Abstract
This case discusses the growth and development of Ras Al Khaimah (RAK) Ceramics, a global manufacturer of high-quality ceramics, gres porcellanato wall and floor tiles, faucets and sanitary ware. From its launch in 1989 in the United Arab Emirates (UAE), RAK Ceramics’ ambition is to provide lifestyle solutions for walls, floors, bathrooms, kitchens and large iconic buildings locally and in the broader Middle Eastern region and beyond. The case analyses internal predispositions and corporate governance frameworks that allowed the company to evolve from a domestically focused ceramics company to an organization with a solid international presence in a short period. Despite multiple challenges that constantly impact the ceramics industry, the company was able to navigate through external changes by preserving the focus on the core business and staying at the forefront of innovative trends to integrate advanced technological solutions into its products. With its current corporate standing and considering the evolving macro-environmental trends, what strategic actions should be pursued by RAK Ceramics to sustain its rate of corporate growth and enhance its position in the global ceramics industry?
Discussion Questions
In light of what you learnt about RAK Ceramics, argue in favour or against modifying some aspects of its mission and vision statements. Justify your answer.
Discuss the corporate-level strategies that were adopted by RAK Ceramics at different periods of its existence.
Analyse the various changes in the structure and composition of the board of directors of RAK Ceramics between 2012 and 2018.
Evaluate the quality of corporate governance practices that are currently deployed at RAK Ceramics.
Why did the company take the initiative to increase the size of its board of directors? What other principles of good governance should RAK Ceramics implement?
Perform a detailed analysis to assess the effectiveness in the way how RAK Ceramics deals with its internal factors.
Based on the macro-environmental evolutions, what strategic recommendations can you provide to RAK Ceramics to secure its sustainable future development?
At the end of 2019, Ras Al Khaimah (RAK) Ceramics was considered one of the largest ceramic manufacturers globally, with an annual production of 110 million sq. m of tiles and 5 million pieces of sanitary ware (RAK Ceramics, 2019). This output accounted for an annual turnover of US$1 billion, spread across 16 plants that employed 15,000 staff members who secured a distribution network in over 150 countries in the world. The company manufactured a large variety of wall and floor tiles for any type of space, such as a kitchen, dining and living rooms, bedroom and restaurants. Its tile offerings were designed to complement a specific theme to match sophisticated client tastes, from more natural to digital and futuristic. Thus, the Atlantis Marble tiles targeted contemporary interiors. Circle Wood collection incorporated advanced digital printing for natural wood effects, and the Fusion Stone tiles reflected a real stone appearance suitable for a modern-themed room. The company also produced bath and kitchenware supplies, including washbasins, water closets, bidets, fire clay kitchen sinks, bathtubs, shower trays, cabinets, counters and cisterns.
During the three decades since its establishment, RAK Ceramics strived to provide a wide variety of integrated ceramic solutions to fit the different lifestyles of its customers in regional markets and all over the world. Having achieved a truly international reach, the company gradually evolved into a globally recognized brand, widely acclaimed for its quality and reliability. The management of RAK Ceramics attributed this success to the eight principles of its responsible knowledge-driven mission (Spraggon & Bodolica, 2008, 2017) that was captured effectively by the acronym
Nonetheless, these achievements did not occur overnight. The company was urged to ride the waves of the global recession, counter its dependence on the real estate market that was heavily affected by the economic turmoil (Abou Soueid et al., 2017) and respond to external pressures for more sustainable business practices. RAK Ceramics had to alter its internal decision-making processes, modify its corporate governance framework (Bodolica et al., 2015; Spraggon & Bodolica, 2015) and stay at the forefront of innovative trends to integrate advanced technologies into its product offerings. While it had proven effective in affronting the uncertainties of the past, new and more complex types of challenges continued to emerge and affect the dynamics of power in the ceramics industry worldwide. The ever-increasing reliance on artificial intelligence, digital technologies and smart buildings caused a threat to its ambition to preserve its pace of growth and positioning as a global leader in the ceramics manufacturing field. Considering its corporate standing and the nature of changing macro-trends, what strategic decisions and actions were RAK Ceramics expected to deploy to spread its reach and enhance its position in the global ceramics industry?
