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| Easy way – not always the right one
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Real Estate Review 9(66)’2006
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An interview with Milan Pajevic, ‘Slav-Invest’ General Director, about the role of consulting companies in implementation of investment projects.
The conversation was held by Natalia Yarosh
There exists an opinion that universal business laws do not work in Ukraine. That is – what is good for the West does not suit us, and the most successful managers of Ukrainian companies have some special talent made up by the peculiarities of mentality and country’s being at the transitive stage of development. This, however, cannot be said about ‘Slav-Invest’.
The company’s head, Milan Pajevic, has been holding his position for 13 years, and been distinguishable for such unpopular nowadays qualities as exclusive decency, and irreproachable business reputation. Having never been led by the temptations of the vague time, he is convinced that ‘the easiest way’ does not mean ‘the right way’. Milan sincerely believes in Ukraine’s bright future and makes everything in order for it to come maximally soon. Probably that is exactly why Milan Pajevic has been invited to become one of the lecturers at the International Business Management Academy, students of which are heads and top-managers of the highest levels, who, having graduated from the Academy, get MBA certificates recognized all over the world (automated organizational management program). Pajevic’s favourite theme to lecture is management risks and their minimization. That is what about he has kindly agreed to tell the readers of Real Estate Review.
- Milan, quite a lot of consulting companies have opened in Kiev recently and this service is highly demanded. In your opinion, what stage of growth of the Ukrainian real estate market has caused the necessity to involve specialists in consulting?
- This necessity has appeared after declaration of independence of Ukraine, almost simultaneously with the beginning of privatization process and market economy laws coming in force in the real estate sphere.
Today two stages of this process can be talked about. The first is connected with foreign investors’ coming to Ukraine. Actually they, already having some practice of involving consulting services, have created the consulting culture in Ukraine. The second stage is caused by appearance of real native investors at the Ukrainian real estate market. They understood the necessity and wanted to conduct their business professionally in accordance with the laws that are currently in force all over the world.
In my opinion such a situation has developed due to several reasons. Firstly, it is strategically important to attract large foreign investments in order for the country to recover from the crisis. But at least minimal conditions of investment attractiveness are to be created for it. Right after the first foreign investments have come, companies providing various consulting services (marketing, realtoring, jurisdiction, and, first of all, auditing) started their operations in Kyiv. For instance, ‘AC Nielson’ was among the first marketing companies at this market, and its services were used by almost all of the large foreign investors. At the same time, being interested in investing in the Ukrainian market, ‘Gooioord’ by its operation had promoted opening of ‘DTZ’ – one of the largest international consulting companies working with real estate.
- Which investment projects have higher demand for the involvement of consulting companies ?
- If investor wants to secure his investment and minimize the risk, consulting companies may be involved in any investment project no matter what industry it is. Undoubtedly, the stage of its realization matters.
Speaking about the sources of investment flows, especially in the period of 1994-2001 years - it was foreign capital, but starting from 2001 and up till now – these are both native and Russian investors who have become the most active last years. And though compared to foreign, the share of Ukrainian investments is rather small, it grows every year. Actions of Ukrainian and Russian investors has gained a tendency to conduct business clearer - minimizing possible risks, choosing the taxation policies, and, what is also very important, delegating part of responsibility to third parties.
In general Ukrainian market has become more developed and structured, competition is stronger, real investment flows have formed, and they require a right guidance together with minimizing the risks in project implementation. Some western analysts believe that the global political crisis is behind – ‘distribution of powers’ in both blocks has already taken place, and in the nearest time relative political stability is expected to accompany the country. It would be great if large investment funds, most of which are still absent at the Ukrainian market but just scrutinize it, believed this. Their coming would raise competitive capacity of all the process' participants including banking and insuring segments, developers, realtors, consultants of various specializations, companies that manage not only assets, but the process of designing and construction, and, of course, companies that manage the existing projects.
At the same time it is necessary to solve a problem of human resources. University diploma, knowledge of foreign languages, and ambitiousness do not guarantee that we get a professional, because one must have practical experience to become a professional.
- How important, you think, is the interaction between investing and consulting companies?
- All depends on the industry you want to invest – securities, residential, commercial or other kind of real estate, land, etc. Firstly the percent of investment’s profitability should be defined. In case it is real estate, having conducted the market research, investor with the help of consultants chooses certain directions he is more interested in, short- or long-term investment in particular.
Large foreign investors and those who have secured in this business and consequently need long-term and stable profit prefer mostly long-term investment. This kind of investing is often chosen by world banks and funds.
As it was expected, a group of Ukrainian companies which are publicly involved in long-term investment and even in managing certain commercial projects (office centers, Public Utility Units, logistic parks, etc.) has entered the market recently.
