Tuesday, May 24, 2016

Dubai: A number of mid-sized companies from the GCC are seeking to expand both within the region and into some of their key markets outside the region, according to a recent study ‘The Rise of Micro-Multinationals’ by HSBC.

This new breed of companies — the micro-multinationals — is challenging old ways of doing business. For decades, the biggest firms operated internationally, while smaller firms tended to be domestic. Today, nimble mid-sized firms are taking on new markets earlier in their business cycle.

In many cases, the size of the local market will play a significant part in determining a company’s appetite for overseas expansion. In the Middle East, for example, some markets are relatively small.

“There’s a growing trend of middle market companies spreading their wings and exploring new markets in this part of the world,” said Ahmed Abdelaal, Regional Head of Corporate Clients Coverage MENA and Head of Commercial Banking UAE.

Bigger than a start-up, but not yet the scale of a sprawling corporate, mid-sized companies are increasingly taking advantage of growth outside their own market and going international.

According to a recent HSBC study mid-sized firms play a key role in the economic prosperity of nations. The report, Hidden Impact — The Vital Role of Mid-Market Enterprises (MMEs) found that across 15 economies, there are 161,800 MMEs with a combined turnover of $16.6 trillion.

“These companies are not just buying and selling internationally, their operations are in multiple markets,” said Vivek Ramachandran, HSBC’s Global Head of Product & Proposition for the trade business.

In the UK, 40 per cent of micro-multinationals have opened offices in new markets in the last five years — one of the highest rates in the world, according to a study by FedEx Express. This trend is set to continue with 83 per cent of small to mid-sized businesses citing overseas expansion as their top priority, according to the Radius Global CFO Survey.

The HSBC study shows that there is a growing trend of micro-multinational companies spreading exploring other geographies in the Middle East. For example, the GCC has smaller markets that are overly congested. Once they reach a level of growth that allows them to explore cross border opportunities, they actively take the chance to expand.

“Once middle market companies reach maturity in their home market, expanding overseas allows them to explore other opportunities. By piloting in smaller markets they are able to scale up very quickly in bigger markets such as Saudi Arabia and Egypt.”

From the GCC business sectors such as contracting and trading, particularly food or oil and gas and to some extent luxury goods business are in the forefront of overseas expansion. Research shows expansion outside the home market in most cases is gradual and organic.

“If businesses have a trading line out of the UAE, Saudi Arabia or Kuwait, they would explore opportunities to tap into a new geography with the same line of business. The preferred route would be to partner with a local player through a joint venture, and depend on an international bank to provide local market expertise for their financial needs,” said Abdelaal.

Micro multinationals are often challenged in their overseas expansion in areas such as familiarity with the new markets, finding financial backing and in understanding the legal and local regulatory framework of new markets.

“Regulators around the Middle East region are strongly supportive of micro-multinationals and are encouraging financial institutions to support them locally and internationally,” said Abdelaal.

By Babu Das Augustine Banking Editor

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