Assessing Emaar Company Strategic Readiness For The Future (2033)
- Historical Background of the Environment
The United Arab Emirates construction industry has caught the attention of the world of late. With construction projects that break world records, the construction industry in the country is at its prime. Yet, even in the midst of all this, the construction industry has not plateaued. Other construction projects are earmarked, especially in the capital, Dubai. The city boasts of some of the tallest and most marvelous buildings in the world. Other construction marvels in the city also surpass previous records. Dubai, the gateway into the United Arab Emirates has come from far into being the global marvel it is today. The construction boom in Dubai dates back to the 1960s after the Dubai Creek was dredged, an airport established and the first hotel in the city constructed. Other important landmarks that hastened construction in the city was the construction of the five berth container terminal Port Rashid and the discovery and subsequent development of oil reserves. Other projects like the three billion dollar port, dry docks with a capacity of one million tones and the thirty three storey international trade center also spurred the growth of the industry and the city. Mega projects have been started and completed in the United Arab Emirates recently. However, the global meltdown slowed the pace for the industry. The recovery of the economy is slowly breathing life into the industry again. The construction industry was boosted by the instituting of the freehold policy that effectively allowed foreigners to purchase and own property in the country (Hitt, Ireland, & Hoskisson, 2011).
Previously, only natives of United Arab Emirates were allowed to own land. Reforms brought about the ninety nine year lease that allowed foreigners to hold and own property for only ninety nine years. This did not motivate foreign investments sufficiently. The construction industry in the United Arab Emirates contributed 10.6% to the Gross Domestic Product in 2008 and 10.3% in 2011. It is projected that the sector will contribute 11.1% and 11.5% to the Gross Domestic Product in 2015 and 2021 respectively. The figure below shows the outlook of the construction industry in the United Arab Emirates in the past and the projections for the future.
The construction industry in the United Arab Emirates has enjoyed an enabling environment, a factor that has influenced the construction boom witnessed in the recent past. Favorable government policies like allowing foreigners leaseholds and freeholds in certain areas of the United Arab Emirates has attracted foreign investments. There was also increased market after the move to allocate 20% of all residential gross areas to population groups in the middle income level. The extension of visas for investors in real estate from 6 months to 3 years offered a significant boost in the industry because of increased foreign investment.
The construction industry in the United Arab Emirates is not without its challenges. In the year 2011, the industry showed inadequate signs of recovery with significant struggles to reach the levels it was at before the global financial crisis. Significantly big projects were out on hold across the United Arab Emirates. In the short term, the oversupply of residential units may affect the residential sector of the construction industry. High vacancy rates experienced in the commercial units as well as the residential sector has caused a decline in the price quoted per unit. Although this is a challenge at the moment, the population increase and stabilizing economy will stem the declines in prices per units (Noack, 2007).
- Company Background
Emaar Properties is a company that is headquartered in the United Arab Emirates. The company is a Public Joint Stock Company established in 1997. The initial paid-up capital at the start of the company was AED one billion. The company is listed to trade on the Dubai Financial Market. The company’s specialty is in the creation of value-added communities that are master-planned in order to satisfy the full spectrum of residential and lifestyle needs. Emaar does not only operate in the United Arab Emirates. It has extended its expertise internationally. Presently, it has a considerable presence in many significant global markets. The company has established operations in Jordan, Saudi Arabia, Morocco, Pakistan, Lebanon, Turkey, Egypt, Syria, Canada and the United States. The company also has extensive forays in the leisure and hospitality sector with a diversified portfolio featuring shopping malls, Armani hotels, five star hotels and resorts.
Management Structure
The company is headed by a chairman who is the overall authority of the company and all its subsidiaries. Below the chairman is a deputy chairman who is only second to the chairman. The company has nine directors working just below the chairman and his deputy. Of the nine directors, one also doubles as a managing director of the company. The company management also has a chief executive officer who reports to the nine directors.
