Page 158 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

142 Dubai & Co.

In line with the IKEA concept, franchise agreements serve as
the practical incarnation of the Swedish giant’s global growth strat-
egy. Only organizations capable of capturing a large share of the
home furnishings market and maintaining competitive pricing
receive franchises. According to IKEA, such organizations have
these advantages: (1) retail experience with extensive local market
knowledge; (2) an outstanding understanding of, and a strong com-
mitment to, the IKEA concept; (3) considerable financial strength;
11
and (4) identified, well-located sites for retail activity. For their
part, franchisees receive the necessary support to execute the IKEA
concept, though all start-up expenses are borne by the franchisee.
In the GCC countries, IKEA’s stringent franchisee requirements
immediately eliminated most of the smaller players in the retail mar-
ket. Of the larger, well-capitalized companies, the Al-Futtaim
Group—with its diversified, international-brand portfolio and
extensive retail experience—stood out as the ideal business partner.
Run by Emirati billionaire Abdulla al-Futtaim, the Group’s financial
12
strength complements IKEA’s low-cost strategy. One major advan-
tage of working with Al-Futtaim is its large and growing real estate
business, which provides retailers access to prime locations.
Additionally, the Emirates-based conglomerate enjoys an extremely
positive brand image in the region, thanks to projects like the Dubai
City Centre, and controls retail real estate across the GCC states. As a
business in Al-Futtaim’s portfolio, which includes IBM and Toyota,
IKEA benefits from positive brand association and overall retail
strength. Furthermore, IKEA is able to piggyback on Al-Futtaim’s
regional expansion plans to fuel its own growth. Al-Futtaim intends
to double its $270 million retail operations in the next three years
through $70 million in investments for new IKEA outlets in Qatar,
Oman, the UAE, and Egypt. 13
The IKEA–Al-Futtaim partnership highlights the key benefits
that multinationals can capture by working with established GCC
conglomerates. First, these conglomerates have a higher risk toler-
ance for local projects than do multinationals, making otherwise
unfeasible projects possible. In addition, homegrown firms have a
more complete understanding of the needs and preferences of the
local population. Finally, local conglomerates, because of their
different business lines and familiarity with markets in the region,
already have extensive distribution networks set up, enabling the