Enter the headquarters of the Peninsular and Oriental Steam Navigation Company (P&O) near London's Victoria Station and it is still possible to see the massive portraits of the 19th century figures that made the company's name echo round the world. Yet they no longer hang in the boardroom, oozing power and empire, as their size and grandeur demand. Instead, they are squeezed on to the functional plate-glassed walls that are P&O's modern headquarters.
It remains to be seen just how long the paintings and other reminders of the company's former glory will remain on display. For, to the shock of the British business establishment, P&O has a new owner - from the Gulf Emirate of Dubai. One of the first questions the new management asked was what it should do with all the memorabilia. Though no-one will state it in so many words, it is clear that the image and the reality of DP World - a unique blend of modern Arab and international management - does not sit easily with P&O's imperial past.
DP World is one of a new and rare breed of Middle East companies that have taken advantage of the massive petrodollar surpluses in the region to flex their muscles internationally. Earlier this year, it became the first company from the region to win a contested takeover battle of a quoted company when it paid $6.85 billion for P&O - outbidding Singapore-based PSA International and in the process transforming itself into one of the largest ports operators in the world.
The company is now completing a massive managerial restructuring that it hopes will give it a model that combines the hands-on style used by DP World when it was a smaller operation with the delegated responsibility necessary to run a network that stretches across five continents. It also has to accept that it will be under pressure to provide more information about its activities than it has ever done in the past - and that this is likely to intensify if it goes ahead with plans to float all or some of the company on the London Stock Exchange.
Moreover, the sale of P&O raised some eyebrows with suggestions that DP World had bid too much, and in the US politicians with an eye to mid-term elections suggested that Arab ownership of P&O's American ports posed a terrorist threat. However, none of these problems has deterred DP World from its strategy of global expansion - and it is a transformation that has come at extraordinary speed.
Remarkably, until the 1990s, Dubai's two domestic ports, Jebel Ali and Port Rashid, were under separate management and competed with each other.
It was only in 1999, after management of the two ports had merged to form the Dubai Ports Authority (DPA), that attention turned to developing an international business, Dubai Ports International (DPI). Its first project, in 1999, was a collaboration with a local partner to operate the South Container Terminal at Jeddah Islamic Port. The growth continued with contracts for ports in Djibouti, Visakhapatnam, India, and Constanta, Romania.
But the key moment arrived with the decision to expand by acquiring port management companies and in the process to merge DPA and DPI into DP World.
The first step was the acquisition of CSX World Terminals, the international terminal business of CSX Corporation of the US. This gave DP World a strong presence in Asia, including Hong Kong and China, Australia, Germany, the Dominican Republic and Venezuela.
Just as important are a series of expansion projects, including one at Pusan Newport in South Korea and one at Cochin, which will be the largest single-operator container terminal in India and be supported by a free port. DP World has also been awarded a 30-year contract to develop and operate the container terminal at the Emirate of Fujairah.
But these projects pale into insignificance alongside the purchase of P&0, which has put DP World into the top three global port operators with more than 50 terminals in 24 countries and a total annual capacity of over 50 million TEUs (a standard container size) - indeed, if the home ports of its leading rivals are excluded, DP World has the largest global network.
The company's strategy is based on the premise that the market will be dominated by a few large global operators, including PSA International, which DP World defeated to win control of P&O. "We saw the other largest operators were expanding, so we had a choice. Either we would grow organically or we had to have a strategic plan to expand by acquisitions - and we decided on the latter approach in 2003," says Jamal Majid Bin Thaniah, group chief executive for ports and free zone world at DP World. Thaniah says that purchase of CSX's international operation in 2003 provided the first opportunity for expansion, but it "did not give us the global coverage we are looking for". So in 2005 DP World looked for another major acquisition.
"We did not want a company that overlapped with our activities. And when we looked at the DP World and P&O portfolios, we realised that in terms of global coverage, we added value and would have a company that stretched from Asia to the sub-continent, to Australia, the Middle East, Europe and South America," says Thaniah.
The policy of continued growth is unlikely to stop there. Even as the the organisation is restructured, it is embarking on further expansion with seven new terminals under construction, including a container terminal at Tianjin in China and a $230 million container port in Ho Chi Minh City in Vietnam. DP World has also been awarded a 30-year concession to develop a container terminal in the Port of Callao, Peru. "The speculation that we would stop growing is simply not true. We are looking at projects in the Middle East, the Mediterranean and Turkey among many others. We see some $2 billion-$3 billion investment in the next couple of years," says Thaniah.
But major challenges will arise in the coming months, not least winning round the political opposition in the US, which argued that selling P&O's American ports to DP World would increase the threat of a terrorist attack.
Despite the support of President Bush and a concerted lobbying effort by the company, DP World was forced to agree to divest itself of P&O's ports or see the deal blocked by Congress.
There is little attempt to disguise the anger at what was seen in Dubai as opportunism by politicians determined to exploit an opportunity to embarrass President Bush and business interests keen to acquire the ports.
It is pointed out that Dubai's ports have been used extensively by US ships operating in the Gulf without any objection from US politicians.
DP World wants to return to the US because it believes that is the only way it can have a genuinely international network, but it accepts that this will not happen for some time.
