Adopting a capabilities-driven strategy to avoid growth traps
Following a period of growth, globally and locally, Gulf Cooperation Council (GCC) companies must now focus on capabilities if they want to maintain their growth and improve their positioning. Failure to adopt this new focus will put them at risk of falling into growth traps.
In their eagerness to grow, many companies in emerging markets focus primarily on top-line growth or country-specific comparative advantages, and neglect to build the foundations for future success. Typically, they initially benefit from being first movers in their home markets, but eventually they have to play catch-up with more experienced multinationals in global industries.
Multinationals are formidable competitors: They possess established brand names, advanced technologies, and access to efficient financial and labor markets. More importantly, these multinationals have a set of entrenched capabilities that they have developed over time. In this regard, their emerging market competitors are often decades behind. GCC companies, particularly those that are linked to their government, also have to deal with region-specific issues (such as poor corporate governance practices) that could weaken their competitiveness.
To circumvent these growth traps, GCC companies need to develop powerful capabilities through internal development, mergers and acquisitions, or partnerships. Each of these methods has advantages, drawbacks, and potential trade-offs. Companies from the GCC that have succeeded in this endeavor have followed a deliberate and stepwise plan for moving from basic capabilities to more sophisticated ones that can support world-class innovation, technology, and design.
With more than two-thirds of the top companies in the GCC linked to the state, governments also have a role to play in helping them become globally competitive. Government leaders should take measures to upgrade corporate governance practices within these companies and help them fulfill their potential. In turn, these companies would reap economic benefits from improved performance.