Fueled by their financial strength and increasing competition in their home markets, many Middle Eastern companies have launched unprecedented cross-border expansions since 2004. The disclosed value of Middle Eastern companies’ cross-border merger and acquisition (M&A) deals between 2004 and the third quarter of 2009 exceeded $127 billion, accounting for 63 percent of total regional M&As. These companies now operate in multiple markets and industries globally, with revenues from international subsidiaries becoming a key contributor to their growth.
Going global, however, comes with a new and challenging set of organizational demands, which most Middle Eastern companies are facing for the first time. The companies that successfully address these challenges will be best positioned to earn a place among the world’s largest and most successful businesses. Now is the time for the senior executives in the region to create a sound foundation for successful global growth by reviewing their operating models and ensuring that their companies are properly positioned to capture the maximum value from their international investments.
Governance models must create alignment across the business globally. Frequently, the international subsidiaries of Middle Eastern companies are structured as separate legal entities, each with its own board, working independently and lacking adequate coordination with headquarters. This creates a portfolio of investments, rather than a truly globally integrated organization, and erects barriers to achieving the international scale required to create value, capture synergies, share knowledge and disseminate best practices.
To globalize successfully, companies should begin addressing governance challenges at the onset of international expansion. Leaders of international subsidiaries should actively participate in strategic decision making at the corporate level; the decision making process should be standardized across subsidiaries. Companies should examine and, as necessary, redefine decision rights in order to create the proper balance between control at corporate headquarters (to ensure corporate imperatives are met) and sufficient autonomy at the international subsidiary level (to accommodate local market requirements). One regional telecom operator has taken steps to overcome these challenges, appointing independent outside directors to sit on the boards of its international subsidiaries. It also created a specialized team at headquarters to review its subsidiaries’ board agendas, ensuring a common perspective and unified decisions by directors representing the group.
Organizational models should enable global business
There is no single organizational model that is best for Middle Eastern companies seeking global growth, as models based on geography, product lines or functional areas have all proven effective. As companies go global, however, inefficiencies that currently exist in their organizational structures will be magnified. These may include misaligned spans of authority, excess layers of management and paternalistic management models. To overcome these obstacles, companies should restructure their organizational models to integrate, support and manage global operations. Although some initial redundancies and inefficiencies are unavoidable in aggressive international growth initiatives, centralized core functions that are capable of supporting and enhancing all of the subsidiaries should be developed as quickly as possible.
Companies that seek global expansion should also clarify the role of the corporate center, balancing the efficiency of central standardization and control with the effectiveness of local autonomy. For example, a large Middle Eastern telecom operator sought this balance by restructuring itself as a group organization, and appointed two chief
executive officers, one focusing on domestic business and the other on international subsidiaries. This enabled due focus on the respective operations and facilitated the realization of synergies across geographies by creating a corporate center and shared services entities at the group level.
Ad-hoc management processes must be standardized
As companies go global, they should improve operational efficiencies and provide access to the information required for effective decision making. To do this, they need to standardize, extend, integrate and institutionalize strategic management processes in a careful and measured way. As companies acquire international businesses, they also acquire the legacy systems and processes of the acquired company. As a result, the systems and processes that support effective decision making become fragmented and the information needed to monitor and manage performance across the organization is unavailable. To resolve these problems, companies should seek to balance global standardization (and its potential competitive advantages) with local customization (and the ability to leverage local differentiating capabilities).
As they integrate their processes and IT platforms with those of the acquired operations, companies should also standardize systems and processes in a coherent, continuous way that allows some degree of local flexibility, while avoiding overreliance on ad-hoc initiatives.
One Middle Eastern chemicals company has improved its processes by viewing its globalization journey as a two-way street that includes learning from its newly acquired businesses. To that end, the company has brought together employees from all of its global operations to design new work processes, such as planning, budgeting and performance management. The company’s aim is to ensure its processes enhance organizational integration, operational efficiencies, consistent operational and financial reporting and streamlined decision making.
Companies should develop an inclusive culture and shared values
Like any company that seeks to expand globally, Middle Eastern companies will have to adapt their values and culture to each country in which they operate and incorporate the best local values and cultural elements into their own ethos. At the same time, they must preserve the core values of their companies and institutionalize high performance standards.
To achieve these objectives and establish a corporate culture that can successfully cross borders, companies should identify their own differentiating, non-negotiable values and traits, as well as the national and corporate values, attitudes and behaviors present in their international subsidiaries. They should recognize the diversity that exists within their global footprint, determine how to leverage it, and build relationships with the key stakeholders in each geographic area.
A Middle Eastern logistics company, which gave itself a new name and brand after making multiple international acquisitions, exemplifies one approach to establishing a global culture. In addition to creating a more dynamic and unified brand in the marketplace, the new name was designed to provide employees in more than 100 different countries, who work in vastly different markets with varying business challenges, with a common name and set of values. The new brand created a company-wide platform for emotional attachment, without an undue focus on the company’s home market or the many differences that exist across the geographies in which it does business.
Talent management must include proactive people strategies
As Middle Eastern companies go global, their talent needs become more complex. They face an increased demand for skills — often in geographies where qualified employees are in short supply, as is the case in many emerging markets. They also tend to be confronted with a shortage of senior executives with sufficient global experience.
To build successful global organizations, companies will have to identify, measure and capture the maximum value from their talent base. They should segment employees according to their impact on the performance of the organization and develop tailored value propositions for each segment that balance business requirements with specific segment needs. With this strategic foundation for talent in place, companies can begin to create a talent pool to fill international positions.
They should determine a standard profile for international hiring, and coordinate their recruitment efforts across geographies to ensure consistency. They should also invest in hiring executives who are capable of filling international positions in advance of a specific need and allow them time to establish themselves within the company.
To build its people strategy, one leading Middle Eastern retailer has developed a team of individuals who have optimal backgrounds for international assignments. This team is deployed to launch all new operations, recruiting and training local managers to take over once the new location is established. This approach reduces the challenges of sharp learning curves for new teams, quickly builds talent in local markets, and develops these individuals for leadership roles in future international ventures.
Many Middle Eastern companies are seeking international expansion and growth. Some of them hope to claim a spot among the world’s leading global corporations. The companies that have the best chance of achieving this will be the ones that are able to successfully transform their structures, systems and processes, enabling their people to effectively and efficiently execute and compete anywhere in the world.
Mohamad Mourad is a principal, and Rafiu Abina and Amr Goussous are senior associates at Booz & Company
