By Gerhard Hope
Al Shafar's CEO on expanding his contracting company beyond its core Dubai market
Established in 1989 by two partners, Shafar and Azmy, ASGC is today one of the top ten contractors in the UAE, with a significant share of the Dubai construction market in particular. “Due to the contraction in the industry as a result of the global financial crisis, we have actually maintained a higher percentage in what is actually a smaller absolute market,” says Azmy, who took up the position of CEO when he was only 28.
Azmy says his strategy to take the company forward has evolved since he took over the reigns. “We had a very different strategy from 2006 to 2008. Our strategy was to expand ASGC in terms of numbers. We were focusing solely on Dubai, with 100% expansion year-on-year. Our expectations in 2008 were that we were going to continue this 100% expansion through 2012, so our three-year plan was that we were going to increase the number of people, increase the turnover, we were going to get more massive construction work in Dubai, and the company was just going to grow and grow.”
In order to facilitate this expansion, ASGC had started putting in place the trappings of a larger organisation, including “running a proper ERP system such as Oracle, introducing a stiff environmental and health policy, having multi-cultural managers to introduce diversity into the company. We were trying to move out of the realm of a small, family, local business into a larger company, with a larger turnover.”
Then the downturn dealt a particularly severe blow to the construction industry in Dubai. “Well, it was a very bad shock; it was a rude awakening. It happened very suddenly; we had work that was cancelled and clients who stopped paying, we had tenders that were shelved, and so we were left to cope with the mess. How we reacted to it was that we laid off a lot of people.
“We reduced our direct monthly costs, and we were one of the earliest companies in Dubai to do so. In fact, the media was quite critical, or at least quite vocal, in its coverage of that because they wanted news about the downturn, and not a lot of construction companies had taken that step or admitted to it. We did, and we said we laid off thousands, mostly blue-collar workers, but I think that is what saved us.
“We also took some time to work on cost-cutting strategies, how to be more efficient in operations, how to work with a fewer number of people, how to save money both big and small. I must say we succeeded, and that is why we have survived to date, with much a lower turnover, but we have also maintained a healthy profit margin through the downturn. We have maintained a decent fiscal policy, we have a good relationship with our banks, and we have honored our larger commitments by and large,” says Azmy.
In terms of recent project completions, Azmy says: “We have completed a villa project in Dubailand and Vision Tower in Business Bay, two properties developments by the Dubai Properties Group. A while back we completed the very successful Golden Mile residential development on the Palm Jumeirah. We have also just recently completed the Wasl Square residential development by Meraas in the Al Safa area of Dubai.” And looking to the future: “About two months ago we were awarded a five-star hotel on the crescent of the Palm Jumeirah. We are also undertaking a significant amount of work on behalf of Emaar in Egypt, both residential and commercial, as well as a five-star Luxor hotel development by the Egyptian government.”
ASGC’s successful foray into Egypt is an important indication of the company’s future direction. “Our original strategy was to expand, and we have done the first and easy part of that, which was to create a presence, open offices and do all the necessary legal paperwork and licences. Syria and Libya were ironically the ones that were most advanced in that group, following Egypt. Egypt has been a good market for us. Now those two markets have been hindered by what has been happening.
“Saudi Arabia is, for us, the big giant. It dwarves all other markets, including Qatar, in my opinion,” says Azmy. He adds that ASGC has an office in Riyadh. Regional landmarks such as the World Cup and Kingdom Tower “are only going to increase the construction profession,” he says.
Azmy attributes the company’s ongoing success, both in the UAE and in new markets like Egypt, to its “long-term policy of quality. In the end it is a service we are providing to the industry, which our clients also attribute to the family atmosphere within the organisation. We are a family-owned and family-run business. When I say family-run, it is not just because of one family that runs it, but all of the members in the company are a family, so we have a very low turnover rate in terms of employees, and that is something I am very proud of. Most of our keepers have been with us for years and years, and I think that is a major attribute of our success, because it allows us to be efficient.”
Looking at challenges and opportunities facing the construction industry at present, Azmy says “it is very difficult for smaller companies today. The largest challenge in the UAE market is cash flow at the moment. Prices are low, it is a clients’ market, so clients are requesting not onerous contract terms, but at least very stringent contract terms, and you are not having the luxury of high margins or the spoilt contract conditions that were allowed during the boom, such as very high advance payments. Therefore managing cash flow is a major project challenge. I would say that is probably a bigger challenge for smaller companies, as we have seen quite a few smaller companies fall by the wayside. It is really only the larger ones that have been able to persevere until things get better.”
However, Azymy remains “personally optimistic” about future growth. “I am not basing my optimism on macro-economic policy, just personal feeling. I think we have been in the doldrums for three years in the doldrums, and I think just now we are seeing the upside of the trough. We are now receiving tenders, and I think that is the start. Six months ago we did not have as many tenders as we have today for the UAE, and I think the fact we have these tenders now means there is going to be more work in 2012 than there has been for 2011,” says Azmy.
Another change in the construction industry that ASGC is grappling with is the focus on infrastructure after the real-estate boom period. “There is a huge shift towards infrastructure. Historically we have been more of a building developer focused on the residential and commercial boom. We have started adapting since the crisis, and that is why we are building things like clinics and hospitals. We are also tendering for airports and other infrastructure projects.
“At the moment we are involved in a social housing project as well, which I do not want to name for the time being as we are just doing mock-ups. But we have definitely recognised this shift, and we are trying to edge ourselves into that market.”
Azymy says that health and safety and environmental compliance remain a major focus for ASGC, which is OHSAS 18001 and ISO 14001 certified. “We take these two subjects very seriously. We measure man hours on our various sites in terms of lost-time injuries (LTIs), and are very proud of the fact that most of our sites have done millions of hours without any LTIs. We have not had any fatalities in any significant time. We have a very strong corporate health and safety structure, and that is independent of operations, which reports directly to me. In terms of education and training, we have a policy that allows anyone to study anything, as long as he gets approval from his direct line manager and HR that it is in some way beneficial to his role in the organisation. He can take time off and can also avail himself of company financing for the same. At the moment we have several of our staff doing construction management MAs,” notes Azmy.
He adds that white it is “incrementally easier” to recruit skilled staff at present, “successful staff are never easy to acquire.” Looking at the broader trend of sustainability in the construction industry, Azmy says: “I do not think green building and sustainability have been given much of a chance here. We have a LEED-certifying agency which we own as part of our group, so we have several LEED APs in our organisation. The company is called Sustainable Design Solutions (SDS). I know the UAE I was very hot on green initially. Then the real-estate market crashed, and I think those ideas have now cooled down.
“If you look at operational and lifetime cost, what is called lifecycle costing (LCC), then green building is, in fact, a cheaper option, so you are not only doing it for environmental reasons, but also for economic benefit. In the short term, as a builder who builds something and thinks of what is going to happen in the next year or two, it is more expensive,’ says Azmy.For all the latest construction news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.