May 6, 2014

This is the second of a three part blog series, which attempts to highlight the last 2-3 decades of the relocation industry’s history by focusing on: a) the industry’s structure and; b) the industry’s flow of information. The blog series’ goal is to help companies understand a recent significant change in the domestic relocation industry between its moving and relocation service arms.

As mentioned before, this is a broad history and there are many relocation companies, procurement departments, etc. that buck the trend outlined here, but since this series focuses on the larger structure of the industry it is important to describe its largest trends which are determined by its largest players.

To summarize Part 1: moving companies lost many of their corporate-direct relationships over two decades ago when relocation companies expanded their Guaranteed Home Sale role to one that provided information that corporate clients desired. However, a monopolization of that information by one relocation company created large gaps of knowledge about how the industry worked. Accompanied by the flooding of the marketplace with policy related information and the rise of procurement’s role in the purchasing of services, we now find ourselves with an industry that is, at one and the same time, more informed than ever about policies and practices (certainly at the most mobile companies) and less informed than ever about the workings of the industry itself.

Act 2: Destination Services: relocation companies as distribution network.

Karl Marx’s quote (paraphrased) “History repeats itself,” is well known, but its 2nd part, “first as tragedy, second as farce,” is less so. In short, this means that while it is tragic when negative historical events repeat themselves, if we then allow them to repeat again we only have ourselves to blame. However, that is exactly where our industry finds itself as the largest relocation companies, inattentive as to what their free flow and extreme editing of information had done to the moving industry, continued the exact same practice with another group of vendors. The second act would be about destination services. All Points feels well positioned to speak to this subject as we are at one and the same time a relocation management company and destination service provider.

Today it is fairly well known that these services are those in which a destination service provider (hereafter DSP) assists transferees in orienting themselves to a new city, assists with rental home finding, and helps with government compliance issues such as obtaining of social insurance numbers, driver’s licensing and more.

The last we left the largest Canadian relocation company in the late 1990s, it was the dominant educator of what was and what was not important to learn about in Canadian relocation and one thing it chose NOT to educate corporate Canada about was destination services. While in Europe, destination services had been thriving as a cottage industry for some time, in Canada they were struggling to get off the ground, because of competition from Realtors. Realtors were never suited to perform nor were able to embrace the full range of destination services, but when the largest broadcaster of information was also one of the largest real estate agencies this move is not surprising. However, the Realtor model was ultimately doomed to failure as Realtors were able to earn so much more through the buying and selling of properties.

Destination Services actually began to grow more significantly in Canada due to external forces: American relocation companies, far more experienced with global assignments, started to require these services and the Canadian marketplace came to expect them as well.

DSPs have so much information to convey: Information about little things; neighbourhoods; local government registrations, car registrations and much more. In addition, this information is geographically dispersed. The information in Toronto is different than that in Vancouver, London or Mumbai. So, even though they had lots of important information, North American DSPs never made significant direct inroads with corporate clients, because the information was too local and de-centralized at a time when corporations wanted large, global vendors, and because corporations were “educated” that Realtors should perform the service. The exception was in Europe and Asia, where Destination Services had become synonymous with relocation services.

For the DSPs, large relocation companies acted like global marketing and distribution hubs for their services. As the management of destination services became a new value-add to sell with new revenue streams, global relocation companies eagerly re-sold this supplier service aggressively. Easier to repackage and sell in far larger numbers than cross-cultural training or language training destination services proliferated. However, the marketplace was flooded with only the most basic information that “Destination Services” were important. The service had been commoditized in record time. What was once a very local service, with nuanced, contextual information, became truly globalized. By homogenizing it, the largest global relocation companies de-contextualized destination services to fields in a spreadsheet. No longer could Brazil, for example, readily convey that in some cases the DSP might actively work with the landlord for 30 or more days after the negotiation of a lease – they were just asked to state how long one day of home finding would cost. And to be fair, large corporations needed this distillation, because a world of local details was too overwhelming to manage.

