A study of International Market Strategy of Emaar Properties

A Study of Emaar Properties

INTRODUCTION

The research paper is focused on the international market entry strategy of Emaar Properties, which is a leading real estate company whose headquarters are in Dubai, the UAE. It is a company that has had a significant impact on the global property market with its projects, especially, in Dubai. The research paper includes background information on Emaar and an evaluation of what it would take for the company to make a successful entry into the Brazilian market.

The international entry analysis will include an evaluation of various aspects of the Brazilian market, including PESTEL, to identify the suitability of the country as a market option for Emaar. In addition, there is also the SWOT analysis of Emaar to explore what it needs to do to make its international entry successful. Ultimately, the paper recommends an ideal approach that Emmer should use to successfully enter the Brazilian market.

COMPANY’S PROFILE

Emaar Properties is a leader in the real estate development industry, which has proven its competency through different projects that it has undertaken. The company was established in 1997 and has been listed on the Dubai Financial Market since then. Before the listing, it was fully owned by the Dubai government. The founder of the company is Mohamed Alabbar and he still holds the position of the company’s chairman. The company is among pioneer developer master communities, and, as a result, it has made significant transformations in the real estate sector in Dubai and the UAE at large. The company has also been extending its expertise to the international market by increasing its footprint in different countries. Some of the iconic developments in which the company has been involved include the only seven-star hotel in the world, Burj Khalifa, and the Dubai Mall. It has also developed communities, which include the Dubai Marina and the Arabian Ranches.

It is a company that has invested in risk-taking within the real estate sector and made successful investments. Currently, the company has operations in the UAE, Jordan, Syria, Turkey, India, Canada, Pakistan, the USA, Morocco, Egypt, Lebanon, and Saudi Arabia. Throughout different locations around the world where the company operates, it has more than 10,000 employees. The company recorded an upsurge in the property stakes in Dubai at about 25% to AED 18.03 billion for the financial year of 2017. The net operating profits for the financial year of 2017 amounted to AED 5.7 billion, which is a 16% increase from the previous year (Emaar, 2018).

Vision and Mission

The vision of Emaar Properties is to be the regional leader in the development of the real estate. Additionally, the mission of the company is to make the company a one-stop in the provision of global solutions to numerous segments of lifestyles, including the development and redesigning of communities of houses throughout the world. The focus is also on the building of unlimited projects, which will lead to the creation of luxury and hospitable communities.

Values

The company has values, which concern and focus on external and internal customers. It focuses on the improvement of employees’ skills and performance to develop the overall performance of the organization. In addition, it believes in the development of strong ties and trust through its commitment in the market to sustain relationships with various stakeholders. Its values also relate to the understanding of the needs of people to fulfill their requirements and enable them to live in modern villages.

Company’s History

As mentioned above, the company was established in 1997 and was incorporated in the same year. The company started as a 100% state-owned corporation and founding shareholders took up 24.3% of all shareholding upon the floating of the company’s shares through the public IPO in 2000. During the same year, the company was listed in the Dubai Financial Market (DFM) and it made history as the first property market to offer foreign nationals shares on the platform. One year after the IPO, the company decided to build the Dubai Marina. In 2003, the plans for the development of the Downtown Dubai project were revealed and they consisted of two landmark constructions, namely the Burj Khalifa and the Dubai Mall. The two buildings hold the world records for the world’s tallest building and the largest mall respectively. In order to expand to foreign markets, the company introduced Emaar International LLC in 2004 and it has projects in Asia, North America, Africa, and the Middle East. In 2008, the Dubai Mall was opened for operations and this was followed by the opening of the Burj Khalifa in 2010. Regardless of the collapse in the real estate market witnessed in 2009, the company reported an 80% occupancy level of the Burj Khalifa in 2012. The company continued investing in the real estate sector and by 2014 it held more than USD 11.4 billion in the sector.

