“Unlocking Growth: Why Regional Companies in the GCC and MENA are Primed for Diversification.”

To be successful, your vision has to be greater than your excuses — Robin Sharma.

At the recently concluded World Economic Forum summit in Davos, a notable official representing a GCC country emphasized the collaborative nature of efforts to diversify the economies within the bloc.

This sentiment has lingered with me since the summit, compelling me to write this article on which businesses are best positioned to seize the need and opportunity for diversification, both within and beyond their domains.

It was truly encouraging to witness key ministers from the six-member bloc speaking in harmony, highlighting their collective determination to move away from oil-dependent economies. The World Bank’s prediction of a 3.6% GDP growth for the region between 2024 and 2025 further underscores this positive trajectory.

In the ever-changing business environment of the Gulf Cooperation Council (GCC) and the broader Middle East and North Africa (MENA) region, diversification has become a critical necessity for companies aiming for enduring growth and adaptability. Given the continual evolution of market dynamics and geopolitical factors, traditional businesses must break free from their comfort zones and embark on strategic initiatives to ensure their long-term relevance.

Amidst this backdrop, technology emerges as a focal point for investment across the GCC. With a concerted push towards the digital economy, governments in the region are actively driving diversification initiatives. What’s particularly striking is the alignment among member states, with each minister emphasizing that their efforts complement rather than compete with one another. Most governments keen on diversification is earnestly striving to translate rhetoric into action. Simultaneously, they are implementing various policies and initiatives to incentivize the private sector to align with their diversification goals.

As the region gears up for substantial investments, the question arises: who stands to benefit the most from this diversification drive? Is it the regional businesses, deeply rooted in the local market with a nuanced understanding of its dynamics, or the global brands with their expansive reach and resources?

In my opinion, regional businesses hold a distinct advantage in leveraging this scenario. Their agility, intimate knowledge of the local market, and strong networks within the community position them as frontrunners in capitalizing on diversification opportunities. Furthermore, with governments actively incentivizing private sector participation, regional businesses are well-placed to translate policy support into tangible outcomes.

However, this is not to discount the potential contributions of global brands. Their expertise, resources, and established market presence can undoubtedly complement the diversification efforts in the region.

Collaborations between regional businesses and global brands could yield synergistic outcomes, driving innovation and accelerating the pace of diversification.

Here’s my detailed perspective on why Regional Companies are better poised to move out of their comfort zone and diversify.

1. Intimate Market Knowledge: Navigating Complexities-

Regional companies in the GCC and MENA region boast a deep understanding of the local market dynamics, cultural nuances, and regulatory frameworks. This intimate knowledge enables them to navigate the complexities of doing business in the region more effectively than their international counterparts. From consumer preferences to market trends and government policies, regional companies have their finger on the pulse, allowing them to identify opportunities for diversification that align with the unique needs and dynamics of the local market.

2. Agility in Adapting to Change: Responding Swiftly-

The GCC and MENA region are characterized by rapid economic development, evolving consumer behaviors, and geopolitical dynamics. Regional companies exhibit agility and flexibility in responding to these changes, enabling them to capitalize on emerging opportunities and mitigate risks. This agility is a key asset in the diversification journey, as it allows companies to pivot strategies quickly, enter new markets, or introduce innovative products and services to meet evolving customer demands.

3. Strong Local Networks: Building Trust and Partnerships-

Building strong relationships and networks is fundamental to doing business in the GCC and MENA region. Regional companies have established deep-rooted connections with local stakeholders, including customers, suppliers, government entities, and industry peers. These relationships foster trust and facilitate collaboration, providing regional companies with a competitive edge when pursuing diversification initiatives. Whether forging strategic partnerships or accessing new distribution channels, strong local networks are instrumental in driving successful diversification efforts.

4. Diversification as a Resilience Strategy: Mitigating Risks-

In the face of economic volatility and geopolitical uncertainties, diversification serves as a resilience strategy for regional companies in the GCC and MENA region. By expanding into new markets, industries, or product lines, companies can spread their risk and reduce dependence on any single source of revenue. This risk mitigation approach enhances the resilience of regional companies, enabling them to withstand external shocks and navigate through challenging times more effectively.

5. Government Support and Incentives: Leveraging Opportunities

Governments in the GCC and MENA region are increasingly focused on diversifying their economies and fostering a conducive environment for business growth. Regional companies can leverage government support, incentives, and initiatives aimed at promoting diversification and entrepreneurship. From investment incentives to regulatory reforms and infrastructure development, government initiatives provide regional companies with additional resources and opportunities to drive diversification and innovation.

