Uae Construction Industry

Topics: United Arab Emirates, Strategic management, Economics Pages: 10 (2846 words) Published: October 4, 2010
Construction IIndustry iin tthe UAE Construction ndustry n he UAE Strategic Assessment

Abstract
This paper provides a strategic assessment of the construction industry in the United Arab Emirates (UAE). The major questions considered are: the structure and composition of the industry, the strategic principal groups, the industry trends, the life cycle, and a critical examination of the implication for strategy change after the 2007 financial market downturn. The implications for strategy change are examined using Porter's 5 Forces Model and SWOT analysis.

Preface
The UAE construction industry represents a correlation among four major forms of capital: industrial, commercial, financial and property. This configuration is structured by the strategies of the leading construction organisations. This article discusses the relationships between the major players and the resulting industry structure. The structure described in the article combines the national, industrial and economic environment specific to the UAE. Concerning statistics, the official UAE sources have to be addressed carefully because the construction industry is still emergent. Therefore, in this article, the environment is assessed based on statistics compiled by the International Monetary Fund and Oryx Middle East research team.

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Players' organisation
The industry structure in the UAE is mainly shaped by the Joint Ventures (JVs) between foreign and local organisations. Local shareholders usually account for 51% of share capital, due to the 49% foreign ownership restriction in companies registered in the UAE. However, the distribution of profits is flexible and is not necessarily aligned with the percentage of ownership. JVs combine the advantages of both partners: a) The authority for business management and strategic decisions is usually assigned to the experienced foreign company, which has the best knowledge and expertise, the capital to acquire the required market share, and a clientele base from the international and local arenas; and b) Local shareholders bring links, contacts and a deep understanding of the specific conditions of the UAE's market. These dominant firms set the rules of the game for product and site policies, pricing strategies, marketing approach, and construction standards and contracts. Construction companies may be classified in the following strategic groups: Real estate developer (owner, client, bank, fund), Project manager, Design and supervision consultants, Design and built contractor, Sub-contractor (specified, MEP), Building materials and services suppliers. The players in each strategic group share similar competitive characteristics and distinguish themselves from other groups. The typical relationship between strategic groups is linear: the real estate developer announces a plan for a project and assigns a project management company to develop and supervise a project. The contracting companies submit their bids for the project; after a set of negotiations, the developer awards the contract; and the contractor takes the responsibility for the accomplishment of the job within the set budget and timeline. The contractor may sub-contract a job or part of it to a sub-contractor or do the entire job. During the construction period, the contractor will involve building materials and service suppliers. This classification presumes that the different strategic groups in the construction industry are not necessarily in direct competition with every other group, but only with companies active in the same group. Additionally, because companies of one strategic group depend on players from other groups for their own success, there is typically cooperation between companies from different groups.

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Each construction project involves a particular configuration of four forms of capital: industrial, commercial, financial...
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