A more immediate challenge is the requirement for more transparency.
When pressed on the size and profits of Dubai World, the parent holding company under which DP World operates, chairman Sultan bin Sulayem pointed out that as a private business, Dubai World is under no obligation to release this sort of information. This is a characteristic approach in a region where many of the companies are privately owned or owned by an ambiguous mix of the ruling family and the state.
This reluctance to open the books has acted as a barrier to the development of a deep debt and equity market. However, when DP World raised the money to buy P&O (a quoted company that became private when the deal was completed), it agreed that part of the organisation would be floated later this year. The question now, say bankers, is whether the $7.5 billion it could raise from an IPO is an attractive enough incentive.
Assumptions about the Arab way of doing business may have been true 20 years ago, but are increasingly less relevant today when many leading business figures have worked or been trained in the West. There is, though, a potential problem about the depth of quality of management in the region.
Youssef Bissada, professor emeritus of entrepreneurship at INSEAD, says: "The best of the Middle East students who attend our management courses are excellent, but only about 50% are up to the standards of western students." The challenge of management quality applies less to a company such as DP World, which, like other leading Dubai companies, employs expatriates in many senior positions.
DP World's response to the challenge of going from a relatively small operation to a global corporation has been to restructure its management and create a system that brings together the best of the two cultures.
The dilemma, says Thaniah, is that P&O was a large organisation, with operations in Europe, Asia, Australia and the Americas: "It created a model that empowered the regions to deliver the end result, accountable to head office. It was in many ways the opposite of DP World, where our philosophy is to get close to the business, the market and the customer."
The challenge was to come up with a hybrid: a head office cannot control everything, but the regions also cannot operate autonomously, says Thaniah.
So there has been a shift of style and culture, and a delegation of power.
"The regions will be empowered and given authority to run their operations. From my own experience, I believe they are closer to the market and know what is required. But we will also have a strong headquarters operation, which will ensure that we deliver the two principles that DP World has never compromised on - operational excellence and customer care."
Dubai World includes the ports and shipping operations, as well as other businesses, including property, in Dubai. The international and local ports businesses have been brought into a single operation, as have all the free zones, which will also include P&O's other activities, including its ferry operations. (A free zone is an area, usually next to a port, where goods may be stored free of tax or duty, so long as they are re-exported to another country.)
The ports business consists of what DP World calls a "lean, Dubai-based head office" and six regions: Australia; Europe and North West Africa; the Middle East and South East Asia; the Indian subcontinent; Asia Pacific; and the Americas. These regions are all headed by experienced foreign managers, though in time the company wants to see more locals taking senior positions. "We are committed to training and developing UAE nationals and they will be more exposed to the global environment. But we are running an international business, which means we will have a mix for some time between local and international managers."
The overall management structure, says Thaniah, will ensure a transparent legal structure, clear corporate governance rules and increased delegation of authority. One of the elements that Thaniah believes will give DP World a competitive advantage is the company's long track record and expertise in operating free zones, first in Jebel Ali and more recently in Djibouti.
"Take Jebel Ali: there is a huge port linked to the free zone - and it will soon be linked to the new airport. Our unique contribution is the link between free zones and ports. In Djibouti, the free zone is next to the port. The future lies in offering a package - we are the only operator that understands both types of business. We have the challenge of coming up with a business model that combines the two, and then looking for places where we can implement this strategy."
THE BIG FOUR, 2006
TERMINALS Countries TEUs 2005 (m)
DP World 51 24 37.0*
Hutchison 42 20 51.8
APM Terminals 42 24 40.4
PSA 28 10 40.3
International *Combined DP World and P&O TEU.
Source: DP World.
DUBAI'S BUSINESS STRATEGY
DP World's purchase of P&O may have generated the most headlines, but it is far from alone. A growing number of Gulf companies are looking to expand overseas by acquiring international companies. It is all very different to the strategy employed during and after the first oil boom of the 1970s, when the petrodollar surpluses were recycled to the West through international investment banks. The stakes taken in companies were for the most part financial investments and there was little involvement in the direct management of overseas businesses.
Today, a younger generation of Arab managers is looking to convert businesses into multinational corporations through a combination of organic growth and acquisition. One of the first was Saudi Arabian Basic Industries Corporation (SABIC), a partly privatised company that has been transformed by acquisitions over the past five years into one of the leading petrochemicals companies in the world.
But it is in Dubai where this new approach is most clearly demonstrated.
The emirate's wealth is based on oil, but it has barely 20 years of reserves and the ruling Maktoum family has embarked on a strategy of diversifying the economy by investing in other industries, including tourism, finance, high technology and media centres.
The strategy now involves the creation of business conglomerates of which there are three: Dubai World (parent company of DP World); property company Emaar, part of which is floated on the local stock market; and Dubai Holding, the main investment arm of the Dubai government.
The goal includes floating shares in either the parent company or subsidiaries of these groups, but ultimately it involves transforming them into global corporations. Emaar's appetite for international expansion has been demonstrated by its purchase in July of WL Homes, one of America's largest housebuilders, for $1.05 billion.
But Emaar has been superseded by DP World, which in barely seven years has been transformed from a small if successful operation in the Gulf to one of the largest port operators in the world, with a network that stretches to every continent.