05 March 2014, Global Connections

Mega cities to spur growth

DORMA Group’s Thomas P Wagner discusses the huge potential in the Gulf’s construction sector and his belief that future growth lies in mega cities.

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Mega cities across the world have provided a fertile ground for DORMA Group to grow its business. The 105-year-old company, which specialises in producing architectural hardware, access solutions and door technology systems, has widened its footprint from its hub in Germany to other parts of Europe and across the globe.

A steady increase in the number of ‘megaprojects’, especially in the emerging markets, has helped to beef up DORMA’s sales revenues to reach over EUR1 billion in fiscal year 2011/12, rising by more than 6 per cent from EUR944 million on the previous period. Thomas P Wagner, Group CEO and Chairman of the DORMA Executive Board, believes that mega cities around the world not only account for more than half of the global economic output, but are also major drivers for the construction industry.

If projections in a recent urbanisation report by the United Nations are to be believed, DORMA’s sales figures could head further north.

According to the UN Department of Economic and Social Affairs, urbanisation will continue to rise in both the more developed and less developed regions. By 2050, urban dwellers will likely represent 86 per cent of the population in the more developed countries and 64 per cent in less developed nations. This rise in concentrated urban living will offer opportunities as well as challenges to infrastructure developments worldwide.

Which regions have the largest growth potential for your company?

We feel that in as far as the global construction industry is concerned, it is better to look at countries rather than regions as local developments vary and often happen from a micro level. In the Gulf region, for instance, we see the UAE, Saudi Arabia, Qatar and Kuwait as our major markets. These countries are of particular interest to us because of the emergence of non-residential developments. Following the recession a few years ago, we are now seeing a turnaround and the regional construction industry is set to exhibit a combined 7 per cent growth rate in the next couple of years, which is quite impressive.

We hope to outperform that figure by doubling our presence in mega cities. Our aim is to reach 300 urban projects by 2020. Elsewhere in the world, we see significant growth prospects in Asia, but we are also mindful of the importance of the US market.

What mega city projects do you think will have a strong impact in redefining the Middle East region?

In Saudi Arabia, Riyadh, Jeddah, Makkah and Madinah are the areas where most of the projects are being developed. The projects are stunning – from the Kingdom Tower and the King Abdullah Financial District in Riyadh to the King Abdulaziz International Airport Development and the King Abdullah Economic City in Jeddah. Makkah will also undergo an ambitious USD16.5 billion metro system. All of these projects hold tremendous opportunity.

Our benchmark of a mega city is that which has a population of 10 million. Cairo is another mega city, but given the current political challenges it will take a couple of years to stabilise. However, we still see that the potential is clearly there.

What are the niche markets in this region?

DORMA is a niche player in terms of access, but when we look at access in a wider context, we also look at everything around the door and that also includes the services. We recently opened a showroom in Dubai since we believe that we can approach a very big market here. There is great potential in the interiors industry within this region. There has been a lot of construction happening and a lot of refurbishing of buildings.

The rising urbanisation has also paved the way for an increase in mass transportation developments such as the Dubai metro, where we delivered more than 300 doors and are servicing them for the long term.

Do you have plans to open more showrooms in the Middle East? Do you see DORMA entering the retail segment in the foreseeable future?

The focus is clearly here [Dubai], but we are also looking at Saudi and Kuwait – we believe the latter has untapped potential. Our primary business has always been project management. In the Gulf, we have been working with planners, architects and developers over the past 15 years and this has been a success factor for us. In terms of retail, I do believe that the brand is very important, but our core focus will remain the same.

What challenges face the GCC construction industry?

In Saudi Arabia, the overall challenge comes from the enormous opportunities that have opened up in recent years. Because of the kingdom’s rising population, increasing affluence and the government’s initiative to develop megaprojects, the construction industry has to double its efforts to support infrastructure demand. We do believe that Saudi has the potential to outperform the UAE in the next couple of years.

Meanwhile, the 2022 FIFA World Cup is the key driver in Qatar, which will also require a lot of infrastructure to support its sports tourism plan. As mentioned earlier, Kuwait is a very promising market with infrastructure budget going up, thus driving construction projects such as the metro, hospitals and airports. As part of our active pursuit to venture into that market, we acquired in 2012 a business that will serve as our subsidiary in Kuwait. This is our third initiative to expand in the Gulf – the first was in Saudi and the second in Dubai.

Are there capacity constraints in the region?

The current growth is far more controlled and careful. Going forward, to be successful in this intensely competitive market, we believe that the 360-degree approach will work, where companies must provide ancillary services from planning to post-occupancy. This part of the world is getting to be a more dense market.

What are your goals in the coming years?

As a group, we generated sales revenues of EUR1 billion last year. Our plan is to reach EUR2 billion globally by 2020 and, within that context, the Middle East region plays a critical role in accomplishing this target. We plan to triple our revenues in this region to reach EUR150 million by 2020. We are also aiming to significantly expand our international presence by growing our network from the current 51 countries to 80 by 2020.

© Zawya

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.

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