Scaling Up

How suited are the region’s companies to scalability, which has become a key way of assessing new ventures and gauging their potential?

The Strategist – Nader Museitif

Scalability addresses how a business can reach and serve a mass customer base with a somewhat constant operating structure. In other words, a scalable model means that growth is not linearly proportional to the investment needed to accommodate that growth. A car repair shop, for example, can’t sustain growth beyond a certain point because it will run out of space and mechanic working hours. In order to service more cars it will have to invest and acquire more finite resources like space, mechanics, and equipment. Such investment will be perpetual to expand capacity as long as the business is growing. On the other hand, a payment gateway is a scalable model in which servicing increasing numbers of users doesn’t require significant investment, provided the right technology and infrastructure baselines are set properly to attract and sustain the service.

There is nothing wrong with either model. In fact, most of the businesses we see around us are unscalable (clinics, barbershops, etc.) and they operate within a competitive market and within small to medium investments or budgets. Scalability is, however, particularly important when large investments are placed with expectations of a large return. This happens often in the tech sector with e-commerce, content, or software businesses.

So how achievable is scalability in our region? Some would answer “it depends” and others “not so much.”

Our region doesn’t really cater for all-out scalability for several reasons. Firstly, businesses are constantly faced with serious political instability in places like Iraq and Syria, which makes it hard for goods and services to access important markets safely and cost-effectively.

Secondly, the region is economically fragmented. Each country has its own customs economic barriers with little integration with the region. Setting up a legal entity can be a complex and lengthy exercise in itself, and there’s little regard for where a business is based if it doesn’t meet a list of local guidelines. The GCC is in a relatively better position than the rest of the Arab world, but it does have its share of complications in places like Saudi Arabia. Think of the pains involved in expanding an e-commerce business to new Arab markets: every country is a new exercise in supply chain, legal presence, tax, currency, and custom duty rules.

Third, there are still large cultural gaps among Arab societies. What’s funny in Jordan isn’t necessarily funny in Egypt. What’s interesting in Saudi Arabia can’t be ported precisely to Iraq. A particular radio ad in Dubai may not strike the same chord in Lebanon. And even when it comes to our unifying Arabic language, some dialects are more preferred than others depending on who the audience is. Let’s face the facts, all this hardly helps scalability.

But don’t despair. While scalability isn’t yet easily attainable for critical sectors like e-commerce, many businesses have cracked it and have navigated the challenges. In retail, food and beverage, and software sectors, a significant amount of businesses have gone regional very quickly. Even on the content side, websites like the medical reference portal is providing value across the Arab world. Even the e-commerce players, with the presence of funds, have been able to penetrate most countries—albeit with some extra investment in duplicating infrastructure where needed. When there’s a market, there’s always a way.