Dubai financial market

EXECUTIVE SUMMARY

Among the biggest property companies in the world, is Emaar Properties, popularly known simply as Emaar. Emaar is the builder for many world renowned projects like the 20 Billion USD worth Burj Downtown project – which has the world’s tallest building – the Burj Towers which was just completed in 2009.

Emaar collaborated with MGF Development – another successful and prominent property giant in India as Emaar-MGF. Now, Emaar has tasted success in many other countries it forayed into (discussed in next section), but in India, it suffered some setbacks. An Initial Public Offering – IPO was launched in the Indian Stock Markets, but Emaar got a very lukewarm response and had to revoke the IPO.

Emaar also faced various property troubles and court cases which it found itself entangled with. Apart from all this, Emaar also faced bureaucracy from Indian governments and local regulatory agencies, and plenty of other red-tapism which made its progress difficulty in India despite having excellent technical expertise and a fool-proof strategy and a powerful local alliance with MGF Developments.

In this study, International Business Management of Emaar was analyzed in detail from various perspectives and the various international forces that Interplay and affect Emaar as an organization was critically assessed. The theories, concepts and Frameworks learnt in International Business Course like Porter’s Five Forces Model, PEST analysis Framework and SWOT analysis were used to drill down to the various Macro Economic Business Forces that Emaar faces and the optimal strategy the company should follow given its Strengths, Weaknesses, Opportunities and Threats.

Finally, the recommendations which stemmed out of the analysis is that Emaar should strongly move ahead with its International Business Management decision to enter into the hugely attractive and profitable Indian Property and Realty Market. The Strengths and Opportunities far outweigh the weaknesses and threats, and thought Emaar may have suffered some minor setbacks, it is bound to reap very good profits and achieve same or greater levels of success as achieved in other countries.

INTRODUCTION & BACKGROUND

Emaar is also credited with building the famous Dubai Mall, the Business Hubs, and may other business projects along with housing projects like the Dubai Greens, Arabian Ranches, Emirates Hills, The Meadows and many others properties of world class quality and infrastructure. Emaar is DFM or Dubai Financial Market listed and also on the renowned DJATI or Dow Jones Arabian Titans Index, boasting with properties of above 14,000 housing properties (Ref: Hoovers)

Emaar is a truly International Business oriented company for our study – Emaar has tremendous presence in countries ranging from Bahrain, Morocco, Egypt, Jordan, Saudi Arabia, Syria, Tunisia, Pakistan, Turkey till far off countries like Indonesia, Algeria and even France.

The company has embarked on international projects in these countries like Cairo Heights and Smart Village in Egypt (Ref: Hoovers), Resort Projects in Morocco, and a very ambitious project in Saudi which is famously called as King Abdullah Economic City which is a staggering 27 Billion USD Investment, in Jeddah.

Having established that Emaar is a truly global company with international presence in multiple countries, we will drill down to one of the major Strategic Business Decision the company is grappling with for the past year or so in the International Business Management Area.

INTERNATIONAL BUSINESS MANAGEMENT ISSUE

Recently, Emaar was on an ambitious expansion strategy after tasting success in the above mentioned countries. Emaar collaborated with MGF Development – another successful and prominent property giant in India as Emaar-MGF. (Ref: Emaar-MGF Corporate Website-About us)

Back in early 2006, Emaar and MGF had planned for a huge capital investment in various cities in India amounting to a 4 Billion USD plan; these were in Delhi, Mohali, Andra Pradesh-mainly Hyderabad, Kerala and Tamil Nadu states in India.

The nature of these intended projects ranged from Residential Villas, homes, high rise apartment buildings to Shopping Complexes, till Office Building and IT offices. For example in Hyderabad, Emaar planned a Boulder Hills Project – residential and leisure community complex and Lanco Hills a high rise apartment complex spread over 100 acres and with a capital investment plan of 125 Million USD. (Ref: Emaar-MGF Corporate Website-Residential Vertical)

Emaar’s India Expansion Strategy can be clearly understood from the red oval highlighted for Case Study Purpose (Source: Advertisement at the Bombay Airport)

But in many of these projects and in its dream expansion in India, Emaar faced lot of International Business Management Issues:

