International businesses wanting to enter GCC markets can overcome regional challenges through M&A transactions.
Strategic mergers and acquisitions have emerged as a way to overcome hurdles international companies face in Arab Gulf countries and emerging markets. Businesses attempting to enter and grow their presence into the GCC countries face various challenges, such as for example cultural differences, unknown regulatory frameworks, and market competition. However, once they acquire local businesses or merge with local enterprises, they gain instant usage of regional knowledge and learn from their regional partners. The most prominent cases of successful acquisitions in GCC markets is when a heavyweight worldwide e-commerce corporation acquired a regionally leading e-commerce platform, that the giant e-commerce corporation recognised being a strong rival. Nevertheless, the purchase not merely eliminated regional competition but in addition offered valuable regional insights, a customer base, as well as an already founded convenient infrastructure. Furthermore, another notable example could be the acquisition of an Arab super software, namely a ridesharing company, by the worldwide ride-hailing services provider. The multinational company gained a well-established brand name having a big user base and extensive understanding of the area transport market and customer preferences through the purchase.
GCC governments actively promote mergers and acquisitions through incentives such as tax breaks and regulatory approval as a method to solidify industries and build regional businesses to become capable of contending at an a worldwide scale, as would Amin Nasser likely inform you. The necessity for economic diversification and market expansion drives much of the M&A transactions into the GCC. GCC countries are working seriously to attract FDI by creating a favourable environment and bettering the ease of doing business for international investors. This plan is not only directed to attract foreign investors simply because they will add to economic growth but, more most importantly, to enable M&A deals, which in turn will play a significant role in permitting GCC-based companies to get access to international markets and transfer technology and expertise.
In recently published study that investigates the relationship between economic policy uncertainty and mergers and acquisitions in GCC markets, the authors found that Arab Gulf firms are more likely to make acquisitions during periods of high economic policy uncertainty, which contradicts the behaviour of Western companies. For instance, big Arab banking institutions secured takeovers through the 2008 crises. Furthermore, the study shows that state-owned enterprises are not as likely than non-SOEs to help make takeovers during times of high economic policy uncertainty. The results indicate that SOEs are more prudent regarding acquisitions compared to their non-SOE counterparts. The SOE's risk-averse approach, according to this paper, emanates from the imperative to preserve national interest and mitigate prospective financial uncertainty. Furthermore, acquisitions during periods of high economic policy uncertainty are related to a rise in investors' wealth for acquirers, and this wealth impact is more noticable for SOEs. Certainly, this wealth effect highlights the potential for SOEs like the ones led by Naser Bustami and Nadhmi Al-Nasr to exploit opportunities in such times by buying undervalued target businesses.