Historical Overview
RAK Ceramics was established in 1989 under the patronage of the Ruler of (RAK), one of the seven emirates of the United Arab Emirates (UAE) (Spraggon & Bodolica, 2014). The management aimed to transform the company into a premium international brand recognized as an industry leader. The first plant was opened in 1991 in RAK with a daily output of 5,000 m2 of tiles. This expansion in the local market continued until 2006, with ten plants in RAK that had a higher daily output of tiles (RAK Ceramics, 2019). During the period from 2000 to 2006, RAK Ceramics opened five manufacturing plants overseas, including Bangladesh, China, Sudan, Iran and India, whose daily output ranged from 10,000 m2 of tiles to as many as 20,000 m2 of tiles in the former market. At the same time, the company expanded its distribution network by providing supplies for the construction of iconic local and international buildings, such as Grand Hyatt in the USA, Heathrow airport in London and Burj Khalifa in Dubai.
By the end of 2004, its global expansion continued with heavy financial investments across several continents and exporting activities in over 120 counties. In 2003, RAK Ceramics was publicly listed on the Abu Dhabi Securities Exchange in the UAE (ADX, 2016). Mr Abdallah Massaad was appointed as Group Chief Executive Officer (CEO) in 2012 and has continued to assume this top leadership role over the past 8 years. The company’s global production of tiles and sanitary ware increased radically due to the local and international markets’ heightened size and presence. During the 2008–2009 financial crisis, RAK Ceramics did not lay off any workers due to its strong balance sheet and careful investment decisions. While global markets and industries were recovering from the aftermath of economic turmoil, RAK Ceramics sustained its corporate growth through infrastructure and manufacturing technology investments.
Corporate Governance
Along with its publicly listed status and the wider impact on the external community came the need to enhance corporate actions’ transparency for all stakeholders’ benefit (Bodolica & Spraggon, 2011). One of the most important initiatives that the company undertook was to revisit its corporate governance practices and enhance the board’s structural characteristics as its major decision-making authority (Bodolica et al., 2020a). A comprehensive corporate governance report describing recent advancements in the field and RAK Ceramics’ compliance with international best practices was prepared and made available to the public. The largest part of this report was dedicated to the analysis of the board of directors, its size and composition, knowledge and industry experience of its members, gender distribution and cultural heterogeneity, their relatedness and degree of independence from the top management team, among others (Jamali et al., 2018; Spraggon & Bodolica, 2011). One of the first most comprehensive publicly available corporate governance reports was released for the year 2012. Table 1 provides a comparative overview of the membership on the corporate board of directors of RAK Ceramics for 2012 and 2018.
RAK Ceramics’ Board of Directors’ Composition in 2012 and 2018
The corporate governance reports also elucidated the directors’ attendance rates of the quarterly board meetings, the aggregated amount of compensation offered to directors for their service (AED 3,700,000 in 2017) and the discontinuance of sitting fees for the board members starting from 2014 (CG Report, 2018). It reported on the size (typically three members) and meetings’ frequency (usually every 3 months) of each of its four board committees, including the nomination and remuneration, executive, audit and insider trading committees. Detailed information was also available about external auditors, terms of service, fees paid, participation in exhibitions and sponsorships offered, and visits made to corporate premises. Table 2 offers a comparative overview of changes in the ownership structure of RAK Ceramics over the period from 2012 to 2018.
RAK Ceramics’ Major Shareholders in 2012 and 2018
Domestic Presence
Over the years, RAK Ceramics acquired a rare capacity to produce tailored ceramic solutions, for both small- and large-scale projects, that were featured in some of the most exclusive real estate developments in the UAE, such as Atlantis—The Palm, Burj Khalifa, Burj Al Arab, Dubai Airport and Ferrari World (Bodolica et al., 2018). In 2005, the company provided the Atlantis Hotel large quantities of tiles customized to match their request for ceramic products that were durable and highly resistant to scratch, stains and heat. These tiles were part of the company’s Travertine Series, and their design complemented the traditional interior of the hotel. In 2016, RAK Ceramics delivered on a large-scale project involving the Dubai Airport, known for its reputation as the busiest and most luxurious international airport globally. The company supplied a wide range of tiles chosen for their sturdiness, superior breakage strength and aesthetics. For the Ferrari-themed amusement park, the architects requested Techno Chroma tile series, characterized by the colourful and futuristic look, with low water absorption and durability, and were able to withstand heavy footfall.
