HFI is developing an innovative collaboration venture that will help SME oil and gas companies expand in the challenging Middle East market. Our bridgehead cluster venture (BCV) initiative will bring together a group of Scottish and wider UK companies to establish up to three joint ventures in Abu Dhabi.

The aim of a BCV is simple: it brings together a group of synergetic and non-competitive companies to collaborate with a local partner, mitigating the start-up risks of an individual approach, consolidating costs and overheads, and maximising the prospects of success.

We have focused on Abu Dhabi for the launch of this initiative because the market continues to offer significant expansion opportunities for advanced technology in the energy sector. It is also often used as a springboard for wider expansion throughout the Middle East.

Three well established and well-respected local partners - Al Yaseah Group, Leaders Oilfield Services and SAMCO – will be involved in the BCVs and will play a key role in assessing and accessing market opportunities for participants in the three clusters.

The BCV initiative may be appropriate for a company that is looking to enter the Middle East for the first time, but equally it may be of interest to firms that have previously tried to launch a venture there but found that it failed to live up to expectations.

In our 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, many Middle East countries have put localisation and in-country value high on the agenda and this has made traditional agency and distributorship models increasingly ineffective and obsolete. 

For many SMEs, the cost of expanding into the Middle East is too prohibitive to go it alone. Typically, an investment of US$500,000 in the first year against a backdrop of uncertainty as to revenues stream. The BCV model could see that figure reduce to US$60,000 through the injection of specialist know-how and collaborative measures.

The key objectives of the model are to:

  • Include 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 by piggybacking on the local partners’ infrastructure
  • 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
  • Provide a solid base for the participants to launch their own individual ventures as and when the BCV structure has served its purpose

The BCVs will each be assigned a full-time in-country general manager who will work with the local partners. Participants will also be asked to provide business development personnel to work with the general manager and partners.

It is intended that the first trio of our BCVs will be launched at the Abu Dhabi International Exhibition & Conference 2019 (ADIPEC) in November this year and initiated operationally on 1 January 2020.

If you would like to know more about the BCV concept, please contact us.