RIYADH: GCC-based businesses are currently faced with two major challenges - namely the fall of protective business barriers that have shielded regional business from external competition for many years and the knock-on effect of the global financial crisis.
Over the years, regional businesses have enjoyed strong government protection that placed significant entry barriers against international competition. This has enabled local businesses to prosper and accumulate significant wealth; such barriers include the exclusive distribution rights of multinational enterprises’ products, a high level of custom duties on imported competing products, and tough foreign investment laws preventing many foreign investors from entering the region.
However, the accession of many Arab Gulf countries to the World Trade Organization (WTO) in the mid-1990s is changing that. To lessen the impact of competition, Gulf countries were granted ten-year grace periods before scrapping protection. Such grace periods are now expiring and as a consequence, regional businesses are now facing fierce competition.
In view of the above, regional businesses have no choice but to adapt to new realities, playing by the same rules as the rest of the world, yet benefiting from being local and well-established players. They are somewhat disadvantaged by their limited size and less mature organizational structures and incoherent workforce. For regional business leaders, these new realities pose major challenges.
The ability of regional businesses to embrace change and to react positively to them is paramount. But it could be detrimental to the survival of some. “Corner-shop” business mentality and poor management practices of the past are no longer adequate in an era of open competition. Organizations’ leaderships have to be at the forefront of their industry dynamics and remain in touch with customers’ changing requirements, adopting customer-centric strategies as opposed to traditional business practices.
Change in management is imperative in the region at the moment because many organizations are changing from family partnerships to corporations. Thus, the leadership must be capable of planning and implementing change throughout the organization. Managing change is therefore one of the key business attributes that Gulf leaders require in today’s rapidly changing corporate climate.
The absence of a corporate culture that molds employees of different nationalities and backgrounds poses a major challenge to regional CEOs, particularly as pressure intensifies to increase the number of national employees amongst the workforce. For some businesses, the answer to changing market conditions is simple: Restructure and scale down the workforce and wait for recuperation. The key decision that companies will have to make is how to reduce payrolls without losing the skills they will need when growth resumes.
The majority of businesses in the region are family owned. Large companies in the Middle East are often partly government owned. Different ownership structures, conflicting chains of command and company priorities make it extremely challenging to steer the business forward. For such structure, managing the board of directors and investors requires a clear perception of the interrelationship between owners and chain of commands, their motives and aspirations.
Strategic guidance, by ensuring that proper corporate governance is in place, is an increasingly pressing issue for regional leadership. The global urge for increased transparency and better business ethics is reverberating around the region, as much as in any other region of the world, and the regional move toward converting companies from private ownership to publicly listed companies demands far higher levels of exposure and shareholder accountability than was the case three years ago.
In the face of fierce competition, opportunities for merger and acquisition should be carefully considered. Small businesses competing with each other within specific industry sectors have little or no chance to compete individually with multinational competitors. Larger organizations with the desire to grow or expand their business laterally, vertically and/or horizontally in strategic areas may consider acquisition as a viable option, but must be aware of the pitfall of acquisition and the need to hire specialist skills to support merger and acquisition initiatives.
In the face of challenges confronting regional businesses, companies have no choice but to embrace change, capitalize on their understanding of the region and strategize to not only survive the competition, but also to grow and prosper, benefiting from the low costs of raw materials, energy and labor.
The onus falls on the board of directors as well as leadership to build professional enterprises with a skilled and motivated workforce, governed by business practices and processes that facilitate progress and recognize achievements. A visionary leadership with a long-term strategy, supported by a clear and decisive action plan is a sure way to prosperity.
(Yahya Shakweh is a vice president at Advanced Electronics Company, Saudi Arabia. The views expressed in this article are the author’s personal opinion. He can be reached on Email: [email protected])