Profile: the making of Mohammed Al Habtoor

When Mohammed Al Habtoor returned from the United States to the UAE in the late 1980s, armed with a degree in hotel management, he was looking forward to the high life when he joined the family firm back in Dubai.

At the time, the group owned its first hotel, the Metropolitan on Sheikh Zayed Road, and the son of the founder and chairman expected to walk straight into a management position.

'I thought I would come back to a big office and 10 secretaries,' he recalls.The reality could not have been more different. On his first day on the job, his father handed him an apron and told him to go and work as a waiter. Stints as a porter followed. Even once the young Mohammed made the transition to management, it was far from plain sailing.

'My father fired me twice, ' he confesses, 'both times for taking bad decisions without consulting him or the other managers.'

Today Mohammed Al Habtoor is chief executive officer of the Al Habtoor Group. The company portfolio includes an international network of hotels in Dubai, Lebanon and Britain; eight major real estate developments currently underway; an engineering contractor; one of the largest schools in Dubai; and Bentley, Aston Martin and Mitsubishi car dealerships.

It's a complex, highly diversified, rapidly growing organization, but Mohammed says the basic lessons of those early years are among the most critical to being successful. 'I learned a great deal, particularly about consulting people. I may like to put gold windows on a building, but if four managers say silver is better, then silver it is. You have to listen to people.'

That philosophy extends to the lower ranks, to the waiters and porters he used to work alongside when serving his apprenticeship. 'I visit the staff accommodation and speak to these people. What good is it if they feel scared and start shaking when I enter the room? I don't want them to tell me everything's perfect when I talk to them informally. I want them to tell me what is wrong.

'These people are the front line. In a hotel, these are the people the guests meet. I want them to feel empowered. I don't want them to feel inferior to the guest. In Europe, if you talk to a waiter, you don't feel he is below you, and he doesn't feel he is below you. That's what I want in our hotels.'

Khalaf Al Habtoor founded the Al Habtoor Group in 1970. He had been working with a local construction firm but spotted a gap in the market and left to start his own company, Al Habtoor Engineering Ltd.

Even at that early stage, Khalaf recognized that Dubai, a small, sleepy port on the Gulf coast, was about to take off. The following year the United Arab Emirates was formed, linking Dubai with its oil-rich neighbor Abu Dhabi. At the same time, DubaiÕs ruler, Sheikh Rashid bin Saeed Al Maktoum, was emerging as a visionary leader who was poised to transform Dubai into a modern, international city.

Against this favorable background, Dubai became a boomtown, and the Al Habtoor Group took full advantage. The group won a number of major construction projects throughout the country. Khalaf spotted further opportunities, and began reinvesting the company's profits into building a diversified business empire. Today, it is recognized as one of the most successful companies in the UAE.

As it is a private company, financial information is not available, but independent estimates value it in billions of dollars. Khalaf remains chairman of the group, but the day-to-day running of the company is in the hands of his son and CEO, Mohammed.

Do these close family ties make it easier or harder for a CEO to run a major company? Mohammed believes that, by and large, life is more manageable for a Gulf CEO like himself who is running a family-owned business in which he has a stake.

'Today, my father is the chairman, but I am his son, and I think that does make things a little easier. I can take decisions quickly, in a way that someone who wasn't a family member probably couldn't. He would have to consult the owners and wait for approval. I can take decisions quickly, and that's important.'

He recalls: 'Just a couple of days ago I was having a discussion with my managers about a hotel we are building in Lebanon. We were talking about what color the doors were going to be in the hotel. We agreed on white. Someone said they would get some samples and that we could review them and make a decision at the end of next week. I said, 'No, that's too long.' I took one sample that we had and said, 'There, use this.

'One week is a long time in hotels. If you delay the opening of a hotel by one week, you can lose hundreds of thousands of dollars.' Clearly, quick-fire decision-making is one of the main advantages of having an owner-manager. Despite this, Mohammed is a firm believer that Gulf family firms should overhaul their ownership structure by floating a significant proportion of their equity on local stock markets.

'We have seen what happens when the founder and chairman dies,' he explains. 'There can be disputes between the sons and the cousins, and the business is destroyed. It happens. For the continuity of the business it is best to go public, to have a board of directors, to be transparent.'

Going public, however, is not an easy transition to make - especially for a family-run firm in the region. Consider that the Al Habtoor Group has been seeking a listing in the UAE since 1998, but has yet to overcome all of the regulatory hurdles. 'Here, the system is not set up for established companies to convert through an IPO.

