Emaar Properties: Strategic Development in Saudi Arabia

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Introduction

Emaar Company is a fast-growing global property developer, credited for executive lifestyle in its property development services. The public joint venture based in Dubai is listed in the Dubai Stock exchange market, occupying its premier position in the Dow Jones Arabia Titans Index. After its establishment in 1997, Emaar has experienced a mercurial growth in the last ten years, where it has been credited with shaping landscapes as well as people’s lives in the Emirates region. This rapid growth is attributed to the fast growth of Dubai. Other construction of the home, the company has also been credited for the construction of value-added as well as master-planned establishments to fit the demands of various home buyers, considering their varied lifestyles. As the first-ever company to conceive the idea of the community-living concept, Emaar Properties leads the pack in the property development business sector in the United Arabs Emirates (Emaar 2).

Their success in the Emirates region has seen them extend their desire to reach the international market with their integrated approach to business. This approach is based on the model of business segmentation, with various ventures in hospitality and leisure construction, education sector development, healthcare and financial sectors, mainly focusing their business on customer-oriented approaches. This is why they have segmented their business into six sectors, merged into over 60 active companies (Emaar 3). The company has a huge and integrated presence in global markets, represented by the Middle East, America, Asia, Europe and Africa.

Despite its large scale activities and heavy presence in the global building market in Middle East, Africa, Asia, Europe and America, the availability of other barriers are visible. The company’s objectives and recommendation is to expand and extend its operations in order to continue enjoying large economy of scale through increased presence and size worldwide. Considering the increased demand for housing in Saudi Arabia, the region is for sure an attractive market. The economic city has proved to be one of the biggest projects that Emaar has carried out in the region, with a lot of expectation among the projects stakeholders. Furthermore, the company has gained international recognition with the completion of Burj Dubai, the second tallest tower in the world today. This is a clear indicator of the company’s technical ability. Additionally, Burj Dubai is rated the only building with vertical concrete pumping with the highest number of storeys in the world.

Emaar’s presence in Saudi Arabia has been conspicuous in the recent past, having been the master developer of King Abdullah Economic City. Working in close association with the Saudi Arabian General Investment Authority, the organization in charge of inward investments into the Kingdom and the facilitator of the City’s development (Arabian Business.com 4), Emaar has been tasked with developing a state-of-the-art City. This development is highly regarded by the Kingdom, considering the strategic location of the City; being north of commercially active Jeddah and provision of easy accessibility to the Holy Cities of Makkah as well as Madina (Arabian Business.com 4). This association and other collaborations will see Emaar accomplish various projects in Saudi Arabia such as Jeddah Gate and Al Khobar Lakes.

Emaar in Asia, China

Emaar became the first Middle East property developer to make forays into the Chinese market, through their international expansion program. This interest and venture into the World’s second largest economy was seen as a target into the county’s stable economy despite the global recession. Experts argued that the entry that kicked off in 2006 was as a result of the Country’s previous year, 2005 economic growth of approximately 10% (Ameinfo.com 1). This kind of growth is said to have increased the interest in modern, community-centric lifestyle development in China’s major cities spearheaded by Beijing and Shanghai.

According to Ameinfo.com, the residential projects were meant to take care of the spiraling new urban lifestyle that required facilities like fitness centers, retail malls, modern schools facilities and hotels and restaurants (8). It is argued that China’s 2001 entry into the World Trade Organization has changed its market structure, boosting the marketability of the world’s most populous nation to the outside world (Ameinfo.com 9). This has subsequently spearheaded the Chinese rapid economic growth in the recent years. In fact, the Chinese global economic growth and contribution to the global GDP had surpassed that of United States, and even those of largest emerging economies of India, Brazil and Russia combined. The only drawback to this growth and development momentum was the property sector that was seen to have had the slowest growth among all sectors of the country’s economy (Ameinfo.com 9).

The other development that pushed up Emaar’s interest in China was the Beijing’s hosting of Olympics in the year 2008 and the Shanghai’s 2010 world Expo, in addition to the developments of other emerging cities’ real estate projects, with strategic investments in both healthcare as well as education (Arabian Business.com 4). According to Arabian Business.com, any investment in China must be long-term focused as the county’s development prospect is long-term and is supported by a strong pull of skilled workforce. No wonder Emaar saw this growth as an open opportunity to emerge as one of the most valuable companies in the property development.

