According to the MEED Gulf Contractor Survey 2008, Al-Arrab Contracting Company (ACC) is now Saudi Arabia’s third-largest contractor by value of contracts won in 2007, behind Saudi Oger and Saudi Binladin Group.

Since 2004, when the giant Mada Group for Industrial & Commercial Investment, owned by the Al-Rajhi family, acquired a majority stake, the company has made acquisitions in a range of sectors. In November 2007, it demonstrated its international aspirations with the acquisition of a Romanian company, Electro-putere, to cater in the market for electrical transmission and distribution.

Structure

Since its inception in 1983, when the company began with local, simple contracting projects, it has grown into one of Saudi Arabia’s biggest companies, with a turnover in 2007 of $507m, 16 subsidiaries and a workforce of 12,000 people. The group has three main businesses: general contracting, electromechanical contracting and power-generation contracting. On a day-to-day structure, it is run in five business units: construction and buildings, infrastructure, medical, electromechanical and energy.

Each operating company has a fully authorised general manager, who is mandated to deliver the objectives of the company in terms of commercial performance and personnel requirements. The operating divisions are managed from a central corporate office, which co-ordinates activities across the group.

“There is either a thick line or thin dotted line between the corporate office and general manager depending on the size of the firm or its capabilities,” says Samer Arafa, director at ACC.

Operations

Unlike many traditional contractors in Saudi Arabia, ACC also provides advisory services at an early stage.

“Our skill is in-house engineering, which is high compared with other contracting companies,” says Arafa. “So we focus on projects whereby clients get a lot of value, and we can execute the project in a successful way, based on the engineering content it has.

“The less information, definition or structure the project has - and the client may not know exactly what they want - that is where we excel. It is our main strength. We are good at developing concepts.”

Recently, the firm has been involved in several university projects in the kingdom. In January, it was awarded eight construction packages for the Umm al-Qurra in Mecca. The $146m (SR550m) deal includes lecture buildings, student housing, a medicine college, pharmacy college and university hospital extension.

While the corporate office decides which projects to bid for, the board of directors is informed of all the major projects being targeted. Recent targets in Saudi Arabia include the $6bn Mecca-Medina rail link, the $5bn Saudi Landbridge project linking Jeddah to Jubail, and the $1.1bn northern border security fence running between Saudi Arabia and Iraq.

Ambitions

ACC is expanding rapidly through acquisition and growth. It acquired more than 10 firms in 2007, and started more than five. ACC is clearly not holding back. Its turnover of $507m for 2007 was 72 per cent higher than the $294m turnover for 2006.

Arafa says the firm recognises the importance of maintaining the impetus and capitalising on the opportunities for growth that the Saudi and Gulf markets provide.

“We have commissioned Ernst & Young to create an operating model and group organisation structure for us so that we may continue to grow, which is a magic word for us in the Gulf,” he says.

“To continue a healthy, systematic growth, we are working on a modular system, so that we can grow by adding blocks to the system that we are working on now.”

ACC will become one of the first diversified contracting companies to implement SAP management software. Arafa says ACC is looking to implement the software fully across the group in mid-2009. “This is big news as by mid-2009 we will be electronically integrated across all our subsidiaries,” he says. “This is pretty challenging for people who work with steel and concrete.”

The final piece of the puzzle for ACC is its territorial plans. In November 2007, the company acquired a 62 per cent share of Electro-putere, which it says will cater for a niche in the market for electrical transmission and distribution, and at the same time provide a foothold in the lucrative European market.

Arafa would not say whether this means looking east or west, although the EU is sure to play a major part in ACC’s future plans.

MEED Assessment

It was the investment from the Al-Rajhi family, who through the Mada Group for Industrial & Commercial Investment acquired a majority stake in 2004, that started ACC’s expansion. The company began to diversify its portfolio, acquire key businesses and is now well positioned to take advantage of the wave of investment in the Gulf region.

Its geographic expansion, partnerships and awareness of streamlining suggest that ACC is being run shrewdly. It hopes that using software from Germany’s SAP will enable it to keep better track of projects and resources, and improve communication throughout the firm.

In the future, it will not be a lack of business acumen that will stifle ACC’s ambition but other resources. The Gulf’s success has positive and negative spin-offs for the firm, which, like all businesses, is beginning to struggle to provide and acquire labour and materials for expansion.

Arafa is confident that the firm’s expansion plans will yield not only new markets but also access to resources, which will alleviate pressure on the firm going forward.