CapEx and the FF&E process around the world
 
CapEx and the FF&E process around the world
10 MARCH 2010 9:20 AM

In this ISHC Global Insights series, executives at Benjamin West examine the differences between regional customs, cultures and business practices as they relate to hotel FF&E sourcing.

Daniel Englender, Bill Cheung and Darlene Henke contributed to this series.

As a leading global furniture, fixtures and equipment (FF&E) and operating supplies and equipment (OS&E) purchasing firm with offices throughout the globe and active projects in more than 20 countries, we are often asked about how different, or how similar, handling the FF&E needs of hospitality projects are around the world. Quick answer: The ONLY thing in common is that a hotel needs FF&E and that through a process, the FF&E is shipped and installed.

Alan Benjamin

Daniel Englender

Bill Cheung

Darlene Henke

As for what is different—well, just about everything else. This can make for some interesting conversations, especially for new brands, owners and consultants operating for the first time in a foreign area.

We will focus our conversation on four key areas in four articles (which will appear on HotelNewsNow.com for four consecutive Wednesdays): 

  • Customs and Customs
  • Scope
  • Terms of Art
  • Currency

Let’s jump into a favorite area: the customs (cultural norms of each country/region) and then the customs (as in, import customs and duties).  
 
Cultural norms and customs

Most items of FF&E require specific codes be met—everything from life safety and disability codes to durability and fire codes. For fabrics, note that every country has a different standard, and there are differences and variations within a country and even within a city. There are literally building-to-building differences (may depend on height of the building, sprinkler system coverage and other factors).

While this is true in the United States, it is even more evident in Europe, Asia and the Middle East. In seating, one has to cover the flammability of fabrics and foam (sometimes even in their specified combination); in lighting, there are complications with electrics and lamp wiring, bulb, plug and cord type. Similar code issues exist for beds, top of bed treatments, window treatments, carpet and wall coverings. 

Overall, fire regulations differ widely; there isn’t even a European standard that is compulsory; at present it’s a guideline only. In Paris, for example, the general requirement is stated in terms of whether the item in question can be “thrown out of a window if on fire.”  Therefore, a bedroom chair may require no flammability approval, yet a matching sofa would be required to meet M1, a local fire code standard. There is no standard for what happens to the burning chair as it hits the sidewalk next to the hotel, so look up if you’re passing!

In Russia there is also a requirement for hygiene certification on products such as carpet and wall coverings, without which goods simply will not be allowed to pass the border. Foreign companies usually cannot undertake these tests outside of Russia, and it can become a matter of taking a chance at the border crossing, certainly not a comforting feeling for a project leader with a schedule and budget concerns. These requirements may force certain local vendors to be used whether or not they are the project team’s first choice.

The system used for floor numbering differs outside the United States. In Europe, most of Asia and the Middle East, the “ground floor” is the same as what is called the “first floor” in the U.S. Funny perhaps, but when construction of a United Kingdom project is by a German company and operated by a U.S. firm, confusion can ensue. “Why isn’t the carpet installed on the third floor according to the program?”
 
We all accept that there are many languages spoken in the world and that many in the hospitality profession use English, but it’s worth remembering that when spoken or written as a second language, English can present many different interpretations. Asking the same question in three slightly different ways can elicit contradictory responses and, when discussing product specifications, these are details that one wants to ensure are 100-percent perfect.

“Ship to” addresses occasionally present their own, somewhat comical, challenges. Can you imagine supplying a hotel where the only available delivery address is “building next to Chili’s restaurant” or “two miles past the seventh telegraph pole,” both of which are from current Benjamin West projects?

While a vast majority of the world uses the metric system, converting dimensions—metric versus English/Imperial—can lead an obvious difference that still cause issues on a regular basis. Converting from square yards to lineal yards is hard enough, now try making the square yards to lineal meters on that textile!

Another country by country “custom” to be aware of is the representation of dates. Simply, the format differs between most of the world (3 January 2010), the U.S. (January 3, 2010) and, say, Japan (2010, January 3). 