Emaar-MGF also planned to offer Initial Public Offering – IPO in the Indian Stock Market. But this got a very lukewarm response and Emaar had to revoke the IPO (Ref: Emaar MGF IPO Subscription revoked)
Emaar faced numerous roadblock and hindrances like bureaucracy from Government in Approvals and Project sign-off, red-tapism, corruption, slow implementation and lack of defined processes.
Property Acquisition Land dispute and the cases are still stuck in the Apex court of India and the court has not still made a ruling to this case. (Ref: Andra Pradesh High Court , Case Status Information)
Tough Competition from Indian Biggies in Property and Real Estate segments like DLF, Sobha Developers, HDIL, Reliance Properties, and IndiaBulls Real Estate with severe cut-throat competitive strategies.

In view of all these, Emaar is presently re-thinking and re-assessing its Strategy of International Business Operations in India.

ANALYSIS USING INTERNATIONAL BUSINESS THRORIES & CONCEPTS

Emaar needs to conduct an objective and critical assessment of its current areas of problems in conjunction with the Future Strategies, Goals & Mission of Emaar as in International Multinational Company having stakes in Multiple countries.

We will analyze in detail using the International Business Theories, Concepts and Fundamental forces which Emaar is facing and also provide a set of conclusions and recommendations on the optimal International Business Strategies for Emaar.

PORTER’S FIVE FORCES FRAMEWORK

Porter’s Five Forces (Ref: Michael E Porter, Competitive Advantage: Creating and Sustaining Superior Performance) is a very effective tool which can be used in an International Business Management context. Basically, we need to assess the five forces that determine the level of Market Competitiveness.

Emaar needs to assess each of these five forces in the Indian Property Industry and assess the attractiveness of the same and then re-assess which areas to focus and where to direct the investments and how to enter the Indian Property and Real Estate market in the bet way possible so as to gain maximum profitability. The analysis is as follows:

Entry of competitors: Emaar should assess the ease or difficulty for a new market player and what are the barriers are present or not. These will include legal compliance an entrant company will need to have, Municipality, Corporation and Building Licenses, presence of strong Marketing Arm to reach out and attract customers, ability to source raw materials of good quality at cheap prices etc.
Substitutes Threat: Emaar needs of threats of any other substitutes and how to offer the products at a cheaper property to entice Indian Customers.
Buyer Bargaining power: The strength of the potential buyers of Emaar-MGF properties in India, their ordering process and the lead times etc
Supplier Bargaining power: The strength of the Suppliers of Raw materials and other consumables for Construction of Emaar Properties in India, are they monopolistic or oligopolistic, the pool of quality suppliers etc.
Existing Player Rivalry: The competition factors that Emaar-MGF will face in India from companies like DLF, IndiaBulls Properties, Sobha Developers, Reliance Properties and other major companies who are already established and have a strong national or regional presence in India which have a impact on Emaar-MGF.

Porter’s Five Forces Model is undoubtedly one of the most often used strategy tool in deciding and assessing the various forces that inter-play in International Business for an organization and how to effectively counter them. Now, each of these five forces have a basis or rationale on how it comes and what are its basic dependencies.

Rationale and Forces that affect ‘New Entrants Threat’-

Brand Loyalty to Emaar
Cost of Customer Switching to new company
Regulations and Norms from the Government
Access to wide and solid Marketing & Distribution Channel
Probability of counter-attack from other competitors like DLF, Sobha etc

Rationale and Forces that affect ‘Substitutes Threat’-

Product Quality and other Housing and residential offerings Variety
Cost of changing over or preference to other property companies
Ease in changing over to other companies like Down payment etc
How much willing the Customers are to Substitute other companies

Rationale and Forces that affect ‘Supplier Bargaining Power’-

Presence of good quality supplier pool for Emaar
How dominant or concentrated they are in Property Market
How strong is the Supplier branding like Cement Companies etc

Rationale and Forces that affect ‘Buyer Bargaining Power’-

How differentiated the product offerings are buyers perceive
How concentrated the Buyers are, in Metros vis-á-vis Rural areas
Interest rates and other factors for Home Loans for Buyers
Importance the Buyers give in procuring and owning a property

Rationale and Forces that affect ‘Existing Player Rivalry’-

Anti-trust laws and other protection mechanism for the companies
The industry cost structure and what fixed costs are prevalent – Taxes etc
To what level the property are differentiated which impacts the rivalry
Strategic Objectives met by the competitors – like if they are having a growth strategy or a ‘cash cow’ strategy which will have an impact

The major importance of Porters Five forces model is that it not only provides a very insightful information about a rationale and objective assessment on what are the various forces that are prevalent in the Industry and how to deal with them.

