INDIAN INSTITUTE OF

MANAGEMENT INDORE
PGP-UAE

INFRASTRUCTURE ROAD
CONSTRUCTION IN UAE
By
KENDRAJ KUMAR
KRISHNA CHAITANYA GOLLA
MRINMOY PATHAK
PARTHIBAN JAYAPRAKASH
PAVIRALA GOPI

The report gives a background of the UAE Road construction industry, Value chain, Competitor Analysis and
Strategy Diamond Model for the future.

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

History of Road construction in UAE
Prior to the 1970s, Dubai had very few cars and even fewer roads. In fact, driving a car on Dubais
roads was a hazardous undertaking as camels wandered freely, leading to nasty (and sometimes fatal)
crashes for the unwary. In 1971, vehicles could travel between Dubai and Ras Al Khaimah along a
modern single carriageway tarmac road paid for by Saudi Arabia. However, if you were travelling to
Abu Dhabi, it was an entirely different proposition.
There was no road and only four-wheel drives, trucks and taxis used sand tracks along the beach line
to travel between the two cities. Individual travelers relied on taxi drivers being familiar with these
sand tracks, but if a car became bogged or lost, there was no help on hand to pull the vehicle out.
Nicknamed Ships of the Desert, Landovers were the vehicle of choice in what was the beginning of
modern overland trade with Abu Dhabi.
Because Dubai enjoyed lower customs duties compared with other emirates, Dubai traders often
smuggled goods over land at night without headlights to avoid raising alarm. However, in the late
60s/early 70s Landrovers were in short supply. In order to facilitate trade, some opportunists
borrowed H.H Sheikh Rashids Dubai Defense Force Landovers during one of his overseas trips.
They were eventually returned, but only after H.H Sheikh Rashid learned what had happened!
Road construction between Dubai and Abu Dhabi effectively ended the difficult land crossings to Abu
Dhabi with construction completed in 1973. Both emirates constructed their part of the road to the
border a two lane highway with no lighting. An account by an observer at the time noted that it took
approximately four hours to travel between the two cities with numerous car wrecks lining the verge
a vast contrast to todays ultra-modern freeway (though high-speed accidents remain a concern).
Following the opening of Jebel Ali Port and Free Zone, pan-Gulf redistribution of goods by road from
Dubai took off. The Dubai-Abu Dhabi highway thus became vital for the future of the regional logistics
industry. By the mid 1990s, it was widened to four lanes on each side, resurfaced and roundabouts
were removed or replaced by flyovers. By the late 1990s, Abu Dhabi could be reached in less than two
hours from Dubai. Today, the UAE has an amazing road network not only connecting each emirate, but
also connecting the UAE with other regions. This regional interconnection facilitates the movement of
cargoes and goods enhancing the UAEs position as a trade gateway for the Gulf region.
At present, the UAE is pouring millions of dollars into road upgrades to keep up with growth and
remedy hazardous black spots. The Mafraq-Ghweifat Highway Project which began in 2010, sees the
highway widened to four lanes in each direction (three around Ghweifat) and upgraded to meet
international standards in design and safety. The road, which stretches 327 kilometers from Mafraq to
the border at Ghweifat, provides the only access route to the Western Region, including the industrial
centre of Ruwais and several tourist destinations. Works on the highway are expected to be completed
by 2014.
In Sharjah, the National Paints roundabout is also set for an upgrade, following the traffic congestion
which has plagued Maydan V industrial area. The US$89 million works program is designed to address
the long traffic delays for motorists travelling south.
According to the recently-released World Economic Forum's Travel and Tourism Competitiveness
Report, the UAE has been the rated second best in quality of roads.

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

Players Organization
The industry structure in the UAE is mainly shaped by the Joint Ventures (JVs) between foreign and
local organizations. Local shareholders usually account for 51% of share capital, due to the 49%
foreign ownership restriction in companies registered in the UAE. However, the distribution of profits
is flexible and is not necessarily aligned with the percentage of ownership.
JVs combine the advantages of both partners: a) The authority for business management and strategic
decisions is usually assigned to the experienced foreign company, which has the best knowledge and
expertise, the capital to acquire the required market share, and a clientele base from the international
and local arenas; and b) Local shareholders bring links, contacts and a deep understanding of the
specific conditions of the UAE's market. These dominant firms set the rules of the game for product
and site policies, pricing strategies, marketing approach, and construction standards and contracts.
Construction companies may be classified in the following strategic groups:
1.
2.
3.
4.
5.
6.

