others. Therefore they prefer a more down to earth approach to business. They are also altogether more receptive to innovation, fresh ideas and encourage active discussions or debates.
4. Appreciates privacy
When dealing with Australian business counterparts, it would be wise to stay within the lines and treat attempts at developing interpersonal relationships with much caution.
2.1.3 Australia: Legal Environments
In relation to the construction of property, we would be looking at laws that are relevant. As a joint venture is suggested for the construction of the
student hostel, we would have to consider the complications of contract law besides the obvious property law, employment and industry relations, and general tax issues. As the land that we are proposing to construct is within the University’s premises, a partnership with the university will give Fraser and Neave access to the land without any legislation to bind or cripple the project. Nevertheless, there would be a need to attain approval for development through the Integrated Development Assessment System (IDAS) under the Sustainable Planning Act 2009. An application would have to be submitted in order to get a development permit for the construction of the hotels. Required information for the approval will be as follows: * Material used
* Any impacts to the surrounding environment
* Completed development look
(Queensland Government: Development Approvals, 2013)
Further legal issues will be discussed at a later date when the university of Queensland accepts the joint venture intention.
2.1.4 Australia: Political Environments
The Australian’s political environment have been consistently stable since the year 1996 to 2011 with a small drop in the year 2009 according to the political stability index (World Governance Indicators, 2011). Ranked top 50 worldwide, Australia’s political environment has made the nation an attractive location for business makers to invest in.
In order to protect Australia’s AU$15 billion international education industry from competition, the government have made its commitment to quicken visa processing for international students and release a list of policies universities, international education and research (Back to board on foreign students, 2013). Although concrete releases of these policies are not known yet, we can expect better support from the government on Australia’s international education industry. This would mean the future outlook of industry sees potential for further educational development. With
a faster visa processing for international students, the demand for accommodation will increase and there will be our market.
2.1.5 Market Size and Growth
We first identify the primary market for student hostels as domestic and international students, those in which plans on residing away from their homes in pursuit of their academics.
Based on the study by Government of Australia and assuming 20% of the Domestic Students and 80% of the International require hostel accommodation, Australia Universities will require hostels to accommodate about 450,000 students:
Australia| Domestic| International| Full Time|
Students enrolled| 934,110| 323,612| 884,179|
Students(estimated) needing Accomodation | 20%| 80%| |
Rooms Required| 186,822| 258,890| 445,712|
Study done by Government of Australia (Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education) in 2012
Looking at the numbers reflected above, the demand for student accommodations is substantial, especially among international students where accommodation serves great importance as it puts their respective parents at ease of sending their Children overseas. Students commencing would also be a positive indicator for high occupancy turn over rates.
Although reports have shown that Australia is one of the most expensive countries to study abroad in (Cost of studying in Australia putting off international students, it is claimed, 2013), Australia remains optimistic about the future of international education program as part of their GDP contributor. In the report by International Education Advisory Council (Australia – Educating Globally), there would be an estimated increase in total number of international students by 30% in the year 2020. Market growth in this market would be projected to be escalating even if it might
be time periods where the growth might temporarily slowed down (Australia focused on international student enrolment growth, 2013).
3.1 Company Analysis
3.1.1 Fraser and Neave
Formed in the year 1883, Fraser and Neave have flourished into a brand that is ranked as one of the most successful and established organization in the Asia Pacific region. With a remarkable array of renowned brands that relish strong market leadership, Fraser and Neave traditionally made its reputation through the production and distribution from its own F&N range and several other international brands. In the recent decades, Fraser and Neave have moved on to property development and publishing with ravishing results.
Operating at S$32 billion worth of shareholders’ funds and total assets, Fraser and Neave is present over 20 countries spreading across Europe, Asia Pacific and the USA. Leveraging on its strength in brand and financial management, research and development, marketing and distribution, as well as many years of acquisition experience, its subsidiary companies across the three industries are able to receive strategic directions and key resources to ensure sustainability and success. 3.1.2 Fraser and Neave: Properties
As part of the business diversification, Fraser and Neave developed the Property Industry as a new core business. Since 1990 from a single mall operator, Fraser and Neave have blossomed into a full-fledge real estate group, Frasers Centrepoint Limited (“FCL”), which achieved a total of $1,345 million dollars just in year 2012.
The group’s overseas property subsidiary in Australia, Fraser Property Australia, has made outstanding success in the Australia property market with the very prosperous development of residential and commercial projects. Involved in joint venture partnership with Sekisui House Australia Holdings Pty Limited, Fraser Property Australia has established its brand and reputation as a property developer in Australia having their projects span across Perth, Western Australia and largely in Sydney. Aside from just
property development, the group have also developed and runs a service apartment under their Fraser Hospitality where they own full management rights.
3.2.3 University of Queensland
Ranked in the top 100 universities in the world, University of Queensland is the first university that opened in the state and the largest university in Queensland. With a total of 4 major campuses – St Lucia and Herston in Brisbane and Ipswich and Gatton in South-East Queensland, the University have invested significantly in development and construction providing students with conducive environments for studies, research and other school activities.
Covering a total of 1376 hectares of land 754,500 m2 (gross floor area) of which occupied by 764 buildings holding 522 teaching rooms and 1588 laboratories. 10 of which are residential colleges that provides student accommodations and places academic activity in a community setting of students and faculty. All residential colleges are located at the main St Lucia Campus. We note that there are no other student accommodations located in the other 3 campuses – Herston Ipswich and Gatton. Students studying in these campuses are encouraged to look for accommodations that are near the schools.