But it also is a major input for SWOT analysis (which we will do later), which is one of the powerful tool for assessing the company’s strength vis-á-vis with other competitors and the industry per se. If we analyze all the five forces and how it pertains to Emaar of the various fronts discussed above, we can conclude that there are many favorable forces for Emaar and it is definitely in a very strong position.

What stems out from the Porters Five Forces analysis is that although Emaar faces a quite strong ‘Rivalry Force from the Competitors’, the other forces are quite favorable. In fact the Buyer bargaining and Supplier bargaining power is not so much against Emaar. The Indian Housing Loan rates have come down drastically over the past few years and with a huge population of upper-middle class income segment, the disposable income is more and more and more people want to buy and own property. The migration from rural areas to urban areas is still containing strong and there is strong basis of favorable forces of buyer and supplier aspects.

As far as the new entrants threats is concerned, Emaar is quite safe as there are stringent norms by government and metro building regulatory authority which stipulates very strict compliance norms which makes the entry barrier for other companies difficult.

Now, having an objective assessment of the Five Forces Model, we will now proceed to use one of the critical tool which is very important in International Business Management for analyzing the Macro Economic Forces in the foreign nation – like the Political Forces, Economic Condition, Social Factors and Technological aspects involved.

PEST ANALYSIS FOR INTERNATIONAL BUSINESS

Having analyzed the various forces Emaar is subjected to in its India Expansion Strategy; we now need to assess the external Macro-Environment in which Emaar operates.

This can be done using the PEST framework – this is essentially a powerful tool that Strategy Consultants in International Business Management use. (Ref: Mike Morrison, PESTEL analysis of the macro-environment)

PEST is essentially a short form which comprises of the following facets:

Political Aspects
Economic Aspects
Social Aspects
Technological Aspects

PEST aspects have a pivotal function in assessing Value Creation Opportunities of an International Business Strategy. As Macro-Economic Factors vary from country to country, PEST has to be for a specific country and that is why this becomes an extremely important tool for Emaar-MGF. (Ref: David Aaker, Developing Business Strategies)

PEST Analysis for Emaar-MGF in India:

Political (including Legal)

Regulations on Property Constructions
Government Tax policies on Foreign Investor like Emaar investing in India
Laws of Contract Enforcement like Builders/Supplier Selection
Employment laws on employing laborers for Property construction
Attitude of the Local and Central Government and Helpfulness

Economic

Property Boom in India for last few years
Low Interest rates for residential loans etc
Increased Government spending on Infrastructure development in India
Exchange rates of Dirham and Indian Rupee Fluctuations
High Inflation rates in India on Infrastructure raw materials like Cement

Social

Rise of Higher Income segment in India
Higher Age distribution of Younger People
Lifestyle change towards investment in Property
Highly Educated Career oriented customers with a sense of style

Technological

Property Industry’s focus on Technological advancement
Higher Energy usage in Construction and Realty Markets
Changes in Technology usage like Cranes and Automated Machines
New innovations & development like Build-To-Order Concrete blocks etc

(Ref1: Factors that Drive Real Estate Prices in India)

(Ref2: Developers to Shift Focus on Developing Affordable Housing)

CONCLUSIONS

The Porter’s Five Forces and PEST analysis will give a very good picture for Emaar-MGF to assess their International Business Management of Operations in India. But the Five Forces and PEST analysis will give only an objective and clear assessment of the market, the industry and the variety of forces that interplay.

Our Study will be complete only if we identify the Strengths, Weakness, Opportunity and Threats that Emaar faces. This is what will be ultimately become useful in International business Management Strategy formulation.

In out conclusive step, we will use SWOT Analysis to identify these Strengths, Weakness, Opportunity and Threats that Emaar possesses or faces. This is extremely critical as any organization must strive for a fit with its external environment. (Ref: Hill, & Westbrook, SWOT Analysis). As per Hill & Westbrook, SWOT is an excellent tool to assess Internal Strengths – Strength & Weakness as well as External Strengths – Opportunity & Threats.

