How Can Bahrain Sustain Its Competitive Advantage in The Banking Sector and Capitalize On Its Excellence As A Market Leader in The GCC

THE UNIVERSITY OF STRATHCLYDE
BUSINESS SCHOOL
MBA PROJECT
How can Bahrain sustain its competitive advantage in the banking sector
and capitalize on its excellence as a market leader in the GCC?
Djameleddine Aissai
Noora Al-Saad
Zainab Bahram
Zainab Jahromi
2015
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How can Bahrain sustain its competitive advantage in the banking sector
and capitalize on its excellence as a market leader in the GCC?
Submitted in partial fulfilment of the requirement of the degree of Master of

Business Administration
University of Strathclyde
THE UNIVERSITY OF STRATHCLYDE MBA
August 2015
McClure
Djameleddine Aissai
Noora Al-Saad
Zainab Bahram
Zainab Jahromi
Supervisor: Dr. Dave Mackay
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Statement of Academic Honesty
We declare that this dissertation is entirely our own original work.
We declare that, except where fully referenced direct quotations have been included, no aspect of this
dissertation has been copied from any other sources.
We declare that all other works cited in this dissertation have been appropriately referenced.
We understand that any act of Academic Dishonesty such as plagiarism or collusion may result in the
non-award of a Masters degree.
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ACKNOWLEDGMENTS
We would like to take this opportunity to thank everyone who has supported us throughout this MBA
from family, friends, colleagues, professors and classmates.
We would specifically like to thank our supervisor Dr. Dave Mackay for his valuable inputs and
comments on the paper. Special thanks goes to interviewees and participants of this project who
provided priceless information and insights towards achieving the results of this project.
Last but not least, the team is grateful for Mr. Djameleddine Aissai, our team member, for providing
all the support to conduct our project.
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I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I
I took the one less traveled by,
And that has made all the difference.
Extract from The Road Not Yet Taken Robert Frost (1916)
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ABSTRACT
This dissertation seeks to explore and define the concept of financial center and the
fundamental determinants that contribute to its success. It aims at highlighting the overall
role it plays in the economy and the rationale behind countries competing to become
financial centers. It intends to do so by answering the research question: How can Bahrain
sustain its competitive advantage in the banking sector and capitalize on its excellence as a
market leader in the GCC? The above premise will be discussed in the light of theoretical
frameworks, namely Resource and knowledge-based theories, as well as Porters
Competitive Advantage of Nations. The empirical evidence and the literature review suggests
that whilst Bahrain has been over four decades the main financial hub in the region, owing
to its expertise gained throughout the years as an offshore center, coupled with a talented
pool of bankers, a robust regulatory body, and being a pioneer in Islamic banking, its
competitive advantage has been dented due to lack of a well-articulated strategy and absence
of branding that would consolidate and protect its achievements as well as the absence of an
innovation agenda. The societal tensions that rocked the island in 2011 added a risk
premium and unfairly penalized the most liberal country in the GCC paving the way to
Dubai to claim the title of most prolific financial center in the region. We argue that a clearly
formulated strategy within Bahrain vision 2030, and an innovation agenda capitalizing on
Bahrains strengths and a well-articulated value proposition will likely put Bahrain back on
the map. The recommendations were part of an integrated strategy approach, using strategy-
mapping process by means of Decision Explorer software.
Keywords: strategy, entrepreneurship, financial center, resource-based theory (RBT), competitive

advantage of nations, offshore center.
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Total word count of project is 27,903 words, excluding abstract, table of contents, figures, tables,
references and appendices.
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TABLE OF CONTENTS
Statement of Academic Honesty ................................................................................................ 3
ACKNOWLEDGMENTS .................................................................................................................... 4
ABSTRACT .......................................................................................................................................... 6
TABLE OF CONTENTS ..................................................................................................................... 8
LIST OF FIGURES ........................................................................................................................... 10
LIST OF TABLES............................................................................................................................. 11
GLOSSARY ....................................................................................................................................... 12
LIST OF ABBREVIATIONS........................................................................................................... 14
Introduction and Context .......................................................................................................... 15
I. Banking Sector ..................................................................................................................................15
II. Bahrain Economic Vision 2030 ..................................................................................................16
III. Statement of the Issue and Significance of this Study ......................................................16
IV. Initial Research Questions .........................................................................................................17
V. Project Overview .............................................................................................................................18
Chapter 1. Literature Review................................................................................................ 19
1.A. Introduction ..................................................................................................................................19
1.B. Theoretical Literature Review ...............................................................................................20
1.B.1. Resource-Based View Strategic Thinking ................................................................................... 20
1.B.2. Knowledge-based theory and Human Capital............................................................................. 25
1.B.3. Where do technological advances stand? ..................................................................................... 27
1.C. Empirical Literature Review ...................................................................................................29
1.C.1 The Banking Sector in Bahrain ......................................................................................................... 29
1.C.2 Tools and Methodology for Assessing the Financial Centre Sustainability ....................... 30
1.D. Conclusion .....................................................................................................................................45
Chapter 2. Methodology.......................................................................................................... 48
2.A. Research Philosophy and Approach.....................................................................................48
2.B. Research Methods .......................................................................................................................49
2.B.1. Data Collection ..................................................................................................................................... 50
2.B.2. Data Selection and Analysis Tools ................................................................................................. 56
2.C. Research Limitations and challenges ...................................................................................60
Chapter 3. Findings and Analysis ........................................................................................ 61
3.A. Interview Results ........................................................................................................................61
Issues ......................................................................................................................................................................... 61
Capabilities.............................................................................................................................................................. 63
Human Capital ....................................................................................................................................................... 65
Innovation of resources ....................................................................................................................................... 69
Islamic Banking ..................................................................................................................................................... 70
Strategy..................................................................................................................................................................... 71
3.B. Analysis ...........................................................................................................................................73
a. Performance Logic Analysis ........................................................................................................73
b. Porters Diamond Model ...............................................................................................................81
Factor Conditions .................................................................................................................................................. 82
Demand Conditions .............................................................................................................................................. 83
Related and Supporting Industries ................................................................................................................... 84
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Firm Strategy, Structure and Rivalry: ............................................................................................................. 86
The Role of Government .................................................................................................................................... 88
The Role of Chance .............................................................................................................................................. 88
The Diamond as a System .................................................................................................................................. 89
3.C. SWOT Analysis ..............................................................................................................................91
Strengths .................................................................................................................................................................. 94
Weaknesses ............................................................................................................................................................. 95
Threats ...................................................................................................................................................................... 97
Opportunities .......................................................................................................................................................... 98
3.D. Summary of Findings .............................................................................................................. 102
Chapter 4. Recommendation and Conclusion ............................................................... 105
4.A. The issue mapping process................................................................................................... 105
Map 1: Issue System ............................................................................................................................. 107
SSI 1: Issue Management .................................................................................................................... 108
Map 2: Laddering Up ........................................................................................................................... 109
Map 3: Goal System .............................................................................................................................. 110
SSI 2: Purpose ........................................................................................................................................ 111
Map 4: Competencies, Assets and Outcomes .............................................................................. 112
Map 5: Most Distinctive Aspects of Competence System ........................................................ 113
SSI 3: Competitive Advantage........................................................................................................... 114
Integrated Statement of Strategic Intent ..................................................................................... 115
Alternative Representation of Integrated SSI ............................................................................ 116
4.B. Conclusion................................................................................................................................... 117
Bibliography ................................................................................................................................ 121
Appendix 1: Additional Information on GFCI Competitiveness Report ............................ 129
Bahrain Financial Centre Competitiveness Profile ................................................................................. 129
UAE Financial Centre Competitiveness Profile ....................................................................................... 130
Qatar Financial Centre Competitiveness Profile ...................................................................................... 131
Global Competitiveness Index Framework ............................................................................................... 132
Countries/Economies at Each Stage of Development ............................................................................ 133
Recent Financial Centres Ranking................................................................................................................ 134
GFCI 17 Financial Centres Profiles ............................................................................................................. 134
Appendix 2: CBB Financial Sector Fact Sheet ............................................................................ 135
Appendix 3: Key Indicators of Bahrains Banking Sector (EDB, 2014) ............................. 137
Appendix 4: Examples on Individual Banks Marketing Campaigns on Prize-Winning
Deposits ................................................................................................................................................... 138
Appendix 5: Issue Laddering ............................................................................................................ 139
Appendix 6: Integrated Map of Most Distinctive Aspects ...................................................... 140
Appendix 7: Interview Response Samples .................................................................................. 141
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LIST OF FIGURES
Figure 1 Adapted from Grant (1991): A Resource-based Approach to Strategy Analysis-
A Practical Framework.................................................................................................................... 22
Figure 2 Adapted from Porter (1990): Patterns of National Competitive Success ........... 23
Figure 3 GFCI Factors of Competitiveness ........................................................................................ 31
Figure 4 Adapted from GFCI 17 - The Stability of Top 40 Financial Centers....................... 32
Figure 5 Adapted from GFCI - The Key Determinants of Financial Centers Profiles ........ 33
Figure 6 Adapted from the Global Competitiveness Report - Bahrain's profile (2014-
2015) ...................................................................................................................................................... 34
Figure 7 Human Capital Components ................................................................................................. 35
Figure 8 Business Environment Components ................................................................................. 37
Figure 9 Financial Sector Development Components .................................................................. 40
Figure 10 Reputation and General Factors ....................................................................................... 42
Figure 11 Banking Risk Country Assessment - November 2014 (S&P, 2014) .................... 43
Figure 12 Infrastructure Factors .......................................................................................................... 43
Figure 13 Hierarchy of Research Methodology adapted from Strathclyde Methodology
Exemplar (Strathclyde, 2015) ...................................................................................................... 49
Figure 14 Interview invitations Distributed by Sector ................................................................ 55
Figure 15 Interview Responses by Sector......................................................................................... 55
Figure 16 Performance Logic Diagram (Static Resource-Based View) - Adapted from
Sminia (2014) ..................................................................................................................................... 57
Figure 17 Performance Logic Diagram (Dynamic Resource-Based View) - Adapted from
Sminia (2014) ..................................................................................................................................... 58
Figure 18 Performance Logic diagram for Bahrain banking sector Adapted from
Sminia (2014) ..................................................................................................................................... 75
Figure 19 Core Capabilities - Adapted form Sminia (2014) ....................................................... 76
Figure 20 Core Competence Diagram - Adapted from Hamel and Prahalad (1994) ........ 79
Figure 21 Performance Logic diagram for Bahrain banking sector Adapted from
Sminia (2014) ..................................................................................................................................... 80
Figure 23 Factor Conditions Conformity with Porter's Model.................................................. 83
Figure 24 Demand Conditions Conformity with Porter's Model.............................................. 84
Figure 25 Related and Supporting Industries Conformity with Porter's Model ................ 86
Figure 26 Firm Strategy, Structure and Rivalry Conformity with Porter's Model ............ 87
Figure 27 Role of Government and Chance in Porter's Model .................................................. 89
Figure 28 Strategic Mapping Process adapted from Strathclydes Making Strategy
Workshop (2014) ............................................................................................................................ 106
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LIST OF TABLES
Table 1 Key Competitiveness Factors of the World Class Financial Centers (SIA, 2005) .... 34
Table 2 Summary of Bahrain Banking Sector's Competitiveness Capabilities and Issues ..... 46
Table 3 Interview questions by Theme/Topic ...................................................................................... 50
Table 4 VRIN criteria analysis for Bahrain banking resources ...................................................... 73
Table 5 Factor Conditions Scoring .......................................................................................................... 83
Table 6 Summary of Porter's Diamond Model .................................................................................... 90
Table 7 Summary of SWOT analysis ..................................................................................................... 92
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GLOSSARY
AAIOFI The Accounting and Auditing Organization For

Islamic Financial Institutions is an Islamic
international independent non-profit company
that practices accounting, auditing, governance,
ethics and Shari'a standards for Islamic financial
institutions and the industry (AAIOFI, 2014).
BCBS Basel Committee on Banking Supervision is a

team of international banking authorities, who
effort to enhance supervision, regulation and
financial ability of worldwide banks (Bank of
International Settlements, 2015).
BIBF Bahrain Institution of Banking and Finance is an

education and training providers to banks and
other business sectors (BIBF, 2015).
Central Bank of Bahrain is a public authority

CBB who is responsible for sustaining financial and
monetary steadiness in Bahrain (CBB, 2015).
FATF Financial Action Task Force is an inter-

governmental policymaking body whose purpose
is to establish international standards, and to
develop and promote policies, both at national
and international levels, to combat money
laundering and the financing of terrorism.
(Fincen, 2015)
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GFCI Global Financial Centre Index is published by
Z/Yen Group and it ranks the competitiveness of
financial centers (Zyen, 2015).
MENA-FATF The Financial Action Task Force for the Middle

East and North Africa it recognizes the threats
caused by terrorists and money laundering to
Middle East and North Africa Region
(MENAFATF, 2015).
OECD Organization for Economic Cooperation and

Development is an international economic
organization that encourages economic progress
and world trade (OECD, 2015).
SIA Securities Industry Association is representing

security product supervisors. Their mission is to
be the primary resource for the global security
industry(SIA, 2015).
A theoretical framework that verifies if a

