Gulf companies must stop focusing on price cuts, and start looking at areas where they can stand apart from their competition, according to Professor Michael E. Porter, the world’s leading business strategist.

Professor Porter, who was speaking live and in person in Bahrain for the first time, was drawing up a framework for Gulf companies to operate within during the current economic crisis.

"If your industry competes on price alone, profitability will be low. You need to compete in other areas to support higher profits," he noted.

"That means every corporate goal should address how you can lower your costs while increasing your differentiation from your competitors, which enables you to charge a higher price," he added.

As consumers increasingly shop around on price, companies face declining profits unless they act strategically, Porter said.

He pointed out that lowering costs and following best-practice models were no substitute for strategic positioning for the long term.
 
“The two main strangulation points for profitability are the power of the customer and the power of the supplier. Operational effectiveness is a necessity to get in the game, but it won't make you win. You need to improve strategic performance," he stated.

Too many companies consider increasing shareholder value as their prime objective – while shareholders have decreasing loyalty in return, with investors holding on to stocks for an average of only six months, he said.

"Shareholder value is not a goal. Economic performance – which comes from good return on invested capital matched with sustained growth - should be your only corporate goal," he opined.

“Why would you focus on short-term shareholders and a stock price that can fluctuate according to factors outside your control? Focus on return on capital and sustainable growth, and your shareholder value will increase in the medium to long-term anyway," Porter stated.

He also urged caution to interventionist governments in emerging markets, including the Gulf.

"Government intervention can provide protection from foreign competitors, and reducing competition. But companies need to understand how they fit into a competitive industry structure in order to formulate a strategy for how they can be unique, be different and be successful," he remarked.

“Politics changes, so you need to understand the economic models behind corporate success,” the expert noted.

Professor Porter was addressing an audience of public and private sector organisations and government agencies from around the Gulf. He is the fifth thought leader to be brought to the Kingdom by international event organisers Global Leaders.

Tina Schneidermann, president of Global Leaders, said: “It is significant that this is the broadest, yet most senior audience we have had at any of our public events in the Gulf to date. As the global economy falters, we look to Prof Porter to guide us through the 12 months ahead.”

Governments and corporations around the world have turned to Professor Porter for his perspective on economic development, competitiveness, corporate strategy, and corporate social responsibility.

He is the leading authority on competitive strategy, the competitiveness and economic development of nations, states, and regions, and the application of competitive principles to social problems such as healthcare, the environment, and corporate responsibility.

Serving as the Bishop William Lawrence University Professor, based at Harvard Business School (the highest professional recognition that can be awarded to a Harvard faculty member), Professor Porter was also elected to the Princeton University Board of Trustees earlier this year, for a four-year term.

Partners for the event included: Bahrain Tribune, Al Ayam, Business Intelligence Middle East, BIBF, BSTD, knowledgenetwork, and Gulf Financia