Essay on Macroeconomics and Competition

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The building and construction industry is a critical sector in any economy with immediate and direct impacts on jobs, growth and productivity.” begins the Australian minister for employment and work place relations honorable Julia Gillard in her second speech this year on building and construction industry improvement amendment. Those words encompasses the sentiments of many other countries facing problems in the crisis plaguing the global economy today more so in the building and construction industry where a number of companies have gone down under the impact of the crisis.

In world economic outlook: global economic slump policies and challenges, an annual report tabled by IMF (International Monetary Fund) published on January 8th this year, the statistics on the current global economy contained therein are grim to say the least.

It states that the last few months of last year (2008) witnessed a global slump in both commodity and capital output in the world market. It goes on to point out that the persistent financial meltdown crisis and the subsequent failure by policies (monetary and fiscal) to mitigate the situation and reinstate confidence in the markets is to blame in the downward trend in household wealth and the diminishing value of assets, thereby crushing consumer demand even further. This has caused asset value to fall sharply across advanced and emerging economies decreasing household wealth further.

Geoff Zeiss, a geospatial software technologist, in his Article titled world challenges facing the construction industry clearly lays down the problems and challenges facing the industry on a global front ,the casualties often being the consumers and the building and construction companies, small or big, like Emaar. These challenges are:

1. Aging infrastructure- this is in line with the new technological and structural standards that have been set by regulatory bodies and which render some structures dangerous and therefore unfit for human habitation.
2. Shrinking workforce- The global construction industry has had to contend with massive labor turnover rates in the wake of the financial meltdown thanks to decreased job security and cost cutting measures put in place by employers in the industry like retrenchment, forced early retirement and dismissals.
3. Declining productivity- the meltdown has not spared the building and construction industry with astronomical increase in costs of construction materials, machinery and manpower contrasted with the decrease in value of buildings. The industry is surely teetering on a dangerous production and financial edge.

Emaar

A critical look at Emaar reveals fascinating facts it. Apparently, the 1997 formed Dubai based joint stock Company is one of the biggest real estate companies in the Gulf region. It’s principal activities are real estate property investment, development and management; general contracting; commercial banking and mortgage finance; health care; education; leisure; retail; hospitality and provision of information technology and data communication services. This portrays it as highly diversified.

In spite of being barely twelve years old, the company boasts of a wide array of achievements in terms of operational diversification and product delivery. Emaar has a marked presence in over sixteen countries such as France, Canada, US, Libya, Morocco, UK and Turkey. As far as acquisitions and partnerships are concerned, Emaar has really gone the long haul with alliances with one of the biggest domestic real estate companies in the US-John Laing Homes, a UK real estate agents company- Hampton, Turner international and Singaporean educational facility Raffle’s campus. Health wise, Emaar is involved in multi million dollar projects to establish high quality hospitals and health care facilities in the gulf region.

Emaar has also teamed up with the movers and shakers of the high-fashion world like Georgio Armani to develop a portfolio of international luxury hotel suits complete with the glamour and glitz of the fashion world. In the financial sector, it has a substantial holding in the top ranking Islamic bank Amlak .Emaar had an impressive performance in year 2006 when it was named ‘best developer in the United Arab Emirates’ and a ‘best developer in Egypt’ award.

Thanks to the company’s good business ties with the government (which owns a 32% stake in the company), the company has been able to expand its activities in almost every part of the country. The following projects which  are in the offing or already completed go  a step further to demonstrate Emaar’s success :
1.The Dubai marina which is a huge water front tourist attraction site in the country boasting hundreds of thousands of visitors annually and said to have cost AED 4.5 billion upon completion.

2. The Emaar towers which are a magnificent block of exquisite one hundred and sixty eight freehold apartments in the cost range of AED 150 upon completion.
4.The Burj Dubai which is in the records as the world’s tallest man made structure in the world and has enough capacity to include an area of  residence, commercial outlets including lavish malls, stalls and stores, a five star hotel with accommodation and a wide entertainment variety that cost AED 9 upon completion.

The financial statements do not disappoint either .In the fiscal year-end December Emaar recorded a sale £3,304 million, while the book figures sourced from excerpts from the Emaar properties PJSC presentation in the Dubai Financial Market International Investor Conference in New York on November 13 2007, reveal the following:

The first bar chart is a representation of the gross profit margin in percentage registered by the company during years between 2002 and 2007. The margin has since improved considerably to up to 65% presently, the to the high portfolio, market and operations diversification guided by the strategic objectives of the company

Stake holders

While paying particular interest to the financial markets it is of interest that:

I-                   Emaar Company featured at 462nd position on a rank of the world’s largest corporations in 2007 carried out by the Financial Times to find out the world’s top 500 largest corporations.