VRIN resource is a basis of sustainable competitive
advantage. According to VRIN, resource must be
valuable, rare, inimitable and non substitutable.
(MSG, 2015)
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LIST OF ABBREVIATIONS
AAIOFI The Accounting and Auditing Organization for Islamic Financial Institutions
BAB Bahrain Association of banks
BIBF Bahrain Institute of Banking and Finance
BMI Bank Monitor International A Fitch research company
BCBS Basel Committee on Banking Supervision
CBB Central Bank of Bahrain
GCC Gulf Cooperation Council
EDB Bahrain Economic Development Board
GFCI Global Financial Centre Index
GDP Gross Domestic Product
FATF Financial Action Task Force
FDI Foreign Direct Investment
OECD The Organization for Economic Co-operation and Development
SIA Securities Industry Association
R&D Research and Development
RBT Resource Based Theory
TIS Technological Innovation System
% Per cent
BHD Bahraini Dinar
MENA Middle East and North Africa region
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Introduction and Context
I. Banking Sector
The banking system in Bahrain consists of multiple banking institutions varying between commercial
banks, wholesale banks, investments, of which most of them if not all cater for conventional and
Islamic transactions. The banking industry is the core of the financial system in Bahrain, holding
more than 85% of the total financial assets. Conventional banks consist of 69 wholesale banks, 23
retail banks, 36 representative offices of overseas banks and 2 specialized banks. The Islamic banks
consist of 6 retail banks and 18 wholesale banks and offer Sharia compliant products and services
(CBB, 2015). The banking sector has a 17% contribution to Bahrains GDP, with a growth of 22% in
total assets for the period 2009-2014 (BAB, 2015).
The sector has assisted in forming Bahrain as a leading financial hub in the region. Industry
development has been hold up by an open market economy; stable macro-economic and monetary
policies; a reliable regulatory structure aligned with international standards; and skilled local
employees. All these factors have combined to strengthen Bahrain's status as a regional banking
center, effectively pulling various foreign banks to establish physical existence in the country (CBB,
2012).
The Central bank of Bahrain (CBB) is the sole regulator in the market, assuming the supervisory and
licensing role for all financial institutions. Listed banks are also regulated by Bahrain Bourse, the
former Bahrain Stock Exchange company. Around 18 banks, varying between commercial and
investment, are listed in the Bourse (Bahrain Bourse, 2015).
The top five banks in Bahrain that represent 72% of the total assets are: Ahli united bank (AUB),
Arab banking corporation (ABC), Gulf international bank (GIB), Albaraka banking group (ABG) and
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Bank of Bahrain and Kuwait (BBK) (BAB, 2014). Most of them are licensed as conventional banks
except for Albaraka banking group which is an Islamic wholesale bank.
II. Bahrain Economic Vision 2030
Every country should introduce a vision that motivates all sectors of the society and make a culture
for change for brighter futures (Gupta, 2002). Bahrain has introduced a nation wide economic vision
in 2008 named Vision 2030 (EDB, 2015). The economic vision statement of Bahrain provides a
roadmap for the constant development of Bahrains economy, aiming for a better living standard for
Bahrainis. The Vision is based on three main principles: 1. Motivating the private sector to impel the
economic growth with the aid of government through providing sufficient base, recovering human
capital and supporting entrepreneurship and innovation to build a sustainable economy; 2. Rising
production, salaries and economic expansion by espousal of attractiveness and competitiveness to
investors; and 3. Presenting a regulatory and legal framework to guarantee fairness and simplicity to
provide equal opportunities to Bahrainis (Bahrain Economic Vision, 2008).
III. Statement of the Issue and Significance of this Study
The banking industry in GCC has witnessed tremendous changes in the last decade. Bahrain has
always been regarded as the main financial hub for the banking industry, given the high caliber of its
financial professionals, regulating authority and educational excellence. Additionally, the country has
been on the forefront of entrepreneurship of banking offerings e.g. it has pioneered Islamic banking
while being the host of the WIBC (World Islamic Banking Conference) and such other events.
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Many neighboring countries started reaping the fruit of Bahrain's success in the banking sector,
building up their competitive advantage and attracting human capital out of the country.
No thorough research has been conducted on this topic, hence its originality and relevance in the
actual financial landscape makes it a pioneer research paper for the industry, additionally adding
value to the University of Strathclyde research bank. Also, the team here attempts to apply theories
that are built on firm level to a national level, assuming that a country is a larger institutional setting.
This is a definite challenge towards theory implementation, however a worthwhile attempt to assess
the national position towards sustainable competitive advantage.
IV. Initial Research Questions
Subsequent to the comprehensive overview on Bahrains banking sector context, following are the
research questions:
What are the parameters defining a country as a banking hub?
How did Bahrain initially establish itself as a financial hub?
What were the ingredients and attributes that contributed to the success of Bahrains
experience?
What are the main challenges faced by the banking sector and how are they capitalized on?
What is the recommended strategy to sustain the banking sector leadership within a specific
timeframe? How do we further grow this market segment?
How would the Economic Development Board (EDB) in Bahrain support this initiative?
What role would/should the EDB play?
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V. Project Overview
The banking sector in Bahrain is an exciting case study given the dynamic and significant changes
that have affected the sector over the years. Bahrains financial center was established in the early
1980s, being one of the oldest in the region. In the past decade, Bahrain has struggled due to the
growing competition with the newer financial centers in Dubai and Doha, while relatively remaining
a financial hub for Islamic banking till date (Hamdan, 2011).
As a result, this project focuses on how Bahrain can maintain its current financial position within the
region. The project paper begins with the literature review covering theoretical and empirical
literature around the sustainability of competitive advantage in the banking sector from a resource-
based view theory. The chapter is followed by methodology of research highlighting our data
collection through interviews and the theoretical tools used for analysis. Subsequently, we provide
intensive data analysis and findings followed by a recommendation chapter that is built utilizing
Decision Explorer software for strategy-mapping process. We finally provide a section on reflective
learning by each team member going through the journey of this research.
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Chapter 1: Literature Review
Chapter 1. Literature Review
1.A. Introduction
The present literature review chapter includes two parts i.e. theoretical and empirical. The first
theoretical part discusses the relevancy of a resource-based view (hereafter referred to as RBV or
RBT interchangeably) strategic thinking towards building a sustainable banking sector. This section
highlights academic discussion on how the RBV can support strategic initiatives towards sustainable
competitive advantage by comparing thoughts and identifying gaps.
The second part namely the empirical section discusses the banking sector in Bahrain, identifying the
components that led the country to establish its banking hub in the early 80s and the challenges that
decelerated its progress due to competition from Dubai and other GCC markets. The literature will
also look into the factors that help shape a competitive banking hub in a country. Chapter 1 aims at
establishing the relationship between the resource-based strategic thinking and the determinants of
Bahrains potential sustainable competitive advantage in the banking sector.
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1.B. Theoretical Literature Review
The theoretical part of literature review emphasizes on the Resource-based View strategic thinking,
elaborating on the implications of static and dynamic views that fall under this theory towards
competitiveness of the countrys resources. Further emphasis is directed to knowledge and
technology as significant resources towards competitiveness of todays world. A branch of this
literature is dedicated to Porters model on the competitive advantage of nations given the nature of
our case study that covers the banking sector on country-level.
1.B.1. Resource-Based View Strategic Thinking
Literature on the Resource-Based Theory builds on the concept that internal resources of a firm are
the key determinants of performance (Wernerfelt, 1984) and (Barney, 1991). Scholars vary on the
scope of resources that lead to sustainability of competitive advantage. Barney defines resources as
all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. that a
firm owns and utilizes to implement its strategies in an efficient and effective manner (Barney, 1991).
He also states that resources have to be Valuable, Rare, Inimitable, and Non-substitutable (VRIN) for
a firm to sustain competitive advantage. For VRIN to work, resources need to be non-tradable and
difficult to identify by others. Literature also assumes that for a firm to have sustainable competitive
advantage, it has to compete in an imperfect factor market for that particular resource that it possesses
(Sminia, 2014). Bahrain as a country should identify unique processes and VRIN resources such as a
historical trend of unique services, innovative products or skilled manpower. The combination of
VRIN resources can strategically achieve a sustainable competitive banking sector. However, this can
sustain for a limited period of time given the dynamic nature of economies and financial markets.
Timeframe of sustainability is another factor that the resource-based theory does not seem to cover.
RBT is divided into two sub-theories i.e. static and dynamic. The static resource based view strategic
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thinking combines resources and individual abilities into core capabilities that meet VRIN criteria
(Sminia, 2014) & (Ackermann & Eden, 2011). Grant (1991) identifies resources as the foundation of
a firms competitive advantage and provides a model of identifying resources, finding out core
capabilities and competences, focusing on capabilities that regenerate profit and finally evaluating
and finding gaps in firm resources that need to be filled (Grant, 1991) - Figure 1. The same author
differentiates resources from capabilities. Resources are identified as the inputs of the production
process, while capabilities are defined as the capacity of a team of resources to perform an activity.
Grant (2001), on the other hand, emphasizes the importance of not only deploying the resource base
but also developing it. However, literature does not provide a specific framework on developing a
firms resource base nor a timeframe of the sustainability of competitive advantage.
While capabilities take the broader scale of the value chain, competencies come around the core
technological and production strength of a firm. Capabilities are more evident to competitors and
customers, while core competencies are difficult to be recognized by others (Stalk et al., 1992).
Other scholars claim a dynamic view of RBT, where the continuity in the firms resource base that
allows dealing with environmental volatility is labeled as dynamic capability (Sminia, 2014). It is
defined as the ability to develop core competencies for a firm to stretch in the future combining
exploration and exploitation to deal with change. This notion supports Grants theory not only to
deploy the resources but also to develop them. The future stretch is however subjective based on top
managements strategic intent, and how they imagine the future (Hamel and Prahalad, 1994) and
(Helfat and Peteraf, 2009) and (Croitoru, 2012).
Although the above supports the development of resources, RBT is criticized to lack an
entrepreneurial element that leads to innovating resources (Akio, 2005). Akio highlights the need of
identifying the entrepreneurial relationship within the resources to empower sustainable competitive
advantage. It is argued that the abilities of an entrepreneur empower the direction of resources and
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capabilities perceiving the future value of them.
Figure 1 Adapted from Grant (1991): A Resource-based Approach to Strategy Analysis- A
Practical Framework.
Porter suggests for a nation to have competitive advantage must shift its resources from basic to
advanced; the ability to innovate and make its resources less transferrable to another nation in the
sense that resources are upgraded and more specialized (Porter, 1990). This view supports the earlier
thoughts on dynamic RBV. Porter argues that a countrys resource is not its basic factors of
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production but the capacity to innovate and upgrade, and those nations succeed because their
domestic environment is dynamic and forward-looking. This theory emphasizes the need of a new
tool to explore the nations competitive advantage rather than the traditional tools of fixing rates and
exploiting resources. Innovation can be manifested in a new product design, a new production
process, a new marketing approach, or a new way of conducting training. Much innovation is
mundane and incremental, depending more on a cumulation of small insights and advances than on a
single, major technological breakthrough. It often involves ideas that are not even newideas that
have been around, but never vigorously pursued. It always involves investments in skill and
knowledge, as well as in physical assets and brand reputations. (Porter, 1990).
Determinants of National
Competitive Advantage
Firm
Strategy,
Government Structure and
Rivalry
Factor Demand
Conditions Conditions
Related and
Chance
Supporting
Industries
Figure 2 Adapted from Porter (1990): Patterns of National Competitive Success
Porter provides a Diamond Model (Figure 2) to explain why some nations are more competitive than
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others. The Model explores six elements of a nation that could trigger innovation:
1. Factor Conditions: This element discusses factors of production in a country including human
resources, material factors such as natural resources, knowledge resources, capital resources and
infrastructure. These factors need not be in a country by nature but can be developed
(Themanager.org, 2001), and are considered as initial advantage to a country.
2. Demand conditions: Local demand according to Porters model is another main element to
competitive advantage. He believes that local demand should be internationalized in order for a
country to be competitive, in the sense that local needs to be higher than foreign needs for firms to be
innovative and create upgraded products and services.
3. Related and supporting industries: This element consists of supplying and supporting industries.
The model supports the notion that competitiveness of such industries influences a firms competitive
advantage. For example, for the banking sector in particular, the competitiveness of payment
processing industry may positively influence the competitiveness of a bank in terms of speed
processing customers transactions.
4. Firm Strategy, Structure and Rivalry: Porter believes when local structure and rivalry is intense,
firms are forced to be competitive and advance their products and services. This element is criticized
by some authors to include multiple sub-elements, which can be confusing (Oz, 2002).
5. The Role of Government: Porters assigns a role for the government towards the competitiveness
of a nation (Winden, 2015) by influencing the above four determinants, arguing that government
policies towards enforcing innovation and entrepreneurship can raise the nations competitive
advantage.
6. The Role of Chance: The role of chance is attributed to unexpected changes such as disruptive
technologies and foreign policymakers decisions that are out of firms/nations control. Porter believes
that such changes can remodel the conditions of competitiveness and reinforce innovation.
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Although the model is has been criticized to be more theoretical than empirical (Waverman, 2015),
generic and lacking specific definitions for each element, it has been replicated on many countries
and industries, and hence our selection to replicate the model on Bahrains banking industry.
Given the argument to develop resources entrepreneurially, and that entrepreneurship requires the
abilities and skills of individuals, we explore the human capital as a resource in the following section,
studying its impact on providing sustainable competitive advantage.
1.B.2. Knowledge-based theory and Human Capital
Part of the resource-based view looks at knowledge as a key resource to the firms and world economy
(Grant, 1996) & (Kogut & Zander, 1992). Knowledge is classified as Tacit and Explicit; explicit
knowledge is knowledge that is easily transferable and does not grant competitive advantage while
tacit knowledge is what you cannot express and therefore can give a unique capability. Unlike other
economic resources, knowledge does not depreciate over time and may be a source of increasing
future returns (Curado, 2006).
Curado (2006) highlights the economic change of material-focused production to information-based
production. She emphasizes the shift to services industries and the high competition on information
and knowledge innovations. Such change places knowledge as a strategic resource to sustain
competitive advantage. Todays economy appreciates knowledge workers at the core of each
organization, encouraging innovation and corporate entrepreneurship (Sawhney et al., 2006). Grant
(2001) supports this notion and claims that economies of experience are essential to sustain
competitive advantage by acquiring the necessary skills over time. Organizations with experienced
staff and skilled manpower have an advantage over newcomers in the field. However it is argued that
such old skills should not keep the firm from adapting to new innovations and technologies which
25
newcomers are more likely to engage in. This also links to the theory of core rigidities (Barton, 1992);
where what youre used to can lead you to failure rather than success. Firms should avoid turning
their knowledge of a certain skill/product to a rigidity that prevents competitive advantage.
We therefore interpret that human capital is the base resource for knowledge and skills. Scholars
define human capital as individuals' knowledge and abilities that allow for changes in action and
economic growth (Coleman, 1988) & (Dakhli & De Clercq, 2004). Others define it as the stock of
knowledge, know-how, expertise, and education residing in individual workers, brought to bear in
their productive work but distinct from their capacity to do manual labor (Dean & Kretschmer,
2007). The definitions demonstrate that human capital pertains to skills and knowledge of the
individuals that surpass their capability to do manual labor.
While authors claim that markets under the resource-based view determine the value of a resource, it
is argued that the value of human capital cannot be market-driven (Kraaijenbrink, 2011). Human
capital value is influenced by the intangible factors such as culture and tacit skills that cannot be
determined by the job-market. Kraaijenbrink explains that firms take into great consideration the
match between human capital skills and the culture, attitude, and social scale of the organization.
Human capital carries the risk of mobility. While other resources transferability can be measured and
somehow controlled, human capital cannot be held from moving between organizations. Some
scholars even argue that the value of an employee does not always vanish when he/she leaves the firm.
Other literature matches the knowledge-based view to organizations as cultures (Hofstede, 1997). The
combination of firm beliefs, values and knowledge practice create the unique attribute to a firms
competitive advantage. An organizational culture that is better than competitors i.e. supported by
unique human knowledge and experience can be the core of sustainable competitive advantage.
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1.B.3. Where do technological advances stand?
The banking industry is an intensive user of technology in conducting transactions, calculations and
financial structures. Internet banking, electronic payments, information exchanges and centralized
creditworthiness databases are some examples of the progress of using technology in the banking
system. Studies show that such use of technology continues to spread among banks as the use of such
advances becomes more feasible and secure to customers (Berger, 2003). These technologies are
claimed to improve productivity and growth of banks. The growth effect of some technologies is
easily measured such as the effect of electronic payments on the productivity of a bank. Other
advances, such as exchange of information, are more difficult to measure in terms of productivity
increase.
The resource-based theory favors the positive relationship between technological advances and the
firms growth (Forcadell, 2001). This view refers to technological innovation as investment in R&D
and recommends the encouragement of R&D in order to enhance innovations and diversification.
Markard and Truffer define a Technological Innovation System (TIS) as a set of networks of actors
and institutions that jointly interact in a specific technological field and contribute to the generation,
diffusion and utilization of variants of a new technology and/or a new product. (Markard & Truffer,
2008). Actors in this definition are individuals and organizations including governmental bodies, non-
governmental organizations, universities and any other involved party. Institutions on the other hand
are passive elements such as laws and regulations, culture and values that tend to support the actors in
order to achieve an innovation system (Markard & Worch, 2012). The issue is the lack of specific
allocation of roles to actors and institutions, to identify the strategic weight of each.
It is noticed that literature on technological advances as a resource to competitive advantage goes
back to human capital as the base element of sustainability. We therefore give more strategic weight
27
to human capital as the resource that can sustain competitive advantage to organizations/sectors.
In applicability of the present research, owners of resources can be in a set of a network of
organizations (Gulati et al., 2000) creating inter-organizational ties, where possession of resources is
not a must, but rather provides access to them. Such resources are said to be available at aggregation
level (Markard & Worch, 2012) where a number of organizations have access to them and create
collective benefits.
28
1.C. Empirical Literature Review
1.C.1 The Banking Sector in Bahrain
The banking industry is known to be dynamic and tuned to rapid change. Sustainability of
performance in the banking sector is difficult to achieve (Liu et al., 2010) and banks are
recommended to establish a resource-based strategic focus (Mehra, 1996). Banking literature
highlights the period of imitating banking resources to be short hence rendering sustainability a
challenge. A study conducted on the Australian banking sector revealed that competing banks
imitated innovative activity quickly and that no bank could sustain a major product or innovative
process (Roberts & Amit, 2003). Roth and Jackson (1995) debate that market structure plays an
economically insignificant role towards higher banking performance, and that competitive advantage
is more likely to be resource-specific (Roth & Jackson, 1995).
This part of the literature review will deal with empirical research compiled by entities such as
Geneva-based Global Economic Forum, Global Financial Centres Index (GFCI), Central Bank of
Bahrain, and other research bodies, the aim of which is to give some statistics regarding Bahrains
ranking compared to its peers and the factors and resources that are likely to influence its immediate
and future development to sustain its competitive advantage. The reports form part and parcel of the
literature review so that insights can be drawn to formulate in due course certain recommendations. In
this respect, the researchers will provide the definition of the Financial Centre and the rationale
behind having countries compete to be the financial hub. Last but by no means least, the tools and
models that are widely and globally used to assess the competitiveness of existing and potential
financial centre shall be discussed.
29
A financial centres is defined as a location that is home to a cluster of nationally or internationally
significant providers such as investment managers or stock exchanges (Cassis & Bussire, 2005), or
as defined by the The Securities Industry Association (SIA) for a financial hub to having achieved
sufficient critical mass to become conduit for international, national and regional financial
participations (Securities Industry Association, 2005).
The rationale of having a Financial Centre according to Bank of England from a macroeconomic
perspective is to contribute in the growth of the economy and employment while optimizing the
allocation of funds and resources (Davis. E.P, 1990). In the case of Gulf Cooperation Council (GCC)
the rationale is geared towards:
Economic development (i.e. national economic development) driven by a high concentration
of financial institutions, multi-national cooperation and firms with the aim of supporting the
financial sector;
Facilitating the participation in the growing market for financial services;
Rendering the financial sector more active and diversified;
Support investment and growth opportunities the region; and
Preventing societal pressures through job creation and welfare (THE FLETCHER SCHOOL -
TUFTS UNIVERSITY, 2012).
1.C.2 Tools and Methodology for Assessing the Financial Centre Sustainability
While it is important to discuss the concept of a financial hub and the rationale behind it, one should
not overlook the instrumental factors or determinants, which have been modelled to provide a
framework upon which practical insights can be drawn to assess the primacy of a financial hub. Two
30
methodologies will be discussed in this section, namely Global Financial Centre Index (GFCI) and
the Global Competitiveness Report.
Global Financial Centre Index
The Global Financial Centre Index (GFCI) developed by Z/Yen Group in 2007 aims to rank and rate
financial hubs in terms of competitiveness (Z/Yen, 2015) under five main areas namely: i) Human
Capital, ii) Business Environment, iii) Infrastructure, iv) Financial Sector Development, and v)
Reputational and General Competitiveness (Figure 3 and Appendix 1).
Figure 3 GFCI Factors of Competitiveness
The model segregates financial centres in terms of stability (Figure 4) and suggests that the three
disparate areas (Stable, Dynamic, Unpredictable) are influenced by two variables: increasing
sensitivity of instrumental factors versus varainace of assessment. Bahrain is shown as unpredictable

31
along with Qatar whereas Dubai is dynamic. This assessment model being relatively new, will
nevertheless help the researchers address those factors that are likely influential and impact the RBT
approach in this respect.
Figure 4 Adapted from GFCI 17 - The Stability of Top 40 Financial Centers
Moreover, the GFCI uses three determinants in profiling financial centres including Diversity,
Speciality and Connectivity (Figure 5). A definition of the above concepts remains imporatant in
explaining these factors :
Diversity - defines the breadth of financial industry that flourishes in a financial centre;
Specialty the depth within a financial center of the following industry sectors: investment
management, banking, insurance, professional services and government and regulatory; and
Connectivity the extent to which a center is well known around the world, and how much
non-resident professionals believe it is connected to other financial centers (Z/Yen, 2015).
32
Figure 5 Adapted from GFCI - The Key Determinants of Financial Centers Profiles
Global Competitiveness Report 2014-2015
The Competitiveness report unlike the GFCI relies on twelve main pillars: institutions, infrastructure,
macroeconomic environment, health and primary education, higher education and training, goods
market efficiency, labour market efficiency, financial market development, technological readiness,
market size, business sophistication and innovation. The paper will only consider the factors that are
directly related to our research questions. As per the latest report published by the World Economic
Forum (Schwab, 2014), Bahrain is ranked along other economies such as Malaysia, Russia, and UAE.
It stands at a transitional stage of an efficiency-driven economy towards an innovation-driven
economy (Appendix 1). The most developed stage under this report includes countries like United
Kingdom, United States, and Singapore. Bahrain against its peers in the Middle East and North Africa
region (MENA) scores at a high level and outperforms the benchmark, with the exclusion of its
market size (Figure 6).
33
Figure 6 Adapted from the Global Competitiveness Report - Bahrain's profile (2014-2015)
The Positioning of Bahrain as a Financial Centre
Literature also provides ten key competitiveness factors of long-lived reputable financial centres that
meet the world-class standards described in Table 1 below (SIA, 2005).
Table 1 Key Competitiveness Factors of the World Class Financial Centers (SIA, 2005)
KEY COMPETITIVENESS FACTORS OF THE WORLD-CLASS
FINANCIAL CENTRES
1. Open and fair financial markets
2. Free flow of capital and convertible currency
3. Skilled workforce and flexible labour law
34
4. Prevalent use of a globally familiar language
5. Fair, transparent, efficient legal and regulatory regime
6. Sound and fair tax regime
7. Implementation of international standards and best practices
8. Low cost of doing business (minimal red tape and bureaucratic
inertia, etc.)
9. High quality, reliable and appropriate physical infrastructure
10. Stable political and economic environment
The factors listed in Table 1 above are in line with the competitiveness areas identified by GFCI
earlier (refer to Figure 3 above). In this respect, the paper will investigate Bahrains position as a
financial hub based on GFCI factors due to their comprehensivness and inclusiveness of other
identified factors of the literature review:
1) Human Capital
Todays globalizing economy requires countries to nurture pools of well-educated workers who are
able to perform complex tasks and adapt rapidly to their changing environment and the evolving
needs of the production system (Schwab, 2014).
Availability of Education &

skilled personnel Development
Human
Capital
Flexible Labour
Quality of life
market & practices
Figure 7 Human Capital Components
35
The human capital as per GFCI Index and Global Competitiveness Report encompass four main
components namely Availability of Skilled Personnel, Education and Development, Flexible Labor
Market and Practices and Quality of Life. The banking sector in Bahrain employs over 14,400
employees (66% Bahraini nationals as opposed to 34% expatriates) with women making 37% of the
workforce. It contributes around 17% to GDP with total assets US 186.1 billion (CBB, 2015). Mr.
Nael Nasr, Head of Management Consulting for KPMG in Bahrain in a recent interview stated that
The Gulf economies are expanding at a rapid pace and with this local, regional, and international
businesses are seeking to build and expand their presence in the GCC. It is essential for these
businesses to choose a location that offers the right platform for sustainable growth, and this report
highlights that the Kingdom of Bahrain offers both a very competitive cost environment and an
attractive local labour pool. (EDB, 2015). Matthew Deakin, Chief Executive Officer of HSBC in
Bahrain echoing the same asserted: there is an experienced pool of nationals who are willing to work,
it is a cheaper operating environment, you can get into schools easier, and of course the big selling
point is access to Saudi Arabia (Pearson, 2014). Speaking of human capital will undoubtedly lead us
to consider what contributes to it, i.e education and in this respect Bahrains Institute of Banking and
Finance (BIBF) which in the words of the banking institute director it is hardwired into the very core
of the financial sector in Bahrain and has a major input in how it develops (Banker, 2013). Higher
education and training put Bahrain in the 55th /144 place. The flexibility of the labor market is
another aspect that should address any distortions to make education more effective and improve
skills to meet job market demand. As per Bahrain labor market risk report compiled by BMI Research
A Fitch Group Company- Bahrain receives an overall Labour Market Risk score of 58.5 out of 100,
placing the country fifth out of 19 states in the Middle East and North Africa (MENA) region,
between Qatar and Jordan (Research, 2015), which offers limited risk to investors. In terms of labour
market effeciency the country scores 26 out of 144 (Global Economic Forum, 2015). As for quality of
life Bahrain ranks among top 50 countries in the world after Saudi, Qatar and UAE.
36
2) Business Environment
Business Environment is defined within the context of political stability and rule of law, institutional
regulatory environment, tax and cost competitiveness, and macroeconomic environment (Figure 8).
Institutional
Political Stability &
Regulatory
Rule of Law
Environment
Business
Environment
Tax & Cost Macroeconomic

