Dubai Investments PJSC (DI) is a Dubai-based public company incorporated in 1995 to provide investment services in mega construction projects in the United Arab Emirates and the Gulf region (Dubai Investments). Government ownership in the company stands at 11.5%. DI’s primarily operates in property development, contracts, securities, and production (Dubai Investments). Its diversified portfolio falls into three main segments – production and contracting, investments, and real estate – that are offered through its 47 subsidiaries (Bloomberg).
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The first segment covers the commercial production of materials required in infrastructural projects and healthcare products and involvement in building contracts through joint ventures. DI also produces and sells fast-moving consumer goods (dairy products). The second segment encompasses investment services in new ventures, bonds, and securities. The third segment – real estate – involves the development of property for rentals or commercial use.
DI’s success is tied to its diversification strategy that is characterized by sub-holding companies operating across a wide array of sectors. It has achieved strong growth through product differentiation (wide business portfolio), diversification into growth-oriented sectors, strategic divestitures, and mergers and acquisitions. This report analyzes DI’s strategic planning approach using the EFAS and IFAS matrices, examines the firm’s strategic growth factors in the short-term and long-term, and discusses the strategic alternatives available to the company.
Current Performance and Mission
DI is a listed company with about 19,900 shareholders and a contributed capital of AED 4.2bn (Bloomberg). The company is fully paid up, an indicator of good financial health. Based on its 2016 annual report, DI achieved a 2% growth in net profits from the 2015 performance (AED 516m vs. AED 506m) due to increased shareholder investment (Dubai Investments). Its total revenue grew by 18% over the same period – from AED 1.16bn in 2015 to AED 1.37bn in 2016. The growth encompasses income gains from rentals, contracts, and strategic divestitures of AED 424m, 236m, and 186m, respectively (Dubai Investments).
In 2017, the quarterly earnings per share declined marginally from AED 0.07 in March to AED 0.04 in June. In contrast, the quarterly revenue rose from AED 520.6m to AED 537.8m over the same period (Dubai Investments). Currently, DI is in good financial health as indicated by various financial ratios. The company’s solvency score, an asset to equity ratio, and long-term debt/equity ratio stood at 315.2, 1.4, and 0.1, respectively. These ratios show that the company has the capacity to finance its debt obligations.
Indicators of profitability also show that DI has a moderate capacity to convert assets and investments into revenue. Its return on assets (ROA) stands at 7.4, while its return on equity (ROE) is 10.7 (Bloomberg). Overall, DI has a positive valuation. Its price-to-cash-flow ratio is 26.8, while its price-to-earnings (P/E) ratio is 8.9, indicating that investors are willing to invest up to AED 9 per AED 1 of DI’s earnings. DI’s mission is to achieve value addition and provide a wide array of investment services through “sound corporate citizenship, financial engineering, financial resources, and network relationships” (Dubai Investments). This mission statement is consistent with the DI’s diversified business model.
The external factor analysis summary (EFAS) involves the quantification of macro-environmental factors determined as strategic to the firm. From the EFAS table, one of the strategic factors evaluated under opportunities is DI’s expansion to China and India through its glass subsidiary. DI is a ‘prospector’ firm, i.e., companies with a diversified portfolio that emphasize on “product innovation and market opportunities” (Wheelen and Hunger 46).
This strategy is expected to boost DI’s operating margins given the high demand for construction materials in these economies. The weighted score for this strategic factor is 1.5. Another strategic factor relevant to DI with a weighted score of 0.4 is liquidity improvement due to the increased capital investment following the public listing of its subsidiaries, such as the Emirates Glass LLC.
The ongoing/future mega construction projects in the GCC region constitute another strategic external factor relevant to DI with a weighted score of 1.0. The infrastructural projects estimated to be worth USD 1.5trillion are expected to increase the demand for construction materials (Morningstar). Thus, the manufacturing and contracting segment and property-related investments of DI are likely to grow. GDP recovery in the GCC region due to economic diversification provides a positive outlook for the construction sector. This strategic factor will provide growth opportunities in various industries. Its weighted score is 0.15.
The strategic factors quantified under threats include the cancelation of projects, political instability, and oil-related economic turbulence. The cancelation of real estate development contracts after award will affect DI’s revenue flows, especially from the real estate segment. In addition, instability in the GCC region due to political/religious insurgency is likely to stall infrastructural projects. Spikes in the global oil prices will also cause shocks to the GCC economy, affecting government investments in infrastructure.
An analysis of the internal environment shows that DI has multiple strengths. From the IFAS Matrix table, one of the key strengths of DI is adequate government support (weighted score = 0.8). The Dubai government owns 11.5% of DI (Morningstar). Thus, DI enjoys government support in terms of grants/loans and free land for real estate projects – a major growth driver besides oil. The second strength relates to DI’s short-term liquidity levels (weighted score = 0.8). The company has maintained an adequate level of liquidity as seen in its high current ratio of 1.54 (Morningstar). Further, DI’s cash investments account for over 17.2% of its assets, a strong indicator of its adequate short-term liquidity.
A third strength lies in DI’s brand reputation (weighted score = 0.3). The company has an established brand in the property and glass industry through its Emirates Glass LLC (Morningstar). It is the leading manufacturer of float glass in the gulf region. It has also diversified into other sectors, including the fast-moving consumer goods and healthcare. Its fourth strength lies in its strong financial history/position. It has favorable ROA and ROE of 7.4 and 10.7, respectively, and revenue growth of AED 1.37bn in 2016 (Bloomberg). Thus, the company has sufficient capital to finance its growth objectives.