The corporate office in the company is overseen by the chief executive office. The following make up the corporate office; the chief financial officer, chief information officer, executive director of business developments and operations, chief executive officer international, executive director who is the legal and company secretary and the head of organizational development. All these offices are independent of each other and report to the chief executive officer. The last tier in the management structure consists of the heads of various subsidiaries under various entities registered under the group (Emaar, 2013).
- Company’s Current Situation
Market/product/service
Emaar Properties operates under the real estate market. The company creates value added products like master-planned communities where the needs of the individuals are met with quality designs and meticulous execution. Emaar’s highlight to its approach of establishing integrated lifestyle destinations is evident in downtown Dubai. In a five hundred acre mega project, the world’s tallest building, the Burj Khalifa stands erect. The building houses innovative and world class restaurants like the first Armani hotel in the world, the highest restaurant in the world. The surroundings of the building also feature other record breaking projects all under the stewardship of Emaar properties. These include the world’d tallest and performing fountain and the world’s largest entertainment and shopping center.
Market share
Emaar group has an extensive presence in many markets. The global presence of Emaar Properties is extensively in many countries. In Middle East, Emaar Properties has functional operation in countries like Lebanon, Syria, Saudi Arabia, Jordan, Kuwait, Oman, Qatar and its headquarters in Dubai, United Arab Emirates. Emaar Properties has interests in North Africa in countries like Egypt and Morocco. Its operations in the Asia-Pacific region are situated in Pakistan and India. The company has functional operations in Italy, Turkey, USA, United and Canada.
Competitive position
Competitively, the company is in pole position compared to other players in the industry. Firstly, the company has an extensive global presence with joint ventures and subsidiaries in different markets. Thus, the company enjoys the enabling environments that different markets offer. In addition, the company is risk averse by investing in different markets. Secondly, the company has a diversified portfolio. Irrespective of the fact that it deals with real estate, the company builds residential and commercial buildings. Recently, the company has ventured into master-planned communities that offer the needs of the affluent individuals. The fact that it deals with persons from different market segments means that it cannot be significantly affected by changes that affect only one market segment (Al, 2001).
The previous projects that the enterprise has undertaken have been extremely successful, some making in into the annals of history books by setting unraveled construction records. For instance, the Burj Khalifa is the tallest building in the world. The company also boasts of constructing the biggest shopping and entertainment center in the world; the mall in Dubai that received 54 million visitors in 2011. This construction success market the company as a construction giant. The economic conditions in the middle east and the globe at large are recovering after the global financial crisis. The revenues from oil sales have increased the purchasing power of the population in Dubai. This projected to affect the profitability of the company positively.
Company Analysis
Vision
The vision of Emaar Properties is to transform the company into a revered and valuable lifestyle developer in the world in real estate development.
Mission
The mission of the company is to transform Emaar Properties into a provider of global solutions for lifestyle in work, homes, leisure, play, education, health, finance, retail, industry and many more sectors.
Goals
It is the company goals to become and industry leader in real estate not only in its home market in the United Arab Emirates but also in the global scene.
Objectives
The following are the objectives of Emaar Properties:-
Environmental Scanning
The following were the issues facing the company.
Swot Analysis
The following is the SWOT analysis of Emaar Properties
Strenghts
- Government backing
The United Arab Emirates government has a 32% stake in the company. The government also has extensive access to the land that is necessary for the development of properties.
- Business model
The business model created by Emaar has been very successful. The company boasts of expertise in developing master-planned communities in various international markets. The business model of the company focuses on creating self-contained communities that have integrated schools, retail centers, parks, equestrian and marina themes into the lifestyles of the residents is a winning model.
- Foreign expansion and diversification
The company launched Emaar International in a strategic move aimed at diversifying its markets thereby reducing the risk of overdependence on a single market, Dubai. Through different subsidiaries, the company has penetrated different markets thereby creating new and diversified streams of of revenues.