Here is a personal anecdote, however, illustrating the dumbing down of the industry’s understanding of destination services (there are many more, but in the interest of space, I will only use one):
• All Points was recently short-listed to become one of two DSPs to provide destination services for one of the largest global relocation companies. The RFP noted a large array of technological requirements including disaster recovery, encryption, co-location of servers, PIPEDA compliance through all phases of a file, etc. All Points has all these and we were proud to be awarded the business contingent on pricing adjustments. However, we were told to lower our fees to the level of a competitor that the relocation company acknowledged had none of these attributes. The key point is this: the relocation company stated that they could not differentiate All Points to their clients or even their staff with anything other than price, so “you will never be chosen from our system if you don’t reduce your fees.” As consumers, we all expect to make cost comparisons when we shop, for instance for a car. However, in this case, the actual consumer of the service (the corporation) has no ability to differentiate their choices. We declined the opportunity.

What this story illustrates is that valuable information from the DSPs is not getting through to either HR personnel or mobility staff at the largest relocation companies. It would only be a matter of time when, under natural cost containment measures, destination services would not only face pricing pressure, but also a roll back of service breadth.

That is the end of ACT 2. First Act (reduction of information about moving industry) as tragedy, second (reduction of information from DSPs) as farce. In both cases, the stifling of information led to a non-nuanced valuation of the services and allowed them to be commoditized to the detriment of providers AND the corporations that ultimately used their services.

Act 3 (I don’t know what comes after farce (Monty Python’s Dead Parrot?)): the fast, but extremely edited flow of information starts to reduce the largest global relocation companies’ revenue opportunities and perceived value-add.

Now with moving and destination services reduced to information-light commodities, the race to the lowest price was well underway. Cost reduction is important, but cost reduction without context is dangerous. Given that the relocation companies had built an entire network of referral fee opportunities from movers and DSPs, price and service reductions to those suppliers resulted in revenue reduction to the relocation companies themselves. At the exact same time, the largest relocation companies were also under another assault: fewer homeowners were relocating than renters, which reduced volume of real estate referral fees.

So we are now right in the middle of Act 3, and a slow trend is emerging: disintermediation. In economics, disintermediation is the removal of intermediaries in a supply chain, or “cutting out the middleman.” We see this, for instance, when someone buys a stereo on-line rather than going into a big box store. Instead of going through traditional distribution channels, if the value produced by the intermediary is less than the value of getting to the source of the sub-service or product directly, buyers may choose to go right to that source.

So at what tipping point does a corporate client decide that the value of a relocation intermediary has declined too much? First, they will likely explore pricing opportunities and if the intermediary drives up the cost rather than reduces it this will play a role. However, aside from that, it is when the information removed and/or slowed by the intermediary is greater than the value of the information they provide. For example, if the speed of response about a moving problem is slowed by the intermediary this is viewed as a negative. If the intermediary does not understand some nuance about the moving industry and this nuance plays a role in a problem that could have been avoided this is also viewed as a negative. If a corporate client creates a tally-chart of all the information value-adds from the intermediary (policy related information having been deflated for a while) and lines them up against all the information value-destroyers (slower speed, non-nuanced, inability to push value-adds of sub-vendors out to corporations) some could start to conclude that the tally-chart does not look as good as it once did. This creates the environment for disintermediation.

There is still massive value in the relocation management companies aggregating global vendors, managing processes effectively, relaying information, reducing prices through volume and managing supplier networks (see Part 3 though). However, owners of the largest relocation companies do demand that these big entities stand on their own balance sheets, and with the reduction in real estate and supplier referral opportunities and with the greater and greater effort it requires to manage relocation, even a few of the most mobile corporations moving their programs in-house, or finding smaller, more nimble global relocation companies is highly disruptive to the profitability of the largest vendors.

This trend is just nascent, but it has begun at the most mobile of companies and many others. Outsourcing still continues and companies still find value in great relocation companies everywhere, but in many instances this clientele is not big enough to support, never mind grow the business of the largest relocation companies.

To summarize, the largest global relocation companies find themselves in trouble because they are now paying the price of decades of information devaluing and editing. Just as the movers had created the environment to be overtaken by a tidal wave of information, the largest relocation companies are now ripe for a shock to the system, this time with themselves as victims. This now leads us to the third and final part of this blog series, wherein we look at the large recent change between the moving and relocation industries in Canada and why it matters