MNC international strategic plan

select a company (MNC) to develop an international strategic plan that will guide the company through its international expansion over the next 3-5 years (plan my be global or regional)

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Hay Group in the Middle East
As the first passengers started boarding the Emirates flight from Dubai to Riyadh, Mark Eaton was finishing a telephone call with a member of the Hay Group executive team in Philadelphia regarding the company’s Middle East expansion plans. Although it was clear to Mark that the company should expand its presence in the Middle East, he was still considering the right pace and the optimal prioritization of the opening of any new offices. Some colleagues in the United States wondered why more offices were needed since the Dubai hub model had served the company well for years.
Hay Group was founded in 1943 in Philadelphia by Edward N. Hay, with an initial focus on compensation and reward consulting services. Since these early days, the group has grown to become one of the world’s leading management consulting firms, with 2,600 employees working from 86 offices in 48 countries. The company has expanded from its original core service of reward and job evaluation services to offer a wider range of consulting services. The company’s website explains:
“Hay Group is a global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective and motivate them to perform at their best.”
Today’s range of services includes the areas of Leadership and Talent, Reward Services, Building Effective Organizations and Employee Effectiveness Surveys. From the day the firm was founded in 1943 there has been a heavy emphasis on in-house research and development, which has resulted in several management tools that have become industry benchmarks. For example, Hay Group’s job evaluation methodology is used by over 8,000 companies worldwide. This large client base has in turn provided a strong foundation for growth into related management consulting services.
Hay Group’s geographic expansion outside Philadelphia first took place inside the United States, then in Europe and subsequently in all other major business locations in the world, including Asia, Latin America, the Asia Pacific region and South Africa. The company has been active in the Middle East since the early 1980s when projects were sold and delivered out of the London office, largely on an opportunistic basis. Hay Group’s reputation in reward services and job evaluation resulted in Middle East based companies contacting Hay Group in London for support. In 1989, the company started to take a more proactive approach to the Middle East market by establishing a business development team with a specific focus on the region. In the early 1990s, Hay Group also started to carry out remuneration surveys in the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia. These surveys served the dual purpose of building the company’s expertise in the region and establishing client relations. As companies started to participate in the Hay pay surveys, they began to realize they had issues related to remuneration that they needed help with. This resulted in a rapidly growing range of client engagements.
By 1995 the company started developing plans to open its first fully fledged office in the Middle East. From the start, there were only two locations considered for the first office in the region; Bahrain and Dubai. Both locations benefited from good operating environments, attractive local markets and proximity to Saudi Arabia. At this time, Mark Eaton took over the leadership of the Middle East team from its London base. He explains the thinking regarding the choice of location at the time:
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“We originally planned to open in Bahrain for various reasons. Historically Bahrain had been the main financial center in the region, with most banks and accountancy firms having their regional headquarters there. Bahrain was also regarded an excellent base from which to serve clients in Saudi Arabia, which at that time was our largest market. However, at the same time Dubai was coming up. The UAE market for consulting services was already larger than that in Bahrain and with the rapid growth of the Emirates flight network, Saudi Arabia became as easy to reach from Dubai as from Bahrain. Bahrain based Gulf Air was going through a restructuring which actually reduced connections in and out of Bahrain. In addition, at the time there was some political tension in Bahrain between the Sunnite and Shiite population groups while the UAE was politically very stable.”
After the decision was made to open in Dubai, a general manager was recruited to start and grow the operation locally. In its search for a suitable manager, Hay Group looked for someone with regional consulting experience and for experience in the establishment of a new operation, particularly in dealing with the local sponsor. In the UAE, foreign companies wanting to set up outside the free zones are required to have a local sponsor. The arrangements with sponsors can be of critical importance to the success of a venture in the UAE; sponsors can be valuable sources of local expertise and contacts but sponsorship agreements have also been known to end in conflict and acrimony. In the end, a British manager who was running the operations of another international consulting firm in Abu Dhabi was recruited, with Mark Eaton remaining involved with the region from his London base. Then, in 1998, the Hay Group’s Middle East office opened in Dubai, realizing more than $1m in annual billing in its first year of operation.
Since 1998, the office has grown significantly, both as a local business and as a hub for the Middle East. In 2005, Mark Eaton moved from London to take charge of the Middle East operations locally. The company then employed 35 staff from its Dubai office. By 2010 the staff had grown to over 100 people. Initially, business was strongest in the UAE and Saudi Arabia, followed by Bahrain and Kuwait. Significant client engagements have also been won in Qatar, Egypt, Jordan, Oman and Palestine. In order to develop business and serve markets throughout the region, the Dubai office employs several people who are based outside the UAE. Until today the company has not opened any permanent offices outside the UAE, although there is now a second UAE presence in Abu Dhabi.
The model of having a hub in the UAE to serve both the local and regional markets is a common one for international management consulting firms. Dubai is an attractive location to live in for expats and their families, with a good quality of life and infrastructure. Several consulting firms are also known to serve the important Saudi Arabian market with Arabic speaking consultants who may be based in Jordan or Lebanon, while the administrative office remains in Dubai. This model worked fine when each national market for management consulting was relatively small and competition not very intense. During the first decade of the 21st century, the national consulting markets gained a great deal in maturity, with more projects, greater client sophistication and strong competition. Being a region where personal relationships and proximity are critical to commercial success, consulting firms started to consider if, where and how to open offices in countries other than the UAE.
