Sabah Al Binali: Keep a close eye on ‘strategy’ – what’s yours?

What is strategy? In particular, what is strategy as it applies to the countries of the GCC?

At the simplest level there are four types of strategy: first is do the same thing; second is build on what you, or others, have been doing; third is do something new; and, fourth, covered in a previous article of mine, is adapt to market threats and opportunities.

In my experience the most prevalent approach in the GCC is to do the same thing. Sometimes there are superficial changes that are meant to masquerade as strategy building on current business, but in the end it is simply doing the same thing. A bank expanding into retail or Islamic banking from a corporate banking base, a real estate developer building units targeted at middle-income buyers as opposed to high net-worth individuals or hospitality moving from five-star hotels to four and three-star hotels are such examples.

A true extension strategy of building on something that already exists is Apple and the iPhone. The core demand for the iPhone came not from new technology but from packaging various services into a single unit. Mobile phones and MP3 players already existed and were in widespread use. Less known, but nevertheless well developed, were personal digital assistants, such as those developed by Palm. Frankly, the I-mate series of smart phones operated in ways similar to the iPhone. Apple simply improved on these technologies and backed the iPhone with the iTunes service.

A good way to understand whether the extension strategy you apply is a true strategy or simply something superficial is to look at your market penetration or your pricing power. A personal example comes from the strategy that we deployed for Zawya, the business media company in which I was a private equity investor and chairman.

We kept a close eye with each product that we deployed, whether it was a new database, analytical tool or news. If we captured market share we poured more resources into it, but if we didn’t get any market traction we cut the product.

By 2008, Zawya had more Middle East screens than Reuters and Bloomberg combined, according to our surveys.

In terms of pricing power, the best example was after the global financial crash of 2008. As you would expect, Zawya’s main clients were in the financial services sector and therefore it would make sense that we would lose revenue. However, as we were delivering far more value per dollar spent relative to our competitors, our subscription base was not only resilient, but we actually increased our prices in January 2009 and increased our revenues tremendously. Our product was relatively price inelastic.

Extension strategies are plentiful in the GCC. But a strategy of doing something new seems to be rare if not completely elusive. We do not seem to be able to launch a Facebook, Twitter or Uber other than as a copy of something launched elsewhere. Don’t get me wrong, we don’t just take an idea, we improve upon it – I love Careem’s ability to book a car in advance and to prepay cash, both features not included in Uber in the UAE last year, when I was extensively using the two services. But we are not developing new core concepts.

We have seen governments in the region push for more innovation. I feel the issue is a lack of a deep venture capital source of funds, which is critical to developing innovative companies. For the UAE, this stems from three main sources. The first is the reticence of entrepreneurs to sell equity in their start-ups early on.

The second is restricted options for expatriates in owning 100 per cent of their company, at least if the company is allowed to do business in the UAE. The third is that when an entrepreneur or start-up is funded and the investment does well, then the venture investors do not exit. Ever. As a result, investors willing to finance new ventures do not recycle their money.

The solution could well be a change of the company regulations. Anyone investing in private equity should be familiar with the concept of a limited partnership, whereby one party, the general partner, has near complete control of the business and the limited partners simply participate in the economics. Bloomberg LP, the global media giant, has such a structure. The “LP” stands for “limited partnership”. A second change is clear: allow 100 per cent foreign ownership outside the free zones. Saudi Arabia allows it for most sectors, why can’t we?

The focus on strategy, so far, in the region seems to have been focused on competence in developing strategy. The reality may well be legal and cultural structural constraints in the market.

Sabah Al Binali is an active investor and entrepreneurial leader with a track record of growing companies in the Mena region. You can read more of his thoughts at al-binali.com.

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