Executive summary
TECOM is a real estate sector company in United Arab Emirates, with major interests in land leases and build-and-manage operations. It is facing a favorable external environment for growth, with opportunities being presented by the increasing status of Dubai and the UAE as a major business hub globally. The country is attracting a high number of expatriates, who provide the necessary labor for its various sectors, real estate being among them. The biggest constraint facing TECOM’s growth is increased rivalry and the power of substitute products, especially in tendered projects. However, with sufficient strengths and proper management of stakeholder interests, the company should continue achieving success.
Introduction
Strategic management relates to balancing of inputs and outputs to shape and react to business environments for fulfilling the goal of a firm. In this report, the strategic management of TECOM is under review. The report offers a background of the company, its external environment analysis, and the internal environment analysis using appropriate tools. It also evaluates factors that are specific to the company’s success and the way it deals with any difficulties that arise. After developing a contextual understanding of TECOM’s strategic position, the report evaluates the strategy and offers recommendations.
Case/Company background
TECOM Investments Limited operates in the UAE’s real estate sector as a developer. The company’s main source of business is the operation of office spaces and construction of real estate projects. To date, it has managed to set up business parks in 11 free zones and embraced the build-to-lease business model for 14 million square feet of office and commercial space. Other notable features of the company are its large land sizes that it holds to lease or make joint developments. All the land is in prime locations and the company provides services across the real estate spectrum from designing to building and managing properties (TECOM 2014).
TECOM Investments operates Dubai City as a non-free zone business park that caters for the needs of the manufacturing and logistic community. Its other portfolio includes the Dubai Design District (d3) and TECOM’s commercial land sales. As diversifications, the company has subsidiaries like Dubai Global Village and Done Events that are under the management of TECOM’s Arab Media Group. Dubai Internet City, a subsidiary of TECOM, announced the development of an innovation hub that will provide space for 15,000 workers in the creative industries. This has been part of the AED 4.5 million that TECOM investment is channeling into innovation focused initiatives. The company hopes to increase number of workers who use its business facilities from 70,000 to 100,000 (TECOM 2014).
PESTEL analysis
Political
The United Arab Emirates has a stable governance system, its political ruling class is comfortable and the peace enjoyed for several decades should persist in the future. TECOM’s owner is a member of the elite group and the company is actually considered a government affiliate (semi-government) because of the political and country leadership status of HH Sheikh Maktoom bin Mohamed.
Economic
Taxation in Dubai is low and non-existent in most economic zones. As a local company, and one that relies much on both local and foreign partnerships to develop and sell properties, TECOM stands to gain a lot from the tax exemption. The country is also developing rapidly and attracting a huge pool of expatriate workers who have the right income levels to boost the development of the UAE’s real estate sector (Halaf 2011).
The leasing business will increase as the economy grows and many businesses turn to specialization and outsourcing of operations. Free zones’ tax advantages attract many foreign companies, which end up boosting demand for TECOM lease and sale of properties (TECOM 2014).
An increase in employment and labor supply will increase the demand for housing and offices. Dubai is growing as a tourism and academic city and attracting long stay visitors who need housing and other forms of accommodation and education or leisure facilities. Unfortunately, the economy is dependent on foreigners and global economic turmoil that limit the movement of people and capital, which can affect the UAE’s real estate sector adversely.
Social
There are two kinds of society in the country. Many of the natives are conservative Muslims and prefer to engage in Islamic business practice. Dealing with the government and state agencies requires businesses to appreciate and respect Islamic social principles (Halaf 2011). At the same time, a high population of expatriate workers ensures that there is a robust secular society in the country (Hofstede 2001). Therefore, both western and traditional Muslim social ideas exist side by side and influence businesses selectively (Jabnoun & Sedrani 2005).
