Page 273 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

Getting Things Done: Operations Strategy and the GCC 255

In the summer of 2006, Kraft unveiled plans to build a $40 mil-
lion plant in the Bahrain International Investment Park. The 60,000-
square-meter manufacturing facility is expected to open before the
end of 2007 and, once operational, employ 250 people. The plant
will produce cheese and powdered drinks (e.g., Tang), and the out-
put will be shipped throughout the Middle East market. 29
Kraft’s decision to manufacture in Bahrain appears sound for
several reasons. Input costs, including energy and labor, will be
very favorable in Bahrain. The goods produced, like most foods and
beverages, are quite heavy in relation to their value and therefore
costly to transport. Manufacturing close to the point of sale is there-
fore a desirable strategy. From Bahrain, Kraft can conveniently
serve the entire Middle East region—thereby achieving enough
scale to justify investing in a plant. If need be, Bahrain’s excess out-
put could conceivably be shipped to other high-growth markets in
Asia as well. The infrastructure and shipping facilities of Bahrain
can easily meet the manufacturer’s needs. And Bahrain’s
International Investment Park offers a friendly business environ-
ment for a foreign firm.
As multinationals increase their focus on the Gulf, some are
likely to follow Kraft’s lead and begin manufacturing there. For
companies for whom volume and economics justify the measure,
manufacturing in the Gulf makes business sense.
Across the Gulf, governments are keen to attract multination-
als who will build manufacturing and industrial facilities in the
region. Such facilities are seen as adding to the embedded capital of
these economies, and as making the economies more competitive.
Manufacturing and large-scale industry—with the exception of the
energy sector, of course—is an area in which local capabilities have
lagged behind other emerging markets such as China and India.
While these two markets have clear cost advantages in terms of
labor, the GCC’s favorable tax environment, strong legal regimes,
first-class infrastructure, cheap energy, relative proximity, and
access to the broader Middle East are important selling points.
Beyond extending tax benefits, Gulf governments are eager to view
multinationals who invest in manufacturing there as genuine
development partners. Such goodwill can be immensely valuable
as governments review suppliers for their ongoing projects as more
sectors of the economy privatize.