Emaar India

Emaar has developed the spirit of collaboration and partnerships in the recent past. In 2005, the company formed a partnership with MGF Development Limited of India, giving way to the largest projects development agreements amounting to a capital totaling to US$4 billion. These projects are to be carried out in Delhi, Punjab, Haryana, Andhra Pradesh, Karnataka, Tamil Nadu, Kerala and Maharashtra. The plan is laid out such that residential plots, urban houses and villas, shopping malls, gardens, leisure and civic facilities form the major development features. The other areas focused on are the possibility of developing international standardized offices and parks, and the development of hospitality facilities such as the recently acquired space for the construction of seven-star hotels. The hotels, scheduled to be located in Delhi and Kolkata are joint venture between the two firms.

Why has Emaar taken such growth approach in India? According to Emaar Property Vice Chairman, Hussein Al Quemzi, India is one of the major emerging economies that have experienced exponential growth, giving room for the rapid growth and expansion of retail sector. This belief is backed by the fact that Indian retail market, estimated at US$300 billion is projected to continue with growth of more than 10% annually up to the year 2015’s estimated US$427, gaining market share of US$637 billion (Arabian Business.com 6). This could explain the strategic partnerships that Emaar has adopted in the Indian market, with a lot of focus on retail business sector.

Emaar Indonesia

Emaar’s entry into Indonesia’s property development business was basically initiated as a result of booming tourism sector in the country (Emaar 8). It was developed with the interest of tourism in mind, which began with signing of a joint venture with the Government of Indonesia to kick-start the Lombok project that would see the construction of state-of-the-art residential and resort communities as well as hotels (Ameinfo.com 6). This is in line with the growing appeal of the region as a preferred tourism destination. According to Ameinfo.com, Bali Tourism Development Corporation is one of the major movers of the economy of Indonesia; where infrastructure is highly needed to make it prosper further.

The main attention is to ensure the projects that drive tourism boom such as leisure sports (e.g. diving, hiking and surfing) in Lombok are boosted and redefined to instill the idea of Lombok as a prime tourist destination (Ameinfo.com 7).

Emaar in Africa

Morocco

Emaar has established its presence in North Africa just like in Asia and Middle East. One of the countries is Morocco, which has proved a successful venture to the company. With its subsidiary company, Emaar Morocco, the company finalized its entry into the country with its initial master-plan for the Tinja resort community project (Arabian Business.com 5). It was through a memorandum of understanding that the company signed in conjunction with the Moroccan government (Arabian Business.com 6).

Tinja is situated in a 300-hectare land next to Tangiers, a historic city proximate to a forest land and an estuary (Arabian Business.com 6). With its 2,500 residences located around a conspicuous beachfront supported with numerous amenities such as beach club, hotels, sports centers as well as retail outlets. The project was drawn in line with the Moroccan government’s strategic tourism project that would ensure the country gets maximum benefits from the foreign direct investments that would see increased revenue for the country’s already vibrant tourism sector. One of its goals is to create a self-sustained project with the neighborhood, after the company ordered an environmental impact assessment to reveal any threat to the environment for mitigation. In order to accomplish this goal, the company established various elements like greenways and forests club to help promote environment-friendly enterprises and practices (Arabian Business.com 7).

Tinja homes is also comprised of several beaches and homes, which hosts six separate communities, surrounded by natural features, schools, health facilities, sports facilities and many more facilities to accomplish the integrated lifestyle advocated by the government of Morocco.

Emaar in Egypt

One of the countries that have embraced Emaar’s real estate expertise is Egypt. With its US$4 billion facility located at the higher point of Cairo downtown, the area has been transformed into a residential, commercial as well as a recreational facility for the community (Emaar 8). More plans are underway to ensure that all the Cairo’s seven communities in the Heights District are made to provide a wide range of residential buildings that ranges from low-rise to high-rise (Emaar 8).

Other than the above highlighted case, the collaboration between Emaar and Egyptian government is meant to establish an integrated community that is located in the newly established Smart Village. This form of development is planned to have a highly regarded state of technology on a friendly environment that integrate both commercial and social life together, as well as corporate lifestyle. One of the main facilities, convention center, was established to promote corporate business together with leisure services with the support of its ‘Smart Village’ apartments (Emaar 6). This grand establishment has a shopping village of 15,000 m² for retail space that ranges from Boutique shops to a fine conference spaces, making it look like a village-model feel with few number of buildings, strong network of streets and a state-of-the-art grand square with a model similar way as the old Egyptian town (Emaar 9). Its location is also strategic, 10 km off the pyramids and easy accessibility from the Cairo International Airport and a few minutes drive from Cairo City center.

Another project that was developed under this MoU is the Waterfront redevelopment project for Alexandria Library, which contained components such as conference and exhibition facilities, hotels, apartments that are fully furnished, exhibition space, office parks, cultural sites, and retail center. This is one of the major establishments that Emaar has constructed after being given a 60-year lease to run the project (Emaar 9).

