As the Eurozone crisis continues to pose global challenges to business leaders, IMD experts share with us key lessons in crisis and change management, that can be adapted to the MENA region.
With the Middle East going through a period of rapid political, social and economic change, business leaders are constantly being faced with new realities. The ability to adapt to change will be crucial to any company’s business strategy. This was the key message being addressed by experts from IMD business school, which recently held its annual Business Forum in Dubai.
The business forum attracted over 200 business leaders from a wide range of sectors across the GCC, Turkey, Egypt, India, Pakistan and Malaysia. During the event, Dr. Nuno Fernandes, Professor of Finance ad IMD, presented on the topic Globalisation and Crisis and shared his research on the findings which shed light on business trends and the best leadership strategies that can adapt to change in uncertain times. Hischam Al Agamy , Executive Director, IMD, highlighted a number of challenges facing the region’s senior executives, one being demographic pressure, with UN figures indicating that more than half of the region’s population is below the age of 25. El Agamy stressed the importance of “incorporating technology and innovation into business models in order to keep a competitive edge.”
Fernandes says the biggest issues facing business leaders today are the volatilities in the economic environment, and how to best prepare their companies for this “new normal” world, in which volatility is here to stay. Despite such challenges he is optimistic on investment opportunities in the near-term. “Great opportunities to do good deals and investments do exist today. Cash in global corporate accounts is at a record high, but firms need more flexible financial and business models,” he says.
Lessons from the Eurozone
The Switzerland-based business school has done extensive research on the Eurozone crisis and its global impact. During the event, Fernandes pinpointed lessons learned from crisis and what the implications may be for the GCC region. In terms of Europe, Fernandes advises business leaders in the Middle East to not repeat the same mistakes made in the West, in terms of capital structure. He says, “it is not possible to continue to base your growth model, either as a company or as a country, on leverage. Leverage has its limits. You also need to manage the perceptions from financial markets. The benefits of the Euro are large, but are not evenly distributed. This is valid when looking at borrowing costs, competitiveness and trade deficits.”
Most recently, there has been widespread panic with regards to the possibility of Greece leaving the euro. Such a move would have would have devastating effects throughout Europe, that would affect other regions to some degree, including the Middle East. The solution lies with integration, says Fernandes. “In order to run a monetary union such as the Eurozone, I believe we definitely need more integration. Having a single currency is unsustainable if economies are not more integrated than the current model. So, we need more Europe, not less.”
A fragmented global economy
The UAE, however, is riding a wave of strong economic growth. Last year, the UAE saw an annual growth rate of 4.9% according to IMD research. Trade, tourism and manufacturing were the major drivers of this upward tick. There are factors in place that act as obstacles to such growth including the country’s oversupply of real estate. On the surface it may not look like such a pressing issue, but Fernandes brings up the fact that the origins of the global financial crisis in the US and Europe came from the real estate sector. He also points to the large increase in public spending in the GCC region since 2009, as well as the risks associated with the large decline in oil prices.
For SMEs, the current financial landscape in the region does pose challenges, but Fernandes says there are opportunities that still need to be explored. “SMEs must diversify their funding. Reliance on bank loans is not a solution. Indeed, we see that for many companies in the region, having substantial amounts of external debt is a risk factor,” he says. “It is key for SMEs to take this opportunity to restructure their capital structure. And focus more on the core principles of value creation, which imply that the strategy of the firm, and its finances, must go together.”
The presentation also highlighted the fragmented nature of the global economy. Looking at the big picture, it can be seen that various markets are performing at different speeds. IMD research shows developed economies and a standstill, while emerging markets are continuing a steady pace of economic growth. The takeaway from this is Fernandes’ point that there is no single business model for success. He says in order to get ahead, businesses will need to diversify and incorporate regional and local models to benefit from economic trends. Another key lesson to be learned is the importance of “good people management” among business leaders in order to build confidence in their teams in times of uncertainty.
In terms of the MENA region as a whole, it lags significantly behind emerging markets, but some markets within the region are poised to bring about growth through investment. “We will see a new economic landscape created in North Africa, with great new
opportunities for investment. GCC enterprises already understand this and are investing heavily – or plan to do so – despite the political, economic and social transformation. Stability will come soon to create some very interesting opportunities,” ElAgamy says. He sees North Africa’s geographic location as strategically important as it offers a link between Africa and Europe and is optimistic on future growth prospects. “The biggest challenge is to create jobs, and SMEs can help to drive this,” he says. “We’ll see impressive growth in SMEs in Egypt and the rest of North Africa. It has a big population with talent be a channel for job creation. SMEs will move away from basic commodities and into value-added goods and services. These will require more investment, technology and talent.”