IS THE BOOM PHASE OVER FOR GULF COMPANIES?
Profitability of GCC Firms Down in 10 Years
Average net margins of GCC companies have decreased from 31 per cent in the boom years a decade ago to about 17 per cent in recent years, with industries such as construction, real estate and banking hardest hit, says a new study by Roland Berger Strategy Consultants Middle East.
The global financial crisis contributed strongly to this development through slower GDP growth as well as high but stagnant oil prices. In addition, efforts by GCC countries to improve their global competitiveness, e.g. through deregulation and better market accessibility, have encouraged foreign companies to enter the market.
“We expect pressure on profitability to remain high. Comparably high growth rates and the GCC’s solid business environment will continue to attract market entries from international competitors,” says Dr. Tobias Plate, Senior Partner at Roland Berger. “Therefore, local and regional players need to assess how they can best leverage this growth potential despite increasing competition in order to ensure a successful future.”
For GCC companies, transformation is the key to unlocking improvement potential and ensuring long-term success
According to the study, successful transformation needs to be based on a holistic concept – enabling a company to do the right things and to do things right.
Transformation starts with reviewing and adjusting a company’s current strategic direction, including aligning the product and service portfolio and regional footprint as well as redesigning the value chain.
Additionally, the company’s organization has to be adapted to best support the target business model. This needs to involve broad-based cost savings and liquidity-generating actions, such as procurement optimization, labor cost management and working capital management.
“Corporate transformation can help GCC companies leverage their profitability and liquidity generation potential. Based on a high-level outside-in analysis of the working capital of 250 of the Gulf’s largest corporations, we estimate cumulative cash generation potential to be up to $11 billion,” says Dr. Fabian Engels, Principal at Roland Berger and co-author of the study.
Successful implementation requires stakeholder support and tight monitoring
“We have seen excellent transformation concepts fail due to a lack of proper implementation management,” warns Dr. Plate, adding that “critical success factors for implementation are backing from shareholders and senior management, swift execution, intense project monitoring and clear communication on the transformation’s goals and progress.”
Dr. Engels says: “Especially in these turbulent times, transformation is not a one-time task anymore, but rather a continuous exercise for companies in ever-changing environments.”
Drawing on experience from more than 2,000 restructuring projects globally, Roland Berger Strategy Consultants has developed a framework for systematically addressing the strategic, operational and financial challenges of corporate transformation. The company’s latest study examines how this approach can support GCC companies in their transformation efforts.
By Atique Naqvi | Dubai, UAE | Uploaded on the blog recently**
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| Real estate and banks are the hardest hit sectors. |
The global financial crisis contributed strongly to this development through slower GDP growth as well as high but stagnant oil prices. In addition, efforts by GCC countries to improve their global competitiveness, e.g. through deregulation and better market accessibility, have encouraged foreign companies to enter the market.
“We expect pressure on profitability to remain high. Comparably high growth rates and the GCC’s solid business environment will continue to attract market entries from international competitors,” says Dr. Tobias Plate, Senior Partner at Roland Berger. “Therefore, local and regional players need to assess how they can best leverage this growth potential despite increasing competition in order to ensure a successful future.”
For GCC companies, transformation is the key to unlocking improvement potential and ensuring long-term success
According to the study, successful transformation needs to be based on a holistic concept – enabling a company to do the right things and to do things right.
Transformation starts with reviewing and adjusting a company’s current strategic direction, including aligning the product and service portfolio and regional footprint as well as redesigning the value chain.
Additionally, the company’s organization has to be adapted to best support the target business model. This needs to involve broad-based cost savings and liquidity-generating actions, such as procurement optimization, labor cost management and working capital management.
“Corporate transformation can help GCC companies leverage their profitability and liquidity generation potential. Based on a high-level outside-in analysis of the working capital of 250 of the Gulf’s largest corporations, we estimate cumulative cash generation potential to be up to $11 billion,” says Dr. Fabian Engels, Principal at Roland Berger and co-author of the study.
Successful implementation requires stakeholder support and tight monitoring
“We have seen excellent transformation concepts fail due to a lack of proper implementation management,” warns Dr. Plate, adding that “critical success factors for implementation are backing from shareholders and senior management, swift execution, intense project monitoring and clear communication on the transformation’s goals and progress.”
Dr. Engels says: “Especially in these turbulent times, transformation is not a one-time task anymore, but rather a continuous exercise for companies in ever-changing environments.”
Drawing on experience from more than 2,000 restructuring projects globally, Roland Berger Strategy Consultants has developed a framework for systematically addressing the strategic, operational and financial challenges of corporate transformation. The company’s latest study examines how this approach can support GCC companies in their transformation efforts.
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