II-                Emaar Company is part a member of the Dow Jones Arabia Titans financial index

III-             Emaar received an A- grading mark from S&P (Standard and Poor’s), a world renowned provider of independent investment research, data, indices and credit ratings Company.

Shareholders

With regard to its share holders who are important stakeholders in the company seeing as they are the owners and who include both domestic individual and corporate investors and international ones, the second chart below indicates the company’s net income and EPS (Earnings per share) for the shareholders during the years between 2002 and 2007 and although figures decreased slightly in 2007, the EPS for shareholders has increased considerably at present. The shareholders have also benefited in terms of both capital gains and dividends over the past two years (a dividend of 20% was announced and approved by the directors in this year’s annual general meeting).

Employees

Emaar’s stakeholders’ rights are always respected as laid down in the legal contracts which bind them with Emaar. Emaar highly values its employees as its most important assets. This is why it conducts constant Employee Satisfaction Surveys which are of immense importance in not only motivating them but also in curbing the prospects of losing them to competitors through high employee turnovers, head hunts and poaching which could result to competitive disadvantage on the part of the company.

Customers

Emaar could not survive without customers in all its businesses .That is why it values them too. Customer satisfaction surveys are conducted to establish the areas which need improvement as well as areas where service delivery has been good. This helps attract new customers without losing the existing ones. The information gathered from these surveys is shared across all departments to achieve unity of direction. Emaar targets a larger segment of customers this year to collect more accurate information about customers in all its branches domestic and international in a bid to furnish itself with accurate information that will aid them in creating better customer relations.

Suppliers

Suppliers and sub-contractors are given equal opportunities when participating in the tendering process. Emaar seeks to create and maintain strategic alliances and relations with its suppliers. This helps in planning for the future without uncertainties which could arise if these alliances were absent it also helps to improve on delivery of services to customers since the quality of products supplied are of the right quality at a better price especially now given the astronomical increase in the prices of materials, tools and machinery peculiar in the building industry.

The environment

Emaar has won the ISO 14001:2004 certification in 2007, for its environmental management processes, making the company the first property developer in the region to win ISO accreditations for adherence to both quality and environmental standards. This has portrayed it

Emaar’s ‘’Earth Watch’’ recycling initiative within its master-planned communities has been a phenomenal success and Emaar is extending it to all its projects. Emaar’s concern for sustainable development is ingrained in the company’s vision, and the winning of the ISO 14001:2004 international standard certification is the result of concerted efforts taken at all levels – its staff and customers – to promote a healthy environment.

Competitive analysis

Competitive analysis basically involves mapping out a business strategy in relation to the competition in the market segment you’re involved in the motive being to put in perspective the competitor’s strong points and weaknesses with an aim of coming up with a strategy that will put you ahead of the pack while at the same time preventing the competitors from penetrating the market by capitalizing on their weak points.

The first step in conducting a competitive analysis of a company lies in literary knowing who your ‘enemies’ are. In Emaar’s case, they don’t have much in terms of competition although the presence of the main current competitors in the residential and commercial properties and building and development industry  identified as, the Majid Al Futtaim group of Dubai, Nakheel of the United Arab Emirates and Saudi Bin Ladin of Jeddah Saudi Arabia cannot be ignored.

In carrying out the competitive analysis, I sought to carry out a detailed tabular competitive profile of the competitors in comparison to Emaar in relation to the financial figures, product delivery, marketing, facilities, personnel, and the corporate and marketing strategies instituted by the companies listed above as the current competitors of the Emaar company in the residential and commercial building and development industry.

New competition is bound to arise in the following situations:

1. A presence of competing companies in a particular market segment where there are registered high profit margins
2. Low supply in a market where there is high demand for a good and /or service
3. Presence of a market that has a potential of high growth
4. Where there is little in terms of competition in a market.

In Emaar’s case there’s little in terms and the only real competition is in the Majid Al Futtaim group which is also a real estate company operating in Dubai although in terms of operational diversification, there is not much competition. Largely due to the niche Emaar has already cut itself in the land and properties market and the fact that the initial capital outlay in this industry is extremely high, there have been very few and far in between new companies to bring about any significant competition for Emaar although there is strong competition in the markets abroad like in the US, UK, and Canada where the company has expanded its base.

As per the facts and figures above, it is clear that Emaar has the overall competitive advantage and the future although not very encouraging at the moment in this industry, is bright for Emaar if they are to retain the strategic plans, objectives and implementations currently in place to expand and increase their sources of revenue.