In terms of national markets, Saudi Arabia is the largest one and with significant growth potential ahead. Saudi Arabia has joined the World Trade Organization in 2005 and is the top ranked Arab country on the Doing Business list in 2010 (and in 13th place globally). The Doing Business project publishes objective measures of business regulations and their
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enforcement across 183 countries. Mark Eaton explains that “originally the corporate tax regulations for consulting companies in the Kingdom were not entirely clear and it took us some time to work through these issues. Now this has been clarified and legislation is also developing to allow us to open a local practice without a local partner. These legal developments and the importance of Saudi Arabia for us as a market make us keen to open a full office.”
Inside the UAE, Abu Dhabi has also developed as a market for management consulting in its own right and a local presence in the emirate can be key to build a business there. There are also other countries that are both important and promising for management consultants. Qatar is using its energy resources to develop as a main commercial center and is experiencing high levels of per capita GDP and fast growth. The government has made it clear that in future preference will be given to firms with a local presence, which has prompted several players to open offices there. Bahrain has maintained a good position in the region based on a strong regulatory framework and business friendly environment. Egypt is a large market due to its large population, while also benefiting from some petroleum resources. Egypt is more difficult to serve from Dubai than other markets due to its relatively long distance from the UAE. Jordan, Kuwait and Oman represent relatively stable economies with significant opportunities. Finally, Lebanon is an interesting location not only because of business potential but also as a source of Arabic speaking consulting talent.
Although each market has its own commercial potential, it is clearly not feasible to invest in each market at the same time. Consulting companies with headquarters in the United States or Europe are often reluctant to open a large number of offices in markets of limited potential that in the end may lack critical mass. Even a small office incurs fixed costs in terms of office facilities, staff and satisfying legal requirements. Several consulting companies had their fingers burnt after opening a series of small offices in Eastern European countries that had to be closed once the economic crisis hit relatively small countries such as the Baltic states and they are now keen to avoid a similar experience.
Another factor to take into account is the political uncertainty that affects countries in the Middle East. Kuwait’s vocal parliament has clashed regularly with the government. Sectarian tensions in Lebanon endure and several Western investors changed their plans for the country after the 2006 war between Hezbollah and Israel. Meanwhile, Egypt’s pending leadership succession brings uncertainty there too. In addition, wider regional issues such as Iran’s nuclear program, the Israeli Palestinian conflict and the threat of terrorism add to the concerns that Chief Executives and investors sitting in Philadelphia, New York or London may have. Western managers often rely on political risk ratings from specialist rating agencies when making location decisions and several Middle Eastern markets have been rated as politically unstable over the last decade. Although Hay Group does not use such political risk ratings it is clear that political risk considerations must be taken into account when making office location decisions.
On the whole, the combination of energy resources, economic diversification drives, young and growing populations and rapid economic growth makes the Middle East an attractive growth market. At the same time, it is clear that prioritization of office openings is necessary and complex; besides the market attractiveness, factors such as a country’s political and legal framework, physical infrastructure and competitive environment have to be considered. As Mark Eaton entered the plane for his flight to Riyadh he continued to evaluate the options for Hay Group in the Middle East. It was clear to him that Dubai would remain the company’s
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hub in the Middle East and the center for its regional expertise and management. In addition, the offices in Abu Dhabi and Saudi Arabia are clearly necessary and both are now relatively easy to establish. Opening more offices immediately may be seen as risky or hasty by the US based management. Would it be best to open just these two additional offices first or would this make the company loose opportunities in other markets? And how to present a solid case to the company’s top executive team?
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Teaching note
The case deals with location decision making for a management consulting company in the Middle East. The region presents attractive growth opportunities for consulting companies, but increasing competition, the need to be close to the client in a high context market, political uncertainty and the small size of some several national markets make the choice of where to open an office a complex one.
The case is targeted at learners at the MBA or Executive level. The case can be of particular interest in the context of courses that deal with the Middle East, location decisions and professional services firms.
Depending on the particular profile of participants using the case, the appropriate teaching approach may be to start by giving an introduction to economies and politics of the Middle East. Participants can then run through and discuss the actual content of the case and may then be asked to produce their own plan for the development of the office network of the Hay Group in the region. The assignments can be completed individually or in groups.
Students may use additional resources to build their cases, such as:
www.haygroup.com (Hay Group corporate website)
www.doingbusiness.org (ranking of business environment)
www.prsgroup.com (political risk analysis)
www.ameinfo.com (Middle East business news)
There is no single correct answer to the case. The plans submitted by course participants can be judged on the following criteria:
(i) Breadth of argument; Are different considerations addressed for such a complex decision, e.g. market potential, political risk, need for proximity.
(ii) Depth of argument; Has each element of the consideration been pushed far enough to add weight to the recommendations?
(iii) Integration; have the various elements been integrated to come to an overall, logical plan?
(iv) Clarity; Are the recommendations clear and easily understood?

 
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