The calm after the storm
Richard Dean on why an impending economic upturn could be the downfall of construction companies that fail to prepare.
No stranger to business trends, author and journalist Richard Dean forecasts that Middle East construction market conditions will inevitably improve in 2011, but only the companies that prepare will bene- fit, he warns.
“There is an economic boom coming and it could kill your company,” asserts Dean, explaining that the firms that survived the downturn could lose their niche and fail in the upturn by repeating past mistakes.
“Businesses need to look at what is happen- ing around them and respond,” he says, draw- ing on examples of two of the region’s largest developers Nakheel’s and Emaar’s reactions to the global economic downturn.
At Cityscape Dubai in October 2008, just weeks after the demise of the Lehman Brothers investment banks caused the biggest shake-up Wall Street had seen in decades, Dean recalls that Nakheel said “there may be a slowdown, but not a crisis”.
“Whereas Emaar admitted there were changes on the horizon. Its share price fell but it coped with the crisis and in 2010 it said it was well positioned to face the changing domestic real estate market.”
Keeping that in mind, Dean uses a case study of steel supplier GEAP to arrive at five top tips for staying afloat come rain or shine.
ing on examples of two of the region’s largest developers Nakheel’s and Emaar’s reactions to the global economic downturn.
At Cityscape Dubai in October 2008, just weeks after the demise of the Lehman Brothers investment banks caused the biggest shake-up Wall Street had seen in decades, Dean recalls that Nakheel said “there may be a slowdown, but not a crisis”.
“Whereas Emaar admitted there were changes on the horizon. Its share price fell but it coped with the crisis and in 2010 it said it was well positioned to face the changing domestic real estate market.”
Keeping that in mind, Dean uses a case study of steel supplier GEAP to arrive at five top tips for staying afloat come rain or shine.
Businesses need to look at what is happening around them and respond”
[speaker]Richard Dean[/speaker]
Expect the worst
“Thanks largely to the fact that the UAE econ- omy is far more diversified these days, the slump in 1986 was much more severe than the recent downturn.
“GEAP began trading nearly 40 years ago and wasn’t immune from these shocks, but the company survived because it was on the lookout for the next threat — as well as the next opportunity.”
Stick to your knitting
“GEAP has diversified over the years, but its expansion has always been based on competitive advantage, for example it resisted the temptation to jump on the Dubai property bandwagon.”
Hire and retain strong managers
“Strong management was crucial to GEAP hanging around; profits come and go, but strong leadership and a motivated team drives a business.”
Practice financial discipline
“A strong company is not built with a mountain of debt, but by re-investing profits back into the business. Borrowing ratios should remain low and over-zealous bankers ignored.”
Be a trading company, not a hedge fund “Steel is GEAP’s main business — processing, importing, trading and never speculating. Steel prices have fluctuated wildly over the last two years but the businesses which benefitted were the ones which didn’t hoard in the hope of making huge speculative windfalls, just steady, long-term profit.”