SWOT analysis is best represented as a 2x 2 matrixes as shown above. From the above SWOT analysis, we find that thought there are some Weaknesses and Threats to Emaar’s International Business Operations in India, the Strengths and Opportunities are many and far outweigh the negatives. Hence, Emaar should focus on its core competencies and not get disturbed by setbacks like Dubai Financial Crisis and failed Emaar-MGF IPO in India and move forward in expanding its International business in India.

RECOMMENDATIONS

Using the theories, concepts and frameworks learnt in International Business Course, we can identify the forces that interplay in Emaar’s International Business in India and analyze the factors that Emaar needs to comprehend and take into consideration before its next move.

From the Porter’s Five Forces and PEST analysis, coupled with the powerful SWOT analysis, we recommend that sheer potential opportunities that can be captured in India with Emaar-MGF collaboration are many and though Emaar got some minor setbacks, it should continue its massive expansion strategy in India.

Emaar’s success in other countries can be attributed to its technical expertise, economics of scale and strong and meaningful partnerships with local companies in these countries. The setbacks Emaar suffered in India is majorly due to recession and analysts are claiming that India is already on the road to recovery. (Ref: 2010 can be a brighter side for Retail Sector, Indian Realty News)

It is estimated that Indian Property Market will attract as much as 12 Billion USD in property investment over the next five years and according to the 10th Five-Year-Plan, India is facing a shortage of 22 Million homes! (Ref: Real Estate, IBEF). These will be primarily be targeted towards the higher disposable income group in the Indian Middle Class group who are a huge source of potential for Emaar.

When we look at the Strengths and Opportunities that far outweigh the Weakness and Threats, due to presence of factors like the Fiscal Benefits, Regulatory relaxations, Social, Infrastructural and Technological benefits, Emaar is presented with an extremely favorable International Business Environment in India. These are coupled with excellent professional expertise and edge that give Emaar the ability to meet the latent Customer Needs in the shortest time in the best possible way, reaping huge profits.

Hence it makes a prudent International Business Management decision for Emaar to foray into the hugely profitable Indian Property Market as Emaar-MGF.

REFERENCES & BIBILIOGRAPHY

Michael E Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, pp 4-27, 1998
Hill, T. & R. Westbrook, SWOT Analysis: It’s Time for a Product Recall, Long Range Planning, Elsevier Publishing, 30 (1): 46-52, 1997
David Aaker, Developing Business Strategies, Wiley Publishers, pp-56-87, 2001
Mike Morrison, PESTEL analysis of the macro-environment, Oxford University Press, CIPD, 2007
Hoovers, Emaar Properties Company Fact file, D&B Company,
http://www.hoovers.com/company/Emaar_Properties_PJSC/rhksiff-1.html
Indian Realty News, Factors that Drive Real Estate Prices in India, www.indianrealtynews.com/property-prices/factors-that-drive-real-estate-prices-in-india.html
Indian Realty News, Developers to Shift Focus on Developing Affordable Housing, http://www.indianrealtynews.com/real-estate-india/developers-to-shift-focus-on-developing-affordable-housing.html
Indian Realty News, 2010 can be a brighter side for Retail Sector,
http://www.indianrealtynews.com/real-estate-india/2010-can-be-brighter-for-retail-sector.html
IBEF – Indian Brand Equity Foundation report, Real Estate,
http://www.ibef.org/industry/realestate.aspx
Emaar-MGF Corporate Website-About us
http://www.emaarmgf.com/about_emaar.asp
Emaar-MGF Corporate Website-Residential Vertical
http://www.emaarmgf.com/residential.asp)
Andra Pradesh High Court , Case Status Information,
http://hc.ap.nic.in/pls/lobis/caseno1?kmtype=WP&kmno=21382&kmyear=2008
Stock Market Views, Emaar MGF IPO Subscription revoked,
http://www.stockmarketsview.com/emaar-mgf-ipo-subscription-revoked/94/
Grundy T, Rethinking and reinventing Michael Porter’s five forces model, Strategic Change, volume 15, No 5, August. pp 213-229. 2006

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