The Edificio Espana

 

Part 1: Summarize the Important Case Facts

 

Who are you in the case?

Jianlin Wang, owner of Wanda

 

What is the main problem? How did this problem happen?

The Espana has been under renovation for a long time. No time has been doing business around there.

 

Acquired the building in 2014. Now it’s 2016 (2 years later). Wang is STILL negotiating with city politicians about the permission to renovate the building.

 

He’s wondering if he should sell the building.

 

Decision to make:

Should Wang sell the building or persist and work with City Hall in trying to renovate the building.

 

What had gone wrong?

Is it just the Spanish culture that’s a problem? Was it politics?

 

What are some key facts in the case?

Acquired the building in 2014. Now it’s 2016 (2 years later).

 

For this part

1.      Go through the headings

2.      Take notes only on what’s relevant to the case problem and recommendation

3.      Then in the recommendation part, look over those notes again and then make your recommendation

 

 

1) Dalian Wanda Group à company background

·        Wanda Group does land development and usually does projects that governments think is very important.

·        Many local governments like Wang because he is a good partner for growing the city’s economy, AND these politicians are judged by their ability to improve the city’s economy.

·        Wang’s goal for Wanda is to be a world-class MNE.

o   Then he should try to keep the Espana and persist

·        Wanda prefers to have original people in the companies he acquires. He doesn’t want to manage it all by himself.

o   It’s very important that he acquires a good TEAM of people, not just land.

·        Many Chinese tourists visit Spain

 

2) Edificio Espana à more background info about Espana

·        Constructed in 1953 à53 years old

·        A very luxurious and famous building

·        Starting in the 1980s, illegal activities became common in the building

·        Closed for business in 2005 à it’s been closed for business for 11 years

·        Got sold to Banif in 2005.

·        Banif wanted to renovate the building but the building is protected as historical site.

o   The architecture and structure of the building are protected by law

o   In order to renovate the building, we need to change the structure of the building. BUT the structure is protected by law! So you cannot renovate it….

·        When Banif tried to renovate the inside of the building, the public found out and got very angry at him!

·        In 2008, world financial crisis. The property value of the Espana dropped a lot.

 

3) Enter Wanda à how did this all start

·        Banif put the Espana on the market in 2013 because it didn’t want to lose any more money due to the Espana

·        In March 2014, Wang met with Madrid’s president. The president liked him and connected him to local politicians.

·        Wang bought the building 4 months later in June 2014 for 40% less than what Banif paid in 2005.

 

4) Madrid Politics à the problem

·        Changes to buildings need to be approved by the heritage commission

o   The heritage commission is very conservative (Low UAI)

·        In June 2005, Madrid’s politicians were supportive of Wang

o   The mayor at the time, Botella, supported Wang

·        The Heritage Commission allowed changes to be made inside the building but not outside. Wang agreed to this.

o   many citizens didn’t like this, which brought negative publicity

·        A local NGO came and said Wang isn’t following environmental laws and then sued Wang

·        BIG PROBLEM: Can Wanda destroy the outside and rebuild it to look exactly the same?

o   Some experts say yes if the renovations are not possible without destroying the outside. Wang agrees with these people.

o   The President of Madrid, Gonzalez, assured Wang that he doesn’t need to worry about the NGO

 

5) Elections à the problem continued

·        Botella and Gonzalez didn’t get re-elected. Darn!

·        New president. New focus. New guy in charge of the Espana: Calvo.

·        Calvo re-evaluated Wanda’s plan, and he’s arguing for Wanda to NOT destroy the outside.

o   Wanda says this is IMPOSSIBLE to do.

o   Calvo is being a big obstacle because he cares about his election and his public image more than the actual good of the Espana

·        In Sep 2015, Wanda submitted another plan, still saying they HAVE to destroy the outside and rebuild it.

o   The Heritage Committee declined this time.

 

6) More Delays à the problem continued continued

·        Still not approved by Jan 2016 à 1.5 years now

·        The Spanish citizens told Chinese media that they hope Wang will stay in Spain and renovate the Espana. Renovating the Espana will bring economic recovery to the city.

·        In Jan 2016, Calvo said “We will never accept the risk of demolishing the façade”

·        April 6 – Mayor of Madrid asked Wang to confirm if he is still going to keep the building or sell it. She wants a reply in 15 days.

·        April 20 à Calvo said Wanda’s plan looks good. We will give Wanda approval next week.

·        May 22 à Wanda did not get any permits. Wang told Chinese media he is STILL waiting for written approval. Wang said, the last government accepted my plan, so I bought the building. The new government rejected my plan, so now I’m thinking of selling.

o   The mayor heard this and got angry, saying “You should know that the government might change before you invest in a democratic country.”   

                     

Part 2: Analyze the Case and Find Solutions

For the Edificio Espana Case, talk about

1.      Political System in Spain

2.      Economic System in Spain

3.      Stakeholder analysis: Citizens, Government, NGO, Wanda

 

 

1: Political System

The political system is democratic. This is different from Wanda’s home country, which has a communist system. In a democracy, the leaders can easily change every few years, which means the country’s political goals will change too. This was something Wanda should have been more careful about.

 

2: Economic System

The political system in Spain is mixed. This is different from China, which is more centrally planned. In a mixed economy, the government has some influence over business, but not as much as in a centrally planned economy.

 

3: Stake holder Analysis

Stakeholder	Power Level	Wants
Government Heritage Commission	Highest	Do not touch the building
Wanda	Some	Demolish the building
Citizens	Little	Do not touch the building
NGO	Little	Do not touch the building

 

 

Part 3: Recommendation

 

1. Should Wanda persist with renovating the Edificio Espana? Why?

 

Yes he should because

·        Wanda wants to be a world-class MNE. Acquiring the Espana is a big step towards this goal.

·        The Spanish citizens support Wanda publicly on the Chinese media

·        Many Chinese tourists there; good business opportunity

·        The city really needs this building to improve their economy

 

No he should sell it because

·        The Heritage Commission and Calvo are bad partners to work with. They don’t keep their word and they keep bringing trouble. They care more about their image in front of citizens than the actual long-term good for the building.

·        It’s impossible to renovate the building without demolishing the outside, and the Heritage Commission does not care about that. The Heritage Commission has the most power.

·        It’s already been 1.5 years. Don’t need to waste any more time and money trying to sort this out.

 

 

2. What are some lessons that Wang should learn from this experience to prevent the same problem from happening in the future?

1.      For democratic countries: Before taking a politician’s words seriously, first look at when is the next election? If the next election is soon, don’t bother taking their words too seriously. Wait until they just got re-elected.

2.      Get written approval BEFORE you buy the building.

3.      Don’t underestimate the power of local NGOs

4.      Make sure your goals are aligned with local government goals

a.      In this case, the gov’t wants to PROTECT the IMAGE of the Espana. That’s not Wang’s goal. Wang wants to bring economic development.