As the Gulf Cooperation Council (GCC) grows in size and influence, more companies from the region are making their way on to the world stage. Unsurprisingly, historical exporters such as oil and petrochemical companies have led the way, but the GCC's long-standing reliance on hydrocarbons has left it vulnerable to fluctuations in the market, creating a need for diversification. The appearance in recent years of increasing numbers of firms from other sectors, including banks, airlines, property companies, construction firms and events organisers, represents the early stages of a long-term trend. The two companies below show the GCC at its most traditional and its most innovative.
In September, Saudi Basic Industries Corporation (Sabic) announced the acquisition, for $700 million, of Huntsman Petrochemicals (UK), the European business of Texas-based chemical manufacturer Huntsman Corporation.
The purchase, expected to be completed by the end of the year, marks a major milestone in the growth of Sabic, which was formed only 30 years ago but which has grown to be the ninth largest petrochemical firm in the world, and the largest and most profitable public company in the Middle East. Huntsman Corp CEO Peter R Huntsman said at the time: "People have underestimated the strength of Sabic in the past. They do so in the future at their own risk."
Sabic's headquarters are in Riyadh; it has two large industrial sites in Saudi Arabia and two in Europe. It also has three regional ventures in Bahrain, and work on a new production site, Yanbu National Petrochemical Company, is under way. The company was founded in 1976 when the Saudi government decided to use the hydrocarbon gases released in oil production as raw materials for the production of chemicals, polymers and fertilisers. It was the first company in the region to undertake this task, and as vice-chairman and chief executive Mohamed Al-Mady explains, this created a huge area of opportunity: "We had no competition in the first few years, which was a great advantage. It enabled us to register rapid growth from day one."
Repeated expansion drives through the 1980s and 1990s have earned Sabic a place among the world's fastest-growing companies. In 1985, nine years after launch, the company had 8,000 employees and total production of 6.3 million metric tonnes a year. By 1998, it employed nearly 16,000 employees and was producing 25 million metric tonnes a year. Last year the company had record net profits of $5.1 billion. Its products are exported to over 100 countries through 25 international subsidiaries and sales offices, and 28 distribution facilities.
This explains Huntsman Corp's decision to sell its UK operation to Sabic rather than spin off the assets into a new company, as originally planned. As Huntsman says, the base chemicals market has undergone a dramatic change over the past decade. "If we look at the global market some 10 years ago, the US was the most competitive place in the world to produce base chemicals. Europe was fairly competitive and Saudi Arabia had competitive raw materials, but lacked the infrastructure for massive growth. Today, the tables have turned. North America is the least competitive and Europe is strong. Sabic has completely changed the competitive landscape globally for base chemicals."
Sabic is divided into six strategic business units (SBU): basic chemicals, intermediaries, polyoelfins, PVC and polyester, fertilisers and metals. Basic chemicals is the company's largest SBU, accounting for 40% of its total production. Sabic is the world's third largest producer of polyethylene and the fourth largest producer of polypropylene. Following the establishment of a new start-up earlier this year, the company now ranks as the world's largest producer of urea fertiliser.
Al-Mady says that its success can be attributed to its rigid adherence to tough growth targets and its determination to stay one step ahead of its rivals through technological innovation. But he admits that an increasingly crowded marketplace, combined with tougher industry conditions, will present serious challenges: "Inflationary pressures mean that we're constantly having to deal with rising costs. There is a scarcity of raw material and, increasingly, a lack of well-trained people. More companies are competing over fewer resources."
He says that Sabic will meet this challenge by doing what it does best: innovating through new technology and continuing its aggressive expansion policy: "We have a heavy emphasis on research and technology. We already offer a wider range of polymer products to our customers than any of our rivals, and are developing new products to ensure we stay ahead of the competition."
Huntsman agrees Sabic has a strong future: "The winners at the end of the day are those companies that have economies of scale and those that have raw material advantage, and engineering and management expertise. Sabic is one of those few companies that has it all. It is well positioned to dominate this market for many years to come."
Dubai World Trade Centre
A brand new city is being constructed in the desert on the outskirts of Dubai. Scheduled for completion in 2009, the development is one of several new cities being built across the world in response to the overflowing capacity of existing urban centres. But unlike Saudi Arabia's King Abdullah Economic City or London's Thames Gateway project, both of which will be based on diverse local economies, Dubai's desert city has one purpose only: to hold exhibitions and conferences.
Exhibition City, as it will be known, will be built in three phases and cover 3 million sq m. The first phase, Exhibition World Dubai, is due for completion in 2009 and will comprise 120,000 sq m of exhibition space. The subsequent stages will double the exhibition space and add offices, hotels, residential facilities and parking space.
The construction of Exhibition City will hugely increase Dubai's already substantial MICE (meetings, incentives, conferences and exhibitions) industry. The Dubai World Trade Centre (DWTC), Exhibition City's owner, has grown steadily over the past few decades. DWTC's other main facility, the Dubai International Conference and Exhibition Centre (DICEC), has attracted major international conferences, including annual meetings of the IMF and the World Bank.
It was all very different back in 1979, when the landmark tower and hall that comprised the first stage of the DICEC were built. At that time Dubai was little more than a small trading port, dominated by its more powerful GCC neighbours, Saudi Arabia and Kuwait. Helal Saeed Khalfan Al Marri, director general of the DWTC, says: "People just didn't get why we were building this facility, miles away from anywhere."
DWTC is wholly-owned by the Dubai government, but effectively operates as a private company. It has three main businesses: property, conference organising and venue management. Last month it opened the latest addition to DICEC, the newly-constructed Zabeel Hall, which will add 15,000 sq m of exhibition space, increasing capacity by 30%. The construction of Zabeel Hall is the first phase of a longer-term plan that will see a major redevelopment to include a new convention centre, office and residential towers, hotels and shopping facilities.
Exhibition City will strike some as a highly ambitious venture. Significant growth in demand will be required for DWTC to maintain both centres as profit-making entities. But Al Marri argues that with the right planning, DICEC and Exhibition City can thrive as distinct but connected arms of the same enterprise: "The DWTC complex and Airport Expo will continue to do shows, but there is clear segmentation in our thinking. Consumer shows are becoming a major sector given the population growth in the region; we are already seeing growth of between 20% and 40% at Computer Shopper - the Boat Show and the Career Show, for instance. In future, the DICEC might be the more prestigious venue for specialised shows."
DWTC's strategy for the next few years is twofold: to ensure the success of its two Dubai-based operations, and to seek further growth opportunities overseas. The first objective is complicated by the growing instability of the Middle East, even though Dubai is widely perceived to be one of the safest havens in the region. But Al Marri claims that the sophistication of the typical visitor means that this isn't a serious problem: "People recognise Dubai for what it is. We're talking about intelligent business tourists - they understand that Dubai is not involved in the politics of the region."
Al Marri is reluctant to give details of DWTC's plans for overseas expansion, but he promises that the firm will begin to compete with foreign rivals in their own backyards in the near future. "First, we'll be looking at owning facilities in Europe and Asia," he says. How soon are we talking about? "It's all about getting the managerial capacity in place, but I think we'll have a presence overseas within two years."