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Jim Ayala, Chief Executive, Ayala Land

The business of building communities with "soul" in Asia.
Tom Leander, CFO Asia
July 8, 2008

There's something unexpected about Jaime "Jim" Ayala, chief executive of Ayala Land, the Philippines' largest and oldest real estate company: he's not an Ayala. He doesn't hail from the nation's long-standing, leading business family (Jaime Zobel Ayala is chairman of Ayala Group). Never mind: this is an Ayala who has thought deeply about the company's mission. The Ayala Group has won admirers for its ability to build transparent businesses with strategies that reward minority shareholders as well as the family. Jim Ayala studied engineering at Princeton University and management at Harvard Business School. He worked for McKinsey, helping to set up its offices throughout Asia. As a consultant, he advised Filipino administrations on energy development, tourism, and building outsourcing centers. Today, he sees his role in Ayala Land as giving him the "scale" to help improve the country's economic and social conditions.

After developing the high-end Makati business district and Cebu Business Park, Ayala Land seems to be going downmarket. Why?
We see this as the way to support and capture — in terms of business strategy — the next phase of development in the Philippines. We're now targeting residential communities and "mixed-use" communities — a mixture of businesses and neighborhoods, where tenants might be business process outsourcing (BPO) facilities and call centers. We parallel city management in many respects, forming associations of tenants that share payments for roads which we own, for example. City management often doesn't have the wherewithal, the budgets, and maybe the internal integrity to make the right things happen.

Are you in a position to do this?
We've worked over many decades in building townships and cities. We've learned how to master-plan it properly, to ensure safety, security, and traffic management. We know how to work with local governments to build real communities.

What's a "real" community?
Where is the soul of a city? People talk about Singapore being antiseptic and sterile. Singapore has improved, but it's still different from other cities which have an authenticity to them, like New York or Hong Kong. In places like Fort Bonifacio, we're building communities with access to arts. We encourage and help install art installations and areas for performance. We've set up a linear park that functions as a high street, and relocated vendors from Chinatown and Manila's flower market, so everyone — all incomes — can shop there.

You're also building communities around the Philippines' off-shoring industry.
We have three product lines. One is a central business district, which involves a traditional office headquarters. Another is to build around a call-center BPO, but more on the outskirts of a city. We also build large campuses, and we've been pushing our campus product in the outlying areas — in what we term "next wave cities." We have projects in Baguio, Davao, and Cagayan de Oro.

Will development get hit by a U.S. recession and a global slowdown?
A downturn is eventually good for outsourcing — companies need the savings more than ever. We haven't really seen the full effect yet [of a U.S. recession]. Our high-end property sales to overseas Filipino workers are down, but they are strongly up in the mid-market. Sales are down in the U.S., but we're shifting some of our sales effort to Europe and the Middle East.

What of inflation and higher interest rates?
Inflation is a burden on our cost structure, in fuel and steel prices, for example. People are feeling the bite of higher prices in gasoline, electricity, and rice, and this is affecting consumer confidence. But some are thinking of buying property. Mortgage rates have remained low — despite the fact that real interest rates have gone up.

What are your views on future business prospects with China?
China is an important nation and will be a big investor. We need to develop relationships. We have projects there. Chinese investors are also coming here, and they tend to come to us first. We're selective about partners. There are people who are like us in terms of value systems and governance. Some Chinese companies have been heavy-handed, making deals at the top without going through the governance processes.

Yet you have no choice but to engage?
The Chinese are looking for resources and locking them in. The Philippines is right on their doorstep, and we have an enormous amount of resources. But I don't think the Chinese feel very welcome here at the moment [in part due to a government bribery scandal allegedly involving Chinese telecom vendor ZTE]. We're hoping for longterm relationships with the right Chinese partners.

Is corruption the biggest problem facing the Philippines?
Corruption is a big issue, not just in the Philippines but in other countries around the region. But it's not just corruption; it's the ability to execute at the governmental level. In the Philippines, there's a litany of high-priority projects that never got to the operating stage. They were hobbled by judicial intervention in contracts, for example. That's why we [at Ayala] put in our own roads, our own electricity. We can't rely on other actors, particularly the government.


What do you like to see in your CFO?
Governance is a very big factor. It's not just about making sure we follow the right steps, but making sure the control processes are in the right place and that there's integrity in the system. I like to see forward-looking information, especially in terms of risk management. I expect the CFO to set up the enterprise risk policy, looking at business continuity, liquidity and cash. I also look for performance management. This helps monitor the trajectory of the company, helps us know what we need to do to create shareholder value.




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