Real estate developer (owner, client, bank, fund),

Project manager,
Design and supervision consultants,
Design and built contractor,
Sub-contractor (specified, MEP),
Building materials and services suppliers.

The players in each strategic group share similar competitive characteristics and distinguish
themselves from other groups. The typical relationship between strategic groups is linear: the real
estate developer announces a plan for a project and assigns a project management company to
develop and supervise a project. The contracting companies submit their bids for the project; after a
set of negotiations, the developer awards the contract; and the contractor takes the responsibility for
the accomplishment of the job within the set budget and timeline. The contractor may sub-contract a
job or part of it to a sub-contractor or do the entire job. During the construction period, the contractor
will involve building materials and service suppliers.
This classification presumes that the different strategic groups in the construction industry are not
necessarily in direct competition with every other group, but only with companies active in the same
group. Additionally, because companies of one strategic group depend on players from other groups
for their own success, there is typically cooperation between companies from different groups.
Each construction project involves a particular configuration of four forms of capital: industrial,
commercial, financial, and property. These four types of capital, combined with the six strategic
groups, form the matrix structure of the construction industry in UAE. All companies from any
strategic group have both a commercial and a financial strategy, since they buy and sell (commercial
strategy) and borrow and lend money (financial strategy) in order to accomplish their job. Players that
control the production of some of the commodities they sell must also develop an industrial strategy,
and players that acquire and hold stocks of real estate are involved in property investment (property
strategy).
Competitive market
The two major causes of this large spectrum of players are the emergent nature of the market and the
division into strategic groups, which increases the competition by segmenting the industry into subindustries, where smaller players can easily find a place. The best description for this type of market
structure is a competitive and fragmented market.

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

Industry life cycle
The construction industry in the UAE emerged in Dubai in the 1950s, when Shaikh Sayed bin Maktum,
together with his son Rashid, decided to transform Dubai into a 'permanent haven for coastal
shipping' and launched the Dubai Creek improvement project. A project valued at 600,000 was
funded by 'Creek Bonds', bought by the leading merchants in the region at six per cent interest, as well
as a loan from Kuwait.
In the late 1950s the ruler of Abu Dhabi, Shakhbut Bin Sultan Al Nahyan, supported Western oil
exploration, which earned Abu Dhabi $70mn a year in the mid 1960s. As oil revenues increased, the
construction industry rapidly expanded, as evidenced during the rule of Sheikh Zayed bin Sultan Al
Nahyan when he undertook a massive construction program, building schools, housing, hospitals and
roads.
The industry started to expand during the economic development at the end of 1990s, contributing in
average 9 per cent of the GDP. The year 2005 showed a rocketing increase in construction industry
output, which peaked the next year at AED' 62.4bn. Since then, the output has maintained a high level above AED 40bn per year.
The ability to attract large overseas investments, notably in the construction industry, has raised the
UAE's status as a source of funding for the global economy. The dramatic growth in its economy has
led to the creation of a dynamic business environment, something that has brought an influx of foreign
investors to the UAE.
In December 2007, the Construction Industry Review by Oryx Middle East warned: 'Although the
overall outlook is favorable, the downside risks from the global economy have increased.' In 2008,
when the world economy crumbled, the UAE still continued to build. The 2007 recession didn't affect
the UAE's construction industry until 2009, and it particularly affected Dubai. Dubai's non-oil sector
has been most affected due to its linkages to global trade and financial markets and by the fall in real
estate prices. The global correction in residential real estate markets has generated large declines in
house prices and construction activity worldwide (a median annual decline of 7%), especially in the
UAE (a decline of 35%), in the third worst position after Latvia and Estonia.
Strategy change and competitive issues
The 2007 financial market collapse affected and still affects the construction industry in the UAE.
Projects were delayed, put on hold, or cancelled at an unprecedented rate. Companies' confidence
declined and organizations began to rethink their strategy and prepare for a dramatically changing
landscape by analyzing their micro-environment: markets, customers and competitors. Many
organizations experienced problems adapting to the environmental changes, and, unprepared for a
change, they adopted a survival strategy rather than a growth strategy.
SWOT - UAE Road construction industry
STRENGTHS

Oil-rich country
Political stability
International business and investment from overseas
Growing non-oil sector
Tax free environment
Attractive salaries