Competitiveness Environment
Figure 8 Business Environment Components
The history of the region has amply proven the importance of political stability to the potential
growth of a country and its reputation as a financial hub. Historically, Bahrain has hosted regional
financial services organizations when Lebanon suffered from civil war and political unrest in 1970s,
while the former was enjoying political stability (Financial Times, 2011). Unfortunately, the recent
political turmoil in Bahrain that started in 2011 has proven once again the criticality of political
stability towards the financial performance of the country. The news confirmed, The recent unrest
has forced banks to relocate some employees, calling into question the country's status as a regional
financial hub (New York Times, 2011). The same cited article confirmed that during that time Banks
started moving expatriate staff to Dubai and Doha, in particular offshore banks. By no question,
reservations on Bahrains ability to survive its edge as a financial hub existed during the unrest.
However, Thomson Reuters has recently highlighted that Bahrain still hangs on as banking sector
amid political turmoil (Thomson Reuters, 2013). Such opinion was formed based on Standard &
Poors statement on the outlook of Bahrain after two years following the political crisis: "Though
Bahrain's 2011 political crisis weakened growth potential and damaged the country's reputation as a
37
business services hub, we believe a post-crisis status quo has been established". The same article
highlights on how Bahrains financial sector managed to survive during and post the political turmoil,
this has been associated to the effective financial and regulatory system according to Mr AbdulKarim
Bucheeri former chairman of the Bahrain Association of Banks.
To the success of the financial centre, establishing an excellent institutional regulatory environment
that is formed based on an effective and efficient regulatory framework is imperative (Securities
Industry Association, 2005). In fact, such factor was ranked as the second important factor from the
world financial centres competitiveness perspective according to competitiveness factors ranking by
GFCI (Z/Yen, 2005).
Having an efficient and reliable regulatory framework relies on the degree to which regulations and
regulatory practices are in accordance to the global best practices (Securities Industry Association,
2005). The fact that Bahrain hosts many international bodies such as MENA-FATF and AAIOFI, and
that the Central Bank of Bahrain (CBB) is being cooperative in adopting international standards
issued by esteemed bodies such as OECD, FATF, and BCBS, all indicate the soundness of the
banking regulatory environment in Bahrain.
The same above cited report by the SIA also indicates on the importance of regulatory system to act
as non-prescriptive as possible, to ensure for maintaining the appropriate regulatory equilibrium.
The Central Bank of Bahrain acts as a sole regulator of the financial institutions where responsibilities
of the regulatory system follows the single regulator model that assigns the responsibilities of both
business conduct and prudential reporting under a single regulatory body (Thomson Reuters, 2015).
Although CBB is the sole regulator for banks from a financial perspective, other regulatory bodies
cover the aspects of commercial companies, national security and listed companies such as the
Ministry of Finance, the Ministry of Industry and Commerce, the Ministry of Interior and Bahrain
Bourse. These bodies are acting in liaison and consultation with CBB assuming a secondary role
(Thomson Reuters, 2015).
38
The CBB follows a combination of principle and rule-based approaches in its regulatory framework,
to satisfy global standards and maintain a flexible regulatory environment that supports the economic
equilibrium of a free supply and demand (CBB, 2015). The CBB was rated a (B-) on a scale of A to F
by the Global Finance Grades system for the year 2014 based on certain macroeconomic factors
(Global Finance Magazine, 2014).
Tax regime and operational costs are other factors contributing to the formation of a positive business
environment. Unlike complex taxation systems that form as a direct cost and compliance burden to
the financial institutions, having a sound and fair tax regime is crucial to attract capital investment
especially FDI (Securities Industry Association, 2005).
Bahrain is marked as an income tax-free economy i.e. 0% corporate and personal tax rate with
exception to certain oil related activities. Hence, all profits, dividends, or any other incomes generated
at corporate and individual levels, with the exclusion of oil drilling and exploration sectors (i.e. 46%
applicable tax rate), are tax exempted and not subject to any exchange control regulations; freeing
capital, profits, royalties, and wages, from any restrictions on repatriation (KPMG Fakhro, 2014).
Operational cost on the other hand, is another competitiveness criterion for attracting businesses and
investments. In the banking and financial sector, operational cost elements such as licensing and
registration, commercial rental rates, manpower, communication and utility expenses, regulatory
compliance maintenance, all form for potential licensee as the key determinants of banking operations
feasibility. The same report by KPMG concludes that Bahrain has one of the lowest costs of operating
a financial services business in the GCC region, with the average cost of above indicated key cost
aspects, being significantly lower i.e. 40% than other selected financial services in the GCC. As for
the cost of living e.g. cost of education and cost of residential properties rental, Bahrain is the most
affordable country to live comparing to other GCC states. Overall, the above does contribute in
reflecting a positive image of the countrys business environment. Nevertheless, free-tax advantage
39
specifically, does not form as a competitive advantage in favour of Bahrain, as the same advantage
(i.e. competitive or tax free rate) is being possessed by rival states in GCC.
3) Financial Sector Development
As emphasized by the World Economic Forum in its Global Competitiveness report 2014-2015, the
financial development pillar requires sophisticated financial markets that can make capital available
for private-sector investment from such sources as loans from a sound banking sector, well-regulated
securities exchanges, venture capital, and other financial products.
Volume and Volocity

Availibity of Capital
of Trading
Financial Sector
Development
Depth and Breadth of Employment and

Industry Cluster Economic Output
Figure 9 Financial Sector Development Components
In order to fulfill all those functions, the banking sector needs to be trustworthy and transparent,
andas has been made so clear recentlyfinancial markets need appropriate regulation to protect
investors and other actors in the economy at large (Schwab, 2014). The financial landscape in Bahrain
is diversified and enjoys an expertise of over 4 decades pioneering islamic financial services. Bahrain
is home to The International Islamic Financial Market, the International Islamic Ratings Agency
(IIRA), the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the
General Council for Islamic Banks and Financial Institutions.
The Thomson Reuters Global Islamic Finance Hub and Deloittes Islamic Finance Knowledge Center
rendering the Kingdom a knowledge hub and a center of excellence. Bahrain has seen the number of
40
registered financial services firms reaching 415 by the end of 2014 driven by greater demand for
more sophisticated financial products and services (CBB, 2015).
The CBB, the Kingdoms sole regulator, which enjoys an incomparable repute in the MENA region
has introduced new directives in line with new Basel requirements lately easing the integration of
GCC securities markets via unified standards. Moreover, CBB recently implemented new rules aimed
at boosting the Takaful sector (Islamic insurance) by addressing some issues around solvency. The
Takaful industry in Bahrain experienced a remarkable growth in the last 10 years - the industry grew
by almost 22 percent (CBB, 2015)
The ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI), an index launched in
December 2013 that documents the overall trend and growth of the Islamic finance industry
worldwide, ranked Bahrain first in the Middle East and North African (MENA) region, with total
assets worth $47 billion. Bahrain also showed the most developed Islamic Finance knowledge
landscape, and performed well in areas such as governance, with a consistent regulatory framework
of the Islamic Finance industry. All 6 GCC countries made it into the top 15 worldwide, with Bahrain
ranking first amongst them, demonstrating the overall strength of the Islamic finance sector in the
region (Thomson Reuters, 2014).
4) Reputational and General Competitiveness:
This factor comprises of city brand and appeal, level of innovation, attractiveness and cultural
diversity and comparative positioning.
41
City Brand and Appeal Level of Innovation
Reputation
and General
Factors
Compartive
Attractiveness and
Positioning with Other
Cultural Diversity
Centres
Figure 10 Reputation and General Factors
According to Blom Consulting report on cities branding Bahrain is ranked 81 with a CBS ranking A
(slightly strong) where cultural diversity is not only tolerated but celebrated through various cultural
manifestations and events in the kingdom. Bahrain is considered the most liberal in the GCC and
while every effort is made to keep its culture alive, Bahrain uses mainly local people to relay its
culture and the customs unlike Qatar and Dubai where locals are hardly seen active in the public
scene. Bahrain is ranked 63 as per global innovation index 2014 in its 7th edition, co-published by
Cornell University, INSEAD, and the World Intellectual Property Organization (WIPO, an agency of
the United Nations, UN). Bahrains reputation got dented due to volatile political tensions that broke
back in 2011 and this has added a risk premium on the country, which has experienced a fierce
competition from neighbouring Doha and Dubai (Research, 2015). The same report from BMI
Research states that Bahrains medium term outlook remains contingent upon a lasting solution
being found to the current political crisis. Unfortunately, we maintain our relatively guarded outlook
on the prospects that the government and opposition can come to some form of agreement in the near
term (Research, 2015). The country banking risk assessment for Bahrain, UAE, and Qatar is shown
in table below compiled by S&P for 2014.
42
Figure 11 Banking Risk Country Assessment - November 2014 (S&P, 2014)
5) Infrastructure
As a second pillar addressed by the World Economic Forum, infrastructure remains an important
factor that helps determine where the economic activity will take place.
Buildings and
Transport
Offices
Infrastructure
Infrastructure
Infrastructure
Factors
Environemntal
ICT Infrastructure Care and
Sustainbility
Figure 12 Infrastructure Factors
The importance of infrastructure is further highlighted by Securities Institution Association SAI in its
report entitled The Key Building Blocks of Financial center Efficient, reliable, and modern
infrastructure services are not only crucial for attracting investment and increasing international
competitiveness, but serve to boost economic growth and job creation (Securities Industry
Association, 2005).
43
Asserting the same, a research by the Z-Yen group ranked business infrastructure as the fourth
important factor in the competitiveness of world financial centers (Z/Yen, 2005).
This factor of competitiveness, as per GFIC index, entails such sub-factors as: Building and Offices
Infrastructure, Transport Infrastructure, ICT Infrastructure, and Environmental Care and
Sustainability (Figure 12).
Having Bahrain positioned on the transitional stage moving towards innovation and sophistication
arena, as per the global competitiveness report (Schwab Klaus, 2014), confirms that the country is
marked among economies with an established infrastructures, accommodating more than the essential
businesses and services needs. This is further indicated as per the same cited report, as it has ranked
the country in terms of infrastructures overall (31st out of 144), placing it on the forefront positions
(first quartile of the list), ahead of many developed countries such as Belgium. However, in
comparison to the benchmarked economies, Bahrain is ranked behind UAE that took the leading
positions under this ranking. Details of Bahrain, UAE, and Qatar ranking under each specified pillar
in the Global competitiveness report are available under Appendices 3 and 4.
A report on Bahrain infrastructure projects related to banking sectors by (Thomson Reuters , 2015)
highlights on the sluggish progress of financial sector has been hit by civil unrest that has dented
business confidence in the Gulf Arab state, but renewed construction activity could boost otherwise
muted growth in the banking sector, which could be the reason why is Bahrain ranked behind the
neighboring countries. However, the same report indicates that Bahrain is expected to pick up
progressively given the funding support injected by the government.
Applying this concept on to the actual Bahraini context, one can notice Bahrain Financial Harbor
BFH as the financial icon, which is a proof of countrys acknowledgement on the essentiality of such
factor to the economy.
44
1.D. Conclusion
Literature provides multiple definitions for resources, capabilities and routines being any assets or
processes of a firm/sector that carry strategic significance towards achieving competitive advantage.
Theories were written within the context of an organizational setting rather than a countrywide scope
application, which is the context of this paper, creating a challenge to broaden definitions and
applicability. This was found as a gap in literature to lack accurate research on countrywide contexts.
Difficulty was also faced in identifying a specific time horizon to frame sustainability of competitive
advantage and the development of resources, although theoretically these should be continuously
developed over time.
It is concluded the necessity of continuously innovating strategic resources and core competencies
that are VRIN and difficult to express such as tacit knowledge of human capital. Theoretical
literature has identified human capital and technological advances as the two main resources of
sustainable competitive advantage, given the entrepreneurial aspect that ensures continuity of
performance and growth. For an overall nation assessment, literature provides Porters Diamond
Model as a framework to determine competitive advantage by examining elements of: factor
conditions, demand conditions, related and supporting industries and strategy, structure and rivalry.
The model also incorporates the roles of government and chance as indirect influence to the previous
four determinants.
On the other hand, empirical literature identifies five main competitiveness factors namely human
capital, business environment, infrastructure, financial sector development and reputational
and general competitiveness. Literature review highlighted the fact that the banking sector lacks a
clear identification of its competiveness factors, whether being core assets or competences. There is
no clear vision towards the future of banking in Bahrain. We therefore summarize below the main
45
issues identified in the Bahraini banking sector along with the main capabilities under the five
competitiveness factors that could be identified as core competencies later in our research.
Table 2 Summary of Bahrain Banking Sector's Competitiveness Capabilities and Issues
No. Issues Capabilities
1 Social unrest perception still Attractive local labor pool, with skilled
lingering (Security and Stability). personnel and high education, and a
flexible labor market.
2 Lack of specialized training for Banking sector is regulated by a
national workforce. reputable regulator entity (CBB).
3 Limited access to finance. The second highest concentration of
Islamic banks in the world, and the first
in MENA region.
4 Absence or lack of an innovation Home of international standard bodies
agenda within the banking sector. such as AAIOFI and MENA FATF, and
rating agencies e.g. IIRA, and IIFM
5 Lack of aggressive branding Lower cost of living and a banking-
compare to competitors. friendly culture.
Empirical studies and theory parts of literature review have shown intensive interrelations between
the determinants of sustainable competitiveness of the banking industry. Although it is quite difficult
to draw a frame around each determinant, as they all work as a system and influence each other, we
attempt to analyze the banking industry under each theoretical tool separately in the following
chapters. For instance, human capital and financial sector development factors of the GFCI model
46
together go under factor conditions of Porters diamond model. On the other hand, financial sector
development can also be related to demand conditions from the Porter Model. The theory support for
significance of human capital and technological advances as core capabilities are positively related
with the importance of human capital and infrastructure as main determinants under the GFCI report.
This positive interrelation between theory and empirical data is a reinforcement of our initial notion
of the necessity of identifying core resources/capabilities under the resource-based view of strategic
thinking. The following chapters will attempt to gather strategic views directly from the banking field,
in order to incorporate such insights into theoretical frames, in an attempt to identify the countries
core capabilities and future strategic intent towards a sustainable competitive banking sector.
47
Chapter 2: Methodology
Chapter 2. Methodology
2.A. Research Philosophy and Approach
The research has taken the inductive (Adams et al., 2007) approach towards building a
conceptual framework on the sustainability of the banking industry in Bahrain where participants or
actors in the scope of this paper interpret the environment differently, attaching their own meanings to
the topic. There has been a focus on practical applied research to answer the paper questions
integrating different perspectives and choosing multiple views. We have taken into consideration the
differences between the social actors providing data and building knowledge to this topic, and that
data provided might be influenced by individual interpretations of the situation they are in (Saunders
et al., 2012). We aimed at studying the human interpretation of the banking sector context targeting a
small sample of high-level management. This would assist us draw general conclusions on the studied
concept rather than hypothesis testing. The research strategy is a case study exploring the
sustainability of the banking sector in Bahrain as a context, and therefore taking the form of an
exploratory design by performing literature search on the banking sector industry, followed by in-
depth interviews with field experts where analysis is conducted on the quality data provided. Figure
13 below summarizes the methodology tools conducted in this paper.
48
Inductive
Approach
Case Study
Exploratory Design
Multi-method Qualitative Study
Semi-Structured and In-depth Interviews,

Secondary Data Research
Performance logic models, SWOT analysis, Porter's

Diamond Model, Strategic Mapping Process
Figure 13 Hierarchy of Research Methodology adapted from Strathclyde Methodology

Exemplar (Strathclyde, 2015)
2.B. Research Methods
A multi-method qualitative study approach is used in this research where qualitative data has been
gathered through different collection methods. The multi-method has been chosen to overcome the
inherent limitation in each type of data collection. It assisted the team in strengthening the interviews
data with evidence from official reports. It also allowed researchers to flexibly utilize various tools to
answer research questions rather than being limited to one method only. We understand the challenge
of this method that leads to an extent of confusion in how to analyze, when to stop collecting data and
the in-depth knowledge that needs to be built for each tool used.
49
2.B.1. Data Collection
Primary data
A combination of semi-structured and in-depth interviews was used to collect primary data, having a
list of themes with key questions. The question themes were built based on research questions and
conclusion drawn from literature review. In some cases, questions were modified in relevance to the
context of the interviewed organization and personnel.
Interviews varied between face-to-face and electronic interviews (Email) based on the convenience to
the interviewees. Face-to-face interviews ranged between 30 minutes to 1hr 15 minutes long and were
audio recorded. Audio record was conducted in order to allow the team to direct quote some facts,
opinions while ensuring accuracy of data provided. It also allowed the team to focus on the interview
and questions. Although it was challenging to transcript audio recordings, the process allowed
researchers to thoroughly review and filter the information provided. Participants were asked to
freely address any crucial points in the banking sector that were not covered in the researchers list of
questions.
Interview questions were themed based on research questions to be answered as below (Table 3):
Table 3 Interview questions by Theme/Topic
Sr Topic Question Type
1 Bahrain Extensive literature and research on Bahrain has Probing