Technological
The UAE is mostly English and Arabic speaking, thus many companies find it easy to use technologies from the West without requiring much customization to the country’s needs. At the same time, many multinational technology companies are setting shop in the UAE, which increases rivalry in the technological sector. As an end user of most technologies, such as the Enterprise Resource Planning, TECOM stands to gain most in easy access and affordability of technologies in the future, as additional global companies, set up in the country.
Environmental
As a desert country, the UAE has limited arable land and most of what is available is already under a conservancy or developed. Dependence on fossil fuel in the construction and cooling of buildings leads to environmentally harmful emissions that affect the construction industry negatively. Companies like TECOM have to adhere to both local and global environmental standards and obligations. New settlements in the country’s real estate sector also bring challenges of vehicle and household emissions and pose challenges in their management.
Legal
Expatriates are living in the UAE temporarily and have lease rights to own property. They fuel the demand for lease housing and offices. However, if the law changes to allow freehold ownership of land, then there will be increased demand in the sector. TECOM would increase its investment and wait for shorter times to recoup its investments. The ease of establishing businesses, including foreign subsidiaries, in the UAE is attracting global players in the sector.
Five forces analysis
Supplier power
More companies will provide supply services and goods as the real estate sector grows in the UAE. Therefore, the power of suppliers will reduce. However, presently, suppliers have considerable power because they are only a few in numbers, especially for large-scale projects. The supplies also rely on international supply chains; therefore, they have the power to delay the completion of projects. Other than goods suppliers, employees as suppliers of labor have limited power because they are easy to replace and do not require specialized training for low-level jobs supply (Kumar 2011).
Buyer power
Governments and private businesses can opt not to buy or lease property from TECOM, but that is unlikely after the two parties enter into binding agreements. The reliance on mortgage facilities to purchase or lease properties, as well as other forms of funding also limits buyers to portfolios supported by their funding partners.
Substitute threat
Substitutes come in the form of alternative lease and buy properties or building projects. They could exist in the finished product market or at the conception stage, where many firms bid for supply contracts or building contracts. At the bidding stage, substitute proposals from rival companies have the power to prevent TECOM from getting business opportunity.
Rivalry
Industry rivalry is increasing, but it has to reach its peak to become noticeable. All firms can still gain substantial market share and operate profitably, as long as they have threshold competitive advantages. New frontiers in development are emerging in smaller cities, while the bigger ones are still expanding in scope and size.
Entry threat
New entrants have very few challenges of setting up, as long as they can meet the capital requirement of mega projects. TECOM faces minimal threat from new entrants because of its affiliation with the government. The company has a steady source of business that new entrants may not readily possess. Entrants will have to build business and political connections to achieve threatening market share positions.
Internal analysis
Based on the resource based view (RBV) theory of firm competitiveness, a company needs distinctive capabilities to thrive in its respective industry. For TECOM, distinctive capabilities include its relationship with customers. TECOM fosters loyalty among customers and safeguards its market share against the onslaught of its competitors. Among the resources that the company owns are the personnel, its land holdings in prime locations that are ready for development, its expertise in lease management in the Middle East that it has developed over a span of 14 years, and its access to other joint companies within the Dubai Holdings group (TECOM 2014).
Some capabilities are not very strong, such as the training of staffs and improvements in knowledge management within the organization. It is easy for employees to change companies and move with their expertise; thus, human resources are just threshold capabilities for TECOM. Its distinctive capability is in its substantial land holding, which rivals cannot access.
In looking at the company’s value chain, the main activities include buying and leasing of land, management of the built up land, and the development of plans and subsequent construction of facilities, premises, or homes.
SWOT analysis
Internal factors
As TECOM continues to enhance its human resources, it invests in the development of talent, which allows the company to have a competitive edge. Relying only on areas that have the right indications for growth and sustained demand for real estate products, such as leasing, makes TECOM ensure that it remains in the growth stages as a firm, which translates to better revenue to cost margins. A presence throughout the country allows the firm to undertake a project anywhere to fulfill any emerging client needs.