Apart from supplying large quantities for Emaar’s commercial development projects all over the UAE, RAK Ceramics (2019) also catered to the demands of smaller residential property developers in the country. In 2002, it manufactured the Venice tile collection for Jumeirah Beach Residence that offered comprehensive bath-ware functionalities to complement its architectural design. RAK Ceramics used robot glazing and high-pressure casting systems to produce large amounts of high-quality bath-ware suites. The Power Tower, another local project completed in 2008, received 8,000 m2 of tiles used for the building’s entrance, lobby and event rooms. Furthermore, RAK Ceramics was the first choice to provide a long-lasting, high-quality tiling solution for Marina Torch.
Most of the UAE’s large projects depended on RAK Ceramics, as the company did not face any major competition in the local market. In an interview with Construction Week released in 2004, the company’s CEO stated that, over the last five years we achieved a market share of about 75% in the UAE, so we have no real competition today (Jones, 2004). A more recent statement made by a senior financial analyst at Global Investment House in Kuwait commented that the UAE’s competitive landscape did not change and no major rivals emerged by 2010. According to the statement, few entrants are coming into the ceramics industry globally, and RAK Ceramics doesn’t have local competitors (Bloomberg, 2010). This situation benefited the company and translated into a consistently solid financial performance over time (see Table 3).
RAK Ceramics’ Financial Performance (in AED)
Global Reach
However, RAK Ceramics faced a different competitive reality in international markets that dictated a more gradual approach. To establish its global presence, the company took up projects in partnership with other entities by establishing foreign subsidiaries and acquiring major ownership stakes over time. The company had full control over its British and German subsidiaries, leading its operations in Europe. About 70% of the UAE-manufactured output was exported to European and Saudi Arabian markets (Arabian Business, 2016). According to global industry analysts, RAK Ceramics fared well compared to other Middle Eastern competitors, like Saudi Ceramics and Al Anwar Tiles, which saw their profits plummet due to declining Chinese imports (Fahy, 2016b). Having expanded its reach beyond regional markets, the company started obtaining several megaprojects in many countries worldwide (see Table 4).
RAK Ceramics’ International Projects
To take advantage of urbanization trends and growing demand for construction projects in India, RAK Ceramics gradually acquired full control of its Indian subsidiary with three production lines and a volume of 8 million m2 of tiles (Arabian Business, 2015a). Facing major competition from Kajaria Ceramics Ltd. and Somany Ceramics Ltd., a capacity extension was undertaken in 2016 to increase India’s sanitary ware to 1.1 million pieces (Dhanjal & Karnik, 2014). Yet, the company experienced some difficulties operating its plant in Iran due to sanctions that affected the region’s economy. Having invested over US$40 million to set up its activities in Iran, the plant was expected to run three production lines and an annual volume of 9 million m2 of tiles (Reuters, 2015).
Due to higher competitive pressures worldwide, RAK Ceramics decided to refocus on its core operations (tiles, sanitary ware, tableware and faucets) and streamline its international businesses by exiting less profitable overseas plants and joint ventures. In 2015, it opened a regional office in Singapore due to its strategic proximity to the Asia Pacific region, known as the fastest-growing market globally in terms of ceramic tile consumption (Arabian Business, 2015b). A year earlier, the company decided to sell its plant in Sudan because of declining earnings and profits caused primarily by the hyperinflation in the country. In 2015, RAK Ceramics also sold its 51% stake in the joint venture it originally formed in 2003 with the US-based Laticrete International to produce tiling installation systems and waterproofing products. The liquidity generated through these selling transactions was infused into the expansion of the sanitary ware production capacity in the UAE, India and Bangladesh (Arabian Business, 2015c).
Inside the ‘Room for Imagination’
With a vision to maintain status as world’s leading innovator in the ceramic field, RAK Ceramics relied on innovation to survive in competitive markets and secure continuous success (Bodolica et al., 2019; Nami et al., 2018). The company took advantage of the improvements made in the digital technology that transformed the industry by creating new appearances and functionalities for interior-designed tiles. In 2004, RAK Ceramics was the first to produce antimicrobial and luminous tiles in the Middle East. A year later, it was the first company to manufacture the largest porcelain slabs that existed. The porcelain slabs of 1.2 × 1.8 m were considered significant advancements in the industry due to their large size.