Banking identified four main issues facing the banking sector.
Sector These include social/political unrest; lack of specialized question
Issues training for local workforce, limited access to finance,
and lack of innovation agenda within the banking sector.
Which of these do you think is the most challenging
issue affecting the sustainability of competitive
advantage in Bahrains banking sector? And which
50
issues should receive the attention of banking

authorities?
2 Researchers and analysts state that two or more banking Open-ended
hubs will lead to cannibalization in this region; instead
each country should focus on a niche market question
(specialization) to complete each other as a GCC market.
(Agreement
a. To what extent do you agree with this statement,
justifying your agreement level? question)
b. What could Bahrain excel at?
3 According to the World Economic Forum, the limited Probing
size of the Bahraini market is a major limitation to the
growth of economic potentials. question
a. Do you see that the financial market is fully
absorbed for catering the domestic financial
needs?
b. Is there something as Bahrain brand when
competitors like UAE and Qatar have gone
aggressive to grab themselves a market share?
4 Capabilities What capability differentiates Bahrains banking Open-ended
excellence from Dubai and Qatar?
question
5 What is the resource/capability that Bahrain used to have Open-ended

and is lacking these days? Are there any
resources/capabilities being developed by Doha and question
Dubai that Bahrain lacks?
6 How can Bahrain leverage the different aspects of its Open-ended

resources in implementing its near, medium and long-
term strategy? question
7 Can connectivity across high growth markets be key to Closed

sustainable growth?
question
8 Global Financial Centers Index and World Economic Selection-

Forum, both on the competitiveness of world economies
and financial centers, have defined the key factors that question
contribute in the competitiveness of financial/banking
hub as:
a) Human capital
b) Business environment
c) Financial sector development
d) Infrastructure
51
e) Reputation and general issues

Based on your experience, which factors are deemed as
competitive advantage for Bahrain?
9 Local How would you describe Bahrains labor market in Probing

Human terms of supply and demand, does it satisfy the banking
Capital sector needs? What challenges does it present? Do you question,
believe that Bahraini bankers are the main element of the
Agreement
banking sectors sustainability?
question
10 How long does an expat employee remain with the bank Open-ended
compared to the lifespan of local employee?
question
11 What are the causes of local banking talent immigration Open-ended

to rival economies such as Dubai and Qatar? As a
Bahraini who opted to shift to and work in another question
economys banking sector, what are the parameters that
contribute in immigration of banking local talents?
12 What are the dimensions that need to be worked around Open-ended

towards improving the local talents in the banking sector
to minimize the level of brain drain in the sector as well question
as improving and sustaining such competitive
advantage?
13 Do you see as much presence of national caliber in Open-ended
Doha/UAE in the banking sector as here in Bahrain? Is
there any evidence of initiatives taken by Qatar and question
Dubai governments in favor of grooming the national
talent within the banking sector?
14 Innovation Theory suggests having an entrepreneurial relationship Open-ended

in Banking between the resources owned by the sector i.e.
innovating resources instead of only deploying them. question
How can we have innovative banking in Bahrain that
makes it the hub for bankers excellence? Where do you
think Bahrain stands in banking entrepreneurship
compared to Qatar and Dubai?
15 Islamic Do you think Bahrain has an advantage over its Agreement,

Banking competitors in Islamic Banking? Can Islamic banking be
the haven of entrepreneurship in Bahrain rather than open-ended
52
Qatar and Dubai? question
16 What can Bahrain do to grow its Islamic banking assets, Open-ended

a case in point Al Salam overtaking BMI?
question
17 National Where do you see Bahrains banking sector in five years Open-ended
Strategy time? What is the role that the market authorities and
governmental entities e.g. Central Bank, Tamkeen and question
EDB, can play towards enhancing and prompting the
banking market?
Sampling
We have selected a non-probability judgemental sampling since the purpose of our research questions
is exploratory (Uprichard, 2013). Selected individuals to be interviewed were identified based on the
following factors:
1. Significance of individuals position and experience in the banking industry and extent of
informative data that can be provided.
2. Extent of influence of the participants organization in the banking sector such as regulators,
government bodies, international bodies and high level education entities.
3. The official banks register published by the Central Bank of Bahrain.
4. Researchers individual networks and connection with prominent positions in their
organizations and field acquaintances.
5. Top 50 GCC banks published by gulfbusiness.com (Gulf Business, 2015) based on assets and
net profit.
The team has extended 62 interview invitations to senior managers in local and international banks,
policy makers, financial analysts and other specialised individuals. The sample has been limited to
53
participants with high-level knowledge and experience in the market in order to obtain in-depth data
of the current situation. Targeted audience expertise was majorly located in Bahrain, with some from
Dubai and Doha. Data gathering through interviews continued for more than a month period.
Theory fails to suggest a sufficient sample size for qualitative research (Mason, 2010) and hence
saturation principle has been undertaken in conducting research interviews. Saturation is the point in
data collection when no new or relevant information emerges with respect to the newly constructed
theory. (Given, 2008). Although saturation principle suggests continuous data gathering until no new
information is gathered, the limitation was that researchers did not have an open-ended timeline to
continue interviewing participants. The limited access to senior-level interviewees and organizations
was time-consuming and hindered reaching as many participants as expected.
Out of the 62 invitations sent (Figure 14 and 15), 21 responses received while 19 interviews were
conducted (30.6% of total invitations).
54
Interview Invitations Sectors

Islamic
Finance
Government 2%
Entities
3% Islamic
Auditing Banking
3% 11%
Regulatory
Authority
5%
Retail Banking
International 47%
Bodies
3%
Higher
Education
10%
Wholesale
Banking
16%
Figure 14 Interview invitations Distributed by Sector
Interview Responses by Sector
Audit, 2
Islamic
Banking, 3
Retail
Regulatory
Banking, 12
Authority, 1
Higher
Educatioin, 1
Figure 15 Interview Responses by Sector

55
Secondary data
Information gathered during interviews was supported by the collection of secondary data, to address
specific research issues with greater control and accuracy (Smith, 2008). Data was collected from
external resources varying between published reports, newspapers, journals, books, annual reports
etc. Such data assisted in the verification of factual statements mentioned in interviews in addition to
the personal observations perceived by the interviewers.
2.B.2. Data Selection and Analysis Tools
Respondents were asked open-ended questions in relation to the issues, capabilities and potentials
identified in chapter 1 of literature review. The content of interview responses was analysed by
categorizing verbal data and researchers observations under each question, as a basic level of
analysis.
A higher level of analysis was conducted by utilizing theoretical tools and analysis methods to draw
further conclusions and findings. The following section clarifies each tool used and its purpose:
1. The performance logic of both static and dynamic resource-based view focuses on the
sectors performance as the variable to be explained, to identify the factors that explain its
success or failure. This tool refers to the strategy part itself rather than management.
Depending on our findings of the factors of competitive advantage that explain performance,
we conclude whether the sector would success or fail. Competitive advantage here is seen to
be a product of three components: environment, the sector and the strategy it pursues. The
tool is used to basically match these three components.
a. Static resource-based view performance logic evaluation will use the VRIN criteria to
evaluate identified resource (Figure 16). That is resource should be valuable, rare,
56
inimitable and non-substitutable. If a resource fulfils these four criteria, competitive
advantage is sustainable. VRIN resources and capabilities will be identified as
strategic assets to the country. We try here to answer the question: are there any
issues that prevent the banking sector in Bahrain from exploiting its VRIN resources?
If yes, what can we do about them?
Exploitation Competitive Performance

of resources advantage of banking
sector
Does it fit?
No
Factor VRIN
markets resources
Figure 16 Performance Logic Diagram (Static Resource-Based View) - Adapted from Sminia
(2014)
b. Dynamic resource-based performance logic takes the above evaluation to another
level, where dynamic capabilities are identified (Figure 17). These would be
attributes that create and change VRIN capabilities such as R&D and strategic
alliances. A dynamic capability is theoretically also a core competency. The
question to be answered here is: are there any issues that prevent the banking sector
in Bahrain from stretching itself to explore its future based on its dynamic
capabilities?
57
Exploration of Future Performance

Dynamic Competitive of Banking
Capabilities advantage Sector
Can the Banking Sector

Stretch?
Yes
Volatile Dynamic
Markets Capability
Figure 17 Performance Logic Diagram (Dynamic Resource-Based View) - Adapted from Sminia
(2014)
2. Porters diamond model: this model would take the analysis into a nation wide level to
exploit the demand and factor conditions, strategy, structure and rivalry and the
competitiveness of supporting and related industries. The diamond model works as a system
to explain each element, its attributes and its influence on implementing a sustainable
competitive advantage for the nation-wide banking sector.
3. SWOT analysis: A strategic tool used to assess the strategic environment of the banking
sector, identifying opportunities and threats, realizing strengths and weaknesses of the
internal banking environment. VRIN resources, core capabilities (if any) would be plugged in
a SWOT analysis under strengths. These would be supported by an external environment
analysis of opportunities and threats from a market perspective.
4. Strategic Mapping Process: This tool was utilized to draw the recommendation part. It is an
issue mapping process based on Ackermann and Edens (2011) book and the MBA workshop
conducted on Making Strategy subject in 2014. The analysis involved using specialized
software to map issues and build statements of strategic intent for the banking sector. The
58
software used is Decision Explorer which works as a platform to sketch all identified issues
for easier view and record keeping, to enhance emergence of ideas and brainstorming
strategic goals. The research team had met after conducting the first part of analysis to plug
all issues identified in one place, prioritize these issues, and set goals. The process includes
creating multiple issue maps that would eventually lead to strategic intent statements.
59
2.C. Research Limitations and challenges
The overall paper has surfaced several challenges starting from literature review to analysis. However,
the main challenge was faced during primary information gathering. Since the research depends on
qualitative data, it is unclear to what extent knowledge is sufficient or to realize evidence.
Communication skills of research team were an integral part in our interviews in order to learn new
information from each participant (Hess-Biber, 2015). Another challenge was to be unbiased to a
preconceived preposition and be open to what interviewees had to say about the banking sector.
Conducting interviews had some limitations including the quality of the constructed questions
whether they would actually answer research topics or not and the bias of participants responses.
Qualitative research is labour intensive and large data sample can be time-consuming and impractical
(Mason, 2010). There was a risk of not achieving the saturation level in conducting our interviews
and hence any unexplained gaps in our findings could lead to an imbalanced recommended strategy.
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Chapter 3: Analysis
Chapter 3. Findings and Analysis
3.A. Interview Results
This section gathers interview results under each theme of questions, comparing different respondents
views that would later be incorporated as input to the analysis section.
Issues
The first part of the interview questions was structured into three main focus areas: issues that
surfaced from literature review published by governmental entities and research centers, the tendency
towards seeing several hubs hence more specialization, and market size and branding. The questions
served as background knowledge on Bahrain banking sector that would set the interview process in
motion. The probing questions on issues highlighted the political/social instability that Bahrain
banking sector had experienced in 2011 and how it added a risk premium which in the opinion of
many analysts and bankers somewhat put a dent on the sustainability and competitiveness of
Bahrains banking leading to a downgraded rating by S&P. This in turn has led to some banks
relocating its main operations to Dubai, the latter that did not deign to seize this opportunity and
started aggressively to market itself as the destination of choice for investors. Although answers
regarding the political instability were seen as the main driver, nevertheless its impact according to
some respondents was a case of non sequitur. Other factors affecting the sustainability of Bahrains
banking sector were highlighted; these include the overall economic context, i.e. to what extent the
economic landscape is open, transparent, vibrant and dynamic, as one cannot dissociate the financial
sector from the economy. The lack of marketing Bahrain destination as a brand was another factor
that was not effective, lacking a strategy that would further raise and promote Bahrains profile. This
has contributed to Bahrain losing its competitive edge to neighboring Dubai that proved a safer haven
for offshore banks. A third category stressed the fact that Bahrain lacks the opportunities Dubai
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Chapter 3: Analysis
offered especially financial deals, it only made more sense for the bankers to move closer to the
source of the deals one of the respondents stated. Lack of innovation in the banking sector, another
factor that has been documented in the Global Competitiveness Report 2015, came to support the
opinion of some respondents who weighted this aspect as crucial with regards to sustainability of
Bahrains banking sector. Some respondents did point to the fact that an absence of an innovation
agenda ranked high in their list hence should be addressed by banking community and the regulator
who together should strive and create a banking innovation center that would support entrepreneurial
initiatives in the kingdom and serve as a benchmark for neighboring countries.
The second part related to the tendency of seeing several hubs or carving a niche (specialization) was
somehow balanced between those favoring an open market policy for more competition, whereas
others did stress the fact that Bahrain should go for Islamic finance as a niche since it has got all that
it takes to be an Islamic hub. Respondents who put forth this claim argue that Bahrains long standing
tradition in the field in addition to being first in the MENA region supported by such institutions like
AAOFI, JIRA, etc. will therefore gain more since it was a pioneer in the region with biggest
concentration of banks in the region. Other respondents echoed the need for Bahrain to build up on
what it has already achieved, and advocated a more comprehensive model focusing on offshore/
wholesale banking further developing it and it is only whilst the market gains depth that the need for
specialization might arise and even include such segments that were not traditionally covered by
banking services such as insurance as it is the case in developed countries. Mortgage finance is
another segment, suggested by respondents, to develop by having the right regulations in place, which
would attract banks to have operations in the country to service this segment.
The third aspect tackled during the interviews for this section was related to market size and how this
can impact the growth of banking sector hence the need to penetrate markets beyond GCC and
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Chapter 3: Analysis
expand their portfolio for more profitability. Respondents were in agreement for the need to expand
or merge with a view to diversify their services and increase their capital base which would see them
more competitive to bid for mega projects.
Capabilities
This section of the interview questions aimed to explore the respondents views on the local
capabilities that the sector is currently in possession or in scarce of. The questions also aimed to
validate part of literature findings pertaining to Bahrains key differentiators and competitive
advantages at GCC region level, to identify issues and deficiencies in the countrys banking sector,
and to gather realistic insights in what can be done to sustain and capitalize on the sectors excellence.
Additionally, the section attempts to identify solutions to address the sectors weaknesses towards
growing and strengthening Bahrains position as a regional banking hub.
Responses to the question What capabilities differentiate Bahrains banking excellence from rival
banking hubs such as Dubai and Qatar? majorly mentioned the quality of human capital referring
specifically to the local or in-house talents or Well-educated and experienced local Bankers or
Human Capital, as well as the well-structured and strong banking supervisory regime as the key
capabilities. The respondents pointed out other capabilities such as:
i. Historical nature of banking system and the long standing banking experience especially with
respect of international banking (i.e. opening the first off-shore banking unit (OUB) in the
region late 70s);
ii. Inexpensive cost of living and operating in Bahrain; and
iii. Proximity or linkage to Saudi Arabia (KSA) being a country of high financial market
potential for social, geographic and political reasons.
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Chapter 3: Analysis
In response to our questions of what is the resource/capability that the country used to have and no
longer does? And what are the ones that being possessed or developed by Qatar and Dubai? The
respondents highlighted that Bahrain lost some of its resources/capabilities such as i) enforcement of
a flexible commercial law and regulatory legislation, ii) pioneer in banking and being the sole
applier of English Law in the region, iii) regional location for banking that attracts
international liquidity and financial institutions to set up offices in the country, iv) re-
investment and continuous development of competencies, v) political stability and reputation,
and vi) conducive business environment.
Some respondents identified competitors competences such as: i) fast pace and attractive life style in
Dubai, ii) thorough government support of the banking sector in Qatar, and iii) having a specific off-
shore banking jurisdiction that provide more flexibility, advantages, and legal system specialized and
experience in banking law (applied to both Dubai and Qatar).
Referring to financial center competitiveness factors as defined by GFCI and World Economic Forum,
most of the respondents stated that Human Capital and Business Environment with the advantage
goes to regulatory system, as the competitive advantage(s) that Bahrain currently possesses. Few of
respondents considered some of the other factors such as development of financial sector,
infrastructure, and reputation and general issues, as competitive advantage(s) for Bahrain.
The respondents unanimously agreed that connectivity across the high growth markets could form
as key of sustainable growth for the Bahrain banking sector. Also, they proposed several strategic
actions to be implemented at different time horizons while leveraging its resources and capabilities.
The proposed future strategic actions are: i) leaning toward innovation rather than imitation for sector
development (creating an innovative environment) (near-term), ii) targeting
emerging/growing/leading economies (e.g. China, and Kurdistan) for catering the international
financial needs (near-term), iii) maintain its stability/security and tackle the perception of risk of
unrest to avoid exodus of the foreign investment (near-term), iv) allow for further business conduct
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Chapter 3: Analysis
freedom in the country (medium-term), v) fostering a sophisticated labor force including both
Bahrainis and non-Bahrainis to support the development of Bahrains financial sector (long term), vi)
concentrating on the development of local resources with the emphasis on specialized front-
office/entrepreneurial resources and certification training (medium-term), and vii) developing
critical/ niches in the banking sector that can deepen the market and create other opportunities by
default (e.g. Fund and Asset Management).
Human Capital
This sections aims at evaluating human capital as a main competitiveness factor to the banking sector,
in comparison to rival economies. Responses have generally indicated a high level of Bahraini
participation in the banking local workforce, representing the majority of the banking sector.
Participants majorly agreed that the market provides a surplus of Bahrainis due to the abundance of
foreign workforce and the large number of fresh graduates and junior bankers. On the contrary, some
responses indicated an undersupply in local senior bankers with high experience levels. A
representative from a local commercial bank indicated that specific areas lack supply of locals such as
risk management, audit, and legal departments in banking.
The other group that thought local supply does not meet the demand, believed in the need for further
training to have higher-level educated bankers rather than junior level employees that are
sufficiently meeting the market demand.
Challenges of the labor market highlighted during interviews are summarized as below:
i. Difficulty to seek jobs for newcomers of junior level bankers due to high supply and lack of
succession plans and career development in some banks
ii. Ensuring Bahraini participation in appropriate positions within the sector i.e. focusing on the
qualitative aspects of Bahrainization rather than pure quantitative measures.
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Chapter 3: Analysis
iii. Protect local experienced top-management bankers from draining outside Bahrain.
iv. The existence of generation gap in Bahraini bankers, where the first generation (1970s
bankers) have retired leaving a gap of knowledge and experience that should have been
transferred to newer generations.
Despite the above challenges, majority of participants agreed that Bahrainis are the main competitive
element of the banking sector in spite of the large number of foreign employees in the field, given the
further need of training and correct positioning. Around 12% of answers thought that local talent
used to be a competitive element and that GCC countries are moving forward towards training
their locals giving an example of Oman recruiting Bahraini trainers to train their local bankers. An
interesting opinion indicated that although it is a core element of competitive advantage, it is not a
concern as workforce has become highly mobile, and foreign bankers could cover any shortages.
Respondents provided various views on the lifespan of local employees versus expatriates at banks,
giving the reasoning towards the financial incentives and managerial role of each job. Some have
indicated that expats tend to remain in banks longer than locals, in contrary of the general notion of
local labors longer commitment to banks. Local employees were said to tend to move faster for
better opportunities and pay. Some gave a guess of 5-year and 3-year averages for expats and locals
respectively. Others see no difference between the two as long as the job meets their personal
objectives, and that it depends on each bank and its career path. Some see that front office employees
tend to move more than middle and back office staff.
Another group finds it necessary for the authorities to regulate the labor market in terms of local
and expats distribution, despite labor laws call for equality of compensation. There is high
competition between local and expat in the Bahraini market especially in the senior executive levels
as long as there is no legislation that governs the Bahrainization at this level. stated by an executive
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Chapter 3: Analysis
manager at a local commercial bank. The central bank and the regulators are not doing enough to
protect the rights of the local employees said by another executive who felt that Bahrainis are treated
as cheaper resources and options than expats, leading to less appreciation of their talents and causing
high turnover rates.
Participants were asked to express their views on the causes of local brain drain to other GCC
countries, and have highlighted the below:
i. The existence of more rewarding financial packages at rival economies, with higher job titles
and responsibilities and employer appreciation;
ii. Depth of the market that creates more opportunities and larger transactions;
iii. The existence of international expertise and talents that make the learning experience more
interesting and creates more career potentials;
iv. Quality of lifestyle, including the political unrest of 2011 was a big push for some to leave
the country towards more stable societies
v. The recognition of such countries in global indices leaving Bahrains position behind;
vi. The new generations mentality to change jobs every 2 to 3 years for more experience and
pay;
vii. The management and hierarchy structure of some banks in Bahrain and the length of period
to move from one position to another; and
viii. The high dependency on oil and gas sectors in Bahrain (80% of governments revenue comes
from sales of oil and natural gas) keeps banking sector vulnerable to any drop in prices,
thereby negatively affecting the employment and growth opportunities in banking and
financial sector.
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Chapter 3: Analysis
In order to minimize the brain drain, respondents have provided the following insights towards
creating a more attractive employment environment to Bahraini bankers:
i. Provide proper on-job-training programs, including international standards training;
ii. Place proper successions plans, which some respondents think that banks are lacking behind
despite the regulatory requirement of having annual succession plans;
iii. Proper job/talent placement to avoid talented individuals from taking the wrong growth
ladder. A respondent provided a suggestion replicated in an initiative taken by the Qatari
government in the oil and gas industry, to train Qataris and place them in positions while
being followed up every six months. This was taken as subsidy for oil companies not to have
training burdens and focus on oil production. This had proven effective in Qatar and
encouraged openings of international companies in the country.
Few respondents viewed the brain drain as a positive sign of the quality of Bahrains local talent
creating demand for local human capital by other financial centers. Level of competition grows as
one progresses in their career path. For example, as a Bahraini moving to Dubai for an opportunity,
he would ultimately return to Bahrain with more value to the local market. That is how economies
evolve and it is an advantage to Bahrain. We cannot stop the talent from moving around especially in
our globalized markets and economies stated by a general manager at a local commercial bank.
There was a belief that local presence of national caliber in Bahrain is much higher than Doha and
Dubai in the banking sector. However, they also believe that Dubai and Doha are implementing local
initiatives to improve locals and their markets could outplay the Bahraini market. Other respondents
thought that GCC countries have a long way ahead to train their local workforce given the large
number of expatriates workforce that is occupying key positions in their banking sector. UAE for
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Chapter 3: Analysis
example implements strict follow up on the performance of national bankers. A respondent claimed
that if a bank were found non-compliant towards national employment regulations, it would lose
some advantages such as expansion of their ATM network, etc. Qatar on the other hand has
implemented a program called Kawader, Arabic translation for staff or workforce, as a unique
program to establish a whole generation of business leaders and decision-makers in Qatars emerging
financial services industry.
Innovation of resources
The innovation part of the interview addresses the issue of lack of innovation strategy in the banking
field, gathering respondents insights on how to innovate and what capability can be capitalized on.
Respondents agree to the need of innovation and entrepreneurship in resources development.
However, the small size of the market was indicated as a challenge in order for the innovation to
be economic from cost and efforts point of view. Bahrain was believed to be innovative in retail
banking and a pioneer in establishing a banking training institute (Bahrain Institute of Banking
Finance- BIBF) over three decades ago. Most of the banking workforce attends courses at BIBF and
it is believed to play a major role in maintaining the intelligence of banks employees. Respondents
believe that Bahrain should capitalize on this reputable long-standing institution and should
organize more of lectures and seminars in banking by seeking the support of its experienced bankers
to share their thoughts with trainees.
Other participants highlighted that having close connectivity and working relationships with
regional and international banks is crucial to embrace the global developments in other markets in
terms of products and technology. This should be supported by the frequent arrangement of seminars
and training programs to be abreast of international markets. A respondent suggest supporting
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Chapter 3: Analysis
boutique investment banks as a start for entrepreneurship, with greater emphasis on the general
support by authorities to innovate banking products and technologies.
Technology on the other hand has penetrated many sectors and respondents highlighted the trend of
Fintech referring to the Singapore government initiative.
Islamic Banking
This section of interview questions aimed at exploring the possibility of Islamic banking to be the
element of competitive advantage to Bahrain, encompassing entrepreneurial products and services
within the niche. Bahrain is believed to have an advantage over its competitors in Islamic banking and
it is a potential haven for entrepreneurship, only if it continues supporting the development in banking.
Respondents believe that the demand for Islamic structured facilities has grown significantly over
the past twenty years as many companies and institutions have converted financing of their business
activities to be based on Sharia-Compliant regulations. Other views saw that Bahrain has not
moved fast enough to take advantage of its expertise in the field. Other GCC countries, in
particular Saudi Arabia, and to a lesser extent UAE and Qatar, have been the main competitors for
Bahrain and have been able to solicit a major share of the business due to increasing demand. One of
the main reasons for competitors success, as indicated by the participants, was the establishment of
large Islamic banks with sizable capital base that enabled them to arrange and underwrite large
Islamic structured transactions.
Respondents believe that Bahrain has the capability of taking Islamic Banking to another level, given
the presence of the biggest Islamic bank (Albaraka Group), the International Islamic Finance Market,
AAOIFI, IFSB and the International Islamic Ratings Agency, all supported by a well-establish
regulator.
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Chapter 3: Analysis
In order to develop Islamic bankings capital in Bahrain, the country needs to look into establishing
Islamic banks with large capital base in order to be able to underwrite and arrange sizable facilities
and transactions. The existing banks in Bahrain are considered small in terms of assets size, and
while they may be adequate to accommodate the market needs in Bahrain, they do not have the
capacity to compete for major business opportunities in the region, as highlighted by some
respondents.
Respondents suggested that Islamic banks should focus more on building expertise in specialized
financing, such as oil and gas projects, aircrafts and shipping. The country should also arrange of
issuance of Sukuk and encourage growth mergers and acquisitions. Some respondents were specific
about mergers; banks to merge with internationally established financial institutions for growth
purposes rather than mergers for banks under stress.
Another respondent has emphasized that Islamic banks should think regional rather than local, and be
aggressive in penetrating the region. Bahrains geographic location close to Saudi Arabia can act as a
gateway to the Saudi market and the rest of the GCC. Sharia board scholars were suggested to be
well aware of the market needs to provide proper support to the sector.
More importantly, responses highlighted the significance of creating the image first i.e. building the
Islamic banking brand. By building a brand, we refer to capability awareness, strengths branding
rather than the traditional consumer marketing.
Strategy
The final section of interview questions looked at the role of government entities and the Central bank
towards strategy implementation. Respondents have expressed concerns about the general economic
situation that can give a negative outlook for the banking sector, including the reduction in oil prices
and the consequences of the 2011 political unrest. A 5-year vision of the sector foresees an expansion
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Chapter 3: Analysis
only by exploring the regional and international markets. Growth could also come through
establishing specialized banks or expertise in financing major projects such as oil & gas, aircraft,
shipping, investment and advisory and infrastructure developments.
The role of the Central Bank of Bahrain (CBB) can be by establishing confidence in the market to
potential investors by ensuring firm implementation of banking regulations that are up to the
international standards. The CBB should hinder any financial irregularities for banks that could create
negative reputation to investors. The CBB, in addition to its supervisory role, should ensure that there
are proper training programs and succession plans provided by banks to their local workforce, in
particular to those who have the potential to advance in their career and take on more responsibilities
towards the senior management positions. Respondents also emphasized the importance of CBB
maintaining the currency positions
EDB on the other hand can have an aggressive plan to attract fully-fledged branches of
international banks rather than representative offices that do not add much to the economy.
Generally, the sector should undertake developments within the financial services technology, and
creating the culture of banking excellence. Culture can make the sector self re-enforcing.
Respondents have highlighted the importance of looking into other financial services along with
banking such as insurance, capital markets, wealth management, etc.
The overall interview results provided various opinions regarding issues, capabilities and potential
doorways to improve the banking sector in Bahrain. The following section incorporates the above
findings into theoretical tools (as listed in the Methodology Chapter) in order to draw a strategic
vision for the industry.
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Chapter 3: Analysis
3.B. Analysis
a. Performance Logic Analysis
We start the Analysis chapter with the performance logic analysis in order to verify whether
Bahrains banking sector has current VRIN resources and dynamic capabilities. The identification of
such assets would assist us structure further analysis using the rest of this chapters tools.
Interview results concluded the existence of three strong resources in Bahrains banking sector:
1. Experienced and knowledgeable local human capital;
2. A robust regulator i.e. the Central bank of Bahrain (CBB); and
3. Islamic banking knowledge/expertise i.e. presence of regulatory bodies, products, sharia
scholars, regulations, etc.
The above resources will be analysed on individual basis deploying the static resource-based theory.
Table 4 below summarizes the resources fit with the VRIN criteria, in the context of the comparable
environment of Dubai, Doha and other GCC countries.
Table 4 VRIN criteria analysis for Bahrain banking resources
Resource Is it Valuable? Is it Rare? Is it difficult Is it non-