DI has a few internal weaknesses affecting its competitiveness. First, the firm has experienced a slowdown in profitability growth, resulting in lower earnings per share (AED 0.07 to AED 0.04 between March and June). The decline in revenues is likely to affect investment flows and growth. The second weakness relates to its reliance on real estate assets. Over 50% of DI’s assets are in the property market. Therefore, shocks in the real estate market are likely to affect its strong asset base.
Key Strategic Factors
The strategic factor analysis summary (SFAS) matrix is derived from the EFAS and IFAS matrices (Cheng and Humphreys 32). It highlights the internal and external factors considered important or high-priority factors in strategic decision-making as indicated by the respective weight score. Usually, the IFAS and EFAS factors with the largest weight scores are included in the SFAS matrix (Cheng and Humphreys 32). The SFAS matrix for DI is shown in.
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The key strategic factors derived from the IFAS and EFAS matrices fall into two categories: short-term and long-term factors. The short-term strategic factors that DI should focus on include the improvement of the liquidity of subsidiary firms and the overreliance on real estate assets. DI can achieve adequate levels of liquidity through the public listing of its subsidiaries to improve its cash flows from the traded stocks. Overreliance on real estate assets can be reduced through investments in equipment and plants or acquisitions, as opposed to partnerships with factories or other entities.
One of the long-term strategic factors includes expansion to economies with a high demand for construction materials, e.g., China and India. DI can realize this objective through strategic alliances – acquisition of smaller local firms – and the development of a multicultural management team to spearhead the expansion efforts. Another long-term strategic factor is mega infrastructural projects in the GCC region. DI can enter into private-public partnerships with regional governments to win contracts for infrastructural projects. The region is attractive to investments in infrastructure and tourism/hospitality facilities, e.g., hotels. It can avoid the cancelation of contracts by providing quality.
The long-term threat of economic shocks due to spikes in oil prices can be mitigated through the adoption of a diversified business model. Another important long-term strategic factor is government support. Continued government support through loans and free land is critical to the long-term success of DI. Further, DI’s long-term financial health is crucial to its success. It should improve the visibility of the subsidiaries’ profitability in its financial performance.
A business strategy is an important tool for strengthening a firm’s competitive position in its industry or market segment. Companies can pursue any of the five strategic alternatives, namely, low-cost strategy, differentiation focus, low-cost leadership, broad differentiation, and best-cost provider (Thompson et al. 56). In developing strategic alternatives for DI, its mission and goals must be considered. DI’s mission is to diversify its product lines through business networks. Its approach of forming networks with sub-holding firms operating in diverse sectors epitomizes a broad differentiation strategy.
To develop alternate strategies for DI, the TOWS matrix will be used. The TOWS approach allows for an examination of different growth opportunities for the firm and ways of overcoming weaknesses and avoiding threats (Wheelen and Hunger 58). From the TOWS matrix, it is possible to generate SO strategies, i.e., strategic options that utilize strengths to capitalize on growth opportunities (Wheelen and Hunger 58). The strategic options available to DI include using government support to expand into untapped markets through bilateral agreements in the GCC region and public listing of subsidiaries to improve its liquidity levels. Additionally, DI can leverage its strong brand reputation in the property market and broad financial base to undertake major construction/building projects in the GCC economies. The brand image and financial muscle demonstrate that the firm has a sufficient capacity to complete major projects – a key competitive advantage.
The WO strategic options are those that enable a firm to capitalize on opportunities and deal with internal weaknesses (Wheelen and Hunger 61). DI could acquire new capabilities through strategic alliances with established regional or sector-specific players to compete in the GCC region and boost its profits. Another strategic option is vertical integration. Through vertical integration of its subsidiaries, DI will improve its competitive position in the fast-growing GCC region and diversify its asset base.
The other strategic alternatives available to DI are the ST strategies (capitalizing on strengths to mitigate threats). DI can leverage on its strong brand to deliver quality and avoid the threat or risk of project cancelation. The acquisition of new capabilities and the development of a multicultural workforce could also help avoid public project risks. Another strategic option is rooting for government policies that promote economic stability and regional economic integration to support DI’s expansion goals. DI can also use WT strategies to avoid external threats and overcome its weaknesses (Cheng and Humphreys 37). The identified WT strategic options include a focus on quality, which could reduce the risk of project cancelation and improve DI’s revenue/profit. A broad differentiation strategy could also cushion the firm from the effects of economic downturns while ensuring a diversified portfolio of assets.
DI operates in diverse sectors through its sub-holding companies. Its success can be attributed to the diversification strategy that enables it to operate in real estate, FMCG, and pharmaceuticals, among other sectors. In this report, based on the SFAS matrix that is derived from the IFAS and EFAS matrices, multiple short-term and long-term strategic factors were identified. The strategic alternatives available to DI based on the TOWS matrix are also discussed.
Bloomberg. “Dubai Investments PJSC (DIC: DFM).” Bloomberg. Web.
Cheng, Mandy, and Kerry A. Humphreys. “The Differential Improvement Effects of the Strategy Map and Scorecard Perspectives on Managers’ Strategic Judgments.” The Accounting Review, vol. 87, no. 3, 2012, pp. 899-924.
Dubai Investments. “Dubai Investments Reports AED 516 Million Net Profit in the First half of 2016.” Dubai Investments. Web.
Morningstar. “Dubai Investments PJSC DIC.” Morningstar. Web.
Thompson, Arthur, et al. Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases. McGraw-Hill Education, 2015.
Wheelen, Thomas, and David Hunger. Strategic Management and Business Policy: Toward Global Sustainability. Pearson Education, 2012.