Written in this format, it’s clearly not a problem; however many companies use only a numerical expression such as 1/3/10, as typically is used in the U.S. The Italian furniture you ordered might be ready by March 1 when you needed it dispatched by January 3. To be safe, try and always use the month as a written expression.

Import customs and duties

Accounting issues vary by country and sometimes by city, township, region and other country specific smaller areas of tax-area definition. Sales Tax and its international equivalents (VAT, TVA and others) are a nightmare for the uninitiated and make the above flammability standards seem like child’s play. 

Where the goods are made, which city they dispatch from and the port of entry can all make a difference to the product’s total cost. An experienced purchasing professional is essential to provide an owner true total costs when comparing multiple bids for the same item. Accounting for sales tax and import duties is a full-time occupation. 

Most countries levy substantially differing import duties and taxes based on the category of FF&E and the content (raw material make up) of each type of item. Certain countries try to protect their “home-court advantage” in certain categories, whether that be wool, cotton, certain types of wood, metal and other materials.

In Europe, goods can arrive into Rotterdam port, and, if the hotel has the standard type of VAT number and not the deferral version VAT, sales tax is payable upon entry at almost 20 percent. Even though this amount will be reclaimed at a later date—generally three to four months later—it clearly has a serious affect on cash flow, and note that the rules vary country by country, and sometimes the entire VAT amount is not recovered.

In China, this situation is even more complex when you import COM Italian upholstery fabrics into a Chinese furniture factory to produce upholstered seating, and later the product is exported to a hotel in Seoul, Korea. Whether the Chinese VAT is chargeable and at what percentage is dependent on the business license of the factory (is the factory set up for making products for export only vs. for products that can be sold both domestically in China or for export?). It is key to know that different factories have different relationships and businesses with the Chinese Customs.

In the Middle East, and in many parts of Asia, Europe and Africa, the most direct and “obvious” route for shipping FF&E into a specific country may not be the best option. Many regions, especially in the Middle East and Africa, lack sufficient infrastructure and additional costs may arise as FF&E routes are selected based on reliability of flow, avoiding wars and other disruptions. Once the product arrives at the dockside, port fees, loading fees, and customs fees vary widely from country to county, as do the costs of drayage from local port to final destination.

One major international operator stated last week, “We pay no attention to the … ’U.S.-focused’ … brand standards as none of that works in Europe or the Middle East.” Not only brand standards, but for all hotels, branded and independent, quality standards also hugely differ; a typical U.S. full-service hotel brand may be 3.5 stars whereas the same brand in Asia, Europe or the Middle East is likely to be 4.5 to 5 stars. 

The narrow and specific brand differentiation that exists in the U.S. is only now being introduced internationally, and many of the major U.S. brand companies are only now introducing all of their brands internationally. 

For example, can you imagine that all of Russia currently has fewer than five Hilton hotels? The future expansion of all the major chains will definitely be international, and the new owners, developers, managers and operators need every assistance they can obtain.

Finally, always talk with an expert in the local culture in which you are about to do business. While many people around the world are more and more used to foreign visitors, a small consideration to a local person’s culture can mean a lot, and the last thing one wants to do is to start off on the wrong foot. Know the basic local customs, from handing and receiving a business card with two hands in Asia (and don’t play with the card, treat it with respect; do not write on it); do not cross your legs and show the bottom of your shoe in the Middle East; and of course, no chewing gum in Singapore.
 
About this series: This is the first article of a four-part series that will examine how all aspects of the capital expenditure and FF&E process can differ around the world. Brands, owners and consultants operating for the first time in a foreign area will find useful guidance about regional customs and business practices.

Coming next week: The scope and expectations of a project can vary. Benjamin West outlines the important considerations that can be addressed in a differentiation document.

Alan Benjamin (abenjamin@benjaminwest.com), a member of the International Society of Hospitality Consultants (www.ishc.com), is president and founder of Benjamin West in Boulder, Colorado.

Daniel Englender (denglender@benjaminwest.com), a member of the ISHC, is managing director of Benjamin West London.

Darlene Henke (dhenke@auditlogistics.com) is president of Audit Logistics LLC in Louisville, Colorado.

Bill Cheung (bcheung@benjaminwest.com) is managing director of Benjamin West Hong Kong.

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