Introduction
From our class time studying the business environment of Chile to our on-site visit of Socovesa’s Santiago office, our class has become very familiar with not only the strengths and advantages of doing business in Chile, but the disadvantages and potential problems. With the stable and growing economic environment as well as a changing cultural landscape in Chile, my classmates presented compelling solutions for how Socovesa could leverage their current strengths with new innovations to strengthen their brand and maximize profits. Hearing the different solutions created from the same situation showed the diverse options that Socovesa has, and the ability that the company has to create a profitable future. Some presentations were more feasible than others, but looking at the strategic thinking of others in terms of financial possibility and brand sensibility, there are evidently plans that could be more beneficial to Socovesa than others.
Proposal 1: Microapartments
Today, we live in an era in which technology has made life incredibly complex, but living in a microapartment strips one’s lifestyle down to the simpler things. The suggestion of building a development of microapartments in Barrio Brasil really struck me, and I found it to be the strongest presentation in our class. They combined the Santiago landscape and changing real estate market very well. In large cities like Santiago, it has become more and more trendy to move towards a style of “simple living,” especially in the interest of saving money and space. A main reason that the microapartments aligns with Socovesa’s brand stems from Socovesa’s strong value in design thinking, in putting the consumer first. Socovesa strongly believes in creating homes with the buyer in mind, and understanding homebuyers as people first, then as consumers. Barrio Brasil is an attractive, trendy neighborhood that is up and coming in Santiago, and is very close to the city center and the Santiago universities. The building of the apartments are extremely sensible, as they maximize productivity, efficiency, and energy. The brand value that such an offering would bring to Socovesa is giant, because it puts Socovesa as a frontrunner in more modern, futuristic buildings that prioritize efficiency and productivity. Socovesa wants to be the company that stays a step ahead, that creates powerful, productive solutions to the current issues that plague Santiago and the real estate industry as it is today. It is becoming more and more important to live in the city center, as well as to accommodate to the fact that people want to be able to afford living in the city center. The costs that inhabitants would cut through smart technologies, as well as providing a collaborative setting that is conducive to university students, entrepreneurs, and businesspeople. The plan, if implemented correctly, could put Socovesa on a road that leads to a brand synonymous with efficiency and affordability, a classy version of affordable apartments.
However, there arises issues from this suggestion as well. While being amenity rich and attractive to young, educated single people, this is a very niche segment. This could alienate Socovesa from other potential projects, as it could begin to position Socovesa as a builder of dorm-style homes, especially if they initiate partnerships with the local universities. Socovesa is not interested in being in the business of dormitories, rather of quality homes for the modern Chilean family, whatever that may be. Additionally, there are questions of how truly profitable this could be for Socovesa. Socovesa first will have to find an available lot to build this large project on, and then building costs will be huge. Additionally, how big will demand be for “microapartments?” How many people would be willing to live in such a condensed space? The team argued that the room will not feel congested because of floor to ceiling windows, but the maximized sunlight will change the fact that a tiny room is just flat out tiny. The changing demographics of Santiago are not for miniscule, single person rooms but for families that are changing with the times.
Proposal 2: BIM
The option of Building Information Modeling is interesting in that it has the ability to give Socovesa a strong, distinct competitive advantage. Interestingly enough, Socovesa seems to be heavily invested on making “Design Thinking” their competitive advantage, and creating a plan with a unique design, rather than implementing one “cure-all” product which seems to be suggested in this presentation. The BIM idea lacked a consideration of the current spectrum of Chile. While the team found an interesting new technology, the BIM idea failed to truly understand the essence of Socovesa and of Chile. Socovesa positions themselves as a company with quality buildings that are designed to reflect the Chilean values and lifestyle. In theory, using BIM to allow designs to design their own homes is idealistic, but idealistic does not always translate into realistic, or even desirable. Chile is at a crossroads where transportation issues, infilling, and family landscapes need to be addressed by the leading real estate companies like Socovesa. For Socovesa to get ahead of the competition, a company solution needs to address all of these issues, rather than implement an expensive technological product that does not solve any of the issues presented. Creating homes using BIM for each and every consumer is also not efficient in any way. Socovesa can not expect to have each and every potential homeowner or construction project to approach them and then take the time to create an individual home or building with each customer. It simply does not make sense. Also, everyday people are not architects. People in search of a home do not want to have to build the home themselves, and don’t even know what they want in a home past certain requirements such as 3 bedrooms and a porch, for example. This team claims that once human capital is acquired, this will not be an expensive project. This fact ultimately is not true, as BIM itself is a complicated tool that will require lots of expensive training as well as precious time, not to mention the cost of building these “custom homes” which will be built at a premium as no two houses will be the same. However, this does not make up for the fact that there may not be enough demand for “custom houses” as only the wealthiest would be able to afford such homes. Socovesa would not be able to maintain a constant cash flow as there would be no source of continuous demand. Finally, it was shown in the ROI graphs provided in the presentation that BIM is not profitable “unless used correctly” as stated by the team. This graph created in 20121 even shows that 64% of BIM users had profits either at the negative or break even range, which points out that this is not a truly profitable product, thus both brand-wise and financial-wise, BIM does not make sense to Socovesa. Due to these reasons, BIM would negatively impact the firm’s performance as well as their competitive position.