Emaar in United States

In order to make its entry into the tricky American market, Emaar properties adopted acquisition strategy. Historically, experts have argued in the past that American market is one of the most competitive business environments due to the legal and immeasurable red tapes for foreign investment (Gorrill 29). In order to navigate this challenge, Emaar adopted what most foreign firms do to succeed in this market, acquisition of the already established American firm. The company therefore acquired John Laing Homes, which is the second in command of the American market share, subsequently creating one of the biggest developers of real estate in the global world, with US$1.05 billion cash flow.

Emaar in Saudi Arabia

As highlighted earlier, Saudi Arabia is one of the foreign countries that have seen Emaar succeed in their planned development of their international networks of projects. In collaboration with the governmental body, Saudi Arabian General Investment Authority, the company was given the contract to establish a facility to act as the prime government investment for the city, which is strategic to the Holy Cities of Makkah and Madina (Arabian Business.com 4). With integrated components like residential suites, Industrial areas, financial centers, healthcare facilities, educational facilities, resort, and the city center facilities such as Mosque, parks, recreational space, commercial centers as well as schools, the project is a fully integrated center that comprises the modern community lifestyle (Arabian Business.com 4). It has been estimated that the project created an approximated 500,000 employment opportunities in several sectors of the economy led by tourism and infrastructure (BISWorld 44).

Under the banner of Emaaar Middle East, the venture has brought together Emaar Properties and Al Oula Real Estate Development Company to carry out the development of several highly valued construction projects in Saudi Arabia (BISWorld 45).

A. Jeddah Gate

After drawing a state-of-the-art master plan for Jeddah Gate, Emaar launched its construction that would see the facility built in a 500,000 m² land, on the downtown City. The facility has two major areas: The first with approximately 41,000 m² is situated along King Abdullah Road, and the second one of 140,000 m² is situated along Abdullah Al Suleiman Street (Arabian Business.com 11). An added advantage is that the facility is proximate to the major railroad that links the Holy Cities of Makkah and Madina, all the way to Jeddah (Arabian Business.com 11). In summery, the project will accomplish both the social and commercial needs of the people and the government of Saudi Arabia, with complete residential, fully serviced apartments, office space and shopping spaces to be leased for small scale traders.

The other aspect of the project is to ensure it carries the Smart City philosophy, with highly developed telecommunication infrastructure, which is supported by the most modern fibre optics technology. In fact, this development is supported by the project’s general architectural philosophy of going in line with Arabesque traditions, blended with up-to-date modern architectural techniques to come up with a very unique and ‘easy’ lifestyle (Arabian Business.com 12).

Jeddah Gate had the following phases:

Abraj Al Hilal

This first phase was designed by SB Architects, with 3 high-rise residential houses in the range of between 19 and 22 storeys (Arabian Business.com 12). The design is elegantly posing with the integration of the most modern techniques and old style of constructions, making up to over 270 modern apartments, penthouses, and duplex penthouses that ranges between one-bedroom to 4-bedrooms, and standard unit sizes that ranges from approximately 50 m² to 600 m² (Arabian Business.com 12).

Other components include amenities such as: internal facilities (e.g. double outdoor swimming pools, fitness center, multipurpose room, etc.); Technical Facilities (e.g. split ducted A/C system for units, television and telephone services, internet facilities, door entry system, emergency generator, CCTV surveillance camera, and many more (Arabian Business.com 12). Additionally, there are other facilities that are critical and important for the modern lifestyle that have been established, i.e. each tenant allocated 3 parking lots, waste removal facility, common area landscaping, etc.

Burj Al Aamal

This has been described as the pioneer business tower in Jeddah Gate, with its over 25 storey offering most modern luxury office space for lease or sale (Arabian Business.com 13). Its location in the commercial center adjacent to King Abdullah Road and its proximity to JCC, governmental organizations, banks and the Port (Jeddah Islamic Port) is strategic enough to serve its intended purpose (Arabian Business.com 12).

It’s comprised of internal facilities such as office spaces covering an area of 50200 m² and approximately 1,000 m², big spaced with luxuriously decorated area full of flowers and water surfaces, business center fitted with highly complex telecommunication infrastructure, food-court, smart tower fitted with appropriate technologies, etc (Emaar 11). Other modern facilities that have been constructed include; CCTV security surveillance system, emergency network system for exists in case if disaster, the most modern environmental management technologies, office space, and over 700 parking lots (Emaar 11).

