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Sat 23 Feb 2008 04:00 AM

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Cross-border initiatives and their growing popularity

Angela Giuffrida takes a look at two of the biggest locally-based construction companies, and their plans for overseas expansion.

Angela Giuffrida takes a look at two of the biggest locally-based construction companies, and their plans for overseas expansion.

One of the trends currently permeating companies in the Middle East construction market - whether they are real estate developers or contractors - is the focus towards overseas expansion.

On the one hand, the trend is a sign that some companies have reached their full potential in their home market and are seeking ways of growing their business in emerging economies and becoming an internationally-recognised brand.

It is also a reflection of what companies of a certain size and status simply have to do in order to keep the financial markets content.

Either way, overseas expansion is typical of any growing company keen to spread its risk and maintain growth, as opposed to resting on its laurels in a market in which it has already reaped a significant amount of success.

Among those companies seeking to develop internationally is two of the biggest locally-based contractors - Arabtec Construction and Al Habtoor Engineering.

Both have a significant history of work in the UAE and an exhaustive list of current projects.

There will also be no shortage of jobs for them to take on in their home markets over the coming years, yet they are targeting the international arena for longer-term stability.

Arabtec is investing in India and is working on a tower project in Karachi, Pakistan. It is also eyeing opportunities in Syria.

But for the company's chairman, Riad Kamal, the move is one which is expected of the company rather than something of choice.

"The financial markets expect us to spread our risk. If we weren't publicly-listed, then I wouldn't go overseas," he said.

Al Habtoor Engineering is planning a move overseas with its joint venture partner, Leighton Holdings. Although the company is currently focused on projects in the UAE and Qatar, it will pursue opportunities in the wider Middle East and North Africa as they arise.

The company plans to target opportunities in its core market segments: large-scale building; civil engineering and infrastructure, and oil and gas.

"We plan to expand by building upon the relationships we have built with our clients in the UAE and Qatar, and to follow them to new geographic areas," said David Savage, managing director, Al Habtoor Leighton.

"We will form joint ventures when it makes sense to do so. These may be locally-based, or with major international contractors."

One of the things contractors need to consider when making the move abroad is exactly how the overseas' markets will be infiltrated.
Going it alone, partnering with a contractor in their home market or setting up an alliance with a contractor in the target market are among the options.

While finding good partners in some countries might be easy, finding contractors in places such as Libya - a key market for construction growth - is more of a challenge.

"You can't find partners in all countries. If you go to Libya, for example, you won't find a local market partner. But in an established market, you could,"
said Kamal.

Real estate developers face a similar dilemma when sourcing contractors for their international projects.

"My biggest concerns are the developing markets," said Dr Sulaiman Al Fahim, CEO of Hydra Properties.

"We can't find contractors in Libya. And the finishings on work there are generally really bad. We're currently looking for contractors here who can become strategic partners for projects overseas."

According to Guy Arlette, president operations, Technip, if a company opts for partnerships, whether that be with local or overseas companies, then the partner has to be of a similar status.

"In a partnership, trust is of the utmost importance. And when you're in a partnership, you have to be in the same league,"
he said.

Another thing that needs to be considered is where to do business. Apart from Libya, key markets for UAE developers and contractors include Egypt, Morocco, Russia and Malaysia.

Burgeoning markets like India and China might also offer opportunities for large-scale development, but the trend among companies there is to take the jobs on themselves.

"Particularly from a construction point of view, China is not the easiest place to do business - companies there like to do it themselves. It's a similar case in India," added Arlette.

Lebanon's Arabian Construction Company (ACC) is one contractor that has infiltrated regional markets since its creation in 1967.

Apart from Lebanon and the UAE, ACC has a presence in Syria, Qatar, Saudi Arabia and Egypt.

According to Wassim Merhebi, director, ACC, overseas growth is essential to spread risk.

"The margins are so attractive, the only hurdle is human resources. We have to diversify risk geographically," he said.

UAE developers take a similar stance. "We want to invest in different parts of the world as it spreads the risk," said Mohammed Sultan Al Qadi, managing director and CEO, RAK Properties.

"That doesn't mean to say that it's any riskier to invest here, but you never know. Also, we're a publicly-listed company, so we have taken the conventional route."

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