Why is it that, despite the numerous advantages favoring regional businesses, we seldom witness a rapid surge of these companies breaking out of their comfort zones to pioneer new business ideas and scale them exponentially, ultimately reshaping their identities?

In my decade-long observation, I’ve noticed that regional businesses encounter distinct challenges that impede their ability to break free from existing norms and forge new paths. Here, I’ll share some insights to shed light on the obstacles these companies face -

1. Risk Aversion and Traditional Mindsets-

One of the primary barriers to diversification for some regional companies is a prevalent culture of risk aversion and adherence to traditional business models. In some cases, company leadership may be hesitant to deviate from established practices or venture into unfamiliar territories, fearing potential failure or loss of reputation. This risk-averse mindset can stifle innovation and limit the willingness to explore new opportunities for diversification, thereby impeding growth and competitiveness. The Owners or Leaders fail to realize that “What got them so far, is not going to take them further”. This Ambivalence makes them ignore the perils of not being part of CHANGE and often such people are seen as the biggest liability for the failure and decline of the organization in the long run.

2. Lack of Strategic Vision and Long-Term Planning-

Successful diversification requires strategic vision, long-term planning, and adept resource allocation. However, many regional companies lack the necessary framework and expertise to assess and pursue diversification effectively. Without proactive planning and visionary leadership, these companies struggle to identify synergies between existing and new business lines, hindering alignment with growth objectives. Additionally, overreliance on key human capital often leads to neglecting senior leadership’s need for resources to explore new domains. This highlights the importance of adaptability and forward-thinking strategies. Regrettably, management often scapegoats senior leaders for failures rather than taking responsibility for their own shortcomings in rationale and enterprise.

3. Limited Access to Capital and Resources-

Access to capital and resources is critical for driving diversification initiatives, particularly for regional companies operating in capital-intensive industries or seeking to expand into new markets. However, some companies in the GCC and MENA region may face challenges in accessing external financing, either due to limited availability of funding sources or stringent lending criteria. Additionally, constraints in human capital, technology infrastructure, and operational capabilities may further impede the execution of diversification strategies.

4. Regulatory and Legal Constraints-

Navigating regulatory and legal landscapes poses significant challenges for regional companies looking to diversify. Complex bureaucratic processes, ambiguous regulations, and legal uncertainties can create barriers to entry or expansion in specific industries or markets. Moreover, these challenges can amplify operational complexities and costs, discouraging companies from pursuing diversification initiatives entailing regulatory risks. While the GCC Governments are becoming increasingly business-friendly, such threats persist, underscoring the need for strategic planning and adaptability in diversification efforts.

5. Cultural and Organizational Barriers-

Cultural factors and organizational dynamics significantly impact the ability of regional companies to pursue diversification. Resistance to change, hierarchical structures, and siloed decision-making hinder collaboration and innovation, impeding successful implementation of diversification strategies. Moreover, cultural norms and societal expectations influence attitudes towards entrepreneurship, risk-taking, and innovation, affecting companies’ willingness to explore diversification opportunities. Often, cultural norms set by founders or management may not align with the chosen industry for diversification. This reluctance may lead companies to opt for a trial-and-error approach, justifying their reluctance to embrace diversification under the guise of cultural compatibility. The lack of patience and a short-sighted focus on comfort zones can prevent businesses from allowing diversification ventures to flourish, hindering their potential for growth and adaptation.

6. Market Fragmentation and Competition-

The GCC and MENA region encompass diverse markets with varying levels of maturity, competition, and consumer preferences. Market fragmentation and intense competition in certain sectors may pose challenges for regional companies looking to diversify, particularly if they lack differentiation or a competitive advantage. Moreover, entry barriers imposed by dominant players or established incumbents may deter smaller companies from entering new markets or industries, limiting their ability to drive diversification effectively.

“The UAE and KSA, have been working hard to ensure that they are a hub for business, a hub for entrepreneurs and new economies in the future.”

To surmount these obstacles, companies must engage within, in fostering a culture of innovation, bolstering strategic vision, and dismantling cultural and organizational barriers. Proactively addressing these challenges empowers regional companies to unlock the boundless potential of diversification and propelling sustainable growth in the market.

While there are commendable outliers, the opportunities for transformative change are still aplenty. Personally, I anticipate business leaders in the UAE and KSA to spearhead this movement, leveraging the region’s conducive environment for local conglomerates to set precedents, outshine global counterparts, and emerge as trailblazers shaping the future of business.

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Ashutosh Sinha Anuuj P Tiwari PRASANNA KRISHNAN VENKATESA Ramashish Ray Ajith Gopalakrishnan