Director Samer Arafa explains how the company is stepping up its international expansion plans.
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.
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.
Date established: 1983
Main business sectors: Construction and construction-related manufacturing, including furniture, doors and windows
Main business regions: Saudi Arabia, other Gulf, Africa and Europe
Board of directors: Ahmad al-Rajhi (chairman), Said Said (managing director), Samer Arafa, Ali al-Rajhi
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.
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.
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.
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.
ACC in numbers
Value of projects won in 2007: $1.36bn
Number of companies acquired in 2007: 10
Countries of operation: 8
Q&A Samer Arafa, director
How do you see the company evolving?
Our vision is to be one of the largest and best contractors in the Middle East, but it does not stop there. We would also like to be a reputable international contracting company. We are working towards that. We have been in Asia, Africa and now we are in Europe.
What is the company’s next move?
First of all we have to strengthen our presence in the rest of the GCC, so getting into Abu Dhabi is a must for us, as we have not been there yet and are keen to get in. We are also interested in getting involved in the power generation and desalination business on the most complicated projects.
Until now, we have been working on simple, small projects, but now we want to get involved with the larger power projects and desalination plants because we think there is a niche for local or Arab engineering, procurement & construction contractors, which have not existed until now.
With so many international and local companies already involved in the emirate, is it not too late to get involved in Abu Dhabi?
Not at all. We are already involved in six emirates throughout the UAE. But it was our view that because Abu Dhabi is such a significant part of the UAE in terms of resources and construction potential - do not forget it is half the size of the UAE in terms of construction -
by focusing on it we would lose out on some immediate opportunities we have in the other emirates.
What is your view of the Saudi market?
We are still very positive about the Saudi market, and we are still putting a lot of emphasis on it. It is where we started, where we are best known and, importantly, it is where we know how to maximise the value chain for all stakeholders, clients, partners, consultants, banks and businesses.
If you could win just one contract in 2008, what would it be?
The Mecca-Medina railway project. We are part of the Al-Rajhi consortium - which includes Eurostar UK, Arup and China Railway Engineering Corporation (Crec). We are bidding for the project and will submit our bid by mid-October. It is a one-of-a-kind project worldwide, and if you asked me what I am dreaming of, it would be this.
What advances are you hoping to make in the next 18 months?
In terms of objectives, it would be entry into new businesses and into two new countries.
Who would you consider your main competitors in the region?
That is a very difficult question because we work across five different business sectors, so therefore we have different competitors in each one. You do not see one company across all the sectors. So we are quite unique in that way.
Would you bid for projects outside the company’s key areas of expertise?
One concept that is salient is we fully believe in partnerships. In contracting, you must acquire experience, and if you cannot acquire it, you must partner it.
How is the current construction boom affecting resources?
To provide and continue putting resources into the group of com-panies is difficult. Not because of the rules and regulations, which have recently been relaxed, but because of stress on resources from booming economies in the GCC, as well as demand from competitors.
Being an international company, with 30 nationalities in a 12,000-strong workforce, we are adding to the pool of talent as we are in eight countries. Therefore, we have access to talent and capabilities, which is a way to mitigate the lack of resources. We are getting new talent, new staff and new cultures, and learning something new. We have to learn every day. That is contracting.
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