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

WEAKNESSES

Inflation growth
Currency value instability (AED peg to USD)
Oil production spending increase, government saving decrease
Shortage of skilled manpower
Image of the 'Disney World in the desert'
Disparities between Emirates

OPPORTUNITIES

The rise in oil income

Progress toward diversification into service sectors such as high-tech,
logistics, ports, tourism, financial services, health, education and media
Global increase in oil consumption and oil price rise
Private sector-led economic expansion promotion

THREATS

Restart of Iran's nuclear weapons program

Conflicts in the GCC region and worsening security
Downside risks from the global economy
Worsening international financial market conditions
Competition from other emergent markets in the Middle East and worldwide

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

PESTLE Analysis on UAE Road Sector

Political Trends
With the unrest in Egypt spilling over to Bahrain and owing to the close ties with the other GCC
neighbors, infrastructure spend has been imp acted in 2011 as against the popular expectation of
above average growth that had been foreseen by analysts with the extensive government backing
witnessed in 2010. However, while a number of project s have merely been postponed or staggered to
2012; political unrest is likely to impose a small restraint to growth of the infrastructure sector across
the GCC in the short run, which is likely to be in order in the medium and long run.

Economic Trends
Governments across the GCC have been widely encouraging alternative sources of funding for the
infrastructure projects across the region and the sustained investment in these projects on the back of
the projected demand and rising population have attracted a number of private equity funds into
financing these projects. Islamic financing and Sukuk issues which are a popular means of
international financing projects with long gestation periods have also rapidly found favor in these
markets, thus alleviating the problems associated with liquidity and credit and enabling infrastructure

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

development at a rapid pace in spite of the global economic slowdown. Revenues from oil and gas are
crucial to the hugely planned expansion of infrastructure across the GCC, which controls more than 40
per cent of the worlds total proven crude deposits. Oil prices jumped by around 27 per cent to an
average US$ 77.2 in 2010 and are expected to average US$ 84 and US$ 86 in 2011 and 2012
respectively. A rebound in oil prices, allied with ongoing diversification plans are expected to spur rail
and road infrastructure project activities across the GCC region.
Social and Demographic
A fast growing urbanizing population has led to increasing pressure on the existing infrastructure such
as transport conditions and other infrastructure and the projections for the future all point to an
urgent need to upgrade and expand infrastructure development across the GCC region. These factors
act as a main driver to the growth of infrastructure facilities in the GCC countries. Moreover, tourism
and growth of retail markets too have exerted their influences adding to the demand pressure.
Technological
As existing infrastructure becomes insufficient to meet demand and projects for expansion are
envisaged, new technologies have to be explored. The regions hydrocarbon wealth attracts state of
the art technologies from across the world and spurs construction. The technological developments
have rapidly fuelled the growth of the road, bridges and rail infrastructure sector across the GCC
region. At present, unprecedented rail, road and bridges infrastructure development and renewal
programs are underway, which are expected to continue for several more years.
Technology is extremely important for the successful development and maintenance of these
infrastructure programs in GCC region from an economic, environmental and social responsibility
perspective. A train like the new Dubai Metro, which is one of the most advance d urban rail system in
the world, offers full automation, connection and technology. The fully automated Dubai Metro does
not have a driver and makes the most out of new technology. The Dubai Metro is composed of several
lines, such as the Red Line and the Green Line. These first two lines run underground in the city centre,
and on elevated viaducts elsewhere. Each train has Gold class cabins, wide leather seats, car pet
flooring and exclusive lighting and design. The network is always online with complete mobile phone
and Wi-Fi access. With Air-conditioned cabins and walkways, the Dubai urban railway is the longest
automated Metro system in the world built in just one go. The metro is also one of the safest metros,
with the security system technology that goes from automatic protection to wayside obstacle
detection and cameras for online surveillance, with more than 3000 CCTVs along with synchronized
and digitalized emergency services.
The 21st century brings extraordinary growth for the railway industry in the Middle East. With
changing technology and constant improvement in infrastructure, the best in class initiatives are being
revisited more often to keep up with the ever -changing, competitive market. The proposed Saudi
Landbridge project will adopt cutting-edge technology f or the development of the new rail links. The
high-speed tracks will be compliant with the high-speed passenger trains and freight trains. Signalling
technology will be compatible with European Raft Traffic Management System (ERTMS) level 2 and
the project plans to have a centralised traffic control system (CTC). Oman s National Freight and
Passenger Railway project, which will be eventually be aligned with the inter-GCC rail system, will be
designed for high s peed trains with speeds of up to 350 km/h for passenger travel and 200 km/h for
freight trains. The planned Makkah - Taif Tunnel project calls for the construction of an 11 kilometre
tunnel between Alhada and Alkar to reduce the distance between Taif and the Holy City of Makkah.
The tunnel design will incorporate a high-tech system with safety control, ventilation,lighting, firefighting and emergency control a ll done through a central monitoring station room. The tunnel will
also be monitored with special cameras for operation and maintenance. The design of the tunnel's
entrance and exit will have a fountain with steps of flowing water as well as lighting.