To capitalize on their popularity with customers and designers alike, the company decided to produce even larger tiles. In 2015, it launched a large format tile of 135 × 305 cm called the Maximus Mega Slab in the Spanish market. This initiative made RAK Ceramics the only manufacturer in Europe to produce quality and size (Gulf Property, 2014). Since the Maximus Mega Slab was not just a tile but could also be used to replace kitchen counters, bathroom vanity, walls, floors, steps and risers, the flexibility of such tiles offered the opportunity to seek new distribution markets.
Furthermore, several innovative products were introduced in 2014 in the tableware collection with the purpose of meeting future demand. These products included the Anna Collection, which had a timeless and elegant look that was well accepted by the niche market, and the Peppery Collection, which had a rustic look to satisfy market needs for such designs. Regarding its sanitary ware line of products, RAK Ceramics decided to focus on water-saving technology. The latest innovation it pursued in this field consisted of introducing ECO Fresh—a waterless sanitation system that required no water to flush (Gulf Property, 2014).
Achievements and Awards
According to the Ceramic World Review, after increasing its production to 117 million m2 of tiles in 2010, RAK Ceramics retained its title of the largest ceramic tile manufacturer in the world. During the second Middle East Business Leaders’ Summit and Awards held in 2011, it was awarded the ‘CSR Company of the Year’ due to its commitment to environmental causes (ME Construction News, 2011). In recognition of RAK Ceramics’ ability to attract global attention to the UAE and the Emirate of RAK, the company was also named the UAE Super Brand for 7 years in a row over the 2009–2015 period. In addition, the UK-based Brand Finance Middle East recognized it as one of the top four brands in the UAE, while Arabian Business presented it ‘The Company of the Year’ award.
During the Chief Marketing Officer Asia Awards that was held in Singapore in 2011, RAK Ceramics received the ‘Best Brand Award’ and ‘Best Employer Brand Award’ in recognition for its branding and marketing superiority in the Asian region (Khaleej Times, 2011). A year later, the company was recognized simultaneously with the ‘Corporate Communication Award’. Due to RAK Ceramics’ excellence in implementing healthcare programmes for its employees, it was awarded ‘Best in Managing Health at Work Award’ at the Asian Leadership Awards in Dubai in 2011. One of the major historical moments for RAK Ceramics was when its CEO was recognized for his achievements as one of the top 100 Most Sustainable CEOs by the World Sustainability Congress and won the Business Leader of the Year at the 2018 BOC Brilliance Awards (Arabian Business, 2019).
In 2012, RAK Ceramics received the ‘Asian Quality Leadership Award’ to have innovative product variety, infrastructure and technology in the Asian region. A Market Leadership recognition was received at the same event that was held in Dubai a year later. During the 12th Annual International Business Awards in 2015, RAK Ceramics won three Stevie Awards, including the Most Innovative Company, the Environmental Safety Program of The Year and the Executive of The Year. At the InsideOut Awards in 2016, the company received the ‘Editor’s Choice’ awarded to manufacturers that produced stimulating home interiors and aesthetics.
Current Macro-environment
The tiles and ceramic market was expected to attain an annual growth rate of 10%–12% in the Middle East region by the end of 2020 (Bhatia, 2015). In the UAE alone, many construction projects and significant financial investments in infrastructure, driven primarily by the residential, tourism and hospitality sectors in the Emirates of Dubai and Abu Dhabi, were ongoing or in the planning process. The country’s construction sector had proven its resilience over the years and was expected to thrive in the post-Expo 2020 era. Despite a slow annual growth of only 1.08% during the 2014–2018 period, projections for the years between 2019 and 2023 placed the compound growth rate at 4.64% per year (Khaleej Times, 2019). The total value of the construction industry in the UAE was projected to reach US$101.2 billion by the end of 2023, an upward trend that was boosted by several macro-factors, such as the announcement of new megaprojects, recovery in prices of crude oil, decrease in the fiscal deficit and a surge in investor confidence.
