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Dubai: Gulf companies are taking a shortcut to advanced management skills through overseas acquisitions, according to McKinsey Quarterly.
"Acquisitions in Europe and North America, especially, are typically part of a broader strategy to gain rapid access to Western management know-how and technology; they allow Gulf companies to short-circuit the laborious task of building such capabilities internally," said a report "Gulf Companies can build global business" in the latest issue of the McKinsey Quarterly.
According to the report, the recent acquisitions by Gulf based companies have helped them gain access to key management inputs at a single stroke while acquiring assets abroad. Last year, for example Emaar Properties acquired both the second-largest private homebuilder in the United States, John Laing Homes (for $1 billion), and the UK realtor Hamptons International (for $154 million). Besides gaining access to the British and US markets, Emaar can now draw on John Laing's vast experience in real-estate development and Hamptons' expertise in marketing. These skills, especially the marketing expertise is going to help Emaar as it expands into overseas markets, where, contrary to the situation in the UAE, supply of real estate greatly outstrips demand.
The oil price driven liquidity boom in the region have not only opened the door for aggressive takeover strategies but also given GCC companies time to learn about new markets and to absorb the skills they need. According to the report, relying solely on their experience in lucrative home markets could ultimately doom Gulf companies' expansion strategies. The advantages that drive margins at home such as high-income customer pools, cheap labour, and low energy cost, can't be transferred to external markets, and Gulf companies will need to become more efficient abroad to be profitable there.
Despite these challenges, the report predicts more acquisitions by GCC firms. "In the near term, a steady diet of petrodollars will fuel this trend. But over the longer term, larger servings of distinctive capabilities and skills must balance these acquisitions."
Even if oil prices declined modestly over the next few years, GCC states are expected to accumulate $2.4 trillion in windfall revenues through 2014. A significant portion of it is expected to finance overseas acquisitions.
Growing liquidity in the GCC region is providing a strong impetus for international expansion.
According to the report liquidity and deep pockets will not be enough to become global leaders in their industries and insulate the region more effectively from the consequences of lower oil revenues in the future. Instead regional firms will have to master capabilities that would equip them to face global competition.
According to a report, the recent acquisitions by Gulf based companies have helped them gain access to key management inputs at a single stroke while acquiring assets abroad.
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