SELECTED COUNTRY: BRAZIL

The country that has been selected for the analysis and prospective international entry by Emaar is Brazil. It is referred officially to as the Federative Republic of Brazil and it is the largest nation in Latin and South America with a population of 208 million people, which ranks it as the 6th most populated country in the world. Brazil is the 5th largest country in the world as its area is 8.5 million square kilometers. Its official language is Portuguese and it has rich culture and geography. The country operates as a democratic republic that has a presidential system with the president heading both the state and the government.

PESTEL Analysis of Brazil

• Political Analysis

The political environment in Brazil has remained stable and proactive. Even after the impeachment of the former president, Dilma Rouseff, the transition was stable, which indicated the maturity of the political system in Brazil. The federal state of Brazil is founded on three indissoluble entities, which include states, municipalities, and federal districts. The three entities are not ranked in terms of hierarchy. The country has a multiparty political system and different parties share the vote. As a result, when one of the parties assumes power, coalitions are formed to form an inclusive government. The first successful democratic election of the president took place in 1989 and it resulted in the removal of existing import barriers. One of the major issues that have affected and tarnished the image of Brazilian politics is corruption since the country is ranked as the 72nd most corrupt country in the world. It is a factor that could adversely affect a business as operations and interactions with the government could involve a requirement to make a payment to officials and representatives of the government.

• Economic Analysis

The potential for economic growth in Brazil is extremely high. Indicators have shown a substantial trend in the growth of the middle class, as well as displaying that the gap between the poor and the rich has been reducing steadily. As a result, the Brazilian central bank has been successful in the reduction of the devaluation risk, which has brought inflation under control. Regarding the dollar, the local currency is considered to be overvalued, which adversely affects exports out of Brazil. The labor costs in Brazil are considerably low and foreign and local businesses are treated equally. The country has a system that reduces the import duty tariff levels and it depends on successful importation years. The corporate tax rate in the country is set at 15% and there are usually no incentives for corporations to leave profits in the country. Foreign direct investment is high in Brazil, which makes it the largest recipient of FDI in Latin America. There are minimal restrictions in Brazil and they affect other sectors, including oil, healthcare, financial institutions, media, mail, nuclear energy, air, and insurance. The country’s GDP is the highest in Latin America and it is mainly supported by the mining, agricultural, service, and manufacturing sectors. The country’s large labor pool is also a booster of the economy and a prerequisite for its success. As a result of its increased participation in global financial and commodities markets, it has become a member of BRIC, which includes a variety of emerging economies. According to the World Bank and the IMF, the country has the 9th largest economy in the world through its purchasing power parity (PPP) and is the 10th largest in terms of market exchange rates. Overall, the country is an attractive hub for investors both short-term and long-term investments.

• Social Analysis

With more than 200 million people, the country is the 6th most populous nation in the world and it is the 5th largest based on its land size. In addition, it is Latin America’s biggest economy. Its median age is about 30.3 and the largest age group is between 25–54 years. The main spoken language is Portuguese, which could be a hindrance in doing business as most people are poor English speakers (CIA, 2018). The culture in Brazil is significantly different from most other places in the world, including the UAE, in terms of lifestyle, food, business, climate, and customs. In the country alone, there is widespread cultural diversity and attraction of numerous nationalities (Meyer, 2010). Although the country is a middle-income economy, the poverty levels of people have remained high. The World Bank’s indicators show that there has been a reduction in the poverty level with a big drop occurring between 2003 and 2009 when the poverty rate dropped by 10% from 21% (The World Bank, 2012). The World Bank (2012) also indicates that over the past decade there was a notable decrease in the wealth of the top 20% of wealthiest people, as well as an increase in the wealth of the 20% of poorest people. The reduction of poverty in the country has been boosted by the social welfare program called “Bolsa Familia”, which was introduced by former President Lula. The program aims to lift the poor from poverty through monthly stipends and cash transfers for families who live below the poverty line. To receive and continue receiving the assistance, parents are required to place their children in school, which improves education levels. The program has lifted more than 20 million people from poverty in 6 years between 2003 and 2012 (The World Bank, 2012). H.J. & N.S. (2013) also emphasize that the program has been remarkable in its improvement of the living standards of Brazilian people. In conclusion, the country’s social position promotes business and makes it an ideal market for international entry.