Among the key projects in the UAE that were driving the activity in this sector were the expansion of Jebel Ali Port and Al Maktoum Airport, the extension of the Metro Route 2020 in Dubai and the completion of the second phase of Etihad Rail that served as a link between Dubai and Abu Dhabi (Fahy, 2016a). Continuous growth in the construction industry was looming due to a rising influx of foreign tourists, major budget allocations to large-scale projects and international events like the Dubai Expo in 2020 (Bodolica et al., 2018). According to Mordor Intelligence (2020), these sectoral trends and the geographic centrality of the UAE reflected positively on the dynamics of the local ceramic tiles industry. The UAE benefited from state-of-the-art infrastructure, accessibility to a wide pool of workforce and possession of the best airlines and maritime ports that facilitated deliveries and other transactions with global markets. RAK Ceramics took advantage of both its location in RAK to collect raw materials that were delivered directly to the port of the Emirate and the availability in the country of selected raw materials, like feldspar and kaolin, to adopt competitive pricing strategies for its tiles and other products (Bhatia, 2015).
Future Prospects
Despite these opportunities, many challenges awaited RAK Ceramics on its way forward (D’Costa et al., 2018). Considering the perpetual fluctuations in the construction industry, an important concern for the management was to reduce the company’s heavy reliance on local demand from residential and commercial property developers. Operational challenges related to potential inefficiencies in managing external networks that could delay shipment and delivery delays. The emergence of major competitors, both locally and internationally, presented a threat to the company positioning in the ceramics industry. Attracted by a positive industry outlook, new players (e.g., Al Khaleej Ceramics, Aljawdah Ceramics, Al Maha Ceramics and Saudi Ceramics) entered the domestic market, raising the pressure on established companies to rely on innovation as a prevalent means to compete (Mordor Intelligence, 2020). On the global scene, China’s low-cost production advantage that secured its dominance of the low-end tile market could attract larger numbers of price-sensitive consumers in the Middle East. Since RAK Ceramics targeted mostly the high-end part of the market, investments in advanced technologies, and innovative approaches to tile design and manufacturing, were critical for securing continued success. Outdated technologies produced retro designs that did not appeal to the new generation of customers, who looked for futuristic ceramic solutions, aligned with digital trends in smart buildings management.
To overcome such challenges, RAK Ceramics decided to implement an Enterprise Resource Planning SAP system to enhance business automation and information technology processes and boost operational efficiency and productivity. The system was distributed across all plants, warehouses and offices to guarantee reliable and accurate data collection and data management. The company also started equipping its sanitary ware and tile production plants with high-pressure casting machines and robotic spraying technology to manufacture novel pieces of high-quality and artistic design. RAK Ceramics was the first company in the Middle East region to present the Continua+ technology, which was used to produce large-format Porcelain+ tiles. The Maximus Mega Slab was one example of such tiles, larger and much stronger than the traditional porcelain. In addition, the company invested in the luminous series that glowed in the dark and in antimicrobial tiles that were very easy to clean and were well suited for healthcare facilities, kindergartens and schools (Zawya, 2015).
The top management of RAK Ceramics acknowledged the continuous reliance on innovation and technology advancements in its Value Creation Plan for the following few years to boost the value proposition in the core business of tiles, sanitary ware, tableware and faucets (Bodolica et al., 2020b). As Saudi Arabia presented the further potential for growth, the company decided to expand its distribution platform by appointing a sales team and building a showroom in the Kingdom (Gulf Property, 2014). Specific attention was given to the bath-ware collection to enter the highly competitive market segment of luxury bath ware (Gulf Construction, 2015). Thus, a full collection of luxury bath ware was launched in Germany in 2015 in partnership with Italy’s Pininfarina. This luxury designer worked with brands such as Ferrari, BMW, Alfa Romeo and Maserati.
The CEO of RAK Ceramics was convinced that further growth in firm operations could be expected in Europe and the Middle East. Some of the most attractive investment destinations in these regions were countries with a dynamic real estate market. The demand for tiles, sanitary wares and other products was expected to rise (Abou Soueid et al., 2017).
“As the company continues to invest in its ‘core-business’ activities across core markets, this will strengthen its ability to expand its customer base, significantly improve profitability. The company has already started seeing the benefits of the ‘non-core business’ divestments and has set a proactive strategy to strengthen distribution networks and energize its B2B sales.” (Gulf Construction, 2015)
RAK Ceramics’ ambition is to stay as the top tile business in Asia and the Middle East, be one of the top five exporters to Europe and reinforce its presence in frontier markets such as the USA, Africa, Australia and Russia. Given the recent evolutions in the macro-economic and technological environments, what strategic actions should be adopted by RAK Ceramics to achieve its goal of becoming the most recognized ceramics lifestyle solution provider in the world?
Footnotes
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.