In 2016, the Gross Domestic Product contracted twice, which led to first economic recession during the first tenure of President Muhammadu Buhari. Some weeks ago, the National Bureau of Statistics through its economic report noted that the country has entered another economic recession after two contractions of the GDP. Before 2016 recession, there were indicators that showed that economy would enter recession. Critical economic indices such as inflation rate, oil price, foreign exchange rate, unemployment and underemployment rates and external reserve were severely affected.
These indicators are not quite different before the new recession. From the first quarter to the second quarter, macroeconomic and microeconomic performances were not good enough. The negative performance was further enhanced by the COVID-19 disruption. During the disruption corporate real estate and commercial real estate sectors were among the hardest hit in the Total Real Estate Solutions industry as social distancing and lockdown strategies are enforced for close to four weeks now. “The effect of the pandemic is enormous. Therefore, I am afraid if this goes on for another 6 months, the world might experience another great global recession,” Abdullah Oladipo, Project Team Lead at the Green Facilities, said in an interview.
From all indications, the Facilities Management industry is expected to feel the heat of the recession because two critical industries [real estate and construction] it supports are among the hardest hit industries. Our analyst observes that as long as contraction exists in the new house building segment, reduction in mortgage lending rate, fluctuation on cost of materials and reduction in the execution of civil works, players in the FM industry are expected to feel the consequences. These factors have earlier been discovered to impact real estate and construction industries during the 2016 recession.
As the recession bites harder, we expect more duties for the players amidst fewer resources, which would increase stress among the employees. More duties would be coming from the clients, who want to save and expect sustainable value. Clients would be forced to renegotiate their contracts due to less financial capital. In this regard, players need to embrace the new shifts, maximize value and manage morale of their employees, especially those on clients’ sites.
Our expectation is that players would adjust their pricing strategies. Like other industries, players in FM industry have premium, penetration, economy and skimming pricing strategies to choose from. Premium pricing is useful when strong competitive advantage exists. Penetration pricing becomes handy when there is a need to gain market share quickly by setting price low. Targeting mass market and high market share require economy pricing. Adopting skimming pricing means that companies will charge a high price for a solution till a certain period that competitors give room for low price choice.
This is the period the players need to employ the right strategy from these strategies. This is imperative as organisational buyers are expected to be more rational in their price negotiation. In our experience, we discovered that competence and connection of clients’ core values with the player’s own would be decisive factors during negotiation.