• Technological Factors

In the past decade, the nation has strived to improve technologically, but even though it is in the top 10 largest economies in the world, the nation has failed to invest in and maintain roads, ports, rail tracks, electricity, and general infrastructure. As a result of the underinvestment in the infrastructure, the country could face hardships in future developments as it may strain imports, and exports and make the nation unattractive to investors. Among 148 counties surveyed, the Brazilian infrastructure was ranked the 114th by the World Economic Forum (The Economist, 2013). When implementing projects, the country has a special system that is used to award projects to the private sector through an auction, and a concession is granted to the highest bidder or the applicant with the lowest charge. However, there has been reduced auctioning of infrastructural projects since the term of Lula as the president, which has resulted in reduced investment in the infrastructural sector (The Economist, 2013). The government has its focuses on transportation, airports, and ports. In addition, it has the investment program referred to as the PAC, which is an accelerated growth program that has been in existence since 2007. The focus of the PAC I was on the infrastructure and it was soon supplemented with the PAC II, which was introduced in 2010, and its focus was on the water, sanitation, housing, transport, and energy. The two programs were instrumental in the development of projects that were necessary for Brazil to successfully host the 2014 FIFA World Cup and the 2016 Olympics (Lock, 2016). Regarding the use of the internet in the country, Brazil has significant internet usage and it is ranked the 5th in the world (Mari, 2018). Although there are a few issues regarding the development of the infrastructure, Brazil remains a potential country for development and investment, especially in the development of the real estate.

• Environmental Factors

Brazil has a department of Environmental Affairs whose role is to ensure that there is the development of a prosperous and equitable society, which lives harmoniously with the environment. About one-sixth of the world’s marine species can be found in Brazil and it has the Indian Ocean on its eastern coast and the Atlantic Ocean on its western coast (PWC, 2013). Brazil alone has more species of animals than Asia and Europe combined. As a result and to ensure that there is the maintenance of environmental integrity and its protection, the country has numerous laws and regulations, which focus on water analysis, product analysis, and metal analysis. However, this has not prevented pollution from becoming a serious problem in the country and, as a result, its control has become a serious political and economic agenda (PWC, 2013). There are programs from the federal and state governments aimed at ensuring that there is control, prevention, and reduction of pollution, especially in industrialized areas. When setting up a plant or an operation in the country, an investor must consider how they will ensure that all waste that they dispose of is processed. Non-compliance with regulations governing environmental control could lead to the loss of tax benefits or restrictions on access to credit and in serious cases, it could result in the closure of an operation (PWC, 2013). As a part of the corporate concern, corporations need to consider sustainability issues in their strategies.

• Legal Factors

In Brazil, there is the Civil Code, which is the principal source of civil law, and it dates back to 2002. Overall, the Brazilian legal system is slow and cumbersome. Foreign investors should make use of international law since Brazil is a signatory of the Vienna Convention on International Contracts. It would also be advisable to call on the arbitration system and make use of a Brazilian lawyer (PWC, 2013). Furthermore, the official language in Brazil is Portuguese, which requires individuals to enter all contracts using this language. It is a factor that one needs to consider when making an entry into the country as an investor. The country has a policy relating to foreign capital and it indicates that there should be equal treatment for all. However, it is required that such capital be registered with the Brazilian Central Bank within 30 days (PWC, 2013). The same applies to any reinvested profits that are generated through foreign capital. However, there is no requirement for the Central Bank to approve foreign currency loans that are received, but they should be documented through a formal contract, which also stipulates the exchange rate. It is also possible to repatriate capital free of tax up to the amount that has been registered in foreign currency (PWC, 2013). The law also allows 100% foreign ownership of joint ventures and local enterprises. The government strives to retain close supervision of critical, strategic, and public importance projects. It is important to understand sectors that the government could have an interest in supervising as this could require additional approvals (PWC, 2013). In general, although the legal system in Brazil is cumbersome, it is also attractive to foreign investors as it has numerous protection capacities for them.

ENTRY MODE STRATEGY

This section defines the ideal mode of entry for Emaar into the Brazilian market. It also indicates reasons why it is the ideal strategy and what is required of Emaar to ensure successful entry and ultimate profitability.

