As the outlook for sustained low oil prices solidifies, multinational companies are consolidating their market position in the Gulf, and ensuring their MENA business does not rely solely on the oil exporting Gulf markets to drive growth. Having a portfolio approach to the MENA region, and ensuring exposure to risk is diversified is becoming increasingly important for MNCs aiming to establish a sustainable business model in MENA.
North Africa is an attractive cluster for companies. Boasting the largest population in MENA, it also has the second largest GDP size after the GCC. Its strategic location, due to its proximity to Europe, Dubai and the rest of Africa, also benefits the region. Companies across sectors can find opportunities within the newly emerging industries in Morocco, the ever-expanding and consuming population in Egypt, and a large public healthcare spender in Algeria.
However, the conflict in Libya and the spillover effects in Tunisia are clear examples of political risk affecting the region. Short-term political instability is impacting the tourism industries, limiting employment generation and delaying investment growth across the region. Alongside real and perceived security risks, companies also face a host of operational challenges, such as difficult access to foreign exchange, rapid regulatory changes, as well as price-sensitive consumers.
Thus, senior executives face a dilemma when considering expanding their investments in North Africa. They see the long-term potential of the region, due to its strong fundamentals and the commitment of governments to establish a sustainable path to growth in the next few years. They understand the importance of being early movers in getting ahead of competition, the need for localizing their products as well as marketing strategies, and getting closer to their customers. However, the short-term operational challenges and the relatively small economic size of North Africa compared to that of the GCC is making it difficult for regional managers to make the case for more resources.
At this point, senior executives should consider establishing a regional hub in North Africa to capture the region’s opportunities in a cost-effective manner. While mostly viewed as a resource-heavy investment that increases exposure to risk, a regional hub doesn’t have to be either, and can actually help MNCs in:
- getting closer to their customers
- better managing and supporting their local teams and partners
- expanding market size and customer base
- monitoring and managing disruptions to their business
Regional economic and political dynamics, combined with internal resource considerations of MNCs can complicate hubbing considerations and either prevent companies from evaluating a regional hub or result in companies investing in inefficient hubs with weak ROI, and few tangible effects on their ability to achieve targets.
Instead companies can follow a simple process to help determine whether a regional hub in North Africa can support their long-term strategy in the region in a cost-effective manner.
FSG’S HUBBING FRAMEWORK ENSURES COMPANIES’ EVALUATION OF REGIONAL HUBS IS INTERNALLY DRIVEN