Unfortunately, the firm has a high turnover, because other firms in the growing industry quickly absorb TECOM employees. The main employees who are natives of the UAE are getting old, while the local population is not increasing fast enough to catch up with the emerging demand for labor. Consequently, the firm has to rely on foreign expats in its building and management jobs, yet the expats have different employment terms than the locals (Sparrow 2012). Industry demands and growing business can also overshadow internal training capacity (Buschman 2013).
External analysis
The external environment is lucrative. The industry is growing, which translates to better business prospects. As the government and private organizations spend, they also help to grow the portfolio of TECOM. The company gains mostly through its parent company and existing horizontal and vertical value chain partnerships (Halaf 2011). Flexible training delivery methods brought by consultancy firms are helping to fill the internal training shortfall. The increase in public-private partnerships also provides more funding and demand opportunities for TECOM.
On the negative side, threats against TECOM’s progress include environmental concerns that persist as the world focuses on climate change and the recycling technologies take time to proliferate in the UAE market. Growth of the industry is increasing rivalry and forcing companies to keep innovating or die. The cost of innovation may not be recoupable in the medium term. In addition, a global recession will affect global demand and cause the company revenues to reduce (Lowson 2002).
TOWS matrix
There are various options that TECOM needs to pursue to become an industry leader. They are obtainable from the tows matrix above. The matrix allows the firm to position it strategically so that it can be aggressive or take a defensive stance (Lync 2010).
The company will be developing external capabilities when it collaborates with other businesses to grow under the S/O strategy. The S/T strategy of diversification to other locations is a form of stretching capabilities so that the revenue base increases or replaces dwindling ones. In the W/T strategy, the company will be managing capabilities of people and monitoring output by concentrating on the management of existing capabilities, rather than development.
Stakeholder analysis
Understanding stakeholders can help TECOM’s management make good judgments on how to lock in customers, reduce demands by owner, and retain high quality employees.
The firm obtains its legitimacy by adhering to government demands and fulfilling customer needs. It has to treat employees well and embrace business practices that do not violate normative expectations of all stakeholders. Stakeholders are mainly influenced by the culture of their subgroup (Bishara 2011). Customers will also have a social behavior that may be similar or unique among countries. Understanding these differences should allow TECOM to come up with a sustainable strategy for maintaining its market leadership position (Angelis, Conti & Cooper 2011). Thus, a key feature of its strategic alignment will be a recalibration to ensure that the business keeps matching the business environment changes to avoid collapse (Buschman 2013).
Stakeholder mapping
Customers are the most critical to the growth of the company, but their influence on internal running strategies remains low. On the other hand, owners have a stake in the company and can influence its direction. They also hold a high interest in performance and can be directly involved in the running of the company. They also help to bring in new businesses. The government and employees will show a high interest because they depend on the company’s success. The government relies on industry growth to maintain its legitimacy, while the employees rely on salaries from the company.
Strategic issues
The UAE real estate industry is nearing maturity and the rate of development might slow down. The influence of the owner’s connection with government has meant that TECOM enjoys good relations with the government. The company is using a logical instrumentalism policy, where it comes up with new project designs or business features in small scale and later expands after winning considerable business.
Recommendation
The cost of implementing the various strategies will differ in terms of actual time and funds spent, as well as the opportunity costs for the business. The prospects of the industry are positive, thus it is better to concentrate on the right side of the TOWS matrix quadrant. Thus, TECOM should purse S/O strategies or S/W strategies in the medium to long-term.
A second strategic move that is critical to TECOM’s success is the development of financing arrangements with funding partners so that customers have an additional reason to pick the company over its rivals. The increasing competition calls for the protection of competitive advantages, where customer lock-ins are some of the most effective ways of doing so.
Lastly, the company needs to look into growing partnerships with the emerging educational institutions in the country to ensure that it receives adequate human resource renewal. Partnerships will increase access to affordable labor, which is essential for the business.
Reference List
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