In the University of Queensland, there are more than 46,863 students including 11,389 international students from 142 nations around the world. Of the total 46,863 students, there are presently only 2,955 rooms available within the University as follows:
College with Residence| Student with Residence at the College| Cromwell College| 247|
Duchess College| 200|
Emmanuel College| 340|
Grace College| 180|
Halls of Residences| 440|
International House| 238|
Kings College| 298|
St. John College| 263|
St Leo’s College| 212|
Union College| 334|
Woman’s College| 203|
Total Residence| 2,955|
Assuming 80% of the International and 20% of the Australian Students desire accommodation within the University, the University of Queensland will require an additional of 13,000 rooms that it does not have today! Based on an average AU$4,500 per year per residence fee, we estimate a Business Potential of AU$58 million per annum if all 13,000 rooms are provided.
4.1 Entry Mode
4.1.1 International Joint Venture
We proposed that the entry mode for Fraser and Neave in developing and managing Hostel Accommodation within the University be an international joint venture with University of Queensland. This entry mode is proposed mainly due to the ownership rights for the land within University. This also simplifies the challenges of property rights and taxes. This Joint Venture is formed on the basis of University of Queensland providing the land while Fraser and Neave will provide the resources to build and operate the Hostel, which is the key strength of Fraser Property Australia.
Through the company analysis, it can be seen that University of Queensland has a potential shortage of 13,000 student accommodation. Therefore the construction of a student hostel in the campuses will increase the attractiveness and reliability of the school to domestic or international students. In the initial phase, the proposed hostel construction would take place in campuses in South-East Queensland (Ipswich and Gatton) as these campuses are far away from the only campus in Brisbane that provides student accommodations.
Based on the current capacity of only 2,955 residences within the University, we are confident that there will be strong student occupancy rates to uphold the sustainability of the hostels.
We believe that the University of Queensland would be able to attract and house more domestic and international students with the value addition of these hostels while receiving percentage of it earnings. Fraser and Neave could also benefit by entering the market of student hostels through this singular joint venture. If proven to be a success, Fraser and Neave could move into the development of student hostels in Australia and the rest of the world that offers international studies aside from residential and commercial buildings. This is a niche market that has not been developed by any multinational companies and has the potential worth looking into.
As Fraser and Neave is already in a joint venture with Sekisui House Australia Holdings Pty Limited with its subsidiary Fraser Property Australia, it would be wise to approach this new joint venture as partners. This would allow Fraser and Neave to once again tap onto the expertise of its local partner and mitigate the development cost between its partners. Therefore the joint venture will be proposed to run three ways. 5.1 Scale Analysis: International Joint Venture
5.1.1 Scale of Entry
Since construction and management of student hostels in a University is considered to be a new extension of Fraser and Neave’s properties development, we would propose a conservative approach in the scale of market entry. We would propose an initial accommodation for 500 students, which will generate AU $2.25 million per annum, and this can be subsequently expanded to more accommodations depending on the availability of land within the University of Queensland.
Although small, it allows Fraser and Neave more time to learn about this market. As this particular market is very niche with only small players traditionally, it will take time for Fraser and Neave to study the
characteristics of the market and develop the most effective and functional way to progress this into a large-scale international hostel construction business. This also limits Fraser and Neave’s exposure to the monetary and economic losses that might follow if this project is a failure.
5.1.2 Risk Levels and control
Given that the hostel is only for 500 students, the risks in this project are also relatively low in relation to the small scale of entry. Nonetheless, these are the possible risks involved and how to mitigate them:
Sudden project withdrawal from the University of Queensland Land owned by the school required for the hostel constructions may be needed for other University purposes. To avoid this risk, conditions for the withdrawal of the joint venture have to be carefully constructed in the contract to ensure a high penalty cost if any party were to decide to withdraw.
Disapproval of property development by local authorities or state government agencies To avoid last minute disapproval, Fraser and Neave must ensure that all conditions posed by the authorities are fulfilled before filing for approval.
Sudden hike of interest rates for the properties building sector Although this is a risk that cannot be mitigated substantially, a possible way to minimize it would be to make payments in full. This would however increase the financial investment for the project in a shorter time frame. A more prudent approach is to ensure fixed interest rates are negotiated prior to the start of the projects.
Sudden drop in student numbers in the proposed campuses
Opening the rooms for rent to students of schools nearby could mitigate this risk however; it would have to be based on agreement with University of Queensland. Students from the university will also be given priority in this case.
5.1.3 Return Levels
Return of investments for the proposed project will be 17% – 20% per annum for each hostel. Payback period for the hostels will be at approximately of 4 years. 5.1.4 Control Levels
Control levels for this form of entry mode is lower due to the number of parties involved. As this is a three way partnership proposed, Fraser and Neave must ensure that it has all the management decision for construction and management of the hostel thereafter. The agreement with the other 2 joint venture partners is needed and should be detailed in the agreement prior to project start.
5.1.5 Integration Levels
With a long-term joint venture partner (Sekisui House Australia Holdings Pty Limited), integration with the local construction environment will not pose a great threat to Fraser and Neave. Along with the past experiences of commercial and residential properties in Australia, the integration of their construction contribution in this project is expected to be positive.
On the other hand, partnership with a University is a first for Fraser and Neave and they might be hindered by the new rules and regulations that are imposed by the school. This can be mitigated by understanding the limitations of the school and its school grounds before the commencement of the construction.
There is a great potential in extending Fraser and Neave construction line towards hostels construction with the increasing demand of international education in Australia.
Being an undermined market, hostels construction will give Fraser and Neave competitive advantage as one of the first multinational company to
internationalize this business. A joint venture with a renowned University worldwide gives the group an exposure to other Universities if proven to be successful. The joint venture would also provide the group with reliable knowledge and information essential for bringing this business into international grounds. A possible development can also arise from this business plan with the introduction of a brand new brand extension ‘Frasers Hostels’, the management of all the Fraser and Neave hostels across the globe.
Total Word Count: 2750
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