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

Legal and Regulatory
One of the major obstacles to the development of regional infrastructure links between the GCC states
is the lack of a uniform legal and regulatory system and the lack of dispute settlement mechanisms, all
of which make it difficult to undertake projects such as the six country GCC rail link, Qatar Bahrain
causeway which have faced multiple delays on account of these reasons. Once clear cut regulations
and codes are laid down in tune with international standards, projects are likely to proceed at a faster
pace than is currently happening.
Environmental
The environmental impact of roads include the local effects of highways (public roads) on noise, water
pollution, habitat destruction/disturbance and local air quality; and the wide r effects including
climate change from vehicle emissions. The design, construction and management of roads, parking
and other related facilities as well as the design and regulation of vehicles can change the impacts to
varying degrees.
The consequences of persistently increasing road traffic are adverse effects on human health and both
the local and global environment. Although railways still have environmental impacts they are
considerably less than any other mode of transport. A substantial shift of passengers and freight from
road to rail would benefit everyone through reduced congestion and less damage to the environment.
They reduce lower greenhouse gas emissions, and reduce pollution. Rail networks are com mitted to
even greater environmental excellence in the years ahead through the development and u se of
greener and cleaner technologies and more efficient operating practices. The rail transportation mod e
will also bolster regions energy security as the rail transport uses far less energy per passenger
kilometer than road.

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

Market Growth Drivers
Macro-economic Indicator

Impact High

Impact Low Probability High Probability Low

Innovation
and
Technology
growth prompted by population
growth
pressure
fuels
infrastructure growth
PPPs
and
alternative
infrastructure
funding
fuels
growth
Fast Growing Population and
Urbanization spurs demand for
utilities and energy

Green construction encourage s

quality

and sustainability in

Infrastructure sector

Market Growth Restraints

Macroeconomic Indicator
Political

unrest

investment

in

Impact High

delays

infrastructure

across the region

Lack

of

clear,

cohesive

and

uniform legal

and regulatory

framework

deters

development

of

infrastructural links

region

fast
al

Impact Low

Probability High Probability Low

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

COMPETITORS IN THE INDUSTRY

The 2 leading competitors in the UAE road construction industry are:
Hedley International Emirates Contracting LLC
Hedleys business strategy is built around its values. The company and its management
have strived, and achieved, to meet international standards for its products, services, staff,
and support infrastructure. This stress on operational excellence is captured in their
values:

Market Leadership

Intelligent Solutions

To strive for and achieve sustained growth by exploring

new investments, vertical integration, geographic
expansion, and the diversification of services
To understand the client-partner's unique needs and
situation to make the appropriate recommendations

Continuous
Improvement

To invest time and resources in identifying and

implementing internal and external best practices for our
Associates' professional development
Processes and technologies
Systems and procedures

Quality

To meet international standards, allowing client-partners

to use the delivered product and/or service with
confidence

Associates Welfare &

Safety

Employee well-being is foremost; it is a reflection of the

work we do for our client-partner

Social Responsibility

To maintain the proper balance between financial stability,

associate satisfaction and security, and BlueGreen programs

Hedley believes that its values are a commitment to EXCELLENCE. Their focus on
excellence allows them to deliver on schedule and with quality while meeting their
client/partner objectives and reducing their costs. While Hedley broadens its business
interests, its ownership, management, and associates remain committed to the company's
core values and heritage. These values dictate Hedleys corporate governance, ensuring
they operate at the highest legal and ethical standards.