Al Khobar Lakes

Emaar Property has also developed another modern integrated community through their master plan, occupying a space of approximately 2,643 m². Its location is strategic since it’s constructed at about 12 Km east of Al Khobar and 43 Km from the airport (King Fahd International Airport) (Emaar 12). With this kind of development, the facility is the first gated community facility to be sold as villas to private ownership (Emaar 11).

Emaar’s Strategic Entry into Saudi Market

Over the past decade, regional real estate markets have grown to a bigger proportion, especially in the Asian region where markets have tripled or quadrupled thereby increasing investment volume. In practice, opportunistic approach to direct real estate business has dominated the region since the players have adopted capital intensive entry into the region, especially the Saudi market. However, the maturity of the Saudi market over the last five years has changed the landscape for developers since it experiences the features of a more established market, where developers give a new portfolio-approach to the development process (IBISWorld 31). This is strategically aligned to secure the value of the business in the future through growth and sustainability.

Emaar’s portfolio strategy is meant to outline where and how capital should be distributed as well as defining the factors influencing any ‘decision to enter, retain and/or exit investments’ (IBISWorld 30). In other words, as one begins to examine the future portfolio of a company, several criteria is looked at in a more strategic manner. In this perspective, Emaar developed a portfolio growth strategy in Saudi Arabia by looking at its capabilities as well as objectives of the key stakeholders in the country. The company then launched a strategic research to establish the facts in areas such as corporate requirements and strategic partnerships (IBISWorld 31).

Emaar’s approach to the portfolio strategy was designed into a multiple portfolio assets, which are eventually lamped under one overall corporate strategy for investment. They also show how they are measured and their uniqueness to each other in terms of approach and implementation process.

What triggered the Entry?

Before Emaar’s entry into the Saudi market, a survey was conducted to establish the trend and perception of the real estate business and its prospects in the country. The sentiments from the respondents illustrated that the prospect is positive, with many more buyers to come out in number and exceed the sellers’ ability to provide to the demand (Emaar 6). The findings also reveled that the Saudi people put a lot of preference in buying the finished product of a real estate than building or developing on their own. Furthermore, there is a lot of interest in establishing new real estate projects in less mature markets that have indicated strong interest in the development opportunities. The anticipation is that as the Saudi market matures, there would be increased transactions, with increased yield among the assets available. By doing this, Emaar had foreseen the possibility of global recession that would affect more international investors in developed markets than in low or developing markets.

Kingdom Tower, Jeddah

Emaar Properties stroke a deal with Kingdom Holdings of Saudi Arabia to construct the world’s tallest building. This agreement saw the two representatives, Prince Alwaleed (Jeddah Economic Company) and Mohamed Ali Alabbar (Emaar Chairman) sign a deal that would see the country host the world’s tallest building (one kilometer). Before this deal, Emaar had been credited with constructing the world’s tallest man-made structure in Dubai (Emaar 7). This is one of the strategic advantages that the Kingdom used to select Emaar, considering their international reputation and asset base that have seen them contribute to the overall global economy. This project is part of Kingdom City development, considered to become one of the biggest and most comprehensive projects to be carried out in Saudi Arabia’s real estate business.

The Business and Economic Environment (Pest) Analysis

Political Environment

The political environment of Saudi Arabia is relatively stable, considering its monarchy kind of government (Gorrill 17). The following issues related to politics and real estate industry that have proved very critical for Emaar Saudi Arabian entry and success:

Environmental and Social Awareness Issues

There is an overall global increase on environmental and social issues awareness, Saudi Arabia included. In a survey conducted before the entry, many Saudi Arabians expressed concern on the activities of some specific firms that they deemed were not keen to conserve environment. The recent data may not be available but considering the increased awareness, customers, suppliers as well as the general public are increasingly demanding that every business, particularly manufacturing firms, reduce any negative impact of their products and operations in the natural environment and preserve the existing resource for sustainability. This means that any new product and its production process must be environmentally friendly in order to cut into such a market market. However, Emaar has proved itself through its environmental conservation techniques that have seen them pass several tests in many countries.

The general Labor Trend

Jones Lang LaSalle conducted survey and compiled Labor Force Survey data that showed that employment in manufacturing industry has steadily declined in the past two decades. This was attributed to the increasing use of additional capital per unit capital per unit of labor inputs and improvement in multifactor productivity (IBISWorld 9). Again, an increase in average hours of work per persons employed in manufacturing and the relocation of labor to more capital intensive activities have also reduced employment requirements in the construction industry (IBISWorld 9). However, a reverse trend has emerged especially in the last two years, when the construction companies have seen an increase in labor demand.

