As China’s property market continues its relentless ascent, many firms are exploring the possibilities offered by serviced office providers for small operations. One such firm is Servcorp (SRV.ASX), a global serviced office provider. Michaela Julian was senior manager of Servcorp’s Thailand operations for three years before moving to China last year. She spoke with China Economic Review about China’s serviced office market.
Q: What is your presence like in China?
A: We’ve been in China for over 15 years now. We’re already established a presence in six locations, and are looking to open two new locations in Beijing and Shanghai.
Q: What is the breakdown of international versus Chinese clients?
A: It depends on which location. Overall, it’s along the order of 60% international, 40% Chinese. In some locations it can be 50-50, in others 70-30. But I think that there is definitely a trend emerging for more Chinese businesses – a lot of Chinese companies are becoming more international, and dealing with foreign businesses. They are also learning more about virtual office products.
Q: Who is the competition?
A: Well of course there are a lot of companies that provide shared offices. We are the second-biggest operator in the world, but we don’t necessarily consider ourselves strictly a serviced office provider. Our aim instead is to provide the best service support for small- and medium-sized enterprises (SMEs). There are cheaper alternatives out there, but I think the value isn’t so much what you pay for, but the bang you get for your buck. That’s why we have invested so heavily in our information technology network.
Q: What exactly does that provide for businesses?
A: It means that we can pretty much ensure cost savings on long-distance telephone calls. And that’s from the smallest startup – the one-man operation – up to a larger 10-15 person business. We offer an IT network for clients, managed through Hong Kong, that interlinks our 100 locations worldwide. So for the client, if they have a virtual office in Shanghai and a customer in the US, we could provide telephone calls at local call rates between the US and Shanghai by simply signing up with a virtual office in those locations.
Q: But how does that differ from, say, Skype?
A: I think that we have a huge advantage in this market, because even though you have the reduced costs, with something like Skype you have no company awareness, so it’s not as professional. We also work closely with Cisco (CSCO.NASDAQ), which has an IP phone, and we have the ability to place a version of this hardware onto your laptop. So if you’re sitting in an airport in Sydney and you want to have a call with a client in Shanghai, you just make the call and it’s priced at local call rates in Shanghai.
Q: How have your China operations been doing?
A: The first half of last year was very difficult for us. We took the opportunity to solidify our presence in Shanghai – make sure our team was better trained, with consolidated operations. It was tough, but the silver lining was that we picked up some new clients. A lot of large businesses had to cut costs because they had leases in large office spaces and they suddenly had to reduce their overhead by half. It’s a big advantage for us to be able to say to clients "your monthly costs just will not exceed a set amount," whereas if you have a traditional office there’s always a phone bill coming in, there’s always maintenance, hiring, firing, and so on. So while we couldn’t rent out offices at the prices we would have liked, we were still able to grow our occupancy rates and our customer base.
Q: What are the challenges operating within China?
A: China is such a huge market, and there’s a lot of interest in serviced commercial space, but the problem is that many of the clients are not very well educated about the benefits of a serviced or virtual office. There’s still a very traditional way of thinking here in China, that if you want to open a business you need your own office, with your own space that you pick out yourself. It can be a little bit of an investment to get that set up. So we try to educate our clients about the benefits of having a serviced or a virtual office where for a small investment you’re able to have an office represented in one of the best locations in Shanghai or Beijing. It doesn’t have to be expensive to start up your business – some virtual packages start at just RMB750 (US$111) a month. But it’s still a sticking point for us.
Q: How have high commercial property prices in China affected your investment strategies?
A: You could definitely say there’s a property bubble right now in China. But there’s still a lot of space coming onto the market. If you just look around in Shanghai or Beijing you see lots of construction; that’s lots of real estate that’s coming onto the market that needs to be filled. So I think there’s lot of opportunities for serviced office providers, and a lot of space available for lease. Worldwide, we’re taking advantage of depressed property prices to expand. Business should get better in a year, but it’s still a slow economy across the globe. In a sense, it gives us breathing space to expand our holdings.
Q: How is business this year?
A: We’re definitely on track this year; business has improved a lot. The 2010 Shanghai World Expo has been particularly useful for drawing in short- and medium-term business, particularly for banks and IT firms, as well as any Australian businesses, where we have a natural connection. There’s been an increased interest in serviced offices more generally over the past three to six months. Advertising in the local market has also made a big difference for us. All things considered, I think is a year of expansion for us, both in China and worldwide.
Q: How are your operations changing?
A: We’re always going to stick to providing serviced offices, but we’re also looking at other areas like virtual offices and business registration services. To operate a business in China you must be registered at a physical address, and that can introduce obstacles for multinationals. Now we’re focusing on servicing businesses for registration requirements. The new offices will generally be smaller, and geared for business registration purposes and virtual office products. And with virtual offices, anyone can use them without registration.