(V) (R) to imitate? substitutable?
(I) (N)
Human Capital Yes No Yes Yes
Robust Regulator Yes No No Yes
Islamic Banking Yes No No No

knowledge/expertise
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Chapter 3: Analysis
It is unfortunate to conclude that none of the identified resources meet the VRIN criteria.
Although all resources are highly valuable to implement a competitive strategy, they do not fulfil the
other three elements; rare, inimitable and non-substitutable. Human capital for instance is valuable,
difficult to imitate in terms that it is difficult for other GCC countries to establish a pool of
experienced and knowledgeable bankers in a short period of time, hence making the existing Bahraini
pool of bankers an inimitable resource. It is also seen as non-substitutable as there is no other
resource that can place the local human capital to implement a competitive strategy. It would be
unrealistic to replace the whole local human capital with expats (above 60% of banking workforce).
However, this resource did not meet the rare criterion, as we have mentioned that brain drain of
Bahrainis is increasing to other GCC countries, making it easier for others to lay their hands on the
local talent. Mobility of human capital makes it difficult for the Bahraini bankers to remain as rare
assets to the local market.
CBB as a robust regulator is valuable and non-substitutable, as it is the main regulatory authority to
the banking sector and conducts the supervisory role on the market. The CBB is non-substitutable
since it is the only regulatory and licensing party. However, it is found to be imitable and not rare as
other regulators can easily copy regulations and guidelines, and they also tend to share expertise to
reach the same level of standards and performance in the GCC.
Thirdly, Islamic banking knowledge is concluded to be valuable only, disqualifying for the other
three elements. Knowledge of Islamic banking is highly valuable to implement a competitive strategy
for this niche. However, it is certainly not rare as other GCC markets have initiated the establishment
of Islamic banking regulations and banks, and can be easily replicated by other markets. The
development in Islamic banking sector and also be substituted in terms of competitive strategy by
another banking related sector such as investment banking, wealth management, etc.
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Chapter 3: Analysis
The above analysis, based on the static resource-based theory, represents the current available
resources in Bahrain that give the country competitive advantage. However, these resources do not
meet the VRIN criteria and hence there is no fit for a sustainable competitive advantage strategy in
the current comparable context environment. Figure 18 below shows the disparity elements in red:
Exploitation Competitive Performance

of resources advantage of banking
sector
Does it fit?
No
Factor VRIN
markets resources
Figure 18 Performance Logic diagram for Bahrain banking sector Adapted from Sminia
(2014)
The analysis can be further tested by extending the resources into routines, which are understood as
an assembly of a range of resources including peoples skills and motivations as well as a firms
physical, financial, knowledge, cultural, marketing and organizational process (Sminia, 2014). The
routine can be a regular pattern in the Bahraini banking sector that deploys a set of basic resources.
The combination of such routines can be the source of competitive advantage, and if such routines
fulfill the VRIN criteria, they would represent the sectors core capabilities.
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Chapter 3: Analysis
Banking Sector
Resources:
Physical Individual Abilities:
Financial Motivations
Knowledge Skills
Cultural
Marketing
Assembled into routines
Core Capability if:

- Valuable
- Rare
- Inimitable
- Non-substitutable
Figure 19 Core Capabilities - Adapted form Sminia (2014)
Individual abilities highly exist in the Banking sector represented by the skilled pool of bankers, who
are also motivated and willing to experience new products and markets. On the side of assessing
country resources, we summarize as below (Figure 19):
- Physical: being a service industry, Bahrains business regulatory environment was ranked
first among 17 economies in the Middle East (Fraser Institute, 2012) providing a solid and
free regulatory environment. Bahrain holds a sizable population of more than 100 banks, who
are able to flexibly establish branches and offices in the kingdom subject to CBBs prior
approval. The infrastructure of banking industry is supported by the upgrade and automation
of several credit and payment services, such as the automated cheque clearing system, the
credit bureau for both individuals and corporations, etc.
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Chapter 3: Analysis
- Financial: Bahrain maintains a consistent growth of money supply measures for the overall
economy (EDB, 2013). Total assets for Bahrain domiciled banks has also grown by 22%
since 2009 reaching $154 billion by first half of 2014, besides an increasing net income
indicator Appendix 3- Key indicators of Bahrain Banking sector (BAB, 2014). Banks liquid
assets have slightly dropped in 2014, due to the implementation of new BASEL III regulatory
requirements. Moodys, on the other hand, have rated Bahrain as stable reflecting solid
funding, liquidity and capital positions (Moody's, 2014).
- Knowledge: Knowledge is a competitive advantage for Bahrain given its pioneer position in
establishing offshore and Islamic banking. Bahrain has three generations of experienced
bankers who are also open to learn new products and services. Bahrainis encounter the
majority of banking employment feeding the national pool with experience and knowledge on
services and products within the sector.
- Cultural: Bahrain is differentiated from other GCC countries by its accepting culture for
banking. Being a service-driven economy, other than the dependence on oil and gas industry,
Bahrain has a national policy for entrepreneurship to encourage creation of SMEs. Small
businesses account for more than 90% of corporate entities in Bahrain (EDB, 2013) whom
are all banking clients and in need of financing facilities. This culture of business creation
drives banks for continuous developments and fair competition, creating a population that is
aware of banking products and rates.
- Marketing: Individual banks marketing activities are noticeable in the country simply by
driving on highways. However, marketing by the CBB as a unified banking body is absent.
By marketing we emphasize on improving national awareness of banking to take it to an
advanced level that would enforce innovation on banks. EDB as a promoter for banking is
also absent domestically. A marketing brand is lacked here. Individual banks however
strongly compete in marketing their products and offers (Appendix 4).
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Chapter 3: Analysis
- Organizational: Organizational attributes are constantly improving in the banking sector as
well; given CBBs strive to adopt international standards, for example the improved
transparency and corporate governance standards, remuneration and compensation principles
for higher management and directors. CBB is an active communicator with the banking
sector. On the other hand, the Bahrain Association of Bank is a significant mediator between
banks and CBB, supporting banking entities outreach their voice to the regulator through a
unified non-governmental body.
The question remains whether there is a clear harmony between the above factors, in order to be
assembled into routines that are VRIN. Core capabilities can be identified for each bank individually.
However, it still remains unclear to identify a core capability for the banking sector on national level.
The following extension of analysis is based on the dynamic nature of the market, given the
continuous change of customers wants and needs, and we here argue that capabilities do not remain
VRIN for a long time. Hence, a banking resource base needs to be developed, as a combination of
unique routines that are re-invented periodically, instead of focusing on individual resources. The
banking sector needs to re-invent itself from time to time and adopt an entrepreneurial behavior,
identifying its dynamic capabilities that would form its core competences. The core competence
concept is the basic understanding of how to combine and coordinate skills and technologies. Banking
products and services are only temporary exhibitions of converting these core competences into
customer-end services. The Internet Islamic credit card, for example, introduced by some banks in
Bahrain is an example of core competency translation into a product; Starting with the initiation of
idea, technological skills of developing such card, regulatory approval of card usage, and products
market penetration. The Internet card however did not last for long in the market, given the dynamic
arise of e-pay applications and mobile banking payment methods, while the technology and skills that
developed it still exist. Hence, we conclude the necessity of developing such core competency that
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Chapter 3: Analysis
would enable the banking sector to re-invent itself from time to time. Another example is a local
banks initiative to establish the first special-needs ATM in the kingdom. The initiative is an
individual banks effort that would not stand as a nation wide achievement/competitive advantage. If
the central bank adopts this initiative and enforces it on the whole banking sector, then the sector
itself would be taken to another level, adding to Bahrains competitive advantage. This hypothesized
coordination example between the regulator and the bank to develop a nation-wide product is a
simple manifestation of a core competence. What Bahrain needs to develop is a base of core
competences, and core products, that banks can exploit to another level and innovate (Figure 20). The
individual banks efforts when combined on market level, can lead the country to compete against
Dubai and Doha.
End Products End Products End Products

1 2 3 1 2 3 1 2 3
Business 1 Business 2 Business 3
Core Product 1 Core Product 2
Core Banking Core Banking Core Banking

Competence 1 Competence 2 Competence 3
Figure 20 Core Competence Diagram - Adapted from Hamel and Prahalad (1994)
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Chapter 3: Analysis
The static resource-based view concluded a non-fit relationship between the non-VRIN resources,
factors market and their exploitation, as each resource was analyzed individually for its
competitiveness. However, the following dynamic resource-based view combines resources and
abilities into core competences that provide a stretch for the future. For this theory to work, all banks
should be part of the whole banking environment, working together towards exploring core
competences that would serve the overall national banking sector.
Strategic intents and plans for stretch exist in banks on individual basis, while a transparent publicly
announced national strategy by the CBB is still publicly absent.
Exploration of Future Performance

Dynamic Competitive of Banking
Capabilities advantage Sector
Can the Banking Sector

