Harvard Case - City Developments Limited's Internationalization: Chinese Property Troubles Hit the Third Generation
"City Developments Limited's Internationalization: Chinese Property Troubles Hit the Third Generation" Harvard business case study is written by Marleen Dieleman. It deals with the challenges in the field of International Business. The case study is 13 page(s) long and it was first published on : Jul 12, 2022
At Fern Fort University, we recommend City Developments Limited (CDL) embark on a strategic transformation to address its Chinese property challenges, focusing on a three-pronged approach:
- Repositioning in China: Shifting focus from high-risk, high-volume development to a more selective, quality-focused strategy, emphasizing mixed-use projects, sustainable development, and strategic partnerships with local Chinese players.
- Diversification and Expansion: Expanding into new, less volatile markets with strong growth potential, utilizing CDL's existing expertise and global network to leverage opportunities in Southeast Asia, Europe, and North America.
- Organizational Transformation: Strengthening internal controls, enhancing risk management, and fostering a culture of innovation and adaptability to navigate the complexities of global real estate markets.
2. Background
This case study examines the challenges faced by CDL, a leading Singaporean real estate developer, as it navigates the complexities of internationalization, particularly in the Chinese market. The company, under the leadership of Kwek Leng Beng, has been successful in expanding its operations globally, but its recent ventures in China have encountered significant difficulties, including regulatory hurdles, market volatility, and a shift in consumer preferences. The case highlights the need for CDL to adapt its strategy and operations to address these challenges and ensure long-term sustainability.
The main protagonists of the case study are:
- Kwek Leng Beng: The founder and chairman of CDL, a visionary leader who has driven the company's international expansion.
- Kwek Leng Peck: Kwek Leng Beng's son and the current CEO of CDL, tasked with navigating the company through challenging times.
- The Chinese government: A key stakeholder in the Chinese real estate market, whose policies and regulations significantly impact CDL's operations.
3. Analysis of the Case Study
The case study can be analyzed through the lens of several frameworks, including:
- Porter's Five Forces: The analysis reveals that the Chinese real estate market is characterized by intense competition, high bargaining power of buyers, and potential threats from new entrants. CDL's reliance on high-volume development strategies has left it vulnerable to these forces, leading to its current predicament.
- Competitive Advantage: CDL's core competencies lie in its strong brand recognition, global network, and expertise in mixed-use development. However, these strengths have not been effectively leveraged in the Chinese market, leading to a loss of competitive advantage.
- Globalization and Internationalization: CDL's internationalization strategy has been successful in some markets, but its approach in China lacked sufficient market research, cultural sensitivity, and risk assessment, leading to significant losses.
- Strategic Management: CDL's current strategy is not aligned with the evolving dynamics of the Chinese real estate market. The company needs to shift its focus from high-volume development to a more sustainable, quality-driven approach, emphasizing mixed-use projects, green building practices, and strategic partnerships with local players.
4. Recommendations
Repositioning in China:
- Shift to Quality-Focused Development: Focus on developing high-quality, mixed-use projects in select cities with strong growth potential, emphasizing sustainability, innovation, and community engagement.
- Strategic Partnerships: Forge strategic alliances with local Chinese developers, real estate investment trusts (REITs), and government entities to gain access to local expertise, networks, and resources.
- Embrace Technology: Leverage technology to enhance efficiency, improve customer experience, and gain insights into market trends.
Diversification and Expansion:
- Explore New Markets: Expand into emerging markets with strong growth potential, such as Southeast Asia, Europe, and North America, leveraging CDL's existing expertise and global network.
- Focus on Sustainable Development: Prioritize sustainable development practices in all new projects, aligning with global trends and investor preferences.
- Develop a Global Brand Strategy: Strengthen CDL's brand identity and reputation globally, emphasizing its commitment to quality, innovation, and sustainability.
Organizational Transformation:
- Strengthen Internal Controls: Implement robust internal controls and risk management processes to mitigate potential financial and operational risks.
- Develop a Culture of Innovation: Foster a culture of innovation and adaptability within the organization, encouraging employees to explore new ideas and solutions.
- Enhance Leadership: Develop a leadership team with global experience and expertise in navigating complex business environments.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations focus on leveraging CDL's core competencies in mixed-use development, global network, and brand recognition while aligning with the company's mission of creating sustainable and innovative real estate solutions.
- External Customers and Internal Clients: The recommendations address the changing needs and preferences of customers in both the Chinese and global markets, while also fostering a positive and engaging work environment for internal clients.
- Competitors: The recommendations aim to position CDL as a leader in the global real estate market by focusing on quality, sustainability, and innovation, differentiating it from its competitors.
- Attractiveness ' Quantitative Measures: The shift to quality-focused development and diversification into new markets is expected to improve CDL's profitability and long-term sustainability, while strategic partnerships and technology adoption will enhance operational efficiency and reduce costs.
6. Conclusion
CDL's success in the future will depend on its ability to adapt to the changing global real estate landscape. By repositioning its strategy in China, diversifying its portfolio, and transforming its organization, CDL can overcome its current challenges and emerge as a leading global real estate developer.
7. Discussion
Alternative options not selected include:
- Exiting the Chinese market entirely: While this would minimize losses, it would also result in a significant loss of market share and potential future opportunities.
- Continuing with the current strategy: This would expose CDL to further risks and losses, as the Chinese real estate market continues to evolve.
Key assumptions of the recommendations include:
- The Chinese government will continue to support sustainable development initiatives.
- The global real estate market will continue to grow, albeit at a slower pace.
- CDL will be able to successfully implement its strategic transformation plan.
8. Next Steps
- Develop a detailed strategic plan: Outline specific goals, timelines, and resource allocation for each recommendation.
- Conduct thorough market research: Gain a deeper understanding of the Chinese and global real estate markets, including consumer preferences, regulatory trends, and competitive landscape.
- Implement a robust risk management framework: Identify and mitigate potential risks associated with the strategic transformation.
- Communicate the plan to stakeholders: Ensure transparency and alignment among employees, investors, and other stakeholders.
By taking these steps, CDL can navigate the challenges of internationalization and emerge as a stronger, more resilient company, well-positioned for long-term success in the global real estate market.
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Case Description
The case describes the family tensions and corporate crisis at City Developments Limited (CDL), a large and well-reputed Singaporean property firm that was the flagship company of a larger family-controlled business group. The gradual transition to the third-generation leader was marked by an aggressive growth strategy in China, which unravelled when the Chinese property sector experienced headwinds and CDL's Chinese joint venture partner experienced liquidity problems. These events forced the family firm to write off US$1.32 billion in 2021, causing it to report its first loss in decades. Moreover, four board members resigned, with one citing "unresolved differences in opinion" as part of his rationale for his resignation. The combination of a corporate crisis and a family boardroom drama elicited questions as to what steps the company should take to recuperate from the adverse events and resume its internationalization strategy.
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