Safety, quality and Standards

In every government and region, there are specific safety and quality standards that guide the process of manufacturing and distribution (Gorrill 34). This belief gives Emaar a competive advantage over other firms in the similar line of business.

Economic Environment

Economic stability

Saudi Arabian economy has experience continuous steady growth, and at this moment, the economy is steady and strong (IBISWorld 10). It is thus worth noting that the purchasing power of real estates has increased as much as the living standards have continued to improve. Economic projections indicate that the country’s economy will continue to prosper, with many seeking comfortable shelters as part of their basic needs (IBISWorld 10).

Growth in Service Industry

The service industry has grown in the past two decades. The growth in wholesale and retail trade, accommodation, cultural, transport, media, recreational services and many more is projected to continue due to the growth in the capital inputs in the past decade (Gorrill 39). This has created a favorable environment for Emaar through: first use the expanded media to advertise their products, targeting the increased number of service industry players in need of housing product, and secondly to use the new increased tourism activities to create more demand and make impact on the people’s lifestyle.

Collaboration and partnerships

One of Emaar’s strongest areas is its ability to form partnerships and/or collaborations with either local firms or the government of the day. The Saudi Arabian business is quite unique as many businesses prefer collaboration to gain competitive advantage. This has been perpetuated by the Saudis consumer trend of preferring to a one-stop shop to fragmented products, hence giving way for establishments of shopping mall complexes (Gorrill 44).

Socio-Cultural

Past studies have indicated that Saudis give preference to products associated with royalty, hence the government’s association with Emaar to sort out the increased housing demand (Human Rights Watch 1). The fact that the country is predominantly an Islamic state gives Emaar an added advantage in all aspects. Such is the level of culture of patriotism among Saudis that it is virtually impossible to penetrate the market if you are not part of their religious belief. In other words, the national pride is reflected through preference of religiously inclined projects.

Technology

Although Saudi Arabia is not among the developed countries, trend shows that technology is highly consumed among the locals. Saudis consider good architectural work as part of their daily work, hence the need for complex architectural products that blends traditional and modern skills. Many construction companies in Australia have invested heavily on research and development of new technology. Every other effort is made to improve the technological advancement to escalate productivity for highly sophisticated building materials. It is in this front that Emaar has taken the lead; knowing what the target customer needs most that has led them to develop fact-based information to support the claim of strength and uniqueness of their real estate and construction business.

Threats

Although Emaar has direct access to high quality, innovation building facilities and construction know-how as compared to their competitors who bid for the same projects, the threats that relate to decreasing housing demand may take a toll in their desire to continue their good work in the country. However, with the company’s diversification strategy, the company has established a way of making more forays in the country that has made them favorites in many housing business fronts. Their R&D team has also developed unique products to meet these varied demands.

Conclusion

Emaar Properties has proved to be one of the most primed companies in property development; considering its executive lifestyle in its buildings and other developed properties. Its mercurial growth in the last ten years is a clear manifestation of how it has been credited with shaping of landscapes as well as people’s lives the world. Additionally, the fact that the company is enjoying pioneering status for its the community-living concepts, it is the dominant occupier of real estate and construction service sector in most of the Arabic states (IBISWorld 11).

The company’s global presence is huge and Middle East, America, Asia, Europe and Africa. It has fully established operations in Asia, Middle East, Africa, Europe and America (IBISWorld 12). Its objective is to expand and extend its operations in many countries around the world in order to continue to enjoy large economy of scale. Saudi Arabia’s young real estate business provides the company with an opportunity for further expansion. The company’s activities in Saudi Arabia are conspicuous, having been the master developers of King Abdullah Economic City. They have found away of working in close association with the Saudi Arabian General Investment Authority, where the plan is underway to develop a state-of-the-art City. This association and other collaborations forms part of the Emaar’s strategies in its global forays and will see Emaar accomplish various projects in Saudi Arabia such as Jeddah Gate and Al Khobar Lakes.

Works Cited

Ameinfo.com. Bali Tourism Development Corporation signs joint venture with Emaar for Lombok mega-tourism project. Middle East Business Resource. 2009. Web.

Arabian Business.com. Arabtec strike deal raises costs. 2009. Web.

Emaar. Emaar International USA. 2010. Web.

Gorrill, R, Doing business in Saudi Arabia: Australian social and business culture. CIA World. 2007. Print.

Human Rights Watch. Building Towers, Cheating Workers: Exploitation of Migrant Construction Workers in the United Arabs Emirates. 2008. Web.

IBISWorld. Real Estate Business in Arab World. Saudi Arabia Industry Report. 2009. Print.

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