Foreign Direct Investment

It is an investment approach where a company or entity in one country makes a direct investment into a business that is based in another country. The entity takes over controlling interests in the foreign business and, as a result, has control over operations and day-to-day running of the business (Froot, 2008). However, it helps the investor in taking advantage of the foreign company’s experience in the local industry. Emaar will make an entry into Brazil through foreign direct investment into one of the real estate companies that already exist in Brazil. As highlighted earlier, cultural differences existing in Brazil and its complex legal system would necessitate the use of local expertise (Froot, 2008). Consequently, the use of a local business would be an ideal approach to ensure a smooth entry into the country for Emaar. In addition, the Brazilian market and the government encourage foreign investment in different sectors, which is why it would be ideal as Emaar would bring with them the expertise that they have from their previous projects. The company’s credentials of having invested in the different landmark structures in Dubai make it ideal for direct investment in Brazil. As a common tourist attraction, Brazil would take advantage of the kind of structures that Emaar is known to develop and this could result in the increased attraction of tourists and lead to a business boom in the country.

EMAAR’S SWOT ANALYSIS

The SWOT analysis is useful for the identification of techniques of the business performance in its operating environment for a given product or service. It indicates strengths, weaknesses, opportunities, and threats that the company has or faces. The factors indicate the capability of the company in terms of internal and external influence levels the business to achieve the scope of its aims and objectives.

Strengths

• Diversity

The company has a well-diversified portfolio that is focused on its expansion and diversification strategy. The company has a wide variety of operations in its portfolio, which makes it ideal for operating in different markets. As a real estate firm, the company requires financing. It has invested as a shareholder in the Dubai Bank, which makes it strategically positioned in case it requires additional financing for its projects. In addition, it has created different operations under the properties arm of the firm to promote specialization. Consequently, different companies can focus their attention on their specific niches of operations and this promotes their strengths.

• Strong Global Presence

The company has operations in about 36 countries, which makes it an influential global player in its industry. Successful operations in these countries indicate that the company has identified issues that would be instrumental in its success as an investor in foreign nations. Even though each country has its unique challenges, there are some common issues that foreign companies face when investing abroad and Emaar has managed to learn and deal with them. It is a strength that will come in handy as it makes an entry into the Brazilian market and it would promote its success in the country.

• Joint Ventures and FDI

The company has entered numerous joint ventures and FDIs in the past as a way of expanding its operations and footprint across the world. Consequently, the management has experience in these forms of operations and it is an important factor to ensure that it can bring the expertise as it makes its entry into Brazil through the FDI approach. Additionally, these ventures have increased the company’s expertise and pool of talent, which it can deploy successfully in its operation in Brazil to ensure that there is consistency in its way of doing business.

• Location in Dubai

The company started its operations in Dubai and has managed to transform the emirate into a modern structural and real estate marvel. Through the experience and risk-taking that it has done in Dubai, Emaar can incorporate the same in its operations in Brazil to make a similar transformation and make use of its global name to attract investors to developments that it creates.

Weaknesses

• Vulnerability to Risks in Different Local Economies

Emaar’s operations in numerous countries could be seen as a strength, but it is also a weakness as it faces vulnerability concerning different risks unique to these economies. For instance, operating in foreign countries introduces a foreign exchange risk, which could have a significant effect on the operations of a company. Additionally, the company has minimal control over what could happen in different economies, which makes it prone to potential risks in different areas. The company also invests in one of the risky sectors of the economy, i.e. real estate, and if there is an economic crisis like the one experienced in 2009, the company could face significant losses.

• Financing of Projects

Emaar operates in a sector that requires immense financing. Even though it has been successful in the past, the increased investment would require additional financing, which it cannot get from its reserves. As a result, it is reliant on financial institutions for financing its projects and a limit on facilities that it can get could hamper its operational flexibility. Consequently, successful entry into the Brazilian market is not only influenced by the company’s financial strength alone but also its ability to attract and acquire financing.