Stretch?
Yes
Volatile Dynamic
Markets Capability
Figure 21 Performance Logic diagram for Bahrain banking sector Adapted from Sminia
(2014)
Bahrain has a potential future stretch for banking only if core competences are identified and realized
by the banking sector (Figure 21).
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Chapter 3: Analysis
b. Porters Diamond Model
Determinants of National
Competitive Advantage
Firm
Strategy,
Government Structure and
Rivalry
Factor Demand
Related and
Chance
Supporting
Industries
Figure 22 Porter's Diamond Model of Competitive Advantage (Porter, 1990)
Porters diamond model (Figure 22) is utilized here to examine the banking sectors competitiveness
for opportunity recognition (Ozgen, 2011) in order to develop sustainability. We provide below
implications on individual diamond model elements:
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Chapter 3: Analysis
Factor Conditions
Based on interviews conducted, earlier analysis, and gathered information, Bahrains most accessible
and available factor of production is human capital. Bankers themselves can achieve opportunity
recognition for competitive advantage and entrepreneurship. Because human capital is the optimal
resource and factor of production in the banking sector, we believe that their knowledge and
expertise in the market can be the basis for banking entrepreneurship. Other factor conditions
mentioned by porter are listed in Table 5 below, with a qualitative rating provided to each as a
measure of compatibility to opportunity recognition. Apart from material resources that are assumed
not to be applicable given the nature of banking industry, most conditions are rated High. Knowledge
is linked to human capital, given the three-generations expertise of bankers. Banking and finance is
one of the most demanded higher education enrollments at universities providing the sizable
knowledgeable pool of bankers to the country. Business studies students represent the majority of
students population (26.6%) at the university of Bahrain (UOB, 2014) reflecting the nature of
mindset direction and banking-friendly culture in the country. Additionally, earlier analysis in this
chapter concluded having a robust regulator that adopts high standard regulations and maintains a
robust regulatory environment for banks, which provides an infrastructure that encompasses
opportunity seeking and innovation. Capital resources include two parts; availability of assets and
social capital (network connections). Banking assets are commendable and not in a position of
concern for continuing competitive advantage. Social capital for Bahrain is a high advantage given
the small size of the country and the strong relationships among people, as in everybody knows
everybody. The network connections create severe competition between banks given the small
population size. On the other hand, it provides enormous access to other lines of business knowledge,
opening doors for innovation and opportunity recognition.
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Chapter 3: Analysis
Table 5 Factor Conditions Scoring
Factor Condition Score

Human Capital H
Material Not Applicable
Knowledge H
Infrastructure H
Capital Resources M
Firm
Strategy,
Structure
and Rivalry
Accessible and
knowledgeable human capital
Banking-friendly culture
Robust regulator and high
standard regulations
Commendable banking assets Factor Demand
Strong social connections Conditions Conditions
Related
and
Supporting
Industries
Figure 23 Factor Conditions Conformity with Porter's Model
Factor conditions in Bahrain conform to Porters hypothesis for national competitive advantage.
Proposition #1: Factor conditions are positively related to sustainable competitive advantage based
on Porters diamond model (Figure 23).
Demand Conditions:
Porters demand conditions refer to local demand to be higher than foreign demand for the industry to
be pressured to innovate. Although local demand in Bahrain is not higher than the foreign
demand, given the larger markets in the region and the globalized access to other markets, there has
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Chapter 3: Analysis
been huge deviation in demand conditions i.e. customers deviation to e-services rather than traditional
banking services. Although the size of demand might not be higher than the regional market, the local
customers are forcing banks to alter their services (ATKearney, 2013). The deviation in demand goes
under the role of chance as another element in Porters model i.e. conditions that are out of control.
For example, many banks have taken entered into mobile banking services, given the rise of a
technologically aware generation of banking customers who are well informed and better connected.
This globalized technological trend will assist banks achieve global banking standards. However, this
still remains as a lesser demand than foreign markets.
Firm
Strategy,
Structure
and Rivalry
Lower local demand.

Deviation of demand
Factor Demand trends.
Conditions Conditions Increased demand for
e-services.
Related
and
Supporting
Industries
Figure 24 Demand Conditions Conformity with Porter's Model
Proposition #2: Demand conditions are negatively related to Porters model for local demand to be
higher than foreign demand (Figure 24), notwithstanding the change in demand trend to more
technology based services.
Related and Supporting Industries:
The model assumes that the competitiveness of related and supporting industries can help the sector
achieve competitive advantage. These industries include suppliers and related industries. Examples of
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Chapter 3: Analysis
supplying industries (Deloitte, 2013) (CBB, 2015) for the banking sector core services card
processing, payment service providers, call center services, sales agents, marketing agencies, ATM
manufacturers, vaults and cash carrier services, third party administrators and many others.
Unfortunately, research is lacking on the competitiveness of the above example industries in specific
relation to the Bahraini banking sector. However, we certainly know that local economy provides
only part of the services, while the remaining are outsourced from international providers.
Local providers are either monopolies or duopolies in the market. This concludes existence of room
for new entrants to come into the market, creating more competition and enforcing innovation of
products and services.
Related industries for banking in Bahrain on the other hand vary between insurance, credit cards,
asset management, currency exchange, venture capitals etc. Insurance for instance is a growing
industry (8% growth rate in 2013) (CBB, 2013) and is closely related to Banks. Major local banks act
as appointed representatives for insurance firms under CBB regulations. This relationship opens up
further social and business network connections increasing the potential for creating cost-effective
process, and innovative services.
The above concludes conformity between Porters model and the room for potential in the related and
supporting industries for banks.
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Chapter 3: Analysis
Firm
Strategy,
Structure
and Rivalry
Factor Demand
Unclear competitiveness
status for supplying
industries.
Related
Major dependence on and
international providers. Supporting
Room for local Industries
competition.
Growing market for
related industries.
Figure 25 Related and Supporting Industries Conformity with Porter's Model
Preposition #3: Related and supporting industries are positively related to Porters model and create
potential competitiveness for the banking industry (Figure 25).
Firm Strategy, Structure and Rivalry:
Bahrain is a saturated market with banks supervised by a unified regulator. The small size constraint
of its market hinders it from being a strong domestic rivalry to international banking. This could be a
challenge towards reaching harmony for Porters model elements. On the contrary, the country has a
culture that is very welcoming to banking trends and innovations, given the cooperation and support
of the CBB itself, which is seen as a positive element towards this model.
As a nationwide strategy, we assume the CBB has an internal strategy that is not open to the public,
given the unfortunate circumstances of not having the opportunity to interview CBB officials. This
was seen as a gap by the team members; the lack of transparent development strategy for the banking
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Chapter 3: Analysis
sector by the regulator, which should also be communicated to individual banks to reach harmony and
consensus.
It is true that the nation has adopted a comprehensive economic Vision 2030 to be shaped by the
government and driven by a pioneering private sector (EDB, 2008) that is built on principles of
sustainability, competitiveness and fairness. However, there is lack of a specific banking-related
vision that follows the generic Vision 2030. The role of individual banks is minimized as contributors
to the economy compared to a harmonized vision by the regulator towards internationalization and
global competitiveness.
Theory also suggests that dynamic capabilities for firms and a sector support the element of structure,
strategy and rivalry (Ozgen, 2011). However, the earlier analysis using Sminias environmental fit
model concluded the ambiguity of Bahrains current dynamic capabilities that have entrepreneurial
mindset to shift the whole industry.
This fourth element is seen to moderately support Porters model given the open banking culture, yet
the challenges of no clear strategy, market size constraint and no identification of clear dynamic
capabilities. Low rivalry to international

banking.
Firm
Welcoming culture to new
Strategy, banking trends.
Structure Lack of publicly communicated
and Rivalry national banking strategy.
Absence of clear identification
of national dynamic core
capabilities.

Factor Demand
Related
and
Supporting
Industries
Figure 26 Firm Strategy, Structure and Rivalry Conformity with Porter's Model
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Chapter 3: Analysis
Preposition #4: Firm strategy, structure and rivalry are negatively related to Porters Diamond model
creating a challenge for achieving competitiveness in the banking sector (Figure 26).
The Role of Government
The model supports the direct involvement of the government in developing the sector. Effective
government policies can raise the odds of achieving competitive advantage. The Central Bank
representing the government is a robust regulator who ensures to implement international standards
regulations. The regulatory role increases the confidence of investors in banks, given the high
disclosure standards, corporate governance framework and corporate social responsibility guidelines.
These regulations, although quite strict for local banks, work in favor of the countrys reputation to
host a well-supervised market. The overall country government as mentioned earlier has undertaken a
comprehensive vision of economic prosperity and sustainability. However, government decisions in
other industries do influence the banking condition as well (Figure 27). The increasing budget
deficit for example can become a source of vulnerability to the economy in the medium term as
stated by the IMF in 2014 guiding the country to take priority fiscal adjustments (Business, 2014).
The Role of Chance
The role of chance represents the disadvantages that occur out of the control of the industry and
government. These disadvantages are supposed to enforce new players in the market who take
advantage of such radical changes and explore new opportunities and innovative ideas. For example,
the recent drop in oil prices, if prolonged, would negatively influence the banking system in case of
delay in infrastructure projects, given the nations major dependence on oil revenues (FitchRatings,
2014). This can enforce banks to finance different segments such as the aviation sector as suggested
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Chapter 3: Analysis
during some interviews. Although these developments may sound negative, they are in favor of
Porters model in terms of pushing for innovation and opportunity recognition (Figure 27).
Firm
Strategy,
Structure
Government and Rivalry
Well-supervised market.
High disclosure standards
Prolonged drop of oil
and corporate governance Factor Demand prices can force banks
framework. Conditions Conditions diversify financing
Negative influence by projects away from
countrys overall budget oil-dependent projects.
deficit.
Related
and Chance
Supporting
Industries
Figure 27 Role of Government and Chance in Porter's Model
The Diamond as a System
The diamond works a system where each element influences the other. For example, related and
supporting industries competitiveness depends on high demand conditions. Also, for this specific
example, the existence of a national strategy would require an effective direct involvement from the
government.
The deployment of the model to Bahrains current conditions have identified existing gaps within
demand conditions, role of the government and strategy. Table 6 provides summary of findings from
the model:
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Chapter 3: Analysis
Table 6 Summary of Porter's Diamond Model
Related and Supporting

Factor Conditions Demand Conditions
Industries
Accessible and Lower local demand. Unclear competitiveness

knowledgeable human Deviation of demand trends. status for supplying
capital. Increased demand for e- industries.
Banking-friendly culture. services. Major dependence on
Robust regulator and high international providers.
standard regulations. Room for local
Commendable banking competition.
assets. Growing market for related
Strong social connections. industries.
Strategy, Structure and

Role of Chance Role of Government
Rivalry
Low rivalry to international Prolonged drop of oil prices Well-supervised market.

banking. can force banks diversify High disclosure standards
Welcoming culture to new financing projects away and corporate governance
banking trends. from oil-dependent projects. framework.
Lack of publicly Negative influence by
communicated national countrys overall budget
banking strategy. deficit.
Absence of clear
identification of national
dynamic core capabilities.
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Chapter 3: Analysis
3.C. SWOT Analysis:
To help the researchers and the client develop full awareness of all factors (internal & external) in
strategizing/making informed decision a SWOT has been developed to serve as a dashboard to
navigate and implement a sound strategy (Table 7). The SWOT should be used in conjunction with
other tools for audit and analysis such as PEST (Political, Economic, Social & Technological trends)
already discussed in the Literature Review Chapter.
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Chapter 3: Analysis
Table 7 Summary of SWOT analysis
Strength Opportunity
Strong robust regulatory body i.e. CBB. Certification of local talents to secure sustainability of banking sector.
Home to International Standard bodies e.g. AAOFI, IIRA, IIFM, MENA Merger and Acquisitions of banks for growth and diversification.
FATF, and CIBAFY. Bringing banks with operations to contribute in the sector and economy.
Long-standing history especially in pioneering Islamic banking. Tamkeen to further extend its contribution to the local human capital and the
Significant cost advantages compared to its peers UAE and Qatar. development of the entrepreneurship with the banks.
Stable currency. Expand EDBs role to promote the market to avoid conflict interest with CBB.
Noticeable representation of the local talents in the sector compared to the High penetration of Islamic insurance market and intensive insurance operation
peer countries (Qatar and Dubai). through Bancassurance channels.
Rich country culture and expats favorite destination. Assuming the gateway position for the Saudi Arabia financial market.
Proximity to the regions biggest high growth market (Kingdom of Saudi Encouraging for specialization in mortgage financing.
Arabia). Regulations to be applied and enforced in accordance to financial entity size and
legal form; to provide more flexibility.
Heavy investment in technology, social media, and mobile banking.
Investment and promotion of technical/ICT (information communication techno)
field.
Targeting emerging high growth market rather than saturated markets.
Focus on promoting financial fields like fund management that spontaneously
drive the growth of other fields e.g. Asset management.
Expanding the bankers circles and network via initiating more forums, clubs,
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Chapter 3: Analysis
and societies.
Intensive investment of soft assets e.g. HR, systems, culture, and etc.
Flexible investment advisory regulations
Weaknesses Threats
Lack of innovation agenda for banking product and services. Dubais aggressive marketing to position itself as world Islamic city.
Absence of clear vision and specific strategy that work on employing and Mobility of workforce and ability to copy regulations.
innovating capabilities for sector growth. Fiscal vulnerability to oil price fluctuations
Lack of marketing and branding of the banking sector to raise awareness Residual risk of political unrest.
about its strengths and capabilities.
Lack of career paths and succession plans for middle and senior executives.
Lower financial incentives compared to Doha & Dubai.
Countrys lifestyle is very limited of social abundance.

