HFI Consulting International launches innovative collaboration venture to boost Scotland’s oil and gas SME service companies’ expansion in the Middle East

A consultation has been launched on innovative proposals to create a collaboration venture aimed at boosting Scotland’s export performance and helping SME oil and gas service companies expand in the challenging Middle East market.

HFI Consulting International aims to introduce its bridgehead cluster venture (BCV) initiative, bringing together a group of Scottish and wider UK companies to establish up to three joint ventures in Abu Dhabi – a region that continues to offer significant expansion opportunities for advanced technology in the energy sector.

A consultation exercise exploring the level of interest in the project will be formally launched to mark the inaugural Energy Exports Conference taking place in Aberdeen on June 18 and 19, where opportunities in the Middle East will be a key theme. The exercise will run throughout the summer and conclude in September to coincide with the Offshore Europe 2019 conference and exhibition.

HFI managing partner Hugh Fraser, who has been helping Scottish firms internationalise in the Middle East for almost 20 years, said the model provided an innovative solution to some of the main barriers preventing business from exporting their technology and know-how to the region.

“Bringing together a group of synergetic and non-competitive companies to collaborate with a local partner in Abu Dhabi under the BCV model not only mitigates the start-up risks of an individual approach, but also consolidates costs and overheads, and maximises the prospects of a successful venture,” said Mr Fraser, who is a member of the GlobalScot network of business experts brought together by Scottish Enterprise to help companies expand in international markets.

“Abu Dhabi and the wider United Arab Emirates remains one of the world’s most prospective energy markets and is often the springboard for wider expansion throughout the region. However, it is a challenging market to enter and to develop within, especially for small and medium-sized enterprises with limited resources. Historically, failure rates or instances of under-performance against expectation are too high.

“We hope the BCV initiative may be of interest to companies that are looking to enter the Middle East market for the first time but also to those who want to re-visit from a previous venture which has failed to live up to expectations.

“In my experience, businesses rarely fail on account of their technologies, products and services. It is the result of external factors such as timelines and associated costs being underestimated, lack of a full-time local presence, local partner challenges and management issues.

“More recently, the drive of many Middle East countries to put localisation and in-country value high up the agenda has made traditional agency and distributorship models increasingly ineffective and obsolete.

“The next step up is to establish an in-country registered and licensed entity with a full-time team on the ground, and this involves a major step up in costs and risk. In our experience, this will typically involve an overhead investment of US$500,000 in the first year against a backdrop of uncertainty as to revenues stream.

“The BCV model provides a bridge across between these two options and we have built a model which could see that figure reduce to US$60,000 through the injection of specialist know-how and collaborative measures.”

Mr Fraser believes there is scope for up to ten Scottish and UK oil and gas service companies to form a BCV – with as many as three clusters being launched simultaneously. HFI believes the economics and management dimensions will work best in the five to 10 participants range. Each cluster would be appointed its own locally-based general manager.

Three local partners in Abu Dhabi – Al Yaseah Group, Leaders Oilfield Services and SAMCO – have already agreed to join the BCV initiative for Abu Dhabi and they will play a key role in assessing and accessing market opportunities for the participants.

The key objectives of the model are to identify potential participants who have the potential to reach sustainable annual gross revenues of U$5 million and upwards in the target market, to provide a solid platform for these the firms to generate US$1.5m to US$2m of initial gross revenues within 12 to 24 months of commencement. This is done by “piggybacking” on the local partners’ infrastructure.

The next step would be to use the revenues stream to build out with a jointly owned in-country registered and licensed legal entity, ideally during the second 12 months of the BCV project, to propel the participants onto the targeted US$5m a year. At these levels, participants are then very well-placed to launch their own individual ventures as and when the BCV structure has served its purpose.

If the consultation shows there is both an appetite and commitment from firms to join the clusters, it is anticipated that the ventures will be launched at the high-profile Abu Dhabi International Exhibition & Conference 2019 (ADIPEC) in November this year and initiated operationally on 1 January 2020.

The Scottish Government recently launched a 10-year plan to boost the nation’s export performance, with the aim of doubling the value of exports from the current level of £32bn. Mr Fraser said that new and innovative routes to market need to be considered in order to move the needle and clearly a fully successful BCV project will look to generate US$50m and upwards of sustainable annual revenues among the participants.

He added: “The figures on export performance speak for themselves: the current approach needs overhauled and it’s time to do things differently. This business model aims to radically reduce the timeline, costs and risks associated with the route to market and to maximise the chances of success.

“No-one should doubt that this it is a major challenge to pull together, launch and implement a successful BCV project but the ultimate rewards are there to accessed, and the model can be replicated in other territories.”