Regionalization of Gulf companies gathers pace

It is curious to see a pan-GCC internal market emerging. Partly this is a deliberate Government act. The creation of a unified external GCC tariff has created a level playing field.

Also too, the necessary allowance of foreign ownership and investment to meet WTO rules has presently benefited local firms more than their foreign competitors.

For example, consider the Saudi Telecommunications Company's loss of its monopoly over mobile phone services. This has allowed Etisalat from the UAE to set up a network in its neighbour.

Or look at how Kuwaiti and Saudi investors have rushed to buy real estate in Dubai over the past two years, taking advantage of a new local approach to freehold ownership.

A smaller example would be the establishment of a branch of the Emirates Bank Group in Riyadh this August, with a Saudi network due to be rolled out shortly.

This is a happy coincidence of economic liberalization with a boom in funds available for investment. The recent surge in oil prices provides the liquidity required to develop businesses across the GCC and not just within national borders as in the past.

One earlier pioneer was the Majid Al Futtaim Group which has exported its shopping mall concept across the Middle East after its very considerable success in Dubai. We can expect to see much more of this phenomenon of regional brand creation over the next few years.

Multinationals will have to take note. In the past they came to the region with the benefit of a unified brand image and could immediately tackle many markets from one hub. Now increasingly regional companies will be doing the same thing, and usually with a far better understanding of local markets.

Thus global financial companies, for instance, that see the booming Middle East as their next obvious region for expansion had better get a move on, or they will find the going much tougher than expected. Already in the UAE the foreign banks are complaining about strong competition from the national retail banks, particularly the popular new Islamic banks.

It may also be the case that the regional insurance market proves a harder nut to crack than the international giants currently think. Their interpretation of the introduction of WTO rules is that it will benefit them, but what if it stimulates a regional consolidation of local insurers? Then they will not have it so easy.

In short, regionalization of business in the Middle East is not something to be dismissed. It is a powerful factor shaping business planning, and offers many advantages and opportunities for those local companies that get it right.