Slow down of overall countrys growth Complex regulation and commercial
laws that do not provide flexibility for encouraging international/regional
banks to settle in the country.
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Chapter 3: Analysis
Strengths:
The banking sector in Bahrain enjoys a strong external position and a sound monetary policy backed
by a strong robust regulatory body i.e. CBB, which is crucial for the stability and efficiency of the
sector. As testified by BNP Paribas Regional Director Jean-Christophe Durand The quality of
supervision is the primary reason for us being here. The Central Bank of Bahrain is the most
progressive regulator in the region and takes into consideration the needs of businesses. The fact that
Bahrain is home to International Standard bodies such as AAOFI, IIRA, IIFM, MENA FATF,
CIBAFY, further reinforces the perception of an efficient business environment and a long standing
history especially in pioneering Islamic banking where rival banking hubs in the region are working
around developing their Islamic banking practices, Bahrain can build on its first move advantage and
on its subsequently gained reputable image towards elevating the Islamic banking to another level of
sophistication. Equally, the country has significant cost advantages compared to its peers UAE and
Qatar. Overall, the total cost of doing business in Dubai and Qatar is significantly higher (35% and
46% respectively (KPMG, 2014).
Based on a research report by Deutsche Bank, the latter states that: The peg of the Bahraini dinar to
the USD acts as a nominal anchor facilitating low inflation and minimizing exchange rate risk for the
countrys main export, oil (Bank, 2013). The report further highlights the macroeconomic stability
of the exchange rate and its role in trade and capital flows. Another factor that differentiates Bahrain
from other GCC countries is its expert and talented workforce. Statistics confirmed that, unlike Dubai
and Doha, the work force of Bahrain banking sector is significantly represented by its local human
capital (66%), which makes it a competitive advantage/strength for the sector as well. Because of the
noticeable representation of the local talents in the sector that goes three decades back, Bahrain has
built a strong track record and expertise in banking.
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Chapter 3: Analysis
Whilst Bahrain does not offer the fast pace attractive lifestyle to the expatriate bankers; its rich
culture can still be an essential element for establishing an appealing country image for the potential
investors and international institutes. According to latest report (2015) published by Expat Insider,
Bahrain has been ranked first in the Arab region (17th worldwide) over other countries including UAE
(19), Qatar (54), Kuwait (64), Oman (24), and KSA (61) in the World in terms of general quality of
life (Insider, 2015).
Last but not least, proximity to the regions biggest high growth market (Saudi Arabia) is a unique
advantage for the country that is not being owned only because of the geographic location/geographic
connection, but also because of the political and social elements. Many agreed that if Bahrain
considered this proximity for its banking sector growth strategy, it will considerably add to the
sectors performance and further advance the sectors position regionally. All of these factors
contributed in establishing a conducive business environment.
While Bahrain is in possession of several strengths that need to be sustained and continuously
improved, it is also suffering from some weaknesses that require for the attention and consideration of
the banking authorities while formulating the development strategy for the sector.
Lack of innovation agenda for banking product and services was identified as a weakness in the
sector that requires for the attention of BAB, CBB and EDB, in order to continue assuming the
leadership in banking.
Weaknesses:
Although the country has some of the essential elements for maintaining the regional leadership
position in banking, it does not have a clear vision for the future of the sector nor a specific strategy
that works on employing and innovating capabilities and assets for achieving growth and
development in the sector.
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Chapter 3: Analysis
Additionally, Bahrain also lacks the marketing and branding activities for promoting banking that is
imperative to raise the awareness of potential investors and offshore banks about the capabilities of
the sector.
The small fragmented market size gives limited opportunities for local talents hence causing their
immigration to surrounding countries. As the banking market in Bahrain lacks the depth and width,
its access to finance is also limited, preventing the closure of larger deals.
Weaknesses pertaining to human capital development; such as lack of career paths and succession
plans for middle and senior executives in banking and lower financial incentives than Doha & Dubai,
also do exist increasing the risk of brain drain or losing the local talent to the neighboring countries,
where better job offers and opportunities are available.
Bahrain does not provide the abundant luxury and touristic lifestyle that Dubai offers; the simplicity
of lifestyle and Bahraini culture oriented at times does not attract expats and international
organizations including offshore banks. Although this varies from person to another, some
interviewees expressed it as a concern towards attracting investors.
Complexity in terms of governing regulations and commercial law that do not support flexibility of
having international/regional banks established in the country is another area of concern requiring
attention.
The complexity in governing regulations and commercial laws that do not support the flexibility of
having international/regional banks to be attracted to Bahrain is a disadvantage for the sector, which
could limit its potential of growth regionally. While on the other hand Dubai has been witnessing a
growth in the offshore banking owing to its established DIFC jurisdiction that offers a very flexible
regulatory and statuary system.
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Chapter 3: Analysis
Threats:
The threats analysis highlighted four major facts that could stand as an obstacle in sustaining
Bahrains primacy in the banking sector. From a competitive perspective, Dubais aggressive
marketing to position itself as an Islamic hub has seen one of the biggest gathering following the
launch of its Global Islamic Economy Summit under the theme: Dubai: Capital of Islamic Economy
in 25-26 November 2013, which drained thousands of banking professionals, diplomats and
governmental entities. This event signaled a strategy by neighboring UAE to delocalize the Islamic
proposition. Its worth noting that the Dubai-based mega event organized by Dubai Chamber
coincided with the WIBC (World Islamic Banking Conference) traditionally held in Bahrain every
year in November, which begs the question whether the timing was arbitrary though.
The second aspect relates to the mobility of workforce and ability to copy regulations. Whilst talent
mobility is a key economic resource that adds tremendous value to the economy, its impact regarding
competitiveness and sustained growth has well been documented. Even though it might cause brain
drain as its the case for many countries, it can still be beneficial for both hosting and sending
countries, hence the competitive advantage that Bahrain enjoys might be replicable elsewhere and its
just a matter of time for Dubai or Doha to reach the level of expertise Bahrain enjoys within a very
short time span.
In an era where compliance and regulations proved critical, any regulation that reinforces best
banking practices can be easily established/copied so theres no exclusivity hence all banking industry
should abide by the international standards and regulations. The only difference yet is to what extent a
regulation is enforced and the countrys readiness to adopt it. Bahrain has always been at the forefront
adopting regulatory solutions for a more efficient functioning, however the financial crisis has seen
the adherence of world banking community to agreed principles and countries that fail to comply in
due course are left behind out of the race.
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Chapter 3: Analysis
Other factors that can halt economic growth of the country relate to Bahrains fiscal vulnerability to
oil price fluctuations and residual risk of political unrest. A report published by Rabobank stresses the
narrow economic base that is highly and almost exclusively dependent on oil: The oil sector
dominates the economy, as it contributes 20% to GDP, accounts for 88% of total government
revenues and for 67% of total export revenues. (Rabobank, 2014). The same report states that The
government has maintained high levels of social spending since the start of the Arab Spring protests,
which has resulted in higher budget deficits since 2011. Furthermore, Moodys outlook report on
Bahrain regarding the socio political frictions, highlights the residual risk of renewed social unrest
has prevented a stronger rebound in investor and consumer confidence and continues to pose a
material event risk to Bahrains services-oriented economy. (Moody's, 2014).
Opportunities:
Based on the interview analysis and research outcomes Bahrain stands an excellent opportunity to
recover and sustain its competitive advantage. The below points summarize the opportunities:
Certification of local talents to secure sustainability of banking sector is crucial and should be
made compulsory to maintain knowledge. Whilst BIBF provides fresher graduates to the
banking sector with foundational curriculum, nevertheless it should focus on offering
specialized courses to fill the gap in audit, compliance, risk management and other specialties
highlighted as gaps by research participants.
Merger and Acquisitions for the growth and diversification of the sector, for the consolidation
of banks with small capital and then development to bigger entities, and for regional
expansion to further grow and stay in the race.
Training hub - attracting international training institutes to the country.
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Chapter 3: Analysis
Bringing banks with operations to contribute in the sector and economy- EDB should have its
aggressive plan to bring in banks with operation rather than getting representative offices that
do not add much to the economy.
Tamkeen to further extend its contribution to the local human capital and the development of
the entrepreneurship with the banks.
Expand EDBs role to promote the market to avoid conflict interest with CBB.
Being the regional hub for other financial segments such as boutique investment banks, and
financial advisory - Supporting the boutique investments banks as start up for the
entrepreneurship.
The insurance sector in GCC, as per Thomson Reuters (Thomson Reuters2014) and the
feedback of some of the interviewed market specialists and executive bankers, is a market
with much of growth potentials; it is expected to reach $37.5 billion by 2017 in GCC
specially with having the Bankassurance sector evolving in the region. Further,
(DELOITTE) and (EARNST AND YOUNG, 2014) both indicated Takaful as low
penetration market although the market is in continuous growth. Building on these insights,
and taking into the consideration that Bahrain was pioneer in introducing Islamic insurance to
the regional market, we believe that more attentions need to be awarded to this particular
sector with more concentration on Bankassurance and Takaful niches; and that taking the
initiatives for leadership in this sector is a rewarding opportunity as it will add a lot of weight
to the overall industry performance.
Although the size of Bahrain banking market is quite limited, so many positive feedbacks
were received from our interviews about Bahrains position as the gateway for the Saudi
financial market; all confirming on the great possibility of this providing more depth and
breadth to the current limited market, and therefore will create much more market and job
opportunities. Further, with the consideration of proximity to Saudi Arabia advantage that
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Chapter 3: Analysis
Bahrain in possession of, this initiative indeed forms as a golden opportunity for the
development of Bahrain financial sector.
Specialization in mortgage finance - Set up regulations on mortgage finance, and encourage
banks to set up office in Bahrain specialized in mortgage finance.
Issue less stringent regulations - Some banks to be regulated by a group, and others by
another. Smaller banks should be subject to less stringent regulations. If it possible to
differentiate regulations to different banks setting up offices here. To be more flexible.
Heavy investment in technology, social media, and mobile banking.
Technical/ICT (information communication techno) field - it will be an advantage to banking
sector, as a long-term strategy. A combination of financial and technological knowledge.
Future banks may have 50% of their staff as IT staff. We are talking about virtual banks. You
don't only need finance graduates for banks.
Targeting the emerging growth markets when promoting Bahrain (selective target market) -
EDB should focus on emerging growth market rather than developed saturated market when
promoting Bahrain.
License passporting agreement with certain reputed financial markets in the MENA region.
Develop funds business with a view to attracting asset managers (fund passporting)-allowing
the fund licensee in Bahrain to operate in other markets/jurisdictions without the need of
applying for another fund license) that can be arranged between the CBB and the central
banks of other jurisdictions (competitive financial centers).
Bahrain could have forums, clubs, societies created for the bankers. Bahrains banker society
has limited activities and we, as bankers are not motivated to participate or be members there.
Flexible investment advisory regulations.
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Chapter 3: Analysis
Investing in soft asset (HR, systems, culture) to constantly develop the financial sector - CBB
need to play more active role encouraging banks to invest in soft assets (HR, systems,
culture).
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Chapter 3: Analysis
3.D. Summary of Findings
In summary, interview data and findings were analyzed using three tools: Strategic Performance,
Porters Diamond, and SWOT analysis. The analysis concluded interesting findings that require
consideration and attention of policy makers. The salient analysis findings are reproduced below:
Performance logic analysis that was conducted based on RBT indicated that in spite of the
existence of three significant resources (experienced local human capital, robust regulator,
and Islamic banking knowledge) in the banking sector of Bahrain, none of such resources
meet the VRIN criteria (valuable, rare, inimitable, and non-substitutable). Therefore, there is
no fit for sustainable competitive advantage within the context of this environment.
The VRIN testing was further extended to cover the routines. There is no clarity on whether
there is harmony between the factors that make up the VRIN routine(s) (integration of the
banking sector resources with the existing core capabilities e.g. skills and motivation) or not;
as the core capability can only be observed at the micro level (Financial Institutions) and
remains unclear for the nation level.
In accordance to the dynamic RBT concept, the banking sector needs to re-invent itself from
time to time and adopt an entrepreneurial behavior, identifying its dynamic capabilities that
would form its core competences.
Porters Diamond on the other hand was utilized to assess the sustainability of banking
sector competitiveness based on the identification of four elements (factor conditions, firm
strategy, structure and rivalry, demand conditions, and related and supporting industries).
Based on the interview data, Bahrains most accessible and available factor of production is
human capital, which is the optimal resource and factor of production in the banking sector
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Chapter 3: Analysis
that also provide the knowledge and expertise necessary for banking entrepreneurship. Other
identified factor conditions are the banking-friendly culture, robust regulatory and high
standard regulations, commendable banking assets, and strong social connections.
The notable aspects with respect to the demand conditions are: i) low local demand
comparing to foreign demand, ii) deviation of demand trends, and iii) increased demand for
e-services.
Related and supporting industries element was mainly featured by the unclear
competitiveness status for supplying industries, major dependence on international providers,
the chance for local competition, and growing market for related industries.
Strategy, structure, and rivalry were observed to be superseded by the international rivalry
and market, welcoming of new banks culture does exist, and that the industry lacks the
publically communicated national banking strategy as well as the clear identification of
national dynamic core capabilities.
As the diamond works as a system, the gaps were clear within each element that influences
the effectiveness of the model as full system.
SWOT analysis was performed in conjunction with PEST to provide the insights into all
internal and external factors that require consideration while strategizing/making informed
decision.
The analysis revealed certain advantages/strengths that the sector enjoys, which then can be
reinforced and capitalized on towards enhancing the sectors performance. The key identified
strengths are: i) strong robust regulatory body i.e. CBB, ii) home to International Standard
bodies, iii) long-standing history especially in pioneering Islamic banking, iv) significant cost
advantages compared to its peers UAE and Qatar, and v) Noticeable representation of the
local talents in the sector compared to the peer countries (Qatar and Dubai).
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Chapter 3: Analysis
The analysis also revealed some gap that causing impacts on the sectors performance. These
weaknesses are: i) absence of innovation agenda, ii) absence of clear and specific
vision/strategy, iii) lack of career path and succession plans for middle and senior executives,
iv) Lower financial incentives compared to the peers, v) Countrys lifestyle is very limited of
social abundance, vi) Complex regulation and commercial laws that do not provide flexibility
for encouraging international/regional banks to settle in the country, and vii) slow down of
overall economy.
While the banking sector is facing threats such as losing its strong position in Islamic banking
owing to Dubais latest initiative (World Islamic City) and aggressive marketing, mobility of
workforce and ability to copy regulations, and vulnerability to oil price fluctuation and
residual risk of political unrest; it also has a window of various opportunities such as acting
as the gateway of the Saudi financial market, expansion of EDBs role in promoting the
market to avoid conflict interest with CBB, merger and acquisition of banks for growth and
diversification, bringing full-fledge foreign banks, high penetration of Islamic insurance
market, more initiatives from Tamkeen to contribute in the development of the
entrepreneurship with the banks,etc.)
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Chapter 4: Recommendation and Conclusion
Chapter 4. Recommendation and Conclusion
4.A. The issue mapping process
The recommendation of this paper is based on the strategy mapping process, as mentioned in
Methodology Chapter, which aims at creating an integrated strategy output utilizing Decision
Explorer software. The process abides by three steps through three interdependent strategy
perspectives, namely, strategy as issue management, strategy as purpose and strategy as
distinctiveness (Ackermann and Eden, 2011).
During the first stage of the process, the team has gathered ideas and issues that surfaced from our
analysis and literature review, which can either be generic, high level or context-specific. Once all
ideas that need to be addressed were brought to the surface, a linking process was triggered based on
causality, i.e. by undertaking an idea; it will cause or lead to influence an outcome. This have been
done meticulously and diligently to optimize the exercise. The linking process provided a holistic
view on how all ideas interlink to form a matrix. The next step was to look for busy points where
most of the arrows converge constituting potential priorities. These priorities in turn were given some
weightage in terms of importance and criticality. We then utilized these priorities to create goals that
are politically feasible within the context of the paper. Such goals were later elaborated by adding
assets and competences of the banking sector in Bahrain. The final stage, which is the strategy as
distinctiveness, identified distinctive assets and competences towards building an integrated strategy
output.
The maps outcomes were converted into four statements of strategic intents, which are used to
highlight the focus of efforts and actions by the decision makers of the banking sector in Bahrain:
1. Statement of Strategic Intent (SSI 1): Issue Management
2. SSI 2: Purpose
3. SSI 3: Competitive Advantage
105
4. Integrated Statement of Strategic Intent
Figure 28 below adapted from Strathclyde Making Strategy Workshop of the MBA program,
summarizes the overall mapping process.
Strategic Mapping Process
10. Create an integrated

1. Gather Ideas for
summary strategy
Action
output
9. Identify the most 2. Note relationships

distinctive pattern(s) of between ideas for
the Asset and actions
Competence Map. Strategy as
Strategy as Issue
Distinctiveness Management
8. Identify distinctive 3. Identify potential
elements in the asset priority initiatives
and competence map using analysis
7. Identify assets, 4. Agree priority

competences and initiatives using
interrelationships judgment
6. Elaborate goal 5. Connect priority

system initiatives to goals
Strategy as Purpose
Figure 28 Strategic Mapping Process adapted from Strathclydes Making Strategy Workshop
(2014)
106
Map 1: Issue System
107
SSI 1: Issue Management
Since the announcement of Our Path to Sustainability theme within Bahrain Vision 2030 strategy,
we have made significant progress building on a reputation that span over 4 decades in banking
excellence. We are now more than ever before committed to achieving sustainable growth based on a
deep conviction that a true and objective assessment of the situation will dictate the best course of
action. Our vision has been translated into concrete and executable actions on the ground, which we
believe will herald a new era in banking industry. We intend to do so by starting to focus on main
priorities to attain our ultimate goal: to be the leading financial hub in the region.
We will do that by creating greater alignment across the main key clusters we have identified, namely
human resources, Islamic finance, social/business environment, strategy, and innovation.
To capitalize on this unique opportunity we should aim at raising the countrys capabilities by
improving our overall banking value proposition. For this, our marketing offer should be executed
aggressively and meticulously through expanding EDBs role to promote the market. The outcome
of such initiatives will help sustain our lead in Islamic finance and maintain our competitive
advantage.
A sound strategy targeting banking growth is a sine qua non condition to pursue what we set to do
and execute at all levels. Looking closer at the market where we operate and the environment where
we evolve, our survival is dependent on expanding operations regionally capitalizing on our
proximity to the biggest market in MENA, which would help us gain a sizeable market share. At
the core of our approach, lies the human factor whose main mandate is to drive the innovation and
improve our offerings while diversifying away from oil with new banking product and services. This
is in line with our policy to retain and groom talent, the main enabler that remains critical and
decisive in driving our overall proposition.
108
Map 2: Laddering Up
109
Map 3: Goal System
110
SSI 2: Purpose
As a country that has been at the forefront in banking industry as the destination for international
trade, Bahrain intends to deliver its vision through a set of well-defined goals. We are confident that
our repute and long-standing history as a center for banking excellence will render Bahrain as the
region venue for international events and conferences. The exclusive hosting of the WIBC (World
Islamic Banking Conference) testifies of our capabilities to host mega international events and the
expertise we gained throughout the years. This reinforces the perception that Bahrain is a destination
of choice for banking professionals supported by the best banking talents in the region, which we
believe is our main competitive advantage and thats how we intend to position ourselves. This
combination of customer-centric approach will help us deliver the best banking experience that
ultimately will secure our banks ranking among top ten in the region. Our service driven strategy
will drive growth for our banks whereby we gain significant market share. The profitability of our
banking sector will absorb unemployment and provide a stable business environment attracting more
FDIs that will indubitably make Bahrain the leading financial hub in the region.
111
Map 4: Competencies, Assets and Outcomes
112
Map 5: Most Distinctive Aspects of Competence System
113
SSI 3: Competitive Advantage
Bahrain proximity to the biggest market in MENA offers an amazing growth opportunity and gives it
an edge over its competitors. The ability to service and penetrate the Saudi market is aimed at gaining
a larger market share and expanding our operations regionally. At the core of this initiative lies the
human equation that is the main enabler and asset we shall be utilizing. Therefore grooming talent is a
strategic imperative to attain our goals and execute our plans. Our long standing history in banking
coupled with the expertise we gained over 4 decades of exposure to the market contributed towards
building a reputation as the workplace of banking excellence. We believe that the ability to
provide excellent sharia compliant products and services has at its basis an expert talented pool
whose main mandate is geared towards innovation and product and service diversification. Our
competitive advantage stem from our ability to groom talent and our partnership with educational
financial institutional that offer first class education across all segments of banking industry. Our
policy regarding diversity has seen the proportion of women increasing to reach an all high across the
GCC making Bahrain a pioneer in a region and a prime example of integration.
114
Integrated Statement of Strategic Intent
Bahrain ultimates objective is to be the leading financial hub in the region. To do so, Central Bank
of Bahrain (CBB) together with its strategic partners, i.e. the Bahrain Banking Association (BAB) and
the Economic Development Board (EDB) has set itself the mission to formulate a strategy targeting
banking growth whereby we aim to grow and expand regionally and diversify our products and
services with a view to gaining a larger market size. This should be achieved by leveraging our
proximity to the largest market in MENA allied to a strong track record in banking and a pool of
expert talented bankers.
In order to achieve our goals we are set to improve Bahrain banking value proposition and promote
the countrys capabilities, which will undoubtedly improve the overall risk perception and attract
more FDIs to the country. This will pave the way to consolidating us as a center of excellence in
banking. Our expertise in Islamic banking will help drive and sustain our lead in providing
exceptional Sharia-compliant product and services which we are confident will raise our profile as
the destination of choice for international trade.
Our partnership with renowned educational institutions is the foundation for grooming and growing
local talents. We pride ourselves as having the highest participation of women in the banking sector
in the region and we shall continue to do so and strive to provide the best banking talents because we
believe that gender diversity is a value that we should promote and adhere to. This is acknowledged
and reflected in our mission and vision statements.
115
Alternative Representation of Integrated SSI
116
4.B. Conclusion
The whole is greater than the sum of its parts Aristotle
Sustaining a competitive advantage in the banking sector, whilst raising awareness of the countrys
capabilities via aggressive marketing and branding is critical for the success and survival of the sector,
especially that the banking market in GCC has changed drastically compared to 3 decades ago with
the resurgence of strong competitive rival economies like Dubai, Qatar, and even KSA. Bahrain
lacked a marketing strategy and effectiveness in branding itself as the destination of choice
misreading the environment, while neighboring competitors have been deploying all resources to gain
a market share and positioning themselves as inevitable players.
In this respect, our recommendations will adopt an integrated strategy to create synergistic values. For
this, we recommend that EDB should assume a bigger role in marketing the banking sector through
hosting events, conferences, and creating dedicated portal for this purpose. It is also imperative to
ensure effective cross-collaboration among EDB and other entities such as CBB, BAB, BIBF,
TAMKEEN, and other governmental bodies, to gain more market insights and improve
communication, hence effective execution of a marketing strategy. It is understood that a marketing
strategy presupposes a well-formulated growth strategy with a clear vision as to what Bahrain intends
to achieve in the next 10-15 years. By marketing we aim at branding the sectors core capabilities as
the main attraction to the country, envisaging its culture and caliber excellence.
To be able to compete and bid for mega projects, banks need to have sufficient resources or capital
base. Literature Review asserted that Bahrain banks are ranked at the lower level of the list in the
region in terms of capital base. Therefore, there is an urgent need for consolidation of banks in
Bahrain in order to be able to offer a greater array of products and services and compete with larger
117
banks especially in Qatar, Dubai, and KSA. Successful cases of bank consolidation include three-way
merger of new entity Ibdar (Capivest, Elaf, and Capital Management house), and Al Salaam Bank
acquiring majority stakes in Bank Muscat International (BMI) with a USD 300 million and USD 870
million capital respectively (Thomson Reuters, 2013).
Furthermore, seizing opportunities targeting high growth markets especially in MENA and Asia
regions will drive banks profitability and strengthen their position in the region. For instance, last
year the Bank of Bahrain and Kuwait has inaugurated its fourth branch in India and intents to open
operations in neighboring GCC countries after a series of success stories (bbkonline, 2014). Similarly,
Al-Baraka established a strong presence across MENA, Asia, and Sub-Saharan Africa. The market
requires more similar initiatives by other banks such as National Bank of Bahrain (NBB), Khaleeji
Commercial Bank (KHSB), and Bahrain Islamic Bank (BISB). The latest ranking of top 50 GCC
Banks shows only two Bahrain banks namely Ahli United Bank (AUB) and Arab Banking
Corporation (ABC), which are ranked 16 and 19 respectively. While six banks of UAE occupy top
positions in terms of asset and profit (Gulfbusiness, 2015).
The Dubai initiative, which encompasses a broader Islamic proposition including Islamic finance and
the various Halal segments is striving to position its self as the new Islamic hub, while Bahrain
Islamic proposition is traditionally focused on banking only, hence the urgency to adopt new vision
and take the Islamic initiative to the next level i.e. economy embracing all the aspects. This would be
challenging while suffering the plunge in the major revenue source (i.e. Oil), as it could discourage
country from reinvesting in the sector while having other nationwide priorities.
Nonetheless, the banking sector is also making a significant contribution to countrys GDP (16.7%),
its growth is essential for the economys stability as it can dilute the impact of oil price fluctuation on
the countrys economy. This should not come at the expense of overlooking other sectors (e.g.
118
Education, Tourism, Infrastructure, Industrial, etc.), which can considerably contribute in the growth
of banking, thus growing Bahrains GDP. The growth of banking supports the governments attention
to diversify the economy, which will lead to mitigating risks that stem from the high concentration on
a single revenue aspect.
Connectivity with high growth/emerging markets and expansion of offshore/international banking
operations and services; taking such recommendations forward would involve the sector to a wider
range of Financial Globalization, which is the integration takes place when liberalized economies
experience an increase in cross-country capital movement, including an active participation of local
borrowers and lenders in international markets and a widespread use of international financial
intermediaries (Schmukler, 2004). Becoming an active participant in Financial Globalization will
allow the country to enjoy critical advantages such as development of the financial system, and
interconnectivity/integration with the developed and growing markets. However, it will also expose
the country to some inherited risks that should always be borne in mind. These risks are mostly
consisting of sensitivities to global/regional financial crisis when excessively engaged, which may
deteriorate the market fundamentals causing drastic capital outflow (Goodhart, 2003). This
disadvantage was evident during latest crisis where Dubai was among the economies that were hit
harder owing to their higher exposure to the global market. However, in todays world, engaging in
the global market is inevitable given the internationalization of most industries and the growing
balance of trade among countries. This risk can be mitigated by well market supervision adhering to
global standards and regulations, of which we strongly believe of its existence within the Bahraini
banking system.
Our last but not least recommendation is the necessity of attention to the most valuable and unique
attribute of Bahrains banking; the local caliber. The local bankers can be part of the above-suggested
recommendations from building a banking brand to connecting to global markets. We highly
119
recommend establishing a center for banking excellence and innovation, capitalizing on the existence
of the educational institution (BIBF) to take the banking intelligence to another level. The paper
valued human capital as the most influencing capability of the country, which could provide the
sector with certain advantages such as a pool of educated senior bankers, innovative products
initiation and a source of social capital with international banks. Although empowering the national
caliber holds the risk of mobility given the attractive lifestyles in other GCC countries, we trust that
this risk could also turn into an advantage in the long-run given the higher exposure of our caliber to
other GCC markets. A center of excellence can be established through a collaboration among the
governmental bodies mentioned above, involving Bahrains major banks to draw a framework of
innovation in banking products. The market is currently saturated with repetitive services by
individual banks that we consider as wasted banking effort, given the limited size of the local market.
The effort spent on adverse local competition can be unified by major banks, within a Banking
Excellence Center concept, to penetrate the regional market with innovative products and services,
while economically benefiting the nation. The risk of competition by other GCC countries is always
there, however Bahrain must strive to be a pioneer!
120
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128
Appendices
Appendix 1: Additional Information on GFCI Competitiveness Report
Bahrain Financial Centre Competitiveness Profile
129
Appendices
UAE Financial Centre Competitiveness Profile
130
Appendices
Qatar Financial Centre Competitiveness Profile
131
Appendices
Global Competitiveness Index Framework
132
Appendices
Countries/Economies at Each Stage of Development
133
Appendices
Recent Financial Centres Ranking
GFCI 17 Financial Centres Profiles
134
Appendices
Appendix 2: CBB Financial Sector Fact Sheet
Regulator: Central Bank of Bahrain