Opportunities

• Foreign Investment

The company has opportunities to take advantage of its brand name and expertise to invest in foreign markets. There are opportunities throughout the world for the company to operate hotels and other real-estate operations. These opportunities also exist in different parts of the world, including both developed and developing economies. One of such opportunities is in Brazil where the company should introduce its operations.

• Exploiting its Portfolio

The hospitality and leisure subsidiary of the group is an important business that Emaar should exploit. As it gets into partnerships with other departments around the world, the business should focus on how it can take advantage of this to ensure that its real estate investments are successful globally. Furthermore, it could make some of its investments in collaboration with its sister company to promote the successful exploitation of opportunities.

Threats

• Economic Changes

One of the factors that a company cannot control is the state of the economy in the country. As a company that operates in different countries, the state of the economy of these nations is important to its success. As a result, there is an inherent risk concerning its existence depending on how the economy of these different countries performs. Negative changes could impact the overall performance of the company.

• Terror Threats

As a firm that invests in real estate, the company has some of the landmark buildings in the world. These buildings could be easy targets for terror attacks, which could negatively impact the company. After the terror attacks on the World Trading Center in the USA, such buildings are considered to be easy targets for terrorists and it is an item of focus for the company.

• Government Regulations

The industry that the business is operating in is prone to numerous government interventions. The fact that it operates in different parts of the world means that it has to deal with different levels of regulations, which are unique to these different nations.

• Competition

Another threat in the real estate industry is competition, which the company has to deal with in different operations. It has both localized and global competitors and even though the ease of entry in the industry is low, existing competitors are powerful enough to create pressure on the company.

RESOURCES REQUIRED

Investing in the Brazilian market through foreign direct investment requires extensive resources from the company. The Dubai government is one of the shareholders in Emaar, which gives it immense government support that is needed for such a project. In addition, the focus on the Brazilian market would be to acquire an existing business and this would give the company the benefit of receiving the support of local people. In addition, the fact that the existing company has established relations with the Brazilian authorities means that it would be easier for Emaar to interact with the authorities and make a successful entry into the country. The company would also be required to send a management team to Brazil to ensure that the operations are conducted in line with its values and the “Emaar way” of doing business. Consistency is a critical tool in ensuring successful operations of the company functioning in a different part of the world. Therefore, it needs to avail a team of experienced individuals who would improve the knowledge of the existing team. The local skilled and unskilled labor would also be useful to the company as human resources are critical for its operations.

The company will also require raw materials and these need to be sourced in line with government regulations. It would be expected that since the company is taking over an existing business, there are existing relationships with suppliers, which it can take advantage of and exploit to easily receive raw materials. Emaar needs to invest heavily in research of the Brazilian real estate industry and collect ample information to be successful. Financing is also needed for the company to complete the investment in the Brazilian company. Financing can come from its retained earnings or it can exploit financing opportunities from the UAE and Brazilian banks. There are existing infrastructural facilities in the local company.

INVESTMENT COST

To invest through the foreign direct investment approach in Brazil, Emaar requires a budget of approximately USD 10 billion to purchase an existing business. The company would also be expected to invest in other areas that would improve the current condition of the acquired company and take it to the level that befits the standards of Emaar. A budget of about USD 200,000 should be set aside for these upgrades. Retaining existing employees and hiring new talents would also be a cost for the company and it should allocate about USD 500,000 for the item. It would need about USD 4 billion for its operations, which would add up to the total cost of investment that it would require to make entry into the Brazilian market.

CONCLUSION

In conclusion, Emaar Properties is one of the leading operations in the UAE and the world at large. It has been successful in its operations in Dubai, having built monumental structures, including the Burj Khalifa and the Dubai Mall. The company aims to improve the living conditions of people throughout the world through investments in real estate developments. To continue its coverage throughout the world, the company needs to invest in a new market and there is an opportunity for such investment in Brazil. As the largest country in Latin and South America, Brazil offers a critical opportunity for the company to bring its expertise and take advantage of its brand name in the country’s real estate sector. In addition, the Brazilian environment is conducive to foreign investment. Using its experience from other investments around the world, Emaar should implement the foreign direct investment mode to make a successful entry into Brazil.