Report on the State of the Cleaning Industry Worldwide

Back in September 2009 members of the World Federation of Building Service Contractors gathered in Vienna to participate in the annual conference to discuss the state of the cleaning industry worldwide.

Participants included industry representatives from Argentina, Australia, Belgium, Brazil, France, Germany, Japan, New Zealand, South Korea, Taiwan, UK and the USA. The purpose of this report is to discuss the key themes and issues reported from the conference and to suggest how they will impact cleaning businesses in the future.

It is estimated that the cleaning industry generates total revenue of 35 billion Pounds worldwide based on the data provided by the WFBSC members. Off course this is an under estimate of the true size of the cleaning industry. If we were to include non-members of the WFBSC and countries like Chine and Indian numbers would be much higher.

According to data provided by WFBSC member countries the cleaning industry employs 4.5 million people worldwide. It is estimated the in the UK the cleaning industry employs 452,000 people but then again numbers could be higher since the relationship with between the UK and the WFBSC inconstant. Countries like Japan and Brazil the number of jobs generated by the industry surpass the 1 million mark.

1. A Macroeconomic Look at the Cleaning Industry Worldwide

This article is the second part of a series of articles about the state of the worldwide cleaning industry, in case you missed the first part please read: "http://www.totalclean.co.uk/blog/report-on-the-state-of-the-cleaning-industry-worldwide/ ".

It examines the key themes that were presented during the last WFBSC conference in the present macroeconomic context as well as current market conditions. It discusses ideas as how the industry should respond to the challenges and opportunities presented in the

medium and long term.

From the individual country surveys we can make general observations on issues that affect the cleaning industry worldwide. In many cases the decision to raise the minimum wage is largely based on political considerations in an attempt to win political favour with either the business community or with low wage earners.

The UK presented an example of where there is an attempt to set the wage based on objective economic considerations and to balance the needs of the business community with those of low wage earners. But inevitably political considerations will always play a factor in setting the wage rate. This is why we can observe in some instances; an increase in the wage rate in the face of poor economic conditions.

1.1 Price competition

One of the common themes that emerged from the various WFBSC presentations is that the contractor market is driven largely by price competition. With the general upward move of minimum wage costs and smaller revenue streams due to lower prices, cleaning businesses are witnessing a decline in their margins. Declining margins result in less profit being retained and used for investment for staff training and equipment acquisition.

Therefore cleaning businesses are trapped in a position where they are just able to record a sufficient level of profit to operate as a business but an insufficient amount to invest towards increasing their productive capacity and operative efficiency. The inability to expand their capacity will most likely make it very difficult for businesses to expand or maintain their market share in the future.

1.2 Providing a tailored service

The fact that competition is fiercely price competitive suggests that the market is a highly priced elastic whereby large changes in price will result in large changes in demand for the

service. The highly priced elastic nature of the market would suggest in itself that the provision of cleaning is a low value added service. This is attributed to the fact that cleaning is a job predominantly performed by low skilled workers.

As a service it is also relatively cheap and inexpensive to provide therefore there is sometimes a tendency for organisations to bring cleaning activity in house. Some delegates recorded a trend against outsourcing favouring towards insourcing. A possible solution to reduce the price elasticity of cleaning would be to turn the provision of the service into a high value added activity. Higher added value would encourage customer loyalty therefore making cleaning a price inelastic service.

One method to provide a more tailored service would be to shift towards facilities management. Organisations typically run various contracts for the various provisions of services. Some are now shifting towards holding a single contract with a provider that will provide a whole range of services from cleaning to catering. However a positive trend towards facilities management can only be observed in markets where there is substantial growth.

1.3 Sustainability and Technology

The American delegation reported that increased sophistication and use of technology in both business practices and equipment saves time and labour costs. As noted earlier however cost pressures and declining profit margins make it very difficult for businesses to invest in technology that would increase output and efficiency.

The UK delegation noted that tough credit conditions make it very difficult to invest in the acquisition of new technology, which has therefore resulted in the industry becoming more labour intensive.

Given that at present businesses who are employing workers on minimum wage find it difficult to absorb cost increase and there is a strong business case to switch to a more

capital intensive system. This is easier for businesses to absorb increased costs without having to either pass these onto the client in the form of higher prices or service debasements.

Conclusion

The Global financial crisis heavily impacted the cleaning industry causing considerable difficulties. Businesses have seen their revenue streams and their margins decline and have seen significant amounts of work move towards the informal economy. In the face of such conditions contractors are forced to lower their services in order to stay operational, resulting in businesses being unable to make capital investments to improve their services.

Summing things up, although the Global Financial Crisis posed a serious challenge for the cleaning industry worldwide it has also sowed the seeds of recovery and presented new opportunities for the industry as well. The effects of this second economic crisis are yet to be felt by the cleaning industry and areas like office cleaning are reporting rises specially in big commercial centres like London, Singapore, New York and So Paulo. Office cleaning in London is on the rise due to a series of factors that are explained in detail in this article Office Cleaning in London is on the Rise (Once Again).