Financial Institutions: 404 (March 2015)
Financial Sector Workforce: 14,009 (2012)
Bahraini nationals 9,253 (66%)
Foreign nationals 4,756 (34%)
Key Economic Indicators:
GDP (Current) US$32.8 billion (2013)
Growth 6.8% (2013)
GDP (Constant) US$28.6 billion (2013)
Growth 5.5% (2013)
Financial Sector contribution to GDP 16.7%
Sovereign Rating
BBB (S&P Dec 2013) with stable outlook
BBB (Fitch Dec 2013) with stable outlook
Population 1,195,020 (2011)
Banking Sector:
Assets US$189.1 billion (November 2014)
No. of institutions 113 (February 2015)
Retail banks 28
Locally incorporated 13
Branches of foreign banks 15
Wholesale Banks 75
Representative Offices 9
Bank Society 1
Islamic Banks (included in above):
No. of banks 23 (February 2015)
Assets US$25.1 billion (November 2014)
Insurance Sector:
Total No. of Insurance Companies & Organisations
Authorised in Bahrain 152 (March 2015) * excluding Appointed
Representative
Domestic market
Gross premiums US$685 million (December 2013)
No. of insurance firms 36
Locally incorporated insurance firms 25
Takaful & Retakaful Firms (included above) 7
Captives (locally incorporated, included above) 1
Overseas insurance firms 11
Insurance Brokers 31
Insurance Consultants 4
Insurance Managers 3
Registered Loss Adjusters 10
Registered Actuaries 25
Insurance Ancillary Services 6
Insurance Pools & Syndicates 2
Insurance Society 1
Insurance Licensees Restricted: 29
Insurance Firms restricted: 23
Insurance Brokers restricted: 4
Insurance Consultants restricted: 2
135
Appendices
Insurance Appointed Representative 15
Corporate 10
Individual 5
Investment Business Firms:
Total no. of institutions 61 (February 2015)
No. of Investment Business firms 52 (February 2015)
Bahrain Asset Manager Association 1
Specialised Licensees:
Total no. of institutions 53 (February 2015)
Money Changers 19
Fund Administrators License 3
Registrar License 1
Registered Administrators 1
Financing Companies 8
Microfinance Institution 2
Trust Service Providers 3
Ancillary services 16
Registered Professional Body 1
Capital Market:
Market Capitalisation US$22,651,774,637 billion (March 2015)
No. of firms 26 (March 2015)
Licensed Exchanges 2
Licensed Clearing, Settlement and Central Depository Systems 1
Licensed Securities Brokers 4
Licensed Securities Clearing Member 6
Licensed Securities Broker Dealers 13
Funds Industry:
Authorised Funds 2,850 (March 2015)
NAV US$6.77 billion (December 2014)
Local Funds (CIUs) 82
NAV US$3.59 billion (December 2014)
Conventional-Local 46
Islamic-Local 36
Locally Incorporated (PIUs) 7
Foreign Funds-Offshore 2,7641 (March 2015)
136
Appendices
Appendix 3: Key Indicators of Bahrains Banking Sector (EDB, 2014)
137
Appendices
Appendix 4: Examples on Individual Banks Marketing Campaigns on Prize-
Winning Deposits
138
Appendices
Appendix 5: Issue Laddering
139
Appendices
Appendix 6: Integrated Map of Most Distinctive Aspects
140
Appendices
Appendix 7: Interview Response Samples

Thank you for participating in our research. Please answer as many questions as possible giving
your insights on Bahrains banking sector from a resource-based view.
Also, kindly state any crucial points/issues at the end of this document should we havent
covered in our questions.
Title of the Project: How can Bahrain sustain its competitive advantage in the banking sector and
capitalize on its excellence as a market leader in the GCC?
Interview Questions:
1. Literature review has identified the main issues facing the banking sector in Bahrain as:
social/political unrest, lack of specialized training for local workforce, limited access to
finance, and lack of innovation agenda within the banking sector.
Which of these do you think is the most challenging issue affecting the sustainability of
competitive advantage in Bahrains banking sector? And which issues should receive the
attention of banking authorities?
All the identified issues have differing impact on the competitive advantage of the banking sector. All
of them cannot be addressed by the banking sector or banking authorities alone. In recent years the
perception about Bahrain in general, was dented due to political / social reasons. The banking
industry has been fairly resilient to meet the challenges, which has cost implication and limits asset
expansion. The local market being limited and highly competitive, the focus for the industry should
be the nearby countries in the region. Towards this, the training of the local workforce in different
areas of banking and innovative approach in devising new products and services for the regional
requirement is required. Skilled local workforce is one of the major strengths of the Bahrain market as
compared to others in the region. This should be further developed and enhanced.
The Bahrain banks will have to adopt innovative approach it its products and services to make them
attractive for other markets to deal with Bahrain banks. The local market may not provide the variety
and depth if the focus is restricted.
2. Researchers and analysts state that two or more banking hubs are too saturating for this
region, and each country should focus on a niche of banking to complete each other as a
GCC market.
a. To what extent do you agree with this statement, justifying your agreement level?
The financial sector is growing as also the size of economies of most countries in
the GCC and nearby region. Local banking forms only a part of the activities for
the banks. Exploring outside market on sustainable basis can help in creating a
141
Appendices
niche. Having two financial hubs is not saturating. Each can have ample scope
for growth and coverage and should segment on the basis of its strength. Several
years back Bahrain was the first financial centre in the region and later on Dubai
also grew up and it did it fast. Similar arguments were heard at that time.
Financial activities are global and there is a scope for growth if one takes to
innovation.
b. What could Bahrain excel at?
Although there could be various areas Bahrain can excel, I would restrict to the
following main ones
Skilled local workforce: This has been the strength of Bahrain as compared
to other countries in region. The local talent should be trained in all areas of
banking and should become preferred choice to the nearby markets.
Focus on providing formal education in banking and professional training
(covering all areas of banking) can put Bahrain ahead of others in the region.
It can focus to be the financial training centre.
Bahrain has one of the best banking/financial regulatory setup.
This expertise can be leveraged to other countries in the region. It can try to
develop this area by developing and hosting regional bodies in the financial
sector. How it can be done is a mater of policy discussion. For example the
MENA FATF was set up in Bahrain.
Islamic Banking is in evolving stage and Bahrain has good
opportunity to assume the leading position by facilitating its growth
and taking strategic initiatives in its development. The Islamic
banking sector is still not fully developed and is presently offering
limited products and focuses largely on real estate activity.
Develop financial advisory services industry on the above strengths
3. According to the World Economic Forum, the limited size of the Bahraini market is a
major limitation to the growth of economic potentials.
a. Do you see that the financial market is fully absorbed for catering the domestic
financial needs?
The domestic market size is small and would have natural limitations for growth.
Therefore the sector should look beyond the domestic market. In fact most
wholesale banks have business outside the country.
b. Is there something as Bahrain brand when competitors like UAE and Qatar
have gone aggressive to grab themselves a market share?
Ease of doing business, strong regulatory framework and financial skills can
provide advantage over the aggressiveness.
4. What capability differentiates Bahrains banking excellence from Dubai & Qatar?
Strong and friendly Regulatory framework and conducive business environment. Ease of
doing business.
142
Appendices
5. What is the resource/capability that Bahrain used to have and is lacking these days? Are
there any resources/capabilities being developed by Doha and Dubai that Bahrain lacks?
I have no specific comments however; perception about Bahrain (financial sector) is
more positive than Doha and Dubai.
6. How can Bahrain leverage the different aspects of its resources in implementing its near,
medium and long-term strategy?
Innovate and develop financial sector products and processs rather than replicate them
from other centres.
7. Can connectivity across high growth markets be key to sustainable growth?
Yes. Competitive connectivity to other regional markets will provide more reach.
8. GFCI and World Economic Forum, both on the competitiveness of world economies and
financial centres, have defined the key factors that contribute in the competitiveness of
financial/banking hub, such factors are:
a) Human capital
b) Business environment
c) Financial sector development
d) Infrastructure
e) Reputation and general issues
Based on your experience, which factors are deemed as competitive advantage for Bahrain?
All the above factors are favorable contribute in creating the financial sector. For Bahrain a
and b have an edge over others. The item e is very important and is largely outside the scope of the
financial sector.
9. How would you describe Bahrains labour market in terms of supply and demand, does it
satisfy the banking sector needs? What challenges does it present? Do you believe that
Bahraini bankers are the main element of the banking sectors sustainability?
The Bahrain market has good supply of literate elementary level workforce. H9wever, it
requires more experience and training to be groomed up for higher roles. The supply of mid
level workforce with adequate skills and understanding of the financial sector is inadequate.
10. How long does an expat employee remain with the bank compare to the lifespan of local
employee?
No comments
11. What are the causes of local banking talent immigration to rival economies such as Dubai
and Qatar? As a Bahraini who opted to shift to and work in another economys banking
sector, what are the parameters that contribute in immigration of banking local talents?
The causes for migration could be multiple and personal. It should be considered as a good
sign and indicates better acceptability of the talent by other centres.
12. What are the dimensions that need to be worked around towards improving the local
talents in the banking sector to minimize the level of brain drain in the sector as well as
improving and sustaining such competitive advantage?
Brain drain can be a concern if the data shows that people of specific educational
background or of specific skills (developed in Bahrain) are opting to go out. Otherwise it
may just be a factor of getting opportunities for a normal type of job which is not
143
Appendices
available in Bahrain. Developing the skilled and competent manpower should still be the
focus and prerequisite for developing the market.
13. Do you see as much presence of national caliber in Doha/UAE in the banking sector as
here in Bahrain? Is there any evidence of initiatives taken by Qatar and Dubai
governments in favor of grooming the national talent within the banking sector?
As mentioned above the brain drain is from Bahrain. It is general perception that Bahraini
manpower is more acceptable/recruitable. There is no significant migration to Bahrain of the
workforce from other GCC countries.
14. Theory suggests having an entrepreneurial relationship between the resources owned by
the sector i.e. innovating resources instead of only deploying them.
The resources should not only be employable but also innovative and productive.
15. How can we have innovative banking in Bahrain that makes it the hub for bankers
excellence? Where do you think Bahrain stands in banking entrepreneurship compared to
Qatar and Dubai?
Recognising our strengths and limitations and strategic focus on the related segment can help
in developing the approach.
16. Do you think Bahrain has an advantage over its competitors in Islamic Banking? Can
Islamic banking be the haven of entrepreneurship in Bahrain rather than Qatar and
Dubai?
Bahrain certainly has advantage and can develop the Islamic banking concepts which can
be adopted by other centres. The close by Saudi market can provide more opportunities
rather than relying on Bahrain market alone.
17. What can Bahrain do to grow its Islamic banking assets, a case in point Al Salam
overtaking BMI?
The Islamic banking sector provides several opportunities. However, if the question is on
asset growth them, based on broad assessment, ALSalam developed the retail segment, which
was largely ignored by most of the Islamic banks whose focus was real estate and large
tickets.
18. Where do you see Bahrains banking sector in five years time? What is the role that the
market authorities and governmental entities e.g. Cantral Bank, Tamkeen and EDB, can
play towards enhancing and prompting the banking market?
The financial market is very dynamic, evolving and growing. If a particular centre does not
keep pace with the changes, it loses its sheen and gets localized. In developing the centre as a
whole the focus should be spread from limiting to the share in market to providing different
types of services required by vibrant financial centre. Each institution has a defined role in
the present setup. They can continue with their present activities and share part of their
resources to brain storm along with other entities who share the strategic goal. It should
include other entities such as Bahrain Bourse, MOF, etc. Once the roadmap is developed then
specific actions can be initiated.
Thank you.
144

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THE UNIVERSITY OF STRATHCLYDE

Submitted in partial fulfilment of the requirement of the degree of Master of

THE UNIVERSITY OF STRATHCLYDE MBA

Supervisor: Dr. Dave Mackay

We declare that this dissertation is entirely our own original work.

from family, friends, colleagues, professors and classmates.

all the support to conduct our project.

frameworks, namely Resource and knowledge-based theories, as well as Porters

mapping process by means of Decision Explorer software.

Keywords: strategy, entrepreneurship, financial center, resource-based theory (RBT), competitive

AAIOFI The Accounting and Auditing Organization For

BCBS Basel Committee on Banking Supervision is a

BIBF Bahrain Institution of Banking and Finance is an

Central Bank of Bahrain is a public authority

FATF Financial Action Task Force is an inter-

MENA-FATF The Financial Action Task Force for the Middle

OECD Organization for Economic Cooperation and

SIA Securities Industry Association is representing

A theoretical framework that verifies if a

Introduction and Context

total assets for the period 2009-2014 (BAB, 2015).

investment, are listed in the Bourse (Bahrain Bourse, 2015).

except for Albaraka banking group which is an Islamic wholesale bank.

II. Bahrain Economic Vision 2030

production, salaries and economic expansion by espousal of attractiveness and competitiveness to

provide equal opportunities to Bahrainis (Bahrain Economic Vision, 2008).

III. Statement of the Issue and Significance of this Study

the national position towards sustainable competitive advantage.

IV. Initial Research Questions

What are the parameters defining a country as a banking hub?

How did Bahrain initially establish itself as a financial hub?

timeframe? How do we further grow this market segment?

What role would/should the EDB play?

a financial hub for Islamic banking till date (Hamdan, 2011).

Chapter 1. Literature Review

competitive advantage by comparing thoughts and identifying gaps.

Bahrains potential sustainable competitive advantage in the banking sector.

1.B. Theoretical Literature Review

competitiveness of the countrys resources. Further emphasis is directed to knowledge and

technology as significant resources towards competitiveness of todays world. A branch of this

our case study that covers the banking sector on country-level.

1.B.1. Resource-Based View Strategic Thinking

firms resource base nor a timeframe of the sustainability of competitive advantage.

(Helfat and Peteraf, 2009) and (Croitoru, 2012).

capabilities perceiving the future value of them.

Figure 1 Adapted from Grant (1991): A Resource-based Approach to Strategy Analysis- A

knowledge, as well as in physical assets and brand reputations. (Porter, 1990).

Figure 2 Adapted from Porter (1990): Patterns of National Competitive Success

(Themanager.org, 2001), and are considered as initial advantage to a country.

innovative and create upgraded products and services.

processing customers transactions.

studying its impact on providing sustainable competitive advantage.

1.B.2. Knowledge-based theory and Human Capital

future returns (Curado, 2006).

Curado (2006) highlights the economic change of material-focused production to information-based

their knowledge of a certain skill/product to a rigidity that prevents competitive advantage.

individuals that surpass their capability to do manual labor.

1.B.3. Where do technological advances stand?

It is noticed that literature on technological advances as a resource to competitive advantage goes

In applicability of the present research, owners of resources can be in a set of a network of

1.C. Empirical Literature Review

1.C.1 The Banking Sector in Bahrain

recommended to establish a resource-based strategic focus (Mehra, 1996). Banking literature