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

Habtoor Leighton Group
Habtoor Leightons business strategy is captured in its Vision statement. It clearly points
out diversification as their main strategy.
HLG aims to be the leading diversified international contractor
in the Middle East and North Africa.
The values of the company gives a picture of the supporting strategies built around its main
strategy to further strengthen its position in the market. The values of Habtoor Leighton
are

Integrity
Act honestly and with integrity
Zero-tolerance to bribery and corruption
Operate with a respect and concern for the environment, community and the
people

Safety
Provide safe and healthy working conditions for employees and subordinates
Make performance in safety a competitive advantage

Success
Provide strong returns to shareholders
Consistently deliver qulaity projects to clients
Develop long term, mutually beneficial relationships

Teamwork
Develop people through training, rewards and create a working environment
Employees feel that they are challenged, motivated, satisfied and accountable for
their work

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

To summarize the strategies of these two major players

Hedley International

Habtoor Leighton

Operational Excellence

Growth Quality

Diversification
Quality

Strong Client
Relationships

VRIO Framework
Valuable

Rarity

Costly to
imitate

Organized to
capture value

Hedley
International

Yes

Yes

No

No

Habtoor
Leighton

Yes

Yes

Yes

Yes

From the VRIO framework shown above, it is quite clear that Habtoor Leighton has a
competitive advantage over Hedley International in terms of its resources.

Critical review of Hedleys strategy

Hedley International clearly differentiates itself from its competitors through its
operational excellence. It should give Hedley an edge when it comes to the quality of the
work performed by it. However, the differentiating factor can only be as good as the
resources implementing the operations. In this front, Hedley has been found lacking. Based

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

on the available information, Hedley has not made any substantial efforts in developing its
resources. Hence, it only has a temporary competitive advantage over its competition and
in the long term, may lose out this advantage.
Critical review of Habtoors strategy
Habtoor, on the other hand, has preferred to diversify its portfolio of products and provide
a wide array of options to its clients. In comparison to Hedley, Habtoor has put in a lot of
effort in developing its resources. These inputs will bear fruits and give Habtoor a
sustainable competitive advantage in the long term. However, it has to make sure that this
trained lot of resources are retained else it will lose out this advantage to its competitors.
Habtoor should also allocate some of its efforts in gaining operational excellence, which is a
key to achieving customer satisfaction and retention.
Future strategies
With the successful bid of Expo 2020, UAE, in general and Dubai, in particular is expected
to see sharp increase in new infrastructural projects and maintenance of existing projects.
Thus, it becomes critical for a firm to deliver high quality projects in the designated
timeframe. Every firm should align its strategy to these two parameters to gain maximum
in the near future.

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

VALUE CHAIN OF THE INDUSTRY:

Any project in a construction industry involves all these components. The project has to go
through PRIMARY FUCTIONS mentioned in the following such as:

Inception
Design
Tender
Construct
Operate and Maintain

All these steps are supported by a variety of secondary / support functions which are as
equally important as the primary steps. They are
o
o
o
o
o
o
o
o

Building Materials
Tooling and Equipment
Finance and Insurance
Utilities and Transportation
Human Resources
Information Technology
Regulation Enforcement
Research and Development

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

In general the different stakeholders involved in the different stages are:

The General Contractor is the main stakeholder of the Road Construction industry. He is
responsible for the project who takes it to tender from the Sponsor/Developer/Client.
Supplier, Engineer & Design and Sub-contractors are the other supporting groups involved
in the project inception and execution. These are the most necessary groups and they are
indispensable. The GCC industry operates in such a way only.
The client in general is the Governments of the GCC such as UAE, Saudi Arabia, Kuwait,
Oman, Bahrain etc.
All the governments have been very keen in improving the infrastructure by making huge
investments as various world events are lined up like EXPO 2020 DUBAI UAE and FIFA
World Cup in Qatar 2022.
Financing is not a requirement for all countries in GCC. All the countries are cash rich and
they are in search of projects for investments. Hence the project funding is completely
taken care by the respective government.
The General Contractor can be mainly divided into three categories as:
1. Local companies dealing in the construction industry only
2. International companies dealing in the construction industry only
3. Groups of companies dealing in various industries

INFRASTRUCTURE: ROAD CONSTRUCTION INDUSTRY

BUSINESS STRATEGY DIAMOND MODEL

The business strategy diamond model for UAE/GCC road construction industry is:

Main Customers:
Governments,
Transport
Authorities etc.

Rapid Expansion
by involving in all
government
projects,
Sequencing in
the next 4 years
consecutively

PREMIUM PRICES DUE

TO UNMATCHABLE
SERVICES

Decreased Project Construction Time

Complete Contract Control and
operation & maintenance control
Competitive Pricing

More Construction
Equipment, Joint
Ventures with
Governments, Enter
New projects, Capture
the Government
Investment Proposals