- Strong regional partnerships
In every market the company has forayed, it has established relationships with the local governments and other significant local players in the real estate development industry.
Weaknesses
- Overexposure to Dubai
Despite the diversification into the international market, Emaar is still overexposed in the Dubai market. The proceeds from the market account for 79.91% of its revenue.
- Operations and funding strategy
The funding required of the parent company has been limited to 8% by its strategies. The rest of the funding is raised at the project level through debt financing, pre-sales and strategic initial public offers. As such, the company might be unable to raise money to complete some of its projects.
- Quality issues and labor problems
The Burj Khalifa, Emaar’s flagship project was mainly constructed using migrant labor. Many labor organizations have faulted the company of treating their workers harshly and low remuneration. As such industrial actions have been instituted and damages made on property. This tarnishes the name of the company. Occupants of a residential property developed by the company have raised issues of equipment breakdown and the use of inferior parts (Röttmer, 2011).
Opportunities
- Consolidation of its position in the domestic market
The massive tracts of land the company has in Dubai are enough to increase its presence in the domestic market hence consolidating its position.
- Diversification of revenue through international expansion
As stipulated in its mission statement, the company endeavors to become the provider of global solutions in lifestyle. As such , the company needs to increase its presence on the global scene. This will in turn diversify its revenue streams.
Threats
- Economic Protectionism
Numerous countries have stringent regulations regarding foreign investments, especially on infrastructure. This will derail the investment of the company in foreign markets.
- Global economic downturn
Although economies are recovering from the global economic downturn, countries and markets are still reeling from its effects. This could affect the purchasing power of consumers thereby affecting the company’s business.
Strategic readiness diagnosis
Strategic segmentation
Emaar has six business segments. They include the following: -
- Real estate segment: the company as a strong hold in the real estate segment in the United Arab Emirate. This has been through the delivery of high profile properties. The company not only builds homes but also designs master-planned communities that address the full spectrum of home buyers’ needs for lifestyle.
- Education segment: the company plans to offer education of premium quality in addition to an integrated curriculum in India.
- Healthcare segment: The company plans to develop hospitals of premium quality in health centers in the Middle East region.
- Hotels segment: the company has entered into exclusive partnerships with Giorgio Armani SPA with the aim of creating an international portfolio of exquisitely-furnished luxury hotels.
- Retail segment: The company is venturing into international markets in North Africa, Middle East and India.
- Financial services: the company has a significant stake in Amlak, the foremost Islamic financing company in the Middle East region.
Future turbulence level
Current strategic profile
The current strategic profile of the company involves the following :-
- Converge the growth engines into one entity
In order to effectively operationalize the strategy, the company seeks to uphold the following values: -
- Customer focus
- Open communication
- Integrity, trust and fairness
- Innovation, speed and execution
- Employee development
- Positive work environment
- Social responsibility
Current capability profile
Customer focus
It is important for customers to know that they are not only the source of revenue but also ambassadors of the company. The company is aware that the customers are the lifeblood of the company and hence the company goes the extra mile to ensure beneficial relationships. The customer focus program of the company emphasizes on understanding, listening and giving people the products they need whenever they need them (Kazmi & Kazmi, 2008).
People
In order to deliver on its mandate, Emaar empowers its employees with the requisite knowledge by offering hands-on experiences and formal trainings. The company provides its employees with the requisite guidance, ample opportunities and support so that they can execute their duties with confidence and pride for career development. The company believes in the strength brought about by diversity and is therefore an employer of equal opportunity.
Resources
The consolidated business profit of the company and its subsidiary has increased steadily in the recent past:
The data above shows a steady increase in the resources of the company over the years.
Strategy and capability gaps
People
Customer focus
Resources
Capabilities present profile future profile
At present, the strategy of the company and the capability profile do not congruence. The capability gaps are significant in that in the present situation, the company may not be able to comfortably meet its strategic targets. This is demonstrated in the strategy and capability gaps graph above. The gap at resent is significant. However, the future profile is bound to change because of the mission, vision and the strategy of the company.the company will revamp its capabilities hence reducing the gap. The slope in the growth of the company will also increase due to increased performance as illustrated in the graph.
