Management Strategy and Policy - Research Paper Example

? s the Assignment was due Table of Contents Introduction 3 Background 3 Porter’s Five Forces 4 Competitive Advantage 6 Strategies 7 Conclusion 9 Works Cited 11 Strategy development for EMAAR group Introduction Organizations including the land and real estate developer EMAAR group have to be in a constant state of growth for it to beat off the competition and achieve optimal success. That constant growth can be achieved if the organization formulates and implements effective strategies; analyze the implementation process, find out which strategies are working and which are not, thereby coming up with correction strategies. One of the key aspects, which need to be focused when coming up with strategies, is organizational external environment, which could surely its internal processes and functioning. The external environment can be analyzed with the aid of tools likes Porter’s Five forces. After analyzing the environment using Porter’s, effective strategies can be formulated. Also, EMAAR’s strengths, weaknesses, competition, opportunities and in particular competitive advantages, also need to be focused while coming up with strong strategies. Thus, the focus will be on strategy development in EMAAR group, starting with a background about the company, then Porter’s Five Forces analysis of its external environment, followed by the focus on its competitive advantages and finally coming up with strategies in key areas which will help it to achieve optimum competence. Background UAE based Emaar Properties is a Public Joint Stock Company (PJSC) focusing on property development as well as lifestyles related services. Established in 1997, it has grown to become one of the largest property developers in the whole of Middle-East Asia. (“About Emaar”). It became a PJSC in 2007, after Dubai government garnered around 32% equity stake in Emaar, by exchanging with sizable prime land. Although, its prime focus is property development, it has over 60 companies under its wings, with each company operating in different business sectors, offering varied services including in the sectors like hospitality & leisure, shopping malls, healthcare, education and financial services. (“Board of Directors”). Apart from its main operations in UAE, EMAAR has expanded geographically doing projects and offering services in many key Asian countries like Saudi Arabia, India, Syria, Pakistan, etc., African countries like Egypt, Morocco, etc., as well as United States and Canada. It has developed some of the globally well-known and prominent landmarks of UAE. The list includes Downtown Dubai, “the 500-acre mega-project, home of Burj Khalifa – the world’s tallest building which features the world’s first Armani Hotel Dubai and the world’s highest restaurant, At.mosphere” and also Dubai Mall, which is regarded as the “world’s largest shopping and entertainment destination”. (“About Emaar”). By diversifying into new sectors, it is posed to tap many opportunities in other sectors as well. Porter’s five force analysis Degree of rivalry Construction is a segmented industry implying there are many firms at various levels. EMAAR also has its rivals specifically Nakheel, ALDAR and Dubai properties etc. However, EMAAR enjoys a unique brand image as compared to its peers as it has emerged as a luxury brand. It has been associated with high quality construction catering to higher end groups. It has created an exclusive position for itself by building the world’s tallest building called Burj Khalifa in Dubai which was completed in 2010 despite the world financial meltdown post its launch in 2008 (Oxford Business Group). Hence, the degree of rivalry is low for this group in UAE. Threat of substitutes The group has targeted high end real estate development. Hence within this segment there are usually very few substitutes as a customer is generally looking at a particular type of property and location which cannot be replaced easily. However, during economic downturn customers tend to move towards mid-segment properties rather than high end ones. Thus threat of substitutes is medium. Bargaining power of buyers The bargaining power of the buyers is of a medium level. This is because most of the projects are pre-planned and the customers make their choices based on the plans available to them. Once a deal is truck and the customer has paid some percentage of the overall price of the property (which is usually very high), switching over to another company or property is next to impossible. However, a customer has a choice in the beginning of the payment plan when the stakes are not very high and he can sell off his rights to another customer and move to other property. Bargaining power of suppliers Most of the developers depend on local contractors for completion of the projects. The bargaining power of these contractors is usually low because of the high investments involved. This is also due to the fact that due to the recent economic slowdown and the real estate bubble burst in the UAE the contractors have seen many projects either going on hold or cancelling which has reduced their bargaining powers. Threat of new entrants This is very low due to high barriers to entry on account of high capital costs and gestation periods. Moreover, post the financial crisis there has been a high mismatch between supply and demand (market being oversupplied and the demand suddenly disappearing due to lack of liquidity). Looking at the above discussion we can conclude that though at the moment the company does not have very high competition from rivals or new entrants, as the economic condition improves (which has already started in Dubai and other UAE countries), EMAAR will have to change its current strategy. There will be more companies entering into construction because the governments in the UAE especially Dubai are encouraging real estate investments to use tourism as economy booster (Oxford Business Group). Competitive advantage for EMAAR/ Peer Group The company has a competitive advantage over its peers because of its global expansion. It has presence in many emerging markets like India, Pakistan, Egypt, Jordan, Turkey etc. (“EMAAR Properties PJC”). It is the largest public listed real estate developer in the MENA region (Middle East and North Africa) which is an important world economic region because of its high oil and natural gas reserves (“EMAAR Properties PJC”). By 2011, its international operations formed 22% of its total revenues up from just 8% in 2009 when 67% of the net revenues came only from Dubai. (“EMAAR Properties PJC”). This