In clear investment schemes role of consulting companies (marketing, realtoring, financial-auditing, jurisdiction, project management, and engineering) is well defined.
Specialization, deepening, and expansion of the practice of involving consulting services, and growth of employees’ professionalism promote growth of the company’s stability level at the market.
- Is expansion of ‘Slav-Invest’s’ operation caused by this?
- Some banks and other large investors today control the usage of money flows by involvement of independent professional consulting and project-management companies.
Foreseeing this tendency we have decided to create a holding: now ‘Slav-Invest’, being a widely recognized brand, is ready to provide foreign and domestic investors with the following services:
- consulting and project management (‘Slav-Invest Consulting and Project Management”;
- designing, general contracting, construction, engineering (‘Slav-Invest Engineering’);
- interior design (‘Slav-Invest Style’).
Thus, now we are carrying out the process of reorganization and company’s division into two: SICPM (‘Slav-Invest Consulting and Project Management”) and SI Engineering.
I’d also like to point out that our company is growing and developing taking into consideration all the peculiarities of the Ukrainian market. Firstly – existing risks, secondly – demand-supply situation of particular projects. I believe the most important is to choose a competent customer or client, a right project portfolio and, though it might seem strange, provide project managers and project offices with a complete support from the side of company’s top management and the whole collective.
- What, in your opinion, are the advantages of an independent company service in particular?
- Practice shows that the result of investment project's implementation is directly dependent on initially created strategy and structure of its realization, abilities of not only investors, but their political and financial support as well, and ability to create a highly professional team responsible for each stage of a particular project. Large construction companies usually feel lack of qualified people in top-management, and this fact increases the role of absolutely independent project-management-engineering companies providing investors with project management services.
In our opinion a managing company which has an organizational independence from the Customer and, consequently, sufficient freedom, is exactly the one who objectively works for the end result. In case project management is implemented by an own developer’s subdivision of the investor, there exists a risk of overwhelming corporate control, subjective response to one-moment needs of the investor. Finally it negatively influences the result of the project. Project’s success much depends on the level of managing company has been involved, qualification of its employees, time the company has been working at the market of construction investment and, consequently, its experience and reliability.
- Is there a difference between managing projects in Ukraine and abroad?
- I’d notice the difference in specificity of managing projects in post-soviet and developed countries situated not only in the West, but in the Far East as well.
Realization of any project in real estate has its internal and external requirements. As for the first ones, the following may be determined:
- problems of land tenure;
- system of the extension/agreement process;
- unpredictability of risks.
Foreign investors call it ‘instability of external environment’ or ‘culture of business conducting’.
Internal conditions differ in the following aspects:
- availability or absence of the staff experienced in a such kind of work;
- fulfillment of contract terms;
- payment discipline;
- no delegation of powers;
- significant dependence on the customer.
The great difference between specificity of the local market and the market of developed countries lies in the absence or restriction of project manager’s powers (whether reasonable or not). In developed countries project manager is delegated with much more powers, but in case he is fired he’ll get a bad reputation and no one will hire him even as a driver. Our situation looks different: everybody is afraid to give maximal powers to the project manager because it involves financial responsibility and possibility of abuse. And there are powerful reasons for this. Real project managers are of great value and rarity. Here threat of dismissal is not a doomsday at all for the manager – considering the market conjuncture he will turn around and find a job one step away. It’s not a secret, that this reality like in the mirror reflects the general situation in the country.
In ‘Slav-Invest’ we whether try to bring up (and we have succeeded after 13 years) or to find the expert, which would be authoritative for the customer, for managers and employees of his company, and for the general contractor and other participants of construction process. He must be a high level professional who has experience in particular projects’ realization, knowledge of processes and laws of the industry, in which the project is being realized, and able to use resources effectively.
No one should omit the fact that project manager will not do much without a team, one can’t stand against an army, and any project is developed by a team, which needs its own leader. So, he should also be the leader who has real knowledge, skills, and experience.
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- What do you think is the main problem which slows down foreign investments coming to Ukraine?
- The main reason I believe is the absence of differentiations of responsibility and unwillingness of participants ‘to play according to unified rules’.
I flatly do not agree with the opinion, that Ukraine does not need foreign investors meaning there is enough of own ones. It is pleasant, that the native capital is searching for its own place in this market - this is a sure sign of market stability. But it is necessary to remember, that Poland, which is compared to Ukraine by many characteristics, was invested above $70 billion between 1994 and 2004, and economy of Ukraine - less then $10 billion for the same period. Therefore investments, especially foreign, always were and will be the locomotive of development of any economy sector, and investing the real estate market is a mirror of the national economy condition. And in this sense I have an optimistic view at the future of my company and at the country we work in.
An interview with Milan M. Pajevic
General Director of “Slav-Invest” LLC
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