Recommended actions to fill the sub gaps
The vision and mission of the Emaar Properties are congruent with the company’s corporate strategy. The vision and mission also complement each other in that one seeks to fulfil the objectives set out by the other. The two are focused on growing the company to new heights of global excellence in real estate development. However, and in recognition of the value of the other components of the company have on the achievement of what the mission and vision sets out, it is important to underscore some necessary actions. In order to fill the sub gaps, the following actions are recommended
- Increase penetration into other emerging markets in order to increase its global presence.
- Reduce its overexposure in the Dubai market
- Reform its funding strategy.
Measures to assure effective implementation
In order to ensure the effective implementation of the actions stipulated, the company will for more joint venture with other companies in the real estate or other related business segments in emerging markets. It is also important for the company to invest more in other markets. Diversifying the markets is not just enough. More in terms of sizeable investments is required in other markets in order to get more revenue from other markets. This will create a risk averse investment portfolio.
- Potential problems
It is probable that problems will arise in the attempt to fill in the sub gaps. Firstly, money is required in order to fund the recommended actions. This might be problematic because of the funding strategy of the company. The company is only limited to getting only 8% of the required cost. The rest of the money is acquired through strategic initial public offers and pre-sales. Where these methods fail to suffice, the company cannot bail itself out. Secondly, the economic protectionism in other markets may derail the plans to expand globally. Foreign companies have been locked out of potential markets by governments citing national security concerns. This could be problematic for companies that want to expand internationally (Newfarmer, Shaw & Walkenhorst, 2009).
- What should be done?
The company’s funding strategy should be reformed in order to allow more money from the company to be reinvested in different markets. This would speed up the expansion of the company into the international market.. The company should also approach other companies in restricted markets for joint ventures.
- Who should do this?
The management of the company is tasked with these obligations. The management should institute the said actions and monitor their progress through the relevant departments.
Summary
Current situation
Strategy components Strategy factors
Increased growth
Market position
Market differentiation
Product differentiation
Strategic readiness
Emaar properties has achieved strategic readiness for the future. The company can readily deploy intangible assets for business purposes upon need. This is evidenced by its capability profile and the fact that its intangible assets are aligned with the enterprise strategy. All the undertakings of the company are aimed towards consolidating all the subsidiaries into a global industry player that provides global solutions for lifestyle needs (Kaplan & Norton, 2003).
Major recommendations
- It is recommended that the company reduces its over-reliance on its Dubai market. As such, the company should increase its investments in other markets in order to reduce the risks should the Dubai market experience turbulence.
- It is also recommended that the company reforms its funding strategy in order to increase its investments in other markets.
References
Al, A. I. (2001). United Arab Emirates: A new perspective. London: Trident Press.
Emaar, 2013. http://www.emaar.com/index.aspx?page=home
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011). Strategic management: Competitiveness & globalization. Mason, OH: South-Western Cengage Learning.
Kaplan, R. E., & Norton, D. P. (2003). Strategy maps: Converting intangible assets into tangible outcomes. Boston, Mass: Harvard Business School.
Kazmi, A., & Kazmi, A. (2008). Strategic management and business policy. New Delhi: Tata McGraw Hill Education.
Newfarmer, R. S., Shaw, W., & Walkenhorst, P. (2009). Breaking into new markets: Emerging lessons for export diversification. Washington, D.C: World Bank.
Noack, S. (2007). Doing business in Dubai and the United Arab Emirates. München: GRIN Verlag GmbH.
Röttmer, N. (2011). Innovation performance and clusters: A dynamic capability perspective on regional technology clusters. Wiesbaden: Gabler Verlag / Springer Fachmedien Wiesbaden GmbH, Wiesbaden.