The IPOs we see here are startups. We are hopeful we will float a significant proportion of the business by the end of this year or early 2005, because the system is now in place. This is the only way forward for large Gulf family companies like ourselves.' Bankers and analysts believe there will be strong demand for shares in the Al Habtoor Group if and when it comes to market.

Dubai's small investment banking community has known for years that the group was keen to sell part of its equity, and seasoned observers say the company would have no shortage of takers.

'Investors have been wanting to buy shares in these big family conglomerates for some time,' one Dubai-based banker told Arabies TRENDS. 'They're cash rich, they have strong cash flow and many of them enjoy a number of monopolies, although that may change as the World Trade Organization gets tough about protection.

'To date, the only IPOs UAE investors have been able to subscribe to have been launch companies. If a well-known, well-established company like the Al Habtoor Group came to the market, you can be pretty sure that it would be several times oversubscribed.'

Part of the money raised from an IPO will help finance the group's aggressive expansion strategy. In total, the group is investing 1.8 billion dirhams ($490 million) in a range of ambitious construction projects in the UAE and Lebanon, focusing on the hotel industry. Al Habtoor Group is investing $123 million to transform its 97-room Metropolitan Beach Resort on Dubai's Jumeirah Beach into a 450-room megaresort.

Work will begin soon on a hotel on The Palm, Jumeirah. The group has paid $13.6 million for the plot. Despite the major upsurge in recent hotel construction in Dubai - The Palm, Jumeirah, will boast over 40 new hotels alone - Mohammed dismisses any fears of local oversupply, as has happened in the past in Egypt's Sharm el-Sheikh, where five-star hotel rooms can now be had for as little as $50 per night.

'Tourism is growing extremely quickly in Dubai,' says Al Habtoor. 'We need to build more hotels to satisfy demand. If we don't build more hotels, people will go elsewhere.'

He recalls: 'I joined the group in 1989, 15 years ago. At the time, we had just one hotel. Then we decided to build a second hotel, the Metropolitan Beach Resort on Jumeirah Beach. It was the first hotel on that stretch of beach. Then all the other hotels started coming up. Obviously, we were a little concerned.

'The chairman, my father, said to Sheikh Maktoum and Sheikh Mohammed [the ruler and crown prince of Dubai, respectively], 'Where are you going to bring these people from to fill these hotels? Well, all the new hotels were finished, and they are all full.'

The Habtoor Group already owns one successful hotel in Beirut, the upscale Metropolitan Palace Hotel, and is spending $150 million on the Metropolitan City Hotel. The Metropolitan Theme Park, located on the outskirts of Beirut, is also under construction. Britain's Monkey Island Hotel, a conference center just outside London, completes the international hotel portfolio.

Al Habtoor Motors is one of the group's fastest growing subsidiaries. At present, the group enjoys exclusive distribution rights in Dubai for Bentley, Aston Martin, Mitsubishi and Mack trucks. As such, the group enjoys a monopoly on selling these brands, which helps to keep profit margins healthy.

But the World Trade Organization is increasing pressure on the UAE authorities to scrap these exclusive deals and allow competition - a move that would in theory drive down volumes and margins, for Al Habtoor Motors and rivals such as Al Futtaim Motors (Toyota) and Al Rostamani Motors (Nissan).

Is Mohammed worried about this possible development? He claims not to be. 'It will not really affect [the industry]. I don't think that tomorrow Toyota will come and give you a distribution license for Toyota. Al Futtaim is providing them with an excellent service and selling a lot of cars. They have a quota, and they are delivering that. So why should Toyota go for another person?'

He argues that even if Toyota, Nissan or Mitsubishi did offer a new license - a very big if - high barriers to entry would likely keep most competitors out of the race. 'It would not be easy for another business to invest in the showrooms and support services and marketing. That costs hundreds of millions of dirhams.'

In order to keep these barriers high, Al Habtoor Motors is currently investing $13 million in a new motor workshop at Dubai Investments Park. Clearly, managing all these projects takes time. Mohammed admits that he works around the clock and rarely takes a weekend.

'At the moment I am working almost every evening and on Fridays, because we have a lot of activity in Lebanon.' However, there is light at the end of the tunnel: most of the group's developments are due for completion within 12 months, which should ease the burden somewhat.

'Hopefully by May 2005, all projects will be finished,' says Mohammed. 'Then maybe I can take a holiday.'