diversification has given the group better competitive positioning in terms of market penetration and risk diversification as compared to its peers Nakheel, ALDAR and Dubai properties who do not have much international presence. However, this diversification brings about associated risks with it. EMAAR is exposed to more insecurity from government policy changes in other countries than its peers. EMAAR is also trying to diversify into ancillary segments like development and maintenance of Malls and hospitality sector. With increased diversification both geographically and into other segments the complexity of operation has been increasing drastically for the group. This complexity could be detrimental towards its performance if the group is not able to focus on governance, operation and talent retention. The peer groups of EMAAR are relatively shielded from such complexities as they are focused only on their core activities. Strategies to achieve competence Corporate Strategy The company’s core strength is residential and commercial real estate development. This should remain its main area of growth. Hospitality business should be an important segment in the emerging markets. Most of these countries are developing their tourism sector to attract European and American tourists. Hence, EMAAR should tie up with good local Hospitality brands in the country of operation and develop properties for them. Malls form an important source of recurring revenues for any real estate firm. Hence, this is another sector they should look to grow in emerging markets. Again at the local level to reduce competition and also to understand the regional complexities they should engage with local developers of the respective country through JV’s. Financial strategy should be to look at debt financing for new projects as currently the organization is well capitalized. The debt to equity ratio of the company has been constantly coming down from 33% in 2008 to 14% in 2012. (“EMAAR Properties Co.”). This shows that the company should follow aggressive land acquisition strategy in emerging markets and use project financing to support development. Another important strategy for EMAAR should be to target middle-income housing needs in emerging markets as they have a significant population in this segment. The company should use its brand image of providing high quality upper end residential properties to penetrate the mid-income segment of these markets. They should tie up with local banks operating in each region to provide for housing finance for this group. This will not only boost sale of units but also provide secure financing options to the firm for construction. Business Strategy The company should continue to embark on its current policy of expansion into new markets as it has good experience in real estate development. Emerging markets are the best bet in the near future as these are relatively more immune to the world economic turmoil due to low exposures on account of the fact that their financial markets are not very well developed. Moreover, these countries have many unexplored region where the concept of real estate development has not yet reached. With the rise in disposable income of the middle class and the huge population base these countries provide ideal growth opportunity for this group. For example, the tier II and III cities in India still lie unexplored. They should fast track their projects in the international markets because this will help them establish their brand image in those countries. However, with the continuation of acquisitions in emerging markets the group should look at increasing its strong hold in developed countries because these countries have more transparent real estate laws. (“EMAAR Properties Co.”). Any real estate company faces legal risks in emerging markets because these countries do not have very well developed legal systems. Functional Strategy At the functional level they should organize the units based on type of property as shown in the figure below. This will give focus to the development of different types of real estate units. Within each unit there should be two subunits based on area of operation, that is, Dubai and international operations. This will help in monitoring the impetus to be given to each sector. For example, for the residential property segment separate subunits will help in monitoring market penetration in Dubai and other countries respectively. Each of these main units should be backed by support function at the group level. Support functions should be marketing, finance, human resource, legal and strategy development. Each of the support functions should have strategies based on the region of operation within the corporate strategy limits. For example, corporate strategy for financing is to provide housing loan to middle income customers. Now how this is done would depend on the country of operation. Tying up with banks may not be possible in all countries. Hence, setting up a separate finance company can be an option in those countries where banking setup is not very mature. Conclusion From the above analysis of EMAAR Properties from various angles, it is clear that although it has achieved strong growth, it is expanding geographically and also diversifying into more business sectors, to sustain its growth. In that direction, EMAAR need to first study its external environment. In the above analysis of external environment, it can be assumed that it has a strong position viz. its competitors, suppliers as well as buyers. At the same time, while expanding into new territories and diversifying into new sectors, it need to come up with many key strategies like development of malls, middle-income housing projects, strong acquisition of lands, focusing on newer geographical areas in its entering markets, apt allocation of its operations, etc. Thus, following the above strategies will help the EMAAR group to become stronger in its current areas of operations particularly its key area of property development, and at the same time achieve even more growth in its other areas of interest. Overall, all the above discussed strategies can elevate EMAAR group to an optimal position, well above its competitors, thereby bringing in good profits and success for it. Works Cited “About Emaar.” EMAAR, n. d. Web. 15 April 2013. Board of Directors. EMAAR, n. d. Web. 15 April 2013. Oxford Business Group. The Report: Dubai 2013. Oxford Business Group, 2013. “EMAAR Properties PJC, Corporate Presentation.” EMAAR, 2012. Web. 15 April 2013. “EMAAR Properties Co.,” Gulf Base, n. d. Web. 15 April 2013. Read More