Proposal 3: Sustainability
Socovesa has been in the Chilean real estate market for over fifty years, and have grown with both Chile and Santiago. They understand the people, and take pride in that, and Socovesa made clear their passion for people when giving their company presentation. Socovesa has a broad understanding of different Chilean segments due to their many projects in various areas such as apartments to construction projects, as well as through their ownership of Pilares and Almagro. This is a strong competitive advantage that they need to leverage, not ignore. The suburban based Sustainable Luxury Real Estate option misses Socovesa’s growth goals with the developing and changing Chilean population that Socovesa is trying to hit. Socovesa desires to create homes for Chileans, not an elite segment of Chileans. The sustainability option proposes to target high income families that have managerial positions. This group maintains a highly elite status, and only encompasses ten percent of Santiago’s population as stated in the presentation. From this small percentage, even less of these high class families will be on the hunt for a new home in the suburbs, and an even less percentage of that group will be seeking out this specific type of sustainable home. Only a miniscule increment of Santiago’s population will even have an interest in these homes, and from this data we can see that there is a pure lack of demand for this team’s proposed project. The amount of effort that this project would take for the small percentage of the population that would even consider buying these houses makes the project simply a waste of an exorbitant amount of cash. In general, the project is an investment that is not affordable, but also is not profitable. The team projects that this sustainability plan would have a five percent higher demand than Los Bravos, an upper middle class project that positions Socovesa as a company dedicated to quality, but the sustainability project is much more niche than Los Bravos, so their projection of a five percent higher demand is fabricated. In terms of brand name, the team projects that the long-term brand name would be elevated to one of being both innovative and high quality. This brand image projection is inaccurate, as if this project is undertaken, Socovesa would be seen as a stiff, high brow company only for those of the most elite stature, and ultimately abandoning Socovesa’s brand goals in understanding the people of Santiago. For these reasons, a luxury project on sustainability is not sustainable.
Recommendation
Santiago maintains an up-and-coming, modern environment. The city is changing with the times, and Socovesa is well aware of this. Socovesa possesses competitive advantages in that they have a healthy enough balance sheet to raise debt, as well as higher margins than their competitors. Their financial strength and stability gives Socovesa the ability to undertake large new projects as long as they align with the brand and where the brand intends to go. Socovesa has made it clear that they intend to stay one step ahead of the curve, and should be the ones to set trends. These trends, however, must be profitable, purposeful trends rather than whimsical trends. Both the plans of sustainability and of BIM are ambitious, and rooted in good ideas, but these ideas both prove to spend more money than they will make. The intentions of both of these projects are to create a differentiation point for Socovesa, however these differentiation points do not capitalize on Santiago’s needs and Socovesa’s core competencies.
I recommend to combine certain aspects of the “Urbanizing the Suburbs” and microapartment options. The location in Barrio Brasil, the angular building shape, and collaborative nature with the rich amenities of the microapartment building make it a desirable option, however I don’t believe that many people will want to live in a boxed-in environment of a microapartment. Additionally, being seen as a “micro” company could damage Socovesa’s brand identity, lowering it in quality in the eyes of home buyers or renters and thus hurting Socovesa’s profit margins. The creation of a couple angular sunlight maximizing buildings centered by a common space within the region of Barrio Brasil that offers a complimentary shuttle bus service to Santiago’s center takes the strongest points from both of these two ideas, and presents the potential to capitalize on Chile’s changing demographics and infilling issue, while staying true to Chilean culture and capturing the Santiago spirit. The project would be much more profitable than any of the options, and demand would inevitably be highest as it shows the strongest understanding of the Chilean lifestyle and needs.